Departures a test of company depth

ONE of the reasons many investors put their money with major fund management groups is to benefit from their depth of knowledge and expertise.

Investors’ money is placed in the hands of a highly experienced team of investment professionals. That, at least, is the marketing pitch.

Against this backdrop, investors may be shocked to find that the retirement of one person can put a question mark over the performance of a major fund management group.

The importance of key individuals has been thrown into the spotlight by Colonial First State’s announcement that its highly regarded head of Australian equities, Greg Perry, will retire on June 30.

Mr Perry’s track record as an investment manager is considered one of the key reasons behind CFS’s successful growth over the past decade.

CFS is not unique in managing this issue.

For instance, it is hard to imagine Platinum Asset Management continuing in its current form if the founder and managing director, Kerr Neilson, were to depart.

Similarly, Peter Morgan is considered critical to the future of Perpetual Investments.

These groups, like all investment managers, have put in place formal processes and methods and built up investment teams to reduce their reliance on individuals.

Ratings group ASSIRT believes CFS has taken the necessary steps to mitigate the impact of Mr Perry’s departure.

“It is ASSIRT’s opinion that the team has strengthened over the years,” it said.

ASSIRT commented that each of CFS’s portfolio managers had a successful track record, while its analysts demonstrated strong depth of experience.

“It is difficult to see that all the success in the management of Australian equities at CFS is solely due to one individual,” ASSIRT said.

It has maintained its “very strong” rating on CFS’s Australian Equities capacity, subject to a full review.

ASSIRT’s views stand in contrast to the assessment of a second rating group, Morningstar.

It has downgraded CFS’s Australian Equities trend sector rating from “very positive” to “positive”.

It commented that: “CFS has a well-resourced and blended team of 12 portfolio managers, analysts and dealers, apart from Perry, who will clearly be well capable of managing CFS’s Australian equities to a high standard.

“However, in Morningstar’s opinion, they will not be able to match Perry’s track record, which requires even more exceptional stock selection skills now that the Imputation Fund is over $6 billion.”

Morningstar backed its judgement by looking at the performance of CFS’s Imputation Fund, managed by Mr Perry, and the similar Australian Share Fund, managed by his colleague Ian Harding.

Over the past five years, the wholesale Australian Share Fund has outperformed the S&P/ASX300 Index by a “commendable” 2.6 per cent per annum, after fees.

Over the same period, the Imputation Fund has outperformed the Index by a “remarkable” 6.7 per cent per annum.

Morningstar said CFS’s overall five-star rating, indicating “excellent quality” was likely to be maintained.

CFS and Perpetual are the only Australian fund managers with a five-star rating.

Van Eyk Research has not made a public announcement on CFS but, according to press reports, it has placed a hold recommendation on three funds controlled by Mr Perry pending the appointment of a replacement.

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