Newspaper article The Evening Standard (London, England)

Fund Manager with a 'Better Way' -- or Another Fairy Tale?

Newspaper article The Evening Standard (London, England)

Fund Manager with a 'Better Way' -- or Another Fairy Tale?

Article excerpt

Byline: Simon English

[bar] HE City machine is built to create underperformance," says Nigel Legge. "Analysts write analysis that is no more than a fairy tale. The equity salesman takes the fairy tale and sells it to the fund manager. The fund manager buys the fairy tale."

As an indictment of how our pension fund money is (mis) managed, it's fairly damning. That it comes from such a City insider -- Legge founded Liontrust and has been in fund management for 29 years -- gives it weight.

He has more. Most fund managers are involved in a game of pure guesswork, he says. Every decision they make is a punt, however they might dress it up. They diversify -- di-worsify, he prefers to call it -- simply because they have no clue. Even outperformance is a matter of pure fluke, he insists.

Legge recalls a certain fund manager, later lauded for his genius and given a huge pay packet, who didn't own any bank shares in the run-up to the Lehman Brothers collapse in 2008, so his performance was fabulous. But he didn't own them for completely spurious reasons. "What you have is fund managers taking it in turns to be lucky," Legge tells me. "And underperformance is apparently never their fault." The process by which share prices move is so arbitrary that pretending you can stay atop of it is pure folly.

The analyst at Citigroup says Tesco is a buy. The shares rise. So the analyst at Goldman Sachs says they are now fully valued. The shares fall.

You'll have figured out by now that Legge thinks he has a better way. He is launching a new fund management company called Vinculum after 18 months out of the game, time that he reckons has enabled him to "separate wood from tree". Investment advisers were slightly jaded when I ran Vinculum past them, and you can see why. Every few years, someone claims to have reinvented the fund management wheel. Later, the bold new idea turns out to be a circular item that rolls down hills.

If Legge is right about all this, we might ask how much of the money he has been paid by the City in those 29 years was, by his own admission, ill-gotten.

Still, his scheme is interesting. …

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