How can fund managers market innovative funds?

market innovative funds innovationInvestment managers are taking advantage of a changing macro economic environment, disillusionment with the old investment industry order and new technology in order to market innovative funds.

These opportunities weaken the power of large institutional gatekeepers to act as a brake on disruptive innovation from managers developing new funds.

How can emerging fund managers get their message across?




Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”

– Steve Jobs


Download our concise twenty-step guide to learn how an investment manager can establish a profitable and sustainable direct retail funds business through an engaged customer strategy.


A comfortable status quo impedes innovation

Fund managers who market innovative funds are confronted with an entrenched investment ecosystem that pushes back against disruption:


  • Gatekeepers are a barrier to reaching the investor

Australia is one of the most gate-kept investment markets in the developed world.

Institutions engage consultants who suggest strategies and recommend fund managers. Risk adverse trustees are reluctant to take decisions that deviate from professional advice.

Most financial planners in the retail sector work within dealer groups that are aligned to one of the large vertically integrated banking groups.

Through these groups the retail market has become highly institutionalised with manager selection similarly dominated by professional gatekeepers.


  • Gatekeepers are risk averse

Institutional gatekeepers are a major challenge when managers seek to market innovative funds.

Their business model depends upon scaling funds so that any solution must be assigned across many fee-paying investors. Hence a high fund capacity is required, thus presenting a potential challenge for a niche product.

The gatekeepers also require fund managers to have already established a substantial existing fund of a size that mitigates their concentration risk.

A strong sense of reputational risk will similarly prevent gatekeepers from engaging with innovative funds unless they have at least a solid three-year performance track record.

Gatekeepers frame their thinking around fund return risk in terms of volatility against a market benchmark. This may not align well with the way innovative funds set investment objectives and manage funds.


  • Gatekeepers are inflexible to innovation

Institutions tend to adopt a ‘big company’ approach to fund selection that is rigid in its thinking.

Asset allocation tends to be top down and managers must deliver products that fit neatly into gatekeepers’ models.

This can work easily for the manager of an Australian large-cap equity fund but may well be an obstacle for the manager of an Indian mid-cap fund.

market innovative funds gatekeepers


But new trends present an opportunity to disrupt the equilibrium

The world is changing rapidly in ways that reduce the power of incumbents to maintain the status quo:

market innovation funds three forces

Figure 1: Three forces disrupting the investment status quo in Australia


  • The investment macro favours disruption

Investors are becoming highly sceptical of the value to themselves of market benchmarks in measuring the success of their investment portfolios. These are usually poorly aligned to their pain points, which are increasingly outcome based.

There is a widespread belief that the world is now in a prolonged periods of low cash rates. This means that yields from cash, conventional fixed income and property funds are likely to struggle to meet investors’ personal savings goals.

Furthermore growth assets (such as equities, credit and even infrastructure) have become much more highly correlated across markets as the world has globalised.

It is unsurprising that there is now growing interest in investment concepts that seek to identify new opportunities. These include capturing:

  • Sustainable alpha
  • Returns genuinely uncorrelated to established asset classes
  • Value identified within mispriced assets of inefficient markets


  • New generations are less advised than the baby boomers

The tec-savvy generation that has used the internet throughout their working lives are comfortable receiving commoditised advice from on-line tools and conducting their own basic research.

They are however willing to seek out a helping hand and engage with businesses that deliver genuine value.

They will pay for advice that solves specific pain points such as trust planning, tax issues or retirement transition.

There is less willingness to pay for commoditised asset allocation solutions designed by expensive institutional gatekeepers and delivered by generously remunerated humans.

They have a strong expectation that investment management should be clearly accretive to post-fee returns. In practice this means either securing either market returns at the lowest cost or sustainable value creation.


  • Technology now offers a route around the gatekeepers

Never in the history of commerce has it been quicker, easier or cheaper to make the case for disruptive new concepts that challenge legacy thinking to a targeted audience.

Fast broadband and mobile devices enable complex messages to be delivered by sophisticated media such as video, webinars and podcasts.

Social connectivity and big data facilitate connections with precisely targeted audiences. This can then resonate through electronic word of mouth in a way that was until recently unimaginable.


So how can managers market innovative funds to direct investors?

market innovative funds selling marketingSuch investment, social and technological changes appear to present an opportunity for fund managers to by-pass institutional gatekeepers and to connect with a new audience of previously unreachable direct investors. A strategy should include:


  • Become established as the market leading informational provider in the sector

Investment managers must engage with their target audience before they receive its permission to market innovative funds.

First they must identify and understand an audience with shared pain points. These can in time be relieved by the adoption of a manager’s innovative investment solution.

Then the manager must be willing to share its insight through a compelling content strategy. This is in order to become established as the unchallenged informational provider in the chosen niche using digital techniques.

Failure to achieve this will likely be an impediment to the commercial success of a fund. When faced with larger rivals with deeper marketing pockets a manager should look to drill down and target a very specific niche where it can become the leading resource. E.g. being the leading informational source on mis-priced Singaporean growth stocks may well be more realisable than becoming the authority on global emerging markets.

Over time a successful engagement strategy can see the manager establish itself as a candid friend rather than a seller of product.


  • Deliver a compelling case for disruption

The ability to bring a product to market is likely to be contingent on establishing a level of trust with engaged investors.

Direct investors are less process driven than institutions. However managers must nonetheless be able to demonstrate an effective investment methodology within a rigorously compliant environment.

Then managers can look to market innovative funds by communicating the unique value proposition to potential investors.

Managers must convince investors that their concept is a solution to a problem that they recognise.

This might be:

  • Market returns for lower cost; e.g. smart beta fund that isolates free cash-flow
  • Returns with lower correlation to other asset classes; e.g. catastrophe bond fund
  • Exposure to a growth asset class that isolates and captures the source of that growth; e.g. India mid-cap single country fund
  • Protection from inflation and market volatility; e.g. objective-based multi-asset diversification fund
  • Higher income in retirement; e.g. quantitative fixed income fund


  • Create a comforting user experience

Disruption depends on the acceptance of a compelling thesis that an innovative product uniquely offers a solution to the shared pain point of a group of targeted investors.

However longer-term success is driven not by product quality – no matter how innovative – but by the customer experience.

A review in benefitspro1 highlights that: “Out of 11 different attributes, the most important factor is strong client service, says Pamela DeBolt, a senior analyst at Cerulli, followed by a recognisable brand and a good website.”

This might be supported by a responsive mobile strategy, an insightful dashboard, seamless messaging across channels and an ability to execute transactions quickly and easily, such as via mFunds.



Delivering an innovative investment product to market will always be a serious business challenge.

It requires that the manager demonstrates that the product will deliver on its promise to deliver a particular investment outcome in a controlled environment.

However, highly influential gatekeepers in Australia have restricted disruptive innovation through their innate conservatism and inflexible business models.

Yet the evolving macro investment environment, a more independently minded generation of investors and advances in technology present an opportunity to managers who wish to market innovative funds.

Would-be disruptors who are able to establish themselves as the candid friend to an audience of targeted investors, convince those investors that they offer a compelling solution to their pain point and deliver a comforting consumer experience, maximise their chances of success.


How do you think investment managers can successfully market innovative funds in order to disrupt the Australian market?

We have created a concise twenty-step guide to how an investment manager can establish a profitable and sustainable direct retail funds business through an engaged customer strategy; please click here to download.


‘Hand Touching Innovation Button’ image courtesy of Stuart Miles at

‘Fence With Barbed Wire’ image courtesy of franky242 at

‘Three Dimensional Sales Text With Tag and Shouting Man’ image courtesy of imagerymajestic at


1 Stonehouse, A, “Service, website important as advisors choose asset managers”, benefitspro, January 2013,

Posted in Business Strategy.


  1. This article is genius, it summarises my experience of marketing our innovative fund, DMX Capital Partners perfectly! As you highlight, we are offering something different – high absolute performance with a low correlation to the market. However, it is taking time to connect with retail investors because the gatekeepers are only focused on distributing poor performing, high capacity funds where they can milk the fees. If anyone is interested in connecting with a high performing innovative fund, please check out:
    or contact me at

  2. Simon,
    Thanks for your kind words which just about grant you absolution for the fund plug.
    It is interesting – though of course not surprising – to hear that the institutional gatekeepers continue to focus on high capacity scalable funds.
    Identifying a target market of direct investors is far from simple and certainly takes a bit of thought and time but such a strategy certainly offers a way around the barrier that managers looking to innovate are facing.
    Good luck with your fund.

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