“A market is never saturated with a good product, but it is very quickly saturated with a bad one”.
I’ve spent most of my career building and developing asset management product platforms and the teams required to support them. In that time, I’ve seen the best and worst outcomes from product positioning and the simple observation I’ve made, time and time again, is as follows:
- Done well, an effective product offering creates alignment with your investors, unlocks your fundraising potential and maximises revenue opportunity.
- Done badly, there’s a potential mismatch with those investor expectations, where you’ll commit time, money and valuable resources to an offering that may still raise some capital, but will inevitably fall short of what could have been achieved with the right delivery vehicle.
But to this day, it still mystifies me that so many firms overlook the importance of product expertise, instead relying on counsel, other advisers, vendors, operations and finance teams to shape the go-to-market strategy, launch the product and then pass it on to internal or external distribution teams to make it a success. All too often, sadly, the model fails.
I’ve had the experience of working for firms of various sizes in distinct segments of the asset management industry, with fund ranges from $500m to $1tn, from equity index strategies to private equity and other illiquid alternative asset classes. That experience has enabled me to see how product meets the needs of different firms (and clients) in different ways.
Within a functional business, the product team should be the stakeholder that bridges the gap between investment teams and sales, ensuring the all-important link between business and investor objectives, coordinating other groups that support all aspects of the product, its design, structure, launch and management.
The world’s largest asset managers, such as BlackRock, Nuveen, BNYM, JPMorgan, have long recognised the inherent value of the product skills set, with a diverse range of investment platforms, asset class offerings (both liquid and illiquid) and target investor groups.
Within these firms, product teams are so large, they’re typically organised into three specialist groups:
Product Strategy – This team implement plans of the firm’s leadership, and execute the strategic growth agenda. They will develop product concepts in conjunction with sales teams and strategic partners, project their P/L viability thresholds and long-term value proposition, undertake peer group analysis and competitor positioning, map out resource, operational, risk, other functional stakeholder and vendor requirements, along with timeframes, drive internal education and obtain necessary senior management buy-in.
Product Development – This group are the execution leaders, the project delivery specialists. Like the conductor of the orchestra, they will direct every part of the performance, engaging with counsel, tax advisors, vendors, agents, internal working groups, even anchor investors, and coordinating all moving parts of the process to ensure the final product is delivered, as designed, within budget, within the deadline.
Product Management – Often considered the more procedural aspect of the product lifecycle, but vital to ensuring that it remains fit for purpose, and a competitive investment for clients and prospects. The work of this unit will be to conduct product performance and literature reviews, implement changes (amendments, mergers, liquidations), support operational enhancements, respond to investor needs, ensure ongoing compliance with regulatory requirements, maintain product line budgets and financial forecasts.
An essential skill, foundational across each of these divisions, is financial modelling.
Whilst analytical rigour is invariably applied by investment teams, financial discipline is equally required within the product function. Effective product strategy teams will facilitate pricing analysis (with knowledge of different pricing methods across product types, including sub-advisory mandates, setting levels within RFPs based on in-depth revenue analysis at different AUM thresholds), peer group benchmarking and competitive positioning, the effect of active ESG selection on price and performance. Profitability analysis is a core responsibility of any product management team, with a focus on performance reviews, cost management and rationalisation.
As with other functions, the role of product is constantly evolving along with complex fund regimes and ever-increasing needs of firms and their investors. Managers are now extending their product reach beyond pure strategy and execution to the provision of portfolio and subscription financing, M&A advisory, product and distribution data intelligence, product governance and distributor oversight (as a consequence of greater regulatory standards), complex multi-asset investor solutions, which can not only enhance an asset manager’s product offering and unlock fundraising potential but also arguably deliver an edge in a highly competitive market.
It’s clear that, in today’s market, the complete product function offers so much more than just project management of a fund launch. It must represent an integral part of any asset management business, a clear profit rather than cost centre and be empowered to drive forward a firm’s strategic agenda and stakeholders with autonomy rather than just being reactive to the unpredictable demands of an investment or distribution team (who are better positioned as equal business partners with a distinct mandate than unfettered overlords).
If you’re in need of product structuring advice or investment solutions, Reframe Capital brings a new and independent service offering to the alternatives industry, with knowledge, experience and a network of vendor relationships equal to any top-tier product function entirely dedicated to serving your business, whether you’re launching a first-time fund as an emerging manager, expanding into new regional markets, asset classes or targeting new clients segments, or just looking to rationalise and re-position your fund range to move forward.