National Australia Bank (NAB) has bought the remains of Insurance Australia Group's (IAG) Australian equities division and turned it into a boutique.

NAB's fund will be called Northward Capital and is the third boutique to be established in Australia within a week.

Former IAG managers Darren Thompson and Simon Rutherfurd will run the fund, which will be 51 per cent owned by NAB and 49 per cent owned by staff.

The investment is the first by NAB's recently formed direct investment management business, nabInvest, which aims to build a portfolio of boutique managers.

NabInvest will be run by NAB's current UK head Garry Mulcahy.

The move comes at a time when big financial institutions are haemorrhaging talented investment staff that leave to set up their own operations.

By establishing boutiques, that are part owned by staff, big institutions are hoping to hang on to talented managers.

Earlier this year Westpac announced plans to spin off part of its funds management arm, BT Financial Group, as a means to attract and retain experienced staff.

Some estimate that almost 500 boutiques now operate in Australia, many of which rely on bigger financial institutions for their administration and distribution.

NabInvest is not the only fund incubator to be launched in Australia recently.

Wilson HTM launched fund incubator Pinnacle in September 2006, which takes direct stakes in boutique funds and runs their administration and distribution.

NAB and IAG did not disclose the amount NAB paid for IAG's Australian equities business.