MET Premium PartnersTM – a year in review
Jean Badenhorst, Head: Manager Research at Momentum Outcome-based Solutions.
It has been more than a year since the MET Premium PartnersTM were introduced to financial advisers at the MET Collective Investments 2014 Boutique Investment Manager Conference held on 9 and 10 June 2014. This conference showcased the MET Premium PartnersTM – a select group of boutique and specialist investment managers that are among SA’s most promising emerging investment talent.
As a reminder, the current MET Premium PartnersTM list includes:
• 36ONE Asset Management (Pty) Ltd
• Contego Asset Management (Pty) Ltd
• Counterpoint Boutique (Pty) Ltd
• First Avenue Investment Management (Pty) Ltd
• Imara Asset Management SA (Pty) Ltd
• Metope Investment Managers (Pty) Ltd
• Northstar Asset Management (Pty) Ltd
• Perpetua Investment Managers (Pty) Ltd
• Saffron Wealth (Pty) Ltd
Some of the above investment boutiques may still seem relatively unknown to many investors and may even seem new to some, but many of these firms have been managing unit trust portfolios for more than five years already, such as 36ONE, Contego and Imara for example. The newcomers to the above list are Perpetua, Northstar and Metope, which only launched their core portfolios in the last 12 months.
Latest research on active boutique investment managers
The trend towards boutique investment managers is now well established and continues to grow in South Africa and around the world. The trend is being driven by the desire to be independent, to offer specialised expertise and products, to align owner and client interests and to be free of non-investment-related bureaucracy of big institutional investment managers.
While a considerable amount of research has focused on the ongoing active versus passive debate, a recent study focused on an important industry subset, namely “active boutique investment managers”. This recent study, called “The Boutique Premium – Do boutique investment managers create value?”, was published by the Affiliated Manager Group (AMG)1. It found that active boutique investment managers have consistently outperformed non-boutique peers and indices in the past 20 years, in many cases by a wide margin. It also suggests that top boutiques generate significant alpha and that the strongest boutique outperformance came in the emerging markets equity, global equity and US small-cap equity categories.
The comprehensive study analysed data from more than 1,200 global investment management firms and nearly 5,000 institutional equity strategies comprising about $7-trillion in assets under management.
The analysis found that in the last 20 years:
• Boutiques significantly outperformed non-boutiques: The average boutique outperformed the average non-boutique in 9 of 11 equity product categories, by an average annual 0.51%. Investing exclusively with boutiques across all categories would have created 11% greater wealth for clients in the last 20 years, as opposed to investing with non-boutiques.
• Boutiques delivered significant value as compared to primary indices: The average boutique strategy outpaced its primary index in 9 of 11 equity product categories, by an average annual 1.41% after fees.
• Top-performing boutiques generated exceptional excess returns: Top-decile and top-quartile boutique strategies added 11.33% and 5.89%, respectively, on an average annual basis after fees as compared to their primary indices.
The study further identified several core characteristics of boutiques, which position them well to consistently outperform in return-seeking asset classes (active equities and alternatives), which includes:
o Principals have significant, direct equity ownership, ensuring alignment of interests with clients.
o Presence of a multi-generational management team, fully engaged across the business.
o Entrepreneurial culture with a partnership orientation, which attracts and retains the most talented investors.
o Investment-centric organisational alignment, including careful management of investment capacity.
o Principals have a long-term orientation and are committed to building an enduring franchise.
Conclusion
South Africa has seen a clear shift away from dominant large investment managers and greater dispersion of assets across investment manager size. Growing Tomorrow’s Leaders TodayTM is the premise of MET Premium PartnersTM, which gives financial advisers, and their investors, one of the most thoroughly researched indicators of tomorrow’s leading investment managers. Successful investing is about identifying and being able to capture future growth at an early stage.
To become part of MET Premium Partners™, boutique and specialist investment managers undergo rigorous due-diligence reviews and business scrutiny. The research and due-diligence reviews used for MET Premium Partners™ is the same process developed and used by Momentum Outcome-based Solutions1 for selecting investment managers to form part of its institutional portfolios.
Momentum Outcome-based Solutions’ research team, as part of the team members’ research process, continually strives to identify new emerging boutique investment firms that would typically share some of the core characteristics, as identified by the AMG study on boutique investment firms, which would potentially enable them to generate sustainable long-term outperformance relative to indices and non-boutique peers.
