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Rating:Fund Subadvisors Face a Tough Market Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, July 09, 2012

Fund Subadvisors Face a Tough Market

Reported by JY

For the past three years, the subadvisory business has had very minimal growth and has become a takeaway game. That is the conclusion from the folks at Cerulli Associates as they report in The Cerulli Edge: U.S. Asset Management Edition, July 2011. To win mandatess in this environment, subadvisors need to be targeted, according to Cerulli.

Yet, the increased competition among subadvisors has opened up opportunities for firms with a niche in alternatives. Mutual fund shops are now looking for asset classes that are not correlated to traditional assets and that enable them to differentiate their product.

Pamela DeBolt, a senior analyst at Cerulli, told MFWire that "alternatives have a higher profit margin because the fees are slightly higher."

DeBolt added that subadvisors have also been a trying to diversify the source of the money they manage.One way subadvisors have done this is to obtain contracts from foreign sponsors.

In its report, Cerulli points out that asset management firms beginning to subadvise mutual funds must be aware that mutual fund sponsors seeking subadvisors look for certain attributes in their winning candidates.

What are those characteristics? Mutual fund sponsors prefer to work with existing subadvisors because there is strong familiarity with the investment team and firm.

However, familiarity is not the most important factor when fund firms choose their subadvisors. Sponsors also consider a subadvisor's capabilities such as its investment process and philosophy to be the most important. These are then followed by the success and performance of the investment team, an excellent track record, and a strong reputation in the marketplace.

Mutual fund sponsors are also willing to for go marketing and sales support for the right strategy, as provided by the advisor.

Funds that demand higher fees, and thus are more profitable for the subadvisor, typically belong to categories which attract significant assets. Fees split between the sponsor and subadvisor vary because these particulars are determined from factors such as the fund, the strength and bargaining power of each side, and so on.  

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