The success or failure of an investment fund product depends heavily on the asset manager’s distribution strategy. A holistic approach enables an asset manager to build a successful fund distribution strategy and develop a robust risk map to monitor the distribution risk.
Today, asset managers are struggling to master their distribution. However, the real challenge is to prepare for tomorrow. We believe that in the next five years:
- The spectrum of fund products will evolve significantly over to meet investor demand
- Distribution channels will adapt to repond to investor preferences, and new channels will emerge.
- These factors will drive the emergence of a new, streamlined distribution architecture
Know the local distribution channels
An understanding of the distribution channels in each target market is essential to defining a distribution strategy. Each has a unique combination of some of the following options:
- Placement outside the scope of regulatory requirements
- Lightly regulated private placement
- Fully regulated public distribution
- Public offer through listing on a local securities market
The choice of distribution channel will depend on factors such as:
- Potential market opportunity by category of target investor
- Existing local presence or relationships with local entities
- Local distribution networks
- Applicable regulatory requirements
Know the local regulatory regime
An asset manager mitigates its regulatory risk by investing to understand the local regulatory requirements and complying on an ongoing basis. The regulatory regimes of many foreign jurisdictions are often unfamiliar and constantly evolving.
European Member States have, to a certain extent, harmonised the regulatory regimes covering the public offer of UCITS and the placement of alternative investment funds (AIF) with professional investors. However, there are still important differences between Member State regimes, and areas where there is no harmonisation.
Beyond the borders of the European Economic Area (EEA), each market has its own specific requirements. Thus, asset managers also need to gain a thorough understanding of the requirements on eligibility, local agents, disclosures to be provided to investors, registration and maintenance of registration.
Know your distributors
Finally, a successful distribution strategy involves mastering the direct or indirect relationship with local distributors and local agents at two levels:
- Business: the product and the distribution strategy in the local market
- Operations: such as provison of disclosures and unitholder transactions
Finally, robust initial due diligence needs to performed on the often complex and opaque distribution network and local agents before entering into any agreement, as well as monitoring of the performance and the inherent risks on an ongoing basis.
Yves Tambour - Partner, FundGlobam
Speaker ALFI TA & Distribution Forum 2015
“Cross-border fund distribution – Quo Vadis?”