Why boutique fund managers are currently sitting pretty

A boutique fund manager won this year’s Money Management/Lonsec Fund Manager of the Year award. Is this a reflection of the way the market is behaving and the nature of the cycle of the market? A Money Management roundtable went looking for answers.

Mike Taylor, managing editor, Money Management: Regarding the fund managers and the skill set of the fund manager, I think it was an interesting thing that we had a boutique this year win Money Management’s Fund Manager of the Year. I think that was the first time almost ever in my memory that a boutique actually won. Do you think that that’s a reflection of the way the market has been and the nature of the cycle of the market – that a boutique came out on top? 

Veronica Klaus, senior investment consultant, Lonsec: I think we’ve had an interesting environment over the last decade, and I’ll possibly get some enemies for saying this but leading into the GFC we had a very strong bull run so there were a lot of funds and fund managers that were able to perform well.  

Now how much of it was skill, I don’t know. It was a good environment nearly everyone could outperform or could perform at least in line with the market. Once the GFC occurred, and we really saw some difficult conditions come out, we are seeing the more skilful managers come to the top, so the cream comes to the top. 

Now I don’t necessarily think that that is something that only boutiques can do, albeit in the past they’ve consistently shown that they do have that expertise, but we definitely are seeing the better fund managers perform. 

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Dominic McCormick, chief investment officer, Select Asset Management: Yeah, I think that’s been the case in that many of those boutiques are in a better position to offer some of these more innovative, less beta-focused approaches. 

It’s not always the case: you find some good long-short managers in some of the bigger houses as well, but as a general view true alpha is typically found in more of those boutiques.  

In terms of building those portfolios, a lot depends on what is your longer-term view. If your view is this is a longer-term, multi-year bull market that started back in 2009, then I think you can afford to be maybe long-only buying into the corrections. 

If you think that we’re still in this range trading environment as the world deals with global deleveraging and the macro vista is still out there – albeit perhaps the range has moved up a bit – then I think looking at different types of strategies around Australian equities and equities generally make a lot more sense. And that’s certainly the way we lean in the current climate. 

Jonas Palmqvist senior portfolio manager, AMP Capital: Pre-GFC it was just buy-and-hold and you were good enough. Post-GFC it’s turning to buy-and-analyse, so that’s the big game changer.  

You should back a manager who has proven that he’s got enough research power and track record to get it more right than wrong. Because pre-GFC it was too simple, you couldn’t see who was really good and who wasn’t. 

I think in the last five years it’s becoming more and more clear that you need to do your own foot work, your own work on the ground to get it more right than wrong; it’s not as easy as it was.    

Tim Samway, managing director, Hyperion Asset Management: The one thing I’ve noticed is that the successful boutiques are the ones who will put their client’s investment risk before the firm’s own business risk, and that means managing less money, more concentrated, more benchmarking-sensitive, more focused on the client long-term outcome than managing their own risk. 

It makes a huge difference.