“The prize is there, and it’s worth pursuing” | 4 tips for successful global fund distribution

As the United States becomes a smaller and smaller part of the world economy, you may be thinking about going global. Chances are, you’re toying with the idea of boosting your growth rate by a foray into the emerging economies in Asia and Latin America.

Earth in HandAt the ALFI Global Distribution Conference held this month in Luxembourg (in association with NICSA and the Hong Kong Investment Funds Association), an entire morning of sessions was devoted to the practicalities of selling funds abroad. Speakers from Cerulli Associates, Harvest Global Investments Limited in Hong Kong, Brazilian fund industry association ANBIMA, State Street, MFS Investments, Investec Asset Management and Universal-Investment-Luxembourg talked about their experiences with specific markets and with global distribution in general.

Their message was one of very cautious optimism. On the positive side, one speaker summarized the outlook by saying, “The prize is there, and it’s worth pursuing.” But everyone agreed that you must be very thoughtful about your approach to global distribution to capture that prize at a reasonable cost.

In other words, “caveat distributor.” Here are the speakers’ warnings for those thinking of venturing outside their home country turf:

Don’t assume that emerging markets are the answer. Many firms may be better off focusing on the developed world. Remember that 80% of world fund assets are still in the United States and western Europe (as we’ve pointed in our annual blog posts, “Mapping global fund growth.”)

And emerging markets may not offer a growth advantage for asset managers. Fund asset growth in these economies will often significantly lag GDP growth, because the focus is on increasing wealth – through investments in businesses or property – rather than husbanding it. In China, for example, the percentage of household financial assets invested in funds has actually been cut in half in the last few years.

Don’t forget that money management is a local business. You’ll need to become familiar with the quirks of individual markets – whether it’s the Brazilian preference for government bonds or the very specific regulatory requirements in Japan.

Odds are high that you’ll need to set up a local subsidiary with some substance to it; regulators may well require that it be more than a “letterbox entity.” Unfortunately, cross-border sales are a rarity outside Europe – where 45% of sales of cross-border, generally using the well-accepted UCITS format. By contrast, only 12.5% of fund sales in Asia are cross-border.

Don’t be ad hoc. A successful global effort requires a well-thought plan – not ad hoc responses to salesforce requests. As one panelist succinctly put it, “Share class proliferation is not a strategy.”

Instead, put together a team of experts that can help you do a thorough review of the target market. Get granular, with market segmentation analysis that can help you quantify the opportunity. And don’t forget about costs. While 80% of the functions in a market may be consistent with what you’re doing at home, it’s the 20% difference that can blow your budget.

Don’t neglect institutional. Fund firms are conditioned to think retail, but the real opportunities in many non-U.S. markets may be institutional. Individuals in many emerging economies don’t have the assets or interest to invest in a fund on a discretionary basis, but they may save through a government-sponsored retirement plan.

While the assets can be significant, be prepared to be patient. Sales cycles for these types of institutional opportunities can be extremely long.

We’ll be focusing on “Managing the Investment Firm in a Global World” at the NICSA Strategic Leadership Forum (32nd Annual Conference.) Join us at the Westin Diplomat in Hollywood, Florida from February 9-11 to learn more about how firms are handling the operational, compliance and technology challenges of going global.

Other NICSA resources on global distribution:

Webinar archives are available FREE to NICSA members.

  • AMTCondé

    You must also the emerging economies from Africa in Challenges.

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