AUSTRALIA - Investing in the right boutiques in their early life cycle could maximise returns, a study by Russell Investment Management has found.
Behavioural and business-related factors would determine how a boutique manager evolved and performed during its lifecycle, the report reveled.
James McSkimming, senior research analyst, Russell Investments, said: "The explosion of boutiques can be a blessing for investors, because it significantly increases the opportunity set of managers.
"However, it also increases the burden of selecting good managers from a larger list of candidates.
"To maximise the benefits of investing in boutique managers, investors must know what they are looking for."
McSkimming added boutiques retaining the investment focus associated with the inception stage were more likely to continue generating solid investment returns, relative to those which became distracted by business risk or exit strategies.
Russell said the number of boutique investment managers in the Australian equity market had rapidly grown over the last two decades.
This trend was mirrored internationally as experienced investment managers departed large institutional firms to set up their own businesses.
Knowing personally the boutique managers, conducting regular onsite qualitative evaluations and quantitative analysis of manager portfolios, trading behaviour, risk exposure and performance would be paramount factors for a successful selection of managers, according to the study.
The report found the median rolling yearly excess returns for boutique managers have exceeded or matched those of institutional managers over most of the last 11 years. In 2007, boutiques outperformed their institutional peers by more than 2%.
This has tapered off slightly this year, with boutiques outperforming institutions by 0.9% in the year to March 2008.
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