BOUTIQUES Facing the
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
UNIT TRUSTS People's choice Open-access investment with Satrix Satrix is South Africa’s oldest index tracking business. It listed the first-ever exchange traded fund (ETF) on the Johannesburg Stock Exchange in 2000. This ETF was the Satrix 40 ETF and remains “The People’s Choice” right up to today. Since then, Satrix’s popularity with investors has continued to grow, reflected in the fact that Satrix earned no fewer than four top spots at the South African Listed Tracker Funds Awards (SALTA) in May this year. Commenting on the awards, Satrix CEO Helena Conradie says, “I am extremely proud of the team of professionals I work with. Everyone takes complete ownership of the brand and their role in the business; it is their focus and dedication that leads to awards but more importantly improving access and financial inclusion to investors.” Satrix won awards in the following categories: • The People’s Choice for the favourite ETF amonge the investing public – Satrix 40 ETF • Best Total Return Performance, 3 years – Satrix RESI ETF • Best Trading Efficiency, 3 years – Satrix RESI ETF • Best ETF Issuer for Capital Raising, 1 year – Satrix Managers. “I see The People’s Choice award for the Satrix 40 ETF as recognition by our investors for the work we have done over the last 19 years to make investing accessible to all South Africans. This is the second time we have won the award and as CEO of a leading index business, but a small investment business by South African standards, I feel that we have been able to educate and assist investors way beyond what I may have thought possible when we first started out,” says Conradie. “The performance awards are always welcome to receive, but we really have no control over that as we deliver what the market gives us. I suppose, what is really being recognised here is the expertise we have as an index-tracking investment team. The Best ETF Issuer for Capital Raising is also a feather in our caps as it really talks to how strong our brand is and how more investors trust us by giving us their money to manage.” In March Satrix took its ETFs into the rest of Africa, making it possible for even more people to become investors. As Conradie comments, “Everything we do at Satrix is about access. We want to enable all people to become investors no matter where they are. So as much as listing our ETFs into Africa is obviously about growing our market share, it is also about taking investment options to the people of Africa by making these very accessible and available right on their very own stock exchanges.” Beyond the active-passive debate According to Conradie, the industry has moved on from the active versus passive debate and has embraced the notion of both options being appropriate in one portfolio if combined correctly in a way which talks to a specific risk-return outcome. “Historically, investors may have reluctantly used vanilla index trackers to bring down costs and for that they believed they were compromising performance. Through much education, most investors now know this is a myth. We have also been able to introduce the concept of factor investing which means you can invest in funds which are able to capture and collate systematically the performance drivers of groups of stocks which can be used to target a risk-andreturn outcome. “When blending factor funds with other vanilla index trackers or active managers, an investor has a greater level of control over their portfolio outcomes. I am convinced portfolio solutions rather than single-product funds are here to stay and can redefine the asset management industry in a very positive way,” Conradie comments. Solution funds When it comes to short-, medium- and longterm investment, Conradie distinguishes between investors and savers: “Investors have time on their side and savers do not. So if you are a saver (short on time), keep your money in an interest-bearing account. If you are an investor, you need to match the time you have with the risk you can bear. This again is where solutions come in because you can use a blend of various asset classes to target a risk/return outcome. “We all know that equities have delivered the highest real return of all asset classes over long periods of time, but given how uncertain the future is and how poorly equities have performed in the last five years, this may not last. This is why a solution fund constructed and managed by a professional will help you achieve your goals,” Conradie concludes. Helena Conradie, CEO, Satrix www.bluechipjournal.co.za 33
