So you want to start a boutique funds management house. The formula is easy — lure a ‘star’ from the big end of town, find a marketing hook (ethical investments and hedge funds are hot right now), get some publicity at a few conferences or through the trade press, and watch the funds flow in — right? Not exactly, according to those who have weathered the start-up storm and come out the other side.
One of the major factors smoothing the path for new funds management houses is a change in the attitude of asset consultants, advisers and investors to boutique managers.
Driving this is the disillusionment of many investors, according toInvestors Mutualinvestment director Anton Tagliaferro.
“Part of the popularity is because some of the largest fund managers have lost focus and let a lot of people down over the last few years. Many of those companies have promised a lot and delivered little,” Tagliaferro says.
With fewer assets under management, boutique managers are often able to utilise greater flexibility in responding to the sharemarket, and due to the extended bear market, there has been more investor focus on absolute returns, an area where boutiques often concentrate.
Glebe Asset Managementgeneral manager Paul Harding-Davis says as well as these advantages, “some of the really talented people in the market are going out and building their own businesses”, whilePlatinum Asset Managementmanaging director Kerr Neilson simply attributes the rise in popularity of the boutiques to “performance”.
But how does this enthusiasm and interest actually convert into dollars coming through the door? Pounding the pavement seems to be the way to go.
Harding-Davis says the road to building Glebe’s profile, aside from some media representation, has been a matter of “attending conferences, meeting people, calling people and dropping in to introduce the organisation — at the end of the day you have to get out and shake as many trees as possible”.
This hands-on approach is also taken by many other boutiques, which try to gain traction in the market without slick presentation material, marketing departments or a BDM force, in many cases.
WHTM Asset Managementbusiness development director Alan Beasley also emphasises the importance of these existing industry contacts in gaining publicity and interest. While WHTM has been around for more than five years, the recent integration of the former BNP Paribas business, purchased in September 2002, has necessitated a new round of industry consultation.
“To do it properly you need to spend a lot of time talking to a lot of people in the marketplace to lay the foundations. What you’ve really got to do is to try and project some differentiating positives,” Beasley says.
This concept of difference seems to be essential to the marketing of the boutiques.
Hunter Hallchief executive David Buckland says, “We’re number one in terms of size in the ethical market, and we find that ethical is a nice complementary component or differentiator, although performance is still the biggest factor.”
And Tagliaferro says while larger managers spend more resources on marketing and branding, “with boutiques, you have to make sure you have a credible process and good people and a clear investment philosophy that financial advisers can clearly identify with”.
But for some managers like Glebe, which also deals with ethical investments, this point of difference can be a double-edged sword.
“We do have a less generic story, but it also makes it harder because we are passionate about the fact that we think the way we manage money is the best way for anyone, and we compare ourselves to any mainstream manager,” Harding-Davis says.
With research ratings the key to be included on dealer group recommended lists and therefore the door to increased inflows, a short track record can be the biggest barrier.
“The big research houses want to see that you’re well established and have a good team on board, and want a bit of a track record, so that takes time,” Tagliaferro says.
Even getting a foot in the door can also be difficult, according to Harding-Davis.
“There’s an interesting dichotomy within it, in that a researcher or platform is not going to invest time reviewing you unless there is some demand, but to get that demand you have to go and see advisers who are reluctant because it takes time away from seeing clients and they can’t use you yet. So you have to make time at both ends to get things going.”
Neilson instead plays down the importance of ratings, again placing the emphasis on performance.
“You have to be on approved lists which requires a rating which is not lamentable, and once that happens, it really does come down to the matter of just your performance.”
Neilson is also adamant about the bottom line for boutique success.
“It’s just focusing on producing a decent product. There is more drivel spoken about branding [in funds management] than in any other field. If you do not have a hard core the branding is worth nothing,” Neilson says.
And he believes this product focus translates to investor confidence.
“Because we’re not generally driven by the illusion that it’s all a matter of gathering funds, we know it’s all a matter of delivering returns.”