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Study finds European boutiques outperform their larger peers

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Fresh academic research from Professor Andrew Clare, Chair in Asset Management at Cass Business School, reveals that specialist, boutique asset managers in Europe outperform their larger counterparts – significantly so in the case of European Mid/Small Cap and Global Emerging Market funds. 

Clare, having conducted what is believed to be the first academic analysis of the performance of European boutique asset managers versus their larger counterparts, says that the ‘boutique premium’ demonstrated by AMG Group in 2015 for US equities, also appears to be evident in the European Fund Management industry. 

He found that the average outperformance of boutiques in Europe appears to be as great as 0.56 per cent per year and 0.23 per cent per year net of fees (or 0.82 per cent and 0.52 per cent gross of fees) depending on the methodology employed. 

“What we know is that they tend to have a different ownership structure and usually focus on a specific, investment style,” Clare says.

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. 

Utilising 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 1.00 per cent per year in the European Mid/Small Cap sector and around 0.50 per cent per year in the Global Emerging Markets fund sector.  

Clare says: “The results 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 says: “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.”

Looking forward, Clare says: “It’s up to the industry to look at this now.  I have dropped a pebble in the pond that has caused some ripples, but it’s up to others to work out why in certain sectors, such as global emerging markets, you see outperformance by boutique firms.

“It’s up to the fund selector to look at this and say ‘why am I using XYZ mega fund?’ when there is good evidence to suggest that boutiques can perform better.”

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