Maple-Brown Abbott is about to launch a small-cap fund as clients look to supplement low-cost passive investments with niche strategies that generate more alpha.
Ahead of launching the new fund, the boutique fund manager has nabbed two top small-cap portfolio managers from AMP Capital following the sale of its listed equities and fixed income business to Macquarie Asset Management.
Phillip Hudak and Matt Griffin joined this week.
"The opportunity to add this sought-after capability through the appointment of two highly experienced investment professionals is ideal for us," said Maple-Brown Abbott chief executive Sophia Rahmani.
"Small caps are an area of the market where it is difficult to find skilled managers who still have capacity," she says.
The talent spotter at the helm of Maple-Brown Abbott firmly believes that this is an asset class where active management has an important role to play in generating alpha in client portfolios. "Interestingly, it is asset class that has generally not been internalised by super funds."
So, given the intense competition for small company specialists, how did Rahmani attract the star portfolio managers?
Many people join a boutique because they want autonomy or a radically different culture from large asset managers.
"Culture is increasingly crucial to attracting talent. We've seen this in different industries around the world - people are looking for more than just a pay packet," noted Rahmani
"As a pure-play and privately-owned boutique with a long history, we are in a position to offer a culture which we think is unique and very special.
"We are client aligned, patient, and collaborative, focused on investment excellence and autonomy.
"Brand is critical in giving investment teams confidence that we can attract clients and act with integrity. Our remuneration structures allow us to align ourselves with client outcomes, with shareholders, and across the firm for success."
All of this means Hudak and Griffin can hit the ground running. "They can focus on what they do best - managing money for clients - without any delays or distractions," said the former head of strategy at Macquarie Funds Group.
The large superannuation funds that the boutiques relied upon for mandates are increasingly taking their management - particularly of local equities - in-house.
With so many super funds ditching their external managers, now more than ever, boutiques need a compelling argument that they have the specialist capabilities to deliver outperformance.
"Asset owners will pay for that, but the conviction must be far higher than before," Rahmani argues.
"Managers have to provide truly active and differentiated solutions to stay relevant. There is no room for mediocracy. They have to generate alpha."
The new appointments are a key plank of the firm's strategy to broaden its offering from three investment strategies to five to cater to investor demand for actively managed, differentiated strategies.
Maple-Brown Abbott has added global emerging markets to its core Australian equities, Asia equities, and global infrastructure. And, now small companies.
In the case of global emerging markets, Rahmani lured John Moorhead to Sydney last year, relocating from London, where he was head of emerging market equities with Pictet Asset Management.
She believes Moorhead came on board for the same reasons that Hudak and Matt Griffin did.
As with smaller companies, global emerging markets have provided strong alpha for clients.
Maple-Brown has also added two extension strategies - the Australian Value Opportunities fund and the Asian Dividend Growth Fund.
The former is a benchmark-unaware fund with fewer stocks and bigger positions. The latter is a bet that select Asian companies will pay attractive and increasing dividend payouts given the strong balance sheets and high levels of high free cash flow.
Both are differentiated offerings.
Rahmani is looking to diversify further, aware that all investment strategies fall out of favor at times and have periods of poor performance.
"We need the right amount of diversification to weather all the storms coming at us. The expansion of our offering over the past 12 months is part of a long-term strategy for business growth."
The challenge for Rahmani is how to diversify the business without trying to be all things to all people. And, without taking from the culture. "You don't want to be caught in the middle and lose the benefits of being a boutique," she explains
Her executive team has carried out a full review of the firm's operating platform to ensure that it is efficient as possible and scalable.
"Running an investment-grade platform requires consistent investment which in turn requires patient capital,' she explains.
When we identify solutions that align with our strategy and our clients' interests, we can add them relatively quickly and efficiently."
Boutique fund managers have found themselves in something of a perfect storm. Many are vulnerable; some haven't survived.
That makes complete sense to Rahmani who says these are the toughest markets she has ever seen. "There is less money for listed equity fund managers, the market is highly competitive, and fee compression continues."
From where she sits, the key to survival is client diversity. So, the firm continues to build its business on investments made by high net worth individuals, family offices, and advised clients, in addition to institutional investors.
More than half of Maple-Brown Abbott's clients are offshore investors. At least half are wholesale investors.
"They're a bigger focus now. They are critical to the business; it would be very risky to build a business solely around super funds."
Admittedly, asset owners have been busy managing through covid, Your Future, Your Super FYS, and in many cases, mergers.
"At the same time, incumbent managers have had their ear for the last two years, it hasn't been a priority for most funds to hear from us on new strategies. It's been tough to get their attention, though pleasingly that is starting to change," Rahmani adds.
She notes that HNWIs, family offices, and advised clients are generally long-term investors who are also seeking actively-managed differentiated strategies.
The same is true for the institutional clients offshore that the firm interacts with.
As for internalisation, in the final analysis, Rahmani says it is unclear whether it is a better model long-term and no one knows - including the asset owners and asset consultants - where it is going to land.
While the industry is moving toward internalisation, there are some notable examples of funds that have continued to achieve strong outcomes by sticking with external managers.
Managing assets-in house has been driven by the need to lower costs and a belief that an in-house team could match the performance of the outsourced model.
But as Rahmani sees it, there are additional benefits in partnerships with external managers.
Quite aside from the question of when asset owners stop getting scale benefits, she says part of the role of an external manager is to help with the challenges facing super funds and bring different perspectives.
"They've seen this first hand in their detailed work with clients on how they could meet their decarbonisation commitments, ESG disclosures, and potential impacts of performance tests in certain asset classes," she concludes.
"We are having these conversations with offshore clients and can bring insights to our local clients."