Those in charge of major investment funds are scared. It hasn't quite been blood on the streets this year, but major fund managers are licking their wounds as boutiques, in particular, wrench staff away with promises of equity and independence.
While managers continue to talk about how important a good process is to the running of their business, they ultimately know if high-profile money managers depart it can have a catastrophic effect, as researchers, dealer groups and planners start questioning the business model.
"Process will take you to a certain point; it will help you get through the loss of an individual, but more than one will always be keenly felt," Standard and Poor's director of fund ratings Mark Hoven says.
"If you have to replace more than one individual it means you are changing the culture and perhaps having to adapt the process."
Former UBS Global Asset Management (UBSGAM) head of Australian equities Paul Fiani left in early 2007 to form his own boutique, Integrity Investment Management. Portfolio manager Shawn Burns, head of research John Moran and investment analyst Marcus Truman signed up with him. UBSGAM also lost a $320 million Australian equities mandate with Victorian Funds Management Corporation in September and a number of others since.
GMO lost head of Australian equities Max Cappetta and head of equities research Anthony Corr in September. They left to jointly establish boutique Continuum Capital Management with former colleague Brett McElwee. The manager has lost a series of investment mandates as a result. The latest defection, and one of the first times that a whole team has been wrenched out from a major manager, involved Dennis Donohue pulling his nine-strong equities team from the newly-merged Tyndall/Suncorp business.
Donohue has formed a boutique called Solaris, which will be distributed by Wilson HTM-owned fund incubator Pinnacle Investment Management. It is the fifth boutique to be established under the Pinnacle umbrella since the firm was founded 18 months ago.
"There haven't been many big moves like Suncorp and it is unusual, but it speaks for the closeness of the team that they all went as one," Hoven says.
Pinnacle chief executive Ian Macoun says the trend is for big institutions to get out of investment management and for boutiques to take over.
"It's not necessarily a bad thing for institutions, their strength lies in distribution," Macoun says. "It's very hard to sustain good investment management teams in institutions. They don't create the right environment and staff can be frustrated by distractions. Managers blossom at boutiques, provided they have good support."
Acknowledging the power of the boutique, Macquarie is launching its own operation, Queen Street Partners. The new group will target institutional investors and focus on investing in early-stage boutique fund managers.
Some major fund managers have responded to the threat of boutiques, and each other, by putting structures in place in an attempt to equitise their managers.
Morningstar analyst Jason Darling says at the time of its initial public offering (IPO), international equities manager Platinum Asset Management was very open in letting the market know it was a way of hanging onto staff.
"Anyone who has had equity in a small fund manager, their wealth's exploded. Even though fund managers in the bigger shops are getting huge bonuses, there is nothing like getting equity in the shop itself," Darling says.
BT Financial Group has been the most high profile of these, with the group spinning off from Westpac. BT managing director Rob Coombe said the new entity would offer incentives, such as options, to existing and potential investment staff. "It creates a compelling model that will attract new talent into this business," Coombe said at the time the IPO was announced.
BT has had its fair share of staff leave this year. In February, head of alternative investments Richard Keary resigned from the firm with Australian shares portfolio manager Troy Angus.
The promise of incentives wasn't enough to keep one senior staffer around, with Keary's replacement, Al Clark, heading to Schroders in Singapore to head its $5 billion multi-assets team for the Asia-Pacific region.
