Boutique Structure Yields Dividends
RidgeWorth Investments, a $50 billion institutional asset manager, has devised a boutique structure to relieve investment professionals of the drudgery of non-investment related functions, freeing them to manage money for clients.
Through multiple, style-specific boutiques, the company offers a wide range of equity, asset allocation and fixed income investment disciplines in a package that makes the most sense for each client.
RidgeWorth provides support to the boutiques, such as trading, compliance, technology, accounting, distribution and marketing. Each boutique has the freedom to leverage RidgeWorth for the areas in which it needs support, while maintaining functions that it is staffed to handle.
“We allow our portfolio managers to focus on managing assets, while the holding company manages many of the utility functions – legal, compliance, accounting, operations, finance and distribution for some of our boutiques,” said Parikh.
The boutiques under the RidgeWorth umbrella include Ceredex Value Advisors (value equity), Certium Asset Management (international and domestic equity), Seix Investment Advisors (fixed income), Silvant Capital Management (domestic growth equity), and Zevenbergen Capital Investments (high growth).
A $100 trillion global asset management industry is projected by 2018, provided the United States, which accounts for just less than 50% of global assets under management, continues to grow strongly, according to Cerulli Associates’ Global Markets 2014 report.
“The dark days of late 2008 and early 2009 may be well behind us, but there continues to be pressure on net revenues,” said Shiv Taneja, managing director at Cerulli, in a release. “Our five-year prognosis to 2018 is optimistic, but navigating the next couple of years could be a lot trickier.”
Ultra-low interest rates have had a major hand in boosting global financial markets. “Going into this year, general consensus was that the economy was going to take off, and we were going to get a rise in interest rates,” said Parikh. “The opposite has happened. We think that this ‘lower for longer’ trend will be in place for longer than the consensus.”
First quarter GDP growth rates were a downside surprise – a negative 2.9 percent. “We believe there will be some made up in the second quarter, but as you go into the back half of the year, things should be normalized, and we think normalized is not going to be 3 percent,” Parikh said. “We think we’ll have sub-3 percent normalized growth.”
RidgeWorth and its boutiques collectively manage approximately $50.1 billion, about half of which is held in mutual funds and the other half in separately-managed accounts. Over the years, the company has extended its distribution channels from its bank-holding company roots–it was spun off from SunTrust Banks in 2013–to encompass a network of third-party investment advisory firms.
“Initially, we were challenged with attracting third-party assets – assets that were sourced away from the bank, their private bank or their broker-dealer,” Parikh said. “As the bank made acquisitions, the firm continued to raise third-party assets.”
RidgeWorth has had great success in investment performance and in distribution – as demonstrated by its growth in third-party mutual fund assets (long-only assets) from $12 billion in 2008. Of that, 10 percent, or approximately $1.2 billion, was sourced at third-party channels, and the balance was in the bank channels. As of March 31, 2014, it had approximately $25 billion in mutual fund assets, of which over 90 percent are sourced at third-party channels.
Much of this growth can be attributed to the boutique concept and its resulting division of labor between the portfolio managers and the holding company.
“Our firm is unique because we want to design it through the lens of our portfolio managers – first, our portfolio managers want to perform their craft and do research and portfolio construction,” Parikh said. “Second, they want to be remunerated like entrepreneurs and be in alignment with their clients as they grow. And third, they want to keep the bureaucracy – or some of the other non-investment-related functions – to a minimum.”
Featured image via Sergey Nivens/Dollar Photo Club
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