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Efficient Cross-Border Distribution: Throw spaghetti at the wall and see what sticks? Or focus on “low-hanging fruit”?
Increasingly, Alternative Investment Fund Managers (AIFMs) and Asset Managers are fundraising outside their home country to access pools of institutional capital from leading investors in foreign jurisdictions seeking unique sources of alpha.
Since 2006, Global Sales Compliance (GSC) has worked closely with AIFM/Asset Manager marketing teams to ensure compliance with cross-border marketing rules. In our experience, cross-border marketing compliance and fundraising (distribution) efficiency are inextricably linked and positively correlated.
In this post in our new SRMO Blog & News section, we provide GSC’s real-time observations of client cross-border distribution (marketing) strategies that are “efficient” and those that are “less efficient”.
AIFMs and Asset Managers who wish to fundraise in their funds and financial services cross-border (overseas) outside their home jurisdiction face an extraordinary task: country specific regulatory requirements are overwhelming in their diversity and complexity. A reasonable industry standard for the definition of “efficient” cross-border distribution is overseas fundraising campaigns which result in:
- raising assets (legally) in compliance with local country regulations
- fundraising quickly (in less time)
- incurring fewer costs
- mitigating 5-key distribution risks
Choose your distribution approach
When choosing to fundraise cross-border (overseas), AIFMs/Asset Managers have a choice of their distribution approach: one that is efficient or less efficient. We encourage clients to choose an efficient cross-border distribution (marketing) approach that is strategic and compliant with country regulations which are investigated in advance. A less efficient distribution model is a non-strategic approach which we have seen in practice could potentially take more time, incur more costs and lead to higher distribution risks.
Non-Strategic Distribution
Under the non-strategic approach to cross-border marketing, or “Throw spaghetti at the wall and see what sticks”, the local country’s marketing rules are not investigated up front, so the AIFM/Asset Manager is unaware of the local regulations on marketing financial products or services and if these laws are applicable to them. The goal for this non-strategic distribution approach is for sales to randomly target clients in as many countries as possible and to see “what sticks”.
Strategic Distribution
Under the strategic approach to cross-border distribution (marketing) or focusing on the “low hanging fruit”, we advise clients to investigate the local country marketing regulations in advance, before marketing commences. Think of a “Marketing Tree”: focus marketing efforts on target clients in countries with regulations with which the offeror can easily comply, that have robust exemptions (from fund registration, filings and/or licensing requirements) as well as lower distribution risks. If the goal is to fundraise cross-border in less time, with fewer costs and mitigated distribution risks, pick the “low hanging fruit” and leave the “high hanging fruit” (countries with more difficult regulatory requirements) for opportunistic plays. We help clients understand which jurisdictions fall into the “low hanging fruit” vs. “high hanging fruit” categories.
Key takeaways when you fundraise cross-border
Cross-border marketing under a strategic, focused, regulatory compliant approach reaps potential benefits to AIFMs/Asset Managers including: AUM (business) growth, faster asset/committed capital raise, fewer costs, less distribution risks and less time to fundraise. Sales teams get their bonuses faster. Overall net result: higher firm profitability.
Our advice to clients is, forget “throwing spaghetti at the wall”: focus on a strategic cross-border distribution (marketing) approach, target the “low hanging fruit”, and comply with local marketing regulations. While good investment performance is important too, we have seen that a strategic cross-border marketing approach is a proven formula for successful cross-border fundraising.
We’ve got the client success stories to prove it.
See SRMO News Article: “Efficient Cross-Border Distribution: Insights from the CEO” -- a CEO interview by J Howze