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A sky full of stars – what lessons can we learn from the Woodford debacle?

If there was one theme that was prominent in the dying months of last year and as the new decade got underway, it was the rise and fall – and the role – of the so-called star fund manager. While the rapid descent of Neil Woodford has probably been the most talked about development in this area, the significant sums earned by the most successful fund managers has also thrown a spotlight on the increasing power some of these players now have in the retail investment market.

Of course, the concept of star fund managers is far from new. There have been plenty to whom this description could be reasonably applied in my lifetime and more than a few that could have earned this accolade in the early years of the professional investment management industry. Arguably one of the first was Benjamin Graham, considered the father of value investing. Although he was an American investor, he was actually born in London towards the end of the nineteenth century.

Many will consider Warren Buffett a star fund manager, even if his Berkshire Hathaway company is hardly a conventional retail fund. These are people who have maintained their reputations over the years, but not all fund managers who have aspired to star status have managed to stay on track through thick and thin.

Fallen stars

Anthony Bolton, the highly regarded manager of the Fidelity Special Situations fund during the 1980s and 1990s, found the transition to managing a fund investing in China a tricky business.

I recall also one Peter Young, a European fund manager with Morgan Grenfell who enjoyed a strong following, who fell from grace in a spectacular fashion. It turned out his success was based on trickery and fraud, resulting in his prosecution. But the abiding image for many who followed this story was his arrival in court dressed as a woman. Interestingly, I lunched with one of his ex-colleagues the week the story broke who told me the revelation of his dark doings came as less of a surprise to those who had worked with him than it did to the investors who backed him. One wonders why he wasn’t spotted as a wrong ‘un sooner.

Some stars remain in the firmament. Peter Lynch, who ran the biggest mutual fund in the US for many years – Fidelity’s Magellan Fund, became a legend and published a book which included many quotes I found useful when addressing investors and their advisers at conferences. In “Beating the Street” he opined that no-one could accurately predict the future direction of stock markets, currencies or economies. “Dismiss all such forecasts” he said. Yet he grew the fund significantly over the years and was able to retire at the age of 46, turning his considerable energies to charitable works.

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