An article from GemCap Executive Director Stuart Alexander on the importance of taking expert advice on distribution before launching a fund – and the pitfalls of failing to do so.
For those who have read a few of my notes/rants you will know I have very strong views on fund distribution and how critical it is in every decision when it comes to creating and launching a fund. Without a distinct distribution strategy and a clear vision of where and to whom you want to market your fund, then the chances of raising significant assets will diminish. As a business with its heritage in distribution, we think it is imperative to cover all your bases when contemplating a fund launch. There are some very good advisers out there who will help managers give them a voice in the marketplace. People like Stacey Havener and others will give you great advice when it comes to your proposition, the story and the context that you and your fund need in order to be fit for purpose in the market. There are great marketing firms such as White Marble and Twink who will make sure you look awesome and there are firms like ProFund.Com and Paul Das who will make sure you make sense to your readers/listeners. However, all that advice isn’t worth a jot if before you get to this stage you have been badly advised by the “experts” in fund formation, namely the lawyers, the consultants and fund service providers.
We fall into that last category as GemCap is a fund platform and management company and we spend a huge amount of time repairing the advice given elsewhere when other firms, with no understanding of distribution, start to build something. It often reminds me of the famous quote when Henry Ford was asked why he never asked his customers about car design. His response was that they would have asked him to design a faster horse! We are increasingly seeing that in fund development when, dare I say it, investment managers who may be new to the funds marketplace allow the experts to dictate the conversation without working out for themselves what they need. I don’t blame them obviously. Why would a West Coast US-based IM know anything about fund formation or distribution in the European space? Clearly, they have to rely on firms who offer their services as the experts in the space but therein lies the biggest problem. Few firms have a broad knowledge of a multi-jurisdictional market with a myriad of fund distribution nuances. There are firms who know how to build whatever what you want… but do they know what you want? They will advise you as best they know how, but with respect to lawyers, for example, can a lawyer really be an expert on distribution… as much as I could be an expert on the law!? And by distribution, I mean proper sales – not just some regulatory view on the legal landscape but hard sales, shoe leather wearing out, face to face point of sales. Unless you have been at the coalface, don’t try and talk like a miner.
At GemCap UK we offer Facilities Agent and FCA Financial Promotion/Marketing sign off and oversight for a small number of managers who are not part of the GemCap Ireland platform. Recently I met a new client in this regard, who is launching a new fund in 2024 and is just shy of getting their approval from the CBI in Ireland. During our conversation I asked to see the prospectus at which point I had some rather bad news for them. The experts had put him on one of their fund platforms that did not have the FCA Temporary Permissions Regime approval and therefore they would be limited to S272 which in turn would limit his distribution into the UK. A key part of his distribution strategy (90%) was into the UK. To say he was upset is an understatement but not as much as me as once again the industry has let this fund manager down badly by not doing the right thing for them.
I have lost count of the number of investment managers who have come to us for either distribution advice or to move their funds to our platform, who upon meeting us we realise that they are registered in markets that they have never sold into, share classes that have no assets, currencies that are pointless. One of the best was a Yen share class but only sold into the UK! No assets either surprisingly…
So my plea/demand is that if you are contemplating launching a fund into the global marketplace, don’t talk to the lawyers or the administrators as your first port of call: talk to a distribution business that can advise where your strategy would sit. Is it Institutional, wholesale or retail? Where will it sell: the UK, Switzerland, mainland Europe or a specific market such as the Italian pensions market for example. They will advise the structure, the jurisdiction, the price, the share classes, the geographies, the pitch etc and then you can engage the legal team to start the process and abracadabra, hey presto, you will have a fund that is fit for purpose. Then hopefully you have a better chance of raising assets. Remember, no assets means no fund… and a lot of cost.
Good luck!
Stuart Alexander
Executive Director, Gemini Capital Management (Ireland) Limited
