Investments  

What happens when a star fund manager leaves?

Fund management should be based on core credentials: a robust investment process and asset allocation along with micro and macro analysis. With those processes in place, a fund should continue smoothly if it changes hands.

But all too often, this is not the case, with investors – and advisers – pulling money from funds when a manager leaves.

The latest movement saw Sanjeev Shah announce at the beginning of September that he would step back from managing Fidelity’s flagship £2.8bn Special Situations fund.

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Mr Shah took over the fund from Anthony Bolton in January 2008 and had some big shoes to fill. Despite some rocky patches throughout 2011, the fund outperformed most rivals under Mr Shah’s leadership, quickly cementing his position as a ‘star’ manager.

Fidelity’s UK Smaller Companies manager Alex Wright will be taking over the fund. Despite positive noises from the industry about Mr Wright, Morningstar downgraded the fund rating from Silver to Neutral following the news, saying the Special Situations fund represents “new challenges” for him. Mr Shah will move to an internal mentoring scheme in the company rather than switching to another fund or asset manager.

So-called ‘star’ managers have come under increasing pressure in recent years to maintain exemplary returns, which poses a problem when they come to leave. There is an argument that investors place too much emphasis on the individual rather than the process, with potentially huge outflows from the fund doing more damage than a change of manager would.

The Fidelity Special Situations fund is notoriously contrarian, however, and one manager is not necessarily contrarian in the same way as another.

This latest development follows a spate of movements over the summer. Euan Munro, who built the infamous Standard Life Global Absolute Return Strategies fund, has moved to Aviva Investors, while Schroders’ Richard Buxton headed over to Old Mutual Global Investors.