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Boutique business

Small fund firms are making a big impact in the investment world

Paul Farrow, Farrow’s View

When the market jitters resurfaced a couple of months or so ago, I wrote an article in The Sunday Telegraph lauding the merits of having a balanced portfolio.

To give readers an idea where the experts were investing, I talked to three balanced-managed fund managers with the best four-year record as rated by Citywire, the financial analyst, to see how they are mixing their assets.

The names were not ones which readers would have recognised instantly. Two of the three were managed by little known investment boutiques Midas Capital and Miton Optimal. For the record, the other was Axa Framlington balanced.

Midas was brought to my attention a few years ago by a couple of investment IFAs. Simon Edwards, who was formerly chief investment manager at the £3bn Merseyside Pension fund, runs Midas balanced growth and had a four-year average return of 1.14 per cent. Unlike most of the funds in the sector, Edwards invests in private equity, property, structured products and even funds of hedge funds.

Meanwhile, Miton has been getting more attention with Tom McGrath’s special situations generating a four-year average monthly return of 1.11 per cent. Not afraid to take big bets, he had a third of his portfolio in cash at the time of the jitters.

But these two companies are not alone in shaking up the investment landscape. Traditional clothes boutiques may sport the latest fashions but investment boutiques are certainly en vogue – and have been for a while.

Go back to the late nineties and a string of star fund managers jumped ship from bigger outfits. For example, Ed Merner left Schroder to join Atlantis, William Pattison left Fleming for LionTrust, and Scottish Widows star Albert Morillo joined BlackRock. The list goes on. Ironically, I recall Britannic Asset Management dream-ing of being a major player, yet it is now adopting the boutique philosophy via itself.

Money has poured in. Artemis, Midas Capital and Dalton Strategic Partnership assets have doubled since mid-2004, while assets at Odey, SVM, Rensburg, Neptune and Rathbone are slightly less than double what they were two years ago. Such has been the growth that there are question marks on whether Artemis is still a boutique – but that is a debate for another time.

The reason that fund managers who have made their name in large groups are moving to the smaller start-ups, we are told is that they simply want to manage money – and that is all. In the world of the big organisation, office protocol, internal politics, red tape can often interfere and this drives managers mad. Many get frustrated and want flexibility.

But there is no getting away from the fact that the great attraction is the remuneration. Many managers have stakes in the business and so their interests are aligned with investors because if the funds do not deliver, managers lose out on a juicy bonuses. There’s another bonus for investors too as far fewer managers jump ship from boutiques than they do from traditional fund management groups.

The great shame is the man on the street has probably never heard of Midas and the Mitons of this world because they do not advertise or embark on mass marketing campaigns. Most boutiques are not seeking to rake in assets. Liontrust, for example, has a ceiling on the amount of assets it wants to manage.

But this does not mean the big groups only should dominate the buy-lists – they certainly do not dominate the performance tables. For example, a recent moneyspider.com Quarterly Fund Management Report, once again shows boutique fund managers outshone their larger rivals, with four of the top five places for Best Overall Fund Management Group awarded to boutiques, Rathbone, Neptune, Dalton and Artemis.

There are more than 2,000 funds out there and a few gems that are often overlooked. Ignore them at your clients peril – scour the fund fact sheets of the leading multi-manager players to get a leg up. These guys have been investing in boutique funds for years and are a major reason why assets under management have rocketed.

Paul Farrow is deputy personal finance editor of The Sunday TelegraphMoney Marketing50 Poland Street, London W1F 7AXHow can the big wrap players get advisers to wrap around the clock? Well, there are a few things that might get advisers and their clients dancing.

Clearly, near the top of the list would be value for money, the fullest range of assets and asset classes, security of client data, concrete reassurances about the use of that information and good levels of service. Ease of getting your clients’ assets on to the site must be a priority, too. But the ability to get them off again is one vital ingredient often neglected.

The one thing many wraps and supermarkets do not promise is easy movement off their platforms, in other words, re-registration. Now Fidelity, Cofunds, Skandia, Selestia and Standard Life have formed a committee to debate many of the issues facing wrap and fund supermarket providers.

They say re-registration is a priority. We suggest that IFAs get on to these companies to make sure it stays a priority and is top of the agenda for the first meeting a few weeks hence.

Chancellor Gordon Brown has had an interesting couple of weeks. No doubt, a Channel 4 programme by Ros Altmann attacking his pension record has caused him irritation but it is perhaps not his main focus as he tries to secure the succession to the Premiership.

But even if advisers do not agree with all the charges levelled at Brown, they have some reason to be concerned at his accession. We think it is not unreasonable to suggest that when they bother to think about them, Brown and his lieutenants really do not like IFAs. It is also not unreasonable to suggest that at least some of the problems afflicting company and personal pensions come either from Treasury actions or from a degree of Government inaction, often resulting from interdepartmental conflict that usually includes Brown’s department.

If there is a Brown Premiership, we hope that his ministers at the very least come to terms with the need for advice and advisers and also that some coherence and sense is returned to pension policymaking. But we are not optimistic because the signs up to now have not been good.

Paul Farrow is deputy personal finance editor of The Sunday Telegraph

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