PA OPINION Size seems to matter

The RDR is leading to the natural selection of giants vs boutiques, but the UK is not alone.

PA OPINION Size seems to matter


A recent survey suggests the UK is not alone in this.

According to US-based research company Strategic Insight, more than half the actively managed asset flows of 2013 were handled by just 15 groups, and they appear to be the big boys.

While there was a US bias, with JPMorgan, BlackRock, Dimensional and Goldman Sachs dominating the top of the charts, it was nice to see Standard Life and M&G Investments taking on the stateside behemoths for a change.

The top 15 list, which also featured MFS, Franklin Templeton, Oppenheimer, Dexia (now Candriam), Manulife, Schroders, Harris Associates, Fidelity and BNY Mellon together drew in $300bn of net flows last year, with income products something of a main attractions.

Growth of multi-boutique?

With international business looking to gain traction, specialist outsourcing to sub-advisers and multi-boutique offerings as those seen by Legg Mason and BNY Mellon may become more commonplace, avoiding the stigma of being in that 'no man's land' middle ground.

They have the scale and infrastructure but can offer a more specialist service and attract a particular niche talent of fund manager who thrive in a boutique environment.

The report cited Boston-based John Hancock, where $5bn of its US net inflows went to funds advised by Robeco Boston Partners, and $3bn to funds advised by Standard Life.

“Subadvisory business also is an important way for smaller boutiques to source international markets,” Strategic Insight said.

Sometimes the best of both worlds coming together works – remember the nervousness around some parts of the market when Henderson bought New Star? But they (and Gartmore) seem to have settled into one unit – finally.

While economies of scale at fund charging level seem to be increasingly prevalent as deals are no longer being done behind closed doors, it’s crystal clear who’s tightening screws on whom for distribution and their choices are raising eyebrows, in some cases.

On the one hand, if we start to see more huge vanilla/core funds drawing assets en masse, through being a 'safe pair of hands' in certain markets, these will eventually close to new investment (or cause investor concern their style of management may need to alter) and the next generation of investors will have to wait for the 'me too' funds to emerge.

Already, for example, industry commentary has suggested a huge opportunity lies wide open for someone to be the next Aberdeen or First State when it comes to emerging markets, with their fund Goliaths shutting their doors to new money.

UK funds industry shot in the foot?

Elsewhere though, with certain aspects of regulation looking like it might hamper innovation in the start-up space, such as the FCA's scrutiny of dealing commission and its role in financing investment research, then put altogether, and being a bit glass half empty, does it mean that if boutiques and new structures are stymied, then the only option left open will be larger groups, or sending their assets overseas – again a huge opportunity, but we might have inadvertently wound up shooting the UK finance sector in the foot by creating a landscape where too many assets are held in too few hands.

We've often heard that at around 3,000 products, some significant fund rationalisation is required, but what ought to be the determining factors for deciding who stays and who goes?

Reliable and influential vs small and nimble – it feels like a very basic call for a core/satellite approach but there must be more to it.

What do you think? How many funds are too many? What should be the cut off point before a fund is closed or merged away – performance, size, consistency?