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20/20
MONEY MATTERS
InvestmentManagement
by DAVID LE CORNU
DIRECTOR,
- DO I WANT BIG OR BOUTIQUE?
Corazon Capital
When I committed to writing this article in April I had no as their resources need to be focussed. Ideally, product
idea of the extent of the challenges the financial system offerings from anybody should include third party product
would face over the balance of the year. In the short offerings, being the cynic that I am I do not believe any
space of six months Governments have pumped so much investment firm exists that is good at everything.
money into the financial system that I no longer know
how many zeros are involved in the numbers. We have 3) Performance: Does Big = Improved Performance?
seen Banks worldwide being nationalised, or quasi I fundamentally believe that over the long term the
nationalised, a large American Investment Bank biggest firms can only deliver average performance.
becoming insolvent and many forced marriages between
financial institutions and that is only the tip of the My reasoning is fourfold:-
iceberg. My topic now seems incredibly mundane, but I (1) They tend to manage money via large committees.
will persevere. Those who have had the pleasure of working on large
committees will know that by their nature they tend
If you are looking to appoint an Investment Manager to to deliver median decisions.
look after your hard earned money one of the questions
that you need to ask is “Do I want to appoint a big firm (2) They manage such a large amount of money they end
or a boutique firm?” up owning a broad representation of the investment
market. (Yes you can sense a touch of envy on my
I have touched upon five areas you may wish to consider behalf).
to lead you to the answer that is right for you.
(3) Their investment process tends to be very benchmark
1) Security: Does Big Firm = Safe? aware. Apologies for the jargon, by this I mean that
A big firm may manage your assets and hold your money they tend to be trying to match or beat the
themselves whereas an investment boutique will manage performance of an index, so they hold an investment
your money, but the assets are likely to be physically held portfolio that looks very much like the index they are
by a third party being an independent Custodian. When trying to beat.
an independent Custodian is used there will be an annual
review by the Investment Manager to check that they (4) Due to the sheer number of clients for whom assets
remain appropriate and if there were any concerns about are managed there is a need to compartmentalise
the ongoing viability of the Custodians business the clients. (Again you may spot a touch of envy here).
assets would be moved to another Custodian. For You may have experienced this before when you are
commercial reasons a big firm who is acting as both advised that you are a GBP Conservative Investor or
Investment Manager and Custodian is unlikely to sack in extreme cases I have heard about a potential client
themselves. However, the bottom line is that assets that being advised that they were a C1 whatever that may
are held in Custody tend to be ring fenced so that they be.
are identified as client assets rather than the assets of the
Custodian, so you are likely to be equally secure Are Investment Boutiques any better?
whichever route you choose. They will operate with fewer constraints. Their investment
process will involve smaller committees, they will have
2) Product Range: Does many products = Better? less assets under management and fewer clients to deal
If you want lots of product offerings then big tends to be with, and so this should add up to greater flexibility.
best. Boutiques tend to have a focussed product offering However, this does not guarantee better performance.
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