Alfi 2023: Charting fund distribution’s future

Alfi’s distribution conference is back, uniting global experts in Luxembourg, and Funds Europe has garnered insights on key topics from industry experts, including digital evolution in investments and the tendencies of Millennials and Gen Z.

The ALFI annual conference, rooted in Luxembourg’s expertise in global fund distribution, is set to convene fund distributors and asset managers from over 30 countries once again on September 20. This year, discussions will tackle the evolving landscape of the asset management industry, emphasising the retailisation of alternatives, the synergy of regulatory ESG requirements with retail investor needs and shifts in private banking client demands.

The conference will also host specialised distribution workshops spotlighting markets like Latin America, Europe, China and Asia. Highlighted in the agenda are themes such as the importance of long-term outcomes in private markets, the digital evolution in investment accessibility and the investment tendencies of younger generations like Millennials and Gen Z.

In line with these pivotal discussions, Funds Europe has reached out to several experts to further discuss and provide insights on themes, including the role of digital transformation in enhancing retail investor access, changing dynamics in private banking and the investment behaviours of Millennials and Gen Z.

Henning Swabey, head of growth, fundcraft

Does distribution technology within the funds industry still lag that of the banking industry – and why is this?
Henning Swabey, fundcraft Fund distribution is all about building a channel between the fund manufacturer and the investor, which the distributor monetises and controls. In the world of banking, retail funds and ETFs, there’s a real need for controlled channels due to the large volume of individual transactions, the relative lack of sophistication of the investors and the strict regulatory environment.

On the other hand, alternative investment funds and especially real assets, are usually complex investment vehicles that invest in complex and illiquid assets that take many years to deliver a return. They’re also harder to track and assess, and the risks and returns are typically higher. As a result, longer timeframes, lower transparency and greater risks make it harder for distributors to monetise and control a channel, especially where it’s often personal networks that determine how successful you will be at raising or investing capital.

While there is certainly a technology gap within the alternative investment fund distribution, there are numerous emerging players who are actively addressing this challenge. However, their success relies on the industry’s digital transformation so that they can engage with and enhance the banks’ distribution mechanisms.

Neil Wise, executive board member, Clearstream Fund Centre

How important are fund platforms likely to become within the distribution strategies of asset managers?
float: right; margin-left: 15px; margin-bottom: 5px;I expect fund platforms to become increasingly important as they adapt to support the diversification of investment strategies, for example, in private markets, facilitating direct investment in private assets, such as European Long Term Investment Funds (ELTIFs). Fund platforms will continue to provide crucial value for money to asset managers who need improved access to a large distribution network and will increasingly operate as central hubs, efficiently linking asset managers and distributors as well as other parts of the distribution chain. Improved front-end solutions will facilitate this and are also likely to allow for more white labelling.

How are relationships between fund platforms and asset managers likely to develop as fund platforms take a larger slice of the distribution market?
Platforms with sufficient scale, volume and expertise can increase the services they offer to asset managers and distributors and move ahead with large investments in value-added services and competitive end-to-end solutions necessary to stay relevant in the distribution space. Diversification towards more value-added services, with more and varied propositions in data and trading-related services, is achieved through acquiring technology, data or other firms. Deutsche Börse’s recent acquisition of FundsDLT, allowing for fund subscription via blockchain and Kneip fund data services for improved market intelligence, are both prime examples. Management companies and their distribution partners can, therefore, constantly refine their strategies to preserve competitive advantage and ensure compliance with regulatory requirements.

© 2023 funds europe

Carl de La Chapelle, partner, Arendt, and Paul Hoffmann, senior associate, Arendt.

With minimum investment amounts – or “ticket sizes” – of around €10,000, is this not a flaw of the revamped Eltif funds if they are meant to democratise private-markets investment for retail investors?

Quite the opposite. While it is estimated that 60% of ELTIFs in 2022 were distributed to retail investors (with the rest being reserved for professional investors), this proportion is likely to increase as a result of Eltif 2.0 provisions facilitating access to retail investors.
Where the initial Eltif regulation required retail investors whose financial portfolios were below €500,000 to invest €10,000 in a single Eltif, Eltif 2.0 now removes that entry ticket. Eltif 2.0 further improves access to retail investors by removing the minimum net worth requirement (which was set by the initial Eltif regulation at €100,000).

Eltif 2.0 also allows a safer environment for retail investors but also for distributors, as it aligns the suitability test to MiFID II and limits the burden of verifications to be performed. As a result, Eltif 2.0 should be expected to rise as the go-to-solution for retail investors, as it fills a distribution gap existing for these investors seeking access to private assets and should reduce the operational distribution complexity of the funds sponsors by extending the AIFM passport to retail investors, while at the same time facilitating its access and provide greater flexibility.

© 2023 funds europe



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