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Transcript of Global Fund Distribution - strategicinsightglobal.com · Shifting Tectonic Plates: From pariah to...
Mutual Fund Research and Consulting Electronic Products, Inc.
590 Fifth Avenue, New York, NY 10036Tel: +1 (212) 944-4455 / Fax: +1 (212) 730-7730
www.sionline.com | www.StrategicInsightGlobal.com
Strategic Insight
Global Fund DistributionBest Practices, Key Trends, and Operational Models to Grow Sales Worldwide
Global Fund Distribution
STRATEGIC INSIGHT 1
Global Fund Distribution
Best Practices, Key Trends, and Opportunities to Grow Sales Worldwide
Strategic Insight*
Daniel Enskat Head of Global Consulting, Managing Director
+1 (212) 217-6859 [email protected]
Jag Alexeyev
Head of Global Research, Senior Managing Director +1 (212) 944-4456 [email protected]
© Copyright 2008 * Refers to Strategic Insight Mutual Fund Research and Consulting Electronic Products Inc. and its wholly-owned subsidiary, Strategic Insight Mutual Fund Research and Consulting LLC, both defined as Strategic Insight.
Global Fund Distribution
STRATEGIC INSIGHT 2
Reproduction in whole or in part is prohibited except by permission. © Copyright 2008 Strategic Insight Mutual Fund Research and Consulting Electronic Products Inc., and when referenced or sourced Lipper Inc., and Morningstar Inc., All rights reserved. The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) may not copied or redistributed for any purpose, (c) are provided solely for information purposes, and (d) are not warranted or represented to be correct, complete, accurate, or timely. Past performance is no guarantee of future results. The aforementioned companies are not affiliated with each other. Reproduction in whole or in part prohibited except by permission. Any data or commentary in this report is for the internal use of client management companies only and is not to be disseminated to the general public and sales intermediaries in the form of regulatory or other reports, promotional material, or advertising without the prior written consent of Strategic Insight. This report has been prepared using information and sources we believe to be reliable; however, we make no representation as to its accuracy, adequacy or completeness, nor do we assume responsibility for any errors or omissions or for any results obtained from the use of this report, including any action taken with respect to securities referred to in this report. Our employees may from time to time acquire, hold or sell a position in securities mentioned herein. We may from time to time perform services for any company mentioned in this report. This report is not a prospectus or representation intended to use in the purchase or sale of any securities mentioned in this report.
Global Fund Distribution
STRATEGIC INSIGHT 3
KEY MANAGEMENT THEMES
GLOBAL FORCES CHANGING THE MUTUAL FUND INDUSTRY Globalization: The new economic world order of fund distribution. Accidents Happen: Short-term threats and long-term opportunities. Crisis Mode: Action plan for customer retention and growth in times of severe investor anxiety. Shifting Tectonic Plates: From pariah to growth engine – emerging market growth vs. mature market decline (more east-east transactions, less Europe and the US). Watch the Left Field: A more connected and dynamic global fund world requires a broader list of competitors. Fund Flow Complexities: On- and offshore flows are more complicated and dynamic than ever. Traditional vs. Alternative: A broader definition of asset management. Who will be the winners?
TRENDS IMPACTING DISTRIBUTORS AROUND THE WORLD
Distribution Opportunity Matrix (DO Matrix): How distributors approach fund selection and partnerships with asset managers. Of Apples and Oranges: Misaligned expectations and preconceived notions between distributors, asset managers, and clients. Moving Beyond Select Lists: “Flight to quality and simplicity” creates new forms of collaboration; how to go beyond the “official selection route” to grow sales. Changes in the Operational Setup of FSUs: Fund selection for Asia and emerging markets brings significant operational challenges. Distributor Case Studies: Similarities and differences between global and regional distribution.
BEST PRACTICES FOR ASSET MANAGERS TO GROW SALES
The Few, The New, The Proud: Product innovation and management in a global fund world (back to basics asset allocation, themes, concentration of global flows and specific local demands); strategic versus tactical product lines. Long-Distance Relationships: Wholesale distribution through global distributors versus the need to be fully operational on the ground. More than Meets the Eye: Smaller markets often provide greater opportunities than larger markets to build sticky, sustainable long-term relationships. Power to the CDAs: Creating a senior team of “creative data analysts” with strategic and tactical decision making power to leverage distribution. Breeding New Sales People: Setting up the operational structure and incentives to create a new, “selfless”, breed of sales for long-term growth. New Era of Advice, Client Service and Marketing: Beyond a 5-Star rating, the service proposition is the differentiator from “select list” to “priority product”. Lost in Translation: Global/emerging market opportunities require local knowledge, language skills, and creative multi-cultural asset managers.
Global Fund Distribution
STRATEGIC INSIGHT 4
Table of Contents
Introduction _____________________________________________________________________ 7
Executive Summary _____________________________________________________ 9
1. GLOBAL FORCES CHANGING THE FUND INDUSTRY__________________ 15 Realignment of Global Fund Flows and Industry Focus __________________________________ 16 Short-Term Threats Can Be Long-Term Opportunities___________________________________ 21 Turning Survival into Growth Strategies: Action Plan for Customer Retention and Growth in Times of Extreme Investor Anxiety _______________________________________________________ 24 Focus on Retention and Broadening of Distribution Channels _____________________________ 27 New Emerging Market and Thematic Product Joint Ventures______________________________ 29 Bridging the Gap between Emerging and Developed Markets _____________________________ 32 The Promise of China – Then, Now, and Tomorrow_____________________________________ 35 Watch the Left Field: Changes in Leadership __________________________________________ 39 Sorting Through Fund Flow Complexities ____________________________________________ 43 Local and Offshore in Perspective: What You Can’t See Can Hurt You______________________ 45 Emerging Markets: Economic Stabilizer and Strong Flows _______________________________ 49 High Net Worth Investors: Adapting to Regional Differences _____________________________ 52 Towards a Broader Definition of Asset Management Away From “Traditional” and “Alternative” 53
2. TRENDS IMPACTING DISTRIBUTORS AROUND THE WORLD __________ 57 Selling Ideas versus Asset Allocation and Advice_______________________________________ 58 Of Apples and Oranges: Aligning Expectations for Distributors, Asset Managers and Investors___ 65 A Growing Fiduciary Role for Distributors, Flow Concentration, and Risk Management Focus ___ 67 Moving beyond Select Lists To Grow Sales ___________________________________________ 71 Key Changes within Distribution Organizations and FSUs, and Implications for Asset Managers _ 74 Changes in the Operational Setup of Fund Selection Units ________________________________ 77 Global Fund Distributors – Case Study Citibank: _______________________________________ 82 Regional Fund Distributors – Case Study Hang Seng: ___________________________________ 86 The Demise and Renewal of Absolute Return__________________________________________ 89
3. BEST PRACTICES FOR ASSET MANAGERS TO GROW SALES ___________ 93 Aligning Strategic and Tactical Product Lines for Global Success __________________________ 95 Examples of Blockbuster Products Around the World ___________________________________ 99 Operational Aspects of Global Product Development and Distribution _____________________ 114 Operational Models to Build Global Distribution:______________________________________ 116 Enhancing Distribution with a Creative Data Analyst Team and a New “Breed” of Sales _______ 122 Performance and Ratings as Determinants of Distribution Success ________________________ 125 Lost in Translation: Overcoming Cultural and Political issues:____________________________ 131 Distribution Channel Sales Observations Around the World – Similarities and Differences _____ 133 Closing Thoughts: The Past, Present and Future of Fund Distribution ______________________ 141 Strategic Insight Resources: Ongoing Reporting Of Key Trends __________________________ 144
Global Fund Distribution
STRATEGIC INSIGHT 5
Presentations and Tables 1 - Global Mutual Fund Flows by Region__________________________________________________ 18 2 - Global Mutual Fund Assets, Market Share by Investors of Origin ____________________________ 19 3 - Emerging Market and Thematic Product Joint Ventures____________________________________ 30 4 - Emerging Markets: Top Selling New Products in Japan ____________________________________ 33 5 - China: Largest 10 Funds Subscriptions and Redemptions __________________________________ 36 6 - Top US Long-Term Fund Managers – Historical Comparisons ______________________________ 40 7 - Fast Growing Fund Managers Across Europe, Offshore, Asia _______________________________ 42 8 - Selected Bestselling Offshore Funds in Asia Round Trip ___________________________________ 47 9 - Bestselling Offshore Funds RFS in SG, HK, TW __________________________________________ 48 10 - Highest Cash Flow Emerging Market Funds____________________________________________ 51 11 - Top-selling Traditional Long-Only and ETF Funds ______________________________________ 55 12 - Global Distribution Opportunity Matrix (DO Matrix)_____________________________________ 58 13 –HNW Investor Service Attitudes by Region _____________________________________________ 63 14 - Concentration of Fund Flows for Top Managers ________________________________________ 68 15 - Organic Growth Rates of Large Fund Managers – Asia/Europe ____________________________ 69 16 - Organic Growth Rates of Large Fund Managers – US ____________________________________ 70 17 - Case Study Citibank: Global Select Lists and Partners ____________________________________ 84 18 - Case Study Hang Seng: Regional Select Lists ___________________________________________ 87 19 - Absolute Return Funds in Europe – Quo Vadis? _________________________________________ 90 20 - The Case of JP Morgan Highbridge __________________________________________________ 91 21 - Selected Highest Cash Flow Absolute Return Funds ______________________________________ 92 22 - New Fund Launches by Year of Introduction – US, Europe, and Asia ________________________ 96 23 - Selected Blockbuster Products _______________________________________________________ 99 24 – Best-Selling Thematic, Allocation, ETF, and Alternative Funds – 2008 Flows ________________ 103 25 – Best-Selling Thematic, Allocation, ETF, and Alternative Funds – 2007Flows _________________ 104 26 – Best-Selling Thematic, Allocation, ETF, and Alternative Funds - 2006 Flows_________________ 105 27 – Best-Selling Thematic, Allocation, ETF, and Alternative Funds – 2005 Flows ________________ 106 28 - Active vs ETF and Index Funds -Europe Mutual Fund Quarterly Flows _____________________ 110 29 - ETF Funds in the US, Europe and Asia _______________________________________________ 112 30 - Operational Models for Global Distribution ___________________________________________ 114 31 - Asset Management Approaches to Global Distribution___________________________________ 117 32 - Creative Data Analysts (CDA)______________________________________________________ 122 33 - UK Net Flows by Morningstar Rating ________________________________________________ 126 34 - UK Net Flows by Lipper Leader Consistent Return Score_________________________________ 126 35 - Performance and Manager Selection – Case Study 1 ____________________________________ 128 36 - Performance and Manager Selection – Case Study 2 ____________________________________ 129 37 – US Fund Sales by Distribution Channel Among Managers Focusing on Intermediary Distribution 134 38 - Japan Retail Gross Sales By Distribution Channel ______________________________________ 135 39 - Korea Mutual Fund Industry _______________________________________________________ 136 40 - Distributors of Funds in Korea, Q2’08 _______________________________________________ 137 41 - Distribution Channels for Selected Foreign Managers in Korea ___________________________ 138 42 - UK Retail Gross Sales By Distribution Channel ________________________________________ 139 43 - Germany Mutual Fund Industry Distribution Channel ___________________________________ 140
Global Fund Distribution
Introduction
As part of our global mutual fund research and project work with clients over the last two
years we spent most of our time traveling the world – mostly to Asia, the Middle East and
Latin America, as compared to more Europe and the US in the prior decade. During this
time we were fortunate enough to present and participate on public and private industry
panels with experts ranging from public policy, investment banking, consultants, and
institutional research and academia. We were also able to work closely with a few dozen
CEOs on consulting projects and strategic product reviews to implement their offshore
distribution efforts.
Strategic Insight never could have put together this distribution analysis without the
invaluable assistance from many of our key clients around the world. Dozens of CEOs,
Heads of Sales, Product Development and Strategy were kind enough to spend time with
us in person or on conference calls to provide details and feedback on their firms, strategy
and distribution efforts. In addition, a few long-term key clients reviewed the report
during its creation and provided us with their thoughts, editorial comments and best
practice anecdotes. We are deeply grateful for their time and insights, as the details on
their respective sales and distribution approaches combined with our data and analysis
form the core of this study.
During these challenging times, we return to our past research which followed other
traumatic events to put recent developments in perspective and to offer ongoing
assistance to our clients. More than ever before, Strategic Insight focuses on providing
essential data, business analytics, and in person presentations and meetings to our clients
to help them overcome short-term challenges and capitalize on long-term opportunities.
Our travel schedule through the end of 2008 will be intense, as we are asked to present to
industry associations, regulators and company boards across the US, Asia, Europe and
the Middle East. At the same time it will allow us to meet with many of you to assist
STRATEGIC INSIGHT 8
Global Fund Distribution
with advice and perspective. For those that we cannot touch base with in person, we will
conduct a number of webex presentations and conference calls to allow for discussion of
your specific distribution needs.
Our research library with almost 700 studies covers over twenty years of data analytics
and qualitative research on the core issues fund managers and distributors are facing on
an ongoing basis. Throughout this report, footnotes will point to in-depth studies we
have written in the past that provide additional details, data and perspective. For
example, just last week both Strategic Insight’s president and director of research
published reports on customer retention and mutual fund strategies for uncertain times to
provide clients perspective and reassurance in the current global financial crisis.
All the tables and data provided in this report were generated using our proprietary global
database Simfund Global, which integrates key data points including assets, flows,
performance, ratings/rankings, fees and portfolio holdings from Morningstar, Lipper,
local data providers, and Strategic Insight, updated through July 2008. Clients of the
distribution report will get access to a dedicated “Global Mutual Fund Distribution
Landscape” website for one year (launched in late 2008), with key data tables, graphs,
and select lists updated on a quarterly basis to keep the data behind the analysis current
and to allow for thought exchange and ongoing feedback. We are currently reviewing
September 2008 data and the strong outflows for the month and will update the quarterly
data on the site in the coming weeks.
At the end of this report, following the closing thoughts, we offer clients Strategic
Insight’s ongoing reporting of key trends, product, distribution, and overall industry
research, and annual surveys, for their ongoing distribution research needs.
New York, October 2008
Daniel Enskat Jag Alexeyev Head of Global Consulting Head of Global Research Managing Director Senior Managing Director
STRATEGIC INSIGHT 9
Global Fund Distribution
Executive Summary
We have divided this report on global fund distribution into three broad chapters, with
each chapter organized into five to six themes discussed in detail:
1. Global Forces Changing the Mutual Fund Industry
2. Trends Impacting Distributors Around the World
3. Best Practices for Asset Managers to Grow Global Sales.
The global distribution landscape currently is being reshaped by several fundamental
factors – the impact of which will be felt for years to come and will provide both
challenges and opportunities for asset managers and client facing firms.
The inherent benefits of mutual funds – easy access, transparency, liquidity,
conservative pricing methodologies, sound regulatory framework, diversification,
and compatibility with long-term investing – will become even greater strategic
advantages in the wake of the current global financial crisis. The largest financial
shock since the Great Depression has governments, financial institutions and
investors around the world in survival mode, with extreme market volatility and
trillions of retirement assets wiped out. Investors that redeemed during the
downturn will miss the market rebound, amplifying their losses. Those that
continued with a dollar cost averaging approach through the crisis, however,
reduced their relative losses and stand to gain from a potential rebound.
Similarly, while the industry is facing strong redemptions, lower sales, and a
flight to safety in the near-term, the crisis is a major opportunity for the many
benefits of mutual funds – only highlighted when compared with derivatives
based structured products, hedge funds, and direct stock investing. Ultimately,
those companies able and courageous enough to plan for growth now will gain
significant market share in the future.
STRATEGIC INSIGHT 10
Global Fund Distribution
The sustained growth of funds in Asia even during the current crisis confirms the
powerful shift of investor demand, flows, and the center of asset management
focus, which, more than anything else, will influence distribution opportunities in
coming years. Fund inflows in Asia through August stood at $60 billion despite
sharp NAV declines. In contrast, long-term funds across Europe gave back $360
billion in net redemptions (even more considering strong inflows to ETFs). While
US funds have also continued to benefit from net inflows in 2008, the center of
asset management growth opportunities is shifting, with Asia as a likely long-term
beneficiary.
This growth of emerging regions and corresponding business complexity is
encouraging the decentralization of distribution efforts. Global fund selectors,
while still leaning on centralized processes, are empowering local units in the
growth centers of Asia, Latin America, and the Middle East. The power of some
centralized fund selection units (FSUs) is also waning largely due to their inability
to cater to the specific needs of the local markets. This in turn is encouraging asset
managers to go beyond the FSU and develop relationships with local sales and
product teams. Meanwhile, the question of open, guided or closed product
platform architecture continues to be a central question for distributors. The
question is multi-faceted and distributors consider costs, marketing/sales
efficiencies, economics, competitiveness of product menu and ability to maintain
a sufficient level of oversight. Furthermore, as distributor product menus evolve,
it is clear that simply getting on select lists is thus not enough – value-added
services and influencing key advisors are needed to get flows.
Diverging needs for theme/transaction-based products versus asset allocation/fee-
based solutions are also strongly influencing distribution structures and priorities.
The balance between these two needs, along with product design, support, and
fund selection criteria also vary by market maturity. Addressing the needs of
multiple markets at different stages of their evolution has become remarkably
complex, impacting both asset managers and distributors.
STRATEGIC INSIGHT 11
Global Fund Distribution
To cater to the different needs and stages of distributors worldwide (theme/
transaction versus allocation/ fee-based), asset managers are paying more
attention to both “strategic” and “tactical” product lines. Distributors note a
desire for simple products with strong conviction of investment approach and see
less room for benchmark products, yet more use of exchange-traded funds (ETFs)
for beta exposure. Though still in the early stages of implementation for non-
institutional investors, the splitting of alpha and beta is an important trend with a
significant impact on the industry. Many expect the continued growth of ETFs,
outcome oriented solutions, success for top long-only diversified fund managers,
and growing inflows to boutiques. Moreover, with increasing regulatory scrutiny,
developments in asset allocation modeling, challenges to margin expansion and
the movement of so-called “alternative” investments down-market, convergence
across a wide variety of asset management strategies will continue. Both
“traditional” and “alternative” asset managers will have to redefine themselves to
grow.
Communicating the benefits of mutual funds effectively remains the central
challenge. Outside of markets with a strong retirement foundation and comfort
with mutual fund investing, such as the US or Australia, a key challenge is to
communicate the advantages of mutual fund investing to overcome investor
anxiety and structural limitations of bank distribution, and to maintain confidence
in the vehicle. A positive side effect of the financial crisis will be the increased
opportunity to educate investors in Asia and emerging markets about
diversification and long-term fund investing in which mutual funds play an
important role. Globally, distributors need to work in partnership with investment
product specialists and their sales teams to ensure proper expectation management
at the point of sales. Further co-education at the distributor sales person and
client level will be important, particularly for large scale managers with the
requisite resources to make such efforts effective. And some key firms and chief
executives need to take a public leadership role with governments, regulators, the
STRATEGIC INSIGHT 12
Global Fund Distribution
media and industry associations to inform and educate all parties about the role of
mutual funds in the investment process.
The growing fiduciary role of distributors is leading to greater concentration of
fund flows regionally. This contrasts with the growth of emerging regions and
complicates the decentralization of distribution efforts. It also accelerates the pace
of change in the industry and leadership rotation: two thirds of the largest 50 fund
managers today were not among the top 50 ten years ago. We have seen
numerous examples around the world of how one blockbuster product can either
help build or destroy a company brand. Diversification of product lines for asset
managers will only become more important as market volatility and uncertainty
remains high. These developments reiterate the heightened attention to product
development and management.
Greater business and product complexities require a new “breed” of analytical
sales and product specialists. The necessity to build multiple relationships with
key advisors in distribution firms locally requires what Strategic Insight calls
“creative data analyst” (CDA) teams to work closely with sales teams and
management on an ongoing basis to educate the political center at home about the
importance of non-domestic opportunities in the coming years. There is a clear
need for a “renaissance” sales person, but within a team of specialized skills and
with a broad mandate and concrete incentives across channels (insurance, retail,
wholesale, institutional, etc), markets or product lines, as in the past a lot of firms
have been constrained by legacy silo sales structures with no monetary reward to
“reach across the aisle”. Only CDA teams and senior executives with the
necessary firm-wide authority can implement such broad structural changes.
Fund managers building global distribution need to find new ways to partner with
distribution organizations and to offer credible analysis, pro-active
communication and innovative marketing ideas that go beyond product and
performance analytics. The CDA team should include experienced analysts and
senior executives with strategic and tactical responsibilities along with incentives
STRATEGIC INSIGHT 13
Global Fund Distribution
to build relationships and raise sustainable assets (retention versus sales based
bonus). For many years in the US, Strategic Insight enabled the “information
gatekeepers” to stimulate their company’s expansion through early use of
competitive intelligence. Today, Strategic Insight’s global research team, guided
by the powerful lens of our Simfund Global database, is observing similar
competitive benefits for some of our global clients, who already have a CDA team
in place.
STRATEGIC INSIGHT 14
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For additional sample pages or to order the report please contact:
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Contact the authors:
Daniel Enskat, Head of Global [email protected], +1 (212) 217-6859
Jag Alexeyev, Head of Global [email protected], +1 (212) 944-4456
Strategic Insight590 Fifth Avenue, New York, NY 10036Tel: +1 (212) 217-6957 / Fax: +1 (212) 730-7730
www.sionline.com www.StrategicInsightGlobal.com
Strategic Insight590 Fifth Avenue, New York, NY 10036Tel: +1 (212) 217-6957 / Fax: +1 (212) 730-7730
www.sionline.com | www.StrategicInsightGlobal.com
Investing in the Future
Asia Fund Management and Middle East Opportunities
Mutual Fund Research and Consulting Electronic Products, Inc.
590 Fifth Avenue, New York, NY 10036Tel: +1 (212) 944-4455 / Fax: +1 (212) 730-7730
www.sionline.com | www.StrategicInsightGlobal.com
Strategic Insight
Global Fund DistributionBest Practices, Key Trends, and Operational Models to Grow Sales Worldwide
Global Fund DistributionBest Practices, Key Trends, and Operational Models to Grow Sales Worldwide