I’ve been considering the problem with management teams.
There is not a major problem per se; a team-managed approach can make every bit as much sense, or more sense, for a fund as a one- or two-manager set-up.
Indeed, some of our research analysts’ favourite funds, including many of the Aberdeen offerings, are managed by sizeable teams.
The issue occurs when funds decline to identify in documentation accessible to investors the individuals who compose the teams. Sadly, this is all too frequent.
In these cases, “management team” gives the fund a sheen of disclosure without anything backing it up. The team might include one manager or 100; it might have had no turnover in the past 10 years; or all the managers might have been replaced in the past six months.
As such, manager tenure, stability, and the relevance of experience become impossible to measure meaningfully. In short, investors receive little or no information on key variables that are likely to affect their investment decision.
If it is not yet clear, we don’t think this is in the best interests of current or prospective fund holders.
Indeed, we believe manager disclosure is extremely important, so much so that Morningstar fought long ago on behalf of fund holders to make such disclosure a requirement in the US.
This requirement has been in place in that market since 1993, and was amended in 2004 to include the condition that the names of each management team member be disclosed, along with salient information about their level of investment in the funds they run, other funds they manage, and the structure of their incentive pay.
The basic premise is clear: We think investors, regardless of which market they sit in, have a right and a need to know who is running their money if they are to make informed choices. Regulators would not tolerate it if a listed company like Marks & Spencer said it was team-managed but did not name individuals.
However, for reasons that befuddle me – although I expect they reflect in part regulatory competition to grow assets domiciled in a given market and a lack of clout among small investors – regulators too often do not require the same of funds.
Regulators could go further in requiring disclosure of managers’ incentive structures and their investments in the funds they run, but just having their names and start dates would be a good start.
In the absence of any such requirement, we’re taking steps to improve the situation. We have long collected portfolio manager names and made this freely available on our websites and in other products, but a subset of funds has simply stated they are team managed without providing names of team members.
Morningstar is working with the fund providers who cite a team approach instead of listing individual managers to gather the names and start dates of everyone on a given fund’s management team. For those that don’t supply the information, we plan to flag the manager as “not disclosed”, since this is the situation faced by investors.