PACKING A PUNCH
Niche firms may outperform others due to their investment style or portfolio construction
It’s never easy being an outlier, especially if you’re a boutique, or small, asset manager. The lack of scale, as measured by assets under management, places tremendous pressure on the ability of such managers to be price competitive and extend their reach into the market.
But once established, they have shown a knack for delivering what their customers most want: strong performance. This ability to outperform could be measured in the strong performance of boutique managers in Morningstar’s annual unit trust awards.
Of the seven fund categories, four were won by boutique managers in the event that was held earlier this year.
Winners included NFB Asset Management, which won the top moderate allocation and the best cautious allocation fund categories. Centaur’s BCI Flexible Fund took top honours in the best flexible allocation fund category, while Mazi Capital walked away with the best SA equity fund award.
The big challenge for many in the boutique space is building an understanding among clients of the rationale for a particular investment style or portfolio construction.
James Twidale, a portfolio manager at 1st Fusion Asset Management, says his firm’s longer-term focus and wider diversification across asset classes and jurisdictions offers differentiation in the Regulation 28-compliant fund categories but can cause unease with investors who may be swayed by short-term market or political volatility.
The communication of a different investment strategy and philosophy is especially difficult when dealing with retail investors who might not have a direct relationship with asset managers because they deal through a wealth manager or financial adviser.
“To communicate our message about our philosophy can be difficult, because people always benchmark boutiques against the bigger guys,” Twidale says. “They love you when you beat the bigger guys, but tend to punish you in terms of new business flows when you do not.”
Twidale says the market is too focused on relative shortterm performance measures, which are a constraint created by investors and advisers. 1st Fusion therefore doesn’t benchmark itself against peers or market indices, but rather measures itself against its own benchmark of CPI plus 2%, 3% or 4% in its local fund range.
“Those might be seem like relatively low benchmarks historically, though we believe global markets are going to return significantly less in the next two decades than they’ve done in the previous two. We’re in a much lower realreturn environment structurally, so we’re setting clients’ expectations correctly,” he says.
It is only natural for investors and advisers to look at where they can expect to get the best real returns. And despite the oft-repeated global synchronised-growth story, local and international events continue to undermine any huge sense of complacency.
Alida de Swardt, CEO of RMI Investment Managers, says this creates an opportunity for boutique managers to offer their unique skills to the market. “Multimanagers use boutiques for their specialist capabilities and particular investment styles,” she says.
“We’ve recently seen a shift away from multi-asset allocations to more specialist mandates. This shift has been good for boutiques.
“In our experience, boutiques are very disciplined in their investment processes and are far less likely to succumb to external business pressures.”
RMI Investment Managers has been building up its affiliate portfolio of boutique asset managers over the past twoand-a-half years, recently adding private equity firm Ethos to its stable. This acquisition has been done in partnership with Royal Investment Managers, which in itself is a joint venture with Royal Bafokeng Investments.
“Our main focus at the moment is assisting our affiliates with their growth strategies, as our model will prove its worth only if we can assist these managers to reach the next level. It’s one thing to have the thesis of why we are doing this and what we believe in, and another thing to have the evidence to support it.”
De Swardt sees scope to grow influence across the value chain, with a particular emphasis on boosting diversity in the industry.
The question of transforming the industry is dealt with in greater detail in this edition of
IM. While the focus there is on creating a more representative industry, it is equally important to ensure sustainability by offering retail and institutional investors real choice.
The performance of these niche players shows that this is happening, and the support from the likes of RMI Investment Managers and 27Four Investment Managers will stand boutiques in good stead.
We’ve recently seen a shift away from multi-asset allocations to more specialist mandates. This shift has been good for boutiques
Alida de Swardt … boosting diversity