Founders of asset management boutiques must carefully consider the corporate structure they choose for their company before launching, according to Susannah de Jager and Dani Hristova, who warn that many firms can find themselves enduring unnecessary pitfalls by not doing their homework.
Earlier this year, De Jager, an independent adviser and former CEO of SW Mitchell Capital, published a white paper on behalf of the Independent Investment Management Initiative (IIMI), entitled Exploring our corporate structures: plan for the worst, even in the good times.
The research was partially prompted by the downfall of Odey Asset Management in 2022, which the paper states “brought to light several abuses of the governance structure in the firm – an LLP named after its founder, and closed due to severe allegations related to him”. “While we do not condone any abuse of power, in any structure, it is a sad truth that bad actors may be able to manipulate the structures within which they operate,” it says.
When the paper was first published, IIMI, which today comprises 50 member boutique and specialist firms, found 67% of its constituents operated as private limited companies. The remaining 33% operated as limited liability partnerships, although one of these PLCs – Evenlode Investment – is an employee ownership trust (EOT).
Practice playbook
Speaking to Portfolio Adviser, De Jager says corporate structure is “a sensitive subject”. “It often leads to people talking about succession and due diligence. It’s really hard to set up an event on this topic, because people want to have these conversations one on one and not necessarily in an open forum.
“The precipitation for this [white paper] came because suddenly there was a negative example of a governance failing. We felt that, rather than this be a subject we discuss privately within IIMI, it was important to put out a type of practice playbook.
“Most of our members have good protections in place, but the purpose of the paper is to flag that it isn’t a case of ‘one size fits all’.”
IIMI CEO Hristova says that, within a broader context, IIMI recently joined City Hive’s ACT Alliance – the corporate culture standard for investment companies – so culture and values are “at the forefront of the conversations [IIMI is] having from a boutique perspective”.
Read the rest of this article in the November issue of Portfolio Adviser magazine