"What we want to see is that the fund has the capacity to grow in future.”
Mr Shaw says: “If a fund has strong performance but continues to be small in size, then you have to question why.
"You have to ask whether the firm in question is backing the manager, or whether the fund manager is worried about his job, and that is distracting him from running the fund, so eventually performance tails off.”
Mr Shaw gave one example of when he invested in a small fund, which met this criteria.
He says: “Douglas Brodie at Baillie Gifford managed a fund which we invested in when it was £26m in size.
"We would normally view £26m as too small for us. It is over £1bn in size now. What we saw was that the partners at Baillie Gifford were backing the fund, and that this fund would be Doug’s route to becoming a partner, so we backed it, and the returns have been very strong.”
Rob Burdett, who is part of the multi-manager team at BMO Asset Management is concerned about fund size, from the other perspective - he is determined that a fund should not grow too large.
He says: “We want to meet the manager and understand what they are trying to achieve. Once we have done that, one of the things we are very focused on is capacity control.
"We want the manager of a fund to be able to tell us how big they think their fund can get. There isn’t a magic number in terms of where we say a fund is now too large, it varies by investment style and by asset class.”
He added that BMO has frequently provided the seed capital for new funds coming to market, and are quite relaxed about being the largest owners of a fund, and also invests in investment trusts as a way to get very specific exposure.
John Moore, senior investment manager at Brewin Dolphin says that there is the potential risk of a fund getting too large to be managed properly, and this is a significant consideration for him when choosing funds.
James McDaid, investment manager at GAM, says the major considerations for him when choosing a fund do include historic performance, but if the performance is poor he wants to know what the explanation is for the performance, and if the explanation is satisfactory then he may still buy the fund.