Charting the rise of funds from smaller investment houses at a Thames River Capital multimanager seminar this week, co-head Robert Burdett said he believed so-called boutique funds typically outperform funds from larger institutions in volatile market conditions.
He said: “Boutiques should do better on average in difficult market conditions because they have flexibility, nimble portfolios and experience.”
Burdett claims boutique fund managers are often more experienced and less restricted than those in larger investment houses and this freedom supports their performance levels.
He said: “They generally have a limit to asset capacity meaning they have smaller more nimble portfolios. They will also not be afraid of distancing themselves from any benchmark, are more willing to use cash and other methods of protecting the downside and will have far higher incentives to perform well as they are more aligned with the end investor.”
But within the boutique’s growth story also lies its potential downfall, warned Burdett. He said: “As this has been an area of success and shareholders have made money out of financing boutiques, there has been a rush to pull managers out of big companies and set them up. We think the average quality of the boutique manager has suffered over the last three years.”
In addition to the potential dilution of boutique quality, Burdett said there are sometimes unforseen operational responsibilities which can saddle fund managers.
He also emphasised that effective succession planning is a vital factor for consideration as boutique funds can be vulnerable to unexpected exit routes by those who captain the investments. “There are some managers who own the business and may decide that they want to take the capital out and run off so it’s an issue to watch for,” he said.