Boutique fund managers have been a pillar of the active asset management community for decades, with firms such as Fundsmith becoming a favourite among retail investors. In recent years, however, market and regulatory pressures have weighed on the industry as a whole, with smaller firms particularly feeling the pinch amid a wave of consolidation and closures.
In a recent survey of IFAs, fund selectors and wealth managers conducted by Censuswide on behalf of Nedgroup Investments, client service, thought leadership and alignment of client interests were some of the most important characteristics for investors when considering partnering with a boutique asset manager.
Meanwhile, a study by AMG in 2018 suggested that boutique asset managers outperformed non-boutiques by 0.6% per annum over a 20-year period. Among the reasons suggested included autonomy, alignment of interest, entrepreneurial environment and specialisation.
A similar study by Andrew Clare at Bayes Business School argues that a ‘boutique premium’ exists in terms of outperforming their larger counterparts, particularly in the emerging markets and European small- to mid-cap sectors.
Despite some of the perceived advantages over larger asset managers, during the past 18 months we have seen the closure of smaller firms such as Somerset Capital and Ardevora Asset Management, while boutiques such as Crux Asset Management have been taken over by larger firms amid a wave of consolidation.
See also: Ben Whitmore’s boutique named as Brickwood Asset Management
Amid the tough operating environment for boutiques and the wider investment community, new launches have started to crop up this year. In January, Jupiter fund manager Ben Whitmore announced his exit from the fund house in order to set up his own value equity boutique.
This was followed up at the end of April, when Royal London Asset Management’s head of equities Peter Rutter exited alongside fellow fund managers to set up their own fund management business, supported by Australian firm Pinnacle.
Against this backdrop, what are the main issues facing the boutique sector, and are we witnessing the next generation of startups?
“We have possibly seen more announcements of startups in the past three months than we have in the previous three years,” says Sebastian Stewart, partner at Pacific Asset Management and chair of the Independent Investment Management Initiative (IIMI).
“I think people are starting to be willing to take more risk, both in terms of setting up new businesses, and actually supporting smaller firms as well. There is light at the end of the tunnel in terms of where we are economically and that is helpful.”
While larger asset managers have been forced to cut costs, the environment for boutiques has been particularly challenging over the past few years.
“We’re in a unique economic environment,” says Stewart, “and also quite a treacherous point in terms of financial markets.
Read the rest of this article in the June issue of Portfolio Adviser magazine
