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Playing for keeps

Matt Davis on whether profit-share really helps fund firms retain talent

News last week that Neptune is to offer its employees a profit-share and the strong suggestion Investec is about to do the same suggests the industry has been doing some soul-searching over how best to offer incentive to talent.

Neptune says the competition for quality fund managers has never been more ferocious. The company will now to distribute at least a third of its annual pre-tax profit among its investment team. But the move be closing the door after the horse has bolted since the announcement came on the same day that the firm lost its UK equity manager Greg Bennett who is thought to be going to Marlborough.

The firm also lost Barry Norris and Oliver Russ to Britannic Asset Management’s Argonaut boutique earlier this year and was criticised by Hargreaves Lansdown head of research Mark Dampier who said it needed to offer better incentives to its remaining talent. Boss Robin Geffen defends the timing of his profit-share move and the motives behind it. He says he is aiming to boost performance rather than retain talent.

Geffen says: “This is something that we have worked on over the past three months. The scheme will reward top-decile and top-quartile fund managers. The only star at Neptune is the process and we have demonstrated clearly that we are able to rotate our fund managers without hurting performance on our US, European and Japanese funds.

“We have a very loyal IFA base and people who invest in us do so because of the process, not because we operate a star culture.”

Old Mutual head of marketing Simon Wilson is philosophical on incentives to keep staff, preferring incentives for them to perform. When Old Mutual’s high-profile bond manager Richard Woolnough left for M&G in January 2004, to be replaced by former Aegon manager Stephen Snowden, a degree of uncertainty ensued. But over a year, Snowden has taken the fund to number one in its sector compared with M&G’s two corporate bond funds which both rank third-quartile over the same period. Wilson says: “People are always going to leave any job, whether fund managers, journalists or postmen, and there is nothing that can be done about it. All our managers have incentives to perform but when fund managers move on or hand over their funds it does not necessarily have an adverse effect on performance.”

SVM lost four managers last month but has no plans for a profit-share. Spokesman Roland Cross says SVM fund managers are offered attractive packages, including equity stakes and a bonus scheme.

Cross says: “The firm’s investment managers get stakes in the business and bonuses on the basis of their performance. We do not classify these as a profit- share but that is effectively what good managers are getting. I do not think that fund managers leaving is due to a lack of share in the success of the business.”

It is not always a case of moving for money. Former Credit Suisse income manager Leigh Harrison is thought to have moved to Threadneedle at least in part to be reunited with his old friend and head of equities Michael Taylor, with whom he worked at Hill Samuel more than 10 years ago.

Credit Suisse sales director Mark Thomas says: “When Leigh left, he mentioned Mike’s name. There is obviously a clear link there.”

Threadneedle communications director Dick Eats sounds a note of caution over profit-share arrangements.

He says: “Profit-share schemes need to be structured to stop people acting in such a way as to look out for their short-term interests. At Threadneedle, we operate an equity scheme linking managers to the long-term health of the business and always to act in the best interests of shareholders.”

New Star’s equity-share scheme is well documented. When its Aim float made a millionaire of the firm’s receptionist, New Star gained considerable media attention. The deal is also designed to lock them managers into the business and to reassure potential investors.

Spokesman Ben Robinson says: “New Star employees participate in a share-incentive scheme where everyone owns a slice of the company. The shares owned by directors and staff are subject to lock-in arrangements that do not expire until November 2009 and this ensures that the interests of our employees remain closely aligned with those of our clients.”

Investec is refusing to comment on whether it will go ahead with a profit- share scheme.

Dennehy Weller managing director Brian Dennehy says: “In the long term, if every fund management house starts offering profit-share schemes, equity and all the rest, then companies will be competing with each other at this level so the impact on retention over time would be neutral. I think it is good for a business’s employees to share in its success but perhaps what we would like to see is all the employees being paid more, rather than just the key fund managers.”


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