New research from Cerulli Associates finds that asset managers that opt for a cover-all distribution strategy, instead of taking into account the individual tastes and needs of institutions in different European countries, are at risk of failing.
The latest issue of The Cerulli Edge finds that following the customised approach is no simple task. The firm warns that success entails finely balancing growth ambitions with the additional costs this route incurs.
While distribution is evolving across the globe, Cerulli points out that the European market presents its own challenges. “Despite the best intentions of the founders of the European Union, the trading bloc remains something of a patchwork quilt when it comes to financial regulation. Asset managers seeking to capitalise on the opportunities that come with a population of some 503 million – the world's third largest after China and India – also need to factor in the different languages, currencies and cultures.”
"The face of distribution in Europe is altering significantly. Strategies need to be adapted to each market as well as each asset manager's capabilities and goals if success is to be realized," says Barbara Wall, Europe research director at Cerulli Associates, noting that growing interest among European institutions in diversification is giving rise to new opportunities.
European institutions are learning to expect the unexpected according to Wall. “Managers' distribution strategies that once did not even make the menu are now being considered as a "main course" by some allocators.”
Developing relationships can be logistically tough, the firm warns. “A basic pan-European strategy needs regular visits to ten capitals, from London to Munich to Helsinki, one practitioner told Cerulli. Germany alone has investment centres in Berlin, Hamburg, Cologne, Dusseldorf, and Stuttgart. The diverse landscapes – languages, regulatory environments, historical experiences, and preferences – also raise the costs of doing institutional business in Europe compared with, say, the United States.”
Narrowing one's focus can save expenditure, says Cerulli. A strong brand identity also helps when crossing borders, often providing the edge for large organisations.
"Cerulli research shows that cutting out the middleman in distribution is a key objective for institutional asset managers this year–one which we believe will persist given that cost-cutting pressures are not likely to abate anytime soon," says Justina Deveikyte, an analyst at Cerulli.