The face of distribution in Europe is altering significantly

Distribution is evolving across the globe, but 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 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, according to the latest issue of The Cerulli Edge - Global Edition.
 
Following the customized approach is, however, no simple task, says Cerulli Associates, a global analytics firm. Success entails finely balancing growth ambitions with the additional costs this route incurs.
 
Distribution is evolving across the globe, but 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 capitalize 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.
 
Managers' distribution strategies that once did not even make the menu are now being considered as a "main course" by some allocators as European institutions learn to "expect the unexpected," says Wall.
 
Developing relationships can be logistically tough. A basic pan-European strategy needs regular visits to 10 capitals, from London to Munich to Helsinki, one practitioner told Cerulli. Germany alone has investment centers 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 organizations.
 
"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.
 
Other Findings:
 
Global sponsors that have fared well distributing to Latin America's Andean-based pension managers from a base in Santiago are having to revise their distribution models in light of emerging opportunities elsewhere in the region. While Cerulli believes that the Chilean capital remains a compelling option for servicing high-net-worth individuals, building on its existing asset-gathering capabilities to capitalize on new business prospects is proving difficult. Operations in Brazil and Mexico may be the answer.
 
New entrants to the United States need to be able to offer expertise that enables them to stand out in the overcrowded, highly competitive marketplace, says Cerulli. Subadvisory arrangements with a third-party manufacturer may be the best means of entry without building significant distribution infrastructure. The cache of an unfamiliar, but skilled non-U.S. manager may appeal to the subadvisory sponsor.
 
Gone are the days when distributing UCITS funds could serve as the default entry strategy for the Asia ex-Japan region, observes Cerulli. Foreign managers typically have to develop country-specific and localized business strategies to successfully gather assets in Asia's fragmented mutual fund markets.