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US Boutique Investment Banks’ Specialization Strategy
Survey Papers 15-05 May. 15, 2015
- Research Topic Financial Services Industry
- Page 140
This report looks at the background and development of US boutique investment banks. The US investment banking industry is characterized by the co-existence of large, global investment banks along with specialized boutique investment banks, who compete in separate markets for the most part, but also compete directly with each other in some instances.
Boutique investment banks comprise an important part of the US investment banking industry as well as contribute to the growth of the economy by providing investment banking services to small and medium sized enterprises, or the so called ‘middle-market’ corporations. Boutique investment banks, who are advise based and relationship driven, also provide an alternative to large, full-service investment banks who have over time become capital-driven businesses. Also, continued instances of moral hazard problems of the full service banking model highlight the value of boutique investment banks’ simpler business model and independence.
The emergence of boutique investment banks in the US is closely related to both the change in the regulatory as well as other market environment factors, along with the change in culture and business models of large investment banks. The most significant and influential factor that created a market for advice driven boutique investment banks was the merger wave of the 1980s, the largest ever in history at that time. The sufficiency of demand for merger advice, particularly among small-to-medium sized firms provided the needed market for boutique investment banks to flourish. But, also, the regulatory changes and advancement in IT that drove large investment banks towards a capital-driven business model, and a shift in culture within the banks, provided the impetus for talent within the investment banking units to go off and start their own boutique investment banks.
Boutique investment banks have carved out a market, where mostly they avoid direct competition with large investment banks. They do this by focusing on low-capital, advice driven business, serving the ‘middle-market’ customer segments and while concentrating on a limited number of core industries. Thus, US boutique investment banks have developed a successful segmentation strategy.
By looking at the factors of development and particulars of the business models of US boutique investment banks, implications for the industry structure and specialization strategy for Korean securities companies are provided.
Boutique investment banks comprise an important part of the US investment banking industry as well as contribute to the growth of the economy by providing investment banking services to small and medium sized enterprises, or the so called ‘middle-market’ corporations. Boutique investment banks, who are advise based and relationship driven, also provide an alternative to large, full-service investment banks who have over time become capital-driven businesses. Also, continued instances of moral hazard problems of the full service banking model highlight the value of boutique investment banks’ simpler business model and independence.
The emergence of boutique investment banks in the US is closely related to both the change in the regulatory as well as other market environment factors, along with the change in culture and business models of large investment banks. The most significant and influential factor that created a market for advice driven boutique investment banks was the merger wave of the 1980s, the largest ever in history at that time. The sufficiency of demand for merger advice, particularly among small-to-medium sized firms provided the needed market for boutique investment banks to flourish. But, also, the regulatory changes and advancement in IT that drove large investment banks towards a capital-driven business model, and a shift in culture within the banks, provided the impetus for talent within the investment banking units to go off and start their own boutique investment banks.
Boutique investment banks have carved out a market, where mostly they avoid direct competition with large investment banks. They do this by focusing on low-capital, advice driven business, serving the ‘middle-market’ customer segments and while concentrating on a limited number of core industries. Thus, US boutique investment banks have developed a successful segmentation strategy.
By looking at the factors of development and particulars of the business models of US boutique investment banks, implications for the industry structure and specialization strategy for Korean securities companies are provided.