Vantage Point: Investing for Alpha  

What to do if a fund manager leaves?

  • To understand how to manage relationships with fund managers
  • To discover the range of questions to ask a firm when a manager leaves
  • To understand how to monitor the ongoing relationships with managers
What to do if a fund manager leaves?

Although the asset management industry is comprised of dozens of firms, each trying to carve a niche in a competitive market, none are immune from wider industry trends.

And among the most potent of those trends in recent years has been a shift away from the concept of the 'star' fund manager, and a greater emphasis on the wider team.

Indeed, the only firms that now seek to garner investor attention based on the perspicacity of an individual are those boutique-type outfits often founded by the fund manager themselves. 

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But while the demise of the star manager may alter how advisers and fund buyers think about investing, it does not solve the intrinsic problem of how to react when a manager exits a fund. 

Impact on investors

Ian Rees, who jointly runs the fund-of-funds range at Premier Miton, says the departure of a manager is always consequential, regardless of any team-based approach.

He says: “Fund management is supposed to be an investment service, and one of the things you want from any service is repeatability, so clients don’t have to change every time there is a change in the management of a fund. When a manager does leave, we look at it on a case by case basis.

"There have been a lot of manager exits recently and in some cases we have stayed around, while in others it has been an immediate sell.”

Meera Hearnden, investment director at Parmenion, says a manager who is properly concerned about their clients will ensure that investors know years in advance about possible retirement dates, but says it is rare that this actually happens.

She says: “More often than not, we get told of a manager’s retirement plans maybe a month or a quarter in advance. This is really disappointing. Quite frankly it hasn’t been well thought through by the manager themselves, nor the firm, and puts their integrity into question. 

"If you’re heading towards retirement with a view it’s going to be in the next few years, it’s only right that investors are aware of this, and understand steps taken by the firm for succession. In the absence of such planning and where the manager represents key-man risk, it will often lead to a sale of a fund by us."

Hearnden adds: "Lack of resource, lack of a track record, or inexperience of the incumbent manager are also red flags that can lead to a sale. All I ask from fund managers is to stay engaged with us, no matter how big or small our investment is, as it’s the right thing to do when we’re dealing with clients’ money.”