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In last week’s blog, we explored real-time client concerns on how to grow their business franchise (“powering up AUM/Committed Capital”) and firm profitability outside of investment performance alone, through overseas fundraising in the firm’s funds offering.    

In this week’s blog, we explore the practical issues after ramping up the AIFM/Asset Manager’s AUM growth, this time with an operational perspective on “what to expect”:  what happens in practice to a firm post-significant business franchise growth (i.e. defined as +400% to +500% increase in AUM/Committed Capital)?   

For completeness, “significant” business franchise growth can be achieved through both overseas fundraising as well as acquisitions, but for the sake of this article, we will focus on overseas fundraising. The same operational impact still applies to both methods of business franchise (AUM) growth.  

Additionally, we refer to “Assets under Management” (AUM) growth throughout this blog; however, we equally refer to Committed Capital growth (for LPs) as part of business franchise expansion.    

To demonstrate the impact of “supercharging growth” and a firm’s “post-growth” subsequent ongoing success or failure rate, we provide real-time examples in our Client Case Study – Part II on what can “go wrong” (downside risk) and what can “go right” from an operations perspective.  

You want to “supercharge” your business franchise growth through overseas fundraising?  Here’s “what to expect”:        

Operational Support: Risk mitigation through a Sales Compliance Platform 

In order to fundraise cross-border/overseas to “power up” AUM growth, you need a sales compliance platform to support the marketing of your funds in foreign jurisdictions. A robust sales compliance platform including Sales Road Maps© will support cross-border fundraising activities overseas while mitigating the AIFM/Asset Manager 5-key distribution risks.  

Read our blog 5-Key Distribution Risks for Cross-Border Marketing.   

Post growth period, ideally AIFMs/Asset Managers want to maintain their higher level of AUMs and put in place the infrastructure to support their expanded business. Other fund managers want to keep the AUM growth momentum going, building upon their new level of AUMs as the platform to take growth even higher.   

So what is needed is an operational platform that supports this new level of AUMs while ensuring business stabilization to support even further growth ramp-up over time.    

Operational platform post AUM Growth: How to define “success” 

After an AIFM/Asset Manager experiences significant growth in its AUMs through overseas fundraising, the fund manager must build out its operational infrastructure to support the increased AUMs generated by new clients from foreign jurisdictions – each of which has unique compliance and regulatory requirements.   

It’s no longer “business as usual”.   

You cannot operate under your old business (size) paradigm after supercharging your AUMs through overseas fundraising, especially if you have expanded your jurisdictional reach for clients and prospects.   

Your operational platform should be robust enough to support this higher level of AUMs, clients and jurisdictions, including (but not limited to) the following key components: 

• After Sale Client Servicing: Don’t fire your sales team. Give them another hat called “Client Relations Managers” (CRM) to conduct the vital function of “after-sale client servicing”. 
• Ongoing reporting & disclosures: Get ready for ongoing fund reporting and disclosures obligations that will likely increase, most of which are largely driven by local country regulatory requirements and the types of investors you are servicing post-fund sale.
• Headcount hires: Hire additional operations, legal & compliance staff to cope with this new level of reporting & disclosures as well as compliance with more jurisdictional regulations including ongoing fund registrations, passporting and/or notifications. 
• Licensing status: Keep an eye on your licensing status in all countries where you have clients and/or prospects: Does your existing license enable you to conduct adequate marketing, sales and after-sale client servicing? If not, conduct the due diligence on license registration vis a vis your business model for that country and register for a license if needed.
• Cross-border compliance books & records: Hire a team of cross-border distribution compliance staff tasked with (among other tasks) creating and maintaining in-house books & records for all marketing, sales and ongoing reporting/disclosure obligations and other compliance filings due to your new exposure to more jurisdictions.
• Training: Invest in a robust sales compliance training program that trains your sales teams, client relationship managers, legal, compliance and operations teams on the country regulations pertaining to your marketing/sales/clients.
• Risk Mitigation: Keep robust cross-border compliance books and records as well as sales compliance training records updated, maintained and saved to compliance files in case you are ever challenged with any of the 5-Key Distribution Risks.   

This operational platform can be built using a combination of in-house staff and external specialist consultants and law firms to ensure you maintain your new (higher) level of AUMs and support future business growth to “ramp up” AUMs even further.  

It’s like building extensions on to your home with a foundation built to support a smaller home: expand and secure your home’s foundation before you add-on new home extensions.    

Operational platform post AUM Growth: How to define “failure”

From an operational perspective, how would we define “failure” post significant AUM growth? For example, if an AIFM/Asset Manager was doing business in 5 countries and now they have sales/clients in 55+ countries worldwide, here are some of the post-growth “failure” telltale signs: 

• Business As Usual: The AIFM/Asset Manager carries on “business as usual” under the same mindset of doing business in 5 countries. They do not build out their operational infrastructure to support a higher threshold of AUMs sourced from multiple (55+) foreign jurisdictions subject to different regulatory regimes.   
• Firing the Sales Team: The AIFM/Asset Manager fires their sales team thinking they don’t need to gather assets anymore. No CRM team is put in place to service existing and new clients.   
• Losing Clients: After-Sale Client Servicing is neglected, resulting in lost clients because no CRM team is put in place to service the new clients in 55+ countries.   
• No headcount hires (staff burnout): The AIFM/Asset Manager does not hire new legal, compliance or operational headcount to handle the 55+ jurisdictional complexity and regulatory requirements to market and sell funds overseas. Their staff suffers burnout from their increased workload and possibly quit the firm.   
• The 5-Key Distribution Risks kick in: The AIFM/Asset Manager breaches country regulations and is sanctioned by local NCAs, leading to business franchise and reputation risk. Onsite inspections by local regulators result in compliance audit “fails”. Investors complain to the regulators and could sue the AIFM/Asset Manager for a variety of reasons, including breaches of local fund marketing regulations, licensing requirements, reporting failures and/or mis-selling.
• AUM Loss: Ultimately, the AIFM/Asset Manager is at risk of losing the AUMs they gained through overseas marketing campaigns due to the lack of awareness about building an operational platform to support the business post-growth.   

So under the “operational failure” module, the AIFM/Asset Manager cannot maintain its higher AUMs level, they cannot grow their AUMs for the future and have lost all their hard-earned gains from overseas marketing.   

Like building extensions on to your house that had a shaky foundation in the first place:  Sooner or later, the house will collapse.   

The Power of Sales Road Maps©: Case Studies in AUM Growth

In Part I of our Blog last week, we demonstrated the power of Sales Road Maps© to business growth via overseas marketing in 4 “real-time” client case studies below:

Case Study #1 Client Profile: 11-year AUM Growth +500%

• Global AIFM with 30-year track record specialised in emerging mezzanine debt asset class
• Diversified private debt, PE, infrastructure & credit
• Stagnant AUM at $14BN for several years notwithstanding good investment performance 
• 2012: GSC engaged to build in-house marketing compliance platform. Current affiliate presence in 16 countries
• AUM growth from $14BN to $82.1BN: most successful growth rate in firm 30+ year history 

Case Study #2 Client Profile: 15-Year AUM Growth: +400% 

• Global AIFM with 30-year track record – PE, real estate and infrastructure secondary investment 
• 2008: GSC engaged to build global marketing platform starting with London office 
• 2019: GSC project registering Hong Kong affiliate for Asia-wide coverage
• 2021: AIFM became attractive candidate for acquisition by global diversified AIFM 
• Originally US presence only, now global (55+ Countries)

Case Study #3 Client Profile: AUM Growth: +500%

• AIFM began operations on Citigroup platform (1998)  
• Quantitative AIFM/Asset Manager with statistical methodology for GFM trading 
• Stagnant AUM of $6BN for several years 
• 2008: GSC engaged to build compliance platform to promote flagship hedge fund in 55+ jurisdictions worldwide 
• AUM growth from $6BN to $34BN: most successful growth rate in firm’s 25-year history 

Case Study #4 Client Profile: AUM Growth: +400% 

• Quantitative AIFM/IM producing range of systemic strategies 
• Ex-World Bank founder 
• Stagnant AUM at just under $1BN for two decades  
• 2014: GSC engaged to build marketing compliance platform to support global distribution of the flagship hedge/CTA/UCITS funds & services in 55+ jurisdictions worldwide 
• First time record AUM growth in firm’s 28-year history  

What is the success and failure rate of the Client Case studies?

While time will tell for long term “business success rates” in the 4 real-time client case studies post-AUM growth (listed above), there is a 50% success rate and 50% failure rate.

In the “success rate” category, clients realised the complexity of cross-border regulatory compliance up-front, grew AUMs substantially, then built out their operational infrastructure to support this new (higher) level of AUMs, with ambitions to ramp-up AUM growth even further. These clients are well-equipped to do business with clients from 60+ jurisdictions worldwide and can manage the complexity of regulatory requirements associated with country-specific marketing regulations.

In the “failure rate” category, these clients did not realise the complexity of doing business in a much higher level of jurisdictions (going from 5 countries to 55+), carried on with “business as usual”, did not build out the operational infrastructure to support their higher level of AUMs, suffered staff burnout and key employee exits from the firm, did not hire new headcount and ultimately lost on average 80% – 90% of their AUMs gained from cross-border marketing. These firms went right back to their starting point AUM level before commencement of international marketing. Not a resounding success.

Summary

AIFMs/Asset Managers: Do you want to grow your business franchise with substantial AUM/Committed Capital growth through overseas marketing?

Be careful what you wish for.

Know what you are getting into: Equip yourself up-front with the power of Sales Road Maps© to grow your business franchise through cross-border marketing while mitigating your 5-Key Distribution Risks.

Invest in Operational Infrastructure: With substantial AUM growth and success rates in doing business in multiple overseas jurisdictions, be prepared to build out your operational infrastructure (including legal, cross-border compliance, technology, operations) to support your new-world-reality of multi-jurisdictional regulatory complexity.

Otherwise, your house of cards may fall and all your hard-earned efforts on international fundraising could go “down the drain”.

With 2 decades of specialised cross-border compliance experience, SRMO is here to help.

Begin exploring SRMO now

www.salesroadmapsonline.com

Sales Road Maps Online®: “Transforming marketing compliance®”