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Matrix unloaded

The controversial move of the 30m Quantock UK growth fund from Matrix to Marlborough demonstrates the power wielded by managers in disputes over the control of their funds.

The Oeic was started by manager Bob Brown’s Bristol-based RC Brown Investment Management in the mid-1990s. It was taken over by Matrix in mid-2000 at a value of 11m, before falling to 7m in the bear market. By July 2005, it had risen to 32m.

Matrix director of sales Fred Sinstead says: “In June, we got a letter out of the blue from Bob Brown saying he was unhappy with the way we had marketed the fund and that he wanted to move the authorised corporate directorship of the fund to Marlborough.”

Marlborough used its fund of fund money to increase its stake in the fund to 4m.

Along with his supporters, Brown, who had 1.8m invested, was able to request an extraordinary general meeting on July 13, at which the fund’s biggest shareholder, Credit Suisse’s fund of funds manager Robert Burdett, voted alongside Brown and Marlborough to keep management of the fund with Brown and move it to Marlborough.

Sinstead is unhappy with the outcome and feels that shareholders will lose out because the Quantock fund will bear the costs associated with the move.

Marlborough will not comment on the issue but is understood to be bearing some of the costs as part of its agreement with Brown.

Sinstead points out that the move could be the first of many, as there is no rea- son why any fund manager unhappy with the way his fund is being marketed could not force a similar move.

Seven Investment Management director Justin Urquhart Stewart says smaller fund managers such as Brown could increasingly switch between authorised corpor- ate directors for marketing and distribution reasons. He points out the importance of platforms in providing a fund manager with volume and subsequently reducing costs to unitholders.

Urquhart Stewart says: “We depend on volume in a fund to bring down its total expense ratios. The world is not a great place at the moment in terms of marketing, so platforms with imagination in the way they market will gain an edge on those where people question the benefit of having their products on board.”

Matrix did not market the Quantock fund on a supermarket, saying it would have been uneconomic.

But Quantock rose by 80 per cent in the three years to August 2005 against a sector average of 43 per cent and, according to Hargreaves Lansdown head of research Mark Dampier, its strong performance deserved more attention.

Dampier says: “To be on Cofunds and some of the bigger supermarkets, you have to pay 25,000 a year to get on the shelf. But private investors were not buying the Matrix fund and nobody had heard of Quantock. Generally, fund managers are really poor at marketing, they just do not understand it at all.”

Baring Asset Management marketing director Ian Pascal says the distribution power of bigger firms is something that attracts good fund managers. He has seen funds like Quantock selling poorly and failing to grow at the pace they deserved, despite good performance,

Pascal says: “When I was at Hill Samuel, our TU European fund was a great performer but we could not market it because of the name and TU did not have the resources to market it themselves.

“It is an advantage we have over other people that we have the distribution to market a fund manager properly.”

Chelsea Financial Services managing director Darius McDermott says the boutique arrangement between Brown and Matrix evidently did not work out. He likes Marlborough for its special situations fund run by Giles Hargreave, which is up by 182 per cent over three years to August, and its equity income fund. He also likes the Matrix venture capital trusts, including Matrix income and growth, Foresight technology and the Unicorn range.

McDermott says: “We like Marlborough and Matrix equally. That said, Marlborough certainly has a stronger brand on the unit trust side than Matrix. But, ultimately, I care about unitholders and performance. If the fund manager is happy, he is much more likely to perform well and that is the way I like it.”

Sinstead feels that Matrix marketed Quantock well, shown by the fact that it grew the fund from 7m to 30m in a bear market.

Matrix and Marlborough are understood to be suing each other for potential lost earnings and defamation, respectively. Brown is unavailable for comment.

Dampier says: “Anyone could kick anybody else off a fund now. I was surprised Bob did not take on the extra compliance of owning his own fund, employing somebody to do the marketing. I was not terribly impressed with either party, to be honest, and the people who are forgotten in all this are the unitholders.”

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