The success or failure of an investment fund depends heavily on the asset manager’s distribution strategy. A holistic approach is the key to building a successful strategy and developing a robust framework to map the distribution risk. Asset managers are struggling to master distribution today, but the bigger challenge is to prepare for tomorrow. We believe that over the next five years, the fund product spectrum will evolve significantly in response to investor demand, existing distribution channels will adapt to their preferences, and new channels will emerge. These developments will drive the emergence of a new, streamlined distribution architecture.
Understanding the local distribution channels
Understanding of the distribution channels in each target market is critical to defining a strategy Each market will be characterised by a combination of channels which may include lightly regulated private placement, placement outside the scope of local regulatory requirements, fully regulated public distribution, and public offer via listing on a local securities market.
The asset manager’s choice of distribution channels will depend on factors such as the potential market opportunity for each category of target investor, any existing local presence or relationships with local entities, the availability of local distribution networks, and applicable regulatory requirements.
« An asset manager minimises its regulatory risk by investing in understanding the local distribution requirements and ensuring ongoing compliance »
Understanding the local regulatory regime
An asset manager minimises its regulatory risk by investing in understanding the local distribution requirements and ensuring ongoing compliance – often easier said than done when the regulatory regimes of many foreign jurisdictions are unfamiliar and constantly evolving.
To a certain extent, European Union Member States and other European Economic Area (EEA) countries have harmonised the regulatory regimes covering the public offering of UCITS and the marketing of alternative investment funds to professional investors.
However, there are still significant differences between national regimes, as well as a number of areas where there is no harmonisation. Outside the EEA, each jurisdiction sets its own individual rules. Asset managers must develop a thorough understanding of their requirements on eligibility, local agents, disclosures to be provided to investors, initial registration process and ongoing maintenance of registration requirements.
Understanding your distributors
Finally, a successful distribution strategy involves developing direct or indirect relationships with local distributors and agents at two levels. The first level focuses on the asset manager’s distribution strategy in the targeted market for the product. The second focuses on operational matters, such as the provision of required disclosures and execution of investor transactions. Robust initial due diligence must be performed on what may be a complex and opaque distribution network as well as local agents before entering into any agreement. This is followed by ongoing monitoring of performance of the product in the target market and oversight of the inherent risks.
FundGlobam, January 2016