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sum of its parts

Malta: Fund Distribution Is The Sum Of Its Parts

1024 573 Ken Carmody, Finscoms

sum

Fund distribution plays an enormous role in the success of an investment fund. But what often overlooked elements play an enormous role in successful fund distribution? The answer is fund marketing and fund communications.

Strong marketing and communications strategies create strong distribution. Cut distribution open and it bleeds marketing and communications. Most asset managers refer to fund distribution as fund marketing but it’s vital to differentiate and understand each component.

Fund Marketing
Traditionally, fund prospectuses are seen as the main way to reach the investor by fund managers. And often oblige by sending out large, bland, monotonous and indigestible documents. On average, institutional investors receive 45 prospectuses a quarter and 10% receiving more than 100. Only 15% of these get passed the initial filtering stage. Less than 0.2% are actually successful in attaining investment. Pdf’s are being ripped from emails by many company firewalls and the hassle for the investor to have the pdf released becomes another boundary to penetration. Is it any wonder we are starting to hear slogans such as ‘Death to Pdf 2016!’ and ‘We are pdf deaf!’. In this post AIFMD world using ‘push’ marketing across global markets is an expensive way to attain very low penetration.

To overcome you must adapt. A dynamic fund marketing strategy will steer the fund toward reverse solicitation, inbound rather than push marketing. Spray and pray marketing is not effective. Those achieving the highest rates of penetration now rely on a strong brand and make the most of their marketing assets such as their website and reach prospects through video, webinars and social media. Many funds build a website on the premise that ‘my competitors have one so I got one’. The function of the website must be addressed. It can be a revenue generator, a communications tool, a value add to clients/investors. Asset managers are adopting social media as regulatory groups recognise it as suitable means to communicate. Social media can help create communities, promote without bombarding, become a thought leader or a subject authority.

Fund Communications
A fund is required to put out communications to stakeholders to satisfy fiduciary, regulatory and legal obligations. You don’t have to see this as an administrative drudge; a fund can use these obligations to strengthen your relationship with the investor and other parties. Change communications strategy regarding compliance to an open, transparent and well designed communication to investors. For example, with 54% of investors unhappy with the level of provided transparency compared to 78% of fund managers who believe they provide enough, create competitive advantage by addressing this clear disconnect. Speak the investors’ language, let them see how well the fund is being managed and see the relationship solidify. There is plenty of scope for this:

  • NAV publication
  • Meeting requirements in relation to Key Investor Information Documents (KIIDS) being provided to investors before they invest in a UCITS
  • Publication of semi-annual and annual financial statements
  • Shareholder notifications
  • Notices for Shareholder General Meetings
  • Key performance indicators such as investment performance versus benchmark

The fund’s message must be consistent across all mediums to avoid confusion and keep focus on the core message. The smart fund manager will deliver messages about updates and services through social media, the website, intranets, extranets. It is advisable to communicate regularly and stay in line with the investment philosophy and the strategy of the firm, this helps provide a ‘true to label’ comfort level for the client/investor. At all times funds must ensure that their communications are fully compliant.

Fund Distribution
The asset manager’s distribution strategy should include fund marketing, fund communication, knowledge of distribution channels and regulation.

Knowledge of the distribution channels per targeted jurisdiction is of course vital for building an effective distribution strategy. Each market differs from the next in terms of public offering listing, regulated public distribution, private placement, local distribution networks, regulatory requirements and more. The distribution network is still viewed as complex and somewhat opaque. A fund should make sure to complete full due diligence on the distribution network and on would be distribution partners. It is essential that the transfer agent and distributor used have solid know-your-customer and anti-money laundering procedures. From there the fund needs to grow a strong relationship with the local distributors and agents on a business and operations level.

Complying with local regulatory requirements is an area that needs constant supervision as regulations are constantly changing. Asset managers working with fund lawyers will need to get to grips with regulatory requirements on local agents, eligibility, investor disclosure, registration and continued registration, and marketing.

An adept asset manager will be looking at what the future holds for the industry and will have the fund prepared. For the near future in the asset management sector we can see the following:

  • An almost complete move from the traditional style of marketing to digital marketing. And the ‘Death of PDF’ in 2016.
  • An even greater evolution of fund products to match investor demand
  • The emergence of new distribution channels
  • The wide use of video to engage prospects taking into account the IT savvy nature of the ‘next generation of investors’

In Summary
Fund distribution is not complete without fund marketing and fund communication. These two components are often neglected and can result in the fund making a negative impression unbeknownst to the fund manager. In a congested sector, of over 25,000+ funds, investing in marketing and communication post AIFMD is critical. It is no coincidence that the most successful funds have strong brands and use communication strategy as a competitive advantage. Having a strong brand and identity helps strengthen the trust between investor and the fund. Strong communication strategy strengthens the relationship between the investor and the fund. Thus building a solid platform to increase the reach of fund distribution.

Isle of Man

Fund Administration in the Isle of Man

1024 683 Galileo Fund Services Limited

Organizational-Development-Starts-at-the-Top1

The Isle of Man, amongst many other things, is an ideal centre for the administration of niche fund and investment products. The legislation in place offers a wide variety of fund structures around which the most appropriate investment vehicle may be constructed.

Moreover, the Island has developed over many years, a robust political and financial infrastructure with an emphasis on pragmatic regulation. The purpose of this paper is to give a brief background to the Isle of Man fund environment and to focus on one particular type of popular structure available in the Isle of Man, the Closed-Ended Investment Company or “CEIC”. CEIC’s have been successfully used by many fund promoters in recent years as the vehicle of choice when establishing an investment company, be it a private unlisted company or a stock market listed company. It should be remembered that the information contained within this paper is for guidance only and interested parties should consult the relevant original legislation when structuring an Isle of Man product.

The Constitutional position of the Isle of Man

The Isle of Man is a self-governing dependency of the British Crown and is not part of the United Kingdom. Through long-established constitutional convention, the Isle of Man has autonomy in relation to its domestic affairs, including taxation and business law. As the Island is not a member state of the European Union (as provided under Protocol 3 to the Act of Accession), EU rules only apply to the Isle of Man in relation to a limited range of matters. Tynwald, the Island’s parliament, has been in existence for over 1,000 years and is the world’s oldest continuously functioning parliament. As a common law jurisdiction, the Island’s legal traditions draw heavily on those of England providing a level of familiarity when dealing with the Island.

Regulatory environment

The Isle of Man has developed a reputation as a jurisdiction of quality through its enactment of pragmatic legislation enabling industry to operate in a business friendly environment whilst at the same time adhering to international standards of financial supervision. Fund managers, administrators, and providers of corporate and fiduciary services, are regulated by the Isle of Man Financial Services Authority (“FSA”) and to complement the licensing framework for the regulation of such entities, the Island has adopted extensive measures to prevent money laundering and the financing of terrorism.

Closed-ended Investment Companies

Legislation in the Isle of Man makes a fundamental distinction between an “open-ended investment company” and a “closed-ended investment company”. Open-ended investment companies are corporate vehicles which provide investors with a right of exit by allowing them to redeem their shares and are considered to be collective investment schemes for the purposes of Isle of Man law.

A collective investment scheme or fund is subject to regulation in the Isle of Man under the Collective Investment Schemes (“CIS”) legislation whilst a CEIC, which provides no such right of exit, is not currently subject to the same CIS regulations. To that end, a CEIC is treated in the same way as any other operating company for regulatory purposes and, as a result of this approach, there are a number of important advantages to operating such a company from the Isle of Man including:

• no regulatory pre-approval requirements for launch in the Isle of Man
• no requirement for a licensed fund manager or administrator to be appointed
• no prescriptive requirements as regards board composition
• no requirement for a separate custodian
• no restrictions on asset classes, investment strategy or leverage
• no prescriptive rules about permitted investors or minimum subscription requirements

Companies – both traditional and modern

Company legislation introduced in 2006 has given promoters wishing to use an Isle of Man investment company the choice between using a vehicle incorporated under the Companies Act 2006 or alternatively a more traditional vehicle established under the Companies Act 1931.

Key features of a 2006 Act company are:

• minimal administrative requirements
• flexible capital structure
• limited disclosure requirements
• suitably regulated registered agent must be appointed

1931 Act companies draw heavily on English corporate legislation and therefore have more prescriptive administrative and statutory filing requirements.

Solution Freedom

Listing an Isle of Man CEIC

Isle of Man CEIC’s are suitable for listing on many recognised investment exchanges and over the years have proved to be a popular choice of vehicle for listing on the AIM Market in particular. A CEIC is not required to appoint a licensed fund administrator, however an Isle of Man corporate services provider may be required to deliver statutory and on-going compliance services.

Taxation

The Isle of Man offers a tax neutral environment in many cases with no capital taxes and a zero rate of corporate tax for CEIC’s. Value added tax may, however be payable on fees levied by certain functionaries to an investment company, dependent on the jurisdiction in which they are based.

 

benchmark

The Investor Due Diligence Process Is Evolving

1024 689 Ken Carmody, Finscoms

Investor

The due diligence process that funds now face is evolving. Traditionally a fund would feel that it had covered all bases by providing a one-page summary of performance; a pitchbook (usually a PowerPoint presentation) that describes the firm, its investment strategy, principals, performance and terms of the investment; offering memorandum; subscription documents; and a due diligence questionnaire(DDQ). Investors have become more IT savvy and now funds can expect to be quizzed on technology infrastructure and IT security.

Not long ago an asset manager would not expect to be answering questions about the fund’s technology infrastructure or IT security. But today many funds provide a DDQ dedicated to providing information regarding their whole IT operations and provide annual reports to clients also. Investors expect world class operations across all aspects of a fund’s business. They have a greater understanding of technology and therefore ask more probing questions and 25% of investors will not invest if they discover IT deficiencies.

Showcasing a fund’s technology infrastructure can also be a way of standing out from the crowd. Highlighting your operational prowess may give you an advantage over your less up to date peers in raising capital.

Funds need to be prepared to face a wide range of technology based questions.

How does your fund stand up to these IT questions that you will face sooner or later?

1. At what frequency are security audits of the fund’s IT infrastructure performed and what specific tests are run?
2. Does the fund handle IT in-house or outsource to a third party?
3. Who drives the IT strategy and how often is it evaluated?
4. How is the current environment set up?
5. Has there been any issues in the last 12 months?
6. Does the fund have a formal documented IT security policy?

Investors are also enquiring about network and communications infrastructure:

1. How do employees access systems?
2. How are electronic communications to third parties controlled?
3. How does the fund communicate internally and externally?
4. What are the access control protocols?
5. Are there logs kept of who accessed systems and when they accessed?
6. How do you safeguard this environment?
7. Are there disaster recovery systems in place?

Investors want to see that the fund is being led in a thoughtful manner. The new investor expects high operational calibre across the board, they want stability and security. IT deficiency can prevent capital allocations. The due diligence process is evolving, be prepared.