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Merian hit by £670m outflows a month ahead of restructure

Merian hit by £670m outflows a month ahead of restructure

Underperformance by several of Merian Global Investors' biggest fund managers has prompted average outflows of £670m a month this year, with the company now planning to restructure its business.

Estimates from Morningstar, provided FTAdviser, showed Merian saw net outflows of £6.7bn in the ten months to the end of October, excluding the £275m raised by the Merian Chrysalis investment trust this year. The vast majority of these redemptions came from one fund - Merian Global Equity Absolute Return.

Data from Companies House showed the company had assets under management of £28.8bn at the start of 2019, indicating the outflows amounted to almost a quarter of the company’s assets.

Merian Global Investors announced last week it had started a consultation process to make redundancies, citing “tough market conditions” as the reason for the cuts. The redundancies will be in the marketing and other departments, rather than investment management.

According to the Morningstar data, just eight of the 42 Merian funds within the Morningstar universe have attracted net cash this year.

The firm, formerly known as Old Mutual Global Investors, was acquired by the management team in 2017 and renamed at that point. 

The management buyout was led by Richard Buxton, who became chief executive as well as fund manager, before later reverting to the role of head of equities and manager of the Merian UK Alpha fund. In addition to Mr Buxton, five other fund managers from within the company became substantial shareholders and members of the board of directors.

The five managers and other staff bought the business for £600m, backed by private equity firm TA Associates. 

The Morningstar data shows the funds run by these managers have had significant outflows, following periods of poor performance. 

Mr Buxton told FTAdviser his UK Alpha fund attracted a net inflow of £29m in October. He attributed this to investors being less concerned about the outcome of the Brexit process than had been the case in the past.

That net inflow was the first into UK Alpha since the Brexit referendum in 2016.

In the ten months to the end of October, investors withdrew a net £454m from the UK and Irish versions of the strategy.

The fund has returned 21.5 per cent over the three years to October 31, compared with 19 per cent for the average fund in the IA UK All Companies sector in the same time period.

The fund with the largest outflow this year to date is Merian Global Equity Absolute Return fund, run by Ian Heslop and Amadeo Alentorn, both of whom were part of the team that took part in the management buyout, and who are directors of the firm. They manage more client money than any other team in the business. 

In performance terms the fund has lost 10 per cent this year.

Darius McDermott, managing director at Chelsea Financial Services, said the outflows were not surprising given the underperformance. He added:  "We knew the fund was lumpy in terms of returns, but the underperformance has lasted 18 months or so now. We still own it, and perhaps it hasn't been our best investment, but Ian Heslop is a good manager."