John Sevior made headlines in 2011 when he left fund manager Perpetual (ASX: PPT) to go out on his own in a new start-up venture named Airlie Funds Management.
Sevior, who took over from Peter Morgan as Head of Equities at Perpetual, had been with the firm since 1994. His decision to leave came at a bad time for Perpetual and didn’t help the problem the firm was already experiencing of outflows exceeding inflows which has thankfully slowed down.
Sevior’s stock-picking performance while at Perpetual was outstanding and included responsibility for the Industrial Share Fund. According to a report in Fairfax Media, Arlie Funds scored a $1.2 billion mandate from superannuation industry giant AustralianSuper during the last financial year. This is on top of around $500 million, which Arlie manages for Cbus and $90 million managed on behalf of Hostplus.
News of the size of Arlie’s mandate wins comes as the fund manager prepares to close the Arlie Concentrated Share Fund to new clients having reached its stated size limit of $200 million. The speed of growth in funds under management (FUM) shows the pulling power of a star manager.
The speedy growth in FUM at Arlie can be likened to Magellan Financial Group’s (ASX: MFG) success in also growing at a lightening pace. Having first opened for business in 2007, the company now boasts $16 billion in FUM.
In comparison, fellow listed domestic and international fund manager K2 Asset Management (ASX: KAM) was established in 1999 and despite a sound track record its level of FUM is still below the $1 billion mark at $816 million.
The earnings leverage gained by fund managers once they reach a level of FUM that covers their fixed costs is a very desirable investment characteristic. As a rule of thumb, the $1 billion mark is touted as a necessary level of FUM to be viable, however a number of fund managers have enticing business models at lower FUM levels too.
Profitable fund management companies can produce significant free cash flow which can be returned to shareholders as dividends. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”
- A Buffett investment analogy for cricket fans
- 4 stocks that increased their dividends more than 45% this year
Motley Fool contributor Tim McArthur owns shares in Perpetual.