Macquarie’s alternative boutique approach

Macquarie Funds Management has applied a unique structure to its small companies investment team to allow it to compete more effectively against boutique managers in the market and ensure minimal levels of staff turnover.

Macquarie Funds Management executive director Patrick Hodgens described the arrangement as creating a boutique within an institution for team members John Bugg, Neil Carter, and Michael Ebeid.

“What I mean by that is Neil, John, and Michael are effectively joint owners of the small company’s business. So as the performance continues, as the funds under management grow, their profit share as a result of that will increase quite significantly,” Hodgens explained.

“Hence, they are very motivated to perform very well and also very motivated to hang around to reap the rewards in future years,” he added.

Macquarie Funds Management division director Bruce Murphy feels the organisation’s structure represents a more robust framework than that of most boutiques, as it allows the investment managers to concentrate on the investment process without being distracted by peripheral issues such as business management, information technology and marketing.

“A boutique manager has a fairly high level of business management responsibility. They’ve got to pay the bills and work out the systems and all of that. A lot of that already exists at Macquarie, including marketing and compliance, so the main focus can be on the fundamental rigorous analysis of stocks,” Murphy said.

Hodgens also challenged the notion of the saleability of conventional boutique fund managers.

“Ours is an alternative approach. Obviously with a boutique you physically own the business that theoretically is saleable, but is a small cap boutique saleable when the founding shareholder wants to leave? At the end of the day he or she is the valuable asset there,” he said.

“These guys haven’t got an asset they can sell. They own a great proportion of the cash flow, and it’s the cash flow we want to distribute among these guys because that is what’s going to keep them there year after year,” Hodgens explained.

In its first four years of operation, the Macquarie Small Companies Fund investment team has managed to deliver an average return of 19.3 per cent, which is 9.3 per cent above its benchmark. In July, the team launched the Macquarie Australian Small Companies Fund, offering investors access to a portfolio of Australian small cap shares invested via the Small Companies Fund.