Pensions & Investments had a story in its December 24 issue about Tradewinds Global Investors LLC. The headline: “Tradewinds’ AUM falls 72% in 10 months.” The trigger was “the announcement in March that star money manager David Iben was leaving.”
It seems that sticky assets at investment firms are getting less sticky. (For other examples, see the recent postings on Artio Global and Aletheia.) Short of outright shenanigans, the fastest way for it to happen is to have a key portfolio manager leave.
The top panel of the chart above shows the performance of the Nuveen Tradewinds Value Opportunities Fund (NVOAX). This is relative performance, showing that the fund had a strong record, beating its value benchmarks as well as the S&P 500, bringing total assets from virtually nothing to more than $3.5 billion. Then performance started to weaken, prior to Iben’s departure. Once he left, the money moved out quickly.
The graph doesn’t tell the whole story regarding the loss of assets under management (AUM), since it only illustrates one mutual fund and the firm was managing much of its assets in the institutional realm. P&I reported the drop as being from $38 billion to $10 billion in those few months.
While performance appears to have stabilized for now — at least at this fund — notice the fall-off in it immediately after Iben’s departure. Perhaps the lack of his insight contributed to that underperformance; trying to rework processes that were dominated by one person would matter too. But the biggest factor may have been that the firm had to liquidate stocks day after day — pressuring its own holdings and its own performance.
Live by the star and die by the star. That’s how many asset management firms operate. Which of your investments are at organizations for which that is true? What will happen if the star leaves or gets hit by the proverbial bus?
Manager risk often comes out of nowhere and can be very intense. That’s one of the unappreciated challenges of active management strategies that rely on others for their implementation. (Chart: Bloomberg terminal.)