When speed is better than size
Picture a caricature of a hulking behemoth pitted against a small, nimble opponent,
writes Johann Barnard. The storyline is always that the combatant able to move more swiftly has the upper hand.
Overlay this picture onto the asset management business and the behemoth is the traditional, establishment manager; the smaller, nimbler character is the boutique asset manager.
The analogy fails to some extent because boutiques may be smaller as individual firms, but jointly they manage around R2.4 trillion of SA’s R5.2 trillion assets under management.
These figures are lifted from a study published late last year by RMI Investment Managers. In the study, the market is split between the bank and insurance-owned asset managers and the independent and true boutique managers.
So, the terms independent or boutique are not synonyms for “small”. The report found that SA has 126 of these managers, but the top 10 manage 76% of this R2.4 trillion pot. This figure is swayed somewhat by stalwarts such as Allan Gray, Coronation and Prudential being counted among the 126 managers surveyed.
An aspect of the David vs Goliath analogy that is closer to the truth is the advantage boutique managers have in being able to move quickly. The claim is that larger institutions are slower to react (mainly due to internal processes and approvals) and may miss the chance to reposition portfolios.
There’s nothing like a crisis to create a chance for profit.
Though the large managers would undoubtedly be diversifying their risk, boutique managers like Cy Jacobs, cofounder of 36One Asset Management, doubt their ability to move quickly enough.
“We’ve made a change of about 15%-20% in our portfolio in the past week,” he said at the beginning of April. “We’re all about picking up opportunities and positioning our clients based on how we see the lay of the land, which has got a lot more negative recently.
“So we’re positioned for a weaker SA and are not that invested in SA Inc. That view obviously cost us last year, but we were able to moderate our view to cope with the macro drivers. And we’re now again changing that because we believe that for now the president is entrenched, the state is now fully captured and we believe we need to protect our clients’ funds on a global basis.”
36One has adjusted certain of its funds, mandate dependent, to be more heavily weighted to global assets.
Chris Meyer, CEO of RMI Investment Managers, says boutique managers have greater simplicity in decisionmaking, lower complexity in product mix and nimbleness, allow them to take advantage of market volatility.
“People’s real net worth is going backwards,” Meyer says. “That’s a big change from the past 20 years when equity markets, even bond and property markets, have delivered strong real returns. So clients worry about their ability to generate positive real returns. Particularly when events make the ability to forecast those returns next to impossible.”