Problems with changing horses
Two stories recently run on Good Returns aptly illustrate the life of a managed fund. The first is the story we ran a week ago about a fund manager who ventured off on his own to set up a fund under his own steam, the other is about a fund which got so big it had to change the rules it operated under. The first is the story of the JB Were Emerging Leaders Trust which invested in small and mid cap ASX listed stocks. This fund was well-supported by advisers and investors as it had a clear focus and manager who got runs on the board. Because of its success it grew quickly and a decision was made a number of years ago to - quite rightly - close the fund to new investments.
There were concerns that the fund had got too big and the interests of the company became misaligned with that of the actual people running the fund.
Last year the manager - Steve Black - left Goldman Sachs JB Were and set up what he calls a Mark 2 version of the fund under the Pengana banner. A key characteristic of this fund is that it is capped and once it gets to a certain size no new money will be accepted.
Black says this means that he can stick to his investment style and deliver what he promises to investors. If a fund which specialises in small and mid-cap stocks gets too large it can lose the ability to deliver good returns.
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