Investing legend Jeff Vinik gets a lukewarm reception

His struggle to attract assets shows how low fees and passive investing have brought star managers back down to earth

Feb 15, 2019 @ 2:35 pm

By Jeff Benjamin

For those who are newer to the investing world, it might seem like a foreign concept to bank on the performance history and reputation of a single portfolio manager.

That's exactly the kind of wall that investing legend Jeff Vinik appears to be running up against as he scrambles to raise $3 billion by March 1 for his relaunch of Vinik Asset Management.

As Reuters reported earlier this week, Mr. Vinik, who built his portfolio management reputation in the early 1990s while managing the $50 billion Fidelity Magellan Fund (FMAGX), is now offering to cut fees to attract investors to the relaunch of his hedge fund business.

In January, Mr. Vinik, 59, who owns the Tampa Bay Lightning professional hockey team and is a minority owner of the Boston Red Sox, announced his plans to resurrect the hedge fund he shuttered in 2013.

Mr. Vinik declined to comment for this story. But based on his offer to cut the management fee by 50 basis points for investors in his fund, some say the writing is on the wall for active managers in general and star managers in particular.

"The outperformance of index funds the past 10 years, combined with the shift in assets to them, has diminished the performance of most star fund managers," said George Gagliardi, financial adviser at Coromandel Wealth Management.

"The next 10 years should be more telling for active managers, as fans of indexing will begin to discover the downside of following the crowd into the S&P 500 and similar popular indices," Mr. Gagliardi said. "We're only one significant market correction away from seeing this shift in sentiment."

Vance Barse, wealth strategist at Manning Wealth Management, agreed that the current cycle, including an historic 10-year bull market, has put star managers on the back burner for now.

"The investment landscape has changed, because investors have become increasingly critical of active management fees," Mr. Barse said. "Jeff Vinik is a highly recognized name and investors are willing to follow alpha, but if managers such as these are having a hard time raising money, it's a sign of the times."

Mr. Barse added, though, that such attitudes about active management are likely to change along with the market cycle.

"We may see a shift in the sentiment about passive investing with a newfound interest in active management," he added.

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, acknowledges that star fund managers are part of a bygone era.

"Star managers have become a thing of the past, and investors are now buying based on the firm instead of the portfolio manager," he said.

It's a far cry from the time 20 and 30 years ago when star managers dotted asset management industry.

These days, Mr. Rosenbluth said, there are very few high-profile managers who would be considered household names, and they are usually in the fixed-income space.

Among them are DoubleLine's Jeffrey Gundlach and Loomis Sayles' Dan Fuss.

When Mr. Vinik managed the Magellan Fund from 1992 to 1996, the fund's assets were near their peak at $50 billion.

Today, the fund's assets have shrunk to $16 billion, and Mr. Rosenbluth argued that most investors probably have no idea that current portfolio manager's name is Jeffrey Feingold.

"I do think asset managers are increasingly adopting the team approach, because it eliminates individual manager risk and can help to spur greater loyalty at the internal resources level," he said.

Dennis Nolte, vice president at Seacoast Investment Services, has been in the business since 1989 and he remembers the way fund companies leveraged their high-profile money managers. But these days, he said, with low-cost index strategies taking share from active management, the star portfolio manager doesn't carry the same influence.

"No longer does any money manager give me a reason to invest with him or her, specifically," Mr. Nolte said. "Even the institutional investors are seeing fewer places to put money in active management where there's a benefit."

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