September 29, 2015

Boutique asset managers increase focus on European equities as concerns about regulation grow

Boutique asset managers are increasingly losing their home country bias in the search for investment growth, in particular switching into Europe in 2015 despite the recent issues in Greece, according to a survey of over 100 fund managers by independent capital markets research firm TABB Group for SunGard.

For this third annual survey, Adapting for the Future, 110 managers were questioned during May 2015; 70 percent were domiciled in Europe but nearly 90 percent were active in European markets. Among managers, regulation has soared to being the number one concern, cited by 68 percent of managers compared to just 17 percent in 2013. This is due to increased demands and growing complexity for boutiques to operate across multiple jurisdictions, irrespective of their domicile.

MiFID II was seen as the regulation that will most impact managers over the next 12 to 18 months, as mentioned by 49 percent of respondents, compared with just 22 percent in 2014. Payment for research and UCITS IV/V were also highlighted by over a third of respondents.

Within MiFID II, the greatest concern related to payment for research, where over three quarters of respondents anticipated the regulation would impact their business in the next 12-18 months. Respondents highlighted that payment for research may have the impact of making boutique asset managers withdraw from some asset classes, with investment in Small and Medium-Sized Enterprises (SMEs) identified as particularly vulnerable.

However, other asset managers saw increased regulation as an opportunity for boutiques that are able to use more sophisticated and modern technology to be more agile to capitalize on new investment opportunities versus their larger global rivals.

Apart from regulation, raising assets, seeking new alpha opportunities, and attracting money remain the top concerns for boutiques. Companies recognize that investment in technology, internal processes and training staff will become increasingly important to enhancing performance and making boutiques more attractive.

The most surprising results came in terms of investment, where boutique asset managers are increasingly looking at European equities as they search for yield. Forty-eight percent of respondents said that EU equities had the greatest or significant demand in 2015. Among US managers this was even more marked, with 57 percent citing demand for EU equities compared with just 21 percent in 2013. The globalization of investment strategies is also leading to increased demand for Asia Pacific equities, with 30% of managers showing strong demand for in this sector.

The other asset class gaining in interest is exchange-traded funds (ETFs), with 48 percent seeing this as an area of significant demand by investors. Many boutique managers are using ETF as a low cost way of investing in an asset class and bolstering performance through stock picking and direct investment.