Paul Agnell

While the concept of ‘star managers’ may have lost some momentum in recent years, there are still plenty of funds that have key person risk. This year alone we’ve seen two clear examples in the announced departures of Ben Whitmore from the Jupiter UK Special Situations fund and Mike Riddell from the Allianz Strategic Bond fund.

The commonality on both of these occasions was that the departing manager was both the architect of the investment process and the head of the investment team.

In these cases, there is no guarantee the management approach and investment decisions will continue under the new portfolio management team, as the businesses brought in new managers from outside of the existing teams to take on the propositions.

That said, asset managers are increasingly opting for co-portfolio manager structures to reduce this key man risk. Two very recent examples of where we don’t expect manager departures to have such a pronounced impact on investment franchises are Kevin Murphy’s announced exit from the Schroder Value team and John Pattullo’s retirement from the Janus Henderson Strategic Bond fund.

In both of these examples the managers co-headed their investment teams, alongside Nick Kirrage and Jenna Barnard respectively, and therefore investors and fund selectors have a much greater level of certainty in the ongoing deployment of the investment approach after the manager departures.

What happens when a fund manager leaves, but the team remains?

Where a fund manager leaves their team behind, whether or not the fund remains an attractive investment opportunity is entirely dependent on the calibre of the remaining members.

Fund selectors should assess whether the team have been instrumental in the management of the fund over recent years and whether they can cover the technical skills gap that a departing manager will leave across stock analysis, portfolio construction and macroeconomic views. They should also consider whether the remaining team are ready to deploy the necessary softer skills, with more people and process management responsibilities, as well as the increased marketing requirements that come with being a lead portfolio manager on a fund.

Can fund managers stay for too long?

On the flip side there can also be a risk where a manager remains in their role for too long. It is up to fund selectors and asset management businesses to assess where this might be the case. The extent to which either are slow to this realisation will typically be obvious in the amount of outflow experienced before a management change.

Four questions investors and fund selectors should ask themselves when a fund manager leaves:

• Was the fund manager instrumental in the management of the fund over recent years, or was it managed with a team approach?
• Can the new/remaining team at the fund cover the technical skills gap that a departing manager will leave across stock analysis, portfolio construction and macroeconomic views?
• Is the replacement manager/remaining team equipped with the necessary softer skills, ready for the people and process management responsibilities and the increased marketing requirements that come with being a lead portfolio manager on a fund?
• Has the investment management firm drafted in a seasoned manager with a strong reputation in the industry and experience with a similar strategy?

Paul Angell is head of investment research at AJ Bell