Fund Managers are an integral part of an investment ecosystem and are responsible for implementing a fund’s investment strategy and managing its portfolio trading activities. They can be found working in fund management with mutual funds, pension funds, trust funds, hedge funds, etc. They are crucial to the fund’s performance and many investors seek them out to invest their money, because of their popularity or because of how the fund has performed over the years.
However, for many unforeseeable reasons, fund managers quit the organization, and leave investors with many queries and unanswered questions. Investors may be tempted to act hastily and quit the fund as soon as the news is heard. But it would be good to watch out for a few quarters and then make a well-informed decision.
Here’s a reckoner on how to deal with a fund manager’s exit:
Try to find out the reasons for the departure
Fund managers are most sought-after because of the knowledge and expertise they bring to their work. Many times, they will leave an organization for better prospects or due to retirement. This should not deter investors as the organization will most likely replace them with fund managers of similar calibre or take necessary steps to the portfolio to accommodate this sudden change. Sometimes fund managers are sacked by the organization for reasons best known to them, and sometimes fund managers leave to find their own AMCs. Whatever the case, departure can be a source of stress to investors, who can then take appropriate measures to offset the risk they might have to endure if they choose to hold the same fund. In either case, make necessary enquiries about the exit.
Take a deliberate decision
Very often, even though fund managers have quit, the portfolio continues performing at a steady pace and has little to no change in its repertoire. It would be wise to hence wait and monitor the performance before deciding to leave the fund. Experts suggest that if investors have reasons to believe that an organization has relied heavily on the exiting fund manager, then it’s time to start looking for other avenues. Whatever the scenario, take your time to evaluate the situation.
Act when assets are reallocated
Sometimes the new fund manager decides to change the ethos of the current fund and move them into diverse funnels, which may cause the fund to take a new direction. This change may affect the fund causing it to be either more conservative or more bold in terms of risk. In this case, investors must choose to find appropriate fund managers to suit their risk appetite and allocate their assets accordingly. Most AMCs try to offset the risk beforehand so that their investors do not bear the brunt of the change in leadership. However, investors can gauge the change in their existing fund by doing more research on the decisions that fund managers take.
Monitor the performance closely
Investors should monitor the performance of the new leadership for a stipulated period and decide whether or not to keep the portfolio. If there’s excessive churning in the fund, try to find out the reason for the churn. Funds with new leadership that churn can be a good indicator that all is not well but again this is debatable. Investors would do well if they spent sufficient time investigating the causes rather than jumping to conclusions. Monitoring the performance closely is underrated, and should be given more preference than any other action.
In conclusion, it is unfortunate when fund managers leave, but sometimes a new leadership does more good than harm. Organizations with sound knowledge and a stellar backup plan usually retain investors despite turbulence in the fund. It is always good for investors to stay abreast of the happenings in the Financial world so that they can offset any loss that can arise due to a volatile market. The same goes for holders of various funds so that investors can be prepared in case of any event.
Please note: This article is written exclusively for educational purposes.