One of the most regular conversations between me and my sales peers is on the question: how does a fund feature on a gatekeeper’s recommended list?
Out of 6000 UK-domiciled mutual funds and total assets of £990 billion, 25% of the total is contained in just 25 funds, with 200 funds with assets in excess of £1 billion each!
Research in Finance* states that 96% of discretionary fund managers report working to a central buy list and the breadth of the list varies dramatically between firms. Citywire also acknowledges that 70% of platform flows are under the influence of the gatekeepers. In 2017 their survey showed that 41% of leading fund buyers added to their list, compared to 25% who made it more concentrated.
Working in sales I should know the answer to the primary question, and would hope that funds with consistent alpha in the previous three years, assets of at least £200 million, a five-year track record, and a competitive fee structure are all areas that are looked at. However, the caveat that past performance is not a guide to future performance should be duly noted!
In 2017, Citywire showed that 41% of leading fund buyers added to their list, compared to 25% who made it more concentrated
However, this is not always the case. A good example is in the US, where a fund run by large US institution has a three-year alpha of 0.38% and is on 15 gatekeepers' lists, yet the top performer with three-year alpha of 8.83% is only on three gatekeepers' lists. (Source Fundscape)
Equally, whilst the majority of firms don’t consider small funds (sub £100 million or £200 million) for their buy lists, others may support a smaller fund if the price is right and the asset manager can convince them that the fund will quickly gain momentum.
In fairness, the gatekeepers meet thousands of different fund managers every year, from a vastly oversupplied market. So what makes a fund stand out from the crowd?
Gatekeepers meet thousands of different fund managers every year, from a vastly oversupplied market
Having secured the meeting, time is of the essence and it is usually the norm to have an hour to showcase the fund. Many fund selectors will give a brief introduction on their firm and why they wanted the meeting. If they don’t, I would always recommend asking the client some 'overt' questions and establish what they want to get out of the meeting.
For a visual, the default presentation application is usually PowerPoint. Scores of people dislike it, yet in reality most executive level communication is done in PowerPoint. Preparation is key, and too many slides can be overwhelming. From the meetings that I have co-hosted over the years, fund selectors usually want to hear from the fund manager about their investment philosophy and investment process. I believe the first part should be short as often the pitch can be lost in jargon around 'bottom up', 'top down' or the virtues of the asset class. The philosophy should be more around what is unique, how we identify stocks, and why they are sold?
The part of the meeting where the sales person can go wrong is to highlight the fund performance slide. We are all proud of shouting from the rooftops that a fund has top quartile performance over most time periods, yet we often forget that the fund buyer is only ever concerned about performance from the moment they have invested.
Another frustration is not including within the PowerPoint deck basic information such as costs, a SEDOL code or an ISIN code. It is amazing how many times this information is omitted from the slide deck.
Being added to a buy list doesn’t always guarantee fund flows
Following the meeting, feedback is important for the fund seller. I recognise that fund selectors meet a number of managers, yet it is always courteous for the sales person to be given both positive and negative feedback for the fund manager. Equally, if a gatekeeper adds a fund to a panel, they require updates and regular engagement. Above all, being pro-active when a fund underperforms, explaining this and how the fund manager is responding, can make all the difference.
Lastly, being added to a buy list doesn’t always guarantee fund flows. It is the job of the sales person to create demand, and sell the opportunity. Service is key, something underlined by Research in Finance, who state that three fifths of discretionary fund managers view asset management salespeople as a valued source of information for their fund research.
*A market intelligence, publishing and business information provider
Just over a month ago we completed our Capital Ring 4 Kevin Chessum (CR4KC) challenge. I thought I would take advantage of the proverbial 'summer lull' to provide an update.