Blue Chip Journal - June 2019 edition

BOUTIQUES
Facing the boutique fear
Building a sense of community is key
If you hang around boutique asset
managers long enough, you’re bound
to hear them bemoan a lack of growth
in their assets under management
given the returns they’ve generated. It
is a legitimate gripe. Most left an institutional
background to implement their
respective investment philosophies with
autonomy. There was risk involved in
such a move. Jump forward a few years
and many of these fund managers have
very appealing track records. But many
remain frustrated that their hard-won
returns haven’t resulted in a commensurate
growth of their entrepreneurial
endeavours.
Why are good track records going unrewarded?
An understanding of the psychological
barriers walling off investors from
our respective boutique propositions is a
good place to start.
Don’t make me look bad
As we go through life, we choose to
associate ourselves with certain people,
places and brands. We do this because
of an innate desire to belong, to feel that
we’re part of something bigger. Who, or
what, we chose to associate ourselves with
depends on how we resonate with that
entity, and importantly, how that association
reflects on us.
Investors are no different. Whether
you’re a discretionary fund manager, a
multi-manager, a financial advisor, or the
end investor, you want to partner with an
asset manager that, for whatever reason,
you feel proud to be associated with.
Whether you’re having your nails done,
or sitting around a braai with friends,
you want to be able to broadcast who is
managing your money. Most will do this
only because they know a community
exists that feels the same way.
The challenge facing most boutique
asset managers is that their brands are
not strong enough to provide that feeling
of community. Because of this, investors
considering boutiques must accept that if
something goes wrong (say poor returns),
they will not have that safety net that
community provides. Without that support,
their decision will be less forgiveable (for
both themselves and others), and, in very
simple terms, make them look bad.
Why this is one fear you must face
Diversification: Whether small managers
perform better than bigger managers is a
moot point. What is important is that larger
managers are likely to correlate to each
other for the simple fact that they share
a similar investment universe. It therefore
makes little sense to blend larger players in
the name of diversification. Find the boutique
managers that produce uncorrelated
return streams and work those into your
portfolios to realise the benefits of true
diversification.
Differentiation: This element is specific to
the intermediaries building investment
solutions for investors. We are all acutely
aware of the increasing transparency in
our industry. The somewhat uncomfortable
truth is that greater clarity around how
investments are managed will finger those
in the value chain not adding, well, value.
It’s critical for the sustainability of all stakeholders,
including boutiques themselves,
to be able to differentiate themselves from
their competition. Boutiques still offer
intermediaries this opportunity.
Development: If we read the same books,
listen to the same people and visit the same
places, we forgo the opportunity to learn
and become better humans and better
decision-makers. Boutique managers, like
their bigger counterparts, have their own
set of unique beliefs and views. Absorbing
these could provide fresh insight to help
you solve old problems.
Getting over the boutique fear
Rather than shouldering all the risk yourself,
introduce an interesting boutique to your
community of end investors before making
an investment. You’ll find that most smaller
fund managers are very open to such
requests. And instead of a dry PowerPoint
presentation on their philosophy, rather
choose a setting where relationships can
form because people trust people not slides.
Then monitor them. Ask how they are
positioned and track their performance
to see whether they do what they say
they’re doing. Check that they have their
own money invested in the funds they are
asking you to invest in. And then, once
you and your community are comfortable,
start small, increasing your investment with
them as your comfort grows.
Warren Kelly, Business Development,
Obsidian Capital
32 www.bluechipjournal.co.za