What’s behind the rise of the boutique banks?
From Hong Kong to London, industry superstars disenchanted by red tape and cost-cutting are leaving
big name institutions to set up more nimble companies – and taking their loyal clientele with them
Where do you start if you want to track down Asia’s leading banking rainmakers? If you rattled off the names of Wall Street powerhouses like Goldman Sachs and JPMorgan Chase, you would be only partly correct.
From Hong Kong to London, a rising number of industry superstars disenchanted by a seemingly unending tide of post-crisis red tape, cost-cutting and stagnating paychecks are leaving big name financial institutions to set up smaller, more nimble “boutique” firms, and taking their loyal clientele with them.
In Asia, industry insiders say these smaller outfits are steadily encroaching on the dominance of the so-called “bulge bracket” banks – marquee lenders that cross-sell services – because clients value their deep relationship with the founders and the customised services the companies offer.
A majority of the breakaway firms are in the merger and acquisitions (M&A) advisory space, while the rest focus on a wide range of areas from wealth management to debt funding.
Hong Kong’s burgeoning number of such financial services boutiques came to the fore this week following a report about a new boutique investment advisory firm co-founded by Teresa Teague, a high-profile former Goldman Sachs partner based in the city, and fellow banker Jonathan Bond, the son of former HSBC chairman John Bond.
The new Hong Kong-based firm, TTB Partners, would help “Chinese investors navigate overseas acquisition opportunities,” Teague told Bloomberg News. On the mainland, boutique investment bank China Renaissance is reportedly tripling its US headcount to tap increasing deals between the world’s two largest economies.
Observers say lower than expected bonuses amid weak deal activity and a rise in regulation targeting big banks – meant to prevent a repeat of the 2008 financial crisis – were the major factors driving star performers at big banks out of their jobs and into firms like TTB and China Renaissance. “These factors put together are driving the rise of boutiques. There is increasing frustration about compensation and regulatory burden,” said Jeffrey Nassof, director of New York-based M&A consulting and research firm Freeman & Co.
Michel Lowy, co-founder and chief executive of the Hong Kong-headquartered fixed income boutique SC Lowy, said the company was attracting “the brightest minds in the industry” who thrived working in a more entrepreneurial environment than larger banks.
“As a boutique firm we are not bogged down by the bureaucracy that is seen at many of the big banks, and we are more nimble. The clients like that because we focus more of our time and effort serving them,” Lowy said.
Alex Fung, head of Zurich-headquartered Vontobel’s private banking business in Asia, said Chinese clients valued the firm’s ability to customise services according to their needs.
“Chinese clients who have created their wealth in the last few decades now want to safeguard it and pass it on to the next generation. This takes different competencies and skills than the past and more of them are looking for specialised asset managers,” Fung said.
“Compared to many big banks, boutique institutions also offer higher financial stability [and] higher capital ratios and therefore more security for clients,” Fung said.
Recruiters say the work culture of the smaller firms is an allure for bulge bracket bankers under pressure to perform an increasing number of roles without a rise in compensation.
“Private bankers are mature individuals who don’t want to have managers constantly nagging them about client meetings, reports and pipelines,” said Antony Jose, a Hong Kong-based headhunter for private wealth management firms.
While big banks were once seen as the bastion of job stability, Jose said some bankers were now looking to successful smaller players for long term employment security. The likes of Standard Chartered, Barclays, Australia and New Zealand Banking Group (ANZ) and Deutsche Bank have conducted sizeable retrenchment exercises in Asia in the past year. Laid off ANZ bankers in the region indicated they “wanted to move to a bank which had a better commitment to Asia and which has no plans to sell its Asian branches,” said Jose, a vice-president with the financial services search firm Omerta Group.
Other experts warn the success thus far of Asia-focused boutique firms should not give rise to the impression that setting up breakaway outfits were the panacea to faltering career prospects in bigger players.
“First of all, not everyone is going to be able to get into these boutique companies. You are going to have to bring your clients with you which is not easy,” said Adam Jeffes, associate director for front office financial services in Hong Kong at recruitment firm Morgan McKinley.
“In many cases the boutique firms also hire people with whom they already have a connection. The partners may have worked with people in bulge bracket banks and try to bring them over,” Jeffes said.
Nassof, the New York-based consultant, added: “More often than not there’s at least one boutique on the huge multibillion dollar deals.
“They are reaching a saturation point in the core major M&A market, which has been strong so far, and so they have been benefiting from increased deal flow. But the question is if the M&A market is going to continue to be strong and if large deals are going to outperform the middle market.”
Boutiques that had established a niche focus could find themselves compelled to diversify for fresh revenue streams, he said.