Bundles of twenty pound sterling banknotes are arranged for a photograph in London, U.K., on Thursday, March 6, 2014. The pound was 0.5 percent from the strongest level in four years against the dollar after the Bank of England announced it would keep interest rates at a record low this month. Photographer: Simon Dawson/Bloomberg

The number of boutique investment fund operations in the UK fell by 15 per cent last year, in a trend that threatens to reduce competition in the sector and raise costs for investors seeking non-traditional asset managers.

The Investment Association (IA) found there were 34 UK investment boutiques — smaller specialised fund managers it defines as being independently owned and with assets under management of less than £5.5bn — down from 40 the previous year.

The IA ascribed the fall to “a number of boutique members being acquired by other asset managers and a very small number of members whose rate of growth no longer qualifies them”, in its report, Asset Management in the UK 2014-15.

Others pointed to the increased cost of regulations. Daniel Hurdley, head of research at Asset Risk Consultants, said: “For smaller firms the operating cost has gone up, so you have seen a lot of consolidation over the past few years,” he said.

Boutiques also tended to exhibit extremes of investment performance, he added. “While some were very good performers, there were others that were very poor and a firm cannot persist with underperformance without losing clients — and that leads to consolidation.”

A report published at the end of last year by New City Initiative, a think-tank comprising 49 independent asset managers, highlighted the pressures faced by the industry.

Dominic Johnson, chairman of the NCI, said regulation was the chief reason for the wave of consolidations. “We believe that smaller firms perform better. You have more choice. You have less structural risk to the system. And the regulations are forcing the market upside down. The large firms are getting larger, new firms can’t start and smaller firms have to consolidate because of the compliance and regulatory burdens.”

Yet while the overall number of boutiques may have fallen, the Investment Association’s report suggested the industry was in rude health. Assets managed in the UK by the trade body’s members as of December 2014 reached £5.5tn, up from £5tn in 2013.

£5.5tn

Assets managed by members of the Investment Association, as of December 2014

Funds managed by boutiques themselves also rose, at a lower rate of 6 per cent. Last year’s survey recorded asset growth for boutiques of 25 per cent, comfortably outperforming the 13 per cent posted by the industry as a whole.

Simon Hildrey, head of marketing and distribution strategy at Liontrust Fund Partners, an investment boutique, said he felt there were reasons other than size why investors should choose smaller companies. He added: “It is a question of the culture of the business and why that culture benefits investors in their funds.

“How a fund manager performs is not just down to the talent of the individual or team, but also the environment in which they work.”

Get alerts on Fund management when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article