Sharp declines in equity and bond markets have put pressure on profitability for all kinds of asset managers, with even BlackRock, the behemoth of the industry, announcing plans to cut around 3 per cent of its global workforce.
Into that tough environment, several well-known industry individuals, including Ben Whitmore at Jupiter, have announced plans to launch their own boutique companies.
Boutiques have to some extent become the poster children of the active asset management industry, with Terry Smith’s Fundsmith Equity being the largest fund in the UK wholesale market.
But the boutique structure has also suffered extremely negative headlines, particularly around the collapse of Woodford Investment Management.
On top of the market turmoil and key person risk have come challenges from increased regulatory scrutiny. These compliance functions are “the only area of the asset management industry that is growing right now”, says Steve Kenny of QD Consulting.
‘Peak may have passed’ for boutiques
But if markets are turbulent and costs are rising, is it possible to make a success of a boutique?
Jason Hollands, managing director for corporate affairs at Evelyn Partners, says the peak may have already passed for boutiques.
“Only a few years ago, ‘boutique’ asset managers were looked upon highly favourably by advisers and private investors, who liked the idea of entrusting their wealth with entrepreneurial, performance-focused smaller businesses, owned by their fund management teams and without the layers of management structure seen at large firms,” he says.
“But recent times have seen some boutiques struggle. Emerging market-focused Somerset Capital is winding down after losing its largest mandate and Ardevora, the boutique formed 14 years ago by former Liontrust managers Jeremy Lang and William Pattison, has just announced it is to cease managing money for external clients.
“Other players have been swallowed up in industry M&A, with recent examples including Crux Asset Management, the business founded by veteran manager Richard Pease, being snapped up by Lansdowne Partners, and publicly listed Premier Miton buying UK equity specialist Tellworth Investments.”
Tyndall head of partnerships James Sullivan says that while regulation has always had an impact on the asset management industry, “it was never deemed to be as oppressive as it is today. Boutiques have always faced certain headwinds that the behemoths of the industry were better equipped to weather, but that’s not to say it is easy for large businesses to maintain or grow market share”.
But Sullivan says that while regulation poses a challenge for boutique companies, it may also present an opportunity. This is because he feels that in the current regulatory environment, there is a much greater focus on funds that deliver, or make clear they aspire to deliver, “clear outcomes” for clients, and his view is that “smaller, more nimble” firms are more capable of pivoting to products that meet those needs than are larger companies.
