All mutual fund managers have a goal when launching a new fund, whether it is to take advantage of a new market opportunity, to migrate smaller institutional accounts to a more flexible vehicle, to offer a new vehicle to a specific channel, or a combination of several other goals. Having an action plan for distribution can help these managers get their strategy off the ground in a sound and resource-conscious way.


Many times, managers have an existing strategy that they are packaging in a new way. This can be due to the desire to become more efficient, by offering a fund for smaller institutional accounts, or because a consultant or platform requested a specific vehicle to allow them to offer the strategy to a new market. The answer to the question "Why launch this fund?" often determines the channel it will fit into. Your distribution strategy is very closely tied to whether you are targeting the DC/DB market, RIAs, wire houses, or another broker-dealer. It's also essential to confirm market interest. You can gauge interest by looking for confirmation from consultants, financial advisors and home office gatekeepers. These centers of influence can also advocate for your availability on platforms, provide seed funding and help determine asset class interest.

Packaging Share Classes

An often underestimated component of launching a new fund is determining which share classes are right for a particular market. Due to the proliferation of asset based fees and other platform fees, informed decision making about share class development is critical to designing the right packaging for the platform while keeping an eye on total expense ratio and manager profitability. For example, fund managers have been moving more towards no-load classes that include a 12b-1 fee to accommodate the increase in retail platforms. In addition, the increasingly prevalent advisory or institutional platforms require institutional share class pricing, which incorporates a higher minimum/lower fee option to appeal to advisors who charge a wrap-fee.

The Agreement Process

Another consideration is the platform agreement process. The dealer agreement process can take anywhere from a few days to six months, depending on the channel or intermediary. While some platforms won't begin due diligence review until there is a final prospectus filing, others have specific milestone requirements that need to be met before they are considered for a platform. To manage this process, it is important to stay focused by partnering with a select set of intermediaries and target one specific channel at a time. Managers must understand platform requirements, including fund track record requirements, AUM levels and investment advisor due diligence.


Platform and ongoing fees vary widely and are a considerable expense that needs to be understood and accounted for in advance of a fund launch. Common fees include fund setup fees, CUSIP addition, asset-based fees and networking fees.

Branding and Delivery

Building a recognizable brand can be another hurdle to distribution success. This is particularly true in the financial advisor market where new managers must compete against families that have large wholesaling forces and marketing budgets that connect with advisors on a regular basis. Overall best practices for a brand include:

* Invest in education: Advisors hunger for smart, yet simple to explain information that they can use in client meetings. For example, alternative '40 Act managers are teaming up to produce road shows that educate advisors on the risk mitigation that their hedge-fund like strategies offer client portfolios.

* Start with an internal wholesaler: The average external wholesaler compensation ranges between $250-$350k. Since a new fund has to overcome certain fund milestones to be platform eligible (i.e. 3yr track record, AUM thresholds, etc), it may be a better dollar spent to hire internal wholesalers to build brand awareness.

* Stick to your message: Be consistent with your advisor education program regardless of performance and continue to provide your best thinking through challenging asset class periods.

* Hire a PR firm: Public relations firms specializing in investment management will develop multi-media marketing campaigns, improve web presence, and help generate positive press in good and bad times.

Partnering with a service provider that understands the distribution landscape and has legal agreements in place can help you navigate the complexities involved in a launching a new fund. Overall, managers that take the time to create a strategy for launching a new fund have the most success.

Jonathan Dale is director of distribution for SEI's Investment Manager Services division. 

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