at OM’s multi-boutique
HIGH STAFF TURNOVER in the asset management industry is nothing new. It’s that type of business. But when two senior portfolio managers are among recent resignations following the implementation of a new business model partly designed to retain key staff, there could be a problem.
Old Mutual Investment Group SA (Omigsa) appears to be facing that dilemma. And under its new “multi-boutique investment house” structure, being a major part of listed Old Mutual SA isn’t helping either. Most asset managers – particularly the small, independently owned boutiques – don’t want to be part of a listed group, saying relentless focus on quarterly performance interferes with longer-term investment goals.
The resignations of senior portfolio manager and Omigsa veteran Alwyn van der Merwe and Arno Lawrenz, head of fixed income investments, come as a blow to the asset manager. Both are officially working off notice periods with Omig-
sa, so there’s a sort of soft gag in place.
However, both have already left Omigsa: Van der Merwe starts at Sanlam Investment Management at the beginning of May, and industry insiders say Lawrenz plans to launch his own specialist fixed income asset management company, Atlantic Capital, towards mid-year.
Earlier this year newly renamed Omigsa, SA’s largest investment house, decided to split the business into 12 different investment “boutiques”. That was a bold move for an established asset manager, and included changes to the fee structure to align manager income with performance and an attempt to give managers more independent control over the funds they run and their investment decisions.
The new model is now being put to the test and there are casualties. Thabo Dloti, CEO of Omigsa, says he’s concerned but still believes in the longer-term benefits of the new model. “None of the resignations has been well received, especially as we changed our business model to keep staff. But I don’t believe it’s the model; we’re going through a big cultural change compared to the stability the old Omam (Old Mutual Asset Managers), we’re asking our staff to do more than under the old system and some people might not be prepared to take the risk they have to for the commensurate reward.”
That’s one way of looking at it. However, it doesn’t fully explain all the resignations. The general expertise flow in the industry has been from the larger established houses to small boutiques or start-ups, which entail a lot more risk for the individuals concerned.
Lawrenz, widely regarded as one of the industry’s top fixed investment professionals, will apparently be the major shareholder in his new company, which implies he’ll be putting a lot of his personal capital into the business.
Late last year Douw Steenekamp, head of equity research at Omigsa and manager of the Old Mutual High Yield Opportunity Fund, left to join Rowan Williams-Short’s new start-up asset manager, Orthogonal Investments.
This would also entail more risk, even more than under Omigsa’s new model. So, risk aside, perhaps the multi-boutique model isn’t offering some managers as much independence and control as they’d like.
Would Dloti consider changing the model? “From the outside, the market’s point of view, people see the resignations. But I’m encouraged by what I see internally. Clients are happier and the fund managers are spending more time with them. I can see the long-term benefits of this cultural change, I believe we’re on the right path.”
Dloti accepts as “fair comment” that Omigsa’s new fixed income boutique might not be clearly defined, but says it’s only round one. “Round two is still to come. We’ll look at changes in that boutique.”
But the pressure of being part of a listed group remains. Independent asset managers such as Frater make it clear they feel asset managers shouldn’t be listed, arguing quarterly performance reviews and the pressure to produce profits within the timeframe of a financial year are not conducive to long-term investing.
If anything, perhaps Omigsa should adjust its model to try and offer fund managers more true independence and ownership – and, if necessary, put up with periods of underperformance if longer-term returns justify it.
New model won’t suit everyone. Thabo Dloti