Unlocking the power of swing pricing

With fees under pressure, asset managers want to reward their most loyal clients. Recent swing pricing FAQs from the CSSF will help, but now client, fund and market data need precise and transparent processing to maximise benefits. Investors and fund managers need easy access to the data as they must make informed choices.

Clients who take an activist approach to fund investment — with frequent purchases and redemptions —generate substantial brokerage fees, transaction charges, taxes and more. If these costs are borne by the fund, this penalises loyal, long-term investors. Moreover, this contributes to increased market volatility, which is a concern for most investors and all regulators.

Swing pricing to reward loyalty

Swing pricing enables asset managers to charge activists the full costs of their strategy, thus preventing a dilution of assets for investors who prefer to buy-and-hold. To encourage this practice, the CSSF issued a set of FAQs in July, and these give greater clarity to the market of how swing pricing should operate. 

Nevertheless, this remains a highly technical process, and asset managers need to work hard to maximise benefits and then explain these in detail to clients. The CSSF expects to see a range of specific disclosure requirements, with prospectuses needing to contain higher levels of detail about the what, how and why of any given swing pricing mechanism. 

Data to build a brand: swing pricing, processing to reward loyalty

Converting this complexity into a clear, attractive marketing message is a challenge. Asset servicers need to provide this clarity and process transparency for fund clients and providers. Using the full range of data available to the asset manager, this should enable investors and their advisors to review their options. It would also help with regulatory reporting.

Efficient swing pricing is an excellent way to build an asset management brand and grow client loyalty. The key is to unlock the wealth of client data, matching this with fee structures.

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 Luxembourg  Dorian Jacob