By Nick Evans
Those who believe that this column is useful primarily as a reverse indicator will no doubt recall the comment piece at the end of last year extolling the strengths and prospects of Gartmore at the time of its IPO on the London Stock Exchange.
As duff predictions go, that one takes some beating. What has actually happened is that the firm has contrived to lose its two star fund managers, Roger Guy and Guillaume Rambourg, in the space of a few months. The destruction of value has been swift and severe. And the group has put itself up for sale less than a year after floating.
The line-up of publicly-listed casualties in the alternative asset management space is now seriously impressive – both in Europe and the US, with most hedge fund groups and boutique asset managers trading at huge discounts to their flotation prices at the peak of the market and industry boom.
Of course there are some stunning exceptions in terms of successful publicly-listed asset management business – credit manager BlueBay, for instance, which was sold to RBC a few weeks ago for $1.5 billion, less than 10 years since its formation; or emerging markets group Ashmore, now with a market capitalisation of over $3 billion; or most notably BlackRock, the daddy of them all with a market value of some $32 billion.
More recently, the merger of Man with GLG creates an opportunity for the newly combined firm to deliver something special in the alternative asset management world – operating on a size and scale that are truly institutional, and spanning a genuinely diversified range of strategies and products.
But, in one fell swoop, Gartmore has delivered a textbook demonstration as to why most asset management firms are ill-suited to the public equity market. It is also a case study in why asset managers can make unsuitable and unsatisfactory bedfellows for exit-conscious private equity firms.
And the debacle underlines once again how problematic it is for any asset management enterprise that has ambitions of creating any kind of lasting equity value to be so dependent on a few key people.
Guy was not the whole hedge fund business at Gartmore. After all, two of the firm’s three EuroHedge awards for 2009 were won by other teams and funds in the group. And the firm has plenty of other talent to draw on, provided they can be persuaded to stay in whatever new ownership structure emerges from the ‘strategic review’ that is now underway.
But the simple truth is that he was synonymous with the hedge fund business – to investors, to shareholders and even to the firm’s own employees and management. He was by far the firm’s biggest revenue producer. And the group went out of its way – before, during and after the IPO – to highlight his importance. It was the same mistake as GLG made with Greg Coffey – and look what happened there too.
Key man risk is an inescapable part of the hedge fund business – or any business that is so identifiable with its founder. Will Berkshire Hathaway live on beyond Warren Buffett? Maybe, but surely not with anything approaching its current quasi-godlike status. Or Soros without George Soros himself? Doubtful again.
In his recent keynote speech at the InvestHedge Forum, Lansdowne’s Stuart Roden publicly doubted the ability of hedge fund businesses to pass down through the generations.
How will Brevan Howard fare without Alan Howard, or BlueCrest without Mike Platt, or Lansdowne without Roden and Peter Davies, or Odey without Crispin? We shall see one day. But the omens for longevity are not good.
Death and rebirth is an essential feature of the hedge fund industry. Funds, and managers, come and go – good ones and bad ones alike. It is seen time and again – and is one reason why this is such a dynamic and innovative industry.
For fund investors, that is a tough but unavoidable part of the game. It is hard enough finding good people to manage your money well over time without having them pack up on you and give it back. But that’s life.
For shareholders or equity investors, however, it is surely a no-win game. Does it really make sense to own shares in businesses where the only three key ingredients – people, performance and assets – are so often transient?
In a very few cases, genuine and lasting brand value can be established and preserved. But it is a very difficult thing to do. And, as Gartmore has shown again in spades, those cases are very much the exception rather than the rule.