The recent spate of high-profile manager departures, such as Julie Dean quitting Schroders and Simon Brazier swapping Threadneedle for Investec, could well kick off another game of musical chairs in the industry.
If it does, fund groups should have learned some lessons from last year’s merry-go-round, a remarkable stretch that included Old Mutual hiring Richard Buxton from Schroders and Neil Woodford resigning from Invesco Perpetual among many others.
Three broad responses to such losses emerged from that period (see examples opposite). A great many firms simply promoted a deputy internally, conferring the advantage of continuity but with the drawback of the new manager having no personal track record.
Bolder fund houses poached from their competitor. Although providing a short-term boost by assuring investors that the company could still attract talent, and weakening rivals, several companies found that major external appointments worried unitholders about changes of style and nullified the initial investment rationale. Whether top-tier hires can ultimately reinvigorate franchises and launch new blockbuster strategies remains to be seen.
Charting a course between these two paths, others have handed a departing manager’s fund to an established colleague. This balances a degree of continuity with the added benefit of a personal track record, but at the potential risk of overworking a manager or distracting them from their other mandates.
‘All three of these responses to a manager departure have worked well and badly at various times,’ commented Nick Sketch, senior investment director at Investec Wealth & Investment. Part of the problem, Sketch acknowledged, are the conflicting demands of investors.
‘We want the minimum period of uncertainty, we want a manager we know and respect, we want minimal disruption if the fund is doing well – or a dramatic change if it is not – and we want the performance over a short period to vindicate whatever choice is made. In short, we want a considered decision, made immediately, and we want it to be right and seen to be so very quickly. No pressure then?’
Andrew Wilson, head of investment at Towry, offers equally little reassurance. ‘There is no ideal way for groups to replace departing managers, and it is simply bad news for investors.’
But given that keeping every manager forever is impossible, fund houses need contingency plans and buyers agree that continuity is key.
‘As a generalisation, promoting an existing team member is the commonest choice, and often the right decision, even if investors are tired of hearing that “it’s always been a team approach on this fund”,’ said Sketch.
Harry Morgan, chief investment officer at Anderson Strathern Asset Management, concurred. ‘I think that management groups need to emphasise that the portfolio is going to be run in the same way, that there will be a continuity of style, and that all things being equal the investment remains “suitable” – an FCA favourite, and quite right too – for the investors.’
The danger of stretching existing resources further, of course, is that ‘a mistake that can lead to a bad result on two funds instead of one’, as Sketch puts it.
Wilson tends not to stick around to fund out: Towry keeps a list of reserve funds and so he will ‘look to put the capital to good use somewhere we have confidence, with a stable team and process’.
So if investors will sell anyway, why not take the opportunity to do something more radical, like bring in an external star?
‘This kind of hire does at least show some serious commitment from the group to the fund, and to its clients, and is the kind of thing one can get behind – at some point – if the new manager is well known to you,’ noted Wilson.
‘Of course, sometimes disruption is a good thing,’ Sketch added. ‘Appointing a manager from outside – particularly a high-profile name – may force change on a team, and a fund group may take any departure as an opportunity to reassess how a fund should be run and prompting that reassessment may turn out to be good for the fund group and investors.’
Wealth managers emphasise that this should be a last resort, however. ‘Poaching a competitor to manage a fund which is a) in an existing business line and b) is a core competency of the firm is the least attractive option, and is in many ways a sign of weakness,’ Morgan warned.
Evolution, revolution or reinforcement?
Past high profile manager departures have elicited different reactions from fund groups. Some have brought in stars from elsewhere, others have promoted from within, and some have done both. Wealth Manager looks at which routes the various firms have chosen.
The houses with long-established team models enjoyed perhaps the smoothest transitions amid the ruptures. Fidelity, for example, calmly handed over mandates from Anthony Bolton and Sanjeev Shah to Dale Nicholls and Alex Wright respectively. Standard Life Investments likewise drew on the wider Gars team following a series of defections to Aviva and Invesco Perpetual, with Guy Stern stepping up in particular.
M&G similarly chose Randeep Somel to succeed Graham French. All stressed that they broadly shared their precursors’ styles, albeit with slightly different opinions on certain markets and stocks.
At the other end of the spectrum, a number of groups brought in external talent, often with very different philosophies.
Schroders hired Jupiter’s Philip Matthews and Neptune’s Alex Breese and recruited Julie Dean from Cazenove after Richard Buxton and Errol Francis headed to Old Mutual. All were Citywire AAA-rated managers, but none truly mimicked Buxton’s large cap focus.
Other radical changes included Swip’s James Clunie taking over Jupiter Absolute Return from Philip Gibbs, and Axa turning to Barclays’ head of portfolio and liquidity management John Porter to assume Theo Zemek’s position as global head of fixed income.
Firms such as Invesco Perpetual and Threadneedle did something in-between when they suffered losses.
Invesco Perpetual saw Neil Woodford walk away and his portfolios allocated to other members of his team, principally Mark Barnett and Ciaran Mallon. Both managers boasted stellar records of their own, outperforming Woodford over some timeframes.
But the firm also quietly bolstered the UK equity desk with several hires, including experienced small cap manager Robin West from Aviva and former Société Générale chief investment officer John Richards.
Threadneedle, meanwhile, promoted Diane Sobin after Cormac Weldon went to Artemis, and also recruited four analysts.
The company plans to bring in more analysts, rather than fund managers, after losing Simon Brazier to Investec as well.