Investment houses are increasingly having to cope with the loss of a star fund manager but it is not always negative for the fund left behind
Coping with star fund manager departures has become an increasingly important part of investment houses' business strategy in recent years, as the number of defections has continued to gather pace.
To ascertain whether a star manager departure is always negative for the fund they leave behind, the March issue of Investment Week's sister paper Investment Strategies examined several recent high-profile movers, showing how their successors have gone on to perform.
Although the skills and reputation of star fund managers can be an extremely useful sales tool, it can be dangerous to rely on them too much, as several groups have found out to their detriment in recent years.
Take ABN Amro, for example, which promoted star UK managers Nigel Thomas and George Luckraft to such an extent they became all but synonymous with the group. When they left to join Framlington last April, the two managers proved all but irreplaceable on a one-for-one basis, with ABN Amro eventually having to merge with Artemis to get UK managers of similar calibre.
On the other hand, many groups are very much against the star fund manager ethos, with houses such as Threadneedle, Barings and JP Morgan Fleming all stressing process and teams over individual personalities as an integral part of their business, rather than just a fallback position when a manager leaves.
Threadneedle believes that as markets become more complex and fast moving, it is impossible for any single person to be expert in all the areas that affect stock price performance. Importantly, the team-based culture employed at Threadneedle means if there were to be a high-profile manager departure, it would have less of an impact on the subsequent performance of the fund.
Although the prevailing bear market has affected fund performance and managers taking on portfolios have done so in exceptionally difficult circumstances, there have been serious downward lurches in performance in the majority of cases where a star manager has moved on.
With Jupiter UK Growth, for example, the group's current joint chief executive Edward Bonham-Carter managed the portfolio from January 1995 to January 2001, during which time the fund returned something in the region of 200%.
Since Justin Seager took on the fund in early 2001, it has fallen by around 75%. Although it could be argued Bonham-Carter was a value manager running a growth fund, and Seager, as a pure growth manager, has suffered in the bear market, the drop-off in the fund's performance has been stark. Seager is to be replaced on the portfolio by Ian McVeigh in April 2003.
Among the funds that have not seen a massive drop-off in performance after a star manager defection are Newton Higher Income and Jupiter Income, where the managers who took over the portfolios were already involved in their running.
When William Littlewood left Jupiter and the high profile Income fund in 2000, for example, his successor Tony Nutt had worked with Littlewood for five years and knew the inner workings of the portfolio. Nutt has since gone on to take the fund to even greater heights, although it has since fallen back to around the point Littlewood left it back in 2000.
With Newton Higher Income, alternate manager Clive Beagles was able to step into the gap left by lead manager Toby Thompson when the latter left to join New Star, also taking the fund to better performance before a slight drop-off in recent months.
For more details on the impact of star fund manager departures on the portfolios they leave behind, see the March issue of Investment Strategies.
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