Company
ownership, succession planning, and governance are among the key factors
investors should consider when assessing a fund manager’s key man risk, according to ratings agency Fitch.
Fitch has given details of its own criteria for assessing this risk in the wake of Bill Gross’ unexpected defection to Janus Capital at the end of September. The PIMCO co-founder is set to begin managing money today.
“While PIMCO has evolved to a point where its operating and governance infrastructures served to alleviate key man risk, Gross’ stature as a driver of the firm’s success also drove the magnitude of the risk of negative response to his exit,” Fitch’s note said.
While not specifically mentioning Janus, Fitch’s comments will be of interest to the firm’s management as it prepares for an expected wave of inflows into the strategies Gross is to run.
Fitch stated that “a firm’s size, staffing, ownership, maturity, and—perhaps most importantly—its overall governance structure” can all help reduce the risk of a fund management company becoming too reliant on any one individual.
“Fitch evaluates key man clauses and redemption mechanisms such as manager replacement clauses, manager insurance policies, and manager-related redemption gates that may be explicitly outlined within fund agreements,” the ratings agency added. “Some of these factors may be important in controlling key man risks.”
Outflows from PIMCO funds “have not been material enough to raise serious concerns” so far, according to Fitch, despite the group having recorded withdrawals of more than $23 billion in September alone. The agency cited PIMCO’s scale, diversity, and the “background and expertise” of its management team as key to its financial health and stability.
Janus has $178 billion in assets under management across a range of equity and fixed-income funds and mandates, while PIMCO has almost $2 trillion across its products, although there is a much greater emphasis on bonds.
Last week, fixed-income managers played down the expected impact on the bond market of extensive withdrawals from PIMCO’s giant Total Return fund, which Bill Gross ran until his departure. The fund, which has more than $200 billion in assets, is now managed by CIOs Scott Mather, Mark Kiesel, and Mihir Worah.
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