Is a fund better off with a sole manager or a team?
By Charlotte Richards
The year so far has been full of manager and senior staff moves. Earlier this month, eight senior staff at Standard Life Aberdeen left to go to Aviva Investors, to join former Standard Life Investments equities head David Cumming.
With moves like this in mind, is a management team or sole manager the better choice? Every investment house has a different style in managing funds. Some have lead managers with assistants in the team, others have a whole team of joint fund managers and some groups have just the one fund manager with a team of analysts.
Rathbones Unit Trust Management multi-asset investments head David Coombs does not believe in management committees, and says funds should be run like a company, for example with someone like a chief executive at the helm.
He says: “I’ve sat on many investment committees and lots of decisions were put off for further analysis and research. There wasn’t a consensus result. I don’t think it’s the right way to run money. I don’t think it’s the right way to run anything. You wouldn’t expect Amazon or Google to have a committee of chief executives.”
Liontrust multi-asset head John Husselbee disagrees. He says: “It is dependent on what you are managing and, in the case of something that has many moving parts, you’d expect many people on the team and then sub-teams. For instance, in something like global emerging markets it’s fairly common to split those teams into Latin America, Eastern Europe and Asia.
“I’d suggest you always need someone to orchestrate the portfolio and take the ultimate decision in terms of what goes in and what goes out of it.”
When it comes to size of funds, the sole versus team manager debate turns into more of a capacity argument.
The Standard Life Investments Global Absolute Return Strategies fund – otherwise called Gars – is frequently used as an example of a fund that has a large fund management team: and with good reason. It currently stands at £17bn, despite regular outflows taking place over the past few months, leading to a fall of £8bn.
When talking about Gars, there are plenty of moving parts and Husselbee says the insights of a large team are needed, but someone needs to bring them together to make a call on the best ideas.
He adds: “It is like a conductor of an orchestra, and there are clearly some who are better than others.”
"It is like a conductor of an orchestra, and there are clearly some who are better than others"
However, Coombs says it is an example of how a big team does not work well. “You have lots of competing views. Portfolio construction and working out correlation and risk is hard enough, but you’ve got lots of people with different views trying to put it all together. I frankly don’t know how you do it.”
Each fund needs to have one person who is accountable for everything, Coombs says. “They may not have their eye on the detail of every stock, but they probably have a veto power.
“I’d argue that some of those funds get too big and then they expand the portfolios to be too wide. A fund that gets too big within its universe, you can throw as many people and resources at it as you like, it’s still going to struggle. I don’t think there is ever a case for broadening the team.”
Continuing the success
Regardless, succession of lead fund management is imperative. Husselbee points to Ed Legget as an example of a fund manager succession plan that worked.
Legget left Standard Life Investments in December 2015 and joined Artemis. Since then, Wes McCoy – who was co-managing the fund before Legget’s departure – took charge of the fund. The chart shows the past six years’ performance, showing how the fund did not face a particular struggle once he had gone.
Husselbee says: “There is evidence that if you hang on to things, incumbents tend to do a fairly good job.”
Coombs also says that, while he does not completely agree with co-manager teams, there are some that do work.
He says: “[BMO co-heads of multi-manager] Gary Potter and Rob Burdett have worked together for years. They take responsibility of different parts of their portfolio and it works for them. It can work, but generally speaking, two joint managers is difficult. Not impossible, but difficult.
“Fund managers have egos. And getting two egos to agree at any one time is difficult.”