A boutique is a small financial firm that has a deeper specialization regarding the asset size of clients, type of investment, industry and so on which is not looked into in-depth in larger investment firms. The success of boutique strategies will depend on the vested interest the firm has and they will focus on the long-term growth of the clients by putting in time and capital.
These companies go through a meticulous process in which to select a boutique fund manager who will be able to implement the investment strategy of the fund and manage the portfolio trading activities. There can be more than one manager as well. When you are an investor, you need to look at the strategies of the fund managers and their investment style before you decide to be a part of it.
Boutique businesses provide a larger commitment to their investments as they are investing alongside their clients and they especially concentrate on long-term returns. The interests of the investors and the fund management businesses are the same so there is more incentive to protect the interests of the clients.
Boutique businesses can bring in good talent into the company as there is added incentive for employees to benefit from the results of their performance. These boutique investment managers will not be able to rely on a larger band or network in difficult times so they are hyper-focused on how to deliver high performance on the investments offered. It is a very result-oriented system.
When there is no larger corporation behind the investment, there is more flexibility for employees to make decisions on the fly. The reaction time will be faster and the boutique business will operate with more clarity. Because of these reasons, there is more possibility of asset managers generating good long-term returns. You can also look at the success rate and the history of the boutique businesses before you make a decision.
However, there are some drawbacks to investing in boutique businesses as well because when the company is smaller there are some unique challenges to face. The profit margins will be under pressure at all times but this can be a good thing as well. The client will have a better outcome because of this. But when the margin pressure increases, the businesses need to scale up their assets in order to sustain themselves. If the company is unable to scale, it will not be able to survive.
So you need to look for boutique businesses that are very versatile and flexible. Because there is no strong network that larger investment corporations have, there is no support network for the business to fall back on. So it will be difficult to weather loss of assets. You need to have the right team size with the right mix of expertise when it comes to functioning in small teams. You need to find a balance when it comes to selecting a boutique business. The boutique business should be small enough that it can react faster and make fast decisions regarding the market and it should be big enough to have sufficient resources as well to weather the challenges of the market.