Jeremy Tigue and Ted Scott are retiring from F&C, Richard Plackett is taking a sabbatical from BlackRock, while Neil Woodford is soon to leave Invesco Perpetual for Oakley Capital.
So where do multi-managers and discretionary managers expect the next generation of top fund managers to come from?
Caspar Rock, chief investment officer at Architas, says: “We cover each asset class with a lead and back-up analyst and it is their job to be prepared with a ‘substitutes bench’ in case of such an event. When the BlackRock European Dynamic fund closed to new subscriptions, we knew where to turn.”
Andrew Summers, Investec Wealth & Investment head of fund research, says most fund houses have deputy managers who are being trained up to take over when lead managers leave or retire. “In many instances, these [deputies] could provide a deep bench of future managers. Examples include Michael Stiasny and David Williams deputising for Tom Dobbell, and Chris St John deputising for Nigel Thomas (in spite of neither having any plans to retire).”
He says Mr Plackett’s sabbatical is an op-portunity to follow BlackRock’s Ralph Cox and Franklin Templeton’s Richard Bullas.
David Coombs, Rathbone Unit Trust Management’s head of multi-asset investment, says it is casting its net further afield and looking at US and Asia-based managers, who may not have much UK presence, but who may come into the retail market, having run institutional money overseas.
James de Bunsen, multi-manager at Henderson Global Investors, thinks new talent will come mainly from the big asset management houses which have the resources to train graduates.
That said, he likes boutiques such as Majedie Asset Management, the UK equity specialist, which has done some graduate hiring.
He rates James Sym on the Schroder European Alpha Income fund, Chris Reid on the Majedie Income fund and Kennox’s Strategic Value fund, run by Charles Heenan and Geoff Legg.
Mr Summers says Investec’s preference is for veteran managers running small funds, citing Michael Dobbs, whose Schroder Small Cap Discovery fund is still sub £50m and Gervais Williams at Miton, who has been disciplined in limiting his capacity.
Elsewhere, he says there are plenty of good equity managers who are relatively unknown in the UK, such as Keith Creveling at American Century, whose Concentrated Global Growth Equity fund is less than $50m and Charlie Dutton at Coupland Cardiff.
Mr Coombs tips Slater UK Growth and GVO UK Focus: “They aren’t necessarily run by younger managers, they are just smaller funds, below the radar.”
But are there barriers to entry for younger managers and funds and at what stage will multi-managers and discretionary managers support them?
Is the current regulatory regime supportive of new funds or does due diligence mean the majority of investors will not touch a fund until it has a three-year track record or has £250m assets under management?
Mr Rock says there are both internal and regulatory restrictions that may preclude him from investing in very small funds or those without a clearly transferable or relevant track record.
“Most investors have to operate within some sort of concentration rule that does not allow them to own more than a certain percentage of a fund, so unless you have a number of like-minded buyers, you often have a classic ‘chicken and egg’ problem that gives rise to the general cry that it needs to be at least £50m in size to be considered.”
Architas recently invested in a fund that had only £6m, taking it to nearer £40m in recent weeks. The manager, Franklin Templeton, had a very strong process and track record in pan-European equities and the smaller fund was Europe ex-UK and a subset of the former, so Mr Rock was happy to back it.
Investec picks either fund management houses that engage in sensible succession planning or new boutiques, where a small but experienced team of money managers can collectively offer sound stewardship.
Rathbones’ Mr Coombs says: “We are very happy to back new funds. We think you often get the best performance in the first few years, when fund managers are totally focused on performance. You also get the benefit of lower prices because you increasingly get feeder fees.”
Rathbones recently bought into the Michinori Japan Equity fund on day one and the Prusik Asia fund in its first week. The latter soft closed before its three year anniversary.It has also invested in the Muzinich Total Return Credit fund, which is a new fund, but has a fund manager with 30 years’ experience of investing in fixed income in the US.
Investec’s Mr Summers says regulatory and industry developments have heightened risk aversion and in many instances “raised the bar” in terms of quality.
“Often a three-year track record of a particular vehicle might be absent, but the fund manager him- or herself has a longer track record that is usable. Fund liquidity is also important.”
Mr Coombs thinks the RDR and other regulation has shaken up the fund management industry from its complacency, meaning that there are fewer new launches, but that product development departments are being forced to ensure that the funds that are launched are more robust.
“I think it’s very tough for people to get a new fund launched,” he says. “But we are willing to support new funds and negotiate very low prices for taking the risk of providing seed capital.”
