Sean M. Healey, Chairman and CEO
Affiliated Managers Group, Inc. (NYSE: AMG) announced the release of “The Boutique Premium,” a comprehensive study evaluating the performance of boutique investment management firms.
The analysis incorporated data from more than 1,200 investment management firms and nearly 5,000 institutional equity strategies comprising approximately $7 trillion in assets under management.
The study found that active boutique investment managers have consistently outperformed both non-boutique peers and indices over the past twenty years, in many cases by a wide margin.
Key highlights from the study
The analysis found that over the last twenty years:
- Boutiques significantly outperformed non-boutiques: The average boutique outperformed the average non-boutique in 9 of 11 equity product categories, by an average annual 51 basis points. Investing exclusively with boutiques across all categories would have created 11 percent greater wealth for clients over the last twenty years, as opposed to investing with non-boutiques.
- Boutiques delivered significant value as compared to primary indices: The average boutique strategy outpaced its primary index in 9 of 11 equity product categories, by an average annual 141 basis points after fees.
- Top-performing boutiques generated exceptional excess returns: Top-decile and top- quartile boutique strategies added 1,133 basis points and 589 basis points, respectively, on an average annual basis after fees as compared to their primary indices.
“Our comprehensive study demonstrates that boutique investment managers have outperformed non-boutique peers and created significant value for clients over the long term,” stated Sean M. Healey, Chairman and Chief Executive Officer of AMG.
“In addition, top-performing boutiques added 55 basis points more value than poorly performing boutiques detracted on an annual basis, illustrating that these strong returns were not simply a function of higher risk,” said Andrew C. Dyson, AMG’s Executive Vice President and Head of Global Distribution. “The top-performing boutiques also created exceptional net excess returns, with top-quartile boutique strategies outperforming their primary indices by an average annual 589 basis points after fees. These results support our belief that the alignment of interests fundamental to the boutique model creates significant value for clients.”
Several core characteristics position boutiques to deliver consistent, superior long-term investment performance, including:
- Principals have significant, direct equity ownership, ensuring alignment of interests with clients;
- Presence of a multi-generational management team, fully engaged across the business;
- Entrepreneurial culture with a partnership orientation, which attracts and retains the most talented investors;
- Investment-centric organizational alignment, including careful management of investment capacity; and
- Principals have a long-term orientation and are committed to building an enduring franchise.
“The primacy of a boutique investment manager lies in its focused, entrepreneurial culture and ownership structure, with principals maintaining significant, direct equity in their business,” Mr. Healey added. “We believe that these core characteristics give boutiques a competitive advantage in generating consistent outperformance. Our research clearly demonstrates the significant value that boutiques have generated for investors over an extended time horizon.”
To review this analysis in full, download The Boutique Premium at www.amg.com.
Methodology: The Boutique Premium
The study incorporated data from more than 1,200 investment management firms around the world and nearly 5,000 institutional equity strategies comprising approximately $7 trillion in assets under management. The study analyzed rolling one-year returns for the trailing 20-year period ending December 31, 2014, across 11 broad institutional equity product categories, on a strategy-by-strategy basis.
The classification of firms as either “boutiques” or “non-boutiques” was based on AMG’s proprietary analysis, while the MercerInsight® database was utilized for return data.
Primary indices for comparison included MSCI Emerging Markets, MSCI World, Russell 1000® Value, Russell 1000® Growth, S&P 500®, Russell Midcap® Value, Russell Midcap® Growth, Russell Midcap®, Russell 2000® Value, Russell 2000® Growth and Russell 2000®.
The study estimated boutique net excess returns as compared to indices – incorporating boutiques’ available published or “rack” fee rates in the MercerInsight® database – in order to assess net value creation for investors.
The classification of investment managers and their corresponding strategies as “boutiques” in the study was based on four criteria. First, principals were required to hold a significant amount of equity in their own firms, defined as at least 10 percent ownership. Second, investment management was the sole focus of each firm; investment managers captive in broader financial services platforms were excluded. Third, firms with assets under management greater than $100 billion were not eligible for inclusion. Finally, exclusively “smart beta” or fund-of-funds platforms were removed from consideration, as the analysis concentrated on active boutique investment managers with distinct investment philosophies and highly-focused investment processes.