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6 Factors to Consider when Launching a Mutual Fund Company

For many institutional asset managers, creating mutual funds that are an extension of their institutional strategies might seem like an easy way to build firm AUM. Yet the mutual fund business can be very different than managing institutional strategies and distribution success goes far beyond investment performance.

Consider the following six issues when deciding to launch a ‘40 Act product:

  1. Mutual funds face stiff competition: According to Moody’s, the top 2% of 8,000 U.S. mutual funds make up 50% of overall industry AUM and approximately 2,800 funds have less than $100 million in AUM. Given this statistic, it may not be wise to rely on investors and advisors finding your product.
  2. Utilize a Series Trust to reduce costs and leverage outside expertise: A series trust provides professional oversight and organizational efficiencies through a shared structure rather than organizing as a standalone company.
  3. Seed capital must be adequate: Given that the RIA community continues to evolve and become a critical source of gathering assets, higher levels of seed capital are needed to allow advisors to allocate a strategy among their clients.
  4. Get selling agreements in place: Selling agreements are key to gaining access to the advisory marketplace. Work with Schwab, Fidelity, Pershing and others to get selling agreements in place at fund launch or shortly thereafter.
  5. Create strong, cohesive marketing materials: Identify key product differentiators that makes your fund stand apart from its competition. Showcase features and benefits and provide guidance on placement within asset allocations.
  6. Build a sales pipeline and proactively communicate with advisors. Have a defined strategy in place that involves proactive communication, national account development and direct sales interaction with advisors. Remember that a public relations campaign is not a substitute for a sales strategy.

Want to know whether developing a new fund makes sense? Give us a call to discuss the pros and cons of launching new mutual funds.

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