LONDON -- After 15 years of building its fund business in the United Kingdom, Fidelity Investments is advancing on the European continent.
The Boston-based mutual fund giant opened its second front in Europe this fall, complementing its 2-year-old German business with a French office on Paris' famed Champs Elysees.
"We felt we needed to establish ourselves in a location and demonstrate a reasonable level of success before we started crossing all over the continent," said Brian Storms, managing director of Fidelity in Luxembourg.
Mr. Storms concedes the expansion will be slow going.
Investors on the continent are much more closely tied to their banks than investors in the U.K. or in the United States.
What mutual funds they do hold are typically bond or money market funds.
Yet a greater number of European investors are beginning to dabble with equities, enticed by the opportunity to diversify into other European countries and the growing lure of emerging markets.
In Germany, only 7 percent of all households currently own a non-money market mutual fund, compared to 27 percent in the U.S., Mr. Storms said.
Household penetration in France is similar to Germany, Mr. Storms said, although the only numbers available include money markets.
They show 22 percent to 23 percent of households own funds.
"When you consider these numbers you get pretty optimistic about the growth of the mutual fund industry on the continent in the future," he said.
Fidelity currently manages $3 billion in assets on the continent through 28 equity, fixed-income and cash funds offered through its Luxembourg office.
Those funds are open to U.K. investors as well as French and German ones, but not U.S. ones.
While the amount of assets under management is a far cry from the $20 billion Fidelity manages in Britain, or the $250 billion it manages in the United States, Mr. Storms said assets should steadily rise as the Fidelity name becomes better known.
As it does in the United States and Britain, the company has embarked on an aggressive advertising and public relations campaign and is expanding its distribution channels to include banks and insurance companies.
News recently that Fidelity's flagship Magellan Fund in the U.S. couldn't make its year-end payout to shareholders because of distribution miscalculations caused "embarrassment" in Europe, but did not affect sales or marketing, Mr. Storms said.
Even though the French operation is still in its infancy, Fidelity is already putting feelers out to other countries. Mr. Storms won't specify which country the company intends to enter next, but several seem likely candidates.
"Certainly Italy is in our future, although I couldn't tell you when," Mr. Storms said. The company is also looking to "plant seeds" in Spain and parts of Scandinavia, he said.
One of the other reasons Fidelity may be proceeding cautiously is because of mistakes made in an unsuccessful first attempt to expand into Europe just after the 1987 crash in global stock markets.
Mr. Storms, who came to Europe in 1992, said the strategy failed because Fidelity tried to bring a "pre-packaged solution" to France and the rest of Europe that did not account for the differences among each country's investor profile.
"We didn't prepare ourselves well enough, didn't do enough research," Mr. Storms said.
"We would have been well served had we studied that [French] market a little bit more carefully."
Fidelity now operates its French office with mostly French staff, French research and French pricing standards. In Germany, it uses German staff and procedures.
Fidelity's main competition among foreign fund companies operating in Germany and France is Robert Fleming Asset Management of the U.K., which is well-known for its international fund expertise and is also building business country by country.
In Germany, competition also comes from the U.S. fund companies Templeton Funds and Pioneer Group Inc.
"They are there, but we don't consider them to be making any particular inroads against us," Mr. Storms said.
Fidelity currently holds a 40 percent to 50 percent share of the German sector of the German fund market occupied by foreign investment companies, Mr. Storms said.
That sector represents only 7 percent of the 182 billion-deutsche-mark ($285 billion) German fund industry, but is forecast to double in the next five years, according to banking studies.