Boutique incubators work best: Russell
Monday, 8 September 2008 12:40pm
"Get in early and fast" is the winning formula when it comes to adding star boutique investment managers to a firm's funds, says Russell Investments.
Speaking at the 2008 Russell Australasian Investment Summit in Melbourne last week, Jon Eggins, research analyst at Russell, said a boutique firm's lifecycle plays a crucial role in its investment performance. The top performing managers are often those in their "incubator stage", said Eggins.
"One of the key drivers behind the good results that you see from boutique fund managers early on in their lifecycles is a focus on building a track record. When a firm sets up, almost the only thing on their mind is investment performance. They have a cultural focus on returns, generating returns to build a track record," he said.
Russell employs an "incubator" strategy to its funds, which involves adding an infant boutique firm to a Russell offering.
The Russell Australian Opportunties fund for instance, has seven managers including Fortis Investment Manager Australia, 452 Capital, and Quest Asset Partners which each have a 20 per cent allocation, Plato Investment Management and MIR Investment Management at 15 per cent, and JM Financial Group Ltd and L1 Capital at five per cent.
Russell's incubator strategy incorporates the philosophy that boutique fund managers late in their lifecycles tend to project institutional manager qualities, including an increasing focus on business risk rather than investment risk.
This in turn, Eggins claims, can muddy the overall performance of the fund.
"As time goes on, as the firm develops and grows they are likely to focus on business risk, rather than just investment portfolio risk. As a firm grows in AUM, in revenue, there tends to be more focus placed on the risk that it poses to the business rather than just the portfolio and how it's performing," said Eggins.
Ruth Liew
This story was found at: http://www.financialstandard.com.au/news/view/23959
Printed: Tuesday, 6 January 2009 2:32pm