A very recent example is Lodestar Capital. This boutique Australian equities business, which is 33-per-cent-owned by nabInvest, announced in early April that it will be closing its doors on June 30 after five years of managing money.
Boutiques debunked In recent months there have been signs of a consolidation phase beginning within the multi-boutique sector. In October last year Wilson HTM Investment Group (WIG) announced “it was commencing a process to explore the introduction of a strategic partner for Pinnacle Investment Management to assist growth in the business”.
However, by late March WIG stated that “of the indicative offers received for acquisition of some or all of the WIG’s 79.3-per-cent equity interest in Pinnacle, the board has concluded that none are currently sufficiently attractive to pursue”.
So what, if anything, is wrong with the multi-boutique model and what lessons are there for prospective new boutiques looking for a backer and the multi-boutique operators themselves?
The multi-boutique model was never expected to be immune from a general industry downturn. The difficulties some are now facing can be partially attributed to industry factors that are affecting the investment-management community as a whole. Investor confidence in active management and growth assets generally has yet to fully recover from the hit taken during the global financial crisis of 2007 and 2008.
To date, the majority of boutiques in Australia have been specialists offering active long-only equities or absolute-return strategies. These strategies have been among the hardest hit by the downturn in investor confidence.
There are, however, other factors at play more specific to the multi- boutique sector itself. Poor manager selection is the most common failing. In the race to expand the ranks, some providers have sacrificed quality for the number of managers they have partnered with. Simply being a boutique is no longer a sufficient point of difference to grow a business.
Another familiar mistake is the failure by multi-boutique providers to implement a scalable operating model capable of translating funds- under-management growth into real bottom-line-profit growth. The most common error made by multi- boutique operators in this regard is having insufficient depth and quality of resources to support a growing and more complex boutique stable.
In other words, an operating model that works for three long-only Australian boutiques each with funds of $2 billion won’t necessarily work as more diverse and larger boutiques are added to the ranks.
A further weakness in the sector has been a failure to sufficiently diversify the business away from a reliance on boutiques offering domestic-asset classes to domestic investors only. Nab Invest and Ascalon have been standouts in terms of their willingness to address these issues through their investments in offshore managers.
QIC, challenger, Morse Consulting, ascalon, pinnacle, nabinvest, National Australia Bank, multi-boutique model, core investment management manufacturing platform, institutional partner, Lodestar Capital, Wilson HTM Investment Group (WIG), westpac
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