Institutional boutique asset managers are facing a range of obstacles next year, from the rising cost of doing business, to risk transparency and investor confidence, according to a survey conducted by SunGard.
The SunGard Asset Arena 360 Boutique Asset Manager survey found that for boutique funds, being owner-operated ranks among the top drivers of success. But SunGard also noted that 49 percent of its respondents attribute the rise of boutique funds in part to a reaction against large funds.
Generating steady investment returns and the ongoing Eurozone crisis are also among the obstacles that can make or break boutique firms next year, the survey said. SunGard added that 60 percent of the respondents said large funds enjoy economies of scale, while smaller asset managers are profitable on fewer assets since they offer more unique products which enables them to charge higher fees.
Meanwhile 90 percent of the respondents told SunGard that they're looking to technology to help their businesses meet growth challenges and satisfy increased demands.
"Asset managers are faced with the challenge of trying to achieve scale and staying focused on their area of expertise," said Adam Sussman, Tabb Group's director of research. "This has been particularly true as institutional investors continue to consider investments with specialized investment managers that can offer exposure to specific growth strategies."
Sussman added that this has given rise two a two-tiered marketplace, with large multi-service asset managers controlling the lion's share of activity, with the leftovers going to niche players, including independent boutiques. 70 percent of respondents said an "hourglass" or "Big Squeeze" phenomenon is underway, in which middle-market players are increasingly marginalized, which will likely continue to reshape the marketplace.
Nevertheless, the smaller players still need to meet the same due diligence criteria as larger firms "before they win a significant mandate," Sussman said. As for startup firms, SunGard's survey said the top five barriers to entry are operating costs, regulation, the burden of due diligence and compliance, the ability to show institutional grade control systems, and IT investment.