Global Mutual Fund Industry Experiencing Rapid Growth
New ICI Global Research Details Reasons Behind Growth and Opportunities for Expansion—from Regulation to Retirement to Region
London, 31 March 2014 - The global mutual fund industry’s assets have grown more than sevenfold in the last two decades, according to a new research report by ICI Global. The paper offers a statistical analysis—the first of its kind conducted on post-2008 financial crisis data—of the numbers of mutual funds and assets under management in various regions around the world. It also details the prerequisites for mutual fund growth, such as strong, appropriate regulation and capital markets, and the primary factors driving fund growth, such as a country’s economic development and demographics and whether a country has a defined contribution (DC) plan that allows participants to invest in mutual funds.
Strong Market Returns and Net Sales Have Driven Asset Growth Worldwide
The report, Globalisation and the Global Growth of Long-Term Mutual Funds, finds that mutual funds worldwide have experienced strong growth in assets over the past two decades, increasing from $4 trillion in 1993 to almost $29 trillion in September 2013. This growth reflects increases in each of four broad regions—the United States, Europe, Asia-Pacific, and the rest of the world. Broken out by region:
- The US market expanded nearly 600 percent, to $14.3 trillion in assets
- European markets grew 640 percent, to nearly $9 trillion
- Asia-Pacific fund assets rose 450 percent, to $3.3 trillion
- Fund assets in the rest of the world—including Canada, Chile, and Brazil—grew 2,200 percent, to $2.3 trillion
‘The data paint a picture of a booming environment for mutual funds,’ said ICI Senior Economist Chris Plantier, author of the report. ‘Though local factors, such as high returns on Brazilian bond funds, and changes in statistical reporting are behind some of the more exceptional growth seen in the “rest of the world” region, the research shows that, worldwide, investors are expressing a clear demand for mutual funds as a savings vehicle.’
Worldwide Total Net Assets of Mutual Funds
Trillions of US dollars; year-end, 1993–2013*
*Data are as of September 2013.
Note: Data include equity, bond, mixed/other, and money market funds. Funds of funds are not included except for France, Italy, and Luxembourg. Data include home-domiciled funds, except for Hong Kong, the Republic of Korea, and New Zealand, which include home-and foreign-domiciled funds.
Source: International Investment Funds Association
A Number of Factors Influence Fund Development
The study also shows that a number of key factors help to drive mutual fund growth, including:
- Improving levels of economic development
- Deep and liquid markets
- The existence of a DC plan system that enables participants to invest in mutual funds
‘This report highlights that developed countries have aging populations, and that developing countries will face similar demographic pressures in the not-too-distant future,’ commented ICI Global Managing Director Dan Waters. ‘We expect that demand for regulated funds will continue to grow, particularly as investments in participant-directed DC plans, in response to these trends. Because DC plans offer a transparent method of funding retirement that empowers individuals by giving them ownership and control, we believe that they will play an increasingly important role worldwide.’
Assets in Long-Term Mutual Funds Are Related to Defined Contribution Plan Assets
*DC plan assets are a 2011 OECD estimate.
Note: Data are included for Australia, Canada, Chile, Czech Republic, Denmark, Mexico, New Zealand, Poland, Slovakia, and the United States.
Sources: International Investment Funds Association and OECD
Middle Class Growth in Developing Countries Represents Growth Potential
As developing countries’ populations mature, their middle classes expand, and investors better understand and desire the benefits of domestic and international diversification, mutual fund markets have the potential to grow rapidly.
The report notes, for example, that though populations in Asia (excluding Japan) are relatively young, the proportion aged 65 and older is expected to rise gradually over the next 50 years. This factor, coupled with projections by the Organisation for Economic Co-operation and Development that the global middle class will rise from 1.8 billion in 2009 to 4.9 billion people in 2030—with most of this growth occurring in developing Asia—make it clear that there is considerable potential for growth in mutual fund assets outside the United States and Europe.
The paper explains that rising per-capita income in developing market countries around the world has the potential to significantly increase the demand for long-term mutual funds and foster industry growth outside the United States and Europe broadly. This growth potential is a natural consequence of economic and financial development—in particular, the growing wealth, gross domestic production, and income per capita of many developing economies.
‘Investors in the Asia-Pacific region are becoming more familiar with mutual funds as a valuable way to manage and grow their assets,’ commented Qiumei Yang, Executive Vice President, Head of Asia-Pacific for ICI Global. ‘Also, access to cross-border funds, though currently not uniformly available across the region, is increasing. We believe that if investors have access to a wider range of funds, they will increase their use of funds.’