In addition, it is also trickier for these managers to trade without alerting the wider market to their movements. And finally, large organisations occasionally suffer from diseconomies of scale as a result of their complexity and friction between different business streams.
Even though scale may allow those larger managers to charge discounted fees, the returns – at least when benchmarked against boutiques – tend to be much lower according to Affiliated Managers Group.
The study found boutique asset managers generated returns that were on average 62 basis points (0.62 per cent) better than their larger peers, and beat indices by 135bps (1.35 per cent) annually between 1998 and 2018.
The research added that investors with boutique-only exposures would have generated 16 per cent more wealth than if they allocated into mega managers over the last 20 years.
One of the main explanations they gave was that boutiques generally had more discipline in managing their capacity and specialised in fewer strategies.
In a recent speech, a senior representative from the investment management division at the US Securities and Exchange Commission (SEC) said the regulator was aware that industry consolidation and fee compression were potentially depriving ordinary investors from accessing small to medium sized asset managers, in what may be a precursor to increased scrutiny of M&A at large investment firms.
Some boutiques argue that a more proportionate approach to regulation is required, as this will help reduce barriers to entry and further stimulate market competition.
Others would take this further and have quietly indicated they would support some sort of consultation, review, or even a tacit intervention by either the Financial Conduct Authority (FCA) or Competition and Markets Authority (CMA) into asset management M&A activity and its consequences.
A more radical idea, mooted by some, is to alter the mandate of the FCA entirely.
The current regulatory objectives of the FCA are focused on market integrity, competition and consumer protection, all of which are critical, but perhaps an additional remit should be to promote or ensure the growth and success of the industry.
Competition is an essential ingredient for any industry to thrive.
If the UK is to retain its position as the pre-eminent leader in asset management, it must foster an environment where all businesses – irrespective of size - can prosper.
With a new prime minister in place and Brexit looming, there is an opportunity to take meaningful action to ensure the UK achieves this.
Jamie Carter is chairman of New City Initiative