Group Co.
What’s Stopping Fund Launches from Really Taking Off?
Traders Magazine Online News, June 11, 2018
They say good things come to those who wait - but clearly not for investors if last year’s dramatic drop in new funds entering the market is anything to go by. According to Investment Adviser, the number of funds launched in 2017 slumped to a decade low.
Is this caused by stretched valuations across multiple asset classes, or simply a case of fund selectors waiting until the industry familiarises itself with the post-MIFID II world? While it is hard to pin point the exact reasons, the investment community shouldn’t use this downturn as an excuse to brush the operational niggles that have hindered fund launches under the carpet. After all, Vanguard’s recent launch of two retirement funds for the young proves there is still a need to address these underlying problems today. A fund launch typically takes 6-8 months, but 2 months should be the target timeframe.
So what exactly are the challenges? Well, they essentially break down into two key areas - the use of outdated systems, with their associated manual processes, and the challenge of mapping and managing different fund fee structures, and account information. Take the problem of relying on old systems first. Typically, a large-scale fund generator will have anywhere between 50 and 100 different people involved in launching a fund. The challenge is that numerous elements go into each launch. These include defining the fund, its strategy and target demographic. Then there is marketing the launch, not to mention legal/regulatory administration, writing compliance disclosures, as well as planning the distribution strategy and setting the associated fee structures.
The trouble is that right now, too many of the major fund management houses have a very cumbersome way of gathering all this information together and maintaining it. Currently, data is compiled in multi-tab spreadsheets or 20-page long Word documents, which are then passed through many hands over email at various different stages of completeness. A fund launch is a non-linear process, with teams working in parallel on inter-dependant elements of the launch. For example, the disclosures can’t be finalised until the fund strategy is approved, but preparation for both needs to occur in tandem. Think of all the headaches from the constant back and forth between the fund and legal teams working on any wording corrections, risk profile and share class validations, or escalations of issues.
Also keep in mind that every regional jurisdiction that an investment manager operates in will demand some unique fund launch processes. For any launch across multiple countries, workflow processes will need to include regional variations of similar steps.Once the launch preparation is complete, each department enters the information into their systems. If these aren’t integrated the interrelationships between the numerous data elements become disconnected, impairing operational efficiency when promoting and running the fund.
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