Phil Hoffman, who is a portfolio manager in Russell Investment’s global equity team in London, says there has been “a tremendous amount of new product coming onto the market” in recent years.
He says this is a function of new product being established by existing firms as well as the establishment of boutique firms.
“Managers from established firms are setting out on their own and deciding that they want to own their own businesses and invest money the way they used to…to invest it unencumbered by large assets and the huge bureaucracies you are seeing in most organisations these days.”
Another reason behind this growth is that global equities is the asset class which offers the highest alpha potential, or highest return potential, because it is the broadest opportunity set available in equity markets.
Another trend is towards managers pursuing unconstrained approaches where there are no controls on the country or sector benchmarks in portfolio construction.
Hoffman describes these as “best ideas across the world portfolios”.
Russell’s research shows that often small is better, and many of the boutique firms have better returns the big investment houses.
The problem for investors is working out which of the new boutiques are going to survive and excel.
Hoffman says Russell, which uses a multi-manager investment approach, has put significant resources into research to determine which of the boutiques will succeed.
He says the company is trying to identify the good firms before other managers.
“You do need to be able to differentiate at a pretty early stage those that are going to succeed, rather than those who are jumping on the band wagon and have nothing to offer.”
“It’s not simply a question of hiring a manager because they have set up on their own,” Hoffman says.
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