Specialising in fund information, technology and services, FE fundinfo, a financial data company based in London, discussed the main challenges asset managers face in global fund distribution in a two-part Q&A with Delano. Maxime Aerts, head of asset management product strategy based in Luxembourg, and Joerg Grossmann, chief product officer based in London, bring decades of expertise in funds distribution. FE fundinfo is also the parent company of Fundsquare, a fund distribution service provider in Luxembourg.
Kangkan Halder: What are the main challenges fund managers face today in distributing their funds globally?
and Joerg Grossmann: The market-wide challenge for distributing products is to swiftly and proactively adapt to changing market trends, develop innovative products in line with those changes and walk the ESG talk.
Over the last decade, we saw substantial asset growth fuelled by market performance; however, the changing macro environment and increasing interest rates have put pressure on results, making other products more attractive than traditional funds.
Money market instruments have become more attractive again, resulting in flows from mutual funds into savings accounts and from equity funds into lower margin money market funds, and have substantial financial impact on asset managers. This trend highlights the macroeconomic challenges that fund managers face, requiring them to differentiate their offerings from competitors to attract more inflows. Many funds follow similar strategies and benchmarks, making it essential to find unique selling points through performance, investment strategy, client service, branding/marketing or distribution methods.
Another significant challenge is innovation within the industry. Although there are new instruments and vehicles, true innovation in investment strategy is challenging. Boston Consulting Group statistics indicate that around 75% of assets in funds today were in funds that existed ten years ago, making it crucial to focus on personalised and specialised sales experiences and higher service levels. Given that the results are under pressure, our offering helps increase the top line and help asset managers grow. While given the pressure on results, we help asset managers reduce costs.
Lastly, the time-to-market for new products remains a critical factor, combined with the requirement of most investors to see a three-year track record, makes it additionally challenging, an asset managers need to know today what will be hot in three years. Therefore, asset managers must ensure their products are quickly available and ready for distribution when the demand arises. This is essential for maintaining a competitive edge and establishing a solid initial relationship between the investor and the asset manager.
You mentioned ESG. Are there any specific challenges related to environmental, social and governance products?
There is a growing global awareness about the importance of ESG, and many asset managers are creating products that align with these values. However, this brings on challenges when proving the ESG credentials and measuring their impact.
Today’s investors are increasingly concerned about whether ESG products deliver on their promises. They need transparency and trust in what asset managers declare as ESG-compliant. This presents a challenge in balancing ESG compliance with performance. Convincing investors to make this shift requires building confidence and providing transparency on ESG compliance and performance data.
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Is ESG investing still gaining momentum, or have you observed a shift in investor sentiment?
ESG investing remains essential, but its momentum has somewhat stabilised. Investors are still interested in ESG products, but there is a stronger emphasis on performance and risk mitigation, and to what extent ESG factors reduce investment risks. While ESG regulations constantly evolve, asset managers face challenges in providing transparent and reliable ESG data. Ensuring compliance and avoiding greenwashing are critical.
How has digital transformation influenced fund data management and distribution, and what role does technology play in enhancing these processes?
Digital transformation impacts all asset management activities. The visible part of the iceberg is the client experience: KYC, onboarding, tools for selection, transaction, as well as fund documentation and report production. All these underlying processes can be transformed based on technology, meaning that digitalising the different processes increases efficiency. At the same time, it’s vital to remember that all digitisation is based on data, so its quality is fundamental to any digital transformation.
New technologies, like AI (artificial intelligence), LLMs (large language models) and OCR (optical character recognition), ensure flexibility and enhance how data is used and shared, benefitting any data-relying process, in particular in distribution, it makes product offering and selection more straightforward and makes investor onboarding smoother.
To what extent are asset managers already embracing digitalisation and what can be improved in the short run?
As asset managers increasingly seek ways to differentiate their offerings and services in a dynamic market, this often involves leveraging new, innovative digital journeys to facilitate traffic and drive demand. Technology is a crucial differentiator in an industry that was traditionally quite analogue.
Consistent and professionally managed data is essential for creating seamless digital user journeys. With machine learning and AI’s rise, accurate and comprehensive data is even more critical, as these technologies rely on high-quality data to produce meaningful outputs.
Digital transformation has also focused heavily on client onboarding processes, such as KYC procedures, which used to be entirely paper-based. The shift towards digital onboarding aims to speed up and streamline the process, making it more efficient and user-friendly.
Additionally, asset managers are faced with increasingly complex target requirements for funds.
While there has been progress, particularly in data research and idea origination, there is still considerable room for improvement in ensuring data consistency, sharing and lifecycle management across different stages.
On the operational side, where multiple parties are involved--including custodians, transfer agents and distributors--the lack of data sharing among these actors often leads to replication, inconsistencies and operational inefficiencies.