A poor performance should not be the key reason behind firing a manager, according to global firm Watson Wyatt.
Only when poor performance occurs alongside a loss of skill, a failure of risk control or when a manager's results delivers negative changes to business or style, is firing warranted, a Watson Wyatt research note said.
Poor skills, poor decisions, poor luck and timing were four main reasons behind poor performing fund managers, the firm found.
"If poor skill applies the investment manager should be fired. In the three other cases, decisions are more difficult and require keeping managers under significant review while they regain investors' confidence," Watson Wyatt head of manager research Hugh Dougherty said.
The firm acknowledged that current market conditions have affected the way investment managers operate.
Unusual conditions such as lack of liquidity, forced de-leveraging and government intervention make it very difficult for investment managers to adjust in time to avoid losses while remaining true to their investment philosophies, according to Watson Wyatt.
"In cases where performance has been very poor, it is important to assess all the possible reasons why, prioritise these and then decide whether the investment manager should be fired or not," Dougherty said.
