A survey conducted by research firm TABB Group for SunGard has revealed that boutique asset managers are increasingly losing their home country bias in the search for investment growth.
Firms are switching into Europe in 2015, despite the recent issues in Greece, according to the survey, entitled Adapting for the Future.
In terms of investment, ETFs featured strongly with 48 per cent seeing this as an area of significant demand by investors. The survey found many boutique managers are using ETFs as a low cost way of investing in an asset class and bolstering performance through stock picking and direct investment.
Trevor Headley, head of product management of SunGard’s boutique asset management business, says: “We are seeing confident and positive boutique asset managers who are using their greater focus and agility, as well as more flexible systems, to carve out profitable niches despite tougher regulation. What is interesting is their investment focus, with European equities at the forefront and ETFs increasingly used as an efficient base for focused portfolio construction.”
The number one concern among managers is regulation, cited by 68 per cent of managers in May 2015, compared to just 17 per cent in 2013. The survey found that this is due to increased demands and growing complexity for boutiques to operate across multiple jurisdictions, irrespective of their domicile.
MiFID II was seen as the regulation that will most impact managers over the next 12 to 18 months, as mentioned by 49 per cent of respondents, compared with just 22 per cent in 2014. Payment for research and UCITS IV/V were also highlighted by over a third of respondents.
Within MiFID II, the greatest concern related to payment for research, where over three quarters of respondents anticipated the regulation would impact their business in the next 12-18 months. Respondents highlighted that payment for research may have the impact of making boutique asset managers withdraw from some asset classes, with investment in Small and Medium-Sized Enterprises (SMEs) identified as particularly vulnerable.
However, other asset managers saw increased regulation as an opportunity for boutiques that are able to use more sophisticated and modern technology to be more agile to capitalize on new investment opportunities versus their larger global rivals.
Apart from regulation, raising assets, seeking new alpha opportunities, and attracting money remain the top concerns for boutiques. The survey found that companies recognise that investment in technology, internal processes and training staff will become increasingly important to enhancing performance and making boutiques more attractive.
The survey reports that the most surprising results came in terms of investment, where boutique asset managers are increasingly looking at European equities as they search for yield. Some 48 per cent of respondents said that EU equities had the greatest or significant demand in 2015. Among US managers this was even more marked, with 57 per cent citing demand for EU equities compared with just 21 per cent in 2013. The globalisation of investment strategies is also leading to increased demand for Asia Pacific equities, with 30 per cent of managers showing strong demand in this sector.
Rebecca Healey, consulting analyst of TABB Group in London, says: “The growing complexity of regulation may yet have a silver lining for boutique asset managers. While institutional asset managers once had the advantage of scale and breadth, recent liquidity constraints, and the growing raft of regulatory complexity and technology demands no longer guarantee progress over smaller managers. Boutiques may yet prove to have the shortest flight path out of regulation into the new era of asset management.”