Webinar: How can fund administrators help their clients distribute funds more effectively?
AUDIO: An audio replay of the Webinar. Click on the 'Play' button to listen.
Nothing is more important to fund managers than the ability to distribute their funds as widely as possible. But old patterns, in which mutual funds were distributed by retail banks and IFAs and alternative funds by private banks and funds of funds, are breaking down. The line between mutual and alternative funds is blurring. Active strategies are yielding to passive. A dozen global brands now dominate retail distribution everywhere. Regulation, designed chiefly to protect investors, is raising costs and complexity. Fund distribution platforms are squeezing the revenues of transfer agents. Pressure for transparency on costs and performance is rising. And new opportunities and distribution tools beckon in emerging markets and social media.
- Dominic Hobson: Founder of COOConnect
- Charles Bathurst: consultant to the board of SuMi TRUST Global Asset Services
- Edouard Moniuwa Bokuetenge: Chairman of the Fund Platform Group
- Edward D.S. Glyn: Managing Director, Head of Global Relationship Management at Calastone
- Cyril Delamare: Co-Founder and CEO at ML Capital
Distribution channels in different countries are a function of culture, history and the character of investments investors prefer. To effectively distribute funds abroad, a distribution strategy has to adapt to the characteristics of each country.
Distribution in the United Kingdom has been dominated by Independent Financial Advisers (IFAs), which account for over 50 per cent of funds sold. In Northern Europe, the big banks were the main distribution channels. Their focus is now switching from in-house funds to third party funds but the distribution “architecture” is more “guided” than truly ”open.”
In France distribution is dominated by banks, and controlled from the centre in Paris. Unusually, settlement of funds also takes place in the central securities depository (CSD), which is potentially the model which will develop throughout the euro-zone under T2S.
In Switzerland, due to the tightening of regulations by the Swiss Financial Market Supervisory Authority (FINMA) to align the local marketplace to the European Union, the traditional hedge fund investors (HNWis, private banks, funds of funds, family offices, wealth managers) are being replaced by institutional investors (insurers, pension funds) that demand greater transparency.
Germany, which has acquired a reputation for hostility to alternative investments, is now more open to investing in alternative funds than Switzerland, provided the funds are packaged inside a reliable regulatory structure, such as AIFMD or UCITS.
In an ideal world, a “global transfer agent” would provide a single service that could take account of all these national nuances, but no such service exists. It follows that managers need several different partners if they want to distribute their funds on a global scale
The domination of the global mutual fund marketplace by a dozen or so global “brands” (BlackRock, Fidelity, Franklin Templeton, Schroders etc.) is closing the market to smaller managers. Their best option is to secure appointment as a sub-advisor to a global brand.
This domination of global distribution by the biggest brands has its counterpart at the operational level, where the large custodian banks, fund administrators and transfer agents are increasingly willing to work with the largest and most successful managers only, because smaller managers are insufficiently profitable.
Fund “platforms” of all types are growing in number. They are not distribution channels as such, but offer support to fund distributors such as IFAs that make them effective ways into particular markets. However, they often, though not always, require a fee or commission. Managers need to think carefully about which platforms they want register with, to avoid paying fees to dozens of platforms which produce no results.
There are two broad types of fund platforms. They can either be a direct distribution channel between a particular fund managers and its investors (essentially, a “vertical” platform) or a platform which carries the funds of multiple managers (a “horizontal” platform) but there are also hybrids of these two models.
UCITs are a good label under which to distribute funds (the vehicle is recognised in 37 countries), but they impose investment restrictions, which may be tightened in the UCITS VI Directive. Importantly, as Irish-domiciled UCITS discovered in the financial crisis, it can matter if a UCITS is domiciled in a country with a poor credit rating.
The operational component of fund distribution is neglected at your peril. Poor service is the main reason why investors abandon a fund manager. Getting operational issues such as re-registration right retains capital.