Boutique investment houses can add some spice to your portfolio. They’re all about bringing something with sizzle to the diversification table.

Size and product set boutiques apart from the big boys. Unlike the big firms, they tend not to compete with each other because their niches rarely overlap. An investor can build a portfolio by sampling a bit from this boutique and a nibble from that one. They’re like investment’s version of a tapas var.
For example, Brook Asset Management and Fisher Funds focus on equities while Kinloch Funds Management homes in on emerging property.

However, starting small doesn’t mean staying small. Kiwi Income started as a boutique and relative newcomer Liontamer has a split personality. Backed by Belgian bank KBC – with $3 billion in assets – it can tap into the resources of a big company while keeping its independence.

That independence allows it to be nimble, says managing director Laetitia Peterson. The company can bring out a fund in six weeks, without cutting any corners. In five years, KBC will have full ownership of Liontamer, but it will keep its boutique status by offering only the European bank’s star funds to its New Zealand clients.

Boutiques aren’t seeking to be the core of a portfolio, but to add choice and diversity. “We just want to bring in something different,” Peterson says. Liontamer’s niche is capital-protected funds and thematic funds, such as alternative energy or water. On the day of her interview, Peterson had been to a seminar on climate change in preparation for the launch of a fund on that theme.

Kinloch is focusing on property in international emerging markets, such as India. Financial advisers recommend property comprise about 15% of a portfolio and the company is aiming to win about half of that market for its fund.

“If an investor puts money in this fund, it gives him diversification,” says Neville Todd, joint managing director of Kinloch with Mark Petersen. The company plans to add other specialised property funds.
Boutiques tend to have older, more knowledgeable clients because they tend to attract high net-worth individuals. Milford Asset Management and Aspiring Asset Management both have $100,000 minimum investment in their funds and Elevation Capital has a minimum of $250,000. But many are structured so they can welcome mum and dad clients as well.

Kinloch is targeting institutional investors with its just released Emerging Markets Property Securities Fund, but it isn’t shutting the door on retail investors with $10,000. It will deal with investors directly as well as financial advisers and consultants. In contrast, Liontamer deals only with financial advisers, who recommend Liontamer’s products to their clients, but it aims at retail clients with net worth from $5,000 to $5 million.

Changing the face of the financial market are PIEs (portfolio investment entities) and KiwiSaver. Boutiques react to them differently from the bigger companies.

For example, neither Liontamer nor Kinloch offer KiwiSaver accounts. PIE doesn’t fit into Liontamer’s mix, either, because it offers Australian Unit Trusts. Liontamer has about $300m under management.
Milford, which has $260m under management, is offering a KiwiSaver account, somewhat in contrast to its high-entry funds but it complements the firm’s offerings. “In 10 years it will be the No 1 game in town, unless a National government changes the rules,” says executive director Brian Gaynor.
He note Milford offer a wide range of asset classes, allowing it to restructure its funds to fit the market. If the market calls for more bonds than equities, it can adjust. “We can change from aggressive to defensive to fit the times,” Gaynor says.

With smaller investment houses, it is definitely the people who make them successful. Usually the principals will bring established reputations to boutiques. Experience is part of Milford’s point of difference, Gaynor says. In difficult times for the market “we’re seeing a flight to experience at the moment”, he notes.

Bad times have a tendency to be “marginally better” for Milford. “People seek us out more,” Gaynor says. They are more worried about their money and don’t want to make a mistake. But don’t get him wrong, Gaynor would rather have a booming market.

In many boutiques, the advisers are also investors and owners. For example Elevation Capital requires its executives to invest a portion of any performance-based remuneration back into its fund each year. Gaynor stresses ownership is huge because what is good for the client is good for the company. Boutiques are likely to work that much harder than an employee might, he said.

Because of their size, boutiques need to work harder to reassure people their money is safe. They tend to make a greater effort to be transparent, Todd says. You need to make a real investment case to attract customers, he added.

Starting a boutique is not for the faint-hearted. It’s when they are most vulnerable and must do the hardest selling job to attract investors to an unknown quantity. It’s the brave soul who chooses to put in money but it can be rewarding for investors and managers.