The recent Woodford collapse in the U.K. [Missed that? Latest here at Woodford Mess] conforms to a well established pattern. ‘Star’ fund manager (or large bank proprietary trader) from major institution strikes out on own; and falls flat on face. [The best one-liner I saw on the Woodford debacle came from an old colleague and was to the effect that the manager’s name on the shingle should have alerted you to problems ahead. Er, quite.]
The paper highlighted today, from Ying Sophie Huang of the Zhejiang University (et. al.), takes a look at China’s wild-East asset management industry to see if institutional managers there who go private also do serially badly? They do; and with take-it-to-the-bank regularity.
She and her co-authors looked at a sample from 2012 to 2016 of 328 managers who left positions with established mutual funds to run their own shows and found, in most cases, their performance was worse once they’d made the switch; but why?
There are three reasons: reduced research support, style shift and a deterioration of market timing skills [Market timing is a skill? Ed.]. Sounds familiar right?
Variations of this problem have been observed for many years in developed markets but this is the first study, according to it’s authors, that highlights these same issues in a major developing one.
Along the way the paper shines a light into China’s nascent asset management business and if your job involves that in any way this paper is a must read. The picture painted is of a boiling sea of personnel change in which nobody has much of a clue, mainly because nobody has any real experience. The average job tenure in the survey sample was just 3-years!
It’s not all ah-ha-you-see. A few ‘good’ mutual fund managers do make a go if when they strike out on their own. The sample is dragged down by the duffers who go on to become even bigger duffers when they’re in charge of their own destinies.
My two pennyworth? With decades of fraud, malfeasance, shenanigans, charlatanism and out-and-out-banditry behind it the West’s model of financial intermediation still regularly produces it’s Madoffs and Woodfords [Here’s a link to some recent corkers Frauds]. How many more then is it likely China is currently incubating? Stay out of the swamp if you can. You’ve been warned!
The paper in full is available via the following link Does Mutual Fund Working Experience Affect Private Fund Performance?
Happy Sunday.