What qualities define a ‘boutique’ asset manager? Years back, when I had the highly enjoyable gig of chairing the Unique Boutiques Roadshow, its 2010 line-up of Baillie Gifford, Cavendish, Liontrust, Pictet and SVM prompted some discussion as to whether every one of those firms, while assuredly ‘unique’, could realistically be classed as a ‘boutique’ – to which my own response was, and remains, that ‘boutique’ is in essence a state of mind.
As it turns out, a similar discussion was again revolving around Baillie Gifford this year as it looked to join the Independent Investment Management Initiative (IIMI) – the thinktank, launched in 2010 as the New City Initiative, to champion entrepreneurial firms and their contribution to the economy and society as a whole. It now boasts more than 50 members, with a combined 3,000-plus staff and some £500bn in clients assets.
When I catch up with IIMI chief executive Dani Hristova, the identity of the network’s newest member has yet to be made public but it is presumably on her mind as the inevitable question on a boutique’s characteristics crops up. “There are lots of ways you can define boutique groups – by expertise, size, number of strategies, client alignment, corporate structure and so on – and arguably it is a little bit of everything,” she begins.
“Our starting point at IIMI, however, is that, first, the businesses are independently-run and, second, their means of competitive advantage is specialism over scale. That then gives us some freedom also to look at businesses that may appear a little different – for example, they are bigger in size, or they have a multi-boutique model – but they align with our broader values as mapped out within our new inclusion criteria.
For more on this area, read Boutique Critique: Langdon Global Smaller Companies
“If a firm comes to us that does look a bit different, then IIMI will engage in a discussion – around, say, client alignment, how they showcase culture and if they are investment-led and highly active – to assess if they truly are a potential candidate. Still, while the specialism point is important, I would argue it is unhelpful to have a really precise definition of what makes a boutique because these businesses are all quite special and different.”
Hristova started her career in asset management in 2015, in the defined benefit pension scheme client team at Legal & General Investment Management, before moving to Schroders where she worked with pension scheme clients and then in the insurance business development team. After then spending two years at Nordea, building the company’s presence in the UK insurance market, she joined IIMI as its CEO in May 2023.
Maintain your focus
Asked what qualities drive a successful boutique, Hristova believes it comes down to maintaining focus – both in terms of investment philosophy and culture. “If you are a business with genuine expertise, the way you are going to be able to win is by continually looking to generate alpha for clients with one or a small number of strategies; and then consistently fostering a culture that is focused on what you are doing,” she elaborates.
“It may be tempting to start valuing scale and trying to be everything to everyone but clients value a manager that does not do a 180 when times are difficult in markets – or indeed when times are very good and maybe they manoeuvre salespeople to focus on what could be a higher-growth area. Sticking to what you know is going to deliver alpha for clients and then building a culture around that is going to lead to success.” (Main article continues after box)
“We need to create an environment that celebrates and encourages innovation or we will continue to lose businesses and talent to countries with friendlier operating environments.
Rapid response
Who or what has been the most important influence on your career?
The innovators and problem-solvers. I have never been one to accept the status quo – as a child or an adult! – and where I have been challenged and have grown and pivoted my career the most has been through observing and emulating how innovators and problem-solvers think and act within the context of my own goals. I should also give a shout-out to my first manager at Schroders, Dan Hunter, who furnished me with unbelievable opportunities to work with clients and internal management with a view to selflessly supporting me in advancing my career. If I had not agreed to some of the bonkers things he encouraged me to do in my mid-20s, I would not have had the bravery and tenacity needed to push IIMI into a new era of growth today.
If you were not in investment, what job do you think you would you be doing now?
It would have to be something competitive, something I can consistently learn from and something that brings a great deal of satisfaction. Perhaps corporate law or professional sports – if I was good enough! That said, I have my sights set on eventually being able to put aside time for charitable work – in particular, helping to support single-parent and low-income families.
What excites you about the current investment outlook? What worries you?
What excites me is we have perhaps reached ‘peak passive’ – and that could provide significant opportunities for specialist active managers who have an edge. What worries me is the UK will continue down the path of consolidation and the regulator could stand strong on keeping our industry highly regulated – particularly for new asset managers. We need to create an environment that celebrates and encourages innovation or we will continue to lose businesses and talent to countries with friendlier operating environments.
If you were head of the FCA for a day, what would be your priority?
Creating a systematic plan to overhaul years of accumulated regulations that impact asset managers today, with a particular focus on simplicity, cost and proportionality. I would also approve the new ‘UK exempt reporting adviser’ regime we have been working on for professional investor-only start-up investment companies and get the ball rolling immediately!
What advice would you have given your younger self on your first day in this business?
Surround yourself with the smartest people possible – all smarter than you. Be helpful to them, problem-solve for them, observe them and learn from them.
What businesses will emerge as the winners of UK asset management over the next 10 years?
They will be the ones that stay focused and consistently have in mind the best business they can build for the end-client. To do that, you really need an unwavering spirit – and your culture has to really back that up. You must avoid being tempted to try and be everything to everyone; or thinking about changing something you have been doing consistently for years just because it has been a really tough time. Those who have a long-term vision – and the best interests of their clients – in mind are going to be the winners in asset management. Just staying true – and having leaders who can really bring their workforce along with them during this period – is going to be so important.
To stand out from larger businesses, adds Hristova, boutiques should also focus on client alignment – managing capacity constraints to safeguard alpha and highlighting where there is ‘skin in the game’. “Fund managers who do this are investing their own money alongside that of their clients – and probably their families and friends,” she says. “That is a real driver for success and helps position businesses with the end-client firmly in mind.”
Turning to culture, Hristova points out this is so important to boutiques because it is usually a pivotal reason they were set up in the first place. “Fund managers will often come out of larger organisations where they have had multiple layers of internal management and committees governing their decisions,” she says. “They may well have also had external shareholders, who would have their own desires their companies needed to meet.
“If you have been doing something successfully for a long time and you genuinely believe – because you are putting your money where your mouth is – that is how you are going to achieve the best outcomes for clients, then you have to build a firm that has a culture with that in mind. That means cohesion, tenacity, having the right people who understand what you are trying to do and really getting behind your expertise.”
In February 2024, IIMI joined City Hive’s ACT Alliance of more than 120 firms that follow a social and governance framework based around culture and inclusion. ‘ACT’ here stands for ‘action, challenge and transparency’ and the alliance’s goal is to enable professional investors to assess corporate culture in a standardised and comparable way.
“We champion what they do and we have seen from an allocator perspective – because their Global Stewardship Council is allocators, essentially – how they are calling on the industry to be more transparent,” says Hristova. “This is coming in by way of asking more questions around culture – and the ‘ACT’ framework in itself feeds into this fund selector due-diligence piece – but, the thing is, these allocators are not looking for perfection. (Main article continues after box)
Culture is not something that stands still in time so it is vital to identify and build in those core values about what you are trying to achieve for your clients from the beginning.”
“They are looking for people to be transparent about what is going on in their firms and thinking more in terms of ‘evolution’ as to how they will change things for the better going forward. What in your business could be improved – and how do you plan to get there? Culture is not something that stands still in time so it is vital to identify and build in those core values about what you are trying to achieve for your clients from the beginning.”
A significant potential hurdle facing smaller asset managers, of course, is the prospect of investors effectively ending a meeting with, ‘Really impressed by your strategies to deliver alpha, your approach to client alignment and your corporate culture – could you maybe come back when you have a longer track record or more assets under management or a longer roster of platforms?’ Is that, to put it diplomatically, frustrating?
“In my head, there should be two ‘buckets’ of priorities for engaging with regulator and government,” replies Hristova, just as diplomatically. “One is the need for an operating environment that allows entrepreneurial investment businesses to launch, which really ties in with the government’s Financial Services Growth and Competitiveness Strategy: it is great for clients, for the diversity of the asset management ecosystem, for the economy and so on.
“And then the second part – more to your question – is, Let’s take a look at how we are operating at the moment and at the anti-competitive practices that may fall outside of the regulatory remit but certainly need some oversight. There are a few quite defined elements I would put in that bucket, one of which is when you are smaller or just starting out and you are trying to get access to platforms.
Chicken and egg
“There is this chicken-and-egg scenario where platform operators will say, To get on our platforms, you need to show client demand; and the boutiques will say, To get client demand, we need to be on your platforms – and it goes round and round. Anecdotally, this is a big challenge and, in the past, we have asked the regulator for every firm to be allowed five funds on a platform, which would solve the problem for the majority of our members.”
A second issue is how much asset managers have to stump for the markets and other data they need to include on factsheets and elsewhere. “The cost for this data is huge and yet there is no differential treatment between a global manager with 100 or 200 funds, say, and a boutique with one or two funds,” points out Hristova. “It is a huge cost difference but, at the moment, you have to pay up to be compliant.
“Then there is the ‘career risk’ aspect, where investment consultants or other allocators – even on the wholesale side – look across the industry and say, Well, you don’t get fired for recommending ‘Insert globally-recognised asset manager’. Meanwhile a specialist asset manager could have superior performance and brilliant mechanisms on client alignment and culture yet they may not get a look-in because their brand or fund size puts them in the ‘Outside my comfort zone’ bracket.”
So how would Hristova – and IIMI – go about changing this situation? “My view is this is a psychological challenge, which will take a lot longer to unpack,” she says. “In addition to the government and regulatory engagement, we will need to engage the younger, up-and-coming researchers and fund selectors and get them to start challenging that narrative a bit – saying, Look, these guys are doing something different, they have client-outcomes firmly in mind, as demonstrated by ‘skin in the game’ and capacity constraints, and so they could be a great investment option. Let’s engage with them and understand more about them.
“And, actually, they have been doing it for 20 years or whatever – and this is how they have performed in the good times and the bad times; this is how they communicate with their clients; and this is the stability of the team from a culture perspective, which is really just so focused it is keeping them on track. Not enough of that is going on but it would be a great success if we were able to stimulate more of those conversations, I think.
“And IIMI has done a number of things to try and challenge this – for example, in May, we published The Case for Boutiques, which looked not just at their competitive advantages and what they can offer but also at the issues that are perceived to be hindering their ability to grow. So it just getting that kind of research out there to say, Challenge the narrative and think a bit differently. (Main article continues after box)
Competitive landscaping
More often than it should these days, the topic of mergers and acquisitions in asset management can conjure up the mental image of someone sticking two halves of different cars together and hoping the result can stay on the road without falling apart. Not in this conversation, however, as it seems much more likely boutique asset managers spring out of people running away from the prospect of M&A, not towards it.
Still, rather than putting words in Dani Hristova’s mouth, how does she view mergers and acquisitions in the context of wealth and asset management? “The publication last year of the Financial Services Growth and Competitiveness Strategy shows the government are really looking to grow the UK economy and ensure we are globally competitive,” she begins. “Financial services should be a big part of that.
“Indeed, I think we would all see having a globally recognised financial services hub in the UK as being enormously positive. We want it to grow and to have the best talent. What is potentially troubling and getting lost, however, is this point around increased consolidation – essentially that greater amounts of money are being run by a smaller number of larger firms.”
For Hristova that has had a number of consequences: “It has created a bit of an obsession around cost over value – driving down costs spectacularly along the way – but it has reduced investment choices for clients and it has also dampened entrepreneurialism. And, at IIMI, we certainly believe a diverse asset management ecosystem, with lots of investment choices, will lead to better outcomes for clients.
Growth and competitiveness
“Also, starting new businesses will ultimately help grow the UK economy. These businesses are entrepreneurial, they are hiring talent, they are paying taxes in the UK – all of which is hugely helpful to any growth and competitiveness objective. So we have positioned ourselves to the government and the regulator as saying, More attention needs to be paid to the role of smaller businesses operating in the UK – and the ability to launch them.”
To that end, Hristova was one of a small group of industry players who sat down with the government and FCA in May to propose a new regime for UK start-up fund management companies. “We have seen how, in other jurisdictions – notably the US and the UAE – it is very simple and cost-effective to get an asset management business off the ground,” she explains
“To be clear, this is not in relation to retail clients, who do need to be treated differently – but we don’t have a simple and straightforward way to launch a professional investors-only asset management business in the UK, It is notoriously difficult and costly and onerous to get a fund management business off the ground, which is also impacting that consolidation piece – because it is moving in the wrong direction.
“These businesses have to be able to start up to help dampen the effects of consolidation in order to offer greater investment choices for clients, who can then begin to think about value in a better way. So, yes, from a boutique perspective, consolidation is something we really need to think about and just try and bring to the fore that these businesses have such an important role to play – not just for clients but the UK economy too.”
“There is little point in engaging positively with the regulator and the government – and we do have a brilliant working relationship as we try to create an operating environment that is much more favourable for boutiques – if you are not also tackling those issues around career risk, platforms, data costs and so on. Then the ultimate goal is a diverse, competitive ecosystem and really positioning the UK as a leading hub for asset management.”
As a manifesto, that does feels tough to take issue with so does Hristova ever face any pushback from the wealth and asset management sectors when she is out flying the flag for the boutique model and its practitioners? “I have never had a conversation with a group who has not really got it,” she replies. “Everyone I speak to says, Yes, we do understand the value.
“They do understand the importance of combining different investment styles. They do understand – particularly today given, the ‘Magnificent Seven’ represents 30% of the market cap of the S&P500 or whatever eye-wateringly high percentage it is today – that actually having a bit of a differentiated investment portfolio is probably going to be beneficial all around. And they do recognise that, if a client wants to investment in a particular area or geography, for example, that going with an expert is probably wise.
“Yet that can be trumped, in some cases, by that issue around career risk, perceived instability and so on. I mean, we run a webinar series for investment consultants and ratings agencies, which all of the big brands have attended, and none of them have ever said, No, we won’t do it. But they are very honest too and some do have hard limits – you know, If you can’t jump over that hurdle, we just cannot rate or recommend you.
“Still, they enjoy those conversations with our firms – and the same goes for the government and the regulator. They understand our perspective on this – and I think they value the fact we are so hands-on when it comes to putting together solutions for them. It is easy to say this, of course, but some of our initiatives could get over the line pretty quickly because we have really thought about them and their potential impact.
“We are practitioners so we don’t say, Look, this isn’t working – can you change it? We say, This isn’t working, here are some suggestions on how you change it – let’s talk about how feasible that is. Potentially, that is one of the reasons why IIMI membership has grown so much – a 40% or so increase since I joined two years ago. Of course I am not saying that is all down to me! There is just a growing recognition boutique businesses are offering something quite different and now is the time to listen to what they have to say.”
Making waves
When Dani Hristova suggests one approach to challenging the narrative that leads some professional investors to avoid allocating money to boutiques would be to engage more with the younger generations coming into the industry, it begs the follow-up point: how would she look to attract people into the business of wealth and asset management in the first place?
“My own route into financial services was unusual because I came from aviation – so I didn’t do the classic ‘finance-related degree and then apply to lots of asset managers’,” she says. “Even if I had done that, though – and, by the way, I’m thinking about asset management because that is my remit – my most likely choices would have been overwhelmingly global asset managers looking for people to join their graduate programmes.
“Whereas boutiques are smaller, resource-constrained businesses that are not going to be able to run those types of programmes or approach universities to do a similar thing. So we need to be thinking about innovative and entrepreneurial ways for smaller firms to be able to say, Hey, we exist and we do something that is quirky and different – and, actually, our culture looks a bit different too, and with a much flatter structure.
Young professionals
“But there is another part of all this, which is tackling the continuing issue of attracting people from different socioeconomic backgrounds into the industry – and there are some brilliant charities and initiatives that are doing that. We partner, for example, with GAIN – ‘Girls Are Investors – which specifically focuses on getting young women and non-binary people into roles in investment.”
In a similar vein, over the summer, IIMI launched its own young professionals network, which is designed for school-leavers interested in finance as well as graduates with up to two years’ experience at existing businesses. “We have invited young professionals from GAIN, Women in Banking and Finance and the Diversity Project into the network to get access to the initiatives and events as well,’ adds Hristova.
“If you are working in a small firm, you might find yourself as one of only a handful of grads – or perhaps even the only grad – so we wanted to support them. At the same time, setting aside seats for others outside of IIMI gives these young professionals an opportunity to see what a career could be like in a boutique. As always, it is about just championing this industry and getting individuals to think with an entrepreneurial mindset.”
