Warwickshire latest to dump fund after star manager departure

The past year has seen high-profile figures leave funds, prompting mass sell-offs. For example, Neil Woodford’s departure from Invesco resulted in almost £2bn of outflows in just two months.

The Kent County Council Superannuation Fund was among those that moved money out of Invesco’s UK equity strategies in January. Investment experts have advised schemes to have contingency plans in place for when top performers leave the stage.  

So if you know that a fund is very dependent on an individual, than you need to be very aware of what their moves are, and if they move out it may be appropriate to sell

Giles Payne, HR Trustees

In August, it was announced that Percival Stanion, head of the global multi-asset group at Barings, would depart “to take up an external opportunity”.

The move prompted the £1.5bn Warwickshire scheme’s adviser Hymans Robertson to issue a ‘sell immediately’ notice on the fund. The scheme had 4.3 per cent of its assets invested in the fund, stated its 2014 annual report.

According to minutes from Warwickshire’s September 8 investment subcommittee meeting, there was acknowledgement that selling the fund would cost the scheme in terms of lost investment returns.

The minutes stated: “That figure was and is difficult to quantify, but there could easily be a cost of 0.5 per cent by being out of DAFF for a month (based on recent performance).”

However, there was a concern that if the scheme held off to see whether others sold their positions following the notice, the market value could drop. 

“Again the cost is difficult to quantify as it all depends upon how many other investors decide to sell, but a fall in unit price of 5 per cent would cost the fund £3m,” the minutes stated. 

It added the scheme would sell on the next dealing day and hold the money in cash until the next subcommittee meeting. Barings said in a statement that since the announcement, it has experienced outflows from the fund.

Andrew Benton, head of international sales and business development, said: “Our focus is on continuing to provide an excellent service to the wide range of clients that remain invested in the fund and this is reflected in the actions we have taken.” 

The team is now to be managed by former Barings chief investment officer Marino Valensise.

What should schemes be doing?

Giles Payne, director at professional trustee company HR Trustees, said having a contingency plan in place when appointing a manager on the basis of a key figure is important as it can potentially be higher risk for the scheme.

“So if you know that a fund is very dependent on an individual, than you need to be very aware of what their moves are, and if they move out it may be appropriate to sell,” he said.

Pete Drewienkiewicz, head of manager research at consultancy Redington, said it has a structured process in place when evaluating asset managers to “take the emotion out of it”.

“It is very good to lay out in advance what you think would be the triggers for selling the fund,” he said. “What the [process] really tries to do is identify which funds do have ‘key man’ risk, and which ones don’t, in advance.”

The managers that have a more top-down, asset allocation-driven approach may pose greater key-person risk.

Drewienkiewicz said: “The nice thing about the process is that if you have identified this is a fund with key-man risk around a very integral part of its process, and the people you have identified as part of that depart, you know exactly what to do. You don’t have to have a difficult debate.”

He questioned why managers do not offer fee breaks when a star manager leaves. “Because then you actually make people have a think, ‘So I am actually saving myself 75 basis points a year’, now there is an actual reward for taking the risk,” he said.