Tuesday this week (9 January), saw the announcement that Ben Whitmore, a star investment manager at Jupiter focused on value equities, would be leaving to set up his own investment management firm. This is no small development for Jupiter as Ben is a popular manager responsible for a significant portion of the firm’s AUM (he manages some £10bn for the firm out of a total of around £50bn) and this development will likely be unsettling for some of the investors in his funds – when a manager change like this happens, the question we are most frequently asked is, should I hold onto my investment, or should I cash out now? Neither is without risk.
There are not any investment companies managed by Ben, and so the immediate impact on the sector is limited, but Willis Towers Watson (WTW), the manager of Alliance Trust (ATST), has selected Jupiter and specifically Ben to manage one of its dedicated sleeves. Although no firm decision has been made yet, it will be interesting to see what WTW, a well-respected and resourced manager in its own right, will decide to do when faced with this conundrum. I also think it is worth taking a look as what others have done when faced with similar decisions historically, as there may be lessons to learn.
Alliance Trust – a ‘manager-of-managers’ approach
ATST will be familiar to most readers but, to recap, this trust operates with a ‘manager-of-managers’ approach. It selects a number of stock-pickers with different investment styles that ignore the benchmark and run concentrated portfolio with a small number of stocks (up to 20). It currently operates with 11 such portfolios, operated by 10 managers, with Jupiter being responsible for just one of these portfolios.
Shareholders can take some comfort that WTW was not blindsided by this development, which is one advantage of dedicating a global allocation to a fund such as ATST. WTW says that one of its roles is to regularly consider what it would do to the portfolio in an event such as this and, “given the degree of corporate change at Jupiter” it has been closely monitoring the situation for some time.
The obvious options in front of WTW are to retain Jupiter, assuming that it already has a suitable replacement in house or is able to recruit one, or to follow Ben to his new venture. However, WTW could also choose to find a new manager altogether or reallocate the capital amongst the other existing managers as well (see below).
Ben is typical of the type of manager that WTW selects for ATST’s portfolio – they tend to be individuals with long track records, with experience across multiple investment cycles that have worked in larger organisations. These sorts of high-calibre individuals can attract a significant following and can represent a significant ‘key man’ risk for a fund or asset manager but, at least for ATST and its multi-manager approach, this risk is significantly diluted versus a lot of other equity funds that rely one or two key individuals.
Edinburgh – a complete change of guard
Another development in this vein was the announcement this week that Emily Barnard will be promoted to deputy manager of Edinburgh Investment Trust (EDIN), working alongside Imran Sattar who is set to take the helm when its longstanding manager, James de Uphaugh, retires at the start of February. This same fund also saw its co-manager Chris Field, who had worked with James since co-founding Majedie Asset Management (MAM) in 2002, retire at the end of November, adding to the uncertainty.
EDIN is a relatively new addition to the manager’s stable (MAM, which has since been merged into Liontrust, was appointed as recently as March 2020) but the manager was appointed on the strength of its process and performance, and James is synonymous with that process. He also has a track record of delivering strong performance in volatile market conditions over his long (36 year) career in asset management, which is likely to have been part of the attraction. James will not have been easy to replace but Imran comes with a strong pedigree – he previously served as a managing director and fund manager at BlackRock, where he oversaw UK equity funds with a combined assets under management in excess of £2bn – and like James, he entered the business as part of Liontrust’s acquisition of MAM in 2022.
The board has been clear that there will be no change in EDIN’s investment objectives, strategies or key features, and Imran will continue to enjoy the same support (a team of nine fund managers and analysts with the global fundamental team) that James has benefited from. Given James and Chris’s length of service, EDIN’s board would have known that it would likely face this conundrum sooner rather than later but still had to make the same decision – to stick or twist – as these key individuals have departed.
EDIN’s board must have been assured that the team at Liontrust could continue to manage EDIN’s portfolio in the same vein once James and Chris were no longer part of the business and the fact that Imran has worked with both of them for a number of years likely offered the board some reassurance. The board said that the depth of experience across Liontrust’s global fundamental team would be “an important factor to ensure the repeatability of attractive long-term returns in the years ahead”.
Manager departures can create a range of options
For balance, it is worth noting that both of these asset managers – Jupiter and MAM/Liontrust – have faced similar situations with manager departures and their boards have opted for a range of outcomes. When Alexander Darwall, lead manager of what is now called European Opportunities Trust (EOT – formerly Jupiter European Opportunities), left Jupiter to form Devon Equity Management, its board decided to follow him and shifted EOT’s management contract to Alexander’s new venture.
When Robert Siddells, then the long-time manager of Jupiter US Smaller Companies, retired, its board decided to move the investment management contract to a new manager altogether (not for the first time as the board had already followed Robert when he left F&C to join Jupiter). Robert had a very distinctive value style, which was not easy to emulate, and Jupiter did not have a comparable offering in-house. Therefore, the contract was moved to Brown Advisory in the US and the trust became Brown Advisory US Smaller Companies (BASC).
The board of Majedie Investments (MAJE), which invested in a number of MAM managed funds as well as owning a stake in the management company, took the decision to shift its management contract to Marylebone Partners LLP, following Liontrust’s acquisition of MAM. Given its structure, MAJE had been quite heavily embedded within MAM, but performance had been poor and the acquisition of MAM necessitated a rethink. It was difficult to see how the existing investment policy could continue as it was following MAM’s acquisition, so the board chose a new manager that it felt was a good fit and amended MAJE’s investment policy to suit. Marylebone were also prepared to make a significant contribution to the costs of marketing the fund. A marketing budget is something that all investment companies need to have if they want to get investors’ attention.
Take your time and understand the risks
Returning to ATST and the options that are available to WTW, it seems that the ultimate decision will hinge on the extent to which the manager change shifts WTW’s investment thesis. All investors need to form a view whether a particular manager is crucial to the execution of a strategy, and ultimately the returns that they are expecting to derive, or if the wider team can achieve the same results by following the same investment process.
As its manager, WTW has duty of care to all of ATST’s shareholders to make an informed decision on what it believes will be in their best interests, and so it will be looking at all of the options in detail. In this instance, it looks like Ben’s expertise was an important part of the investment thesis and so we think WTW could follow Ben to his new venture. However, this will only occur once WTW has undertaken extensive due diligence on the venture’s infrastructure, as it does for any prospective manager and then if, and only if, Ben’s new enterprise clears these hurdles.
It is worth noting that WTW has a bit of breathing space to put its slide rule to work, as Ben will continue to work at Jupiter at least until the end of July. This is not always the case, and we think that if Ben had been departing in short order, WTW may have opted for the safety approach of re-allocating the investments amongst other managers in the trust that it already likes. In conclusion, there is no unique solution to this problem but perhaps the most important takeaway is something that should be applied to all investments. Do not rush, do your homework, understand the risks, and only then make your decision.