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All or nothing gives way to new deal for fund "star" wantaways

Wed 15th April, 2015 1:36pm
* Some firms now strike deal to let a top manager go 
    * Helps cushion profit hit for fund firms 
    * Managers protect track record, investors save costs 
 
    By Nishant Kumar 
    LONDON, April 15 (Reuters) - After watching billions of 
dollars of investor cash follow "star" managers exiting rivals, 
some Britain-based fund firms have taken a novel step to help 
cushion the blow: let the manager take their fund's assets with 
them.     
    Given a firm's value is based on taking a cut of the assets 
it holds, while investors only leave their cash with a manager 
on the basis of performance, asset managers have long sought to 
keep top performers sweet. 
    Yet competition to retain top talent is picking up, throwing 
the skills of top performers into even starker relief and 
leading some firms to strike profit-protecting deals.  
    In a year marked by the high-profile exit of Neil Woodford 
and more than $12 billion from two of his Invesco Perpetual 
funds, the biggest outflows from a fund caused by a manager 
leaving in British fund history, three others, Waverton, Charles 
Stanley  CAY.L  and Henderson  HGGH.L , took a different tack by 
letting some assets leave while retaining some financial 
benefit. 
    The more collegiate approach is "quite an interesting new 
trend, where a star manager is able to take their fund with 
them, (which) counteracts the need for the first company to deal 
with the outflows that might arise," Jeremy Beckwith, director 
of manager research at Morningstar UK, said.        
    Beckwith said he knew of no previous examples of such deals. 
    Investors also flooded to the exit at Schroders  SDR.L  when 
Julie Dean left and, to a lesser extent, when Simon Brazier quit 
what is now Columbia Threadneedle Investments in September to 
join Investec Asset Management. 
    Together with Invesco, he three firms collectively saw 
outflows of more than $15 billion since the news of the 
departures became public, estimates from Lipper showed, though 
not all would be due to top figures leaving.  
     
    TRACK RECORD  
    Similar deals have also surfaced in the hedge funds 
industry. 
    BlueCrest recently let top trader Leda Braga leave with $9 
billion in assets to set up a firm called Systematica, while 
David Warren, founder of DW Partners, took control of more than 
$5 billion he previously managed for Brevan Howard. BlueCrest 
and Brevan Howard both retained a stake.  ID:nL6N0RR336  
 ID:nL3N0UK2ZC  
    For the fund firm the decision to let a manager leave with 
the assets means earning some fees on all the assets, rather 
than grabbing all the fees in a smaller fund. 
    The manager, on the other hand, is saved the effort of 
raising funds from scratch, while maintaining a performance 
track record which can be key for future flows. 
    As well as retaining some financial benefit in the fund's 
assets, the deals avoid a forced sale of a chunk of the fund to 
pay exiting investors. 
    In Waverton's case, Oliver Kelton left in February to join 
hedge fund Odey Asset Management, but continued to manage the 
Waverton European Fund. 
    At Henderson, Richard Pease left in October and, as per an 
existing agreement, took the European Special Situations Fund to 
his new firm, Crux Asset Management, giving Henderson a revenue 
sharing deal for a year, a spokesman for Henderson said. 
    Charles Stanley, meanwhile, sold its Matterley Undervalued 
Assets Fund to Miton in September, handing over the fund to 
former co-manager George Godber after an earlier period when the 
fund had moved with former fellow co-manager Henry Dixon to 
hedge fund GLG Partners.     
    Such deals are unlikely in every case, analysts said, as 
managers do not always leave on good terms, making it tough to 
negotiate an agreement. 
    But a deal can also benefit investors, who are saved the 
cost of moving funds, a likely response given how relatively 
unsuccessful UK fund firms have been at finding star 
replacements, a Cass Business School study showed. 
    "On average, when managers leave, you are going to get 
average performance after that," Cass professor Andrew Clare 
said. "So the (investor) instinct to leave is right."  
($1 = 0.6839 British Pounds) 
 
 (Editing by Simon Jessop and David Holmes) 
 ((nishant.kumar@thomsonreuters.com)(twitter: 
@nishantkumar07)(+44 020 7542 7942)(Reuters Messaging: 
nishant.kumar.reuters.com@reuters.net)) 
 
Keywords: FUNDS STRATEGY/
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