Rules should be introduced to increase options for fund managers to cap the size of their funds without resorting to a formal suspension of inflows or punitive front-end charges, the chief executive of Rathbone Unit Trust Management has told FTAdviser.
Speaking to FTAdviser, Mike Webb, said that he would like to see greater powers to move managers away from the ‘blunt tools’ they currently have at their disposal, as he expressed concern at the volume of assets migrating to larger fund houses.
He said it is hard for fund managers of scale to shut off new inflows as increasing cost of staying in business “requires them to continue raising assets”, but he said it was also likely more would stray further from their investment mandates.
“I would like to see more fund management groups, as they reach capacity, reassessing whether they can continue to offer those funds for sale and I would like to see greater powers to be able to stem new inflows, because at the moment its actually quite difficult to do.
“At the moment we can either suspend dealing - suspend inflows altogether - which is not a particularly conducive atmosphere, because you will have a lot of investors who want to top-up their holdings, or dealings with financial advisers who have been long term supporters.
“What would I ideally want is an ability to shut off investing into our funds from new investors, perhaps being able to place caps on the level of new investment in any given month - those are the two main things.”
Mr Webb said Ratbone was not “anywhere near capacity” across its two main funds, but said the firm “wouldn’t hesitate to start shutting down new money coming in if we thought we were getting near it.”
Issues of fund capacity were often raised a couple of years ago as inflows into the relatively illiquid bond sector raises hackles at the FCA and one of the major giants in the sector, M&G, limited inflows on its two flagship funds.
Fears over the effects of fund size on investment mandates were once raised over Neil Woodford’s behemoth Invesco Perpetual income equity funds, which FTAdviser also reported last year on concerns over rapid inflows into property funds that may not be invested effectively.
James Burns, head of multi-manager at Smith and Williamson, disagreed with Mr Webb and told FTAdviser that soft-closuresg and putting in initial charges are an effective way to curb inflows.
In terms of external funds used by multi-managers, it was up to the management house themselves to prevent the funds getting too big, Mr Burns added.
“It’s one thing that we are mindful of: funds which are too big that have had lots of money coming into them and [you start to question] how would they be able to cope.
“History on the whole, apart from Neil Woodford, tends to dictate that the bigger your fund gets the more average your performance becomes, so there’s a definite sweet spot where you want to be in that sort of fund... when no one really knows about it yet it has still outperformed very well.”
Mr Burns does not want to see regulation in place to stem inflows, stating inflows depend on the asset class being used, alongside the fact that there are certain variables over time.
“It’s up to you as an investor. If you think that the fund is getting too big then you pull the money out because you don’t want to be in a fund that is too much of a juggernaut.
“You can’t say at what figure does a regulator determine that a small-cap manager hasn’t got capacity; the market evolves and therefore things might change, so I don’t think you can really do that.
“I think the regulation comes by investors themselves making the decision that funds are too big.”
ruth.gillbe@ft.com
