Boutiques can succeed in a difficult market

Boutique fund managers are battling through a difficult market, but according to Instreet there will always be a demand for customised products.

Instreet recently finalised a deal with BDO Wealth Management to issue its latest Catalyst Asset Management Capped Growth Asset Allocation product. It is Instreet’s first white label product.

Managing director George Lucas said that while it had been a difficult environment for boutique fund managers, they were able to provide a competitive alternative to other issuers and investment banks due to lower structuring costs and a strong investment team.

But he conceded that times had not been easy for boutique fund managers.

“There definitely is an increased demand for structured products, but for the amount of players in the market and coming into the market, the pie hasn’t grown bigger, and it is nowhere near where it was in 2007-08,” he said.

Lucas said June was always a good time for structured products, but said advisers were finding that their clients did not want to go into structured products just for the tax incentives.

“There’s got to be a good investment reason for it as well,” he said. “They are paying more attention to the underlying investments and what the break-evens are. Because if you are paying 9 or 10 per cent interest rates on your funding, then you need a 9 or 10 per cent rise in the market to break even.”

He said a lot of structured products were invested in the Australian share market.

“People aren’t forecasting more than 12 per cent, and that includes dividends of about 3.5 per cent and 4 per cent,” Lucas said. “If you’re below 10 per cent, you’re below break even.”

Lucas added that he did not believe that reregulation or fee-for-service would have a further negative impact on the market for structured products.

“People will always need customised products,” he said, adding that the risk profiles of structured products were attractive in a volatile market.