Fidelity Takes On The World

The mutual fund giant is pulling out all the stops in its drive to become a powerhouse global brand

Barry Bateman, Fidelity International Ltd.'s president since 1991, is not one for modesty. Observing that there are just two global brand names in consumer finance--Citibank for banking and American Express Co. for charge cards--he argues there's room for one more. With demand for savings and investment products on the increase nearly worldwide, "I would like the global mutual fund brand to be Fidelity," says Bateman, an intense, 52-year-old Briton.

With $50 billion under management--about what Fidelity Investments had in the U.S. back in 1986--Bateman has a way to go. Indeed, Bateman has faced tough sledding in Europe. Meanwhile, regulators in some Asian countries, including South Korea, remain hostile to competition. Fidelity's international funds also need to generate the impressive returns of their U.S. cousins. And this year, Fidelity closed a discount brokerage unit in Britain after computer snafus and incorrect statements drew a $334,000 fine from regulators.

But such difficulties aren't fazing Bateman. Already a major force in British funds despite the brokerage foul-up, Fidelity now sees the revolution promised by the euro as its entree to the Continent. Despite a local ban on advertising specific funds, it sells through 30 banks in Taiwan. And it's going after market share in Japan, where deregulation and the problems of local financial institutions are opening doors long closed to it and other foreign firms.

Fidelity is trying to develop the model for marketing investment products globally. Targeting the top 6% to 10% of earners in countries it enters, Fidelity is selling a global line of funds to the growing ranks of middle-class consumers. To hold down costs, it's investing heavily in technology and concentrating operations in a few centers.

Fidelity International, which is controlled by Fidelity Investments' owner, Edward C. Johnson III, but domiciled in Bermuda and run independently, has added almost $14 billion in assets since last June. Bateman, who answers directly to Johnson, thinks the total could reach $100 billion in three to five years.

TECH BET. To see how Bateman is preparing for his global assault, visit a stone and glass building in Fidelity's 50-acre complex in the London suburb of Tonbridge. Banks of operators working at stations decorated with flags to denote their fluency in languages process applications and requests from points around the world. In the basement, managing director Marc Sylvain points out a $1.2 million IBM AS 400 computer crunching a simulation of operating in the euro. In a room nearby sit four oil-fired generators and enough fuel to power Fidelity's computers for a month in case of catastrophe. "People are trusting us with their money," Sylvain explains.

Bateman is pumping 20% of his annual revenues--he won't disclose the sum--into computer technology. He spent $30 million on a new system that allows Fidelity to manage transactions and send out statements in everything from German marks to new Taiwan dollars.

Behind the big spending is a straightforward strategy. Most of Fidelity International's funds are domiciled in Luxembourg and managed from London, Tokyo, Hong Kong, and Boston. In addition to going after corporate pension business in some countries, such as Germany, it has broken into a retail market, by selling funds through brokers or banks. Later, it begins selling by mail and phone, backed up with ads. In Japan, for instance, Fidelity has set up a toll-free phone number and run newspaper ads that proclaim: "A new era of investing arrives in Japan." It is also providing information on a Japanese-language Web site. The Internet will likely become a key marketing channel for Fidelity.

Bateman's global drive enjoys the full support of Johnson, who has long put a high priority on expanding internationally. But many executives and salespeople have fallen victim to the impatience of Bateman and Johnson. Fidelity's current Hong Kong chief, Brett P. Goodin, is its sixth in less than a decade. An even bigger problem is that while Fidelity Investments manages $600 billion in the U.S., asset management is only now becoming a global industry. Still, Bateman can claim some major victories. Some $25 billion of Fidelity International's assets are in Britain, where the firm has become fourth in unit trusts, the equivalent of mutual funds. It has become a force in corporate pension management and is using its British unit to test products, such as defined contribution plans, it can export.

Fidelity trails only Merrill Lynch & Co.'s Mercury Asset Management among U.S.-owned fund managers in Europe. But it still ranked only 30th in the industry at the end of 1997, according to Lipper Analytical Services, the same level it held in 1994 (table). While it aspires to be a top-five player in Germany and France, where big banks have a lock on fund distribution, it has only $1.7 billion in retail assets in Germany and just $500 million in France. But recent data give Bateman reason for hope. Fidelity International's European assets shot up 49% last year, while those of such rivals as Deutsche Bank and Swiss Bank Corp. grew in the single digits. And Bateman argues that the euro could eventually shift matters even more in Fidelity's favor.

Investors, he says, will begin to look at the euro zone as their home market. That shift, he says, will play into the hands of firms such as Fidelity, whose analysts have been trained in the broad U.S. market. Bateman is thinking about introducing U.S.-style funds focusing on European blue chips, mid-caps, small-caps, and industry sectors.

SO LONG, SINGAPORE. Bateman also faces hard work in Asia, where the financial crisis has hurt growth prospects. Fidelity remains smaller than such rivals as Jardine Fleming Investment Management Ltd. and Schroeder Investment Management Group. To reduce costs, Fidelity shut its Singapore unit and cut the hours that its toll-free phone lines into Hong Kong are in service. But it still needs to improve its funds' returns. Fidelity Funds South East Asia Fund, for example, was down 34.9% for the year ended Apr. 27, according to Standard & Poor's Micropal Ltd. "Performance is definitely an issue," says Goodin.

Fidelity has had better luck in Taiwan and Japan. Taiwan's aging population has almost no retirement safety net and is pouring money into Fidelity funds. Its assets have more than tripled in the last year, to $1.3 billion, and Fidelity has doubled its Taiwanese workforce, to 80. The company plans to pour $50 million into Japan, betting that investors, leery of tottering banks, will prefer to place their money with foreign firms. Fidelity markets through Nomura Securities Co. and Nikko Securities and has opened booths inside branches of Sumitomo Bank, Long-Term Credit Bank of Japan, and Sanwa Bank.

Bateman says that Japan, where Fidelity has about $3 billion under management after 29 years of quiet existence, could see "exponential" growth in the next few years. He would like to see the same worldwide. Right now, he has no shortage of competitors. But Fidelity's growth surge in the U.S. gives him plenty of cause for optimism.

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