Star v teams: who is managing your money? What Investment looks at the different approaches to fund management

Invesco Perpetual is a fine example of a company employing, as CEO Mike Webb puts it, a 'star team' approach. "We don't believe that either extreme is best," he says, "and while a lot of people might put us in the star category--a single manager is accountable for stock selection--the process behind this is very much team-driven. Stocks are analysed and macroeconomic views formed on a team basis but managers do not have to adhere to stock lists if it's not appropriate."

Invesco Perpetual fund managers agree on how they want to run their fund and the restrictions that they want to adhere to. If they cross any boundaries there is a formal challenge process in place. "We don't want to box any of our managers into any particular style of managing money but we do, of course, need to keep an eye on what they are doing."

Some managers, however, really do work alone. Richard Scott is one of them. "I have a lot of flexibility in terms of investment decisions. I have to run the fund within the set objectives and report regularly to a committee but outside of that the decisions are my own."

And this approach seems to have paid off. Despite difficult markets Exeter Pacific Growth has returned 49 per cent growth over five years compared with the Far East ex-Japan average loss of 2.7 per cent.

New Star also allows its managers enormous discretion in stock picking, and for very good reasons according to Page. "Our managers manage funds, they pick stocks," he says. "They don't get involved in the bureaucracy, administration and compliance issues and paperwork. The dealing is also done somewhere else--they are free to devote all their time to what they do best."

The team approach

The star fund manager approach isn't universally popular, however, and there are plenty of fund groups who actively oppose the promotion of individuals.

One of the most dramatically scientific approaches to fund management is exploited by Barclays Global Investors. Its active funds focus on achieving good long-term performance by using financial strategies that have predictive value for future share price movements. John Willis, fund manager at BGI, explains: "We follow a strict quant process at BGI. We don't research individual companies in the same way as other management groups because what we are looking for are good investments. And good companies don't necessarily make good investments."

The BGI process was pioneered in the US in 1985 and is built around three key elements: return, risk mid cost. A traditional fund manager has to make value judgements on nearly all investment decisions from numbers on a balance sheet to the chief execs promises of a brighter future. BGI attempts to take the guesswork out of this process. It has identified a series of financial signals, such as whether company directors are buying or selling shares or whether City analysts are changing their earnings forecasts for a firm, to help predict future share price movements. BGI then takes small positions in a high number of stocks--usually between 150 and 200--to lower investors' risk.