Archives for September 2015

Star manager transition – a case study

This was originally published in Investment Adviser

Very successful (or ‘star’) managers are a double-edged sword for asset management firms. The assets they attract are fabulous for the firm when all is well and times are good, but even the most successful managers don’t want to do the job forever, and when they decide to move on, the assets, revenues and profits of the asset manager can, and typically do, fly out of the door even faster than they came in.

In a world of increasingly centralised investment propositions, a relatively small number of fund selectors can simultaneously decide that a fund is no longer preferred and a manager change can be that trigger. This can quickly generate huge outflows as those following their models take action.

In recent years, the resignations of high-profile names such as Richard Buxton and Neil Woodford have forced asset managers to implement their succession plans at very short notice. Within a year of the announcement of their resignations, Woodford’s IP Income fund lost about £4bn of assets and Buxton’s Schroder UK Alpha fund lost a little under £2bn of assets.

In these cases new managers spend their first few weeks in charge of their funds involved in presentations to key fund selectors and analysts in a desperate bid to persuade them that there will be no ill-effects from the loss of the previous ‘star’ manager.

However, where a successful manager is not seeking to set up a similar fund in direct competition with his or her previous employer, a well-managed firm has the opportunity to handle the transition in a much more orderly manner. This is not easy, but the recent transition from Ian McVeigh to Steve Davies at Jupiter UK Growth provides several lessons in how it can be achieved.

A long-term perspective on the transition is essential. First the succession manager must be identified – at Jupiter, Davies joined McVeigh as his deputy manager on the fund in 2007, but crucially this initial move was based on the two sharing a very similar investment philosophy and approach. Initially this meant they formed a strong and successful duo, and as time went on, Davies’ previous experience as a retail sector analyst was a key and visible contributor to the success of the fund.

In 2012 Davies was given responsibility for the Jupiter Undervalued Assets fund which he managed to a very similar mandate to the UK Growth fund. This allowed him to demonstrate his own track record as a lead manager. He also increasingly took on marketing responsibilities for the UK Growth fund so that he was a familiar face to the fund selection community.

In 2013 Davies was promoted to co-manager with McVeigh on the UK Growth fund. Then, earlier this year, with Davies having successfully established a three-year track record in his own right and continuing the very successful track record on UK Growth, Jupiter announced McVeigh’s move to another role within Jupiter looking at corporate governance, and Davies’ transition to sole manager of the fund. His Undervalued Assets fund would also be merged into UK Growth.

The fund selection community was thus carefully prepared for Davies to succeed McVeigh. By the time the transition occurred, fund selectors knew Davies, knew that his investment process would be similar to that of McVeigh, and had evidence that Davies was a strong manger in his own right.

The success of this key manager transition from Jupiter’s perspective can be measured by the fact that given McVeigh’s excellent long-term track record on the fund, there have been small net inflows since the announcement of the manager change.