Industries are in a constant state of evolution, with changes often occurring so gradually that they go unnoticed. However, there are times when entire sectors experience significant transformations, where the usual incremental progress is disrupted by fundamental shifts in the global economy. The world is currently undergoing such a reshuffling, driven by technological advancements, regulatory changes, and shifting economic landscapes, which are altering the standard operating procedures across industries.
These changes, particularly those witnessed in recent years, will have long-lasting effects. The investment management ecosystem must now adjust to a new normal, where adapting to these shifts is not just a necessity but also an opportunity to gain a competitive edge. There is a growing recognition that this period of transformation will require market participants to embrace change more fully than ever before.
What Has Changed?
Even before these recent shifts, asset managers were facing new challenges, particularly due to evolving regulations and market demands. The world of alternative investments is likely to continue expanding and diversifying, attracting more capital into emerging or “non-traditional” strategies. Additionally, with an increasing number of offerings in the market, more investment firms and family offices being launched, and stricter geographic regulations, capturing the attention and gaining the trust of investors has become more important—and more challenging—than ever.
Moreover, the fund and asset management industry has never been more competitive. We've seen a surge of new entrants, including ex-hedge fund managers, bankers, and money managers, launching new products and strategies, all competing for a share of investable capital.
In response, incumbent firms have been adapting by launching new products on top of legacy structures and processes, often with expertise concentrated among a small group within the firm. In a robust economic environment, such additional expenses can be absorbed, but in today’s cost-conscious world, where these products are becoming mainstream offerings, the supporting infrastructure must be integrated into the core operating environment of the manager.
The Battle to Reach Customers
In the past, asset managers and fund managers typically catered to distinct client bases. Today, they are both targeting the same groups—institutional investors, high-net-worth individuals, and retail investors—competing for the same attention and capital allocation. This challenge is not straightforward, and most firms have limited experience in marketing beyond their core client base.
Globalization presents its own set of opportunities and challenges, as fund firms seek to expand into new markets for both fund manufacturing and distribution.
From the outside, the funds world may appear complex, with various partners and participants—including banks, private banks, insurance companies, wealth advisors, and even asset managers themselves—each playing a role in serving the investor relationship and facilitating the transactional distribution of funds.
The EU, despite having a harmonized fund structure and a reasonably aligned regulatory regime through UCITS and the Alternative Investment Fund Managers Directive (AIFMD), still features a variety of distribution channels across its member states. For instance, investors in many European countries typically acquire fund units via banks, while in Scandinavian and Swiss markets, funds are primarily distributed through private banking networks. Conversely, in the UK, Germany, and the Netherlands, the majority of funds are sold via platforms or Independent Financial Advisors (IFAs). Efforts to streamline the cross-border distribution model are underway through the European Commission's Capital Markets Union (CMU) program, though Brexit has temporarily stalled progress.
Similarly, in the Asia-Pacific region, the distribution process lacks uniformity. Banks broadly dominate retail fund distribution in Singapore and Hong Kong. While harmonisation of fund regimes in Asia is progressing, it remains fragmented with initiatives like the Asia Region Funds Passport (ARFP), the ASEAN Collective Investment Scheme (ASEAN CIS), and Mutual Recognition of Funds (MRF) between Hong Kong and China. This fragmentation creates challenges and adds complexity to the distribution ecosystem.
As a result, distribution has become just as critical as performance in determining a fund's success and must be addressed with renewed focus.
The Opportunity
In recent years, there has been a gradual shift towards greater client-centricity. In the UK, for example, IFAs are no longer remunerated by managers for selling their products but are paid by clients for providing impartial advice. Cost pressures have also driven the industry to seek more efficient ways of targeting investors.
A new generation of investors demands user-friendly and customised investment solutions, and digital investing solutions are emerging to meet this demand. Existing investors, familiar with digital solutions through their use of computers, tablets, and mobile phones, now expect new tools to guide them in their investment decisions. The bar for user experience and service access has been raised.
It is clear that the future of distribution is digital, aligning with broader transformations across the financial services industry. The challenge lies in digitising the entire transaction chain, which is currently fragmented, costly, and inefficient. Ultimately, digitisation and automation will reduce overheads, creating sustainability in an industry that increasingly faces the threat of disintermediation.
In our view, the current design of traditional funds and investment vehicles is too cumbersome and not well-suited for the digital world that is emerging.
Accessing Innovative Fund Distribution
Digital fund distribution is not solely about technology. The key to extending a firm’s distribution lies in its product structuring and internal capabilities. Fund managers face a plethora of options when considering types of investment vehicles. Factors typically considered include the regulatory framework, investment strategy, investor geography and appeal, the network of service providers, and, perhaps most importantly, the resources and setup costs involved.
Since the livelihood of a fund largely depends on its ability to attract capital, the investment vehicle needs to be structured to meet investor standards. While no two investors have the same requirements, the objective is to employ commonly used structures and processes that are easily understood by them.
Bonart’s Business
At Bonart, our team combines expertise in distribution and digital innovation across various industries, from banking to e-commerce and fintech. We draw inspiration from the digital experiences that shape our daily lives.
We believe it is time to challenge the traditional ways investors and asset managers work together. We serve leading banks and asset managers in Switzerland, the UK, and Israel, creating compliant, investible vehicles tailored to their specific needs and purposes.
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