While mutual fund companies are looking to reap more profits by tapping into potentially lucrative overseas markets, international regulators have been keen to follow the money.

Fidelity Investments' chairman and chief executive officer Edward (Ned) Johnson III, who yesterday opened the 8th Annual Globalisation of Mutual Funds, expressed the optimism of an industry that has experienced a heady growth in the past five years and is voracious for more.

The panel of five regulators who spoke after him had a more cautious approach as they attempt to keep track of who's doing what and where in an attempt to protect investors.

In his opening address Mr. Johnson described a worldwide $40 trillion securities market in which only 12 percent of the money was invested in mutual funds.

He sees a great potential for growth and profit awaiting firms looking to expand. However Fidelity`s experience shows that firms must proceed cautiously. They must be flexible enough to adjust their product to particular marketplaces.

Differing regulations, tax structures, accounting standards and investor culture stand in the way of success, he said.

"One market is not a carbon copy of the other," he said.

Boston-based Fidelity, which manages $480 billion in assets, was one of the first mutual fund companies to look at marketing outside of the US.

It set up Fidelity International Ltd. in Bermuda in 1969.

Fidelity International has grown to manage $27 billion in assets with operations in Europe and Asia.

However that growth hasn't come easily.

"Government regulation can stop you before you start," Mr. Johnson said, referring to Japan which recently relaxed its rules limiting investment companies from operating there.

And since two-thirds of the investment money resides in the US, Japan and the UK, the pickings elsewhere has to be weighed against the cost of doing business.

"You have to be sensitive to the scale of operations," Mr. Johnson said.

Fidelity's attempt to enter into the defined contribution plan market in Canada, a place where the firm had experience, was a learning experience.

Canada's reporting requirements meant Fidelity had to spend $5 million changing its computer system.

The country's restrictions on where and how much funds could invest in outside of Canada meant another computer system change.

Twelve regulatory bodies and two languages also posed problems for Fidelity.

"Even when it looks easy, somehow it doesn't seem to work out that way," he cautioned fund managers. "But it's okay because we take a long term view." He advised them to accept local customs, play by local rules, establish a local office with a mix of home office and local staff, go for long term gains, and above all be flexible in adjusting products for the marketplace.

"There's a $40 trillion market out there," he said. "You just need the right amount of patience.'' Following Mr. Johnson's presentation, regulators from Ireland, the US, the UK, Ontario and Germany took up the theme of global expansion and their need to keep track of all the sub-funds, holding companies, and subsidiaries being created outside their jurisdictions.

All five jurisdictions have been adjusting their legislation as they attempt to keep up with a rapidly expanding industry. More supervision of investment advisors and fund managers was a common focus.

Cooperation among regulatory bodies, such as the agreements signed between the US, the UK and Hong Kong has led to easier surveillance of the activities of firms operating across these borders. The US Securities and Exchange Commission (SEC) has since conducted a number of joint inspections of firms operating in the UK and in Hong Kong. "It provides a safety net for all investors," said SEC Commissioner Isaac Hunt Jr.

Glorianne Stromberg, a commissioner with the Ontario Securities Commission and author of a report seeking to correct problems in the mutual fund industry, agrees that a balance must be struck between regulating to protect investors and the need not to tie growth down with red tape.

She called for a better quality of advisors and managers in the industry.

She also called for more standardisation in the industry and greater disclosure so investors could better understand what they were putting their money into.

"The disclosure system as it centres around the prospectus and annual report is ineffective," she said.

In an interview after her presentation Ms. Stromberg said that with the expansion of the mutual fund industry worldwide, ordinary investors must take greater care about where their money was going and the quality of regulations they're operating under.

She expressed concern that Ontario was moving more toward one in which reliance is place on firms regulating themselves.

"Canada seems to be is moving toward self regulation just at a time when the rest of the world is beginning to have serious doubts as to whether the self regulatory regime is servicing the investing public as well as the industry" she said.

To strike a balance between investor protection and fostering growth regulators should concentrate on the people behind the funds.

"I think you achieve balance by paying a lot of attention to the people who are involved in the industry," she said. "You need to have regulations that are aimed at making sure of the integrity of the people behind the fund and their ability to stand behind the fund.

"I think regulation should concentrate on making sure there are adequate requirements for internal controls, procedures, and adequate capital requirements. But what has happened in some countries is that people who are undercapitalised, in terms of money and human and technical resources, may not have the luxury to make things right if they go wrong.

"Regulating that is very important for maintaining confidence in the marketplace.'' She said Bermuda's regulatory standards were respected among its peers.

Bermuda is about to pass legislation regulating investment advisors and expanding its laws on money laundering.

"I think there is respect for the regulatory regime in Bermuda," she said.

"There is concern, as there is obviously in any situation, that because some of the activities are offshore that it is not to be used by firms looking for the jurisdiction that has the least requirements. Bermuda has to be careful that it doesn't allow itself to be used in that way.'' The mutual fund conference, which is being held at the Southampton Princess, began yesterday and ends tomorrow.

About 440 delegates are in attendance.

OPENING SPEECH -- Edward (Ned) Johnson III, chairman and chief executive officer of Fidelity Investments, opened the 8th annual Globalisation of Mutual Funds conference with a speech yesterday at the Southampton Princess.

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