MutualFundWire.com: The Trials and Tribulations of Outsourcing Distro

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Wednesday, September 23, 2015

The Trials and Tribulations of Outsourcing Distro

When evaluating third-party marketing firms (TPMs, or 3PMs), "you're trying to figure out who's lying to you less."

H. Kerr Tigrett
Iron Horse Capital Management
President, Chief Compliance Officer

Kerr Tigrett of five-year old global equity shop Iron Horse Capital shared that sentiment this morning on a panel at the 2015 Gemini Companies Advisor Forum, part of the 2015 NorthStar Summit held by Gemini's parent company at the Gaylord Opryland resort in Nashville, Tennessee. The panel also included David Young, founder and CEO of Pimco spinoff Anfield Capital Management, and Eddie Rollins, a partner at global asset allocation specialist Horizon Investments. Alma Piscitello, senior vice president of strategic relationships and head of key accounts at Gemini's Northern Lights Distributors, moderated the discussion.

The panelists offered some words of caution to fundsters looking to build out, or outsource, their distribution efforts:

1) If you go with a 3PM, hire "the really well-developed groups."

"If I had to do it over again, pay the money," for one of those top 3PMs, said Young, whose shop now has both a small internal distribution team and 3PM alliance, but only after working with several other teams first. "We would probably be further along."

2) Lean on your distributor and others to vet your 3PM.

Tigrett said he turned to Northern Lights to find out more about their 3PM before they sealed the deal. And Young urged fundsters to ask 3PMs for references who are ex-clients, both happy and unhappy, to get a better picture of what you're getting into.

3) Control how much you spend.

"I need to make sure that I mitigate my downside risk on the contract that I sign with them," Tigrett said. "We agreed to a 12-month, very small retainer. After that it was just basis points. I knew what my downside risk was."

4) Manage expectations, both yours and theirs.

"They're all going to sell you the dream," Tigrett warned.

"At the beginning there were pie-in-the-sky representations of what could be done," Young agreed. "The first iteration of a pipeline report ended up being more fantasy than fact."

5) If you want them to put in the effort, you have to, too.

Tigrett said that he and his shop's chief investment officer fly out to the territories of their 3PM's wholesalers. The wholesaler then sets up prospect meetings, lunches and the like. They make themselves a resource to the wholesaler and his targets.

"We've been able to connect better that way ... The only way to get more understanding of where they are and what they're doing is to go out and see them," Tigrett said. "Us traveling to their locales gives us more comfort with them."

6) When hiring your own team, it's not just about who they know.

"It's tough finding great externals," Rollins said. "Every external that you look at has raised a gazillion dollars and they can do that for you."

"We're not looking at your rolodex ... because we just haven't found that that works for us," Rollins added. "Can they represent us well? Will they work? Will they close."

7) Take everything with a grain of salt.

Young described building distribution as an "expensive adventure" and he warned of "the great untruths that will be told to you by 3PMs."

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