With investor appetite recovering, more managers may be tempted to follow the example of Neil Woodford and others who left big firms and have this year launched their own funds. The consensus view is that if they are already seen as ‘stars’ they almost certainly will
While the UK asset management industry is still dominated by larger fund groups, recent years have witnessed a number of high-profile managers choose to go at it on their own, with 2014 proving no exception.
The biggest story in the industry of 2013 – Neil Woodford deciding to leave Invesco Perpetual to start his own venture – gave way to the biggest UK fund launch on record when Woodford Investment Management’s first fund attracted £1.6bn after the firm opened its doors in June this year.
Meanwhile, ex-Cazenove managers Chris Rice and Tim Russell, who founded Sanditon Asset Management in 2013, launched their firm’s first investment trust this year and were joined by former colleague Julie Dean after she quit Schroders.
More recently, Richard Pease departed Henderson Global Investors to start up Crux Asset Management. And thanks to an unusual clause in his contract, negotiated when Henderson bought his former employer New Star in 2009, Pease will be able to take his £1.2bn European Special Situations fund with him.
But while this may all prove exciting from a headlines point of view, should having a star manager at the helm of an asset management boutique make it an almost automatic ‘buy’ or does it complicate the investment case even more.
Whitechurch Securities head of research Ben Willis says, while each opportunity has to be judged on its own merits, there can be strong advantages to having a star manager running their own show.
“Generally speaking, boutique managers will have some ‘skin in the game’ – they will invest significant amounts of money into their own funds and so align their interests with shareholders,” he explains.
“In addition, star managers do not earn that title lightly and so when launching a new fund and attracting inflows, they tend to deliver outperformance in the early years.”
Saunderson House investment manager Ben Williams is happy to back fund managers who choose to leave a bigger house for a boutique.
“It tends to give them more autonomy with stock selection rather than having to conform to a ‘house view’ or pick off a select list and allows them to concentrate on what they do best rather than management issues, sitting on too many committees, spending too much time on marketing and generating assets etc,” he says.
However, F&C co-head of multi-manager Rob Burdett is cognisant that a boutique structure might be right for some managers but certainly not all.
“When a new boutique launches we look at how compatible the manager is to the structure and try to make sure they are not swapping big company distractions for the day-to-day issues of running a small company for example,” he says.
“Boutiques should in our view have appropriate capacity limits, co-investment of significance from the managers, appropriate business resource so as not to distract the fund manager and fund management support of an appropriate scale and nature.”
Burdett, who manages F&C’s MM Navigator range with Gary Potter, has backed numerous boutiques in the past, with notable examples being Ardevora Asset Management and TwentyFour Asset Management. There’s also a holding in Pease’s Henderson European Special Situations, which will soon move to Crux subject to regulatory and investor approval.
Willis backed Woodford at launch, holds Pease’s fund and also invested with Miton and TwentyFour when they were getting going.
He says the biggest factor behind deciding to invest in a new boutique is how high he rates the individual manager, although issues such as structure and focus on a particular niche are important considerations.
“Boutiques will tend to stick to areas of strength, have specialist knowledge or adopt a specific investment style. They will have a tendency to be more dynamic whereas established funds and fund groups generally have core funds at the heart of their range.”
Williams, on the other, is yet to invest with any of the star boutiques that have come to market this year.
“Fear of missing out is not really part of our investment decision,” Williams says.
“Since there may be the odd teething issue and we want to be happy that all the things that helped a manager produce strong performance at a bigger house are in place we are generally happy to watch how the new fund progresses for a while before deciding to make an investment.”
Will the coming year see investors have to face the even more decisions on whether to put money with another bunch of new boutiques? Commentators agree that just because a manager is seen as a star means they will at some point head for the door to set up on their own.
Burdett says more fund managers could feel happier taking on the risk of starting their own house given recovering investor appetite, while the early success and support gained by the likes of Woodford, Sanditon and Crux could act as a source of inspiration.
But on the flip side, the experiences of the fund management industry over the credit crunch and following global financial crisis could mean that the virtues of being with a larger, more diversified parent are appreciated by more managers,
Williams adds: “Once experienced managers with good track records see people like Woodford doing well I expect they may be keen to take on that challenge themselves. But others may be happy being in the comfort blanket of a much bigger house.”