Last year 2,119 new funds were launched in Europe, according to Thomson Reuters Lipper. In the same period, however, fund promoters liquidated 1,672 funds and 1,003 funds were merged. Overall, the number of funds shrank by 556.
The UK market, more active and competitive than most, is as challenging as any in which to bring a new fund to market – and perhaps more so. So, how do managers give their next fund launch the maximum chance of success? When it comes to choosing the right niche, the manager and the timing, that is best left to the fund promoters. But, there are also other factors which come into play and affect almost all funds.
First, we know costs matter. Asset managers are struggling with a perfect storm of low interest rates, increased costs of compliance, the threat of fintech disruption and high fixed cost bases. Active managers are also continually being forced to make the case for their performance relative to fees and costs versus the passive giants of the industry. Lowering costs enables managers to increase margins, pass these onto investors in the form of lower fees or enable their funds to be profitable at smaller sizes, giving them longer to grow in a crowded market.
As a result, many asset managers are adopting a laser-like focus on what they perceive to be their core competencies of product development and investment performance, while outsourcing operational capabilities to an authorised corporate director, for example, to reduce overheads and operating costs. There are significant benefits for both the fund manager and distribution partners alike when it comes to launching new funds under this type of model.
- The UK market is as challenging as any in which to bring a new fund to market.
- Change is going to be driven in part by regulatory changes.
- Also, change of any kind has a cost implication, and managers need to build this into their operating models.
For a start, it frees managers from the constraints of their own technology. Asset managers are often forced to administer funds using dated legacy systems that have high running costs. Managers also lack the flexibility to support innovation, often requiring significant investment if they wish to launch a new product.
Adapting these legacy technologies to meet these challenges can be expensive, and an ongoing challenge: regulation continues to change, as do investors’ and distributors’ requirements. By outsourcing fund administration, asset managers can meet this challenge cost effectively, benefiting from the administrator’s specialisms and economies of scale, as well as reducing risk and time to market through shared responsibility. In short, it gives them access to the technology, skills and capabilities needed to bring new funds to market quickly and efficiently.
It will also enable managers to meet the challenges of a changing environment, such as keeping pace with the dynamic regulatory landscape. The General Data Protection Regulation coming into effect in May next year, for instance, will pose a significant challenge to the asset management sector. Managers must ensure systems can meet requirements, such as the right to be forgotten, as well as more generally keeping track of what data is held on individuals and where. Handled poorly, it could hamper investment managers’ ability to access the information they and their partners need to service investors effectively.