Alpha goes to the small, say institutional investors
Perception that bigger investors are hampered by bureaucracy, time inefficiencies.
Large asset managers just aren’t up to the task of providing investors with alpha. Instead the small and nimble are better positioned to deliver.
That’s according to new research from CoreData, which finds that 90 percent of institutional investors globally believe that smaller boutique firms are better able to deliver returns than the big guns, which, they think, are held back by bureaucracy (65 percent) and a more risk-averse stock selection process (42 percent).
In addition, 39 percent say that big firms’ centralized power structures build time inefficiencies into the process, while 24 percent say large asset managers rely on less innovative solutions that hold them back in their ability to deliver returns.
And while 80 percent of institutional investors say they’re either not concerned with a firm’s size or would actually seek out a boutique firm if searching for an active manager, 90 percent of those who say that higher alpha is an essential factor in choosing a manager prefer to work with smaller firms. Only a quarter look for brands when selecting a firm, while 60 percent rely on reputation and a firm’s fiduciary record.
Specialization and/or a niche approach attracts 53 percent, while access to different asset classes is important to 50 percent and 33 percent consider the management fee structure.
While investors look upon technological and digital disruption (52 percent) and M&A activity (46 percent) as the chief opportunities available for asset managers, they have a distinctly different view of passive investments and regulatory change, which are seen as challenges by 46 percent and 44 percent of investors, respectively.
In addition, 61 percent see a future recession as a threat for active managers, not an opportunity.
Other factors respondents say weigh on larger firms’ ability to bring home larger returns are tougher regulation requirements (23 percent) and an overall client profile that limits managers’ fund selection (9 percent).
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