“Leading asset managers are tailoring their products to the specific needs of investors.”
Successfully targeting investors is about responding to their needs, and understanding their constraints
Fundamentally, investors are all looking at the risk-return profile of each investment and the impact of this allocation on their own overall risk profile. However, each type of investor is making this assessment in a different manner.
As competition is increasing, asset managers are manufacturing their products in a more tailored manner in order to meet the specific needs of investors.
We focus here on two types of professional investors – insurers and funds as investors – as well as individuals investing on their own initiative but based on professional investment advice.
Insurers
In the world of insurance, fund managers should consider:
- Insurers investing on their own account
- Insurers offering unit-linked products to policyholders
An insurer must invest according to the prudent person principle and fully understand each investment from a risk perspective. The risks inherent to each investment must be taken into account in the assessment of the overall solvency needs of the insurer. In order to optimise the Solvency Capital Requirement (‘SCR’), insurers prefer to invest in funds which:
- Invest mainly in assets that are subject to lower risk weights
- Offer them full transparency on the underlying portfolio enabling them a look-through visibility to the underlying exposures
Unit-linked products are wrappers for funds. In most cases, the policyholder bears the investment risk of a unit-linked product. Typically, unit-linked products offer the policyholder exposure either directly to UCITS or to internal funds managed by the insurance undertaking which may, in turn, invest in other funds. Each jurisdiction has its own national regime and rules for unit-linked products, so the specific investment rules vary from one jurisdiction to another.
Funds as investors
A fund may invest into a target fund if its risk-return profile is aligned with:
- The investment objectives of the fund
- The overall and specific risk limits of the fund
UCITS funds are subject to detailed eligible assets requirements and investment limits. The limits focus on, inter alia:
- Maximum exposure to a single fund
- Aggregate exposure to funds
- Significant holdings in a fund
The investment limit levels depend on the type of target fund: UCITS, an open-ended alternative investment fund (‘AIF’), a listed closed-ended AIF or an unlisted closed-ended AIF.
Individual investors
Individual investors are not subject to any restrictions on their investments into investment funds.
However, an intermediary in the transaction, such as a bank or an investment firm providing investment advice or execution of transactions is subject to detailed requirements such as those on:
- Obtention of information from the client to develop a client profile
- Assessment of the suitability and appropriateness of the fund for the client as well as ongoing monitoring
- Provision of information to the client before he invests
- Ongoing reporting to the investor