(PUB) Investing 2015

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9 Morningstar FundInvestor July 2015
only about a fourth of firms showing a retention rate
below 90%. Firms in this lower set of retention rates
often have made large-scale changes, with teams of
managers coming and going. Such instability can
be cause for concern, especially if a firm is in the
early stages of rebuilding.
The industry data show a positive relationship between
higher five-year manager-retention rates and better
success rates and risk-adjusted success rates: Firms
in the industry’s worst grouping (retention below
90%) had significantly weaker 10-year success rates,
suggesting that poor performance may have spurred
manager turnover and thus a lower retention rate.
Overall, investors have good reason to hold firms with
better manager-retention rates in higher regard
when deciding with which fund companies to invest
for the long term.
Dodge & Cox: 96.7% Manager-Retention Rate
Among the 20 largest investment-management
firms by open-end mutual fund assets, Dodge & Cox
reports the best five-year manager-retention rate.
During the past five years, it has retained nearly 97%
of its portfolio managers in a fund-management
capacity. There are a couple of drivers here. One,
Dodge & Cox supports an investment-centric
culture that’s conducive to long careers in portfolio
management. Note that even those with executive-
management duties, such as chairman Charles Pohl
and CEO Dana Emery, continue to run portfolios;
that’s a long-standing tradition at the firm. Two, the
firm offers almost every investment professional
who has been with the firm for several years the
opportunity to become a partner and buy shares
in the company; these partners buy shares at book
value, and if they leave or reach a certain age, they
must sell the shares back at the then-current book
value. This investment can represent a significant
portion of an individual’s wealth, encouraging loyalty
to the firm. Finally, Dodge & Cox’s ingrained team-
based approach means that large investment policy
committees run each of the firm’s six mutual funds.
Those teams range from six portfolio managers to 17.
Franklin Templeton: 95.8%Manager-Retention Rate
Franklin Templeton became the firm it is today largely
by acquisitions, although most of those occurred
some time ago. When the firm purchased its two
largest targets, Templeton and Mutual Series, it
promised to allow those firms to maintain their own
distinct cultures and focus on investing, while
taking some administrative and distribution tasks
off their hands. In large part, the company has
delivered on that promise. That kind of autonomy
can make it easier for each underlying boutique to
keep its investors.
T. Rowe Price: 94.4% Manager-Retention Rate
T. Rowe Price’s manager-retention rate is quite high,
reflecting the fact that portfolio managers tend
to spend their entire careers at the firm. T. Rowe has
done a nice job of nurturing a culture that allows
its managers to focus on investing, and they can be
named on the same fund for a very long time. But
we’ve recently seen a few unexpected departures
and the announcement of several retirements. The
good news is that when someone is retiring from
T. Rowe, there tends to be an uncommonly long tran-
sition time to a new manager, so shareholders
remain in good hands. But considering that many
T. Rowe retirements happen when managers are
in their early to mid-60s, there’s potentially a genera-
tional shift coming down the pike.
Janus: 93.1% Manager-Retention Rate
Janus’ manager retention has improved. We’ve
been critical of managers jumping ship to other shops
or into early retirement, seemingly in spurts, and
in fact, that’s a primary reason we had graded Janus’
Corporate Culture as a D. But a 93% manager-
retention rate isn’t too shabby, though still not stand-
out. The main problems had been within Janus’
equity group in Denver, as those funds had experi-
enced spurty performance and shareholder
redemptions. Janus recently hired Enrique Chang as
the equity CIO ; he made some immediate changes
to the research group. K
Contact Bridget B. Hughes at