Invesco crisis? Rock-star fund manager Neil Woodford quits
Theory that no-one is bigger than the team is about to get 'destruction tested'
NEWS that Neil Woodford, "the country's best known and most powerful fund manager", is leaving Invesco Perpetual after 25 years to set up his own fund next year has sent shockwaves through the asset management world, said Gavin Lumsden on Citywire. Woodford is so highly regarded by investors that the US-owned group is bracing itself for an exodus of cash in his wake. According to Mark Dampier of Hargreaves Lansdown, billions of the £33bn that Woodford runs could follow him out of the door.
Why is he such a big deal? Put it down to performance, says The Times. Woodford's two big funds – Invesco Perpetual Income and Invesco Perpetual High Income – have "trounced the market over the past decade", delivering returns of more than 210 per cent since 2003, against 119 per cent for the Investment Management Association's UK equity income benchmark.
Over the years, Woodford has gained renown for "successfully reading the equities market, avoiding snares such as the dotcom boom and the banking bubble, while riding profitable trends". One of the key attractions of his funds, notes Tom Stevenson of Fidelity, was "his ability to protect investors' money when stock markets fell". He has also been highly influential in company boardrooms: making and breaking careers and, on occasions, helping to scupper ambitious mergers. Woodford's opposition to the proposed merger between Britain's largest defence player, BAE Systems, and its European counterpart, EADS, in 2012 proved pivotal.
"The hypothesis that no one individual is bigger than the team will be destruction-tested" by Woodford's departure, said Jonathan Guthrie in the FT. "The cult of equity may have faltered lately. But the cult of the star equity investor is in rude health."
Yet investment companies have only themselves to blame if the departure of a top manager damages their business: "They have found it easier to market a fund on the personality and record of these rock stars than the fusty detail of stock-picking." The pitfalls of this approach were apparent in the failure of Fidelity's Anthony Bolton to work the same magic in Chinese investment that he had demonstrated in the UK.
"Let's hope that Woodford puts his fame and impressive track-record to good use," said Nils Pratley in The Guardian. UK funds, "padded with hidden fees", are still among the most expensive in the world. If Woodford's new version involves lower fees and fewer middlemen "we should cheer him on his way".
In the meantime, if you're with Invesco should you move your money? Woodford's successor, Mark Barnett, is well regarded, has been working with the maestro for years, and has a similar investment style, says Mark Bridge in The Times.
But the value of the fund he's been running is small fry compared to Woodford's. Some investors have already reacted to his imminent departure by withdrawing funds. Still, the "expert consensus" is "don't panic-sell", if you hold the funds – but "hold off putting money in" until the new manager has found his feet.
A version of this article appears in the 19 October 2013 issue of The Week