Never, ever invest in a fund management company

Buying shares in a fund management company might sound like a tempting investment. But it's not. As Gartmore's experience shows, fund managers just aren't suited for the stockmarket. Merryn Somerset Webb explains why.

Less than a year after listing it looks like it might be game over for Gartmore. In March it lost one of its top fund managers, Guillaume Rambourg, in unpleasant circumstances. Then it lost another Gervais Williams. And this week it appears to be losing the rest.

The chief investment officer Dominic Rossi is off to Fidelity. And Roger Guy, who manages 16% of the firm's assets, has announced that he would like to spend more time with his family. So, despite having said back on 1 April (there's a clue) that he was "totally commited", Guy's off too, in early 2011.

Gartmore's shares promptly fell 15%. The only comfort for shareholders (who had seen the shares halve even before Guy's announcement)? The collapse means that Guy's own holding in Gartmore is now worth £3.2m less than it was.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But all this throws into sharp relief a point that one of my fund manager friends (himself ex-Gartmore) is constantly making: you should never invest in a fund management company. It looks tempting, what with the ludicrously high margins and the never-revoked licence to rip savers off at every turn with unjustified fees.

But it never works. Why? "Key man risk", something that, to give the firm its due, was much mentioned in the original prospectus. Gartmore has a variety of problems (it was once owned by private equity and so is highly indebted, a bit like EMI). But the fact that it was deeply dependent on a few managers Guy in particular was always going to be its Achilles heel. Downfall might have come when he left, or it might have come when his performance failed (note that his funds have all lost money this year, despite the rising market).

Shares track companies, not people. But in fund management it is the people you want to be investors in as long as they keep performing. It is, in that sense, a little like investing in a football club. And you wouldn't want to ever do that.

The truth is that asset management companies just like football companies are simply not suited to the stock market. That doesn't mean more won't list. But it does mean we shouldn't invest in them.


Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.