Fresh challenge for the City's £6m man

Can bionic Brian Ashford-Russell repeat another record year?
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The Independent Online

What is the value of an exceptional fund manager? The question has rarely been so starkly thrown into relief as it has been by the imminent departure from the fund management firm Henderson Investors of Brian Ashford-Russell and his team of technology investment specialists.

What is the value of an exceptional fund manager? The question has rarely been so starkly thrown into relief as it has been by the imminent departure from the fund management firm Henderson Investors of Brian Ashford-Russell and his team of technology investment specialists.

After a bumper year for performance and inflow of investor cash, Mr Ashford-Russell and two colleagues are leaving to set up a boutique fund management business. Once they have established it, they will continue to manage the Henderson Technology Trust, an investment trust, but not the counterpart unit trust/OEIC (open-ended investment company), the Henderson Global Technology Fund.

Last year was spectacular for the team. As technology stocks boomed around the world, all their funds had record years. The unit trust rose nearly 200 per cent in 1999, its best year by a factor of nearly four since it was launched in the mid-Eighties (when it was known as the TR Technology fund), and the investment trust did even better, thanks to the impact of gearing and the elimination of its discount.

As a result of this exceptional year, coupled with the trust's track record and the mania for anything to do with technology, money has continued to pour into these funds, demonstrating again that investors' money always goes where the best action has just been, regardless of future prospects. The unit trust has grown in size nearly fivefold in the past 12 months.

Mr Ashford-Russell, who has been running the technology funds for at least a dozen years, from well before the takeover of Touche Remnant by Hendersons, picked up a bonus of £6m for his efforts in 1999, earning his parent company several times that amount. These are remarkable sums. If you had told any fund manager 15 years ago, when the TR technology fund was being set up, that he or she would earn a £6m bonus for a year's work, or that a single fund could take in more than £500m in 12 months, you would have been laughed out of court.

But such is the transformation a 15-year bull market has wrought on the status and economics of the fund management business, that such figures are no longer a surprise. In this case too, even the most grudging observer of the fund management business can have few grounds for complaint about the fortunes being made. Although most fund managers do little to justify the fees their companies charge investors, and pick up handsome sums for doing what the investors could do themselves much more easily and cost-effectively, this is not the case with Mr Ashford-Russell and his colleagues.

Of course, they had the simple good fortune to be in the right sector at the right time. Having spent so many years building their expertise in a single sector, and by creating a genuinely global fund, which no ordinary investor could easily replicate, the fund managers can genuinely claim to have added value even before last year's annus mirabilis. This is a rare case where the fund management business has earned a good chunk of the money it has taken from investors.

Even allowing for last year being an exceptional one, which will probably never be repeated, combining solid performance and the Net stock mania, the track record of these technology funds is still remarkable. As the chart shows, Henderson Global Technology, the unit trust, has beaten the FTSE All-Share index in all but four of the past 15 years.

Most of the funds' investments have always been in the United States, so the All-Share index is not the most appropriate benchmark for measuring the value added by the managers. But the technology funds have solidly outperformed other relevant indices, including the FTSE World Index and also the NASDAQ Composite index, probably the fairest comparator.

Chartwise, a Reuters Lipper service that analyses the risk-adjusted performance of funds, says the offshore technology fund Henderson runs in similar style to its UK funds has delivered roughly double the return of the FTSE World Index over the past three years, with only a moderate increase in risk.

The risk measures are important. The volatility of the Henderson Technology funds is more than twice as great as the All-Share index, and around 25 per cent greater than the FTSE World index. These funds will expose you to a much bumpier ride, and you would normally assume that they will suffer in any future market downturn. Yet technology funds have achieved their performance with a very low correlation with the market as a whole. This means they have important diversification benefits to offer investors.

On any measure you look at, Mr Ashford-Russell and his colleagues have handsomely repaid investors for the degree of risk they have been asked to take, which is all you can ask a fund manager to do for you. Anyone who invested in the funds three years go will have seen their money grow four or fivefold. Only two years ago, you could have bought the investment trust at an 11 per cent discount. They cannot even be blamed for the outbreak of last year's Net stock mania, since the funds have always picked stocks across a much broader technology canvas than flaky start-ups.

The question now is whether the team can continue to demonstrate the ability to add value in their new business. They are also being sensible in trying to limit the amount of money they have to manage. One clear lesson of recent history is that once funds reach a certain size, it is increasingly hard to deliver similar exceptional returns.

The technology unit trust/OEIC has £1280m in it now, compared to the £800m value of the investment trust. The relative performance of the two funds will give a more precise reading on how far their success is attributable to individual skill and how much to the investment approach. We also need to see whether technology as a sectoral approach will continue to deliver the same combination of high return and tolerable added risk; there will certainly be no shortage of competition from other fund managers trying to emulate the success of the Henderson team.

There are not many genuine stars in the fund management business, in the sense of individuals whose exceptional performance stands up to close scrutiny. But this has not prevented the emergence of a remuneration system which treats many of them as if they were geniuses.

Most are not, but it is only fair to acknowledge the occasions when someone does, through a combination of effort, skill and good fortune, deliver something of genuine and enduring value to investors. We do not object when an athlete, who beats another competitor by a fraction of a second to win a gold medal, grabs the bulk of any financial rewards going. So there is no real case for resenting Mr Ashford-Russell his good fortune either.


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