In celebration of the boutique
Ian Macoun, MD of Pinnacle Investment Management, believes in the benefits of investing with boutique managers and the benefits to PM’s of setting up their own company with institutional level support.
Q: Why does investing in boutiques help mitigate against investment volatility?
A: Ensuring that the asset managers investors rely on to protect and grow their capital are working within an optimal environment for investment success is a vital factor that can’t be overlooked, and this is particularly pertinent during volatile market conditions.
Volatility is the ultimate test of not only an asset manager’s skill, but also their mental fortitude. By removing distractions, such as responsibility for distribution, compliance, middle office and marketing – distractions that many CIOs and PMs who do not work within a multi-affiliate model have to expend significant time and energy on – we think we can provide the best environment for talented asset managers to deliver investment excellence.
Further, in our boutique model, the investment teams are entirely independent and the majority-owners of their firm. Thus, no matter the market conditions, we see teams remain absolutely true-to-label, they stick to their tried and tested process and remain disciplined, without the short-sighted internal performance and commercial pressures that are often placed on institutional asset managers during volatile periods.
Q: What are the benefits of investing with boutique managers?
A: When you are investing with a boutique, your capital is in the hands of experienced, dedicated, passionate money-makers, free from distractions. Having worked in larger institutions myself, I’ve seen first-hand how investment professionals can get caught up in all manner of distractions.
Alignment is also a key factor. In all our boutiques, the investment teams are the majority owners of their firms, so they completely own the outcomes they deliver. There’s no hiding behind the curtain of bureaucracy that often exists at larger institutions, and we find this creates a completely different cultural dynamic within the investment teams than what you find at institutions.
Further to this, within our multi-affiliate model, boutiques have access to the high quality support offered by Pinnacle in the non-investment functions, allowing enduring and sustainable business growth, which is also important for clients.
We see evidence of the boutique edge in our numbers. We have around 85% of our Affiliates’ strategies with a track record of five or more years currently outperforming their benchmarks.
Q: What is Pinnacle’s role in this?
A: First and foremost we are charged with identifying excellent investment professionals to partner with, and perhaps more importantly identifying and avoiding the pretenders and those who aren’t aligned with our mission of enabling better lives through investment excellence.
We are approached by hundreds of investors who want to partner with Pinnacle every year. We knock back most of them. Often, we are asked what parameters we use and the type of data we look at when assessing the viability of a new boutique. The answer: we look for long-term track records of outstanding performance and we spend (often months) working out if the people are ‘the real deal’. This means getting to know their real personalities, their flaws, strengths and what drives them. Do we have high conviction that these people will deliver on the performance they are promising their clients, and sustain such performance over long periods of time? If not, we will decline to partner with them.
Once we identify investment excellence, we often provide seed funding to new strategies and it’s then on us to also provide excellence in distribution, middle office, risk and compliance, and other functions, so the money managers can focus intensely on what they do best, investing.
Currently we have high quality distribution and specialist middle office and risk and compliance teams supporting our 15 boutiques across the UK, North America, and Australia.
Q: What are the pressures in setting up a boutique firm?
A: Pinnacle as an organisation has more than 15 years of experience in establishing world class investment boutiques, some of our executives a lot longer, so we are well equipped to follow our proven blueprint for success. We understand the needs of clients and the character traits of talented investment professionals. But each boutique is unique are we are always faced with specific new challenges.
It would be remiss of me not to mention raising funds as a key challenge. This isn’t just sales, but also involves intimately understanding our clients’ needs and, for example, ensuring the right structures are in place to enable efficient and seamless access to new strategies. It’s important to remember that the individuals who partner with us are usually stepping out of high paying, very comfortable roles at larger institutions and putting their faith in us to play a key role in assisting them to establish and grow their business, so there is no doubt pressure on us to do everything possible to help ensure that they succeed.
Q: Do current market conditions make it harder?
We are fortunate to be well-capitalised and have a diverse stable of asset managers, working across a multitude of asset classes and investment strategies, so Pinnacle is a very resilient business.
Obviously, the current market environment is somewhat challenging for various traditional asset classes including equities, and after a strong multi-year bull market we are cognisant that there are many investors who have not experienced a real market cycle. But while there is much uncertainty, we see this as an opportunity for active management to shine. During the bull market we saw large amounts of capital flow into passive strategies, now we are seeing a renewed focus on the highly important advantages active managers provide, including fundamental analysis, which are even more vital in highly challenging conditions.
A: Why should boutique wealth managers have institutional style / industrial grade infrastructure?
To me, this is a ‘no brainer’. Clients expect, and have every right to demand, excellence in all aspects of the investment services they obtain for their asset managers. Regulators demand this also. If you are an excellent investment manager, you need world class infrastructure around you to provide investors the best client experience and the quality of service they need, and to grow your business without taking your focus away from investing.
This infrastructure also ensures a broad range of investors can access boutique managers, not just the super wealthy - something we are passionate about. And furthermore, for clients, it is in their best interest to have an asset manager with a sustainable business behind it. You don’t want the person investing your capital worried about things like distribution and the long term viability of their business. The multi-boutique model provides the ‘best of both worlds – the boutique environment in which talented investment professionals can deliver the best investment outcomes, with ‘institutional’ standard resourcing in the non-investment functions to enable a strong, growing business with all the infrastructure support that clients and regulators require.