Who here has more than 60 per cent of their savings with boutique organisations? Not many, as it turned out. Despite the fact that most delegates indicated a preference to work in boutique companies, few seemed willing to entrust their money to specialist managers.
What is remarkable is not so much that conference attendees were reluctant to back up their views with hard cash, but that their unwillingness to invest with boutique managers was at odds with the findings of a new report from the IBM Institute for Business Value in conjunction with the Economist Intelligence Unit.
The survey, based on interviews with more than 800 senior financial markets executives and over 100 of their corporate clients, found that specialist asset managers were considered superior to universal banks in critical areas such as knowledge of client needs, quality of execution, consistent client service and “global business model agility”.
It was revealed that clients ranked the ability to provide a “one-stop shop” and best of breed products at the bottom of their lists, “calling into question many of today’s dominant business models”. A disparity was also found between what clients said they would pay for and what providers thought clients would value.
Interestingly, the reference to “one-stop shops” in the report includes large universal banks such as Citigroup and also investment management units such as Goldman Sachs Asset Management, Credit Suisse, BNP Paribas Investment Partners, BNY Mellon Asset Management and Allianz Global Investors. All these organisations style and promote themselves as multi-specialist or “multi-boutique” outfits, on account of offering a wide range of investment capabilities though a number of affiliate or subsidiary companies. Such “one-stop shops” like to say they are as nimble and responsive to changing clients needs as their smaller specialist counterparts. These firms also like to say that their ability to both innovate and achieve consistently high performance is on a par with the smaller boutique firm.
Specialists, noted the report, are averaging 30 per cent more revenue growth than universal banks. They also have average operating margins of 25 per cent, compared to the 16 per cent posted by universals. Is it any wonder that everyone wants to work for a boutique manager?
Even so, boutique firms are still willing to jump to the defence of large investment houses. Nichola Pease, CEO of J O Hambro Capital Management, said the rise of the boutique did not spell the demise of the big company; they both have their place. “As well as distribution reach, large asset managers probably have the edge for investment products which depend on a variety of skill sets such as use of derivatives.”
Get over the overlap
Convergence is clearly the hottest topic in the investment industry today. All avenues of conversation with delegates at Fund Forum led either directly or in a meandering sort of way to discussing the impact of the convergence of long-only and alternative assets on large and specialist managers, and who would win out as the asset management and investment banking worlds collided in the pensions universe.
The consensus view was that investment banks, despite their greater experience in developing structured products, lacked the “fiduciary heritage” to compete successfully in the defined benefit pension fund arena.
Jon Little, chairman of Mellon Global Investments, contended that investment banks approached the pensions problem with a transaction-driven model and lacked the same fiduciary mindset or regulatory environment.
He said: “Some of the investment banks have not managed conflicts of interest very well. A mentality where you don’t care about the impact of high fees charged to pension funds is one which will get you into trouble. Also, going out and hiring an actuary from somewhere does not make you all that fiduciary-minded.”
Strong words. But during a conference panel debate, Chris Milner, managing director, head of European pensions at Goldman Sachs, showed he was having no truck with this rather high-minded notion of “fiduciary heritage”.
“When you talk about a transaction-driven mindset, remember that everyone in this room is selling something. There are no altruistic providers here,” he countered defiantly.
Investment banks, he added, might get remunerated differently from asset managers, but clients would make judgments about the value propositions of each service-provider. And at the end of the day, it all came down to the quality of advice given.
One area where it was felt that investment banks had the upper hand was in the provision of cheap beta in the form of exchange-traded funds.
Henry Smith, editor
henry.smith@ft.com
