Key-person risk is a “hot topic” for global equity funds led by what are seen as “dominant personalities”, according to Morningstar’s latest Global Equity Sector Wrap.
The shock resignation of Hunter Hall founder Peter Hall in December 2016 has seen six months of uncertainty for the funds he oversaw, resulting in Morningstar downgrading the funds to ‘negative’ from ‘neutral’.
Asset management, after all, is a “people business”, said the researcher.
“Not only can the departure of a key portfolio manager with equity lead to substantial firm ownership changes, but it can also disrupt the consistency of the fundamental investment process,” said Morningstar.
February 2017 also saw the downgrade of the Platinum International Brands fund to ‘neutral’ from ‘silver’ after the surprise resignation of Simon Trevett and the promotion of a former analyst with “limited experience” to lead manager.
Platinum’s flagship fund Platinum International, led by ‘rockstar’ manager Kerr Neilson, is another fund heavily exposed to key-person risk, said Morningstar.
Other shops vulnerable to the loss of a lead manager include Magellan Global (Hamish Douglass), PM Capital Global Companies (Paul Moore) and Antipodes Global (Jacob Mitchell).
“The extent to which portfolio manager changes disrupt the business or pose a threat to future performance lies with the fund manager’s succession planning,” said Morningstar.
Qualitative active managers are especially dependent on individuals, said the researcher, because they are “heavily reliant on the experience, judgement and skill of the portfolio manager”.
“They are responsible for formulating and adhering to an investment process, and constructing a portfolio in a risk-aware manner,” said Morningstar.
