Another star manager exits – but should fund groups ever turn away from star culture?

This week Standard Life Investments’ UK star Ed Legget – who has been running money for seven years at the Edinburgh-based fund giant – quit the group for rival Artemis.
Legget’s departure is, at best, a pain for investors in his SLI UK Equity Unconstrained fund given his impressive track record, outstripping the UK All Companies sector by some margin over the last one, three and five years.
However, one big plus for investors in his fund is the availability of Wesley McCoy, the original manager in charge when it launched back in 2005, who will now step in and retake the reins.
Indeed, the reinstatement of McCoy will definitely soften the blow for holders, although there will always be those commentators who suggest investors follow star managers wherever they go.
The fund manager merry-go-round, and the resulting impact on groups’ bottom lines from high-profile departures, is unlikely to change because it serves a purpose for all parties.
While most pay lip-service to the team approach, in reality it is easier for the fund groups – and the end investors – to have a figurehead managing the money. It gives investors confidence there is someone responsible for actually pulling the trigger after all the analysis has been done, and provides fund groups with someone who can present the fund to both existing and potential clients.
It is also easier for marketing teams (and journalists) to have access to an individual who is driving a fund’s performance, giving their views a greater air of authority than if they come from, say, an analyst who works on the team.
Therefore, it is unsurprising most groups accept that if you build up a cult following for a fund manager – and reap the rewards in terms of inflows – you run the risk that manager may exit (and take a chunk of assets with them) at some point.
It seems to be a particular issue for funds with a high active share, a point highlighted by Thesis Asset Management’s associate director, Steven Richards in an article by Citywire this week.
“I don’t necessarily believe in the cult of the star manager, but Legget seemed to have more autonomy over that fund than any other in Standard Life Investments,” he said.
“‘It was the most unconstrained and had the greatest deviation from the central list, and that made him appear to be a key individual for the fund.”
This issue of star manager turnover is not new, and it is not going anywhere. It’s been around for far longer than I was a journalist (circa 10 years for those that are interested) and I would expect it would still be a factor 10 years from now.
Trying to look for companies which have eschewed this star culture is a tall order, but interestingly, it is actually Standard Life Investments which can point to some success in this regard via the phenomenally popular Global Absolute Return Strategies (GARS) fund.
Consistently pitched as a team-run fund rather than one managed by a single individual (although Guy Stern is officially the lead manager), it is now the largest fund in the investment universe, with some £26bn of assets. It has also managed to cope with the exit of a high-profile member of its team following Euan Munro’s move to head up Aviva Investors.
SLI’s approach of pushing the wider GARS team rather than relying on a figurehead came into its own when Munro left in 2013.
Experts including Mike Deverell at Equilibrium Asset Management were quoted at the time by Fundweb and other titles reacting to the event. Deverell said Munro’s departure, while a blow, should not prompt investors to withdraw money from the fund given its team approach. The fact the fund has continued to grow in size since then suggests this was a widely held view.
So why haven’t more groups followed suit? Darius McDermott, managing director of Chelsea Financial Services, said most struggle to promote a real team approach because star managers tend to emerge organically.
“The issue that groups have is that star managers tend to create themselves because of their performance, presenting themselves as an attractive and marketable option for the fund groups,” he said. “Therefore star culture is here to stay because this is not going to change.”
However, he said a handful of groups have managed to protect themselves from the loss of a lead manager by putting co-managers in place alongside them years ahead of any exit.
“There are groups – like Artemis – which have built successful succession planning into core funds. But this is not the norm, and it is always going to be hard for companies to push the team approach after they have spent a lot of time building up individuals,” McDermott added.
Perhaps the best way it can be achieved, even by groups which have named managers on funds, is to keep pushing other members of the team forward for comment. Companies such as Kames Capital and Fidelity Worldwide Investment both take this approach, trying to expand the pool of people that speak to the media.
Certainly this can help reinforce the point that there is, at nearly all asset managers, a wider team behind the star, all helping to manage the fund and deliver the goods for investors.