Boutique equity managers are proving to be the industry segment most vulnerable to the market implosion of the past 18 months, and a number of those firms will struggle to remain independent this year, according to a recent report by Greenwich Associates.
On May 1, one boutique well known to institutional investors lost that struggle.
Old Mutual Asset Management, a holding company with 17 boutique money management subsidiaries, decided to wind down Clay Finlay LLC, an international equity boutique whose assets under management had slumped to $1.8 billion as of March 31, from $5.4 billion at the end of 2007.
Thomas M. Turpin, OMAMs president and CEO, praised the job that consulting industry veteran Rosalind M. Hewsenian had done since coming in as CEO in November 2007, but said market conditions and the economic environment made closing the firm over the coming months the best option. Client defections had aggravated the plunge in market valuations, with net outflows of $263 million in the first quarter following outflows of $480 million in 2008 and $1.5 billion in 2007.
The Greenwich report based on a survey of 61 money management firms in December and January suggested a number of other boutiques could be facing a similar squeeze.
The survey showed operating margins for the group tumbling to 24% in late 2008 from 33% at the end of 2007, with cost cutting and headcount reductions expected to limit further prospective declines to 21% for the current year. However, six respondents mostly boutique equity managers told Greenwich they expect no operating profits this year. The report predicted that firms such as those will need to be acquired or recapitalized in order to survive.
The Greenwich survey showed firms with less than $10 billion in assets under management anticipating a plunge in operating profit margins between 2007 and 2009 of more than 50 percentage points roughly double the decline anticipated by firms with $10 billion to $25 billion and those with $25 billion to $100 billion. By asset class, equity-focused firms predicted a roughly 45-point decline, compared with 33 points for diversified firms and 13 points for fixed-income-focused firms.