‘Boutique shopping’ now a key multi-management skill - AMM

Shopping for the right blend of boutique investment managers has become a key skill for multi-managers looking to consistently outperform the market, says Absa Multi Management (AMM), a manager of managers with a reputation for talent-spotting among boutique management companies.

A multi-manager’s ability to identify quality ‘boutique’ operations has become a crucial means of adding value to a managed portfolio.

At AMM, boutique selection is integrated into the portfolio construction process, says Johan Gouws, AMM’s chief investment officer.

“When looking for a complementary set of asset managers we apply rigorous criteria to ensure the optimum selection of mainstream and boutique managers,” says Gouws.

“This enables our clients to benefit from an important investment industry trend in recent years; the launch of small, highly focused asset management businesses managed by high performing individuals who concentrate on doing what they do best – managing their clients’ money.”

AMM researchers have developed their own set of qualitative and quantitative criteria for the identification of boutique managers. The typical manager that fits the boutique requirements …

· has a focused, highly specialised asset management approach

· has a limited number of seasoned investment professionals

· offers a core range and manageable range of products

· has smaller assets under management and/or a stated limit in terms of assets

· runs a business substantially or wholly owned by the investment team

· has investment professionals involved throughout the investment process

· outsources non-core business activities

The agility of boutique managers when markets move is a key reason for strong AMM performance in sometimes challenging market conditions, says Neville James, head of manager research at AMM.

He notes: “Boutique managers have various competitive strengths versus mainstream managers. Asset management businesses in which investment professionals have substantial equity stakes tend to outperform competitors over time.

“Individuals are more accountable. Unnecessary delays caused by the need for collective decisions by large investment committees can be avoided.”

Small does not mean short on experience, says Gouws. Most professionals at boutique management companies have strong CVs and spent lengthy periods of time with industry heavyweights.

Sheer size sometimes stops big firms exploring areas of opportunity offered by investment markets – a field in which boutique managers often excel.

Gouws adds: “Boutique managers are less constrained in terms of the investable universe and can typically explore more investment opportunities than their larger counterparts.

“Smaller managers are not forced to hold large capitalisation stocks. They can migrate to and from small- and mid-cap sectors more often if need be. Typically, more mis-pricing occurs in the small- and mid-cap equity space where there is less analyst coverage, often resulting in attractive investment opportunities.

“We would be remiss if we did not capture this outperformance potential for clients – which is why shopping for the right boutique will remain a key form of value-add for value-minded managers like AMM.”