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.
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. Boutique firms are often founded by former employees of larger firms who wish to strike out on their own.
- Boutique banking firms usually handle deals 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 from a large-firm experience.
Boutique investment managers have outperformed in a number of key measures since the mid-1990s, providing investors with superior value over the long term. Boutiques have outperformed non-boutiques in nine of 11 equity product categories on an annual basis by 51 basis points (bps). Investors in boutiques have enjoyed an 11% greater return on investment (ROI) than non-boutique investors. 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.
Boutiques often hire portfolio managers across different generations to provide a more holistic perspective and the ability to specialize in specific niches.
Boutiques have significantly outperformed the benchmark indices; the typical boutique investment strategy has outperformed its benchmark index in nine of 11 equity product categories annually by 141 bps. The best-performing boutique strategies, which include top decile and top quartile, returned a cumulative total of 1,722 bps after fees.
Example of Boutique Investment Banks
In the first half of 2015, boutique investment banks captured 16% of U.S. merger and acquisition (M&A) activity; they have consistently taken a larger share of M&A activity since the global financial crisis in 2008. This may be due to the large number of boutique financial service firms that were established over that period. Prominent boutique investment banks include Centerview Partners, Liontree Advisors, and PJT Partners.
Finance professionals who start boutiques have a vested interest 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.