There is much to be said for a ‘star’ fund manager: performance and investment decisions can be easily and simply attributed to their skills and convictions rather than to a complex investment process involving a range of portfolio managers and analysts. Also, there is a general assumption that high-profile managers are relatively free of ‘group mind’ and its tendency to push funds towards benchmark hugging and mediocrity.
And from the fund management houses’ point of view, another plus is that they can be phenomenally successful at supporting the marketing of the fund. But there are downsides, too. First, assumptions about how independent the manager is may simply not be true. Second, the corollary of being able to take big, market-beating bets is that they are able to make big, market-beating losses as well. And third, the key-man risk is much greater – what if the star manager quits or gets ill?
Taking a stand
One of those who, on balance, favours the team-based approach is Jeroen Vetter, an independent fund consultant who is based in the Netherlands. “Going with a star manager involves a lot of risk. You have to realise you are taking a huge bet on just one person,” he says. “Often investors don’t even know performance is dependent on a single person – it’s not always in the interest of asset managers to emphasise that. I prefer a repeatable investment process, in which more people, such as analysts, have an important role as well.
Thomas Romig (pictured right), head of multi-asset at Assenagon in Frankfurt, has a radically different take. “We have a preference for a strong manager. A team needs a captain who can give directions in times of stress and volatility,” he says, although he is aware of the key-man risk as well. “There should be a strong second man or woman on the team, who can take over when the manager leaves or something else happens to him.”
Strongly opinionated fund managers who can implement their investment views in an unconstrained manner are also to the liking of Beatriz Gimeno Gimenez, a fund selector at Morabanc in Andorra. She prefers to see all decision-making power concentrated in the hands of one person. “The more people involved in making investment decisions, the more likely you are to lose conviction. It’s often already difficult to find a consensus with two people, let alone with 10.”