If a fund manager has delivered exceptional returns while managing their portfolio and has a strong conviction in their investment philosophy, it is inevitable that investors will become attached to them – and may feel uncertain about the future of the fund in their absence.
Fears around a manager leaving can be overblown. Many factors can impact a fund’s performance, and just because somebody is the face of a portfolio it doesn’t mean they’re entirely responsible for the performance.
For this reason, Tom Caddick, managing director of Nedgroup Investments, says it is not wise to invest in a fund solely for a particular name. “Don’t fall in love with the fund manager. A fund manager is there to do a particular thing. Fall in love with the process,” he says.
Even so, a high-profile manager certainly impacts investors’ sentiment towards the fund, and whether they stay to see the next act or leave with the fund manager.
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Two of the best-known managers are Terry Smith and Nick Train, who have become completely synonymous with the funds they manage – Fundsmith Equity (GB00B41YBW71) and Finsbury Growth and Income (FGT) – to the extent that it is difficult to imagine anyone else running these portfolios. That is still the case even though both have struggled in recent times due to their ‘quality’ investment style being out of favour.
James Carthew, head of investment company research at Quoted Data, highlights another standard-bearer: “Alex Wright at Fidelity Special Values (FSV) is a good example of a manager who, if he stood up and said, ‘I’ve had enough of this, I’m off’, people would be seriously worried.”
What happens to the fund?
In the world of open-ended funds, established managers departing can lead to heavy outflows as investors decide they don’t want to be invested without a particular face at the helm.
How badly a fund will be hit by redemptions depends on how well the investment manager has built up the team replacing the leaver.
When longtime Schroders value manager Kevin Murphy left in June 2024 after 24 years – followed by Nick Kirrage, who left a year later after 23 years – the Schroder Income (GB00B3VVG600) and Schroder Recovery (GB00B3PM1190) funds didn’t suffer the high level of outflows seen for some funds when managers change.
Simon Adler, who has been with Schroders since 2008, and worked under Murphy and Kirrage in the value team from 2016, took over as head of the value team.
Paul Angell, head of investment research at AJ Bell, says: “Schroders lost a couple of star managers, but they showed us that they invested enough in the team and had enough senior individuals, so even when the team heads [who are big personalities] left, we were comfortable to remain with Simon Adler and Liam Nunn.”
On the other hand, when Mike Riddell left Allianz Strategic Bond Fund (GB0031383408) in June 2024 to go to Fidelity, the fund saw heavy outflows. Angell explains that this happened because of the change in direction at the fund on his departure.
“They totally changed the way his fund was going to be managed afterwards. Once Riddell left, the rest of the team [followed] and they gave the funds to another group in the firm,” he says. However, this shake-up came after heavy outflows that had already begun due to poor performance.
Another example is Ben Whitmore, who left Jupiter UK Special Situations, now Jupiter UK Dynamic Equity (GB00B4KL9F89), in November 2024 after 18 years to found boutique firm Brickwood Asset Management alongside Schroders’ Murphy.
Angell notes that the announcement of his departure in January of that year was followed by “big outflows over 2024 for Jupiter”. Assets under management dropped from £2bn at the time of the exit announcement to a low of less than £1bn, according to AJ Bell figures.
Investment trusts’ closed-ended structure means they don’t have to deal with outflows in this way – a major benefit because excess redemptions can often force open-ended managers to spend time reorganising their portfolio and selling stocks against their will.
Instead, the most obvious visible effect of a high-profile manager leaving a trust can be a widening of the discount.
When CQS Natural Resources Growth and Income (CYN) announced on 9 March that mining fund managers Keith Watson and Robert Crayfourd were leaving investment manager CQS, the discount hit 15 per cent a day later. “This did cause a bit of discount widening because people weren’t quite sure what was going on,” says Carthew.
On 25 May, the board announced it would reappoint the same managers in September when they begin work at their new business, Tufton (other CQS managers will run the portfolio in the meantime).
While there is always more to a share price than who runs the fund, it is worth noting that at the time of writing the trust’s discount has closed to 6 per cent.
Veterans and their successors
Asset managers go to great lengths to ensure investors don’t panic and flee from a fund when a manager who is synonymous with it leaves. One of the strategies they employ to mitigate exit risk is to adopt a co-manager structure, using a team of managers who are capable of running the fund.
Fund groups will try to build the profile of one or more co-fund managers working alongside the more established manager. The idea is that there will be someone waiting in the wings to carry on the running of the trust if the main figurehead leaves or retires.
To do this well, management groups will usually start promoting less senior members of the team, bringing them into meetings, publicising them in the media and featuring them in investor roadshows, so that investors are familiar with them.
Peter Spiller has been managing Capital Gearing Trust (CGT) since 1982 and has long been the face of the trust. Co-fund managers Alastair Laing and Chris Clothier joined the trust’s investment manager, Capital Gearing Asset Management (CGAM), in 2011 and 2015, respectively. CGAM emphasises the “stability across generations” of this approach when describing the history of the trust on its website.
Carthew says: “Peter Spiller has more or less handed over a lot of stuff to Chris Clothier and that team anyway. So he’s still there, but that sort of transition is happening.”
City of London (CTY) has been managed by Job Curtis since 1991, and has a strong long-term record, having increased its dividend for 59 years in a row. The trust also has a multiple-manager approach, with David Smith, who has been with investment manager Janus Henderson as a portfolio manager since 2008, as deputy fund manager.
What to do
With all of this in mind, if a manager leaves your fund, it will pay to do your research before making any decisions about whether you should do likewise. And this research should ideally start before anyone leaves at all.
Carthew says: “You have to look under the hood a bit and see if the investment process and the team behind it is robust enough that if a manager fell under the proverbial bus, everything would carry on as before.”
If you believe there is an established process at the fund which another manager can pick up and run with, that could be reason enough to stay invested as it will make for a smoother transition.
Conversely, a change of strategy upon a manager exit can be a red flag, according to Caddick. For this reason, he says: “I think the key questions would be: is that individual critical to the process? And is the process going to change as a result of their departure?”
Some are more ruthless than others. Simon Evan-Cook, manager of the multi-asset Downing Fox funds, is unequivocal about selling up when a key fund manager leaves. In his experience, once a manager departs a strongly performing fund, it is rarely the same after.
“More often than not, I’ve seen a fund either fall apart or turn into a pale imitation of itself. My gut reaction now is: if the prominent lead fund manager leaves, it’s probably best to sell, provided you can,” he says.
With this in mind, you could also prepare an alternative ahead of time. Angell says: “We typically exit funds when key managers leave, and then we have a bench of alternatives that we’ll then pick from, playing a similar role to the fund we’re exiting.”
For example, AJ Bell previously included Jupiter UK Special Situations in its managed portfolio service. When Whitmore left, the team didn’t follow him straight across to his new Brickwood firm. They instead moved money into Man Income (GB00B0117C28), another UK equity income fund in which they had high conviction.
Running their own venture also brings new challenges for fund managers, Angell adds: “Even if you think you’ve got the best manager in the world, it’s a really big business risk to [invest in] an entirely new fund and entirely new firm. If no one follows you in, it will close in a couple of years.”
If you invest outside an Isa or Sipp, you must factor in your capital gains tax liability when it comes to deciding whether to sell. If you have invested in a fund which has performed very well over the long term, you may find you have a big tax bill to pay when it is time to exit.
Higher- and additional-rate taxpayers pay 24 per cent on the gains an investment has made, while basic-rate taxpayers pay 18 per cent. While it is never a good idea to let tax planning govern your investment strategy, if you are sitting on a big gain then it may provide further reason not to rush into things when a manager retires or goes elsewhere.
