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Bright spot

I have never been a big fan of the star fund manager culture. Nor am I a fan of those advisers who perpetuate and accentuate it by posing as quasi astrologers, able to not only identify these gurus but then have the conviction to promote them to the world through their contacts in the media.

Occasionally, these advisers are justified in their musings. After all, a handful of managers – and there are so few you will know who I mean – have delivered consistent above-average returns for investors over a long period of time. But for the most part, star fund managers are created by slick marketing departments and are often as robust as the posters on which their faces are liberally plastered.

The (statistical) fact of the matter is that the genuine stars of the fund management world run just a handful of funds in a universe of more than 2,000. The majority of fund managers have been proven to be perennial underperformers, benchmark huggers or poor stock-pickers. Most cannot beat their benchmark but enjoy an annual management fee well above the typical tracker fund which, more often than not, will deliver a superior return.

Some managers – most so-called stars in fact – become famous for what is often fleeting outperformance. And it is frequently far from clear whether that performance is attributable to the skill of the manager or the general performance of the area in which they invest.

One star that seems to have shone brightly in recent times is Robin Geffen of Neptune. With him very much positioned as the “man in charge”, the Neptune Greater Russia fund caught the eye of many – as evidenced by the fund growing from £85m in the summer of last year to more than £260m a year later.

With the fund showing returns of -59 per cent and -17.5 per cent over one and three years, things are not looking so bright now. I wonder if Geffen’s star has now lost a little of its lustre.

While I am not concerned about Geffen’s ability as a fund manager, I am worried that by the time I started to see anything questioning the rationale for a Russia-only fund, the situation had already deteriorated. I imagine there are a few red faces out there among my fellow advisers and I suspect many have had to do some explaining to clients over the last month or so.

I could not, of course, write about the cult of the star fund manager without mentioning New Star. There was a time when the business did not simply boast about how many top-performing funds it had, it battered us into submission with the full weight of its marketing might. While I am sure that Duffield is a brilliantly bright man, most of the managers so heavily promoted by him seem to have become somewhat tarnished in recent months, to the extent that doubts abound over the business’ ability to survive unaided through 2009.

Once again, my concern is not for Mr Duffield or his fund managers but where the situation leaves thousands of investors who bought into the star culture the business was built on. I would like to know what their advisers are saying to them now and whether they are still pushing the star concept.

Clients do not particularly buy the star manager argument, they have it forced on them by people whose interests are not necessarily aligned to theirs. In all my years of advising, I have never had a client who insisted on investing with a particular fund manager.

I am not sure whether this is unusual, nor can I say that the star fund manager culture has come to an overdue end – I suspect not. The marketers and star spotters will see to that. But plunging markets has certainly dispelled a few myths – and undermined a few reputations – and that, for me, has been the only bright spot in an otherwise bleak year for investors.

Bruce Wilson is managing director of Helm Godfrey


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