Third Party Marketers. More than a Band Aid Solution
More than three years have lapsed since the withdrawal of the UK from the European Union. Many would agree that this is a sufficient period to overcome any denial related to any major adjustment to a given status quo. Not without a certain surprise, it seems though that a fair share of market participants seems to have yet to embrace the new realities of Brexit. That is the case especially for what concerns the ensuing loss of European passporting rights for the UK and its market participants.
Whilst we discussed already at length the potential alternatives to the loss of passporting rights, there is one in particular which seems to have been overlooked for a while. That is the recourse to so-called Third Party Marketers. Undervalued by many but chosen by selected few, Third Party Marketers might as well be more than a band-aid solution for many UK and US fund managers on the lookout for European investors for their strategies and funds.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with Third Party Marketers.
Different Shades of Denial
It would not be entirely fair to treat US and UK fund managers the same way when it comes to the inherent difficulties in dealing with the new realities ensuing Brexit.
The reputation of London as an international centre for financial services is yet to be entirely tarnished by Brexit in the eyes of Americans. Especially the ones with little to no previous experience and exposure to Europe. The pragmatism of UK authorities in one with the friendly business climate and the no-language-gap makes having a presence in London very appealing and a no-brainer in their view. However, this type of fund managers realises too late – if at all – that being in London no longer means being in Europe. UK investment firms can apply for third country regimes in a selected – and very restricted – number of European domiciles, where they can approach only certain types of professional investors. Relying on reverse solicitation is only a short-term solution. If nothing else, the UK remains a big market per se though. Also, to date there are realistically no other options yet when it comes at setting up at the other side of the pond, especially for firms that do not have some connection with Europe already.
Different is the case for the very limited number of UK fund managers still thinking that they can approach investors in Europe. We believe that at large there is a fundamental misunderstanding at play due to a very strong reminiscence of the time when the UK was part of Europe.
What are Third Party Marketers and How to Choose One
There are different ways to look at Third Party Marketers. Whilst there will never be a shortage of outfits or individuals in the market, promising to raise the profile and the brand of fund houses, the Third Party Marketers you want to work with have specific characteristics. From a regulatory perspective, they are regulated investment firms. The ones who are more valuable are the ones that, in addition to a London presence and license, have also sprung out from the UK to Europe and gained a MiFID license. Whilst there are nuisances for what concerns the activities that they are licensed for, the license per se and the additional European license are the first things to look for.
From a commercial perspective, Third Party Marketers are seen as being in the business of investor relations. Also here there are distinctions to be made. The Third Party Marketers you want to work with are the ones who have acted traditionally as pre-screeners of investments for a selected pool of investors, with whom they have a long-standing relationship. These are also the ones who are most difficult to find.
One other asset to consider is the wealth of language skills. Successful Third Party Marketers are the ones that can cover Europe using the languages spoken in the various European domiciles purported to be included in their remit. Beware of firms that do not possess this wealth of language skills.
One word of caution though is appropriate in relation to something that may seems counterintuitive at first. If you are inclined to think that you can approach Third Party Marketers same as any other service provider, you are definitively in for an interesting surprise. The most successful Third Party Marketers are not chosen by a fund house, they choose you….
Conclusions
Many are still reluctant in considering the appointment of Third Party Marketers to boost their presence in Europe. In the old days, we would agree that the choice for Third Party Marketers had to be in line with the predominant philosophy of a specific fund house. In those days though, the UK was still part of Europe and being in London meant being at the centre of everything in Europe. For as long as the general conditions remain unchanged, notwithstanding the recently renewed talks about equivalence, there is little to nothing that can be done out of London nowadays for what concerns Europe. Unless you have already narrowed down your roadmap to some critical European domiciles, where there are also favourable third country regimes, you have two options in our view. Be prepared to tolerate the high risks involved with reverse solicitation or change some of your old beliefs.
Third Party Marketers remain a very good medium-term solution. They give access to markets that would be inaccessible both for lack of contacts and for lack of appropriate licensing. A marketing strategy based on Third Party Marketers also allows to test appetite and make acquaintance with the investor base of specific European domiciles before considering other European options, more permanent in nature.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with Third Party Marketers.