What Is a Boutique?
A boutique is a small financial firm that provides specialized services for a particular segment of the market. Boutique firms are most common in the investment management or investment banking industries. These boutique firms may specialize by industry, client asset size, banking transaction type, or other factors to address a market not well addressed by larger firms.
Bulge bracket is a slang term referring to large, multi-national investment banks that traditionally focus on the needs of big corporations. Boutique firms, on the other hand, tend to specialize in meeting the investment needs or banking needs of smaller companies, companies in specific industries, or provide niche services.
- A boutique firm is a small financial firm offering specialized and personalized investment management, banking, or niche financial services.
- Boutique banking firms usually handle deals of less than $500 million.
- A boutique bank may offer its bankers more autonomy to operate than they would be able to in a large or “bulge” firm.
- Small boutique banks depend on creating strong customer bonds and networking to maintain key connections.
- Working at a boutique firm offers an alternative for finance professionals who are looking for something different than a large-firm experience.
How a Boutique Works
Smaller players in the financial segment may prosper by positioning themselves to serve a specific niche. Although they may lack some of the resources of larger firms, boutique firms aim to offer more individualized services and tailor their offerings to the needs of their clients.
In fact, this ability to provide individualized service is often the competitive advantage boutique firms tout when comparing themselves to their larger competitors. Because boutique firms often work and find new clients in a relatively small-sized market, they don't have to compete with larger firms with more resources.
Boutique firms are often founded by former employees of larger firms who wish to strike out on their own.
According to a study performed by Affiliated Managers Group, Inc. (AMG), boutique investment managers have outperformed in a number of key measures since the mid-1990s, providing investors with a superior value over the long term. The AMG study covered nearly 5,000 institutional equity strategies from March 31, 1998 to March 31, 2018.
Boutiques outperformed non-boutiques in nine of 11 equity product categories on an annual basis by 62 basis points (bps). Investors investing exclusively with boutiques would have enjoyed a 16% greater return on investment (ROI) than non-boutique investors.
Boutiques have significantly outperformed the benchmark indices. The typical boutique investment strategy has outperformed its benchmark index in all 11 equity product categories annually by 135 bps.
Boutiques often hire portfolio managers across different industries in order to provide their clients with a more holistic perspective and the ability to specialize in specific niches.
Examples of Boutique Investment Banks
Boutique investment banks are growing in size and stature. Based on market capitalization, the four biggest boutique banking firms in the U.S. in 2021 were Lazard Ltd., Houlihan Lokey Inc., Evercore Inc., and PJT Partners Inc. Other prime examples are Jefferies, a boutique investment bank renowned for healthcare sector expertise and FT partners, one of the most active investment banks in the Fintech space.
According to industry sources, the top boutique investment banks in 2021 were:
- Allen & Co.
- Perella Weinberg
- Greenhill & Co.
- Houlihan Lokey
Finance professionals who start boutiques have a vested interest in ensuring their firms succeed and are prepared to commit large amounts of time and capital for long-term growth; this aligns the boutiques' and investors' interests.
Entrepreneurship characterizes the culture of many boutique firms, which attracts talented investors and portfolio managers who are often known for their investment prowess. Boutiques often have a partnership structure, allowing their cultures to be nimble, encouraging innovation and responsiveness.
What Is the Difference Between Boutique and Bulge-Bracket?
In the context of investment banking, bulge bracket refers to the largest such institutions in the world which regularly handle multi-billion dollar deals. Employee satisfaction and hand-holding through the dealmaking process, however, is not always a top concern. Boutique investment banks tend to specialize in particular areas or sectors, and give more personalized service to their clientele.
What Are the Categories of Boutique Investment Bank?
Boutique investment banks can be broken down into categories:
- Elite boutiques (EBs) are at the top of their game, often advising alongside bulge bracket banks on important deals.
- Up-and-coming boutiques are those that are gaining in stature and approaching EB status.
- Regional boutiques focus on specific geographical areas, such as Boston, Greater NYC, Silicon Valley, or Hong Kong.
- Industry-specific boutiques specialize in a particular industry sector or product niche, for example fintech or healthcare.
Who Are the Bulge Bracket Investment Banks?
The bulge bracket investment banks are the largest international financial firms including the likes of Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citibank, BofA Merrill Lynch, Barclays, UBS, Deutsche Bank, and Credit Suisse.