AMG seeks performance from Asian boutique offices

14 December 2016   Category: News, Asia, China, Global, USA, Europe   By Natalie Leung

Investors are looking for performance, which, according to the Affiliated Managers Group (AMG), can be achieved through boutique asset managers that the company is keen to invest in as a means of expanding its presence in the Greater China region.

Low returns, further exacerbated by the actions of the central bank, made this year a difficult one for the asset management industry in China. However, focussing on performance in alpha-oriented products seems to be a natural trait for clients, regardless of the market environment.

“Many asset management firms want to add value for their clients, but that is not what clients are looking for,” says Sean M. Healey, chairman and chief executive officer at AMG. “Performance is the key determinant and is what clients would look for first.”

The trend toward chasing performance explains the group’s strategic focus on active equities and alternatives – product areas with strong client demand and substantial opportunities to achieve alpha.

As a natural consequence, Mr. Healey says, poorly-performing firms that are not providing differentiated alpha generation will lose assets, while the best-performing firms will gain assets.

Many firms can generate good performance, but Mr. Healey believes boutique firms in particular stand out in terms of generating superior investment performance in return-seeking assets.

This is according to research conducted by AMG, which found that the average boutique strategy outperformed the average non-boutique strategy in nine out of 11 product categories examined – by an annual average 51 basis points (bps) across all categories over the past 20 years. Emerging market equities and global equities performed especially well, with an annual performance of 127 bps and 113 bps respectively.

When it comes to finding partners, while many might only consider the best firm regardless of its geographical location, Mr. Healey believes that location can sometimes be translated into an advantage that clients would appreciate.

“The firm knows the market more than somebody who comes from somewhere else and can provide us with the benefit of exposure,” says Mr. Healey. “You may have different market orientations and generally a more concentrated set of client relationships in that region.”

The group has a unique approach to boutique companies, which is to partner with the boutique asset manager instead of acquiring the firms, to give them a certain level of autonomy and incentivise them further to drive the business. Currently, the group has invested in 40 affiliate firms with a total AUM of approximately US$730 billion.

Despite around 56% of AMG’s clients being non-US based, the company at present only has one affiliate based in Asia. Therefore, the Asia region, particularly Greater China, would be a logical next step for the group’s expansion. “There is a huge opportunity in the Chinese market as China is at the early stages of evolution in terms of development and distribution of performance-oriented products, and there are many high-quality boutique firms,” Mr. Healey observes.

“With the development of the asset management industry here (Greater China), there will be more boutique firms that generate scale and get to the stage of evolution both in terms of the size and the quality of business,” he adds. “Combined with room to explore succession planning, there will be many new opportunities for us.”