When to Consider Changing Manager

Changing investment manager is a significant decision and is often made for the wrong reasons or deferred when a change is justified.  The test I would apply is simple: are the reasons for choosing the manager still valid?  If they are not, I would consider changing.  If they are, I would usually retain the existing arrangement.

Write Down Why You Chose Them

The test is most useful when the original reasons were recorded.  A short note made at the outset provides a reliable basis against which the relationship can be reviewed in the future.

When the Reasons Stop Being True

In my experience there are three ways in which the original reasons stop being valid:

• The manager changes: the portfolio manager leaves or retires, the firm is sold or merges, its ownership changes, or it grows to the point where each manager looks after far more clients than before.  A move from individual portfolios to a central model may be sensible for the firm, but it may not be what the client chose.

• The client’s needs change: what once required a bespoke portfolio, such as a concentrated holding, a business sale or a complex trust, may have been resolved, and something simpler and cheaper might now suffice.  Equally, a client whose affairs have become more complex may have outgrown a straightforward arrangement.

• The relationship changes: decisions are no longer explained, calls go unreturned, the mandate is not reviewed, or the portfolio drifts from what was agreed.  These are often the earliest signs, and the easiest to overlook.

A Word on Performance

Performance matters, but it should be judged against the client’s objective and over the period agreed in the mandate.  Every manager with a distinctive approach will have years when they trail an index or their peers.  Changing manager after a weak year often means selling what has recently done poorly and buying what has recently done well.  I would be wary of this especially if the explanation for the weak performance over a shorter time-frame is coherent.  A persistent shortfall against the objective is more of a problem.

Counting the Cost of a Move

Changing manager has costs: realising gains may create tax liabilities, some holdings can take time to transfer, exit fees may apply and a poorly managed transition can leave assets out of the market. These costs should form part of the decision, but they should not become an argument for retaining an arrangement where the original rationale no longer holds.

Questions Worth Asking

• Is the person making the decisions the same person we appointed?

• Has the client’s situation changed in a way the current arrangement no longer suits?

• Why was this manager chosen, and are those reasons still true?

CDAJ

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Ptarmigan Capital Limited is an employee-owned investment management firm providing discretionary investment management services to private clients, trusts, charities, and family offices. This article is intended to explain the firm’s perspective on bespoke investment management and the factors some clients consider when choosing such an approach. It does not relate to any specific investment product or strategy.

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