Basic HTML Version
20
|
Introduction and Overview of 40 Act Liquid Alternative Funds
firm platforms such as eTrade, TD Ameritrade, Charles
Schwab and others, as well as the online mutual
fund supermarkets that are typically sponsored by
different asset managers that provide their investors
the option to access multiple fund families from one
sign-on location. Assets in this pool were listed by
Cerrulli Associates at $3.7 trillion in 2011.
Marketing Strategy
The most important point for a hedge fund to consider
when thinking about the marketing strategy for its
alternative mutual fund products is that the investing
audience is completely different from their traditional
qualified investment purchaser (QIP) or institutional
buyers. One illustrative quote we heard in gathering
information on this space is that “hedge funds are
bought, mutual funds are sold”. This refers to the
fact that there is a tremendous time and educational
commitment required for those IMs interesting in
offering alternative ’40 Act product.
There are several paths a manager can take when
deciding how to execute its marketing strategy, but all
of these paths require the manager to have dedicated
resources, either internally or externally, focused
on the public investing audience and their advisers.
To be successful in this endeavor, a fund manager will
need senior management’s commitment to this effort,
and a well-understood brand strategy and marketing
message that differentiates how the publically offered
fund products differ from the manager’s traditional
private hedge fund offerings. If done successfully,
the result of these efforts can significantly increase
the firm’s brand value in the marketplace and overall
profitability of the management company.
One option is the commitment to expand their existing
marketing function with a new team dedicated to
the publically offered fund space. This approach has
direct management company resource implications
and bottom-line impact and, as such, may not be
a good starting point as a hedge fund manager is
considering its level of commitment to the publically
offered fund space.
Other marketing strategies can make use of a range
of strategic arrangements and relationships with
existing distributors and fund sponsors. A manager
may endeavor to simultaneously undertake more
than one of these options to maximize its marketing
and distribution efforts. Some of these decisions will
be dictated by the fund’s and manager’s specifics
dynamics, including size of fund, length of track
record and strategy employed. We will explore some
pros and cons of these options.
Chart 9: Open-End Mutual Fund Distribution Channels
$20M
$150M
$500M
Chart 9
Source:
Citi Prime Finance Analysis.
Distribution Channel (Bubbles)
Fund-Level AUM
Open-End Mutual Fund Distribution Channels
Institutional &
Adviser Share
Class
RIAs, IBDs & Dually
Registered
$3.97 Trillion AUM
C Share
Class
Institutional &
Adviser Share
Class
Wire Houses,
Regional & Other B/Ds
$7.62 Trillion AUM
A & B Share
Classes
Institutional &
Adviser Share
Class
Discount Trading
Platforms & Mutual
Fund Supermarkets
$3.68 Trillion AUM
C Share
Class
Source: Citi Prime Finance Analysis.