Strategy

Manchester’s Big Move: Boutique MFO Tackles Manhattan Market

Charles Paikert New York 19 May 2011

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Can a thirty-year-old multi-family office with $1.8 billion in assets under management make the leap from Main Street in Manchester, Vermont to Park Avenue in Manhattan? Manchester Capital Management is about to find out.

Can a thirty-year-old multi-family office with $1.8 billion in assets under management make the leap from Main Street in Manchester, Vermont to Park Avenue in Manhattan? Manchester Capital Management is about to find out.

At a recent press conference to open its New York office, the firm flaunted its boutique status and expressed confidence that it could hold its own in the brutally competitive Gotham market.

“We feel very comfortable here,” said Ted Cronin, Manchester founder and chief executive. “We see money moving out of the corporate transactional world and into other structures.”

Wealthy families with over $25 million in investable assets who are Manchester’s target market are attracted to “the uniqueness of boutiques now more than ever,” asserted firm president Murray Stoltz.

“They see that boutiques can add real measurable value,” Stoltz said. “They realize that we have the same technology as the large firms; the fact that we have third-party custodians is now a positive and they know that we can find the talent that we need here.”

That may be true, but Manchester’s foray into the big city is hardly a "slam dunk", say industry observers.

“Smaller firms often do best in underserved local markets,” said Alois Pirker, research director and senior analyst for Boston-based Aite Group. “It’s not so easy in New York, where they’re competing for high-priced talent and clients against global firms with brand names who can afford to pay the best talent and can offer clients services, products and access that small firms can’t."

Challenges for boutiques

“Boutiques have to have a unique selling proposition and be able to differentiate on price, service or product capability,” Pirker continued.

“Price is the easiest, but you don’t want to undercut pricing and under-deliver on services. To build a business, you have to have advisors who are producers and the platforms that can support the clients.”

Manchester thinks it can do just that. The firm’s New York office is starting out with four advisors and will “quickly” add one or two more, Stoltz said. Six to ten advisors will form a “critical mass,” according to Cronin, while thirty advisors in the office would be too many: “less personal and more corporate.”

Manchester’s main reasons for coming to New York, he said, were to “grow over the next decade or two, and find the talent you can’t find in Vermont.”

If all goes well, the firm also plans to open an office in San Francisco in the next few years, Cronin added.

Manchester is targeting families with $25 million or more in investable assets for its full multi-family office service and families with $10 million plus for more asset management-oriented services.

Demand for asset management has been so great, Stoltz said, that the firm will soon launch a “Manchester Portfolio” for investors with less than $10 million.

Selling points

As for its unique selling proposition, Manchester is touting its investment capabilities, real estate services and technical and digital prowess.

Cronin, who is also the firm’s chief investment officer, said about 90 per cent of investments are outsourced and more than 50 per cent of Manchester’s portfolio is invested overseas. “We deeply believe in the emerging market thesis,” he said.

Domestically, the current debate in the US over the government’s deficit, debt limit and spending are “huge concerns,” Cronin said. “We see serious problems if discussions in Washington around those issues don’t go anywhere.”

Nonetheless, Cronin said he “doesn’t believe hyper-inflation is in the cards.” Nor is Manchester buying into gold. “We never believed in gold as an asset class,” Cronin explained.

He isn’t a big fan of hedge funds either, predicting that the current model will wither away, as charging two or three per cent in management fees on top of performance fees of 20 per cent or 30 per cent is a bizarre model. As things stand, he said, hedge funds’ high fees are too big a drag on returns to justify the investment.

Buying buildings for clients

Real estate, however, is popular at Manchester, which specializes in buying commercial buildings for its ultra high net worth clients.

“Clients like direct ownership of real estate,” said Jeffrey Hall, managing director, real estate services for Manchester. “They didn’t make their money in investing, but by building their own businesses.”

Manchester clients pay a flat percentage of assets under management fee, Hall said, and are not charged extra for the real estate service.

The firm also prides itself on its tech and digital expertise, Stoltz said. Technology advances have allowed smaller firms to buy state-of-the-art systems and also receive new tools from their custodians, Charles Schwab and Fidelity in this case, he noted.

Clients also expect frequent e-mail updates and are becoming increasingly comfortable with video technology such as Skype, Stoltz added.

But the firm has not used social networking very much, he said. “We have not done a lot because we have so much direct contact with the client. As a smaller firm we can interact with the client directly and avoid the confidentiality risk of a broader platform like Facebook.”

 

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