Business Outlook: Mam needs to keep its nerve

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When Carol Galley, chief executive of Mercury Asset Management, walks in to quiz a nervous chief executive about his company's performance, she wants explanations not excuses. Shareholders in MAM who have sought guidance on the underperformance of some of the fund manager's portfolios ought to be in the same privileged position, but they have been less fortunate.

To a point, MAM is right to ignore all the noise. No one with any sense gives a fig about poor performance in a fund over three months or even a year. What matters is the long haul, and if you go back five or 10 years, MAM is still right up there with the best of them. It would also be wrong to extrapolate from the performance of one pounds 3bn UK-focused fund the likely track record of a global investment company with more than pounds 100bn of funds tied up in all asset classes in many different countries.

That said, shareholders might expect a clearer explanation of what went wrong and why in MAM's UK pooled pension fund. MAM has grown fat on the billions that pension funds have pushed its way as a direct consequence of its outperformance of the market and its peers. It can't expect mandates to keep arriving if it remains at the bottom of the class.

For the time being, new business continues to flood into the group but that is in part a reflection of the conservatism of trustees - no one got fired for appointing MAM - and the inevitable time-lag between a fund manager losing its touch and losing its clients. The worst thing it could do now, however, would be to also lose its nerve. Having miscalculated the surge in financial stocks and counted on a recovery in a handful of bombed-out stocks that failed to materialise, it has responded by reining in individual managers' powers and moving towards stock selection by committee.

At a time when active fund managers face an increasing threat from computers that simply track the indices, the highest risk strategy would paradoxically be to take fewer risks. MAM should stick to its stock picking and turn a deaf ear to the Schadenfreude.