The benefits of Boutiques

By: Nico Janse van Rensburg, Head of Positioning at Amplify Investment Partners

Nico Janse van Rensburg

Boutique asset managers provide a variety of benefits to consider when a financial adviser wants to diversify large manager exposure in a client’s portfolio. At Amplify Investment Partners, we believe that Boutique managers are better equipped to provide Alpha – here’s why:

  1. Size – A diminishing opportunity set exists with larger size.

Boutiques were traditionally classified as such if they had a small Assets Under Management (AUM). We don’t necessarily believe in this classification as there is much more to just the size argument, it’s also about how the business is set up. What we do agree with is that with a larger size your opportunity set decreases. Not just from a South African equity point of view, but also from an alternative toolkit point of view.

  • Independence – Majority of the business is owned by staff with skin in the game

We believe true independence is when a boutique is not part of a bank, a financial services company and not listed. Furthermore, true independence comes with majority owned by staff with skin in the game. Their only focus is to provide outstanding investment performance for their clients.

  • Transformation – Diverse views generate a better outcome for clients

There is power in transformation and our managers share in the importance of it. Studies show that a diverse boardroom leads to better outcomes and the investment world is no different.

  • Strong background – Highly experienced team with a proven track record

Most boutique managers broke away from the larger institutions where they cut their teeth – i.e., Matrix was founded in 2006, they have 12 Investment professionals with more than 300 years of collective experience. Similarly, Terebinth was founded in 2013, they have 12 investment professionals with over a 100 years of combined experience.

  • Quick decision-making – Robust and swift process with less complexities

In an ever-changing environment, asset managers need to be able to act swiftly if they want to actively generate alpha or protect clients’ investments. With less red tape and hierarchy, Boutiques are able to act quickly when circumstances change.

  • Truly active and agile – The door is always open for opportunity

Boutiques are not only active from an asset allocation point of view, but also active in looking for opportunities that might not be accessible to larger managers. We call it the “Hedge Fund Mentality” where nothing is left on the table. This mentality means the provide a sustainable competitive advantage in the following ways:

  • Asymmetrical returns: The willingness to give up some upside to protect the downside to provide positively skewed returns.
  • Risk management: A much larger toolkit that leads to higher risk diversification.
  • Focus on absolute returns: There is no need to take on excessive risk.
  • Special Opportunities: Our managers don’t just sit and wait, they go where the opportunity is.
  • Consistency: Runs on the board are more important than fours and sixes. Compounding returns is your friend.
  • Pragmatic: What to do when you are wrong? Our managers don’t fall in love with a share, they will sell if they are wrong.

AMPLIFY INVESTMENT PARTNERS (PTY) LTD IS AN AUTHORISED FINANCIAL SERVICES PROVIDER (FSP 712).

Sanlam Collective Investments (RF) (Pty) Ltd is a registered and approved Manager in terms of the Collective Investment Schemes Control Act. Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and the value of investments/units /unit trusts may go down as well as up. A schedule of fees and maximum commissions is available from the Manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee with respect to either the capital or the return of a portfolio. The manager has the right to close the portfolio to new investors to manage it more efficiently in accordance with its mandate. Income funds derive their income primarily from interest-bearing instruments. The yield is current and is calculated daily.

If the fund holds assets in foreign countries it could be exposed to the following risks regarding potential constraints on liquidity and the repatriation of funds: macro-economic, political, foreign exchange. The Manager retains full legal responsibility for the third party named portfolio.

While CIS in hedge funds differ from CIS in securities (long-only portfolios) the two may appear similar, as both are structured in the same way and are subject to the same regulatory requirements. The ability of a portfolio to repurchase is dependent upon the liquidity of the securities and cash of the portfolio. A manager may, in exceptional circumstances, suspend repurchases for a period, subject to regulatory approval, to await liquidity and the manager must keep the investors informed about these circumstances. Further risks associated with hedge funds include: investment strategies may be inherently risky; leverage usually means higher volatility; short-selling can lead to significant losses; unlisted instruments might be valued incorrectly; fixed income instruments may be low-grade; exchange rates could turn against the fund; other complex investments might be misunderstood; the client may be caught in a liquidity squeeze; the prime broker or custodian may default; regulations could change; past performance might be theoretical; or the manager may be conflicted.

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