Boutiques gain ground in private banking arena

When selecting external managers, it has become increasingly common for distributors and asset managers to state their preference for boutiques. Tony Earnshaw, head of multi-management at London-based Northern Trust EMEA, has declared that when selecting managers, who are mostly employed on a sub-advisory basis in his £2.5bn (?3.7bn) business, what they focus on is the team and individual �talent. “We believe that people rather than the organisation make the difference. That means we prefer the smaller asset management houses and often the boutiques,” he said. “This is partly because it is easier to spot talent but also because talented people will migrate to areas where they are free to use their talent.” The organisation is important in terms of discipline and support, conceded Mr Earnshaw, but the pressure point is on the individuals, who have to take the decision on buying or selling a stock. In the selection process, risks to be taken into consideration are very different depending on the size of the company. “For a boutique you are looking at the risk of the business not having the right level of support, capitalisation and compliance,” he said. “With big companies, you are looking at the risk of corporate activity, the risk of people moving or being moved to different areas.” The risk is also that returns are pulled back to benchmark, he said. But although the expression “boutique” brings to mind the idea of a small-size asset manager, the concept should perhaps be analysed further, in light of the increasing trend among international companies for reinventing themselves as new multi-boutique incarnations. Graham Duce, who together with Aidan Kearney now heads the asset management’s UK multi-manager team, having just replaced Robert Burdett and Gary Potter, revealed a clear leaning towards boutiques. “Boutiques are more dynamic and flexible and managers have the freedom and the ability to generate alpha.” Boutiques are therefore favoured in the £2bn multi-management business and in the core part of Credit Suisse’s private clients’ multi-asset portfolios. The two areas have a high cross-over in the types of the funds they hold, said Mr Duce, who has been responsible for developing the asset management’s multi-asset class solutions relationship with the private bank across the UK in the past five years. However, probed further, Mr Duce talked about the impossibility to “pigeon-hole small investment houses versus larger investment houses”. “A lot of the larger houses now recognise that in order to keep their talented managers they have to offer them more flexible mandates.” In the past we have seen star managers leave big organisations, go to boutiques and set up a fund to make the serious money, he said. Today, big houses such as BlackRock-Merrill Lynch have got several funds with very talented managers, and give them freer mandates. “Some of their funds I would classify as boutique by nature,” said Mr Duce, even if the organisation running the fund is not a boutique house. So, the word “boutique” would refer to an ideology rather than to the volume of assets managed. “It is the actual style of the fund, the type of process and the attitude to risk, how sensitive or not it may be to the benchmark,” he said. “We don’t want our managers to be a sort of index+1 mentality. We are not afraid of manager having a great higher tracking error and having to take on more risk in order to generate those returns. That is the ethos or ideology of investing in boutiques.”