Radical ideas needed to replace run-of-the-mill launches

John Kenchington

In the past month Royal London unveiled a trio of bond funds, River & Mercantile heralded a new global equity fund, GLG lined up a total return fund and Polar Capital nailed down its global financials trust.

Going back another month, Mirabaud mooted a global convertibles fund, James Cullen’s firm lined up a US equity income product and Richard Philbin sealed a deal to launch new funds of funds for Harwood Capital.

According to FE Analytics there were 80 launches in the first half of 2013 – many of them coming as Old Mutual rolled out its new Select range – compared to 123 in the second half of 2012. This is a 35 per cent fall in spite of the Old Mutual launches.

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Of course you’d expect the six-month launch rate to be volatile due to the industry’s natural ebbs and flows. But I would guess many would indeed point to a structural decline in fund launches, possibly owing to providers adopting a wait-and-see approach in light of the RDR changes.

The lull could also reflect the fact fund managers are encumbered with new regulatory burdens, such as launching ‘clean-fee’ share classes, publishing Kiids (key investor information documents), and scrapping for the adviser ‘outsourcing’ market.

Others point to a structural trend of industry consolidation and rationalisation following the merging away of victims of the financial crisis, such as New Star.

But I think what’s really significant about fund launch news in recent times is the definite lack of innovation that’s present here.

Absolute return funds have suffered reputational blows, 130/30 funds are dead in the water, Paifs (property authorised investment funds) have never really got off the ground, best ideas and cheap alpha fell on their faces and the maximiser or enhanced income concept seems to have peaked.

Other mainstream ideas like strategic bonds, multi-asset, emerging market debt, global income and the like seem to have found a natural equilibrium.

Overall, firms seem to have reverted to going with what they know. But as the era of soft closures continues this will be increasingly tough. It will also result in clients being funnelled into a precariously small range of products and I wonder how far the FCA is from intervening in that increasingly systemic risk.

There is a real opportunity here for the industry to come up with something new – something that solves the various and complex investing problems presented by today’s global macroeconomic situation. Not just some run-of-the-mill ‘dynamic multi-asset process’ or ‘enhanced-risk system’, but something that could define the next era of investing.

Who will come up with the Gars-beater?

John Kenchington is editor of Investment Adviser