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Independent boutique active managers best positioned to navigate market volatility

AMG has released a study that looks at 20 years of performance data of independent boutique asset managers globally, looking especially at their performance during periods of volatility.  This has demonstrated empirically that boutique active managers outperformed both non-boutique active managers and passive indexing over the past 20 years, delivering the highest excess returns during periods of elevated volatility.

AMG is the NYSE listed global asset management company with equity investments in leading boutique investment management firms that represent over $600billion of assets under management and include brands such as AQR, Artemis, Winton Capital, ValueAct, Tweedie Browne, Systematica and Pantheon.

Key highlights from the study were that over the last twenty years:

  • Independent active boutiques delivered nearly 3x excess returns against passive indexing when volatility was high
  • Independent boutiques significantly outperformed non-boutiques in periods of elevated volatility
  • Above-average levels of volatility create advantageous levels of dispersion

Professor Amin Rajan of Create says:  “This report once again confirms that the multi-boutique model runs with the grain of the craft nature of active management.  It proves that size is not always the enemy of alpha, if you give autonomy and space to talented individuals to generate high conviction ideas and implement them.”

Jason Hollands at Bestinvest says: “This is an interesting piece of research. Talented managers can of course be found in asset management firms of all sizes, but large groups invariably have very wide product sets and are unlikely to be consistently ahead of peers across all areas. In contrast, most boutiques focus on a narrower range of assets classes where their expertise really does stand out from the crowd and they have to sink or swim first and foremost based on their investment success rather than distribution muscle. Culture is a really important part of the mix and one of the attractive aspects of most boutiques is that fund managers have much greater ownership over their investment processes and are not dragooned into following a single philosophy or house view that they may not have conviction in.

“The current market turmoil is clearly leading to significant dislocation across markets. This is creating real opportunities for fundamental investors to add significant value compared to the indices, through avoiding those stocks most exposed to potential capital destruction and picking up long-term winners whose intrinsic value simply isn’t recognised in current pricing”.

AMG’s business was founded nearly three decades ago on the principle that, given fundamental characteristics, independent active boutique investment firms are best positioned to generate excess returns over the long-term. The core characteristics that position boutiques to deliver consistent, superior long-term investment performance include:

  • Principals have significant, direct equity ownership, ensuring alignment of interests with clients;
  • Presence of a multi-generational management team, fully engaged across the business;
  • Investment independence and operational autonomy fostering an entrepreneurial culture with a partnership orientation, which attracts and retains the most talented investors;
  • Investment-centric organizational alignment, including setting capacity limits to remain nimble; and
  • Principals are committed to building an enduring franchise, embedding an appropriate long-term orientation.

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