Mid-sized managers must ‘scale or fail’ as asset owners increasingly look for bigger partners
Fund management companies which are mid-sized may find themselves in “no man’s land” where they are not small enough to be nimble but not big enough to compete against the industry behemoths (Jose Sarmento Matos/Bloomberg)
The world’s largest investors are struggling to allocate to smaller asset managers given their limited capacity, but industry figures argue boutique managers could prosper in specialised asset classes.
Speaking at the recent AIMSE Europe annual conference, Stephanie Weston, head of client portfolio asset management at the $303bn Dutch manager PGGM, said smaller asset managers can have limited capacity to deal with large pension funds' needs.
"If I'm at a $476bn fund, and you only have [a] capacity of $595mn, then it's difficult to make [an investment] case. However, it's not impossible," Weston said. "There are boutiques as well that can offer a decent size capacity. In the sustainability space, for example, if you could do that on global listed equities, then capacity is not a massive problem."
Pension funds could also consider ways to partner with smaller fund managers and provide "seed capital", where both sides are "learning from one another" for the benefit of asset owners' internal teams, she said. But managers must think about how much of their internal intellectual property they are willing to pass on in relationships.
Industry executives had differing views on the suitability of smaller managers when servicing the world's largest asset owners.
Rachel Farrell, director of public and private markets at the $75bn National Employment Savings Trust, said there were "plenty of large asset owners" who are looking for "marginal alpha" generation strategies where active managers seek to outperform a benchmark. In those strategies, boutiques can perform "very well".
But she added that Nest's investment philosophy "would be more challenging for boutique managers, only because we're giving out very, very large mandates".
Early in 2025, the pensions provider acquired a 10 per cent stake in Industry Super Holdings, the parent organisation of Australian infrastructure manager IFM. It aims to invest $7bn through the manager by 2030, underscoring the scale of its investment ambitions.
Farrell said she did not want to "overwhelm" smaller asset managers given the fund's large size.
"We don't want to [represent] 75-plus per cent of the assets of [a] manager, because that's not great for either party if we're overly dominant," she told the audience.
Pressure piles on mid-sized managers
While smaller boutiques could be "nimble" and "flexible" in ways that larger asset managers may struggle with, middle-sized managers may feel pressure as they struggle to compete against industry behemoths.
"I think it's the [managers] in the middle that are a little bit in no man's land, when you really have to think about... the value proposition," Farrell said.
Ryan Boothroyd, head of external management at the $75bn Border to Coast Pensions Partnership, which is expected to surpass $150bn in its assets under management as more pools join by April 2026, explained that boutiques could offer a way for large asset owners to tap into more specialised strategies and geographies.
He pointed to Border to Coast's allocation with the Hong Kong-based manager FountainCap, as part of its emerging market equities sleeve. He said some of the pool's external managers were "higher conviction" compared with its lower conviction internal management.
“It’s the [managers] in the middle that are a little bit in no man’s land, when you really have to think about... the value proposition”
"If you're a boutique, focused for example on emerging markets, we can have a long-term [relationship] in mind."
But he cautioned that Border to Coast is "very demanding" in its own operations, abiding by its internal compliance rules. "We do a lot of work as part of the selection process and the onboarding process to make sure that those kinds of expectations are in sync," he said.
Collaboration between big asset owners
Damien Webb, deputy chief investment officer of the $145bn Aware Super, said the fund was eager to work alongside other global asset owners grappling with similar challenges.
"If you walk into PGGM's offices, or our offices, or [the Universities Superannuation Scheme's] offices, or Calpers, I can guarantee you the top five things that everyone's worried about are probably going to be very, very similar," he said.
He added that the fund could look to partner with blockbuster players including APG and Singapore's GIC sovereign wealth fund, which is reported to have around $847bn in assets under management.
"Funds like ours, as we get bigger and bigger and more global, we need lots of help, and we're seeking partners."
Webb said AwareSuper has grown through recent mergers and now has a 150-strong investment team. He added that by 2030, further growth could see the fund reach between $212bn and $283bn in assets under management.
As the UK's defined contribution master trusts grow in line with the government's ambitions set out under the pension schemes bill, Webb pointed to the need for the benefits of scale to be passed on to end savers.
In Australia, where the total assets held in the superannuation industry exceeded $3tn in June 2025, this has been achieved by a regulatory "push" on better outputs, rather than inputs, Webb explained. This means super funds must hit their performance targets or inform their members that results have been subpar.
By contrast, he said the UK was "probably more focused on the inputs [with] the Mansion House reforms", including on the government's drive for funds to invest in the UK, and the aim for more "productive risk taking" versus more conservative asset allocations.