Boutique fund managers are finding the current environment challenging, particularly those without institutional backing, according to Eight Investment Partners’ chief investment officer, Kerry Series.
Eight Investment Partners was formed in January this year and its Asia Pacific Partners Fund currently has $8.3 million in funds under management (FUM). The fund delivered 14.14 per cent in September (13.78 per cent above the MSCI All Country Asia Pacific Net AUD Total Return Index) and it has delivered 19.61 per cent since its inception eight months ago. However, Series admitted that inflows would remain a challenge as fund managers battled winning over investor trust.
Eight Investment Partners is a boutique fund manager that enjoys the backing of one of South Africa’s largest financial services companies, Sanlam.
“In my view, an institutionally-backed boutique has got the greatest chance of delivering better investment performance,” said Series, adding that this was because it had the institutional resources to have a large enough investment team, research budget and operational business and compliance team.
“But it’s also got that boutique environment, which means there is an investment-led culture to the company and you’re not developing products for marketing people — you can resist those pressures and focus on investment decisions.”
Series explained that the business was run independently and the investment team had significant ownership. He admitted that while boutique fund managers often talked about this kind of ‘investor alignment’ in the past, the global financial crisis (GFC) challenged the boutique model.
“It was quite easy for investment professionals to leave institutions and set up a boutique without any substantial backing pre-2008. There was a lot of talk about being aligned and investing in their own fund, but I think it has run into a couple of problems,” he said.
Adviser and client disillusionment with the outcomes delivered through 2008 and 2009 continued to result in low fund inflows, Series said.
“It’s a really challenging environment for boutiques that don’t have substantial backing, even if they do have good alignment with their investors.”
Eight Investment Partners chief executive Rick Steele asserted that the bar had been lifted for boutiques and a number of boutique fund managers faced the problems of not having enough investment people, capital or FUM to satisfy research houses, asset consultants and the regulators.
“It’s a new ball game,” he said.
Series said the timing of its fund launch was perfect as he felt this was the start of a multi-year bull market.
“But it’s a tough time from a business point of view because of this break down in trust between advisers and their clients, and fund managers. Therefore, I think it’s going to take some time to rebuild those relationships to demonstrate that we can deliver strong performance and that, from a business perspective, requires deep pockets.”
