Mathieu Caquineau, director of fund manager research for Emea at Morningstar, has conducted extensive research on this question, examining all instances where a manager switched to a rival company in the US and Europe over the past 30 years.
He concludes that managers tend to perform very strongly immediately after joining their new company, partly because they will be managing less money, at least initially at their new firm than they were previously, and this aids performance, coupled with the fact that a high-profile new hire is likely to get a lot of analyst support and other resource immediately after joining a new company.
He feels this extra outperformance wanes over time in most cases, saying: “It is likely that they are still surfing on the successful investment style that led them to be hired in the first place. They are also benefiting from managing less money in the first years at their new house, making it easier to outperform.
“But investors should be doubtful that past success can be easily replicated in the long term. We find that portfolio managers tend to produce less alpha at their new firm when looking at longer periods, compared with what they achieved at their former employer.
“Still, investors seem to get a better outcome than sticking with the old fund. On average, the alpha at the old fund after the departure is lower compared with how managers performed at their new house.”
Rory Maguire, managing director at fund rating business Fundhouse, is more relaxed than many about switching to the a fund, saying: "We are very comfortable investing with a fund manager that has moved employers and we do this often. We tend to find that some fund managers are often better suited to their new employer.
“Take someone like Jeremy Podger at Fidelity. We knew him when he was at Threadneedle, and when he moved to Fidelity he achieved our top rating within a few months of joining. We felt that Fidelity was a strong home for him because he had excellent analytical support and could focus solely on his core skill: stockpicking.”
But he adds: “There are also many examples where the opposite is true – a fund manager joins a new firm but we no longer support them. This is often when we feel that they relied heavily on their colleagues, and when at their new employer there is an absence in this support. So it is case by case for us.”
Caquineau believes the reasons why fund managers tend to perform poorly in the initial period after they exit is that it may be a very large fund and those can underperform relative to markets, particularly if they have already enjoyed strong market conditions.
