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Rise of the super boutique: how will this new breed of firm fare?

Rise of the super boutique: how will this new breed of firm fare?

The recent SandAire-Lord North Street, and Ingenious AM-Thurleigh tie-ups could well set the pace for a new trend in wealth management: the super boutique.

The Lord North Street and SandAire alliance will create a substantial player in the private investment office market with billions under management.

Meanwhile, Thurleigh and Ingenious are set to combine their investment teams and manage £1.8 billion in discretionary private client assets and platform-based model portfolios.

But is this the way forward for every boutique that is thinking about the future, looking for scale or feeling the pinch as regulatory costs grow?

Thurleigh’s CIO Charles MacKinnon said there was no pressure to merge with Ingenious AM as his business is and will likely remain profitable. However, the prospect of heightened regulation and succession planning provided motivations to team up with Ingenious AM, which manages some £1.5 billion in assets.

‘The rationale behind the deal was very clear our side and theirs. We think this is an increasingly regulated industry and that regulation will intensify rather than loosen. We will be better placed as a £1.8 billion organisation rather than a £300 million organisation.

‘This is just a fact of life and we will better placed to address and understand those things. From our side it is important to look forward to the next five years,’ MacKinnon explained.

McKinnon added the deal was driven by the cultural fit with Ingenious and a keeping one eye on the future.

‘I think the luxury we had is that we are well regarded and profitable and didn’t have to do anything. David Rosier and I were very clear about that to investors, clients and ourselves and we tried to look forward three years and could see we would be less profitable because of regulation.

'If we had not done the deal, not a lot would change. A lot of organisations are struggling with declining profitability, so they are making deals on a slightly different basis. This was very much our choice,’ he added.

This was also the rationale for SandAire and Lord North Street, which are joining forces to develop a sound proposition for the future.

Lord North Street co-founder William Drake explained the deal was not driven by a desire to bring about cost savings, but a motivation to capitalise on the combined strengths of the two organisations to ‘raise the game so that London has an absolutely world class private investment office’.

NCI welcomes rise of 'super-boutique'

The New City Initiative, a think tank representing fund and wealth management boutiques has welcomed both tie-ups, with its founder Daniel Pinto calling for more consolidation through the creation of super-boutiques.

‘We applaud all these transactions because we think there were too many smaller players in the industry and we think the creation of larger boutiques is probably a good thing,’ he said.

Before setting up the NCI, Pinto co-founded Stanhope Capital, which became the largest private investment office in Europe running over $9 billion (£6 billion) and employing 70 staff.

‘The movement is driven from clients, who are increasingly sensitive to the breadth and depth of your investment expertise. It used to be that they were satisfied with just a few people handling their investments – but they are much more demanding now.

‘That’s the reason why the smaller players in the industry feel a need to come together to potentially invest more in their investment research capabilities,’ he explained.

The chief executive says the boutique has enjoyed very strong growth over past few years because Stanhope addressed early on the need to populate the investment team with the right people. This was done through hires rather than acquisitions.

There are 18 staff on the firm’s investment research department, which Pinto says is ‘as much as the total number of employees in many of these [small] firms’.

‘Our view has been that, because we chose organic growth [over an acquisition], we had done the right thing in terms of focusing on the right elements of investment research.’

‘We had the good fortune of being able to grow without having to acquire other boutiques, but we remain open to other possibilities.’

This is also the case of Vestra Wealth, which has been able to grow the business organically, explained David Scott, founding and senior partner.

‘The breadth of service means that we are now an attractive alternative to the large banks for many advisers to join and for many clients to move their business to,’ he said.

‘The investment we made in the early years into offering a full back office and broadening our service capability has meant that we can grow without huge further investment.’

The boutique runs £4 billion in assets under management, with 23 partners and a total headcount of 180.

For smaller newer investment management business, the prospect of becoming a super-boutique is not on the cards just yet.

Bigger isn't always better

David MacNeil, who co-founded Castlebay Investment Partners last year, takes the view that boutique’s ambitions can differ and big does not mean better.

‘The firms [that are undergoing mergers] are great businesses, but they feel they want to rival the ultra-high net worth parts of the private banks, which is a slightly different aspiration to our current one,’ he said.

MacNeil has no ambition to merge with another boutique just yet.

‘A lot of other firms, which want to do more family office style things, perhaps become more of a jack of all trades rather than a specialist, because they feel the clients want that.

‘But I’m quite aware of where we sit in the chain, and these guys have been around for longer and have aspirations of billion pound families, whereas we’re not there yet.’

Looking ahead, MacNeil expects more ambitious people will spin out of the 'super-boutiques' and big banks to found their own boutiques.

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