For non-European asset managers who seek international growth, Europe is an increasingly significant opportunity. With an estimated $10.8 trillion of assets under management, the European market—second in size only to that of the United States—is among the fastest growing in the world.1 From 1992 to 1997, pension funds, insurers, and mutual funds each experienced double-digit growth—of 13 percent, 10 percent, and 17 percent, respectively.
With pension reform under way, the euro launched, and individual investors recognizing the need to finance their own retirements, more growth is expected. But in the new Euroworld of 3 percent interest rates, the days of high-yield sovereign debt or gains from interest-rate convergence as a result of monetary union are a distant memory. So European investors—by tradition, domestically oriented and averse to risk—are being forced to look beyond domestic fixed-income products for more attractive returns. The result is a notable shift to equities and balanced funds, which accounted for 44 percent of mutual-fund assets in 1998, up from 24 percent in 1992.
Over the same period, the proportion of European investors’ assets invested internationally rose as well, though less dramatically, to 27 percent, from 24 percent.2 Now that the euro has been...