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Fund duo&#39s departure stalls UBS&#39s take-off

UBS Global Asset Management has become the latest in a long line of investment houses to fall victim to the wave of fund manager moves which is rocking the industry.

But in a week that saw M&G International chief investment officer Theo Zemek and Invesco Perpetual UK manager Stephen Whittaker join New Star, the resignations of Hugh Sergeant and Hari Sandu still came as a major surprise.

The move raised eyebrows because their decision to join SG Asset Management has forced UBS to shelve two funds – the UK growth and UK equity income – which were to spearhead this month&#39s much heralded launch into the UK retail market.

Hargreaves Lansdown senior analyst Meera Patel says: “It is obviously good news for SG – which has its own problems in this area – but it leaves UBS in a bit of a mess. It has been left in the lurch and means that it really needs to shake up its fund management arm to compensate for the loss.”

Although there is little chance of this happening within the next few weeks, UBS is still going ahead with its retail launch in June but only with lower-profile funds, believed to be a balanced managed fund and one other yet to be determined, which IFAs suspect will distinctly underwhelm the market.

Its flagship funds have been put on the backburner until September. Head of retail Graham Kane may play down the loss of the managers as “a bit of a setback” but there is little doubt that UBS will hit the retail market with more of a whimper than a roar.

Plan Invest joint managing director Mike Owen says: “UBS was on the runway with the launch – it had made a number of presentations already – and the engine has stalled. It is a nightmare and will put a question mark over its credibility when it tries again later in the year.”

UBS may have some work to do to restore market confidence in its retail proposition but SGAM has bolstered a team that had itself been depleted by the recent defections of head of European equities Dino Fuschillo and UK growth manager Peter Seabrook.

Chief executive Nicola Horlick says SGAM now has “one of the strongest UK equity teams in the industry”. Her comments echo those made by Framlington last month after it poached George Luckraft and Nigel Thomas from ABN Amro, a company seeking an acquisition or other top-class managers to plug what will be a gaping hole in its UK team.

UBS may not be hit as hard by its dual departure – Sandu and Sergeant are lesser names than the ABN pair as they are new to the retail market coming from institutional management and their funds were yet to launch – but their loss does demonstrate the propensity for managers to make joint decisions on their future.

Framlington says some managers feel they work better as a pair than on their own but it believes the latest dual move may reflect a growing inclination among fund managers to seek deals which offer much more than Premier-ship-sized salaries.

Marketing director Craig Walton says: “The trend is now for managers with big companies to move to smaller firms because they are able to offer them equity deals that they feel reflect their own importance to the business. That is the case with George and Nigel, who both have equity options with Framlington.”

Many IFAs agree with this view but believe that fund managers may just be gambling on where the company they are joining may be headed over the next few years.

Simpsons IFA partner Mark Waters says: “They are all chasing the big payoff. The UBS guys are going because they could not get a slice of the pie. That is why I think everyone is joining New Star. They are banking on John Duffield doing another Jupiter and selling the company at some point in the future.”

Whatever the reasons for the latest manager merry-go-round, IFAs are becoming increasingly nervous about investment houses putting all their eggs in the star name basket. What Patel thinks companies should be looking to do is develop an approach to fund management which places much less emphasis on the big names.

She says: “Investment companies should be thinking about new strategies, perhaps implementing a more teambased approach which would make it much less of a shock to the system when a star manager leaves. New Star is the exception. It will not be hit as hard as other firms when someone goes because they have so many stars and a such a huge marketing budget.”

Patel believes that New Star – as well as SGAM, Framlington and other mid-sized companies – may be successful in attracting the big managers because of the freedom they can offer them. Instead of the drudgery and bureaucracy of daily meetings, she believes smaller firms allow them to do what they do best – manage funds.

So what can the bigger firms do to protect their investment? On this point, most IFAs agree – they must offer incentives to their managers in the same way that the smaller firms can. With the Inland Revenue possibly setting a precedent by allowing Rathbone investors to follow Patrick Evershed to New Star without incurring capital gains liability, the stakes have never been higher.


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