Fund Platforms Adding Value and Efficiency to the Distribution Model
A global opportunity from the fragmentation of fund distribution and a key to benefit from innovative solutions.
The size of European Fund Platforms has grown significantly over the past 5 years through the acquisition of a larger share of the total fund market. In parallel, M&A operations have led to the concentration of more than two-thirds of total institutional platforms’ assets under administration on three leaders, including two Central Securities Depositaries (CSDs).
The main drivers of growth are rooted in an increased demand for product specialisation, a high pressure on fees among all stakeholders, and a constant expansion of regulation. Fund distributors have now fully integrated the fund platform model in their strategy. They are making the choice to save costs and focus on their core business, externalising their flows, bearing tremendous regulatory requirements; they are looking for efficiencies and agility. They outsource their rebates collection, KYC, and data solutions to fund platforms that mutualise efforts and trailer fee rates between different European distributors with the goal of harmonisation and growth of revenues.
Fund Platforms are offering direct access to a global and diversified fund universe; more than 35% of the European transaction flows are now supported by Fund Platforms and we will see an acceleration. (1)
Fund Management Companies are also relying on Fund Platforms adding benefits and finding solutions to the fragmentation of fund distribution. With MFEX, they have immediate access to 350 fund distributors.
This model involves managing the complexity of cross-border distribution, leveraging technology to meet the challenging requirements on due diligence and oversight of any stakeholder in the distribution network.
With regulatory pressure continually rising, the industry is looking for solutions to reduce the administrative costs and accelerate the sales process. Full transparency in the sub-distribution network is commonly a requirement, and a look-through approach is mandatory for all professionals. We observe a multiplication of efforts across fund distribution counterparties due to the intermediation in the fund distribution model.
MFEX has developed its own digital compliance service with Global Fund Watch that facilitates any due diligence process, standardised or tailor-made, in a secured and centralized platform, acting to streamline and oversee the process. We have seen great interest and immediate benefits for our clients.
Other disruptive models are emerging with FinTechs and blockchain trying to tackle the challenges of fund distribution, which might be effective on direct-to-consumer distribution only.
Fund platforms bring value and efficiency in the B2B distribution model with scalable benefits.
(1) source: Platforum survey 2020
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