By Peter Douglas, GFIA
At an aggregate level, it’s still a very tough world out there. No manager we’ve spoken to this year has said anything except “asset raising is hard”. Even if there’s a mini-renaissance, the number of allocators globally that are prepared to write tickets to smaller managers remains far smaller than five years’ ago.
But we’re seeing some stability, and the better managers are gradually attracting some assets back. As boutiques with limited appetite for scale, some are closing or close to closing. The characteristics of the success stories are generally comparable (happy families all look alike!).
The longer experienced managers, that have ten-year track records and a history of riding storms, are at the front of the line. Unsurprisingly, for many investors, if they’re to take the perceived risk of allocating to small managers, they want the comfort of longevity and reputation. Ward Ferry, Quest, India Capital… all are seeing some resurgence.
A distinctive strategy that has some track record but little competition. Many of the Asian fixed income strategies fall into this camp, as do some of the relative value managers. Delivering a risk/return profile that is not only successful, but uncorrelated within its universe and hard to find, is a good way to be noticed. Hence managers like Serica, MNJ,
and Northwest are gaining traction.
Finally, value for money! Much of the reason for the resurgence in unconstrained long managers that we’ve remarked on frequently, is that, in Asia, good stockpicking (in inefficient markets) is a reliable source of alpha, delivers beta in a part of the world that is delivering economic growth and hence generally rising asset values, and is half the price
of a hedge fund. Ask Arisaig, One North, or Albizia.
Generally the prime brokers, lawyers, and administrators out there are busy and the pipeline appears to be reasonably full.
We still believe that the industry is stressed. By number of managers out there, the majority remain stressed and unprofitable. A renewed bout of uncertainty resulting in an evaporation of investor risk appetite would hit the smaller managers hardest. And fees are clearly coming down as large investors’ bargaining power meets the clear oversupply of choice in the industry. But we are more positive than we were twelve months ago that there is a future for the best of the boutiques in Asia.