WHY SMALLER IS BETTER

Bigger is not always better… in fact, ‘bigger often means mediocre.’

There is a common misconception that the bigger investment companies are better… fuelled, of course, by the marketing machines of the large firms.

The truth is that the best funds are often off the menu for larger firms as they are restricted by their size to mass-market mediocre investments.

Smaller ’boutique’ investment management firms have the ability to invest in niche, higher quality and (potentially) better performing investments.

“There are essentially two types of investment manager – those that gather assets and those that generate alpha (out-perform). Big managers are asset gatherers, while the boutiques generate alpha.” Jonathan Little (Northill Capital)

There is a sweet spot, not too big, not too small…

Advantages Of Smaller Firms

The most insightful and high-quality fund managers are often not available to private clients for various reasons:

  • They are too small for large wealth management advisors to invest in
  • They do not deal with private clients
  • They have high minimum investment sizes
  • They are closed to new investors
  • They are low profile and do not actively raise capital i.e. you have to find them.

The wealth management industry has consolidated and become homogenised dramatically which is to the detriment of the client, who now has less choice and is bundled into a strategy that is often too large to offer anything beneficial.

This view is summed up succinctly in Citywire:

“The larger wealth managers are busy consolidating which means that they then run up against company or investment fund liquidity issues, meaning that boutique funds and non-large-cap companies are often off the menu, which is where many of the best investments are.”

Other advantages of boutique investment management include clients’ close contact with senior members of the firm, a friendlier and approachable atmosphere, often lower fees and in Featherstone’s case, investment alongside and in the same way as the owners and staff of the business.

“As a firm grows in size, it becomes more institutionalised. The staff loses its sense of ownership of the firm and motivation drops. The culture changes and the shared vision fades.” Jonathan Little (Northill Capital)

Our team at Featherstone are escapees of large London-based investment banks, hedge funds and investment management companies who have benefited from the experiences they have had in ‘The City’ but prefer to practice in a smaller, more entrepreneurial, more approachable and friendlier boutique investment management environment.

Subsequently, our clients benefit from closer access to higher quality, more experienced staff than they often would at a larger firm full of recent graduates.

Our focus is not on gathering assets …

We are committed to keep the size of our firm small enough to benefit our clients, and we will close the door to new investors when the size of the firm is optimal. We will always remain a boutique investment management firm.

Reference: https://www.ipe.com/boutique-asset-managers-best-of-both-worlds/44616.fullarticle