If a fund manager leaves the fund they run the case for investing in it needs to be reassessed. This is particularly the case when a manager has run it for a long time and developed a big following, because as well as possible changes in the way the fund is run, a departure can lead to investors withdrawing their assets from it.
Just as in any other profession fund managers change jobs. This could be because they have moved to a rival company to run a similar fund or because they are going to retire. And popular managers with good long-term records may leave to set up their own asset management companies to keep the profits they generate for themselves. Examples include Neil Woodford who set up Woodford Investment Management and Richard Pease who set up Crux Asset Management.
Asset management companies spend significant amounts of time planning for when popular and high-profile managers step back, to try and minimise the amount of money investors take out the funds they run. But this isn't done publicly so investors usually don't know a manager is leaving until a few months before the departure date.
For example, Jupiter recently announced that highly regarded manager Alexander Darwall will step down from Jupiter European Fund (GB00B5STJW84) by the end of this year. The company has appointed Mark Nichols, currently co-manager of Threadneedle European Select, (GB00B8BC5H23) as his replacement. They will manage Jupiter European together for a few months before Mr Nichols takes sole charge.
Gill Hutchinson, research director at rating agency The Adviser Centre, says asset management companies put a lot of thought into succession planning because of the negative impact a sudden manager departure can have. For example, when it was announced that Jason Pidcock was leaving Newton Asian Income (GB00B8KPW262) in May 2015 after nearly a decade at the helm, the fund was team managed for over a year until Zoe Kan was appointed lead manager in June 2016. Many investors withdrew their money from the fund and its assets under management fell from £4.4bn in May 2015 to £2.3bn in the space of 12 months.
“[Asset management companies try] to mitigate the risk of outflows following news of a manager leaving or retiring," says Ms Hutchinson. "This is particularly important in the case of the largest funds of which the manager has a strong following. Asset managers are nervous about [addressing the issue of] retirement but facing this challenge earlier rather than later helps investors and rating agencies prepare for a change. It provides a degree of comfort for agencies and [may persuade wealth managers] to continue holding, rather than to sell, the fund.”
AXA Investment Managers planned for the retirement of Nigel Thomas, the longstanding manager of AXA Framlington UK Select Opportunities (GB00B7FD4C20), many years in advance. Mr Thomas had run this fund since 2002 and retired at the end of 2018. But years before this the company was thinking about replacing him with Chris St John. In 2011 it made him manager of AXA Framlington UK Mid Cap (GB00B64W4Q70) and in 2016 he was appointed manager of newly launched AXA World Funds Framlington UK (LU1319653462), which he runs via a strategy similar to the one Mr Thomas used with AXA Framlington UK Select Opportunities. This meant that by 2018 Mr St John had an established track record for investors to see when he took over from Mr Thomas.
Baillie Gifford, meanwhile, started planning for the retirement of highly regarded Japan manager Sarah Whitley around 10 years in advance. She retired as manager of Baillie Gifford Japanese (GB0006011133) and Baillie Gifford Japan Trust (BGFD) in April 2018, which she had worked on since 2007 and 1991, respectively. Matthew Brett now is lead manager of both these funds but had been deputy manager of Baillie Gifford Japanese since 2008.
Jenny Jones retired as manager of the Schroder US Mid Cap (GB00B7LDLV43) and Schroder US Smaller Companies (GB00B7LDL923) funds at the end of March this year, and was replaced by Bob Kaynor. He had been director of small- and mid-cap research at Schroders since 2014, suggesting that the company had been preparing him to take over these funds.
“Many of these funds were rated by The Adviser Centre and, to varying degrees, we understood the path to retirement," says Ms Hutchinson. "The succession planning was months or years in the making, reflecting the importance placed upon the continuity of approach and investor outcomes. This enabled us to retain our ratings on the funds."
Managers to watch
A number of high-profile managers have partially or fully retired over the past 12 months. This highlights how important it is to have an idea of which funds might have a manager change in the near future and to get an idea of how asset management companies will handle the transition. But the possibility that a manager might retire in the near future is not necessarily a reason to avoid a fund. Investment styles and strategies can be taught, so what you should look for is a conscious effort to ensure continuity of approach with a fund.
Popular managers who run their own companies may find succession planning more difficult because their funds are based on their strategy and investment style, as implemented by themselves. However, Adrian Lowcock, head of personal investing at broker Willis Owen, says: “Fund managers who run their own business are more likely to stay on for longer. Larger groups may have stricter rules on retirement ages which cannot as easily be changed.”
For example, emerging market equities veteran Mark Mobius left Franklin Templeton when he was 80 years old, but has since set up Mobius Capital Partners and launched Mobius Investment Trust (MMIT).
Listen to our interview with Carlos von Hardenberg, co-manager of Mobius Investment Trust
“Fund managers often do not reach their full potential until they are in their 40s and then it can take a while before they develop reputations," adds Mr Lowcock. "So most well-known fund managers are already in their late 50s or 60s.”
Examples include Richard Pease, who set up Crux Asset Management in 2015, and runs the FP Crux European Special Situations (GB00BTJRQ064) and FP Crux European (GB00BYQJX435) funds. Mr Pease rose to fame at Jupiter running Jupiter European Fund between 1989 and 2001. There is no suggestion that he intends to retire in the near future, however, he appointed James Milne as co-manager on both funds in 2015. Mr Milne has worked in asset management since 2006 and may become lead manager of these funds when Mr Pease steps down.
Terry Smith, meanwhile, has been sole manager of Fundsmith Equity (GB00B41YBW71) since launch in 2010, during which time its performance has been excellent and its assets under management have grown to £18.6bn. There is no indication of who might take over when he retires, but last year Fundsmith launched Smithson Investment Trust (SSON) which is run by Simon Barnard and Will Morgan. It will invest in a similar fashion to Fundsmith Equity but focuses on smaller companies which Fundsmith Equity is too large to buy. So one of both of these managers could work on Fundsmith Equity in future, although Fundsmith has not said that this is the case.
Nick Train runs Lindsell Train Investment Trust (LTI), Finsbury Growth & Income Trust (FGT) and LF Lindsell Train UK Equity (GB00B18B9X76). He is also co-manager of Lindsell Train Global Equity (IE00BJSPMJ28) alongside Michael Lindsell, with whom he launched the company which runs these funds, Lindsell Train, in 2000.
Lindsell Train Investment Trust's largest investment is a stake in asset manager Lindsell Train. The investment trust's board has said that this company's lack of succession planning poses a risk to its future prospects. However, Lindsell Train Global Equity Fund has a third manager – James Bullock – who joined the company in 2010. He passed the first stage of his investment qualifications in 2012 so could be in line to take over when Mr Train or Mr Lindsell retires.
Solid succession planning
Large firms where the fund managers are not in charge of the business can find it easier to plan for the future.
For example, Adrian Frost started managing Artemis Income (GB00B2PLJJ36) in 2002 and was joined by Adrian Gosden in 2003. In 2014 the firm appointed a third co-manager – Nick Shentin – and when Mr Gosden left to join GAM Investment Management in 2016 Andy Marsh became co-manager. This process means that whenever there is a manager departure, there is still at least one reasonably experienced existing manager in place.
Giles Hargreave has managed Marlborough Special Situations (GB00B907GH23) since 1998 and Marlborough UK Micro-Cap Growth (GB00B8F8YX59) since 2004, and made strong returns with these funds which are popular with investors. Marlborough appointed Guy Feld as co-manager of Marlborough UK Micro-Cap Growth in 2012 and Eustace Santa Barbara as co-manager of Marlborough Special Situations in 2014. Although investors will not be happy when Mr Hargreave steps down from these funds, Marlborough should have managers in place with reasonably long track records.
