The multiboutique investment manager structure has come under increased pressure in today's low-return environment, with burdens such as additional organizational complexity, overlapping capabilities and obstacles to providing solutions or outcome-oriented strategies.
Sources said examples of the effects of those pressures include:
- a possible split of Western Asset Management Co. from parent Legg Mason Inc., spurred by disagreements over retail and defined contribution distribution;
- the recent shedding of affiliates at Old Mutual Asset Management; and
- a decision at Allianz SE to give greater freedom to Pacific Investment Management Co. LLC and integrate its remaining boutiques earlier this year.
“The model has been challenged,” said Yariv Itah, partner at money manager consulting firm Casey, Quirk & Associates LLC, Darien, Conn. “You can reap the benefits in asset management only as long as you add value.”
When most manager holding companies were set up five to 15 years ago, they aimed to help small firms with generational transitions or liquidity issues. “Once the generational transition has passed, affiliates start to ask, "What holds us here?' If there's nothing the parent can answer, that's a problem,” Mr. Itah said, speaking generally about multiaffiliate firms.
Added Kevin Pakenham, veteran investment banker and co-founder of London-based boutique advisory Pakenham Partners Ltd., “Also, we're in a relatively flat (returns) environment, so the attraction of owning asset managers as a growth business is much diminished. Since the multiboutique structure requires an awful lot of corporate management, the question must be asked whether it's worth the trouble.”
Experts note that no two holding company models are alike, and that these models do offer some benefits. Parent companies can add value over the long term by expanding affiliates' geographic or client reach (especially into retail, where costly infrastructure is a barrier to entry), offering solutions or creating efficiencies of scale in mid- and back-office operations, something Mr. Itah said is “more difficult to do than it sounds.”
All money manager business models are under pressure, not just the multiboutique one, said Amin Rajan, CEO of CREATE Research, Tunbridge Wells, England. While he expects some firms to struggle with — or even abandon — the multiboutique model, at the same time, other managers are flocking to it. About 35% of medium and large investment managers have adopted the model; he expects that figure to reach 55% by 2015.