Momentum Global Investment Management has a history of backing boutiques. The £6.8bn multi-asset house was an early investor in Evenlode Investment, among others.
Andrew Hardy, Momentum’s director of investment management, said that establishing a boutique is “the blueprint of a really good manager because it does bring that focus, alignment and hunger”.
Investing early in a new asset management business helps to build strong relationships with fund managers and gain better insights into their investment process and philosophy. Performance is often strongest at the outset when fund managers are at their “hungriest” and early investors can secure fee discounts.
So why don’t more asset allocators back boutiques? Investors can get hung up about things like minimum fund size, track record length and performance versus peers or a benchmark which, for Hardy, “makes no sense”.
For equity strategies, “less is more” when it comes to assets under management. Hardy has no qualms about investing in a small fund but Momentum would not want to account for more than half of a fund’s assets and its UCITs strategies have a 25% threshold.
“Three-year track record length is the thing that puzzles me the most,” Hardy continued.
If an investment team has managed a similar strategy at a previous employer than there is enough track record data to carry out due diligence and holdings-based analysis – unless the investment process has changed materially and “that would be a red flag anyway”.
He returned to the old adage that past performance is no guide to the future: “Active managers don’t outperform in a straight line so you’re setting yourself up for failure if you only invest in managers that have outperformed in the past three years.”
Sticking solely with managers in the first or second quartile “makes no sense”, he argued.
Instead, Hardy looks for alignment, focus, a disciplined process, a distinct philosophy, a fund size that is not too large and a high active share. “To get superior results you need to be doing something different,” he observed.
He also prefers managers with an all-cap approach because there are many opportunities further down the capitalisation spectrum where sell-side coverage is lower.
Below, Hardy highlights several boutiques that he thinks can deliver for their investors.
Momentum was an early backer of Evenlode. A factsheet came across Hardy’s desk in late 2013 or early 2014 when the firm had just £20m under management and he was sufficiently impressed by the investment philosophy and the team’s experience to request a meeting. Many more meetings followed including visits to Evenlode’s offices in a converted barn in Chipping Norton, Oxfordshire.
In the years since then, Evenlode has formalised its investment process and built its own proprietary valuation model. It is a an employee-owned partnership, which enables the firm to attract and retain smart people.
Returns have been “awesome” although they have benefited from “a good style tailwind”, Hardy added.
Momentum also invests with Redwheel’s Ian Lance and Nick Purves, who came out of Schroders' value investment team. “We like offshoots of the Schroder Recovery team. We like how consistently and purely they apply their investment process,” Hardy explained.
Another boutique with whom Momentum invests is Aikya Investment Management, an employee-owned emerging markets specialist. It is affiliated with Pinnacle Investment Management, a network of 15 boutiques that provides support services so that Aikya’s portfolio managers and analysts can focus on investing.
Aikya was established in 2020 by Ashish Swarup, who previously worked at Fidelity then Stewart Investors and brought key people with him.
Aikya’s portfolio managers and analysts conduct deep, thorough stock-specific research and are very discerning about the quality of the businesses in which they invest, Hardy said. They spend a long time looking at culture and stewardship, the reasons behind decisions and whether sustainability is in a company’s DNA. Aikya is a long-term investor and is not afraid to pay up for a high quality company.
After independent shops, multi-boutiques are arguably the next best thing.
Momentum invests with Artisan Partners’ global value team run by Daniel O'Keefe, who joined the US multi-boutique with a team from Harris Associates. Artisan’s investment teams operate their own profit and loss accounts and have access to ample resources.
“We were their first international client in their global strategy,” Hardy said.
Momentum was also the first international client for Mark Baribeau’s global equity strategy at Jennison Associates, which he joined in April 2011 from Loomis, Sayles & Co. Jennison is a multi-boutique owned by PGIM.
Even when Momentum does put money with a bigger player, Hardy still looks for focus, autonomy and alignment, the ability to attract and retain people, and resources to support investment teams.
For instance, he allocates to Robeco’s quantitative multi-factor strategies where the hallmarks he seeks are in evidence. That team is focussed on “doing one thing well” and has “great autonomy”, he explained.