Academic research from Cass Business School Asset Management professor Andrew Clare has identified a 'boutique premium' in analysis of performance by European boutiques against larger peers.
The research sought to replicate the boutique premium demonstrated by AMG Group in 2015 for US quities. What it found was outperformance said to be 'significant' in areas such as European mid/small cap, and global emerging markets sectors.
Average outperformance of boutiques in Europe ranged from 0.56% per year to 0.23% per year net of fees - or 0.82% and 0.52% gross of fees - depending on the methodology employed.
Professor Clare looked at 120 large fund groups, identified over 780, long-only ‘mega funds' across all equity sectors, and tracked their performance from January 2000 to July 2019. As there is no industry definition of an investment boutique he then asked three leading investment consultancies that advise institutional pension schemes and insurance companies, as well as members of the Group of Boutique Asset Managers (GBAM), to identify firms they believed to be boutiques in order to make a comparison.
Applying the Fama and French five factor, as well as an index model - two competing methodologies developed to assess manager skill - to risk-adjust returns collected from Morningstar, Clare identified meaningful boutique outperformance in four equity fund sectors in particular: European large Cap, Europe mid/small cap, global emerging markets and global large cap.
The outperformance was particularly significant, with a net-of-fee boutique premium of around 1% per year in the European mid/small cap sector and around 0.50% per year in the global emerging markets fund sector.
Clare said of the results that they "provide enough evidence to warrant further analysis of this important part of the asset management industry."
"Future research should focus on the factors behind the existence of the boutique premium, such as the ownership structure of boutique managers and/or their approach to portfolio construction."
The chairman of the Group of Boutique Asset Managers (GBAM), Tim Warrington said: "We see boutiques as smaller, highly motivated, specialist firms which seek to consistently outperform while aligning their interests with that of their clients. It is therefore not surprising that Professor Clare found compelling evidence to suggest a boutique premium among smaller firms. Given the compounding of this premium over time could produce significant additional returns to investors, far more needs to be done by advisers and fund platforms to expose these benefits to long term investors."
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Clare is the professor of Asset Management at Cass Business School and the associate dean for Corporate Engagement, where he is responsible for Cass Exec, the business school's executive education arm. He is an independent non-executive director for Legal and General Investment Management's UTM Ltd board; he is a trustee and chairman of the Investment Committee of the £3bn Magnox Electric Group Pension scheme; he is a pension's adviser to Ferrovial; and he is an independent member of Quilter's Investment Oversight Committee. He has published extensively in both academic and practitioner journals on a wide range of economic and financial market issues.
GBAM is a global network of like-minded, independent specialist asset managers who have come together to improve their presence in international marketplaces. GBAM describes boutique firms as having a limited range of products, a close relationship with clients, and a relatively flat organisational structure. GBAM firms tend to be small to medium sized, entrepreneurial, flexible and responsive to changing market conditions. Members tend to focus on the manufacture of investment products rather than mass distribution. Ownership tends to be in the hands of founding partners,