When Andrew Bell announced in March that he intended to retire as fund manager and chief executive of Witan Investment Trust, it sparked a race across the City to win the fund management contract, which, at around £1.5bn, was among the biggest mandates to come on to the open market in recent years.
That such a mandate came to the market at a time when most fund houses have been bruised by outflows only added to the fervour of industry chatter.
FT Adviser has spoken to people across the industry to put together this account of how the eventual merger with Alliance Trust – the largest investment trust merger ever – created a new entity, Alliance Witan, which will become a FTSE 100 company in its own right and have a market cap of around £5bn.
The first item on the to-do list of Witan chairman Andrew Ross and his colleagues on the board of directors was to decide whether to simply replace Bell with a new employee as chief executive, or to abandon that approach and outsource the investment management.
The Witan investment trust operates as a multi-manager fund, that is, it deploys the capital provided by its investors, including financial advisers and their clients, to select other equity funds in which to invest.
The second item on Ross’s to-do list was to decide if this approach, which has largely fallen from favour with investors in recent years and been displaced by model portfolio services, should continue or if Witan should revert to be a conventional global equity fund – that is, where a fund manager, whether an employee of Witan or outsourced to an external firm, is hired on a contract to manage the money.
Ross says: "Bell’s retirement seemed like a good moment to review the structure of it, and it is also 20 years since we went down the multi-manager route, so it seemed like a good time to review that as well."
Initially 50 asset management firms pitched to run the trust, some on the basis of continuing with the fund-of-funds approach, and others seeking to run it as a conventional global equity fund.
FT Adviser understands that among the 50 bidders were Baillie Gifford and Harwood Capital, both of which sought to run the trust as a direct equity fund.
Ross sifted through the bids with advisory firm JPMorgan Cazenove, and reduced to 10 contenders, and then to a shortlist of five.
A decision was taken early that the multi-manager approach would continue, with Ross saying: “The shareholders are used to this approach and I think one of the risks of hiring one individual to manage the trust by buying individual equities is that you could end up hiring them at the top of their market cycle, and it's downhill from there.”
Ross acknowledges that one of the reasons multi-manager funds have fallen from favour in recent years is cost, as such products typically have two layers of fees, one to the fund manager, and another to the managers of the funds they pick.
