Consultant Trends Toward Boutique Names

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Independent consultants, a fixture of the defined benefit business but now an increasingly large part of the subadvisory market, are leaning toward recommending small boutique firms for subadvisory mandates.

This article appears courtesy of Institutional Investor
Source: Fund Action

Independent consultants, a fixture of the defined benefit business but now an increasingly large part of the subadvisory market, are leaning toward recommending small boutique firms for subadvisory mandates. David Katz, partner at Rocaton Investment Advisers, said he likes to work with smaller boutiques, which often have an incentive ownership structure that favors long-term employment of portfolio managers and other key staff. He added that larger firms can often shift their investment and focus from one area of the firm--the area that may be a third-party's subadvisor--to another more promising area. "Boutiques can't do that," he said.

Stacia Ikpe, director and senior research analyst at Prudential Investments, said the firm works with both big and small managers, although she stressed that she also likes the incentive structure at many small firms. Another consultant said he looks to undiscovered managers as well, in part because these are often the more difficult managers to assess and this is where he can add an unbiased opinion. Katz added that 80% of his ratings are qualitative, essentially an assessment of people and a firm's ownership structure.