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Wheel of fortune still turns for the fund fare

Last week&#39s revelation that almost two-thirds of fund managers have been managing their funds for less than three years has highlighted the plight of investors and IFAs.

At a time when IFAs are under increasing pressure to find funds capable of generating positive returns, the gathering pace of fund manager moves is proving to be a huge obstacle in their battle to buck the downward trend of the stockmarket.

Although some of these moves have proved to be a mistake – several managers have been sacked or sidelined for failing to recreate the performance that made their name at rival companies – there seems no sign of things slowing down.

According to this year&#39s edition of the UK Fund Review and Directory, over half of fund managers have been managing their fund for under two years while more than 30 per cent have been at the helm of their present fund for less than 12 months.

In 1997, however, only 16 per cent of fund managers had been managing their fund for less than one year while just 31 per cent of managers had been in charge for less than two years. It is a trend which is increasingly frustrating IFAs.

Hargreaves Lansdown investment manager Ben Yearsley says: “People are getting fed up. The sheer number of moves is not making it any easier to manage money or to advise clients.”

Part of the problem is that many IFAs and investors are buying funds – whether the FSA approves or not – on the strength of past performance and then finding that the management team moves on within a matter of weeks or months.

But the issue is not as universal as the figures might suggest. There are a number of investment houses which have had no difficulty in retaining the services of their top managers. Fidelity, for instance, has 19 managers who have been with the company for between five and nine years and 17 managers who have been there for between two and four years.

Threadneedle has 14 managers that have worked with the company for between five and nine years and 15 for between two and four years.

There are others with good records – Gartmore, Invesco and Schroder among them – but as the UK fund directory shows, it is the smaller companies which tend to be the victims of their managers moving on. However, with the stockmarket suffering, IFAs believe the industry may have seen the worst of the fund manager merry-go-round.

Bates Investment senior investment adviser Kerry Nelson says: “I think companies are starting to think further ahead and look at how they can head off threats from other firms. They are realising that, with the current volatility, they have to hold on to their best managers as investors look for names that they can hang their hat on.”

Nelson is not alone in this view but Yearsley believes it could come down purely to financial considerations. He says: “I think the number of moves will decrease because companies cannot afford to pay massive salaries in a bear market – most are struggling to turn a profit. Look at Jupiter. It has around £9bn under management but only made a profit of £20m last year.

Companies will no longer be able to tempt new managers with big deals.”

Yearsley also expects the high manager turnover to slow to a more natural level as a result of the number of moves that have already taken place.

The managers that have switched companies are unlikely to move again and are often tied to golden handcuffs deals which will deter rival.

It is hard to imagine George Luckraft or Nigel Thomas being prised away from Framlington, for instance, or New Star losing the services of Stephen Whittaker or Patrick Evershed. Despite this, there remain reasons to be sceptical. Bear market or not, many of the most sought after managers are wealthy enough to not be overly concerned about securing a hike in salary from another company.

What appears to be partially motivating those who have moved is working in a different investment environment. Luckraft and Thomas got a substantial financial package for joining Framlington but both are believed to have felt constrained at ABN Amro. They are not the only ones. Many managers who have switched companies are thought to have left because they wanted greater room for manoeuvre.

Rothschild Asset Manage-ment fund manager (Five Arrows) Marcus Brookes says: “The setting up of boutiques like New Star has all-owed managers to escape the institutional process of some houses and given them a huge amount of freedom. But it is not just the smaller houses. Fidelity does not have rigid investment processes and allows managers to do what they want. Another is Thread-needle. It could be that firms with the most rigid structures are the ones that lose the most managers.”

Unlike many IFAs, Brookes believes the pace of moves is unlikely to decrease, saying that companies will seek star managers to enable them to attract new business in the bear market.

With bonuses likely to be down this year, Brookes believes that turnover could accelerate as managers look to secure guaranteed bonuses elsewhere.

It may frustrate investors and IFAs but as long as there are companies which are prepared to offer investment freedom or stakes in their businesses or both, there will be managers moving with alarming regularity.


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