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Will 2013 star manager exits spark new boutique trend?

Will 2013 star manager exits spark new boutique trend?

Graham French is the most recent high-profile manager to step down from the £4.3 billion M&G Global Basics fund, topping a remarkable year for star manager departures.

The list goes on but obvious names to include are Neil Woodford (pictured) of Invesco Perpetual’s decision to launch his own firm, while Richard Buxton’s move from Schroders to Old Mutual meant that Citywire AA-rated Philip Matthews was poached from Jupiter by Schroders, alongside AA-rated Alex Breese from Neptune.

Meanwhile, veteran Anthony Bolton also took the decision to retire alongside Philip Gibbs. While the motives behind the major manager moves of this year vary, it is perhaps no coincidence that they all ran substantial pots of money, living and dying by their reputations.

Chris Rice and Tim Russell are two fund managers who opted to go down the boutique route, with plans to launch an investment trust which will have a stake in their new asset management venture Sanditon. As pressures mount on those running behemoth funds, could others follow suit?

While Rathbones head of fund research David Coombs views the high frequency of high-profile manager moves as a coincidence, he argues it nonetheless highlights the tensions that can form between talented fund managers and their distribution teams.

With this in mind, he says we could expect to see a more pronounced trend of managers with solid track records moving to boutiques to avoid distribution pressures.

‘I think there are some funds that have grown very big. There probably are creative tensions between the fund managers and distribution arms of the business, and they [the fund managers] are suddenly running too much money,’ he said.

‘This brings pressures and interference and it would not surprise me to see some fund managers who have got a lot of experience and value in their name saying, “I would like more control over what I am doing”. 

‘You could see a move to boutiques as fund managers feel they can’t be as active as they used to be. I would not be surprised to see more fund managers leaving next year.’

He added a concentration in fund buying could be behind the trend, causing large funds to get even bigger.

Meanwhile, as large houses undertake negotiations with distributors ahead of new platform rules next year, Coombs expects big groups will be pressured to drop fees while boutiques with talented managers will be better placed to keep their fees higher.

He doubts that remuneration is likely to be a key motivation for an established manager to leave their company but rather a desire to maintain strong performance.

‘If you are worried about your reputation as your fund is getting bigger and you feel you have lost control, it is about your reputation for performance. You will want to retire with that intact if you are wealthy and less driven by financials,’ Coombs added.

Aberdeen co-head of multi-manager Aidan Kearney takes a different view. He does not expect to see a prolonged trend of manager departures to boutiques, arguing that if anything, the trend will be towards large companies as consolidation continues apace.

‘The big are getting bigger. In that environment, we have seen a slowdown in boutiques over the last year or so,’ he explained.

‘There is the issue of incremental compliance cost and distribution power. Boutiques will struggle unless they have a way to combat those things,’ he added.

Reacting to star manager departures

When a star manager departs, how should unitholders react? In Kearney's view, it is important to not follow the herd.

‘Do not act on others’ reactions. For one, your circumstances are likely to differ and any action you take should be relevant to you. That said, you must be aware of the impact of the reactions of others as this will affect fund flows. It is simply another factor to consider as part of the wider picture,’ he explained.

Andrew Wilson, head of investment at Towry, says it is important to look at things on a case-by-case basis: ‘We don’t have a hard and fast rule on it, but generally we move on as we have something lined up that we like. It is generally not really worth that risk if you have something lined up elsewhere, which we tend to do.’

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