Independent asset managers managing popular multi-asset unit trust and retirement fund portfolios have, on average, returned two percentage points more than managers within bank and life assurance companies, research by the investment management division of a large investment company shows.
Over the past three years, four times as much money has been invested with independent managers compared with their competitors at banks and life assurance companies.
However, the clear winners among independent managers when it comes to new investments are the smaller, focused boutique managers, research by RMI Investment Managers shows. New investments into large independent managers have declined over the past three years.
RMI Investment Managers, a division of financial services holding company RMI, recently launched a range of unit trust funds managed by independent boutique investment managers. RMI calls its business model an affiliate investment manager model. It defines an independent manager as one without significant ownership or influence by an external shareholder or distribution partner.
RMI’s research, which it plans to publish annually, found that, over five years to the end of September 2016, independent managers managing multi-asset high-equity funds returned an average of 14.3 percent a year, while their asset management counterparts returned an average of 12.5 percent a year.
On institutional portfolios – typically retirement funds – independent managers returned an average of 15.6 percent a year over five years, whereas bank- and assurance-owned managers returned an average of 13.6 percent a year.
RMI defines independent and boutique asset managers as those that do not have a bank or life assurance company as their majority shareholder. These managers include Allan Gray, Coronation, Foord, Prudential, Rezco, Truffle, 36One, Visio and Prescient. The research excludes Investec as an independent manager, because it is within a larger group that includes a bank. Managers within banks and life assurers include Absa, Nedgroup Investments, Old Mutual Investment Group, Sanlam Investment Management and Stanlib.
Boutiques popular
RMI Investment Managers notes that, at this year’s Raging Bull Awards, more than half the awards and certificates were made to boutique managers.
The Raging Bull Awards are hosted by Personal Finance in association with ProfileData and PlexCrown Fund Ratings.
When it analysed the recent net inflows into asset managers to the end of June, RMI Investment Managers found that bank- and assurance-owned asset managers were capturing only 20 to 25 percent of the net inflows.
However, four large independent managers – Foord, Investec, Coronation and Allan Gray – have experienced declining inflows over the past three years, RMI Investment Managers says.
RMI Investment Managers’s research also notes that inflows into a group of managers it labels the contenders – Nedgroup Investments, Prudential and PSG – are still positive, although the flows are declining.
The boutiques, such as Visio, Truffle, 36One, Prescient and Rezco, are, however, the clear winners when it comes to new investments over the past three years, RMI’s study says.
Kevin Hinton, the head of retail distribution at RMI Investment Managers, says many financial advisers are diversifying by moving their clients’ investments out of large asset managers (whether independent or bank- and life assurer-owned) and into boutique managers.
The RMI study also found that independent boutiques are more focused than asset managers owned by banks and life companies. This is one of the factors that contributes to the superior investment performance of independent managers, the study says.
South African managers with less than R50 billion in assets under management tend to have 80 percent or more of these assets managed by a single team, RMI Investment Managers found.
It says that, as a manager manages more of the money it receives according to different investment strategies, its investment team becomes less cohesive.
The study quotes research by Northill Capital, a business based in the United Kingdom that provides equity and seed capital to asset managers that want to start boutiques.
Northill Capital found that focused active managers tend to out-perform (after fees) both their benchmarks and generalist managers. This is in an environment where most funds fail to beat their benchmarks. Statistics show that 64 percent of all European unit trust funds and more than three-quarters of all funds in the United States fail to beat their benchmarks.
The RMI study also quotes a 2015 research report by a US company, Affiliated Managers Group (AMG), which has stakes in 29 independent managers.
The report, titled “The boutique premium: do investment managers create value?”, found that active boutique managers in the US had significantly out-performed both their non-boutique peers and market indices over 20 years.
Winning ways
AMG says the core characteristics that enable boutiques consistently to out-perform their non-independent peers include:
- Entrepreneurial culture with a partnership orientation: key partners control the daily operations and are actively involved in business planning.
- Multi-generational management: boutiques keep key people motivated and highly involved in the business.
- An alignment of interests: boutique managers typically have a direct equity ownership in their businesses and therefore have an interest in the investments they manage.
- Investment-centric: boutiques have a distinct investment philosophy and a highly focused investment process.
- Commitment to an enduring business: the key people are committed to the long-term growth and success of the boutique, which is often signalled by a willingness to sign agreements to remain with the business for long periods.
The RMI Investment Managers’s study found that 126 independent managers manage R2.4 trillion, or 47 percent, of the R5.2 trillion under management in South Africa. This compares with 45 percent in the US and 41 percent in the UK.
The top 10 independent managers manage 76 percent of the money managed by independent and boutique managers.
Among independent managers, 62 percent have active equities as their primary asset class focus, the study found.