Firing is not the only answer

revolving doors spinning faster

revolving doors spinning faster

Many investors react to poor performance from their investment managers with one thought – the firing line.

But that is not always the the way to go, especially in credit crunch conditions where lack of liquidity, forced de-leveraging and government intervention have made it difficult for investment managers to move fast enough to avoid losses, say consultants Watson Wyatt.

Investors should take a look at the bigger picture and do some analysis before firing. Bad delivery mainly boils down to four reasons they say. Poor manager skills top the list, followed by poor decisions. OK, everyone makes some bad judgements but as long as good decisions outweigh the bad calls then that should be taken into consideration.

Luck also comes into the equation. A manager may have made some sensible decisions that proved unsuccessful because of unexpected events.

And then there’s the little matter of market timing. Should managers be given the benefit of the doubt over holding positions that have been unsuccessful so far but might just turn out to be good in the future?

In the case of poor skills, Watson Wyatt argues firing is likely to be the right move but for the other scenarios then it’s better to keep invesment managers under review.

Er – but isn’t making the right call in difficult markets at the right time the reason investors pay high fees to investment managers?

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.

Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.