* Some firms now strike deal to let a top manager go
* Helps cushion profit hit for fund firms
* Managers protect track record, investors save costs
By Nishant Kumar
LONDON, April 15 (Reuters) - After watching billions ofdollars of investor cash follow "star" managers exiting rivals,some Britain-based fund firms have taken a novel step to helpcushion the blow: let the manager take their fund's assets withthem.
Given a firm's value is based on taking a cut of the assetsit holds, while investors only leave their cash with a manageron the basis of performance, asset managers have long sought tokeep top performers sweet.
Yet competition to retain top talent is picking up, throwingthe skills of top performers into even starker relief andleading some firms to strike profit-protecting deals.
In a year marked by the high-profile exit of Neil Woodfordand more than $12 billion from two of his Invesco Perpetualfunds, the biggest outflows from a fund caused by a managerleaving in British fund history, three others, Waverton, CharlesStanley and Henderson, took a different tack byletting some assets leave while retaining some financialbenefit.
The more collegiate approach is "quite an interesting newtrend, where a star manager is able to take their fund withthem, (which) counteracts the need for the first company to dealwith the outflows that might arise," Jeremy Beckwith, directorof manager research at Morningstar UK, said.
Beckwith said he knew of no previous examples of such deals.
Investors also flooded to the exit at Schroders whenJulie Dean left and, to a lesser extent, when Simon Brazier quitwhat is now Columbia Threadneedle Investments in September tojoin Investec Asset Management.
Together with Invesco, he three firms collectively sawoutflows of more than $15 billion since the news of thedepartures became public, estimates from Lipper showed, thoughnot all would be due to top figures leaving.
TRACK RECORD
Similar deals have also surfaced in the hedge fundsindustry.
BlueCrest recently let top trader Leda Braga leave with $9billion in assets to set up a firm called Systematica, whileDavid Warren, founder of DW Partners, took control of more than$5 billion he previously managed for Brevan Howard. BlueCrestand Brevan Howard both retained a stake.
For the fund firm the decision to let a manager leave withthe assets means earning some fees on all the assets, ratherthan grabbing all the fees in a smaller fund.
The manager, on the other hand, is saved the effort ofraising funds from scratch, while maintaining a performancetrack record which can be key for future flows.
As well as retaining some financial benefit in the fund'sassets, the deals avoid a forced sale of a chunk of the fund topay exiting investors.
In Waverton's case, Oliver Kelton left in February to joinhedge fund Odey Asset Management, but continued to manage theWaverton European Fund.
At Henderson, Richard Pease left in October and, as per anexisting agreement, took the European Special Situations Fund tohis new firm, Crux Asset Management, giving Henderson a revenuesharing deal for a year, a spokesman for Henderson said.
Charles Stanley, meanwhile, sold its Matterley UndervaluedAssets Fund to Miton in September, handing over the fund toformer co-manager George Godber after an earlier period when thefund had moved with former fellow co-manager Henry Dixon tohedge fund GLG Partners.
Such deals are unlikely in every case, analysts said, asmanagers do not always leave on good terms, making it tough tonegotiate an agreement.
But a deal can also benefit investors, who are saved thecost of moving funds, a likely response given how relativelyunsuccessful UK fund firms have been at finding starreplacements, a Cass Business School study showed.
"On average, when managers leave, you are going to getaverage performance after that," Cass professor Andrew Claresaid. "So the (investor) instinct to leave is right." ($1 = 0.6839 British Pounds) (Editing by Simon Jessop and David Holmes)
