managers can and do outperform passive strategies—but only if they are focused,
disciplined, and retain a single investment process, according to Northill
“The average outperformance relative to benchmarks has been more than sufficient to fully offset the impact of institutional fees.”Managers “focused
on a single core skill set” were shown to have “significantly” outperformed managers
from generalist firms and passive funds over five years ending 2015.
“In many fields of human endeavor specialization
results in superior performance,” Northill’s report stated. “The same truism
applies to asset management. Our research demonstrates a clear and persistent
link between the managers who focus on a single core skill set and their success
in delivering outperformance for their investors.”
provides start-up capital to investment boutiques—compared the performance of
more than 2,000 active US equity funds. The “most focused” funds—defined as those
with a single investment process and a disciplined approach to capacity—added 116
basis points of performance a year above their benchmarks, Northill reported.
effect was similarly evident in European equities, emerging market equities,
and to a lesser extent in global equities, Northill found.
“The average outperformance relative to benchmarks generated
by the most focused managers has been more than sufficient to fully offset the
impact of institutional fees on performance in each of the asset classes we
have examined with the exception of global equities,” the report continued.
“Average” active managers in US fixed income,
global equities, and US equities failed to outperform their benchmarks after
fees during the period reviewed, Northill found.
“In truly focused active asset management
firms all professionals work as one team to deliver the best possible
investment results,” said Jon Little, partner at Northill Capital. “The key
decision makers also tend to hold a meaningful proportion of the firm’s equity.
Their success and the long-term value of the firm are defined solely by the
outcomes delivered for all clients.”
management firms with multiple strategies, processes, and asset classes risk becoming
“sidetracked” from investment performance, Little argued. “These tensions
destroy teamwork, damage firm culture, and distract investment professionals,”
contrast, a clearer alignment of interests between asset owners and specialized
managers “maximizes the probability that investors will achieve long-term
successful investment outcomes,” Little argued.
Capital’s full report, “Nowhere
to Hide: Focused Active Asset Managers Outperform.”
Not-So-Special Specialists & The
Asset Managers of Downton Abbey