The Great Resignation: Has it Increased the Risk That Comes From Portfolio Manager Exits?
Talent is quitting. And new talent is hard to hire. According to recent research from McKinsey, 41% of employees in white-collar industries are at least somewhat likely to leave their current job in the next three to six months. In addition, more than half of the employers surveyed are experiencing greater employee turnover than in recent years, with nearly two-thirds of them also expecting these trends to continue or escalate.
This presents challenges to asset management firms, as their lead portfolio managers, who are responsible for decision making on their strategies, may be among those choosing to retire or leave to a competitor. For asset managers relying on in-house talent, it may be a considerable task to replace star portfolio managers, putting assets under management and sometimes even strategy viability at risk should clients decide to take their money elsewhere while the dust settles on those succession plans. This creates risk for clients as well, as they would be losing the main decision maker who was managing their assets.
This is where a manager-of-managers approach can provide support and mitigate risks, especially if you’ve partnered with an OCIO (outsourced chief investment officer) provider with a robust manager research process to drive the decision of whether to stay with an existing strategy or to leave to a new money manager. Best-in-class managers-of-managers also take a total portfolio approach to find the right fit for the overall portfolio while continuing to manage assets during manager changes. Strong operational capabilities in onboarding and implementation can further mitigate the risks around changes to ensure a smooth and timely transition without foregoing critical market exposure or incurring undue costs.
Making a decision – importance of manager research
When a lead portfolio manager departs a firm, every client must decide whether to stay with the firm and the new decision maker(s) or to take their assets elsewhere. This is where a manager of managers, particularly one with a robust manager research platform, may have an advantage over asset managers relying on in-house talent.
An important aspect of a rigorous manager research process is evaluating investment strategies over time and keeping an eye on any potential style drift—where the portfolio composition and performance patterns move outside of expectations for the strategy. Team changes, more than anything else, increase uncertainty around strategy continuity (or consistency), leading to many research providers formally putting a strategy under review following portfolio manager departures.