Boutique asset managers may lack the marketing budgets and distribution agreements of the big global brands but, considering their share of sales, they have a significant following. Looking beyond actual inflows, boutique firms crop up on buyers’ potential new-supplier lists too, as sophisticated investors search for that little bit of je ne sais quoi!
Since October 2013, Fund Buyer Focus has been recording the number of third-party fund providers appearing on buy lists across distribution channels. The quantity of preferred suppliers varies, with IFAs and fund supermarkets unsurprisingly demonstrating the highest numbers on average, at an aggregated European level (see chart). Retail banks on the other hand operate with the most concentrated lists of third-party suppliers, predominately occupied by the bigger fund groups. In the more fertile channels for boutiques such as funds of funds, discretionary and advisory managers, supplier lists are fairly concentrated with, on average fewer than 45 spread across asset classes. Inevitably, this makes for stiff competition. The top-selling boutique managers for net sales from January to July make for an interesting mix of domestic and cross-border players. New UK entrant, Woodford Investment, has stormed into first place, with the personal brand of Neil Woodford attracting a massive the asset class themes prevalent during the past year – European equities and multi asset respectively. Domestic market appetite has supported strong sales of hedge funds in Sweden. This has helped propel Catella into the top-selling boutiques. While the firm has achieved strong sales of a hedge-fund proposition targeted at retail investors, as well as fixed income strategies, it also offers equity and property funds.
Leading boutique brands
Boutique brands are evaluated and ranked in Fund Brand 50. In recent years, the mix of asset managers in the boutique brand rankings has changed from one displaying a heavy domestic focus, with a high concentration of French and German Managers, to one with a much broader mix of cross-border firms and local managers. This is an interesting market development – one in which boutiques have become more visible to selectors beyond their borders. Demand outside their home territories is presenting opportunities for growth and pulling them into new markets. At the end of 2013, cross-border groups represented a quarter of entrants in the boutique table. This trend is likely to continue as firms eye up European distribution opportunities. Ignites Europe has reported on examples such as US firms DSM Capital Partners and Scout Investment registering funds for sale, and a number of other boutique players are said to be following suit. The overall boutique brand ranking last year reflected the main asset allocation themes outlined in Fund Brand 50 2014, namely developed market equities, mixed assets and high yield strategies. But it also demonstrated the business growth stories of some of the top groups. Having made it onto preferred-supplier lists, they competed head to head with global brands for assets in the key sectors in demand.
Drivers of brand success – not all about spend
There is often an assumption that to build brand, you need to invest in marketing and advertising. For smaller businesses, the related budgets can be very limited. Without the deep pockets of a big brand, boutique managers have to use different strategies to build their brand’s reputation. For any business, people and product are essential ingredients of success and for boutiques, they are often the levers to open doors. With niche strategies and often inspiring stories on their formation, they have a significant advantage over some global players – product differentiation and brand personality. The weightings of the key impact drivers used by Fund Buyer Focus to measure brand preference changed during the course of 2013. With appealing investment strategy now a prerequisite for boutique manager selection, this encouraged buyers to focus on other brand attributes, with the importance of solidity (robustness and the firm’s chances of surviving market cracks and tremors) and innovative power coming to the fore. In keeping with the big brand rankings, communication (keeping best informed) also increased in importance as transparency of information flow and good relationship management became more sought-after by buyers.
Inevitably, managers in demand are at the mercy of shifting asset allocation trends. Boutiques with single strategies are more exposed to market movements, making client retention approaches and strong relationships essential for leaner times. According to distributor comments on future business growth, boutique managers are well placed across asset classes to see increased dealings. For specialised managers that continue to deliver performance, there is particularly strong interest from funds of funds and discretionary channels, including private banks. In recent years, boutiques have also successfully serviced and grown business with independent advisers – many inspired by Carmignac’s success in targeting this channel. But with the much awaited and debated Mifid 2 continuing to cause uncertainty in key areas around the definition of ‘independence’ and the content of suitability reports for clients, the outlook for this channel remains unsettled. Larger IFA firms will adapt but smaller players will be squeezed out if they are forced to move to fee-based models, resulting in a smaller pool of competitors.