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Flush with success

Potter and Burdett play their cards well but I won’t abandon constellation fund.

I feel a bit sorry for Credit Suisse. With the departure of Gary Potter and Rob Burdett unfortunately timed to coincide with a fairly savage market correction, it is likely that any outflow of funds has just been exacerbated – especially when the April statements hit the doormat.

I love the constellation fund. It is a prime example of the point I am making in this column that fund managers are very much like poker players in that they combine skill, timing and good fortune to self-promote as well as deliver good returns.

Recently, a landlord was prosecuted for holding a poker tournament on his premises without a licence. His defence was that poker was a game of skill and therefore no gambling licence was required but the court ruled that as there was an element of chance in which cards were dealt, it was gambling and h lost his case.

Was the court right? Well, there is undoubtedly a huge element of gambling in the poker world but the same players seem to contest the world series finals year after year. Are they just lucky? My faith in probability tells me otherwise. Basically, they play their cards right whatever they are.

I think fund managers are very similar. They spread portfolios across asset classes based on diversification of risk and hope that they do not either go overweight in a sector that bombs or underweight in a flyer. This can be put down to good judgement, of course, but there is also clearly an element of luck which marketing departments are ready to exploit in poster campaigns if outperformance results.

There are many household expressions that derive from the world of poker such as call his bluff, your call, on the button and keep your cards close to your chest. I wonder how many managers of UK bond funds have felt a bit like they have been dealt 7-2 off-suit over the last year? How many emerging markets managers, by contrast, until recently have enjoyed several royal flushes?

So I return to the departure of Potter and Burdett for Thames River. Not for the faint-hearted investor. They have carved a deserved reputation for sourcing boutique funds and combining them for decent performance over the medium to long term. They have undoubtedly played some tricky hands very well indeed and rank as top fund managers in my book but they have also ridden their luck at times.

I will not be abandoning the constellation fund. I feel sure that there will be a safe pair of hands in situ very shortly and that the fund will prove that it is bigger than its founders. I hope so, anyway.

In this time of robotic asset allocation, platforms and wraps, where the skill of the adviser is in understanding the software, I can almost understand if more talented individuals ply their skills closer to the world of hedge funds – surely the investment equivalent of no limit poker – and we see an increasing divide between mass, robotic, diversified but compliant portfolios producing mediocrity and higher-net-worth spiky and strategic planning for sophisticated investors but with far greater risk premiums.

All in with a pair of sevens, anyone?

Steve Buttercase is senior adviser at M2 Financial.


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