Heather Connon: Henderson faces a two-year haul

Heather Connon: Henderson faces a two-year haul

The dispute between Pearl Group and Henderson over the performance of the insurance company's investments is a major embarrassment for the fund management company. Pearl is Henderson's biggest client and the fact that it has taken the unusual step of making its displeasure so public will encourage other big customers to look at the performance of their own funds - and some may find it wanting.

The news came just as Henderson revealed that it is among the prospective buyers for rival Gartmore, which has been put up for sale by its American owner. Fund management deals are all about people: success depends on keeping individual managers happy and motivated. If they leave or get fed up, performance could suffer and clients take their money elsewhere. Gartmore's staff will hardly be enthused about the prospect of joining a company which is already being slated by its clients.

It is also an awkward time in Henderson's own development. Until December 2003, both Henderson and Pearl were part of Australian insurance group AMP. The years up to the demerger were hardly comfortable: there were constant rumours that Henderson was up for sale, and AMP's domestic troubles meant it was not focusing enough on the UK business. The result was that Henderson's performance went off the boil - and its retail business has been as bad as Pearl claims its institutional results have been. According to an analysis of its five-year performance by financial adviser BestInvest,.....continued below

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only two of its 26 unit trusts and Oeics are among the top 25 per cent in their sectors; almost half are in the bottom quartile.

Not surprisingly, investors have taken their money elsewhere: it was one of only two groups in the top 15 fund managers to suffer a net outflow of retail sales in the last quarter of 2005. Witan, its flagship investment trust, has appointed new managers for almost half its portfolio.

But Henderson is aware of its problems: in the two years since the demerger, there has been a flurry of appointments, including new heads of UK retail, equities and investment trusts. Last year's appointment of Graham Kitchen, formerly of Invesco Perpetual, to lead the UK thematic equity team was well received. These new brooms have made it clear that fund performance must improve, and there are some signs that they are having an impact.

BestInvest's analysis shows that, over the past year, seven of its funds have made it into the top quartile, while the number in the bottom has fallen to just four. Its UK Equity fund, which was taken over by Kitchen and his former Invesco colleague Andrew Jones last year, has matched the index over the past three months. While hardly a sparkling performance, this is far better than it has been: it spent the past three years on the bottom 10 per cent.

And Tim Cockerill, of adviser Rowan, was impressed by a meeting with Mileen Rash, who recently took over as manager of its UK Capital Growth fund, though Cockerill says he would need a longer track record to convince him that the higher risk of the fund is justified.