When a highly regarded and well trusted investment manager dies, it leaves the stewards of that fund with a delicate dilemma. Closing the fund, on the grounds that nobody can adequately replace the talent and commitment that has gone, is a wonderful posthumous tribute to the individual concerned. But it can also be a tricky business decision, involving as it does the painful duty of waving goodbye to fees and employment for those who remain responsible for the fund, and creating potential tax bills for the investors at a time which may not be to their liking or convenience.
On the other hand, recruiting a replacement for the departed investment manager by implication must inevitably take some of the lustre from the reputation of the man (or woman) who has to be replaced. If you have spent several years basing your fund’s marketing on so-and-so’s unique or exceptional talent, it is awkward to have to admit that they are now to be replaced by someone who, you now declare, is just as uniquely and exceptionally talented as the one who went before.
In fund history, I think it is fair to say, there are few examples where the first option is the one that has been adopted. Funds do close regularly after a star fund manager has retired or died (or simply lost the plot), but it is rarely for lack of effort by the fund’s sponsors to keep the entity alive. The urge to procreate almost invariably proves stronger than the desire to declare farewell or RIP. As the cult of the star fund manager is more often than not based on flimsy footings, this is hard-headed but not necessarily irresponsible.
In recent years, Fidelity has faced an acute version of this dilemma in the UK with the retirement from active fund management of Anthony Bolton, whose special situation funds had grown to represent a significant proportion of the firm’s funds under management. As his track record is one of the few that can genuinely be regarded as exceptional, whatever measure you care to choose, it is not surprising that his successors have struggled to make the same impact and the funds have duly shrunk in size and popularity compared to their heyday.
In Edinburgh, meanwhile, the board of Personal Assets has sensibly taken their time to choose a replacement for Ian Rushbrook, the idiosyncratic genius who saved an unloved investment trust from extinction when he took it over in 1990, but who sadly died last October at the age of 68.
As was noted in this space last year, he died ironically just as his unheeded warnings about the dire consequences of the credit and housing bubbles in the United Sates were finally coming to fruition. His analysis of the impending credit crisis remains unmatched for its clarity and foresight.
In his place the board have appointed as Investment Adviser the much younger CEO of Troy Asset Management, an investment management business that started life with a mandate to look after the money of the Weinstock family and other senior managers at GEC. It has since developed its own successful family of low cost unit trusts which share the same priority of preserving investors’ capital before looking to grow it. (The tragic demise of GEC provides an object lesson, incidentally, in how the difficulty of replacing great managers after their death is not confined to the investment business).
The odds of Personal Assets Trust surviving the loss of Mr Rushbrook without enduring damage look a lot more promising than most such succession plans. For a start, although his methods are different, the investment philosophy of the new adviser, Sebastian Lyon, is very similar to that of the man he is replacing. The board of the trust has always claimed an active role in arguing out its investment strategy.
It also helps that Mr Lyon and his family have had a chunk of their own money invested in the trust for several years. There have been minimal net redemptions of shares. All the shares that were bought in and held in treasury to minimize the discount have subsequently been reissued to new investors. The shares have continued to trade close to NAV, which is one of the trust’s unusual commitments to its investors.
Most importantly, perhaps, the new investment adviser talks conservative common sense, which is what the trust’s investors like. He remains wary of bank shares and corporate bonds, preferring to put his faith in the low ratings currently accorded to companies with strong franchises, cash flows and dividend growth (Nestle being a good example of a share that in his experience has never been cheaper).
He has added gold to the trust’s portfolio in lieu of the liquidity that Mr Rushbrook famously, and some felt excessively, preferred. Equities, discriminatingly chosen, in his view, remain the most attractive asset. That still looks to me like the right stance, and one that his predecessor too would almost certainly have echoed as we move into the post credit crisis world.
jd@independent-investor.com
Jonathan Davis 