A new study showing Europe's pension markets will grow by 7.5% per year this decade suggests the Continent still presents an attractive growth story for American money managers.
The report by Allianz Dresdner Asset Management, Munich, estimated an additional e510 billion would flow into private pensions by 2010, with about half of this growth expected in Germany and France.
And money managers already are boosting resources in Europe to be in position to gain a share of the bigger pie.
Firms such as T. Rowe Price Global Investment Services, Baltimore; AIG Global Investment Corp., New York; and Janus International, London; are opening new offices or are adding to the staff they employed when they first crossed the Atlantic.
T. Rowe Price announced this month it had opened an office in Amsterdam and was finalizing the appointment of a senior executive there. Stephen Jones, vice president at AIG Global's European marketing group, said his firm had decided this month to establish an office in Stockholm, in response to growing business opportunities in Scandinavia.
"We are strong in alternatives and emerging market bonds. We think there's a big opportunity in Europe," he said.
Janus jumps in
Janus, meanwhile, recently began marketing an enhanced index equities product to pension schemes across Europe.
Allan McKenzie, managing director at BlackRock International, Edinburgh, said his firm in January hired an executive based in Frankfurt to begin marketing to pension schemes in Germany as well as in Switzerland and Austria.
"I've been aware that in the last 12 months there has been change going on in Germany. It's taken a very long time, but there's been a jump in interest from schemes there, certainly for high yield bonds and global bonds," he said.
There also was growing interest in global bonds from Swiss pension schemes, he said.
The Allianz report stated the pace of pension reform is picking up in both France and Germany. French Prime Minister Jean-Pierre Raffarin recently gave a landmark speech in which he said France must reform its expensive state pension system. He promised a final plan within the next few months.
Meanwhile, German Chancellor Gerhard Schroeder late last year commissioned a review to look into his country's pension woes. Earlier reforms allowing individuals to establish private pensions on a tax-advantaged basis are growing in popularity, the report stated.
The majority of Europe's growth would come from France, Italy and Germany, the report said.
"That's a reasonable assumption. I think growth in the region of between 5% to 10% per year is believable," said Stephen Cohen, head of European institutional business development at Putnam Investments, London.
Mr. Cohen believes American specialists have more to gain from this growth than European domestic firms because of a number of factors, including the shift to specialization by European pension schemes.
Mr. Cohen said he thought Germany was the most attractive market in Europe in terms of growth prospects. He pointed to the growth of the industrywide schemes and what he referred to as "continued disintermediation" of the banks in Germany as reasons for his bullish views on the country.
The Allianz Dresdner report said the overall European growth situation will be improved by the incoming International Accounting Standards, which will encourage companies to fund their unfunded pension liabilities, contributing to the pool of assets available for money managers.
By 2007, all companies in the European Union will need to adopt IAS 19.
Among other things, the standard requires:
* the cost of pension expense to be counted as an operating expense;
* pension assets to be marked to market; and
* liabilities to be discounted by the yield on the AA 10- to 15-year corporate bond.
"The switch to IAS will undoubtedly be to the disadvantage of companies that still have non-funded pension commitments on their balance sheets, something which is particularly prevalent in Germany," the report read.
"Some of these companies' balance sheets will deteriorate, particularly their equity ratios."
On the macroeconomic level, the Allianz report pointed to the demographic changes now facing Europe. The report stated these pressures would force governments across Europe to implement reforms that will boost the Continent's growth profile.