While the concept of ‘star managers’ may have lost some momentum in recent years, AJ Bell head of investment research Paul Angell (pictured), says there are still plenty of funds that are subject to key person risk.
This year, Jupiter UK Special Situations fund manager Ben Whitmore announced his decision to exit the firm in order to set up his own boutique, while Mike Riddell is set to join Fidelity after leaving 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,” Angell says.
“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.”
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Co-manager structures
To mitigate key person risk, asset managers are increasingly adopting co-manager structures. Angell points to the announced exits of Kevin Murphy from Schroders’ value team and Janus Henderson bond manager John Pattullo’s decision to retire in 2025 as two examples of this type of succession planning, where he doesn’t expect manager departures to have a pronounced impact on the investment franchise.
Murphy co-headed the team alongside Nick Kirrage, while Pattullo worked alongside Jenna Barnard. AJ Bell’s Angell says that, due to this continuity, investors and fund selectors have a much greater level of certainty in the ongoing deployment of the investment approach after the manager departures.
“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.
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“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.”
However, Angell also argues that there can also be risk in fund managers staying 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.”
