Falling stars: Big-name managers lose their shine

Star fund managers are becoming less important for advisers as DFMs and a team-based approach to investment management grow more dominant.

Consolidation and the rise of passive investing have pushed some big names in the fund management industry to set up boutique firms in recent years.

Experts argue the status of long-standing star managers is changing as more money managers operate as teams and boutique fund managers grow in success and compete with the  big players.

Tilney Group managing director Jason Hollands says fund selectors and multi-managers are becoming more influential among advisers than popular fund managers, even though well-performing fund managers are holding their own.

He says: “In the last decade, many advisers started picking funds themselves, going into the discretionary fund management space or multi-manager.

“Fund selectors, funds of funds and discretionary fund managers are becoming bigger and more influential than some professionals setting up their own boutiques.

“They have a more institutionalised approach to investing. In the past the culture of star managers was more pre-eminent and IFAs were more attracted to them.”

Hollands says the costs for fund managers to set up their own boutiques has “escalated”, but the growth of these boutiques and the rise of passives has reduced the number of fund managers, especially since the financial crisis.

Chelsea Financial managing director Darius McDermott says it is more likely star fund managers would pick a boutique firm already equipped with the infrastructure, such as Polar Capital or J O Hambro Capital Management, rather than setting up their own firm.

Last year, the former Miton Group duo of star fund managers Georgina Hamilton and George Godber joined Polar Capital in a shock move. They had joined Miton after leaving boutique firm Matterley, which Godber set up with current Man GLG portfolio manager Henry Dixon in 2008.

Hollands says: “Setting up your own boutique, you need to have all the functions such as IT systems and a big marketing budget. Star fund managers don’t want to worry about all the IT infrastructure…but only manage the money.

“With regulation clampdown continuing for those starts-ups, it seems unlikely you’ll see new boutiques born out of star fund managers.”

Batting for boutiques

Architas investment director Adrian Lowcock argues existing boutiques are there to stay and compete with larger players due to their distinctive philosophy and clear investment process.

Lowcock says there is always going to be a big turnover for “a well-paid job such as fund management” and that is not going to end.

He says: “Some of the star fund managers built their name in the past 30 years and the internet helped raise their profile. Also, many fund managers are working on a team base. Richard Buxton, for example, is very team-based despite having some star names in the team.”

Increasing consolidation in the industry will undoubtedly leave some fund managers stranded, however.

Earlier this year, former Standard Life Investment head of equities David Cumming left the firm four days after the merger with Aberdeen Asset Management was announced. It is understood Cumming was not assured he was going to keep his role in the merged firm.

Lowcock says: “Although there might not be a huge overlap in other mergers such as the Janus Henderson one, there will be job losses and a lot of this will be the star fund mangers.

“You’ll have fewer new fund launches but the number of fund managers might remain the same with those concentrating on more established funds.”

ETF Securities’ Canvas platform chief executive Howie Li says he sees a shift from star fund managers to “more efficient models”, in response to consolidation, which will involve hiring for strategies such as quantitative investing.

He says: “Some big UK-based asset management firms are hiring more people from the quantitative sector, including graduates with degrees in maths who are highly qualified in these subjects.”

It is understood Schroders as well as other UK-based asset managers are hiring more people with such profiles.