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In today’s blog, we explore real-time client concerns about growing their business franchise and firm profitability above growth that’s achievable from investment performance alone.
Clients have asked us, “Our investors are happy with our fund performance. How do we grow our business franchise and profitability over and above good investment performance? We have maxed out our fundraising potential from distribution channels in our home jurisdiction. How do we 'power up' (grow) our assets under management (AUMs) and/or Capital Commitments significantly?”
In this blog, we explore the power of overseas (cross-border) fundraising through Sales Road Maps© as key to ramping up AIFM/Asset Manager’s business franchise growth with real case studies on how Sales Road Maps© have built our client AUMs.
Let’s start by exploring the “supply” and “demand” equation.
Global trend toward investor capital flows overseas
Institutional investors including pension funds, financial institutions, Sovereign Wealth Funds and private wealth management investors increasingly seek diversified sources of portfolio “alpha” from foreign AIFMs offering a range of investment strategies not available from domestic fund managers in their home jurisdiction. Investors also seek investment strategies from AIFMs/Asset Managers that provide portfolio diversification through low correlation to their domestic investments.
This trend (the “demand” factor) is fuelled by global demographic shifts from ageing populations worldwide: national and corporate pension funds have shorter time frames for Projected Benefit Obligations (“PBOs”) based on ageing populations needing their pension payouts. Therefore, the search for portfolio alpha and risk mitigation is a high priority.
Global trend toward AIFM/Asset Managers fundraising overseas
In response to this investor-led demand for diversified investment strategies outside their home country, more than ever AIFMs, Asset Managers, financial institutions and broker-dealers are targeting investors based outside their home jurisdiction as part of their fundraising initiatives (the “supply” factor), marketing their investment funds cross-border.
Our experience gleaned from 2 decades of bespoke marketing compliance advisory is that AIFM/Asset Managers and financial institution, regardless of their size and global reach, underestimate the complexity of investigating country marketing regulations and under-resource their cross-border marketing compliance function to support cross-border marketing of the firm’s products and financial services overseas.
Importance of a Sales Compliance Platform
In order to fundraise cross-border/overseas, you need a sales compliance platform to support the marketing of your funds in foreign jurisdictions.
Many AIFM/Asset Managers have the sales compliance function backwards: They don’t investigate country marketing & sales restrictions up front. Instead they hire the sales team, instruct them to fundraise overseas and then deal with sales compliance “after the fact” (after they have already conducted a regulated activity in breach of regulations and/or have accepted a ticket from an investor). This approach could subject the AIFM/Asset Manager to potentially high 5-key distribution risks.
Is overseas (cross-border) fund marketing risk-free?
No. Marketing funds cross-border constitutes a regulated activity in each jurisdiction. This is why there are regulations in each country governing the promotion of financial products or services to investors in that country.
So fundraising cross-border (overseas) inherently entails RISK.
We advise clients to mitigate their distribution risks as much as possible by investigating each country’s laws in advance of marketing and complying with local regulations on the marketing of funds or financial services to investors in each country.
Read our Blog Cross-Border Marketing Compliance: What you Need to Know
What are the 5-Key Distribution Risks?
Any marketing of AIFM/Asset Managers’ funds in any country could potentially incur the 5-Key Distribution Risks including:
- Sanctions
- Investor litigation
- Investor rescission rights
- Business franchise
- Reputation risks.
Read our Blog 5-Key Distribution Risks for Cross-Border Marketing
Supercharging AUM/Committed Capital growth: Fund distribution is KEY
While good fund investment performance and attention to client preference for investment approaches (i.e. ESG) is helpful, investment performance alone will not “supercharge” the AIFM/Asset Manager’s growth in assets under management or committed capital. The only way to grow their business franchise significantly is through fund distribution.
By “supercharge” we mean +400% to +500% in AUM and/or Committed Capital growth.
Practically, more often than not, there are limits on the amount of AUMs or Committed Capital that AIFMs/Asset Managers can raise in their own home jurisdiction. This means the AIFM/Asset Manager must go overseas to truly supercharge their fundraising potential, meeting overseas investor demand for their investment strategies. And to market your fund in any country, you need a Sales Road Map©.
How do Sales Road Maps© support overseas fundraising?
We invented the Sales Road Map© in 2006 as a unique compliance guidance tool to help fund managers navigate through the complexity of country fund marketing regulations.
Sales Road Maps© are as fundamental for cross-border AIF fundraising as your fund offering document and marketing collateral (pitchbooks). Each Sales Road Map© is a compliance guidance tool instructing sales, legal & compliance teams with 2-track objectives:
- Information tool: Tell us what the country’s fund marketing regulations are (and)
- Compliance tool: Tell us how to comply with the country’s fund marketing regulations
The logic flow of each SRM content is: I need to know 10-key items before marketing my fund in any jurisdiction.
The Power of Sales Road Maps©: Case Studies in AUM Growth
We can demonstrate the power of Sales Road Maps© to business growth. In 2 decades of bespoke GSC Ltd. client advisory, we have the below 4 “real-time” client case studies that prove the “power of Sales Road Maps©” in growing your business while mitigating your 5-Key Distribution risks:
1. 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 was 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 history
2. 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 was engaged to build global marketing platform, starting with London office
- 2019: GSC managed client project registering Hong Kong affiliate for Asia-wide coverage
- Originally US presence only, now global (55+ Countries)
3. 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 history
4. 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 2 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
Summary
The power of Sales Road Maps© to grow the AIFM/Asset Manager’s business franchise with positive impact on firm profitability is real (and documented). They work.
Practically speaking, it is not possible to “supercharge” your AUM/Committed Capital growth by +400% – +500% and more by fundraising in your own home jurisdiction only. You need to extend your fundraising overseas to obtain that kind of supercharged growth. Our client case studies show that (good) investment performance alone is not enough to supercharge AUM growth.
And to market AIFs overseas, you need a Sales Road Map© to guide you through the complexity of cross-border marketing regulations in order to comply with each country’s regulations.
It’s exactly like a road map to traverse cross-border or drive in a new, unfamiliar country.
Compliance with Sales Road Maps© mean the AIFM/Asset Manager comprehends country fund marketing regulations and implements sales practices to comply with those regulations, targets the right investors and mitigates their distribution risks as much as possible.
Sales Road Maps© help you not only grow but grow safely to reach that overseas investor with your unique investment strategies and skills.
Want to learn more? SRMO is here to help.
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Sales Road Maps Online®: “Transforming marketing compliance®”