DISTRIBUTION IS PERCEIVED AS BEING AT THE END OF THE INVESTMENT FUND VALUE CHAIN. IN REALITY, DISTRIBUTION IS THE FIRST LINK, AND THE MOST CRITICAL ONE.
75% of the funds raise an average of less than €50mio per distribution market
Distribution drives growth
The savings and investment industries, such as asset management, are different from most industries. In most industries, the manufacturer purchases the raw materials, transforms them into the product and sells them to the intermediary or to the client.
In asset management, the manufacturer obtains the main raw material, generally cash, from the client himself. The client’s objective is to meet a performance target; he bears the risk of entrusting the assets to the manufacturer.
If the asset manager is to continue to grow during a difficult economic environment, less impressive performance must be compensated by increases in the volume of the assets collected. This means having the right products and an excellent distribution strategy focusing on the key opportunities, for example in emerging markets and Asia.
Critical size
Too many European investment funds are below the critical profitability threshold of €50 million – currently 39% of publicly distributed funds.
In Europe, cross-border distribution costs are a significant portion of the expenses borne by most funds.
Each fund bears fixed and variable operational and compliance costs for each distribution market.
Looking at publicly distributed funds on a distribution market by market basis, 75% raise less than €50 million per distribution market1.
European asset managers should be collecting much more in each market to deliver better performance and remain profitable; clearly, many are failing to master their cross-border distribution business model, costs and risks.
Challenges to the industry
We see three key emerging trends:
- The inexorable evolution of investor behaviour, for example as generation Yforces asset managers into the digital age
- Evolution of the product towards lower cost higher volume products and, in the professional investor space, out of private placement to AIFMD passported products
- Simplification of the currently complex, risky and expensive distribution model both at the sales and operational levels. Today, it is possible to choose a share and buy it in a couple of clicks; there is no reason why the same should not be possible for investment funds
Technology will be behind all of these developments, delivering, for example, the FinTech, integrated distribution and settlement platforms, etc.