The FX industry’s volatility has been at a low for several years now. Combine that with the sheer amount of competition happening in the sector, and one can see that the largest share of lucrative deals have been eaten up. Due to this, dealers in the FX industry have started to look for emerging market and mid-cap transactions to try and fill the gap.

Rising Premiums For Boutique Managers

Cass Business School Asset Management, based in London, published research today that shows that there’s a “boutique premium” within the European fund management industry. This premium stands at 0.56% and 0.23%, depending on which methodology was used to calculate it.

This outperformance is highlighted, especially when one looks at the small- and mid-cap, as well as the global emerging markets fund sectors. These sectors have a net-of-fees boutique premium clocking in at 1% and 0.5%, respectively.

An Important Cover

Hedges protect purchasers against movement the FX sector does between the announcement of an M&A deal and the completion of it. Space’s increase in competition has seen the price of hedges drop down from 25% of the cost of an equivalent option, going down as low as 15%.

The term boutique premium was first coined back in 2015 by the AMG Group asset manager. It happened when they reviewed the performance of non-boutique asset managers to their boutique counterparts within the US sector. AMG itself promoted its brand as the “partner of choice to the world’s leading Alpha-Generating Boutique firms.”

Boutique Firms Considered Specialist

Cass Business School Asset Management, through Professor Andrew Clare, did some research, thought to be the first of its kind, regarding boutique asset managers. As such, he stressed that research in the future should focus on facets like the ownership structure of boutique managers, their portfolio construction, as well as the factors behind the Boutique premiums.

Tim Warrington, the chairman of the Group of Boutique Asset Managers, or GBAM, had a comment about the matter. The man, who Clare used to help identify boutique firms, stated that these results were unsurprising. Simply put, he described boutiques as highly motivated, smaller in scale, and specialized in trying to outperform consistently. While they do so, Warrington explained that they were actively trying to align their interests with the client.

Warrington explained that this premium could increase as time goes on. This, in turn, could mean that investors would be capable of garnering significant returns, but far more needs to be done by both fund platforms and advisors to expose these benefits.