Those of you who watch the financial markets closely will have noticed the recent listing of Westpac's Investment Management arm - BT Investment Management. One of the benefits given for listing highlights a problem in the "Active" funds management industry - manager turnover.
Michael Pascoe, in an article published in Alan Kohler's Eureka Report, reports that the CEO of BT Investment Management, Dick Morris, believes that the listing of BTIM will help avoid the loss of good investment teams by providing them with some of the profits of the business. Hopefully this will entice these managers to stick with the business.
This is indeed a problem for "Active Style" managers. If indeed the success or otherwise of actively managed funds is based on the investment managers, and not dumb luck, then these people are crucial to these funds. They are the people who are picking the winners. Unfortunately, there is quite constant press about investment manager movement. A recent example has been the mass defection of the entire Suncorp team to form their own boutique fund. If you had your funds invested in managed funds held with Suncorp I bet you would not be too pleased with the news. What do you do? Stick with the fund that you are in and risk reduced performance? or follow the management team and incur the costs of doing so?
We believe this is another risk involved with active management. In contrast, our investment philosophy means that our clients should not be perturbed about who are the people managing their funds as the investment is based on academically proven strategies, namely using an index style fund as the core of a portfolio and building on to it other index style funds with weightings toward small and value companies. It is not about a fund manager picking winners and losers.