By Neil Wilson
It has been a difficult year for Gartmore Investment Management, the London-listed asset management firm. But it still came as a shock on November 8 when the company announced to the London Stock Exchange that Roger Guy, for many years its leading manager, would be leaving.
Guy had been with the firm for 17 years and had played a leading role—alongside his former co-manager, Guillaume Rambourg—in transforming Gartmore from a traditional long-only asset management shop into a leading player in European hedge funds with more than $6 billion in hedge fund assets.
With Gartmore immediately thrown into a battle to stave off mass redemptions and calling in Goldman Sachs to conduct a strategic review, the impending departure of Guy has highlighted more dramatically than ever the key man risk issue in hedge funds.
Guy leaving Gartmore—where he had long been envied by rivals who described him as “the franchise”—is just the latest in a long series of high-profile departures over the 12 years that EuroHedge has been tracking the European hedge fund business.
Other high-profile exits that caused a similar sensation included William von Mueffling’s abrupt departure from Lazard Asset Management and Chris Hohn quitting Perry Partners, which both occurred in 2003, as well as Greg Coffey leaving GLG Partners in 2008.
These and other cases may have some superficial similarities but also of course many specific differences from the latest case involving Gartmore.
But in all of them, the departure of a key man highlighted the vulnerability of a hedge fund firm’s business—based on the loyalty of investors—to the perceived abilities of a star fund manager.
In the case of Lazard, a cool $4 billion of assets walked out the door with von Mueffling, who went on to found Cantillon Capital Management. Similarly, Hohn managed a large chunk of Perry’s assets before leaving to start The Children’s Investment Fund.
And Coffey had become GLG’s star manager due to the stellar performance of his Emerging Markets Fund; the firm even put him forward to ring the closing bell at the New York Stock Exchange on the day GLG was listed.
For many, such vulnerability to key man risk demonstrates that hedge fund businesses are generally not well suited to being listed on the public markets because too much of their earning potential and value resides with key individuals who can, and sometimes do, simply walk out the door.
That said, it should be noted that although they were hit hard at the time, Lazard, Perry and GLG are all still in business, with the latter recently completing a merger with Man Group to create the largest listed alternative asset firm in the world.
In the Gartmore case, trouble had been brewing for some time. Its IPO, which seemed cleverly timed after a stellar year for its hedge funds in 2009, did not go as well as many had expected.
The share price quickly dropped well below the issue price and has not recovered.
Then, to the surprise of many—and the apparent frustration of Roger Guy—the firm announced an internal investigation of Rambourg for allegedly directing trades to favored brokers, an old practice now barred by the firm’s internal rules.
Though this appeared to be perhaps a storm in a teacup, as there was no suggestion he had broken regulatory rules in the UK, Rambourg was suspended. And even though he was substantially cleared by the firm, Rambourg subsequently resigned anyway in order to try to fully clear his name against a Financial Services Authority probe.
Most investors remained loyal despite the departure of Rambourg. But it seems unlikely that they will be so sanguine following the departure of Guy as well, despite the addition to the team this year of John Bennett, a well-regarded manager with many years of European equity experience at GAM.
Hence, in the immediate aftermath of the announcement, speculation swirled about whether Hellmann & Friedman, the private equity firm that has a big stake in Gartmore, will be able to rescue the situation or what bidders might emerge to take over the remnants of the business.
At the time of writing, it is much too early to tell how all of this will play out. But one thing I would suggest—based on the previous evidence of the Lazard, Perry and GLG cases—is not to write off Gartmore too soon. Yes, Guy has been the leading figure there for many years.
But he and Rambourg have been directly responsible for only three out of the record nine EuroHedge awards that the firm has won over the years, so there is clearly a lot of other talent in the building. As long as it stays there, of course. AR