The simplest things can be the most easily overlooked when it comes to building a fund business, according to Jon Poyer, sales and distribution manager at Northern Lights, an Omaha, Neb.-based broker-dealer that specializes in advisor-driven solutions for fund distribution and fund compliance services.
Poyer leads the firm's and its affiliates' sales and distribution team, "playing matchmaker" to connect the firm's clients with broker-dealers, wirehouses, fund platforms, custodians and clearing firms. Northern Lights manages over 250 mutual funds and just under 120 fund families for registered investment advisors. Products range from managed futures and hedge-type mutual fund strategies to asset allocation and fixed-income funds, as well as exchange-traded fund strategies packaged into '40 Act vehicles.
Many of Northern Lights' relationships are forged thanks to sister company Gemini Fund Services, a fund administration and accounts firm that employs a due diligence process to help identify those companies that can achieve the "break-even point" of business-around $15 million to $20 million in assets these days. Firms require around $50 million to $60 million to achieve full 100% management fees, according to Poyer.
Big draws among broker-dealers and investors in 2012 included risk mitigation and fixed-income products, according to Poyer. Another strategy favored by investors is what Poyer calls a "tactical overlay of a bond strategy," which he describes as situations where bond managers can "move cash" alongside a small equity allocation. But "2013 is going to be a great year for equities," Poyer said. Small-cap managers in particular seem to be in great demand.
"You'll see the marketplace moving for good equity funds. If you can find a good stock picker out there and can find value there, I think those do well."
Other products that are "hot" at the moment are alternative investments such as master limited partnerships or long/short global macro funds, and mutual funds packaged as variable insurance trusts and distributed through an insurer such as Jefferson National. The latter is a response to investors' desire for tax-efficient versions of mutual funds. Poyer also highlighted closed-end interval funds investing in real estate as another hot item.
But success is not just about the products. Poyer emphasized that firms should invest in their distribution efforts and in a timely manner. "It's all about being proactive," Poyer said. "Someone who rolls out of bed and goes to work, you can't rest on your laurels and your old Rolodex. You've really got to go out there and get new connections. That's the first principle."
He pointed to firms that have proven they can pull ahead in the game including Austin, Texas-based exchange-traded fund shop Innealta Capital; the Durango, Col-based Swan Wealth Advisors; and managed futures shops like Altegris and Princeton Fund Advisors. Innealta's success is attributed to strong relationship building and connections, according to Poyer.
The firm has committed its resources to meet demand for a mutual fund by adding wholesalers to their accounts, as well as public relations and marketing staff. Swan Wealth is similar, utilizing its separately managed account (SMA) connections to raise $120 million into the Defined Risk Fund within half a year, Poyer said.
Investment in public relations is also critical in ensuring that "you have someone consistently telling your story," Poyer said. He stressed the need to determine a strong branding message, especially to build the reputation of being an expert in the category a manager's fund is in.
"Oftentimes people say PR is so expensive, I'm not going to get there. But PR's more than just being on Bloomberg; it's about helping you build a brand and delivering good thought leadership-which is an annoying buzz word, but it's an important buzz word,'' he said.
Leading with education is a good way to accomplish such goals, Poyer said. With alternatives, for instance, firms that have dedicated resources to educate investors on what alternatives are and how to use them in a portfolio are the ones who "do really well and who the broker-dealers are really pleased to have," Poyer said. Altegris and Princeton also get ahead in the managed futures game by educating both at the "top-down" (i.e. from the home office to the advisors) and from the "bottom-up" (individuals), he explained.
Asset managers tend to place elements such as solid branding strategy and a focus on key accounts on the back burner in the grand scheme of money marking. But these types of often neglected ingredients can make or break the recipe for mutual fund success.
Don't neglect your key accounts personnel, Poyer warned. Having a dedicated individual make new connections by directly reaching out to wirehouses can be critical to "setting the stage" for funds. Even if it won't "open doors right away," the key accounts person can provide thought leadership and build those relationships.
Also, don't forget to appoint a dedicated internal representative, "somebody to service existing clients and relationships you have to drum up business," Poyer said. Regardless of whether you later develop the individual into a hybrid internal and external wholesaler or an entirely external role, "that internal person's very important," Poyer said.
Finally, don't resort to hyperbole. "Typically what we see is if somebody leads and says, 'Our strategy is the best strategy no one's ever heard of. We just backtested these numbers and they're out of this world,' those are the ones I'm most wary of." On the other hand, "The funds that lead and say, 'Our SMA clients love what we do and they always ask us about mutual funds,' those are more interesting to me," Poyer said.