Thirst for Risk Drives European Boutique Launches

Asset management start-ups are on the rise, thanks to an increased appetite for riskier strategies, managers say.


The flood of boutique asset managers launching in Europe is a reflection of soaring demand for riskier strategies that enhance the so-called cheap beta returns dominating portfolios, according to some of the fund managers behind the trend.

Russ Oxley, a well-known fund manager in the UK; Pascal Duval, the former EMEA CEO at Russell Investments; hedge fund star Michael Cowley; and respected Spanish value investor Francisco García Paramés are among the high-profile names planning new ventures. (Michael Cowley did not respond to a request for comment. Francisco García Paramés could not be reached for comment.) Oxley had joined Old Mutual Global Investors in 2015 to head up the rates and LDI team after building a £4 billion ($4.9 billion) absolute return government bond fund for Ignis, the UK fund group later acquired by Standard Life Investments.

But, having joined OMGI in April 2015, he surprised some market commentators by departing just 14 months later. He is now putting in the ground work for a project that he says “may, or may not, lead to a fund launch.”

Oxley says “challenging market conditions” are encouraging stewards of capital to choose a mixture of cheap beta and diversified alpha strategies for their portfolios.

“Setting up on your own allows you to build things expressly for the purpose of client welfare and design everything you need to maximize a client return,” he explains. “The industry is struggling with fee compression in traditional active management. This is being eroded further by the growth of passive.”

He suggests that the response to that should be an increase in risk appetite on the active management side. “Existing mandates and [incumbent manager] set ups are not necessarily well placed to increase that risk appetite,” he says.


Oxley instructed his legal team in Scotland to register the brand “Avrox” with the UK’s Intellectual Property Office in anticipation of a launch, and has, so far, given scant details of any strategy, stating only that there are “attractive opportunities in liquid alternatives.”

Pascal Duval, the former chief executive of Russell Investments’ EMEA operation, is another globally-renowned figure branching out on his own. He agrees with Oxley’s assessment and says institutional asset management will become increasingly tricky for established players.

“Large asset owners across the globe are trying to cut costs,” he says. “They are cost focused, both internally on how they run their operations but, also, in how they use external managers.”

Duval highlights local authority pension funds in the UK and the so-called insourcing at sovereign wealth funds as examples of the changing institutional investment landscape.

“There will be less money around and there are too many people competing for that money,” he says. “There are price pressures, and there is a tougher regulatory environment.”

Duval left a 22-year career at Russell in October last year. At the start of 2017, he announced he was setting up Duval Capital, a business with a solutions arm to assist wealth managers meet return targets and an advisory arm for institutional clients.

Like Duval, Oxley advises investors to ask tough questions of their active managers. Specifically, he says there are three things to look for: First, are they paying more than 20 percent for the risk that is being run in total? Second, is the manager running the stated level of risk? And finally, is the manager any good?

While it can be daunting for established individuals to walk away from careers at global financial behemoths, there are plenty of success stories.

During the global financial crisis — a week before the demise of Lehman Brothers — specialist fixed income manager 24 Asset Management set up shop in the form of a partnership between a handful of financial professionals. Today it manages £9 billion in assets.

Mark Holman, the firm’s chief executive, said investors can certainly benefit from the nimble application of ideas within boutique fund firms, but he warns that clients expect the execution of ideas “not to look or smell any different than they would at a large firm like Pimco.”

Holman, a former managing director at Barclays Capital, agrees that the current extended market cycle, where beta performance has been okay, means more is being asked of active managers. He says talented fund managers who have the confidence to go it alone need only a “catalyst” to get started.

“The founding partners at 24 had one thing in common — we had all worked for large institutions our entire working lives,” he says. “In a large firm, interference can be quite a large percentage of your working life. But potential minus interference equals performance.”