The end of an era?

Over recent years the fund management industry has witnessed a number of high profile exits of 'star fund managers' - managers who have accumulated a large degree of respect and investor loyalty over a number of years and are seen as essential to the wellbeing of a particular fund.

and was significantly behind some of the funds main competitors. One possible reason for this is the size of assets he and his team were managing, restricting the investments
they could make. If a manager is a victim of their own success and is unable to allocate capital in the way that they would like (whether they admit it or not) this can hamper performance and reduce investor returns.

This is something we have become increasingly cognisant of in recent years, as in some instances the benefits of being invested with a 'star' fund manager seem to have gradually been eroded by the threat of their departure, and sub par returns due to size constraints. This is where a thorough due diligence and investment process can really pay dividends, and asking the right questions at the outset can help calm potential fears. Questions such as, "How is the fund manager remunerated?" and, "What happens if they decide to leave?", may sound like simple questions when deciding where to invest, but they can provide insight as to whether your long-term goals are aligned with that of the manger. Clearly it is important to have a blend of styles when constructing an investment portfolio, but having faith in a team process rather than one individual can also help with risk management and long-term planning.

If a manager does leave, it is important to understand if the fund is likely to change significantly and what the handover process will be. Another important part of the due diligence process would be to meet the team behind the primary manager, so if they do leave, you are comfortable that the investment process can remain unaltered. Regularly meeting the fund management team to 'see the whites of their eyes' and 'kick the tyres' can be an essential part of your on-going research process, and will help make decisions easier if the time does come to review the investment.

If your confidence in the fund is materially impacted by the manager's departure, having a list of alternative investments you are able to switch into in a prompt manner which have already been researched is also advisable, and again can help reduce the impact of a manager's departure.

Having a due diligence and research process that accounts for not only performance measurement, but also some of the more qualitative factors involved in fund selection, can be crucial in ensuring that capital is well allocated and can help to meet investment objectives. There is always likely to be a desire from certain investors to invest with household names, however a strong research process can help identify more attractive opportunities in some instances and produce superior risk-adjusted returns over the long-term.

Claire Bennison is regional director at Brooks Macdonald in Manchester

She writes a regular in-practice article on asset management for Private Client Adviser