Making fund flows as transparent as possible is about more than meeting the demands of regulators; it makes good business sense.

A business model built around segregated transaction reporting supports efficient marketing, reduces risk and helps build trust with distributors and end-investors.

For all fund managers, one of the keys to effective distribution is information. What are the particular requirements of different markets? Who calls the shots? Can we clearly see what is working and what is not?

That need for transparency has been amplified by the advent of MiFID II which has put added responsibility on fund managers to show that they can identify the end-investors and demonstrate they are distributing to the stated target market. Thus firms have both a challenge and opportunity.

Getting a feel for the investors

Gavin Rochussen, the CEO of Polar Capital, says that getting distribution right is very important: “It’s about understanding the distributor and getting to know the fund selectors. We are very keen to know what type of investor is investing in our funds. Are they buying for the long-term or are they buying only for the short term? How much churn can we expect?”

This is especially important for a manager such as Polar Capital. “We have highly targeted funds that are capacity-limited according to the strategy. We want to minimise churn rates. There are no short cuts. You have to get to know your distributors very well. We want to diversify our client base as much as possible and that means extending and improving the quality of those relationships.”

"There are no short cuts. You have to get to know your distributors very well."


That diversification means increasing the geographic spread from the current position where around a fifth of Polar Capital’s GBP 12 billion funds under management come from Continental Europe and a further 5% from Asia.

Getting an adequate picture of activity – both for internal and regulatory purposes – is not easy. Much of the investment flow comes through platforms, which are often reluctant to provide more than the most basic data.

"For MiFID II we’ve had to set up a new product governance unit," says Mr Rochussen. "That means more people and more cost."

It is a challenge for some, but there are solutions. Euroclear, as a funds market infrastructure, coincidently accounted for these requirements some 15 years ago while striving to find a way to deliver a global, cost managed solution.

Need for external service providers

Nick Lyster, Head of Wealth Advisory Services at PGI, says: “Some distributors will merely confirm that you are within target. Some will provide the extra information for free, but some want to be paid for it.”

There are also problems, he says, with some big global distributors. “We might get branch reporting which shows us where a trade has been booked, but a Middle East client may have been booked through Singapore or even London,” he says.

He contrasts the situation across Europe with that in the US. “In the States, there has been a centralised clearing system for funds going back 40 years – through the NSCC fund service. You get to see which office of Merrill Lynch and which broker has given you the business. It is very efficient and very low cost.”

"We need to commoditise this information. The category of investor needs to become part of the data flow right from the bottom of the chain."


Euroclear’s Elisabeth Meyers, Head of Funds Product and Sales Solutions at Euroclear, agrees that change is needed: “We need to commoditise this information. The category of investor needs to become part of the data flow right from the bottom of the chain.” However, she points out, the ability of Euroclear FundsPlace to deliver segregated information goes a long way to providing a solution.

“Where a distributor enters a fund for the first time, we make it simple for them by opening a nominee account. But we still have to give comfort to the transfer agents and the fund managers that we know who the distributor is, so we also segregate them in such a way that they are identified in the books of the fund. The fund sees the distributor’s name, not Euroclear nominee. We register in the Euroclear nominee but we give information one level down.”

“The amount of information required can slow down the process of opening a new account”, she says. “But what used to be seen as a cumbersome nuisance is increasingly seen as a necessity. Managers must be able to show who is in their fund and they like to see their success in different markets.”

Controlled, transparent flows

The requirements of MiFID mean that the same questions have to be asked when a European fund manager distributes into Asia, for example. Is this a constraint on fund managers’ ability to enter new markets?

Mr Lyster says that while it is not helpful there is some upside: “The more you know about who is buying your funds and why – the better you can target your marketing”.

Ms Meyers observes: “Entering a new market in Asia or Latin America can be complex as we still have to put in place the agreements on segregated information. We are there to streamline it but long-term the solution is clearly to commoditise the information. At Euroclear FundsPlace, our role is to help make every distributor flow as controlled as possible – we deliver the transparency each party, and the regulator, requires." 

Euroclear's FundPlace addresses the different funds market needs with a highly efficient and transparent funds processing infrastructure (order routing, settlement, asset servicing) in the different markets we service (whether CSD or transfer agent market) that cuts cost and risk throughout the fund distribution chain.

You need to be able to respond to new entrants and manage new distribution partnerships. The arrival of MiFID demonstrates the regulators recognition of this.

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