Getting control over the distribution chain: investors, data and process

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.

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.

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.”

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."