RETHINKING DISTRIBUTION

What will be the key implications?

Understand the local market specificities European Asset Managers may have difficulties in dealing with investment and product preferences of local investors, highlighting the necessity to set up a local presence (especially in sales and distribution).With the support of adequate skills and expertise in investment and distribution, European promoters will be likely to deliver attractive performances and adapt their fund range to local demand. An interactive dialogue between the sales team and local distributors and investors as well as a clear process of feedback to, and cooperation with, central product development teams will be key to success. Partnering with local managers for expertise Risks when entering a newmarket could be reduced through partnering with local emerging market players to leverage on their market knowledge as well as distribution power. Partnerships will also be the dominant distribution strategy in countries where protectionist regulations prohibit a foreign market entrant without involvement of local players. However, careful consideration needs to be taken while choosing the right partner with clear evaluation of the added value input and expectations of both partners. Build brand trust Brand is a key success factor when entering a market. In this context, the UCITS brand has been a door-opener for many large European fund managers. It will be up to the industry and the European regulators to maintain the brand quality. Asset managers have now also started to invest in their own brand to increase their recognition in emergingmarkets.When targeting retail investors, building a brand could increase sales through demand for the specific brand through the investor.

Implications for the industry and regulators

The tremendous potential of emerging markets provides a huge opportunity for the European fund industry. However, an increasing level of protectionism on behalf of emerging countries may put the potential of distribution of European funds at risk. The establishment of a “Reciprocity agreement” allowing on one side European funds to be distributed freely in selected emergingmarkets and on the other side, emerging market funds to be distributed in Europe without restrictions would ensure a sustainable and significant growth of the European market for the long term. Another step would be to allow for some Asian and emerging market regulators to be an integrative part of new regulatory developments around European fund regulation. This does not need to go as far as giving such regulators voting rights but instead close consultation, dialogue and weighing their concerns within development of new regulation. These actions should be accompanied by a strong push of the industry to strengthen the trust in the UCITS brand internationally and building of trust in AIFM. 37