The internal functions of an asset management organization are similar across organizations, even if the way individual roles are defined are likely to vary between firms. However, differences between the types of business managing mutual funds are much more apparent. Some of these aspects overlap, but it is still helpful to be aware of a firm's size, parent company, ownership, and operational structure when comparing firms. After exploring these considerations, the chapter will then move on to explain the value chain in which fund management businesses sit, their associated costs, revenues and profitability.

Boutiques vs Behemoths

It is possible to set up a fund management business with relatively few resources. Improvements in outsourced services and technological advances have made it eminently feasible for those with knowledge and experience of the industry to get a business off the ground. (Making the business a financial success by attracting clients is a different matter, which will be discussed later). The lack of office infrastructure and reliance on those providing services externally was put under pressure through the pandemic and proved resilient. Traditionally the greatest barrier to entry for the UK and European funds industry was deemed to be regulation, but many small firms say that even this is not the hurdle that it once was.

The large number of small asset managers – commonly referred to as investment boutiques – is a pronounced feature of the industry. There are more than 1,650 firms managing mutual funds with less than €20 billion in assets under management and so rank outside the largest 100 firms in Europe. Many of these firms remain profitable despite their relatively small size (see Figure 3.1).

Smaller firms tend to limit the range of products they manage and offer to clients, feeding into the perception that boutiques are more focused in their approach to investing. This is reflected in some academic research showing that there is a “boutique premium”, in other words that fund managers at smaller, standalone investment firms perform better than other businesses (Clare 2020). In some countries, the development of boutique asset managers is more pronounced, for example, France often promotes its credentials and the number of investment boutiques active in the market.

It is largely as a result of the belief that investment managers work better in small teams and should determine their own implementation of investment strategies that some large asset managers adopt a so-called multi-boutique model.