Very successful (or ‘star’) managers are a double-edged sword for asset management firms.
The assets they attract are fabulous for the firm when all is well and times are good.
But even the most successful managers don’t want to do the job forever, and when they decide to move on, the assets, revenues and profits of the fund house can, and usually do, fly out of the door faster than they came in.
In a world of increasingly centralised investment propositions, a relatively small number of fund selectors can simultaneously decide that a fund is no longer preferred, and a manager change can be that trigger.
In recent years, the resignations of high-profile names such as Richard Buxton and Neil Woodford have forced asset managers to implement their succession plans at very short notice.
Within a year of their resignations, Mr Woodford’s IP Income fund lost about £4bn of assets and Mr Buxton’s Schroder UK Alpha Plus fund lost a little under £2bn of assets.
New managers spend their first few weeks in charge making presentations to key fund selectors and analysts in a desperate bid to persuade them there will be no ill effects from the loss of the ‘star’ manager.
However, where a departing ‘star’ is not seeking to set up a similar fund in direct competition, a well-managed firm has the opportunity to handle the transition in a much more orderly manner.
This is not easy, but the transition from Ian McVeigh to Steve Davies at Jupiter UK Growth is a lesson in how it can be achieved.
A long-term perspective on the transition is essential. First the succession manager must be identified – at Jupiter, Mr Davies joined Mr McVeigh as his deputy manager on the fund in 2007, and crucially this move was based on the two sharing a similar investment approach.
They formed a strong and successful duo, and as time went on, Mr Davies’ previous experience as a retail sector analyst was a visible contributor to the fund’s success.
In 2012, Mr Davies was given responsibility for the Jupiter Undervalued Assets portfolio, which he managed using a very similar mandate to the UK Growth fund. This allowed him to demonstrate his own track record as a lead manager. He also increasingly took on marketing responsibilities for the UK Growth fund so that he was a familiar face to the fund selection community.
In 2013, Mr Davies was promoted to co-manager with Mr McVeigh on the UK Growth fund. Then, earlier this year, with Mr Davies having successfully established a three-year track record in his own right, Jupiter announced Mr McVeigh’s move to a corporate governance role, and Mr Davies’ transition to sole manager.
His Undervalued Assets fund was also then merged into UK Growth.
The fund selection community was thus carefully prepared for Mr Davies to succeed Mr McVeigh. By the time it took place, fund selectors knew his investment process was similar to that of his former co-manager, and that Mr Davies was a strong manager in his own right.