By: Peter Armitage, CEO, Anchor.
Asset management is a fascinating game with over 200 companies positioning themselves to attract the hard-earned investments of South Africans. Advertising agencies are kept busy, generally briefed to create images of trustworthiness and wisdom. Hundreds of millions of rand are spent conveying these to the SA public. The bulk of the new assets invested in South Africa find their way to the oldest, most-established asset managers, who you see daily on billboards. This is just rewards for years of toil and performance. But, as this trend continues, and the big get bigger, so the new generation grows, in the form of what we call a boutique asset manager.
This is usually a reference to the age or size of assets under management. And these boutique managers have distinct advantages, which routinely sees some of them emerge into the big league. The seed of most boutique managers is germinated at the desk of a star at a big asset manager. The boutique entrepreneur pictures his/her own business, for whatever reason. They might just be entrepreneurial by nature.
However, to attract any decent quantum of assets, the key asset manager has to have a track record and experience and this industry is fairly unique in that most boutique managers are prior stars of big asset managers.
So that sounds pretty attractive – big asset manager experience with the hunger to grow assets and deliver investment returns.
In addition, the boutique is far more flexible and can move positions with ease. But, this is where due diligence comes in – investors need to be cautious. Issues to be considered are key-person risk, risk management, team size and governance. And there’s always the nagging question as to what extent an individual determines the big company performance – can they do it by themselves or was there a “secret sauce” they are leaving behind? It’s very difficult to answer many of these questions and that is why the standard industry response is to wait at least three years for boutique managers to prove themselves in their new guise.
It always makes sense to include some exposure to boutique managers in a portfolio, because they fundamentally operate on a different playing field. South Africa is a tiny market and as soon as you have over R10bn of SA equity assets your options become very limited. Go and have a look at the top-10 shares of any big SA manager and it’s all the top-20 shares listed on the JSE. This might be good or bad, but it’s a situation they are forced into by size.
The boutique manager also typically has far more liquidity. With all the equity bombs going off lately (MTN, Aspen, Tiger Brands etc.), one needs to be able to move quickly. A boutique manager can often get out of (or into) a big position within a day, while for a big asset manager changing a position can often take months. Liquidity in big shares is important, but when smaller opportunities are discovered, the small asset manager can also take advantage where a bigger player cannot.
So, the argument for a boutique allocation is compelling – a bigger toolset, often owner-managed, more flexible and, in principle, more driven. Identifying one is a bit more complex. Our view is to find one that resonates with you from a quality and philosophy perspective and that has been around to allay start-up fears.