Britannic Asset Management says forthcoming launch of Argonaut Capital - with Barry Norris and Oliver Russ - will be another means of delivering top-drawer returns for investors
It may be pretty innovative for an established investment house to begin setting up boutique operations, but Britannic Asset Management's Jonathan Polin insists it is the natural next step towards becoming a powerful multi-asset specialist.
The sales and marketing director says the company has embraced a number of key changes since the appointment of Gavin Stewart as chief executive last summer, including a restructuring of our investment floor and a new property unit trust, as well as two new hedge funds.
And Polin believes the forthcoming launch of Argonaut Capital - a European high alpha fund boutique with respected managers Barry Norris and Oliver Russ - will be another way of delivering top-drawer returns for investors.
"This strategy is the crystallisation of the re-birth of Britannic," says Polin. "There's a growing interest in operations where fund managers have a very significant equity stake, as well as the belief that it's difficult for flair to grow in a lot of large houses."
Britannic are to set up a London-based boutique that will be entirely autonomous and follow its own investment process and style. Within this arrangement, Norris and Russ will manage the new Europe (ex-UK) alpha fund.
While the managers will provide the intellectual capital and fund management, Britannic will supply the distribution, marketing capabilities and access to research, as well as all the operational, risk and compliance functions that form such a crucial part of the overall structure.
The new product is expected to be launched by Britannic at the beginning of May, subject to regulatory approval. It will be initially seeded with £20m from Britannic and made available to the retail marketplace.
"The objective is to have a concentrated portfolio and be able to significantly outperform its peer group over all time frames," says Polin.
"We're looking for a top decile performer over the longer term. We don't envisage it becoming larger than £250m because it's important clients know what they're buying. You have to be nimble to produce high alpha and that means running a relatively small fund."
Polin also has high hopes for the two managers. "They are both very good, have proved themselves in the market and bring with them a very impressive performance track record," says Polin.
"I knew they had the right balance between wanting to take ownership of something themselves and the passion for stock picking, managing funds and out-performing their peer group."
Looking further ahead, Britannic's aim is to use this new addition as the springboard for further launches.
A pan-European product is already in the pipeline - also to be run by Norris and Russ, while senior figures within Britannic are keeping their eye out for quality managers.
"The overall idea is to eventually have a village of boutiques," explains Polin. "It's a case of looking at opportunities as they present themselves and being able to react very quickly to them.
"I am interested in making sure we have cast our net wide enough to attract the very best fund managers that are capable of producing high returns and have a desire to work in a boutique environment."
However, he believes it is important not to become too overly ambitious from the start. There is no point in launching further funds unless you can be sure that the distribution channels are in place and they have a very good prospect of success.
"It's also critical not to have a plethora of products coming out of that boutique as that will dissipate the ability of the managers to perform in the area they are known - Europe ex-UK," he says.
"We want to slowly bed the portfolio down and then produce the pan-European fund when we think it's the right time."
A lot will depend on how global markets perform over the next couple of years and whether the sceptics can be lured back, after having become disillusioned with the lacklustre returns that have characterised the last five years.
"The problem for all asset managers is finding ways of re-engaging the retail investor," explains Polin. "After periods of bad markets and various scandals, many people are still too scared to take a chance. The industry needs to make sure it's developing and delivering products that do what they say and not over-promising. We must also steer away from any future, damaging scandals."
In the short term, it is unlikely to be helped by the market as a whole. "I don't think it's going to be a very exciting year and, in terms of investment returns, it's also likely to be pretty difficult," predicts Polin. "Most of us in the industry believe that the UK market is going to be fairly sideways driven during 2005."
In the wake of major issues such as depolarisation, Polin believes there are probably only two places where investment houses want to be at the moment. The first is to be a very large, global manager with proprietary distribution, and the second is in a niche boutique operation that is a high alpha, high margin business.
"You certainly don't want to be in the middle ground, without distribution, and with a balanced product that really is just one of the pack," he adds. "This space is going to be one area of the market where most of the consolidation will probably take place."
The Britannic group should certainly know all about making acquisitions. At the end of last year, it spent £110m on Cornhill Life, which has £700m of funds under management; then in early March this year it bought Century Group, the closed life funds operator, for £43.7m.
Overall, against this backdrop, the case for focussing attention on specialist boutiques appears to be even more compelling.
"Our key client base, which includes those running fund of fund products, discretionary managers and IFAs, all want to produce much better returns for their clients and we're trying to meet this demand," he says. "It means that we need to deliver more high alpha products to the marketplace."
For the fund managers themselves, working in a boutique-style environment can be very appealing, which is why so many high-profile names have made the leap in the last couple of years, with more expected to follow their lead.
Not all of them, unfortunately, will be successful. While a number have produced excellent performance figures, others face serious questions over funding arrangements and whether they are viable long-term businesses.
The obvious answer, points out Polin, is combining the most attractive elements of boutique operations with the benefits of a major investment house.
"You are giving them a leg-up into ownership of their own business without drowning them in all the difficulties, such as dealing with the regulatory issues and finding distribution channels," he says.
"For our part, we are getting access to some of the very best fund managers around and giving them the ability to flourish in their own businesses, within which we have an equity stake."
As far as Britannic Asset Management is concerned, however, the focus of the company is on driving forward its strategy of being a multi-asset player in what is becoming a very competitive marketplace.
While Polin concedes that the last few years have been rather less than spectacular for the business, he is adamant that the changes made over the past 10 months mean that it is better equipped to tackle the challenges ahead.
"The growth of companies is always cyclical, but I'm hoping to prove to people that we are now into the next stage of our development," he says. "We're out of the doldrums and moving forward very aggressively to build an effective business that delivers good returns, a good service and decent brands to the marketplace."
