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Fear of the unknown

In the three weeks since Leigh Harrison quit as manager of Credit Suisse Asset Management’s UK equity income funds to join Threadneedle, CSAM sales director Mark Thomas and newly appointed manager of the three portfolios, Errol Francis, have been busy taking their new message to investors.

Thomas says: “Our plan was to contact all our key investors by phone and also to speak to ‘media’ IFAs.”

By the end of last week, Francis and Thomas had completed 16 meetings with key holders of the fund. “To us, that is what is important for those people who have invested in these funds, over both long and short periods of time, who have supported us and have substantial holdings. It is to allow them to make a reasoned decision based on meeting Errol and on what we have to say.”

The Francis/Thomas tour is still on the road, with meetings continuing, including some with the rating agencies.

However, CSAM has its work cut out. Despite working with Leigh Harrison since January 2004 and with 13 years’ experience, he is still considered by many to be a relative unknown in the UK’s fund manage- ment universe.

Francis’s appointment was a “natural decision” according to Thomas. Since leaving Baring Asset Management, Francis has worked with Harrison on the income funds since January 2004 . In April last year, Francis also took over the CSAM growth and income fund. The portfolio has a three-year return of 38 per cent against a UK all companies sector average of 47 per cent. Over 12 months, the fund has delivered 14.7 per cent, against a sector mean performance of 15.3 per cent, ranking it 138th.

The three CSAM income portfolios- alpha, income and monthly income, within the UK equity income sector, over three years they are ranked at 23rd, 37th and 31st respectively out of 70.

There has been no major exodus of money from the CSAM equity income funds, says Thomas, but the funds have been put on hold by many investment professionals, slowing inflows.

The increase in responsibility for Francis is considerable as he is going from running 265m to funds totalling 1.7bn, with the CSAM income portfolio being the biggest at around 1.2bn.

Thomas says: “Errol Francis has been working with Leigh Harrison on these funds for the past two years so he understands the strategy. Errol’s view is that he will not change his management style, which is pragmatic, and I know everybody says this, but it genuinely is. He has experience of both growth and value and it is about finding the opportunities in the market.”

Some advisers have concerns about future prospects..Best Invest investment adviser Justin Modray says: “It is a blow for CSAM. We have tracked Errol Francis’s career. When he was at Baring Asset Management, he had a lack lustre track record and he has had a fairly similar one at CSAM, not dire, but we would not rate him as being a top-class fund manager.”

However, Modray adds: “Francis is an unknown quantity when it comes to managing this level of money but admittedly he as worked as part of the team there and is not coming in cold.”

Bates senior investment adviser Paul Ilott raises the point that while many may be sorry to see Harrison go, they should remember that he was to some degree an unknown when he took over the reins from the well established Bill Mott in 2003.

Ilott says: “We had the CSAM alpha income fund on our panel but this has now been suspended. In regard to the CSAM range of equity income funds we would view them as possibly the group’s strongest proposition. We are disappointed by Leigh Harrison’s move, especially after a relatively short space of time after Bill Mott took a more back-seat role. Unfortunately, it is going to mean that a lot of IFAs are going to have to rethink their position.”

Hargreaves Lansdown head of research Mark Dampier says he has not yet come to a decision on the matter and reckons the likelihood is that he will probably keep watch on Francis over the coming months and see how he beds down. He says: “Francis could potentially be a good story. He has been closely involved with the fund and as far as Errol’s figures on his growth & income fund, they are not that bad.

“As long as I feel he is going to outperform the average, I am relatively happy. I reckon the funds will stay on hold for while.”

Dampier believes that Leigh Harrison left CSAM too soon and he would not follow him to Threadneedle as he “does not believe he is a powerful enough figure.”

Thomas urges doubters to go back and check Francis’s track record at CSAM, which he says is solid and better than some have reckoned.

He says: “His growth and income is top-quartile since April 2001. Errol fully understands the processes and strategies of running these funds and he absolutely sees this as an opportunity.

“He understands that clients will be scrutinising his performance over the coming months but while he is aware of that, it will stay firmly in the back of his mind because he wants to be running the money how he should be – the way he feels he should be.”


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