Legendary funds manager Mark Mobius recently announced that he will be forming new environmental, social and governance (ESG) funds, investing in emerging and frontier markets. The Mobius name plus emerging markets equity and ESG sounds like a perfect recipe for a successful new fund family, but even this dream combination has to execute a perfect fund launch to get there.
The Mobius funds likely will fall into Morningstar’s diversified emerging markets category, which is worth $573 billion and has doubled in size over the past 10 years, with an 8% compound annual growth rate, according to Morningstar. Although Mobius’s firm may plan to launch a U.S.-based fund in the future, by announcing that his first funds will be based in London and Luxembourg, he is perhaps signaling that he will not initially focus on the U.S. market. It’s probably a very prudent decision in the short run, but remember that the U.S. market makes up approximately 40% of global assets in the category. As with many categories, it’s highly concentrated: The top 10 funds account for almost 60% of the assets, and the top 20 account for 70% (about $5 billion in revenue). That leaves about $175 billion (or $2 billion in revenue) for the remaining funds.
There is some room for a new entrant, ESG or not, but the question is, how much? Needless to say, with shrinking shelf space and platform consolidation, gaining scale is tough, and being a new (or small) player in this category doesn’t bode well for the future. Will Mobius be able to leverage the funds’ strengths, his brand name and an ESG value proposition to replicate the scale he built as chief investment officer at Franklin Templeton? Without the scale, there may not be much of a future for the funds.
Are these not the very same challenges faced by most, if not all, new products? These challenges, as my colleague Jason Brown noted, only heighten the need for a successful launch: to launch on time and reach peak market share as quickly as possible. He estimates that successful launches drive a staggering 53% higher revenues.
There are three broad sets of activities that managers launching new products have to get right:
1. Build the right product. This should be a no-brainer, but recent Ignites research suggests that there’s a mismatch between what advisors want and what firms are producing. And if the plan is to also displace incumbents, then the fund has to offer a significantly better value proposition. Using our example, what would the Mobius funds offer that would displace the category killer (Vanguard Emerging Markets Stock Index fund, which makes up 16% of the category)? Or any of the other top 20 products, for that matter? This step requires a deep understanding of the market opportunity, which in turn helps the investment management teams fine-tune their products.
2. Make stage-gated decisions. As my colleague Brian Keating noted in his post, following a consistent, stage-gated process prepares the entire organization for the launch. It does so by:
- Defining the launch decision-making process
- Establishing criteria for actually launching the product
- Leaning heavily on structured and focused analyses to solve well-framed issues
- Including the right function, roles and people along the journey
- Including external partners in the process
- Focusing the allocation of resources
3. Execute a customer-centric, fast and cost-effective approach to gathering assets. Whether the target decision makers are retail investors, financial advisors and other intermediaries or institutional buyers, they are all people with tastes, preferences, motivations and opinions. Some people want to talk to people. Others prefer to do their own research and make decisions. The trick to accelerating asset-gathering is a thoughtful, complementary and highly targeted mix of meetings, events, digital touches and advertising.
Undoubtedly, we can expect that the Mobius name packs enough punch to drive some level of assets, but I think that if the Mobius funds follow our stage-gated approach, they’ll have a successful launch. How will you approach the launch of your next product?