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Seven questions to help build distribution strategies for interval and tender-offer funds

By Published On: July 19, 20220 min read

James Curry  | 

July 19, 2022  | 

Reading Time: < 1 minute

Seven questions to help build distribution strategies for interval and tender-offer funds

“We wish we’d talked to you six months ago” is a comment I hear often from private fund managers as they work out distribution strategies for their first registered product. Too often, managers have to backtrack when their sales, operations and investment teams aren’t on the same page. Here are seven questions drawn from practical experience to align your team—and avoid wasted time and effort.

The first six questions help define and refine a distribution strategy. The seventh is a critical one about product economics.

1. Who are your initial investors and target market?

There’s a big difference between retail investors (and their advisors) and large institutional RIAs and family offices.

Say you’ve been encouraged by retail-market RIAs to make your strategy available to their clients. It’s important to understand what they are expecting—because it may well mean your presence on mutual-fund platforms that present interval and tender-offer funds together with standard open-ended funds.

Institutional RIAs and family offices, by contrast, are unlikely to require that platform presence.

2. What platform does the RIA prefer?

There are two defined and separate distribution paths for interval and tender offer funds depending on your funds structure. Do the advisors interested in your product work primarily—or only—with funds available on a specific platform? Your fund’s valuation structure and other factors will determine which distribution path you choose and ultimately how your funds are approved and made available to the various RIAs, broker-dealers and wire houses.

3. Will you need access to alternative platforms like CAIS or iCapital?

Depending on your distribution path, your firm might need access to third-party alternative platforms like CAIS, iCapital and others for subscription document automation or other distribution and marketing-related activities.

4. How will you sell and market the fund?

Beyond custodians and platforms, what steps will you take to get the word out? Are you confident that your target market is comfortable with the implications of your elections about valuation frequency, tax treatment and other critical factors?

5. Will you need multiple share classes for different distribution channels?

If yes, you will need to file for exemptive relief with the SEC. We generally recommend seeking permission up front to create additional share classes if you think your target market may evolve over time—for example, starting with the RIA market and later evolving to include broker-dealers and wire house channels. You don’t actually have to create the additional share classes now; seeking advance permission simplifies things later.

6. Are you selling to accredited investors only (or a higher standard such as qualified client or qualified purchaser)? And are you intending to charge a performance fee?

Typically, these are features we see on tender-offer fund products and are not allowed on interval fund structures going down the mutual fund distribution path.

7. How will you pay for ongoing platform fees?

Too often managers map out their anticipated fees and costs but leave out ongoing platform fees—because they haven’t yet reached the point where those are charged. That’s a oversight if getting on one or more platforms is an important element of the distribution strategy.

It’s important to know not only what the fees may be but how they’ll be paid. For example, in some cases, 12b-1 distribution plans and or shareholder-service plans—by available share class—can be paid from fund assets and used to offset eligible expenses.

One-time setup and due diligence fees, on the other hand, are usually not paid from fund assets but are paid by the fund manager. Your distribution path and share class structure will ultimately pre-determine which fees you might need to pay.

Closing thought

When it comes to registered products, some things simply need thinking about up front. A solid investment strategy isn’t enough to make a product successful. An intentional distribution strategy is essential and requires having your sales and operations teams on the same page. Unfortunately, managers sometimes work far down a path before realizing there’s a disconnect.

Learn more about UMB Fund Services and how we can support your firm’s registered and alternative investment fund administration needs, or contact us to be connected with a fund services team member.

By |2022-07-15T20:32:48-05:00July 19, 2022|Categories: Institutional|Tags: , , |

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About the Author:

James Curry is vice president/key account manager of distribution services for UMB Fund Services. He assists clients with sales distribution efforts and consults on intermediary relationships, maintaining relationships with platform providers and gatekeepers who facilitate selling agreement execution and operational onboarding processes. With more than 20 years of industry experience, James brings extensive knowledge of share class structures, supermarket platforms, broker-dealer sales channels, intermediary compensation processes and NSCC Fund/SERV trading. He is a registered representative of UMB Distribution Services with Series 6 and 63 licenses.
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