Irish Funds Distribution Workshop 18 May 2018 2 irishfunds.ie - - PowerPoint PPT Presentation

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18 May 2018

Irish Funds Distribution Workshop

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Tara Doyle, Matheson

Welcome Address

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Len Sutton, JP Morgan

Introduction

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Distribution Steering Committee

• Len Sutton - JP Morgan (Global) - Chairperson
• Audrey Behan - InterTrust Group (PRIIPS)
• Chris Christian - Dechert (USA)
• Liam Collins - Matheson (Latin America)
• Vincent Coyne - William Fry (UK)
• Jim Firn – Consultant (Global)
• Kieran Fox - Irish Funds (Global)
• Killian Lonergan - BBH (Switzerland)
• Conor Owens - Mediolanum (Europe)
• Tom Ryan - Blackrock (Asia)
• Tom McGrath - Blackrock (IF Council)

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Objectives

• Develop an Irish Funds strategy for local markets in coordination with the Marketing

Steering Group

• Assist in developing the IF profile and network in local markets by attending events,

inviting contacts to local Irish Funds events and profiling Irish Funds when interacting with industry stakeholders

• Gather local market and distribution intelligence for Irish Funds and prepare distribution

information/ marketing material

• Identify and advise on distribution challenges and opportunities in the local markets
• Work closely with the Events Group to assist in the preparation and planning for Irish

Funds events in the local markets

• Arrange to meet with local distributors when attending overseas events

Moderator: Panellists:

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Panel Discussion: MiFID II & PRIIPs

Conor Clune, BBH Manuel Brieske, State Street Chuck Bohner, SSGA Marlyn Cooney, Pinsent Masons Darragh Murphy, McCann Fitzgerald

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Mark McFee, MacKay Williams

Update Session: Taking the Funds Industry’s Temperature

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2018 – Hangover or keep partying?

Source: Broadridge FundFile data at March 2018, excluding money market funds and funds of funds. Cross-border flows data from Broadridge Data Digest 2018, excluding money market funds, funds of funds and ETFs. 100 200 300 400 500 600 700 800 2017 YTD Q1 2018

Net flows – All Europe (€bn)

Equity Bond Mixed Assets Other 20 40 60 80 Austria Sweden Neth Bel France UK Germany Switz Spain Italy

Cross-border flows by market, 2017 (€bn)

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2018 – Expectations

• Positive estimate: €314bn
• Negative estimate: €17bn
• Assumptions for positive scenario include:

▷

Contracting flows into fixed income funds: €75bn – a quarter of 2017 volumes;

▷

Marginally lower volumes for mixed asset and equity: ~ €100bn each.

• Negative scenario includes:

▷

Equity redemptions of €70bn;

▷

Severe contraction in sales of all other sectors: <€50bn.

Source: MackayWilliams analysis based on Broadridge FundFile data, excluding money market funds and funds of funds.

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Secular product shifts: Out of equity

• 200

200 400 600 800 1,000 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2003 2004 2005 2006 2007 Bond Equity Mixed

Cumulative net sales: 2003 - 2007 (€bn)

Source: MackayWilliams analysis based on Broadridge FundFile data – data include active and passive funds.

Cumulative net sales: 2013 - Q1 2018 (€bn)

• 200

200 400 600 800 1,000 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 2013 2014 2015 2016 2017 2018

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Demand drivers

Rank Sector Net sales Assets 1 Asset Allocation 13,358 341,349 2 Equities Global 11,828 645,372 3 Mixed Assets Income 8,545 159,702 4 Bonds Emerging Markets 8,079 165,137 5 Fund of Funds Balanced 7,690 242,015 Rank Sector Net sales Assets 1 Bonds USD Corp. High Yield

• 4,988

56,081 2 Bonds EUR Corp.

• Inv. Grade
• 4,214

136,988 3 Bonds Global High Yield

• 3,607

111,725 4 Equities UK Income

• 3,357

93,224 5 Bonds Target Maturity

• 2,495

70,609

Top/bottom five sectors by net sales, Q1 2018 (€m)1 Sector April ‘18

Alternative 17% European equities 17% Mixed/Flexible 15% Emerging markets 12% Japan equity 12% Global bonds

• 7%

Bonds North America

• 7%

Equity North America

• 9%

Bond High Yield

• 12%

European bonds

• 14%

Top/bottom five sectors by net allocation intentions2

Source 1: Broadridge FundFile data, excluding money market funds and funds of funds. Source 2: MackayWilliams’ net investment allocation scores based on 81 interviews with third-party fund selectors in April 2018.

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Selector themes

• 1. Revenues are under

pressure

• 2. Time is under pressure
• 3. Risk-averse client base

and a low-yield environment

• Shrinking buy lists
• Using more passive funds
• Funds of funds/sub-advisory
• Demanding greater transparency
• Service/value-for-money proposition
• Share-class options with flexible access
• Solutions-type funds

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Passive use is still rising

16% 17% 18% 20% 20% 22% 0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 2016 2017

Average passive use % – Pan Europe

24% 29% 24% 16% 40% 19% 23% 14% 20% 22% 0% 10% 20% 30% 40% 50% UK Switzerland Sweden Spain Netherlands Italy Germany France BeLux Austria

Average use of passive funds by market

Source: MackayWilliams, based on 937 interviews with third-party fund selectors in 2017.

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Winner takes all?

Source: Broadridge FundFile data at December 2017, excluding money market funds and funds of funds. Val point calculation at each year end.

29% 24% 51% 78% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Top 10 groups as share of AUM

Passive Active

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Little evidence size matters in active, yet

Source: Broadridge FundFile data at December 2017, excluding money market funds and funds of funds. Active funds only.

Top 20 groups Outside top 20 & 30+ funds Fewer than 30 funds AUM (end 16) €2.5tn €2.7tn €1.2tn Flows 2017 €160bn €253bn €87bn Flows/Assets 6% 9% 7%

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Stand out

“They should be more prepared to stand out from the crowd. For example, I have just been on a trip to see US fund managers and barely did a meeting start without the clichéd introductory claim of ‘We're different!’ Most of what you then heard, however, was anything but different!” UK, Fund of Funds Manager

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Survival tactics

• 1. Be an elephant or…
• 2. Differentiate:
• Product innovation
• Service
• Brand

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Innovation demands

Top 10 innovation requests from fund selectors

Source: Product Innovation Perspectives, MackayWilliams. Data from ~1000 selector interviews over the two six-month periods.

Oct ‘16 – Mar ‘17 Oct ‘17 – Mar ‘18 1 Alternatives / Uncorrelated Alternatives / Uncorrelated 2 Transparency / Simplicity ESG / SRI 3 Theme Niche 4 ESG / SRI Theme 5 Risk control / Vol management Transparency / Simplicity 6 Niche True active 7 Absolute return Absolute return 8 Flexible Flexible 9 Passive Multi asset 10 Conservative fixed income / cash alternative Smart beta / factor / AI

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Into SRI

• Definitional complexity makes measurement

difficult although EU currently promising guidance.

• Our measure – based on funds explicitly

marketed as responsible investments via stated SRI terminology in fund names.

• Demand drivers coming from end-consumer, but

so far fail to translate into noticeable sales uplift. ‘Green washing’ likely to be viewed negatively.

• Long-term, though, EU Commission favour

implementing a regulatory kicker.

Source: MackayWilliams analysis of Broadridge FundFile data at February 2018. Data exclude money market funds and funds of funds.

SRI/ESG Other AUM (€bn) 170 8,529 3yr AUM Growth 92% 31% 3yr Net sales (€bn) 63 1,132 # Funds 807 27,643 Ave fund size (€m) 211 309 Passive share of AUM 21% 16% Top 10 funds as % AUM 14% 3%

SRI/ESG – Key fund industry metrics

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Andreas Pfunder, instiHub Analytics

Update Session: Sub-advisory trends overview

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Andreas Pfunder, Founder & CEO

European sub-advisory

The hidden dimension of asset gathering

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

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MiFID II made existing third party fund distribution challenges irreversible

Challenges abound for third party fund providers of all sizes

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

Barriers to entry increasing: ■ Narrowing fund selection lists ■ favouring ‘big brand’ fund providers Perceived overexposure to ‘blockbuster’ funds by distributors Unreliable revenue streams from FoF’s relatively short holding periods Crowded market place with undifferentiated fund

• fferings

Challenge for less visible providers of achieving scale in individual funds

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Distributors’ reaction and mindset drive sub-advisory growth

• Across Europe, distributors are seeking
• Higher margins to offset increased costs of distribution burden under MiFID II
• Greater control over the products they sell, achieved through in-house funds
• Lower cost, higher performance = ‘better value’ solutions for investors
• Differentiation through customised or exclusive solutions
• Risk diversification away from reliance on blockbuster third party funds
• Emergence of a ‘private equity’ mindset amongst distributors

“My business is worth more as an asset manager than as a distributor”

The sub-advisory model offers distributors an optimal solution, creating valuable growth opportunities for sub-advisers

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

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instiHub’s definition of sub-advisory

The sub-advisory industry comprises

Any fund whose sponsor / initiator formally delegates investment management / advisory responsibilities to a third party

Industry coverage within above definition on which the following data content is based: > 90% (estimate)

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

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Key statistics of the EMEA sub- advisory industry in Q1 2018

• €526bn AUM on 31st Mar 2018 with YoY annual growth of 10%
• Wide spread of geographies to grow sub-advised business opportunities

 15 markets where selection decisions are made

• 132 sponsors (buyers/grantors of sub-advisory mandates)
• Potential exists among a range of channel segments

 Top 5 sponsors own 37% AUM  Top 35 (28%) own 83% of AUM (29 have > €5bn AUM each)

• 527 sub-advisers in 30 countries manage over 2,220 mandates
• Specialist boutiques manage or advise on 37% of AUM
• Average holding period of 3 years and 9 months
• varies by …

 Channel & country  Multi-manager vs single manager implementation

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission. Source: instiHub, iPsa (public sub-advisory insights), 31/03/2018.

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Latest trends: markets

Largest markets by AUM (€bn)

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission. Source: instiHub, iPsa (public sub-advisory insights), 31/03/2018.

Country Uplift Jan-Dec 2017 Italy 23% United Kingdom 15% Ireland 14% France 12% Europe Average 10%

*Annualised growth rate

Country Uplift Dec 2017-Mar 2018 Switzerland 13% United Kingdom 12% Italy 7% France 2% Europe Average 1%

*Annualised growth rate

Fastest growing markets – Q1 2018 vs 2017

Clear rankings for market size

• Top 3 likely to retain rankings as smaller

markets show differential expansion

Four hot sponsor countries

• 2017 - Italy, UK, Ireland, France
• 2018 – Switzerland, UK, Italy, France

Seasonal flows volatile – true pattern will emerge as year progresses

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YoY trends: investment strategies

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission. Source: instiHub, iPsa (public sub-advisory insights), 31/03/2018.

0% 2% 4% 6% 8% 10% 12% 14% 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Equity Fixed Income Multi Asset Alternative % Growth 2017 AUM Growth (€m) Investment sector

Strongest growth from FI & Equities Breakdown of AUM by sector

Equity 49% Fixed Income 29% Multi Asset 18% Alternative 3% Money Market 1%

 Equity remains largest asset class (49% AUM) but with below average growth (7%)  Fixed income (29%) grows most, i.e. 13% / €17.4bn  Multi asset (18%) is also increasing above average - 12% / €10.3bn  Alternatives (illiquid) are small – appeal more to institutional sponsors

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Expected growth dynamics

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

CH, IRL, IT, UK - New sponsors emerging, e.g. bank distributors, wealth managers CH, DE, ES, FR, IRL, IT - Sponsors favouring sub-advised structures to improve margins & deliver better value to investors CH, IT, Nordics - Sponsors with in-house or institutional clients seeking to scale up through broader, external distribution CH, UK, IT, DE, FR - Large wealth managers, private banks with discretionary mandates transitioning to sub-advisory for greater operational efficiencies and lower cost-to-investors

Individual territories responding in different ways, driven by existing distribution landscape and needs for solutions

Net effect creates sizeable growth opportunities for sub-advisers of all kinds

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How fast will growth be impactful?

instiHub’s ongoing engagement with both sponsors and sub- advisers provides crucial intelligence on likely milestones

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

Starting in H1 2018 until 2020 - Wave of new sponsor entrants from all channels Starting in H1 2018 until 2019 - Expansion of exclusive product partnerships Wealth managers & private banks with sub-advised fund platforms scale up to address Discretionary Portfolio Management (DPM) challenges Existing sponsors with captive reach scale up and broaden 3rd party distribution First wave of FoF managers setting up sub-advised structures

Where are you positioned in this timeline?

H2 2018 – H2 2019 From H2 2018 From H1 2019

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instiHub growth forecast: €1tn industry by 2022

10-year AUM growth expectation to €1.5tn with 10.5% CAGR

402 428 458 103 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

• 200

400 600 800 1,000 1,200 1,400 1,600 2017 Act 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Asset Manager (incl. consultants) Wealth Manager Bank Distributor Private Bank Insurance (Unit-Linked) Pension Growth p.a. (%, rhs)

 Anticipating 18% uplift over 12m with €1tn AUM reached by 2022  Thereafter, reversion back to recent levels (10%) or just below (8%) if capital return remain low

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission. Source: instiHub, iPsa (public sub-advisory insights), 31/03/2018.

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Early adopter ‘winners’ in sub- advisory have clear vision

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

‘Expand the pie’ versus ‘zero sum’ game mindset No fear of cannibalising existing book of business

Confidently manage ‘renegotiation’ of legacy assets pricing Seek new clients in new sectors and markets

See sub-advisory as ‘low friction/ high profit business’ Use contextual business vocabulary

Provide ‘investment strategies’ – not products Promote brand through high-value ‘content’ – not high cost communications

Initial traction generated, now building momentum Putting ‘blue water’ between themselves and rival sub-advisers

Intuitive grasp of revenue ‘bounce’ from growing share in an expanding market

Not addicted to high bps (fund distribution) business Range of pricing strategies in place across multiple client segments & channels

Possess process expertise to engineer business operations for pricing point

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instiHub has developed a unique data analytics tool

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

Rank individual sponsors Scope size &growth

• f individual markets

Part 1: ‘Top down’

Analyse appeal

• f addressable
• pportunities

Channels, e.g. Wealth Manager Private Bank Investment strategies Asset Managers/ Consultants

and

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Build prospect list by identifying specific opportunities

New product ideas for presentation to sponsors Replacement switches from incumbent peers Multi manager blending

• pportunities

… that delivers the identification of potential sales opportunities

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

Fully transparent analytics tool built from mandate components Profile individual sponsors to match engagement model and probability of success

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Continuing the journey …

• If you are any of the following :
• An existing advocate for sub-advisory
• A C-suite executive excited by the potential of this channel
• An inquisitive Head of Business ‘spooling up’ for growth in sub-advisory
• then please contact me directly:

 for a confidential discussion

OR

 to arrange a demonstration of instiHub iPsa - the only EMEA-transparent, actionable, sub-advisory data analytics tool

Andreas Pfunder Mobile: +44 7500 060 171

apfunder@instiHub.com www.instihub.com

21/05/2018 Content including proprietary data is the property of instiHub Analytics Limited. Reproduction subject to permission.

Disclaimer: The material contained in this document is for marketing, general information and reference purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such. Further, this document is not intended to be, and should not be taken as, a definitive statement of either industry views or operational practice. The contents of this document may not be comprehensive or up-to-date, and neither Irish Funds, nor any of its member firms, shall be responsible for updating any information contained within this document. irishfunds.ie

Moderator: Panellists:

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Panel Discussion- Guide to setting up/distributing from Ireland

Conor Owens, Mediolanum Conor MacGuinness, DMS Kieran Fox, Irish Funds Sarah Murphy, PwC Marion Mellett, BlackRock

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Net Sales into Irish Funds from UK investors

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Net Sales into Irish Funds from UK investors

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Liam Collins, Matheson

Update Session – Opportunites for Irish Funds Distributing in Latin America

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Introduction

• Post 2008 – investors move from unregulated to

regulated product

• Local regulatory changes
• Managers seeking increased regional and sector

diversification

• Underperforming economy

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Expected AUM growth in Latin America

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Mexico

• New Investment Regulations – January 2018
• AFOREs – investment in mutual funds
• Exposure limited to 20%
• US$160 billion to invest

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Colombia

• Decree 1756 of 2017 – October 2017
• Distribution of foreign funds in Colombia
• Inter-regulator agreement required

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Chile

• Over 200 Irish funds registered for sale
• AFPs – US$210 billion to invest
• New Rules in November 2017 / April 2018
• Prohibition on investment in hedge funds
• Opening to alternative asset classes – private equity,

private debt, real estate

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Brazil

• CVM Resolution 555 - relaxes rules on foreign

investment

• Facilitates investment in UCITS
• Qualified or Professional investor funds – investment

without limit in foreign investment funds

• Invested vehicles must be subject to extensive

regulation and supervision by recognised foreign authority

• Retail Funds – Increase from 10% to 20% in

investment in foreign assets

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Christopher D. Christian Dechert LLP Janice Y. Barnwell DTCC

Accessing the US Non-Resident Alien Customer Distribution Channel with Irish Funds

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Introduction: General Structural Overview

Class A (USD) Retail (Load) Class C (USD) Finder Fee Retail Class I (USD) Institutional Class X (USD) Separate Account Class F (USD) Fee-based Retail Independent Director Independent Director Director Director Director

Investment Manager Irish Fund Administrator $ $ $ $

Class N (USD) Clean

$

Sub-Fund 2 Sub-Fund 3 Sub-Fund 4 Sub-Fund 5 Sub-Fund 6 Sub-Fund 7 Sub-Fund 8 Sub-Fund 9 Sub-Fund 10 Sub-Fund 1

Board of Directors

UCITS ICAV Umbrella Fund

$ Service s Service s $ U.S. Sub-Distributor (e.g., Merrill Lynch) U.S. Distributor $ Service s Service s $ Irish Depositary Service s $ $

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What is the Opportunity?

• Non-Resident Customer (NRC) Market
• Continues to grow in size as economies in

Latin America grow and investors look for safe places for brokerage

• NSCC and wholesale coverage required
• U.S. Financial Intermediaries
• U.S. Broker-Dealers / Wire-House Channel
• U.S. Wealth Management / Financial Advisers
• Clearing Platforms for U.S. Advisers (e.g., Pershing)
• New York, Miami, Houston, San Diego Major Coverage

Markets

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How does a UCITS Access the NRC Market?

• Focus on the NRC Market
• Understanding the NRC Market (wrap, fee-based,

discretionary, non-discretionary)

• Gateway Demands to Global Private Wealth
• Share Class Structuring to Meet Demand
• Understanding Platform Demands
• Seed Capital
• Track Record (Use of Related Performance)
• Total AUM Requirements
• DTCC Requirements

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DTCC REQUIREMENTS

• NSCC* Fund Membership
• Connectivity
• Transfer Agent
• Settling Bank

*NSCC is a subsidiary of DTCC

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Kieran Fox, Irish Funds

Closing Address

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Lunch kindly sponsored by: