Looking to Beat a Benchmark? Active Boutique Managers May Offer an Opportunity

Kevin T. Cooper, CFA®

Vice President | Head of Investment Research

The merits of active investment management have been debated for nearly 50 years. Since the global financial crisis, criticism has intensified, with many reports broadly characterizing active managers as lagging their benchmarks.

In considering this long standing debate, investors may want to delve a bit deeper into the research. The findings may not be as straightforward as they seem.

Worth a Second Look

The vast majority of this research simply groups all active managers together when comparing them to indices. Unfortunately, this kind of sweeping generalization can be problematic. After all, individual investors don’t entrust their wealth to all active managers. Instead, they’re searching for a subset of managers that may be best-positioned to outpace the market on a consistent basis.

That’s why, rather than trying to explore the merits of all active managers, we set out to examine the performance of certain segments of active managers—specifically, boutique active managers.

Boutiques Created Significant Value Versus Indices

To explore this point, we recently revisited a proprietary study analyzing the performance of active boutiques across nearly 5,000 institutional equity strategies. Our analysis spanned a 20-year period from 1998 to 2018 and included 11 different equity categories of varying market capitalizations, styles, and geographies. (see About Our Study below)

Our results stood in sharp contrast to industry reports, which have generally concluded that the majority of active managers have underperformed. Instead, we found that boutiques have outperformed benchmarks, even when factoring in fees. While results varied, the average boutique strategy surpassed its primary index—in 11 out of 11 categories over the trailing 20-year period net of fees.

Source: AMG proprietary analysis and classification of firms and strategies. Firms represented include AMG Affiliates. MercerInsight® database utilized for return data.  Analysis based on rolling one-year gross returns for institutional strategies during trailing 20-year period ending 3/31/18. Past performance is no guarantee of future results.


Across the stock categories we examined, boutique managers delivered net returns that eclipsed their indices by an annual average 135 basis points*. What’s more, the gap was persistent. The average boutique strategy outpaced its primary index more than half of the time (57%) over two decades across all categories we studied.

Get a Boost from Boutiques

Fortunately, selective investors around the world are increasingly recognizing the ability of focused boutique active investment managers to outperform both indices and their non-boutique peers. How can other discerning investors identify those likeliest to generate above-market returns? Our study uncovered several key traits to look for:

  • Principals have significant direct equity ownership, helping to ensure alignment of interests with clients
  • Presence of a multi-generational management team, fully engaged across the business
  • Entrepreneurial culture with partnership orientation, which attracts talented investors
  • Investment-centric organizational alignment, including careful management of capacity
  • Principals are committed to building an enduring franchise, embedding an appropriately long-term orientation


The debate over active versus passive investing is far from settled, but boutique managers have earned the right to be judged on their own merits. Lumping them in with all active managers obscures their distinctive record. It’s a disservice to them—and investors.

About Our Study

On average, the assets under management of those we classified as boutiques were $6.4 billion versus $134 billion for non-boutiques. Setting the limit at $100 billion allowed us to cast a wider net, but we also tested our analysis using $75 billion and $50 billion as an asset threshold. The differences were minimal, with a very small number of funds no longer qualifying.**

Some additional points on our methodology:

  • We used data from the MercerInsight® global database—which enables comprehensive analysis of institutional track records on more than 6,000 managers and 32,000 strategies.
  • We analyzed 1-year rolling returns for the 20-year period ending March 31, 2018: 1-year returns gave us a much larger sample size than if we had used rolling 3-year, 5-year, or 10-year.
  • Gross returns were used when comparing the boutiques to the non-boutiques, since the fee rate differential between the two groups was minimal. 


 For more information about our study or our definition of boutiques, please click here

*Basis point is equal to .01%

**Source: AMG proprietary analysis

Important Information: This material has been prepared by Affiliated Managers Group, Inc. (“AMG”) and is provided for informational purposes only. This material is only directed at persons who may lawfully receive it, and you should satisfy yourself that you are lawfully permitted to receive this material. AMG is in the business of making investments in boutique investment management firms, and is not in the business of providing investment advice. This material is not intended to be relied upon as a forecast or research and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy, nor is it investment advice. The views and opinions expressed in this material are those of AMG, are as of the date hereof and are subject to change based on market and other conditions and factors. AMG makes no representation or warranty as to the accuracy of the data, forward-looking statements or other information in this material and shall have no liability for any decisions or actions based on this material. AMG does not undertake, and is under no obligation, to update or keep current the information or opinions contained in this material. The information and opinions contained in this material are derived from proprietary and non-proprietary sources considered by AMG to be reliable but may not necessarily be all-inclusive and are not guaranteed as to accuracy. Past performance is not a reliable indicator of future performance. In addition, forecasts, projections, or other forward-looking statements or information, whether by AMG or third parties, are similarly not guarantees of future performance, and inherently uncertain, are based on assumptions at the time of the statement that are difficult to predict, and involve a number of risks and uncertainties. Actual outcomes and results may differ materially from what is expressed in those statements. Any changes to assumptions that have been made in preparing this material could have a material impact on the performance presented herein. No part of this material may be reproduced in any form, or referred to in any other publication, without our express written permission.

MercerInsight provides information about investment managers and their products together with analytical functionality and is not intended to constitute advice, a recommendation, or an offer to buy or sell a specific fund or investment. Through MercerInsight, Mercer is not acting and has no intention of acting as a broker, dealer or other intermediary in connection with the purchase or sale of any fund, investment or other financial instrument. The information is not intended as a specific recommendation of any particular investment manager.

Nothing contained within MercerInsight is intended to convey any guarantees as to the future investment performance of managers or products. In addition, past performance cannot be relied upon as a guide to future performance. The value of your investments can go down as well as up, and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. Certain investments, such as securities issued by small capitalization, foreign and emerging market issuers, real property, and illiquid, leveraged or high-yield funds, carry additional risks that should be considered before choosing an investment manager or making an investment decision.

MercerInsight data has been prepared based upon sources, information and systems believed to be reliable and accurate. Mercer, its affiliates, and its service providers make no representations, and disclaim all express, implied and statutory warranties of any kind to you or any third party, including, but not limited to, representations and implied warranties of quality, accuracy, timeliness, completeness, merchantability, fitness for a particular purpose, non-infringement of third party rights, or ability to achieve a particular result. Mercer does not warrant the use of MercerInsight in any specific situation or for any specific application or that the data will be error free. Mercer, its affiliates and its service providers assume no responsibility for the consequences of any errors or omissions. You, and not Mercer, assume the entire liability and responsibility for data or assumptions entered into any parts of the software that have the functionality to receive user data and for any presentations or conclusions drawn from such data or assumptions or analysis results.

This document is distribiuted by AMG Funds LLC ("AMG Funds"), which is the U.S. retail distribution arm of AMG. AMG Funds is registered as an investment adviser with the Securities and Exchange Commission and as a Commodity Pool Operator with the Commodities Futures Trading Commission, and is a member of the National Futures Association.


Kevin T. Cooper, CFA®

Vice President | Head of Investment Research

PUBLISHED: May 7, 2019

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