Marathon-London clients yank $5.8B over pending departures
By Drew Carter | December 10, 2012
Pension fund clients are fleeing Marathon-London — taking billions of dollars of assets with them — because of the anticipated departure of Jeremy Hosking, a founding partner of the global equity manager.
Mr. Hosking and his global equity team are expected to leave Marathon this month. Although the firm announced replacements in September and October, pension fund clients view the disruption of a partner's departure as presenting a greater risk than missing out on Marathon's historically outstanding returns.
Thirty Marathon clients pulled a combined $5.8 billion from the firm's global equity strategy in the quarter ended Sept. 30, according to data from eVestment Alliance, Marietta, Ga. The redemptions came even as the strategy returned 7.41% for the quarter, 58 basis points ahead of its MSCI All-Country World index benchmark. Marathon had returned 18.66% year to date as of Sept. 30, 579 basis points ahead of its benchmark, and boasted a 10-year average annualized return of 13.1%, an outperformance of 449 basis points each year, according to eVestment Alliance.
Marathon had $46.1 billion under management as of Sept. 30, with $14.6 billion in global equity and $25 billion in international.
Marathon, in operation since 1986, was hit in the past year by a fundamental dispute over how global equity should be managed, according to two sources familiar with Marathon who asked for anonymity.
The dispute between Mr. Hosking and his partners — William Arah and Neil Ostrer —centers on who should pick stocks in the global strategy in Europe, which is Mr. Ostrer's specialty, and in Asia, which is Mr. Arah's strong suit.
“Jeremy thought he had an exclusive right to run global equity the way he wanted,” one source said, adding the firm has made the three partners famously wealthy, which might have led to their reluctance to compromise.
“My guess is they'll lose more assets as other clients wait to see what will happen,” especially whether Mr. Hosking sets up a competing operation, the source said.
The other source said that while it was “probably fair to say (the partners) were never bosom buddies,” the relationship has become increasingly stressed during the past decade. He said an amicable departure of Mr. Hosking to start a new firm seemed like a reasonable compromise, “but no doubt there's a lot of money at stake.”
William Clutterbuck, a Marathon spokesman, said Mr. Hosking would retire from Marathon in December but declined to provide further comment from the company or Messrs. Arah and Ostrer. Mr. Hosking could not be reached for comment.
While both public and corporate U.K. pension funds have terminated Marathon from global equity mandates recently, none would speak publicly.
One U.K. pension fund client has stripped Marathon of its mandate but is keeping the manager on the sidelines, waiting to judge performance following Mr. Hosking's departure.
“The advice we've gotten from our investment (consultant) was that this could have a profound impact on performance,” said an investment professional at the fund who asked for anonymity. “We have the option to give the money back to them at any time.”
Client departures are happening around the world, including in Australia and the U.S., said one consulting source who asked not to be identified.
However, in the U.S., losses might be limited by the fact that more pension funds invest overseas via international mandates rather than global ones. According to data from Stamford, Conn.-based research and analytics firm InterSec Research LLC, the $1.1 trillion in U.S. institutional assets run in equities is dominated by international strategies, at $715 billion, while global strategies make up just $170 billion of the total.
One U.S. consulting source said his firm has stopped using Marathon for global mandates but has taken a “wait-and-see” approach on international ones after being assured there was a “cultural divide” at Marathon between global and international processes.
The $88.1 billion New York State Teachers' Retirement System, Albany, rehired Marathon in October to run $288 million in international equities.
And not all of Marathon's global equity clients are leaving. For example, the £2.2 billion Surrey County Council Pension Fund, Kingston-upon-Thames, England, is keeping Marathon as its £280 million global equity manager. “We have faith in their ability,” said a fund executive who asked not to be named. n
This article originally appeared in the December 10, 2012 print issue as, "Marathon-London clients yank $5.8B over pending departures".