Boutique asset managers will survive or perish according to how well they adapt to growing operational costs associated with increasing levels of regulation, a report from consultancy TABB Group has found.
More than half of survey respondents believe these growing costs will ‘make or break’ boutique asset managers in the next twelve months, as larger institutional investors draw upon greater resources to deal with these cost pressures.
“It is no surprise that costs are going up as new regulations are implemented and enforcement agencies increase the amount of inspections and requests for information,” the report read, adding that this raises the cost of doing business and renders the industry less appealing to new entrants.
For new boutique asset managers, overcoming burdens of due diligence and compliance are the biggest barriers to entry, according to 51% of survey respondents. In the same survey last year, asset managers listed this option third with 45%, behind costs and regulation.
These trends have contributed to what the report, authored by TABB Group director of research Adam Sussman and research analyst Valerie Bogard refer to as the “institutionalisation” of asset management in recent years, pushing smaller managers to the periphery.
“It is more expensive and more burdensome to launch an asset management business today, thus discouraging the very thing that defines a boutique: entrepreneurialism,” the report read.
To combat these challenges, boutique asset managers must focus on raising assets and maintaining a strong track record to attract business.
“Just as liquidity begets liquidity, once smaller firms start building an impressive record, it becomes easier to raise more assets.”
The 202 respondents were comprised 84% of boutique asset managers, with the remainder chiefly made up of investors and consultants. Geographically, respondents were split roughly one third in each of the US and Europe, and with others scattered through Asia, Latin America Canada.