Do co-portfolio managers really reduce key person risk?
Hannah Evans, head of manager research at Omnis Investments and member of the ACT Stewardship Council, explores co-portfolio manager structures and fund management team behaviour
More and more co-portfolio manager structures are being put in place across the fund industry. The rationale is usually sensible enough; succession planning, continuity, bringing together complementary skill sets and reducing reliance on a single individual.
And all of that makes sense, but I am not convinced that adding a second portfolio manager automatically reduces key person risk. In many cases, it simple changes what that risk looks like.
If a strategy has been built around the relationship between two investors, losing either one can materially change how decisions are made. That isn’t necessarily a criticism of the structure, it simply means we need to understand it, rather than assuming two names on a factsheet automatically make a strategy more resilient.
Sometimes co-portfolio manager structures work well; you come away from meetings understanding exactly why the arrangement exists. For example, one manager may have stronger stock-picking instincts, while the other excels at portfolio construction. One may naturally challenge assumptions, while the other brings discipline and consistency. Together, they produce better outcomes than either would alone.
But not every arrangement is like that.
Read also: In the age of AI, culture may become active management’s greatest differentiator
Challenging decisions
I’ve met teams where decision-making is clearly shared, and others where it becomes obvious that one individual carries most, if not all, the investment responsibility. Sometimes that’s because a future successor is being developed and sometimes it’s just because the firm wants to show clients that there is more than one person involved.
Neither is right or wrong, but they are very different. So, we need to be asking more questions when we meet investment teams, not only of the portfolio managers, but also of analysts, traders, operations teams and others around them.
I want to understand who really influences investment decisions; not who appears on the factsheet, not who speaks most during client meetings, but who carries weight when views differ.
The answer isn’t always obvious. As fund selectors, we spend time analysing performance, risk statistics and investment processes. Those things are important and tell us what has happened. They tell us less about how a team will behave after a key departure. So, we must make the time to ensure we understand how decisions are made inside teams.
Some of the most useful questions asked in meetings aren’t about stocks or markets. What happens when the portfolio managers disagree?
Can one manager veto an investment?
Who decides position sizing?
Can junior members of the team challenge senior investors?
What happened the last time there was a significant disagreement?
You often learn far more from those conversations than another stock story. For me, this is a culture question. The strongest teams I’ve met are not always the ones where everyone agrees. Quite often it’s the opposite.
They challenge each other, they argue, they test assumptions - someone is willing to ask the awkward question in the room.
That is why diversity within investment teams is sometimes discussed too narrowly; the value doesn’t come from having people with different backgrounds around the table, it comes from creating an environment where different experiences lead to different opinions, and where those opinions influence decisions.
Good investment decisions are rarely the product of everyone thinking alike but are usually the result of ideas being challenged before capital is committed. So, when I assess a co-portfolio manager structure, I’m much less interested in how many names appear on the factsheet than I am in understanding how the team behaves, as that determines the outcomes.
We are not investing in an organisational chart but in the people around the table who are making the investment decisions with our clients’ money.