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

Key-man risk

Another important aspect to under understand is to what extent, as an investor in a fund, you are exposed to key-man risk.

"And even if a fund is run by a team, the named manager on a fund is often the leader of the team, so if they exit, it can have a big impact," says Fergus Shaw, partner and portfolio manager at Cerno Capital.

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"One of the questions to ask is, ‘what value did they add, and how is that value going to be replicated?'. It is part of a fund analyst's job to ask indelicate questions, so we would ask a manager about their career progression or retirement plans. 

"When we go to meet fund managers, [if we can we] will also [have] half an hour with each of the analysts. And when we meet the analysts, we will ask them some of the same questions we asked the fund manager, to check that everyone is aligned.”

John Monaghan, who is research director at consultancy firm Square Mile, says: “If we see a manager of whom it could be said is nearer the end of their career than the start, then we would ask them if they see themselves in the role for the next five years, and if they don’t, what succession plan there is.”

Question time

Shaw says one of the first things he would ask for when a new manager is appointed is to see the organisational chart, in order to help him understand how the broader investment team operates.

Matthew Stanesby, head of manager research at Close Brother Asset Management, says the team's research process centres on trying to identify skills within a fund management group and they do this by looking at four key areas: organisation/people, investment philosophy, process and resulting performance.

He adds: "We spend a lot of time trying to understand the organisation and key people involved in decision-making and as part of this we typically meet in excess of 400 fund managers a year.

"We want to understand the culture of the firm, what makes them tick, how they are remunerated and we want to make sure that their interests are aligned to producing excess performance.

"The team dynamic can be important, so we will speak to different members of the investment team and do meetings in our office or at the firm’s office to get an idea of the wider working environment.”