The Problem with Fund Management Teams

Imagine if a FTSE 100 company declined to name the individuals responsible for running the company; why should funds get away with it?

Christopher J. Traulsen, CFA 18 June, 2013 | 11:46AM
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Actually, there isn’t a problem per se. A team-managed approach can make every bit as much sense for a fund, or more, as a one- or two-manager setup. Indeed, some of our research analysts’ favourite funds, including many of the Aberdeen offerings, are managed by sizable teams.

The issue occurs when funds decline to identify in documentation accessible to investors the individuals who compose the teams (which is, sadly, all too frequent). In these cases, "Management Team" gives the fund a sheen of disclosure without anything backing it up. The team might include one manager or forty three (or 100 for that matter); it might have had no turnover in the last 10 years, or all of the managers might have departed and been replaced within the last six months. Manager tenure, stability and the relevance of experience therefore become impossible to measure meaningfully. In short, investors receive little or no information on key variables that are likely to affect their investment decision.

If it is not yet clear, we don’t think this is in the best interest of current or prospective fund holders. Indeed, we believe manager disclosure is extremely important. So much so that Morningstar fought long ago on behalf of fund holders to make such disclosure a requirement in the US. This requirement has now been in place in that market since 1993, and was amended in 2004 to include the condition that the names of each management team member be disclosed, along with salient information about their level of investment in the funds they run, other funds managed and the structure of their incentive pay.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
ASI Emerging Markets Equity A Acc924.79 GBP0.78Rating
Marks & Spencer Group PLC181.30 GBP0.00Rating

About Author

Christopher J. Traulsen, CFA  is director of fund research, Europe and Asia, Morningstar.