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The season of exit?

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The autumn is very much here and whilst the headlines are still concerned with political wrangling, within many of our client equity portfolios there is also change going on: many investment professionals are moving away from the collective, known world of their investment teams to experience their very own kind of exit.

The reasons for departure can be wide-ranging; from a company-driven event such as a restructuring, to more opportunistic reasons such as embracing a new career challenge, better rewards, or to facilitate the realisation of a career ambition, such as managing a higher profile fund.

As a result, the consequences and implications for the team left behind may be significant – for example, the loss of a key person to the product. At this point, should the client remain invested in the fund, or exit themselves? Given the financial and governance costs of making a change, the decision should not be made lightly.

Equally, if there is no longer a compelling case for continuing to pay active management fees—i.e. an expectation for net outperformance—then the best interests of scheme members may be served by instigating change. Such a decision should not be taken without collating the facts and weighing up how the exit from the team may impact the fund going forwards, balancing the loss against the potential benefits which any incoming replacement may bring, or how the re-setting of the existing order in the team may be revitalised by change. Clients should work with their advisers and leverage their in-depth knowledge of the investment manager affected, to assess the impact and potential courses of action.

This can also be an opportune time to consider whether a direct replacement should be hired, or whether the event provides opportunity to enhance the overall pension scheme portfolio.

This autumn we have seen the departure of team members from analyst to Chief Investment Officer level, and for a variety of reasons. As well as implications for investment process, assessments should include consideration of the individuals’ own motivations, the goals their organisation is seeking to achieve, how the change may impact the overall blend of skills within the remaining team, and how any gaps may be filled. As ever, any exit brings an element of uncertainty, which in itself can trigger further series of events – but with an objective framework, such unknowns can be considered, speculation channelled into making a judgement, and remaining or exiting carried out with conviction.

This article is aimed at professional investors only, and is not aimed at retail clients. It should not be regarded as providing specific advice or a recommendation of suitability.

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