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Dubai: "Get big, get niche or get out" rings the Tom Peters mantra, but without indication of whether big or niche is best. For the world of fund management, I took the query to Robert Burdett, a multi-manager at Thames River and a co-manager of the recently launched 'Global Boutique Fund'. Yes, he will have a bias.
"We are overweight grey hair" says Burdett in summary to the point that boutiques need to be managed by experienced and savvy managers. Ultimately, from a performance perspective the big difference between the 'big-brand' funds and their boutique competitors is like the high street fashion scene: the big store reflects the market price. For C&A, or Marks and Spencer's, read Merrill Lynch, HSBC, Fidelity, Old Mutual and the like. Much of the weight of the 'big brand' assets is carried by funds benchmarked to the market. Tracking the Sensex? You must have Reliance. Tracking the FTSE? You must have BT. Tracking the Dow? You must have Johnson and Johnson. Working at Marks and Sparks? You must sell Jeans.
The boutique doesn't need to sell jeans; they do not follow the market. Or, as Burdett says, "the benchmarks are no hiding place". For Burdett, boutique fund managers need to be more nimble because the funds have less money and their entire justification stems from superior performance. The pressure for Thames River's Global Boutique will be on market out-performance, for Burdett and his co-manager Gary Potter, high-performance stress has always been their environment from their days at Credit Suisse and their highly successful Rising Star Fund. For the Global Boutique the 'stress' target is 8-9 per cent over the global index, plus Assets Under Management of around $24 million. Achieving these goals, for Burdett, would demonstrate that his team can "create value rather than live-off of value that has already been created".
Critical differences
So where does Burdett see the critical differences between 'big and niche' in respect of fund management? "There is a strong correlation between performance and pay" says Burdett, "around a quarter of fund managers have a link between performance and pay leaving three quarters without any big connection between the two". Most boutique managers live-off their performance. They are the centre-forwards of the industry: no goals, no games. It means that they need to be creative, innovative and entrepreneurial "pride in our performance" says the brochure.
If superior performance means high risk, how does Burdett act to "mistakes"? "Even people like Anthony Boulton work on the basis of getting 60 per cent right, mistakes are part of the performance game" says Burdett. "This makes mistake-management an important issue. And the most important thing is to recognise mistakes early and managing them out to reduce the downside effect" says Burdett. As a result, Burdett recognises that "the boutique way isn't the only way of investing" its important for investors to see the Global Boutique as part of a portfolio its not being sold as a "core holding" but as a fund focusing on out performance and out-performance has implied risk.
As a multi-manager, Burdett and Potter are continuously on the prowl for performance-seeking managers, "we look for managers who work with an approach that works for them, be it people, processes, or whatever. There is no right way or wrong way to run money". The brochure describes them as "style agnostic".
With the managers identified Burdett and Potter apply their proprietary 'IQ Factor' their systematic intuitive qualitative analysis which consists of 16 'common-sense values' that are applied to the funds as part of a screening process and that determines the overall asset allocation weighting. Ultimately, for Burdett, it's all about "trying to be early in and early out", which is what he means by building value and not living off it.
It adds up to a fairly high brow (grey hair) activity. I asked Burdett to point out three potential management stars from his likely starting teams of around 20.
His three picks were 'Four Active' a team of four guys that worked together at Schroders. The appeal to Burdett was that they "were all over their stocks" which I take to mean intensely aware of what they were buying and selling.
The second choice is: 'Int-rinsic Value Investors' an operation focused on Euro-pe. Burdett describes them as a "people business" in that despite its closed status they will no to obstruct Th-ames Rivers ability to 'come and go'. The third choice goes east to 'Prusik Asia' where Burdett was impre-ssed with "their use of cash, they hold between 20 per cent and 80 per cent in cash and have leaned to provide liquidity to that asset class".
- The writer is chairman of Mondial Financial Partners.
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