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Tuesday, January 21, 2003

Flows At Lowest Level Since 1990

by: Sean Hanna, Editor in Chief

As expected, equity funds saw their first annual net redemptions since 1988 in 2002, says Lipper Analytics. Meanwhile, bond fund pulled in record amounts of new investments. Add the two together and the industry had its worst year in terms of net flows since the last Iraq war in 1990. 2002 also marked the first pair of back-to-back years with net redemptions since 1992-93.

Over the course of 2002 equity funds experienced net outflows of $10 billion. Money market funds were even worse off with outflows of nearly $50 billion. The lone bright spot were fixed income funds, which pulled in a record $130 billion in net purchases.

Add the numbers all up and the industry pulled in a net $75 billion, says Lipper. That is the lowest net sales figure since the $45 billion the industry took in during 1990. It also averages on $800 per account over the 93 million accounts claimed by the industry.

Donald Cassady, director of research at Lipper sees no reason for an imminent turnaround in this trend. As a result, he predicts an above average number of mergers and acquisitions in the fund industry in 2003. However, the pick-up in M&A activity has not picked up as much steam as some would expect.

"The prices that you can determine are low compared to a couple years ago," says Geoff Bobroff, a Rhode Island-based fund industry consultant. He also agrees that many fund firms are not under intense pressure to cut a deal. "Look at American Skandia. These deals are taking forever to get done," he said.

Meanwhile, Cassady sees few leverage points for fund marketers to exploit. "Promises sound hollow, and investors as a lot are wounded and cautious," he said. "Performance advertising hardly seems a winning path given the numbers now prevailing for three and five years. Education about computing the long-term needs and contributing accordingly may have some traction. But the emotional corner will turn only slowly."

Sounds like 2003 may be another long year.  

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