BLOG: The cult of the star fund manager

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Never has this subject been more topical than in the week after Neil Woodford parted company with Invesco Perpetual and his range of income funds beloved by private and professional investors alike.
BLOG: The cult of the star fund manager

The professionals will take a not unprofessional view on his exit; they will do their due diligence, assess the strengths and weakness of the team he has left behind, and act accordingly.

The private investor who fails to avoid reading the financial press over the next few weeks will be seduced with offers from every income fund manager under the sun, but when Woodford sets up the ‘Woodford boutique’, a lot of money will follow him, confirming his cult status – something he never asked for but has anyway.

He is, however, human, not God-like, contrary to the stories told by some visitors to the shrine in Henley, and has suffered some pretty dismal periods of underperformance over the years.

While we assume he will be pursuing much the same strategy in his new venture (and buying the stocks Invesco Perpetual will be selling to meet redemptions, perhaps) there is no guarantee he will repeat his success in the short term – just ask Anthony Bolton.

Bolton handed over Fidelity Special Situations pretty much at the peak of its relative outperformance and, being an admitted China buff, decided to try his hand out there. With zero track record and not a lot of experience of the Chinese market, he raised nearly half a billion at launch in 2010 – cult status indeed.

But do we need to follow such idolised fund managers? Looking at the early performance of Bolton’s China Special Situations trust, the answer would seem to be no.

The emphasis today is on teamwork. Who would invest in a fund running significant sums of money with a team of one?

The theory runs no one team member is indispensable, and that includes the lead manager.

If the process is truly collegiate, then this is a valid argument. We see this all the time in start-up fund management businesses; beginning the journey with the best intentions.

The professional fund selectors will spot new entrants worth backing, but it is not until a ‘decent’ track record is established (which is a moveable feast, depending upon your viewpoint) that the less sophisticated investor climbs on board and the team is blessed with significant inflows. If they are successful in managing those flows, cult status for the lead manager pretty much arises as a self-fulfilling prophecy, despite it all being a team effort.

From our perspective, knowing the depth of knowledge and experience within the team is absolutely vital in formulating a recommendation when the inevitable happens and the lead manager departs.

Even more importantly, will the investment process continue to deliver the consistent alpha in the future that we are looking for?

While we beaver away looking for teams that work together in an environment which allows them to develop the edge they bring to their investment processes and who can truly say ‘We’ run this fund, there will always be the reluctant stars put on a pedestal by an adoring public.

How many times have we heard the phrase “Never sell that Neil Woodford”? Now it seems some of them will have to…

Clive Hale is a partner at Albemarle Street Partners

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