This articled originally appeared on LinkedIn: “Should I invest through Boutique Fund Managers?” written by Aseem Arora.
Absolutely! Whether you are a family office, institutional investor, independent asset manager or an individual investor, today more than ever, you need to ensure that you are not getting carried away just by brand name and size but are getting your funds managed by seasoned professionals who are looking for your interest and are employing investment strategies which they have mastered over a period.
Let’s first understand what is a boutique fund management firm. In financial industry parlance, it is typically a small and independently managed investment firm with expertise in a particular asset class or area of investing managing less than US$ 10 billion in assets under management.
Here’s why you should invest through Boutique Fund Managers:
- Passion and strong experienceMost boutique fund managers are professionals who have earlier worked at bigger firms for years, learnt the tricks of the trade, honed their investment styles and strategies and have left these big firms to follow their passion of investing independently without the shackles of bureaucracy. As we know, setting up and managing an independent fund is costly, time consuming and legally challenging, so unless you are passionate about it and have a successful track record, you will not go through the hassle of setting up and running the fund.
- Personal interest aligned with fund objectivesMostly boutiques are owned and managed by the founders having their own personal wealth invested in the investment strategies they run. This makes such funds very appealing for investors as their interests are then truly aligned with the fund managers.
- NimbleGiven their smaller sizes, boutique funds usually make quick decisions without bureaucratic restraints that may frustrate the managers at bigger fund management firms. This agility proves to be highly valuable during times of market stress. Moreover, the boutiques can take or get out of positions without moving the markets which again is very useful.
- Personal AttentionThis is one of the biggest advantage of working with boutiques and one which many a times is overlooked. Many investors and especially those who have committed bigger investment amounts like to hear straight from the “horse’s mouth” but are unable to get access to fund managers or CIOs at large fund houses given their layered organizational structures. Boutique fund managers work closer to the ground and are highly accessible thereby providing ample opportunities to interact one on one.
- Focus on managing NOT accumulatingUnique investment strategies, track record, size, agility and passion are key reasons why investors look out for boutique fund managers. In most cases, such managers are willing to limit growth in assets, preferring to concentrate on investment performance rather than the size of their assets under management. Hence boutiques tend to be fund managers and not fund accumulators.
- Motivated and close-knit staffBoutiques usually have very simple and flat organizational structures with fewer employees which brings to fore the main benefit of being small, i.e., cohesiveness. This results in higher staff retention. Many investment professionals who work at such firms are employees who have obtained an ownership stake in the business. Many have significant portion of their personal wealth invested in the investment portfolios of their firms and hence have a personal stake in the success of the firm which make such firms very appealing to the investors.