Groups need to reject mediocrity to retain staff and survive the current economic downturn
This has been a dismal year to be in the fund-management business. The stock market has been falling for three years and, even if it has stabilised recently, shows few signs of sustained recovery. Flows of money into the market are dwindling and all around people are losing their jobs.
In London, Amvescap, Europe's largest publicly-traded money manager, has been cutting staff. It let go 18 fund managers in May and has reported two consecutive quarters of losses. In Scotland, Edinburgh Fund Managers Group said in February it was getting rid of 7% of its workforce.
In Switzerland, Pictet & Cie, one of Geneva's oldest private banks, cut 55 jobs in March to help counter a drop in earnings. In the US, it is little better. Fidelity Investments, the largest American mutual-fund company, has been cutting jobs. Last year, it trimmed its workforce by 7%.
Still, as fund managers should know better than most people, even in a terrible industry there are usually good companies to be found.
In the UK, there are two money-management companies that have forged ahead: Man Group, the world's biggest publicly traded hedge fund manager, and Liontrust Asset Management, a niche investment manager. Both have prospered by stepping off the path that most of their peers have been following.
There is a moral in their success. Fund managers can still do well. But only if they take an old-fashioned approach to their industry. Their stories are worth dwelling on because they contain a lesson about where the fund management business has gone wrong, and how it can start putting itself right again.
Man Group now manages about $28bn in its range of hedge funds. In May, it reported a 76% increase in second-half net income as its assets under management more than doubled.
How did it achieve that? Look at its performance: the flagship AHL Diversified hedge fund rose 32% in the 12 months ended 31 March, compared with a 29% decline of the FTSE 100 Index and a 25% drop of the Standard & Poor's 500 Index.
The company's stockholders have been rewarded as well as investors in the funds. Man Group's shares are now above 1,200 pence, compared with less than 900 pence at the start of the year.
Liontrust in May said its second-half profit rose 52% as it won new clients and boosted its assets under management. Revenue increased 44% and the dividend rose 63%. Its shares have surged by almost a fifth this year to about 390 pence. A few of its rivals must have wished they had some of that stock in their portfolios. What do Man Group and Liontrust have in common?
They pick investments they think will go up in value and they innovate with products that might appeal to customers.
The fund manager takes a view on what kind of companies are going to be successful and builds a portfolio accordingly.
Most fund managers seem to pride themselves on being the same and mediocre. A few are breaking from the pack. The rest will watch their businesses slump and blame it on the markets.
Bloomberg newsroom, Frankfurt
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