(March 5, 2014) – Institutions’ ever-increasing share of the managed capital pool has made the asset management industry tougher than ever for start-up operations.
But that hasn’t stopped entrepreneurs from trying. The venture capital sourcing website AngelList featured a total of 246 investment management start-ups at last count.
For the likes of Hedgeable (“the Next Generation Vanguard”), Pirate Dashboard, and Bolt Venture, successful boutiques had one major piece of advice: institutionalize.
A survey of 200 established managers in 38 countries identified institutional quality requirements as the industry’s greatest barrier to entry. London-based SunGard Asset Management conducted the survey in 2013, and found marked changes from its prior results. Institutionalization was named third in 2012, after operational costs and regulation, but surpassed them to become “by far” the biggest hurdle today.
“For scale and sustainable growth, a boutique needs institutional investment,” SunGard said in its report. “Today, this is all but impossible without institutional-grade operations… Reputation is as much about robust operations as it is about strong performance.”
The operational requirements of serving institutional clients should be factored into a start-up’s earliest plans, the respondents advised. This would include robust infrastructure for compliance and reporting, as well as the expertise to leverage it. On the upside, technology has reduced the cost and man-hours required for these operations.
More than half of the managers surveyed (57%) agreed that the transaction technique of straight-through processing is the “key to operational efficiency.” The market has been rife with vendors offering compliance and data management services, and many respondents encouraged young organizations to take advantage of them.
“Outsourcing is definitely the way to go in order to focus on core competencies and provide a scalable platform for significant growth,” said one New Jersey-based boutique manager. “But don’t be afraid to overstaff (administratively) in the beginning.”
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