Innovation: initial steps for fund industry players

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Recent studies continue to reinforce the empirical evidence of the positive impact of innovation on company performance. According to these studies, those companies that are committed to innovation will grow three times faster over the next five years. Companies that do not commit to innovation will tend to disappear.


In 1958, the 500 largest companies in the United States listed on the S&P500 remained in that index an average of 61 years. Today that period of permanence falls around 18 years, but the forecast for 2025 is close to 15 years. That means that no matter the size, even the largest companies in the world may disappear in 15 years if they do not innovate. Fund industry is not a horse of a different color.


In this situation, as a manager, are you leading strategies and a culture to encourage innovation in your company?


However, and before you get too excited about the idea of starting immediately with the innovation matter within your company, statistics show that almost 80% of new products and services fail during the six months after launch.


So, how can we successfully innovate considering these failure ratios? Professor Carlos Osorio view is that major problems in the company arise when the focus is more on the idea than in the challenge. According to their investigations, 75% of “great ideas” fail. Nevertheless, 99% of attempts to solve “innovation challenges” end as success. In this sense, having innovative leaders in the team will help to improve all areas of the company activity.


Another author, Roy Rothwell at the University of Sussex, provided an historic overview of industrial innovation management in the Western world. He described 5 generations of innovation models: Technology Push (1950-1960), Market Pull (1960-1970), Coupling of R&D and Marketing (1970-1980), Integrated Business Processes (1980- mid 1990s)and System Integration & Networking (since mid 90s onwards). Current innovative companies are associated to a diverse portfolio of partners which together create an innovation system based primarily in exchange of information and knowledge.


Creating this net of employees and partners with innovative capabilities can be a good way to start ensuring the growth and competitiveness of your company.


Alembeeks Group contributes with fresh ideas and IT solutions to a better fund industry. We are fund industry natives and we know IT.

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10 tips for efficient meetings

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Dear Fund Director,

How many times did you have the feeling that a meeting was going to nowhere?

Find below 10 easy tips to improve your meetings:

1 – Define a clear goal before the meeting. What is the matter you want to solve?

2 – Have an agenda and share it previously with all attendants.

3 –  Ask all attendants if they want to include additional points to the agenda.

4 – Try to avoid to debate about matters with no direct relation to the meeting’s goal.

5 – Manage time. Establish a clear starting and ending time.

6 – Investigate about the main topic before the meeting, so you may add value and not be an obstacle.

7 – In case you invite someone to speak about one topic, doesn’t mean this person has to have an opinion in all topic of the meeting.

8 – Allow all attendants to participate in the meeting. All opinions may count.

9 – Appoint someone as a responsible for applying the resolutions made in the meeting. Use clear deadlines.

10 – Write a report of the meeting, share it with the attendants and put in place the necessary mechanisms to follow up the decisions made.

I found this list in this site (in Spanish). However, there are thousands of websites giving good advices.

Making the right steps to have better meetings will allow us not only to improve our activity but also to feel much better.

I hope this helps.

Your faithfully,

The Indeep Fund Director.

Old KIIDs on the block

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Dear Fund Director,

The KIID  (Key Investor Information Document) is coming back to scene. After having their first golden age in 2010 when the Commission Regulation 583/2010 appeared implementing Directive 2009/65/EC, the banking sector is finally setting up internal procedures to provide the KIID for all investors before entering a fund.

The KIID is a pre-contractual document whose content, length and methodologies are regulated and “harmonised”. In this sense, it is important to make clear that not all KIIDs look equal but disclose the same type of information. The aim of this document is to disclose key data of the fund like past performance, costs, level of risk and main responsible entity of the fund, among others to the investors, with an appropriate language and equal methodologies.


(Source: PricewaterhouseCoopers)

In this sense, it could be useful to be informed about some questions like:

  • How often does the Management Company update the KIIDs?
  • When was last update?
  • Were there any significant changes in costs for any of the funds under mandate?
  • Were there any changes of SRRI (Synthetic Risk Reward Indicator) in the last update?
  • Are the KIIDs prepared for each class or are there any KIIDs for more than one class?
  • In which way the Management Company ensure that investors have this pre-contractual document?
  • Is the KIID provided even in subsequent investments?
  • Is the KIID provided to retail and institutional investors?

Yours faithfully,

The Indeep Fund Director

4 key controls to follow as a Fund Director for a Synthetic ETF

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Dear Fund Director,

It is not very common to be a Fund Director of an ETF however, some of you may be in this position now or in the future. In this case, I would like to introduce to you 4 key elements which you should follow closely during your mandate:

1 –  Counterparty risk. The synthetic ETF’s are based on the fact that there is a Swap agreement with a counterpart which is the main driver of performance tracking with the index we intend to follow. See this explanatory document by Vanguard. In this sense, following counterparty risk is key in these funds specially in case of UCITS, where UCITS Directive states that the risk exposure to a counterparty in an OTC derivative transaction shall not exceed 5% of the assets of UCITS, or 10% when the counterparty is a credit institution. Apart from that, there is the EMIR issue that will be developed in next posts. In this sense, it may be worthwhile to pose questions to the risk managers about this issue.

2 – Tracking error. Tracking error is a measure of how closely an ETF follows the index to which it is benchmarked. As this is key for investors looking for Beta, there are public comparisons. It can be a good idea to ask the investment managers which is our historical tracking error for our ETFs.

3 – Costs. Sources of cost may vary: transaction costs, management fees, swap costs. However we must ensure that our ETFs are competitive. What about asking our business developers about the costs of our competitors? Be sure that our potential investors will check this as well.

4 – Liquidity. Investors like liquidity, specially in these days of volatility. Usually asset managers appoint market makers which ensure liquidity and a narrow bid-ask spread. Posing questions on how good our ETFs are ranked in comparison to our competitors with regards to the bid-ask spread will be a good measure to know if our market maker providers are performing well.

I hope this helps.

Yours faithfully,

The Indeep Fund Director.

Turnover Rate: ¿angel or devil?

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Dear Fund Director,

Historically, the turnover rate has been a double edge sword. Fund managers were afraid of it because it meant more cost (and less performance), while financial executives tended to like it because it was seen during several decades as the milky cow of the group. In my opinion, regulation was soft at that time when TER ratios were promoted and did not include the impact of brokerage fees in the ratio. However, Mifid II tried to correct it kind of successfully. Find below the evolution of this ratio, which is showing a decrease in these last years.

Having said that, some investment strategies and asset classes require higher turnover rates. The size of the fund matters as well, given the difficulty of rolling big positions in some funds with huge assets under management.

A high turnover rate should not be considered as a negative element for itself. It may show that the fund manager is active and in this case, if this higher activity means higher returns and lower volatility for the fund, then it could be more than welcome. On the other side, if fund performance is average or poor, drawdowns are not reduced and volatility is average within their asset class, you should really ask the fund manager to explain why the figures are so high?

Yours faithfully,
The Indeep Fund Director


NAV calculation errors review

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Dear Fund Director,

Have you checked NAV calculation errors in your funds during these first six months? Probably no fund has got a NAV calculation error over the regulatory or internal thresholds. These thresholds may vary depending on the jurisdiction and the administration company. Generally, management companies’ thresholds tend to be much less high tolerance than the regulatory ones. Make sure you have the latest version of material impact for each of the funds. For example in Luxembourg for each of these types of UCIs the tolerance threshold is specified hereunder:

money market UCIs/cash funds: 0.25% of NAV

bond UCIs: 0.50% of NAV

shares and other financial assets’ UCIs: 1.00% of NAV

mixed UCIs: 0.50% of NAV

It could be interesting to analyze which of your funds have been the ones with more NAV calculation errors and the causes. To improve this area of risk will diminish a lot the liability risk of the Management Company and the Board of Directors.

Ensure also that the internal procedures to be followed once a material impact has been detected are clear and in compliance with the latest regulations.

Yours faithfully,

The Indeep Fund Director

Which are the start-up/set-up costs in our funds?

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Dear Fund Director,

A review of the start-up costs held by the funds could be noteworthy. Find below some question you might pose to your executive team:

– Has the Management Company a clear procedure of which costs are permitted to be included in this account?

– Are there any limit by amount or percentage?

– Are there any regulatory or internal limit of years to spread these costs?

– Did the auditor make any comment to this regard during their last visits?

– Within your organization, who are the persons or committees in charge of approving the start-up / set-up costs?

– How many of our funds are still accruing this account?

Yours faithfully,

The Indeep Fund Director