Companies which use co-managers to run funds can make their succession planning pretty obvious, especially when a younger manager is co-managing with an older, more experienced person.
Other houses prefer not to have a named manager on a fund and instead have a team of people running the assets. This should, in theory, mean that succession planning for them is not an issue as they are unlikely to lose an entire team at once (although even this is not unheard of).
But when a ‘star’ fund manager is involved – whether he is the sole manager, co-manager or part of a bigger team – succession planning becomes more difficult. The bigger the star, the more assets they have, and the bigger the business risk.
Sometimes a change of manager can come as a shock to a company; for instance, when Richard Buxton left Schroders. While I am sure Schroders would have liked to have kept his resignation to itself for a little longer, the inevitable leak occurred and it was well and truly on the back foot.
As Mr Buxton’s deputy, Errol Francis, had moved with him, promoting from within was not as straightforward as it might have been. It had a bit of luck on their side though.
First it had enough kudos as a company that it was able to attract not just one, but two managers from other companies within a month. Philip Matthews was poached from Jupiter and Alex Breese from Neptune. Neither quite have the same gravitas as Mr Buxton, but both are respected and have good track records.
Fortune
Their second piece of good fortune was that Schroders was about to announce a deal which would see it buy Cazenove Capital. With this deal came the very highly rated Julie Dean, who would go on to run the Schroder UK Growth Investment Trust.
You have to admire how quickly and decisively Schroders moved in this situation, but it did not stop it haemorrhaging around £1.5bn of assets from the UK Alpha Plus fund, as many investors followed Mr Buxton to Old Mutual.
Known departures are generally easier to deal with, as the company has the time to prepare both themselves, and hopefully investors, for the changes about to occur. But being easier does not necessarily mean they will be any more successful.
Turning to Fidelity; its succession planning has, for years, been to promote home-grown talent. It has done this reasonably successfully, even though most are quite young and relatively unknown.
However, when you think of succession planning at Fidelity, Anthony Bolton always comes to mind.
His first successor was Tim McCarron in 2003, when he took on the management of Fidelity European. Mr McCarron went on to run the fund for six years, most of which were successful.
The ‘big one’ though took more than 18 months to finally run its course. In 2006, Fidelity announced that, not only would Mr Bolton be retiring from fund management, but the Special Situations fund, which he had run for almost three decades and generated exceptional returns for investors, would be split in two.
Only one successor was announced: Jorma Korhonen would take on the new global half. Such was the enormity of this change for Fidelity that a helicopter was hired to fly Mr Korhonen – a complete unknown to UK investors – around England meeting fund buyers and commentators for the first time.
Mr Korhonen lasted four years and, unfortunately, was replaced due to poor performance. It was at this time that succession planning took a new twist at Fidelity. Instead of promoting someone internally, a new manager, Jeremy Podger, was poached from Threadneedle.
Meanwhile the reason a successor for the UK portion was not announced until a year later was because it took Fidelity 12 months to convince Sanjeev Shah to take on the fund, after he initally said no. No doubt filling such big boots had something to do with his reluctance, but eventually he agreed.
Mr Shah ran the fund for five years before deciding he had had enough and this month his successor, Alex Wright was announced.
Of course Mr Bolton then decided to return to fund management and, to great fanfare, Fidelity announced it would be launching a Chinese equity investment trust for him. But even in the initial media interviews, succession planning reared its ugly head when Mr Bolton admitted he would only be running the trust for a few years.
Roll on to June this year and Dale Nicholls, a Fidelity veteran, but relatively unknown to UK investors, was announced as his successor.
I think the biggest succession planning problem in the industry today is who will replace Neil Woodford of Invesco Perpetual when he decides to retire from fund management.
Assets
The total assets run by Invesco Perpetual at the Henley Investment Centre in Oxfordshire currently stands at £71.8bn. Mr Woodford is responsible for around just under half of these assets so there will be a huge business risk for Invesco to deal with at some point in the future. Mr Woodford is in his early 50s so it may not be an issue for some years – but it has to get the succession planning right.
At the end of the day, to me, visibility of a successor is key so investors know what they are getting. Having co-managers in place, who spend time meeting fund buyers and getting to know them, while building a track record, would seem the smoothest way to deal with it.
How successful a replacement is, however, is down to the individual and, if previous cases are anything to go by, we may have to accept that fund manager ‘turnover’ is a lot more frequent than it used to be.
Darius McDermott is managing director of London-based Chelsea Financial Services
