Portfolio manager turnover impacts fund performance

Portfolio manager departures and turnover are having a significant impact on the performance of Australian equity funds, morale and investor relationships, according to the 'Standard & Poors Fund Services (S&P) analysis.

The research house analysed its rated long-only Australian equity funds and found that managers with long tenure are associated with stronger and more persistent excess returns compared to short-tenured peers.

S&P analyst Justine Gorman said employee retention was a critical factor in the performance of the business, with the loss of a key employee potentially having a dramatic effect on a fund manager's success.

"Businesses lose intellectual capacity and corporate knowledge when a portfolio manager leaves. If not managed carefully, the repercussions of manager turnover can adversely affect morale, investor relationships and the fund manager's corporate brand," Gorman said.

S&P has released its Musical Chairs report earlier this year, which found the three key manager departures in the last quarter of 2010 affected almost $10 billion in funds under management (FUM) invested.

There were 40 key staff departures for last year in total, affecting $55.7 billion in FUM, the researcher said.

S&P's analysis also discussed why portfolio manager turnover in Australia has been so high, what effect departures have on investment teams and how some teams are structured to limit the effect of sudden departures.