We all know how important a manager is to the success of a fund, but the poaching of top talent has become so widespread in the asset management industry that it is threatening to undermine investor confidence.
Fund-hopping is an occupational hazard for Robert Burdett, who runs several funds of funds for Credit Suisse Asset Management. But even he said he was alarmed at the extent of the practice.
“Until managers are given proper incentives to stay with a fund management group, attrition rates will continue to rise,” he warned.
When researching funds for his portfolios, Burdett looks to see if they offer managers long-term incentives to stay. It is an approach that he said had helped him avoid a few disasters, but choice is restricted as less than 50 percent of European fund managers are rewarded based only on investment results.
Despite his research, Burdett is not immune to manager defections. The imminent departures of Adriaan de Mol Van Otterloo, manager of the Schroder Alpha Plus fund, and his colleague Zafar Ahmadullah, who manages several offshore equity funds for Schroders, have left Burdett with a difficult decision: stay invested in these funds or look for alternatives.
To compound matters, Burdett also has positions in the Jupiter European Special Situations fund. It is managed by Leon Howard-Spink, who will leave in October to replace Van Otterloo at Schroders. Some you win, some you lose.
“Schroders has recruited some very talented replacements,” Burdett said. “However, filling another manager’s shoes is not going to be easy. There are too many distractions.”
Marcus Brookes, a fund of funds manager with Gartmore in London, is not exploring any more. He has sold his holding in Schroder Alpha Plus and increased exposure to other funds in the portfolio, including the JO Hambro European fund, managed by Rod Marsden. “We would rather invest in managers that are not widely recognized by the market, which is why we tend to ignore awards and ratings,” Brookes said. “One-third of funds experience a manager change every three years. It is a sobering thought. The higher the profile, the more likely the manager will be tempted elsewhere.”
Brookes mentioned Rod Sleath, manager of Collins Stewart European Equity Focus fund, as an example of a relatively unknown manager with a good track record. He also cited the MFS European fund.
“MFS has a highly experienced manager in Olivier Lebleu,” he said, “but as the group takes a team-based approach to investing, the top individuals tend to merge in the background.”
Other managers on Brookes’s radar screen include Richard Lewis, manager of New Star European Leaders fund. “He has been overlooked because large-cap growth funds are unfashionable in the current investment climate,” Brookes said.
Perhaps the best precaution against fund-hopping is to invest with top-rated managers who own the asset management group. Manfred Piontke and Martin Wirth, who were recently awarded a triple-A rating by the financial information providers Citywire, have not looked back since founding Frankfurt Performance Management five years ago.
“Many managers lack motivation because they have to follow the investment dictates of a faceless institution,” Wirth said. “We wanted to create a product we believed in, not a product that tapped into the latest industry buzz words.”
Piontke and Wirth plan to start a German large-cap equity fund early in November. The firm’s other funds, a German multicap fund and a German small and midcap fund, are closed to new investors.
Another option is to place money with a boutique. Rather than compete with small and nimble fund operators, large investment houses are hiring top-rated managers to run specialized boutiques under the corporate label.
The asset management group does not have to worry about managers’ being poached as they have a stake in the business, typically 50 percent. The managers, meanwhile, are given investment freedom and financial backing. The idea is gaining currency with Britannic, BNP Paribas and AXA, among others. Something for everyone.
By Barbara Wall
Source: International Herald Tribune