When a fund manager steps down from the helm, it naturally leaves investors unsettled.

High profile manager exits have in the past triggered investors to withdraw hordes of cash.

When Neil Woodford left Invesco Perpetual to set up his own shop, reports at the time suggested clients withdrew £1bn in the two weeks following the announcement alone.

This week, news that Angus Tulloch and Jonathan Asante are to step down from a number of funds including the Stewart Investors Asia Pacific Leaders and the First State Investments Asia Pacific Leaders funds, made headlines.

Both managers have featured prominently on fund ‘buy lists’ for decades. Tulloch has been managing emerging market equities since 1988 and is one of the foremost managers in the space.

While manager departures can be unnerving, there are a number of questions for investors to consider before they decide whether to sell or hold a fund on the basis of a manager change.

1. When is the manager leaving?

Take note of whether the manager is leaving immediately or whether there will be a handover process. Tulloch, for example, is not leaving the firm completely, just stepping down from day-to-day management, and not until 1 July 2016.

James Bateman, head of portfolio management at Fidelity Solutions, says: “This simple detail can impact a fund’s performance in the weeks following a departure announcement: an extended transition period over many months can mean the outgoing manager still holds the reins for a good while to come, and also provides ample opportunity to train their successor. Sudden departures can also happen, but thorough succession planning can mitigate the shocks these pose.

“If a fund manager is going to stay around for a substantial length of time after announcing their departure, this also gives investors some time to consider their options before the change takes place.”

2. Why is the manager leaving?

This will have an impact on the way they manage their fund until their departure.

Bateman says: “Like leaving any job, there are lots of reasons a manager could leave a fund. Retirement, career breaks and personal circumstances are facts of life – particularly for portfolio managers who’ve worked tirelessly for many years with little reprieve. But the type of departure can impact the performance of the fund if it affects the manager’s approach before leaving.”

If the manager is sticking around for a few months, then it’s important to know about their motivation and level of engagement over this period.

Bateman says: “A manager retiring from the industry altogether will have different motives for maintaining their track record than a manager setting up a new business themselves, for instance. The reason for a manager’s departure can impact the way they perform until they leave – the more distractions in a PM’s life, the less focused they are likely to be on their portfolio.

“Of course, talk is cheap. It’s obviously in the manager’s interest to reassure clients they will work hard until their exit date, but it can be difficult for individual investors to be sure of their true motivations. This is where manager selection professionals can add real value. By meeting managers regularly and establishing close relationships, they can gain personal insight into the manager’s likely approach in stepping away from the fund.”

3. Who is the new manager?

Note who the new manager will be and whether their style of investing is consistent with the outgoing manager.

“It’s important to find out whether a fund is likely to change significantly when it transitions to new management,” Bateman says.

“In some cases, the reins are handed over to longstanding close colleagues of the departing manager – who plan to run the fund in much the same way, using the same processes and investment philosophy. This was the case following Neil Woodford’s departure from Invesco Perpetual Income and High Income funds, as successor Mark Barnett had worked closely with Woodford for a number of years and made clear he would follow a similar process and strategy to Neil.”

David Gait will take over management of the Stewart Investors Asia Pacific Leaders fund having worked closely with Tulloch for 15 years. However, he will adopt a sustainable approach as part of the change.

Research firm FundCalibre removed its ‘elite’ rating on the fund following news of Tulloch’s exit.

Darius McDermott, managing director of FundCalibre, says: “David Gait has an outstanding track record on the Elite Rated Asia Pacific Sustainability fund. However, there is a question mark as to whether he can translate the sustainable investment process from what is currently a small and mid-cap fund to an all-cap fund. We will request a meeting with David to talk through this further and may reinstate the Rating on the Leaders fund at a later date. For now, however, it must be removed.”

4. Why did you buy the fund in the first place?

A manager departure is a good time to take stock and reassess why you put your money in the fund from the outset.

“If you bought the fund solely on the basis of its strong fund manager, then you’ll need to be sure incoming management will be able to continue running the fund with the same success. If you bought the fund because you liked its area of investment focus or strategy, then you’ll need to make sure these will still align with your preferences when the manager leaves,” says Bateman.

“Of course, if you’ve held a fund for a long time, your goals and personal circumstances may have changed. Remember to check regularly your choice of funds match up with your individual needs – whether their managers change or not.

“It’s often a good idea to have some other funds in mind which do similar things to the funds you’re invested in. In the event of a manager departure, having a list of similar funds – and understanding how they work compared to the ones you already hold – can give you some more ideas if you do choose to move your money elsewhere.”

[article_related_posts]