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Multi-Manager View

My Victor Kiam moment came about not when I had a razor in my hand but a great fund in my port-folio: “I liked the product so much I launched a fund.” The fund I held was the Eastern European fund managed by boutique investment house Thames River and the one we launched in 2001 was the Hargreaves Lansdown multi-manager special situations trust.

Faced with a choice of 3,000 funds, most investors would probably ask why they should even consider using a boutique investment group. I usually start by asking the opposite question. An investor may say the track record of boutique funds is usually short, investment teams are small, and the managers often invest away from the major index stocks, which produces risk.

On top of this, the funds themselves can be very small. In virtually all circumstances, the conclusion being made by the investor is wrong in each case.

No boutique fund manager can set up a business if he or she does not have a track record. The key is to uncover the manager&#39s track record to see how successful they have been. Yes, teams are often small, but I have seen no evidence to suggest that big investment teams perform better over the longer term.

It would be wrong to say that boutiques are low risk but the total return mentality of many managers focuses their philosophies on reducing risk rather than increasing it.

Even institutional investors often wait until a fund reaches £30m or £50m before investing. Some of the best performances come from funds during the first few years while they are flexible and better placed to take advantage of pricing anomalies.

Most boutiques are set up by an individual or team that has become disenchanted with the big investment house ethos. The biggest investment houses are often asset-gatherers. Their actions are not set up to disadvantage investors but this is often what happens. They focus on performance but much of the time and effort goes on not getting it very wrong rather than getting it very right.

Many funds have become closet index-trackers looking to outperform by a small margin against the market.

Many individuals who have set up a boutique already have a significant amount of personal wealth so they are usually taking action to increase their enjoyment and pride in what they do rather than just to gather assets. The incentive provided by ownership is likely to have a significant effect on stock decisions made by a manager.

The combination of talented investment professionals working in small teams, willing to back their judgement while being highly incentivised, is potent. Our experience has been very positive. The majority of our managers have provided returns well in excess of their benchmarks.

Our boutique fund has achieved a high top-decile performance in the global growth sector, not through taking large macroeconomic bets, but because we have relied on each of our fund managers to provide outperformance through stock picking, and a willingness to invest away from the crowd.

Lee Gardhouse is a fund manager at Hargreaves Lansdown


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