The power of two: VGI founder rift highlights risks of investing partnerships
Many of the most successful investment firms are led by two dominant figures. What happens when a partnership collapses?
'Key person risk' is a well established vulnerability for fund managers. The risk that an investment shop is too reliant on the skills and expertise of a single individual - who may leave for another fund, retire, or die - is something institutional investors screen for when deciding whether to hand over their money for others to deploy.
But there's a subtle variant on key person risk that anyone allocating money must also be cognisant of. Many of the world's most successful investment businesses are partnerships - not necessarily in the legal sense - but businesses that are led by two dominant figures that seem to perfectly compliment each other. The classic example of this is Warren Buffett and Charlie Munger at Berkshire Hathaway.
So what happens when a successful investing partnership busts up? "They say you should never invest with a fund manager that is going through a divorce. It's exactly the same with investors who are splitting up," one market veteran quipped.
Capital Brief last week profiled the rise, fall and rebirth of VGI Partners, which for a while was one of the most feared and respected hedge funds in the Australian market. In its glory days, it too was led by two individuals with highly-complimentary skillsets: founder Rob Luciano and his top lieutenant Doug Tynan.
