Rising legal and regulatory costs, heightened acquisition activity and the growth of successful companies have seen the number of UK fund boutiques almost halve in two years, new figures show, a development that has alarmed fund buyers.
The number of boutiques has fallen from 40 in 2013 to just 24 as of the middle of last year, according to an industry survey.
The Investment Association’s (IA) annual asset management study also saw industry figures warn the barriers to entry for new members are rising as a result of legal and regulatory costs.
The findings present a challenge for fund selectors, many of whom are increasingly looking to boutique products in a bid to ensure their buy lists are sufficiently differentiated.
Charles Stanley analyst Rob Morgan said: “There’s less variety. There’s less independence of thought if you have lots of managers being swallowed up by others and processes being imposed on them.
“People quite like boutiques because they are a little bit under the radar and fund managers can apply unique processes to a small and fairly nimble fund.
“A lot of them also have ‘skin in the game’, which provides a long-term incentive.”
Recent years have seen the emergence of several high-profile fund start-ups, such as Woodford Investment Management and Fundsmith, whose success in asset gathering has meant they have quickly shed the ‘boutique’ tag.
However, Mr Morgan said he was concerned by the absence of other new faces. “It’s the lack of new boutiques that’s most worrying,” he said.
Boutiques’ popularity was underlined by the fact that assets under management (AUM) for this group rose by 19 per cent last year.
But the IA’s survey also emphasised the danger for those that have risen into the middle ground in terms of assets.
“The space in-between [large and small firms is] expected to be particularly challenging,” the trade body said.
Robin Kyle, an investment manager for Tcam, acknowledged the concern, and also warned of the possibility managers could change their approach as assets grew demanded due diligence on the part of fund selectors.
“Any manager we invest with we meet on a six-monthly basis,” he said.
“You get a gut feeling for the names that sit in a strategy. If that starts to differ, or you see a divergence in style, that starts to ring alarm bells.”
The IA broadly defined boutiques as being independently owned, having assets of no more than £5.5bn and providing a degree of investment specialisation.
The need to unearth such firms means fund buyers must put in extra work, said James Menzies, investment director for Greystone Wealth Management.
He described his range as “about 60:40 boutiques versus bigger, global fund managers”.
“There are still good firms and funds out there if you hunt around,” Mr Menzies said.
