Mercer Global Investments (MGI) has terminated a mandate with Australian small-caps specialist Adam Smith Asset Management and directed $40 million to another domestic boutique.

The $12 billion multi-manager redeemed its mandate with Peter Mouatt’s boutique in favour of Perennial Value small companies, which has been run by Grant Oshry under the supervision of managing director and value investment veteran John Murray for the past year.

In the three years to June, Adam Smith returned -7.3 per cent, while Perennial generated 3.8 per cent against the -6.4 per cent posted by the ASX Small Ordinaries, placing it as the third among domestic small-cap managers for the time period.

MGI has allocated $40 million each to Perennial, Kosmos Asset Management and Northcape Capital, taking the multi-manager’s investments in small-caps to 5 per cent of its total Australian equities portfolio.

The mandates reaffirm MGI’s preference for active management of Australian equities. Russell Clarke, chief investment officer at MGI, said the active managers in Mercer portfolios had demonstrated their ability to outperform the index.

“We’re curious as to why others have a high passive component,” Clarke said.

Nor was overlap among manager holdings a problem.

“We made the decision to not have over-engineered portfolios and a plethora of managers, and have had a concentrated manager line-up for a number of years.”

Clarke said MGI’s Australian small caps portfolio had outperformed the ASX Small Ordinaries by 10.6 per cent in the year to June 30.