Distributing funds across multiple markets can be a challenging undertaking. Complex domestic regulations, along with the various cultural attitudes to funds among investors in different countries are some of the hurdles asset managers need to contend with. In response, some managers are leveraging the third party marketing (TPM) model, where consulting firms play a role in matching the expertise of an asset manager to interested investors.
RBC Investor & Treasury Services (RBC I&TS) recently released ‘Lifting the lid on the mysterious world of third party marketing’, a collaborative report conducted by global consultancy, Insight Discovery, alongside key partners Pinsent Masons, a law firm and Gemini Capital Management (GemCap), a UCITS management company. To further explore the report and understand how the third party marketing sector is evolving, Insight Discovery organized a webinar to discuss the competitive global asset management landscape and how TPM firms could play a role in helping managers distribute their products.
Major themes from the webinar:
Overcoming regulatory complexity and dealing with new costs
Fund manager overheads are steadily rising due to increased regulation and operational spending. In addition, challenging performance conditions and falling fees are currently affecting the industry. According to Stuart Alexander, Founder and Group CEO at GemCap, “Instead of incurring the added fixed costs of appointing a permanent local sales representative, certain fund managers are now turning to TPM firms when exploring new markets.”
The recent introduction of the Cross Border Distribution of Collective Investment Funds (CBDF) by the European Union (EU) will subject EU regulated managers to new rules around pre-marketing which is generally defined as preliminary correspondence or discussions about investment strategies between managers and prospective clients. Moving forward, managers must notify member state regulators about when they intend to pre-market. TPMs could be effective in helping managers navigate the constantly evolving regulatory landscape, particularly in the EU.
Navigating Brexit
UK based managers
who have outsourced
their EEA marketing
and distribution
arrangements to TPMs
have not seen as much
business disruption
as a result of Brexit
As a result of Brexit, UK asset managers with UCITS funds or AIFs (alternative investment funds) are no longer able to avail themselves of the pan-EU marketing passport, forcing many firms to rethink their traditional distribution models. In response, some of the larger asset management groups are choosing to establish subsidiary offices inside the EU to retain full passporting rights. Other UK fund managers are hoping to comply with the EU”s economic substance requirements by seconding employees to EEA (European Economic Area) authorized investment firms so that they can continue distributing products. According to Gayle Bowen, Partner and Head of the Dublin Office at Pinsent Masons, “UK based managers who have outsourced their EEA marketing and distribution arrangements to TPMs have not seen as much business disruption as a result of Brexit.”
In addition, the decision to use TPM firms for marketing could potentially be more cost effective than, for example, opening up a subsidiary office inside the EEA. “Reverse solicitation can be potentially ineffective and if used improperly could result in managers facing regulatory censure,” noted Bowen. For example, the European Securities and Markets Authority (ESMA) recently warned UK firms that they should exercise caution when utilizing reverse solicitation. “Leveraging TPMs could therefore be advantageous from a regulatory risk and cost perspective,” added Bowen.
Accessing new markets
When targeting new markets, asset managers are working with TPM companies to leverage their expertise in distribution channels and market-specific requirements. While in some European countries, retail fund distribution is mostly handled by banks and insurance companies, fund platforms (online service to purchase investments) dominate in other markets, such as the UK.
UK pension schemes
are heavily reliant on
third-party investment
consultants
There are also nuances on the institutional side. Whereas German pension funds often manage their own assets, UK pension schemes are heavily reliant on third-party investment consultants. Local TPM firms may assist asset managers when navigating the complexities of distributing funds across diverse markets.
In most major European markets, TPMs will generally support boutique asset manager firms typically running between USD5 billion and USD50 billion in assets under management (AUM). However, TPMs based in smaller investor markets – such as Israel – will often work with larger managers with an AUM range of between USD50 billion and USD250 billion. This is because most managers, including some of the more sizeable providers will be hesitant to open an office in small markets such as Israel, unless they have a significant asset pool in the country.
Making use of ManCos is still an option
While TPMs offer many strategic benefits, some asset managers are utilizing management companies (ManCos) when distributing inside the EU. UCITS or AIFMD-compliant ManCos delegate investment and risk management to an asset manager in a third country, enabling them to market and distribute cross-border without restriction. This allows non-EU firms to market into the EU without needing to establish a physical presence in the EU.
Navigating the solution
Although it is important to consider different options for accessing Investors and distributors in different markets based on an asset manager’s needs and expectations, it is equally important to consider how to achieve and navigate that connectivity. Choosing a transfer agency partner who has connections with multiple access to markets, distributors and linked solutions can alleviate burdens and enable your cross boarder distribution.
By tapping into other options, asset managers have the opportunity to access new markets and investor demographics.
Final word: Asset managers are facing a number of challenges, including Brexit disruption, mounting European regulation, and rising costs. By tapping into other options, asset managers have the opportunity to access new markets and investor demographics.
The Third Party Marketing Redefining Global Investment Management Webinar was moderated by Nigel Sillitoe, Founder and CEO at Insight Discovery, a Dubai-based consultancy. The webinar also featured Pat Sanderson, Head of UK and Ireland, Client Coverage at RBC I&TS; Gayle Bowen, Partner and Head of the Dublin Office at Pinsent Masons; Stuart Alexander, Founder and Group CEO at GemCap; Cor Ducker, Managing Director at Garnell; Luke Reeves, Partner at LGBR Capital; Andreas Kummert, Managing Director at Active Fund Placement; and Avihai David, CEO at MORE Global Markets.
Click here to listen to the recording.