The multi-boutique model is a simple one. High quality investment professionals partner with financially strong institutions. The investment professionals focus exclusively on managing money and the institution takes care of everything else. The business is presented to market as one having all the benefits of a standalone boutique – the investment team is aligned with its investors through equity ownership in the business – without many of the risks such as substandard business infrastructure, fragile financial position and pressure on investment managers to spend time away from their desks trying to grow the business.
Boutique chic The model has certainly found favour in Australia. Over the past decade many of the major institutions have moved to this model as either their core investment management manufacturing platform (for example, National Australia Bank and Nab Invest) or as an adjunct to the more traditional model, as in Westpac, which has exposure to the traditional single-brand BTIM and multi-brand boutique business Ascalon.
The trend towards the multi-boutique model shows little sign of abating. In recent times QIC has converted to a multi-boutique structure and Challenger has converted its internal-equity capabilities into standalone boutiques. All of the major multi-boutique providers can point to individual success stories within their manager stable, for example, Orion Asset Management (Treasury Group) and Paltypus (Australian Unity).
Replication dilutes Despite these success stories and the compelling case that can be made for the multi-boutique model, there are issues concerning the share of economics and the assessment of value delivered by the underlying boutiques and the institutional partner. Many boutiques are beginning to question the value being added by their institutional partners. For example, for many the attraction of having an institutional partner and the reason they were prepared to give equity in their business was to gain access to their partner’s distribution capability, in particular, to retail investors. With the managed-fund industry facing many challenges and more funds in net outflow than inflow, it is easy to see the frustration of these institutionally backed boutiques.
Whether the institutional backer should be held responsible for poor managed-fund flows in a market undergoing such secular shifts is a separate debate. Boutiques are also concerned with the increasing numbers of new boutiques being added to the ranks by their institutional partners. Their concern is that as the ranks expand, the quality of the services provided to them is gradually being diluted.
There is some evidence to support this argument, as many boutique operators’ most successful deals have been their earlier ones. For every individual boutique success story in a multi-boutique environment, there is at least one, if not more, examples of boutiques failing to meet their financial and non-financial targets.