The past year will be best remembered for the proliferation of the term "boutique". Originally this meant a 50 m² shop with two or three staff, with a hint of here today and gone tomorrow. But now it has become the fashionable term used in the most unlikely of places.

Perhaps the defining event of the past year in asset management has been the decision of Old Mutual Asset Managers (OMAM) - still by some margin the largest asset manager in SA - to split into 12 boutique asset managers and rename itself Old Mutual Investment Group SA (Omigsa).

The growth in assets held by the 20 largest asset managers in SA clearly shows those businesses perceived to be more entrepreneurial, independent and performance focused have had more support than larger groups, which often have the added burden of being part of life insurance groups. OMAM and Sanlam Investment Management both experienced declines in total assets in 2006, a year in which even mediocre equity portfolios delivered a return in excess of 30% to clients. Stanlib and RMB, two other large managers owned by life insurers, also ended the year with negligible asset growth.

Omigsa CEO Thabo Dloti says that as Old Mutual was considered to be a supertanker it was able to win core (and low margin) equity mandates but it was passed over for sexier, more specialist portfolios for which it had proven skills if you look at the track record of a number of its unit trusts.

OMAM was ideally structured for the days when pension funds gave balanced house-view portfolios mandates - and its investment performance for these types of mandates remains excellent. Its returns have been the second or third best among the large managers over five years.

But the trend towards specialisation has made balanced funds look increasingly like legacy products, doomed to disappear over time. The total assets in the Alexander Forbes SA and Global Large Manager Watch barely increased last year to R120bn, while the assets in the equity-only survey increased by 50% to R270bn. There was similar growth in the absolute return survey to R60bn.

This trend (balanced mandates were never common in the US) is in line with the UK and Australia, where larger pension funds have reallocated money on a specialist basis, using separate managers for core and aggressive equity - sometimes giving separate growth and value mandates, core and aggressive bonds, cash and property.

Medium-sized funds have increasingly turned to multimanagers such as Investment Solutions, Advantage and Sanlam Multimanager International.

Specialist mandates have often been given to the new breed of boutique managers. The most successful of these run businesses with assets of more than R15bn: such as Piet Viljoen at Regarding Capital Management, Tim Allsop of Polaris Capital and Herman Steyn of Prescient Investment Management. The most successful start-up last year was a specialist bond business, Trident Capital Management, run by Kimon Boyiatjis, which attracted R3bn in a few months.

The going is usually much tougher for start-ups but many people prefer the freedom and lack of bureaucracy of a small shop. Over the past two years, boutiques have been created by high-profile managers from large shops, such as Walter Aylett of Aylett & Co; Hermes headed by Arthur Karas, previously with BoE and Quaystone; and Sortino headed by Sybrandt du Preez, formerly with OMAM. This year Orthogonal opened its doors. Its run by former African Harvest chief investment officer Rowan Williams-Short and ex-OMAM portfolio manager Douw Steenkamp.

There have been black-owned asset managers such as Renaissance and Argon catering for demand from pension funds to use their funds to develop black-owned businesses. Other boutiques have been formed by people with a background in private client asset management, including 36One and Cannon Asset Managers.

Old Mutual and Stanlib, which has split its business into "franchises", have a delicate balancing act as they cannot afford to neglect their legacy-balanced and core equity business.

Stanlib has a multi-asset franchise headed by one of its rising stars Thobelani Maphumulo. Omigsa has a boutique dedicated to running the balanced funds (which the marketers have dubbed the Macro Strategy boutique) as well as a Core Equity boutique.

Old Mutual itself, under new MD Paul Hanratty, is keen to get better value for money from its asset management (after all, portfolio management fees are the largest annual cost to its policyholders) and it will be moving at least R15bn of its life portfolio to Umbono Fund Managers, an index fund manager in which the group has just taken majority control.

Dloti acknowledges there is a danger that if managers do well they will leave to set up on their own "but we make life a lot easier for then - they can spend their whole day on investments as there is a large team here worrying about marketing, compliance and operational issues."

Cynics say not much will change: most of the boutiques will still sit together in a large open area at the Old Mutual offices in Pinelands near Cape Town, said to be the largest office building in the southern hemisphere. But bonuses will be more closely linked to each boutique's profitability, rather than being simply based on a subjective view of the individual's contribution to the house.

The biggest disappointment for the private sector was the decision of the Public Investment Corporation, which runs the assets of the Government Employees' Pension Fund, to take R150bn away from its asset managers and manage it in-house. Investec Asset Management CEO Hendrik du Toit says this is not in the national interest.

"Government should not be looking narrowly at saving a few basis points in the short term. It could create more than 200 jobs in the private sector by handing out mandates," he says.