New fund launches: Part deux
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I was surprised. Not only did I get a very positive reaction from IFAs to my last blog about new fund launches, but I had fund managers agreeing too!
Given this response, I’m afraid I am going to dwell on this subject a little longer. Bear with me.
Today I want to look at the costs – just how cheaply can you launch a fund?
1. Well, assuming you are already a fund management house, operating with the usual permissions, you will have the legal costs to establish the new fund (although with some funds you could be mistaken for thinking that there was nothing legal about them) which are likely to amount to £10,000 – £20,000.
2. Then there is the people cost, with a fair number of management teams involved in the run-up to launch. A fund manager, who I respect, told me that he would estimate the time to be at least equivalent to the cost of three people for a month, either half of their time or full-time.
3. You have the printing cost for the simplified prospectus and application forms. No matter how much of your business you strive to do online, certain pieces of printed paper will be required. (blog continues below)
4. Then there are the other costs that could, if you wanted to, raise the budget to extortionate levels. These include the PR, advertising and marketing to get your fund visible. For sure, availability of online resources has reduced some of the marketing cost, but that does not stop the massive communications machine rolling out.
5. Finally there is the issue of seed capital; someone has to invest in the fund to kick start the investment and usually many millions are required (although don’t expect this money to remain there forever. Indeed, you will sometimes find that as new money is invested, so the original seed capital is quietly removed).
So you could launch a fund for £30,000 if you kept it cheap and had secured external seed capital. But how often does this happen? The fund manager I spoke to said in his experience the costs still tend to be £2-3m. MINIMUM. Ouch.
For me, quite apart from the financial hit, there is the opportunity cost of what else those people could be doing if they weren’t focusing on a new fund – focusing on improving their existing range perhaps?
Some numbers add up, but in light of all the existing poorly performing funds, these just don’t.
Philippa Gee is managing director of Philippa Gee Wealth Management.
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