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"We want to revolutionise the fund management industry," proclaimed three fresh-faced 20-somethings back in 2000, as they upped-sticks from comfortable jobs on the global equity team at Mercury Asset Management, now Black Rock.

The trio - Simon Rogerson, chief executive, Chris Hulatt, director and Guy Myles, managing director - launched Octopus Investments as an antithesis of all that they perceived to be wrong or ineffectual with 'traditional' fund management.

Benchmarking to an index went out the window immediately, investors and advisers were encouraged to lead the debate in product development and in return Octopus promises investors an individually tailored service, maximised returns and controlled risks.

Mr Rogerson explained the thinking behind their investment philosophy: "If I can't predict the FTSE, why on Earth would I run a fund mandated to outperform that index by 1 per cent to 2 per cent? I could be in the absurd situation where the index is down 25 per cent and my fund might be down 20 per cent, yet the typical fund management company would pay me a fortune for that result. My own customers would think that is bizarre and find it very frustrating. Investors come to us to make them money. We don't think it makes sense, so we don't run that kind of strategy."

He continued: "Fund management companies typically sell down the path of least resistance, recently it was commercial property funds, in 2000 it was technology funds. They were not taking responsibility or accountability for that, they were not trying to understand what their customer wanted. For us, there was a real chance to make a difference."

Herein lies Octopus's core difference: it operates exclusively within alternative asset classes, whether small cap, private equity, emerging markets or hedge funds, operating niche products and benchmarking returns against the practical alternative open to most investors, leaving their money i n a deposit account, and using the benchmark of Libor.

Comfortable with Octopus being termed a boutique, if defined as a business with ambitions of swift and vast expansion, Mr Rogerson says the company has "an incongruous mix" of £500m in assets under management, modest by fund management standards, impressive considering the age of the company and its directors, and 94 members of staff supporting the operation. And it is not a matter of quantity over quality, as 500 prospective candidates have been interviewed in the last 12 months, Mr Rogerson said, yet only 40 were offered positions. He sees this as fundamental to building the infrastructure that will eventually support a much larger business; its assets under management has grown 100 per cent year-on-year for the last four years.

The reasons for this are manifold: each of the employees holds equity in the firm, amounting to approximately £3-5m of the AUM, which "absolutely focuses the mind," Mr Rogerson asserted; fund manager's interests are aligned by performance fees; investors which joined the fund management firm in the early days have kept reinvesting with Octopus and nine out of ten voted that they would recommend the service to friends and family; and ultimately, Octopus offers products that give people what they want, not 'solutions' that actually do not serve their requirements very well.

For example, by taking their lead from focus groups with people approaching retirement, the Octopus team has designed an innovative inheritance tax service which, by investing in a diversified portfolio of Aim-listed smaller companies, takes advantage of business property relief, giving the investor's capital IHT-exemption after two years rather than the standard seven years with gifts and trusts. The product is also unusual in offering daily liquidity and single pricing, so investors retain access to the money, and there are two enhanced versions which offer in-built insurance policies to provide an annual income, death benefit or capital protection.

Mr Rogerson explained: "Our focus groups with 75-year-olds found that they are scared of dying, and leaving a tax liability; seven years is too long for them. A lot of them do not like the people their children have married and so don't want to gift it, they have spent their whole life building it up and want to keep control of it."

He added that with these IHT solutions, Octopus is taking market share swiftly and raising £5m-plus monthly within those structures, which is unsurprising considering that "the IHT solutions that do not work for them take billions of pounds per year." So, is there a risk of the boutique innovators doing the innovating for larger, better known providers to them swoop in, adopt the concepts and take the glory, and the profits?

Mr Rogerson doubts it: "It's a fair risk but then we operate in niche markets. We have £95m AUM, yet large providers might win an institutional mandate larger than that each week. They do not want the hassle of having 1000 individual customers to service, that is exactly what we want. We are a UK retail fund management business."

The minimum investment amounts are not boutique-frightening prices: for Octopus's Oeic product it is £1000, or £100 a month, for venture capital trusts it is £3000 and for the IHT vehicle £30,000. The annual management charge is usually 2 per cent, capped at 3.2 per cent for VCT products, and a performance fee is 20 per cent over Libor for Oeics and for VCTs is due after three years and dependent on a range of criteria, after which it is 20 per cent of the excess over £1.

Octopus is not authorised to sell its products direct to consumers and relies on financial advisers for 95 per cent of its business, with the remaining 5 per cent being unsolicited. The service levels that Octopus is so proud of for investors, applies equally to advisers, giving them a range of options about how and when and how often they wish to be updated on fund performance and in how much depth. Investors are also encouraged to speak with their fund manager directly to talk about investment strategies, to attend regional seminars and really "get under the skin of what is happening with their money."

Mr Rogerson added: "The natural reaction that we have come up against is that it [Octopus products] is too good to be true. So, for us it is about working with IFAs, educating the customer base by putting on joint seminars and things like that, and ensuring they gain trust in the company and its brand."

It is not just Octopus's clients that have ranked the service levels highly; wealth management advisers Lighthouse, which is set to merge with Sumus Group, voted Octopus best specialist products provider for 2008 and earlier this year The Sunday Times ranked Octopus number one financial services company to work for in the SME category. It has also been shortlisted for business of the year at the National Business Awards 2008, with winners due to be announced in July.

While the trio of founders, which each invest solely in Octopus the company and among its 15 funds, may be fresh-faced, the company has secured a wealth of industry and business experience. Chairman Matt Cooper is an ex-managing director of Capital One, its private equity team herald from Close Brothers, Bridgepoint Capital and KPMG, and the head of organisational development, David Boothby, is formerly management of ebay and Dell.

Mr Rogerson added: "The opportunity we have from a fund management perspective, with the resources and skill set we have, will take the company to a much larger size. We do not want to be a jack of all trades and master of none. In the short-term we will be broadening the IHT suite so that whatever type of client an adviser has, we will have a solution to suit them."