The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets in which the HHI is between 1,000 and 1,800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1,800 points are considered to be concentrated. During the 1990s, the HHI for the U.S. Mutual fund industry saw a minor decrease from 396 to 352 based on assets under management,6 indicating that the industry was, and still is, fairly unconcentrated according to this statistical measure.
Another fairly unconcentrated financial industry—domestic commercial banks (including thrifts)—has an HHI of 338, based on deposits of $3.4 trillion as of December 31, 2000. A subset of that universe—domestic money center banks— is much more concentrated, with an HHI of 1,676, based on deposits of $1.5 trillion. In comparison, the U.S. airline carrier industry has an HHI of 1,330, based on 2000 revenues. Read the rest of this entry »
Despite the huge growth of mutual funds, the marked shift in fund types and the creation of new distribution channels, the concentration of market share within the fund management industry remained remarkably stable during the 1990s. The industry has continued to be led by 10 fund managers with 45% to 55% of all mutual fund assets under management and 25 managers with 70% to 75% of all mutual fund assets under management. But many of the leaders changed places over the decade—some because of strong performances and others due to mergers and acquisitions. At the same time, the number of fund complexes overall has continued to increase as new fund managers have taken advantage of the mutual fund industry’s low barriers to entry.
1. Overall industry concentration and turnover In 1990, there were 464 mutual fund complexes, of which the top 10 managed 56% of total industry assets and the top 25 managed 76% of total assets. By the end of 2000, the mutual fund industry was modestly less concentrated at the top. There were 654 complexes at that date, with the top 10 accounting for 46% of total assets and the top 2, accounting for 71% of total assets.The list of top 25 fund complexes has changed significantly, with some complexes dropping out and others stepping in. Read the rest of this entry »
Earlier this year, two mutual fund management companies, American Guardian, Inc. and Best Management, Inc. entered into an agreement under which American Guardian would purchase all of the issued and outstanding stock of Best Management and merge Best Management into American Guardian. Although the companies are now combined, there are still two separate boards of directors for the funds. Each fund complex retained the same independent board members previously elected by the shareholders, but company-appointed directors were reevaluated and will be consistent for both boards. The combined entity, Best American Management, is now in the process of reviewing existing products and services and looking for opportunities to leverage its increased size.
American Guardian was a 30-year old Boston-based mutual fund complex. This fairly staid, conservative company was well known but had not been particularly innovative in fund distribution or shareholder servicing. It had historically chosen to distribute mainly through broker- dealers and outsourced its transfer agent process. The relatively new CEO of American Guardian firmly believed that in today’s highly competitive environment, mutual fund complexes must “grow or die.” He saw an acquisition as a necessary step to ensure that his firm’s products and services would be attractive to investors and their advisers in the future. Read the rest of this entry »
1. Asset growth In 1990, the mutual fund industry was a relatively small industry among financial intermediaries, with just over $1 trillion in assets, or 12% of the total sector (see Table 1). By contrast, depository institutions had almost five times the assets, or 56% of the sector (of which commercial banks accounted for $3.3 trillion or 38%, and assets of life insurance companies equaled $1.4 trillion or 16%).
By the end of the 1990s, the mutual fund industry had become a major player among financial intermediaries, with almost $7 trillion in assets and 39% of the overall sector. Although mutual fund assets slightly lagged those of all depository institutions taken as a whole-at $7.6 trillion, Read the rest of this entry »
Institutions obtain administrative and, sometimes, taxation benefits by using mutual funds to manage their own assets. Such funds are invariably not available to the general public. Funds that are authorised to be promoted to the general public (frequently referred to as ‘retail funds‘), usually extol the benefits to the private individual, namely:
1. Small investment required
Although both minimum holdings and minimum initial amounts are usually required, individuals can invest comparatively small sums of money in mutual funds, particularly through plans that accept regular subscriptions. So-called ’small investors‘ can thereby obtain the benefits of worldwide economic activity (hopefully growth) rather than allowing these to be enjoyed by the banks (and their shareholders) and others with whom they deposit their funds in return for an interest income. Read the rest of this entry »
