As a distributor of funds across Europe, Asia, South America and Africa we are regularly approached by producers launching unusual and interesting offerings that promise attractive and non-correlated returns.
Product development has brought opportunities for retail investors to benefit from what were previously thought of as ‘institutional’ orientated products.
Potential demand is strong. Retail investors across the world are looking to access more sophisticated products that will provide diversification and more capital protection on the downside. But for funds to be attractive and gain wide international appeal they need some important key features.
Understanding what investors require is crucial in successfully distributing funds internationally. It is also important in building them too. Here we have identified 10 key ingredients that make funds interesting both to us and to international investors.
1. Telling and selling a strong story
No-one is interested in cheap marketing gimmicks, but in the alternatives space you do need a strong “story”. Investors are looking for something different. The idea behind a fund has to be captivating. Examples of vehicles that we have seen over the last year include Brazilian forestry, legal finance, gold and silver bullion funds, one investing in car parking spaces in Dubai and even a fund investing in the potential of young footballers. One of the funds we have distributed most successfully around the world has been the EEA Life Settlements Fund buying the life policies of US citizens with life impairment.
2. Transparency
A strong story on its own is not enough. There needs to be transparency around the investment process. Intermediaries in the high net worth space will carry out rigorous due diligence and want full disclosure on costs, charges (including performance fees) and the investment process.
3. Domicile
The fund must be domiciled in a good quality jurisdiction, such as the Channel Islands, where control and reporting are exemplary and widely recognised.
4. Comfort against fraud
Keydata and Madoff have highlighted the risk of fraud and the terrible consequences. Nothing can be fraud-proof, but there are many steps a provider can take to minimise fraud risk and demonstrate integrity. Investors want to see recognised and respected independent bodies involved in the process – the ACD, auditor, custodian, trustee and escrow agent.
5. Liquidity
The crash of 2008 was caused by a liquidity crisis and created one. Many investors were stung and now the issue of liquidity is at the forefront of many advisers’ minds. This makes UCITS III compliant funds more appealing. Intermediaries want at least monthly liquidity. And they want to know what impact a 2008 scenario would have on the product.
6. Alternatives
There is a keen appetite globally for funds that invest in alternatives offering non-correlating returns to other asset classes. Investors are particularly keen on absolute return products at the moment.
7. Areas with growth potential
We have identified water/carbon trading/renewable energy resources as good examples of areas with considerable growth potential, although we have yet to identify the appropriate fund for distribution purposes. All are plays on themes which will drive the global economy in the long term.
8. Commission
Commission is still an important vehicle for adviser remuneration internationally – funds must have the flexibility to be able to offer advisers and distributors appropriate commissions.
9. The practical points
A fund should be able to offer retail and institutional share classes as well as a range of currencies. You may need to put hedging strategies in place too.
10. Realistic expectations
It goes without saying that investors want attractive returns. But they will be suspicious of a product that offers outrageous performance. The phrase: “If it sounds to good to be true it probably is” has resonance globally.
Be realistic about expectations. A fund offering absolute return-like qualities and generating between seven and 10% a year will hold more appeal than a highly volatile fund promising incredible high double-digit returns.
