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Marathon AM wins blockbuster $21bn mandate

London-based Marathon Asset Management has landed a hefty mandate after Harbor Funds dropped Northern Cross as subadvisor of its International fund.

Marathon AM wins blockbuster $21bn mandate

Harbor Funds has dropped Boston-based US asset manager Northern Cross in favour of London-based Marathon Asset Management LLP as the sole subadvisor on the $20.8 billion (£16.1 billion) Harbor International fund, according to a Securities and Exchange Commission filing.

'We have high conviction in the investment capabilities of Marathon-London. After careful research and evaluation, we believe the Harbor International fund and its shareholders will be best served by Marathon-London as subadvisor to the fund going forward,' said Harbor Funds chairman Charles F McCain, in a statement on the company's website.

'At the same time, we wish to express our deep appreciation to Northern Cross for their dedicated service to the Harbor International fund and its shareholders over many years.'

Launched in 1987, the fund has been co-managed by Northern Cross's Howard Appleby, Jean-Francois Ducrest and James J LaTorre since 2009. 

Marathon was founded in 1986 and is an independent, employee-owned firm with around $61 billion (£47 million) in assets as of June 30, 2018, which specialises in international and global equity investing. 

In a Q&A about the change published on the Harbor Funds website, the firm said it took a long-term view when evaluating a subadvisor and it was not particularly alarmed by short-term periods of underperformance.

‘However, whenever there is a sustained period of underperformance as there has been with the Harbor International fund, we intensify our evaluation of the fund and subadvisor to better understand the reasons for the underperformance,’ it said.

'In the case of the Harbor International Fund, we have been carefully evaluating the reasons for the fund's underperformance. We have spent considerable time with Northern Cross as part of this evaluation. We have also carefully evaluated potential replacements to Northern Cross,' it continued. 

The fund has lagged its benchmark, the MSCI EAFE NR, in every calender year from 2013 to 2017, according to Lipper data. It is marginally ahead in 2018, year to date. 

On a cumulative basis, it has posted total returns of 22.43% over the five years to the end of July, compared with 32.9% for the benchmark and 30.9% for the average fund in the Citywire International Large-Cap Growth category. As a result it ranks 32nd out of the 36 funds in the peer group with a five-year track record. 

The fund has also been hit by significant and consistent outflows, with investors pulling money in every quarter from the last three months of 2014 onward.

In total, over that time to the end of Q2 2018, the fund suffered net outflows of $28.9 billion, according to data from Lipper. 

 

 

The Q&A emphasised the generally low turnover for subadvisors at Harbor. 

'For Harbor funds that have been in existence for at least five years, our subadvisors have an average tenure of 16.4 years,' it said. 

Marathon Asset Management, which has been a subadvisor on the $563.7 million (£438 million) Harbor Diversified International All Cap fund since 2015, will utilise its flagship Europe, Australasia and Far East (EAFE) strategy for the Harbor International fund. 

According to the Q&A on the Harbor site, 10 Marathon portfolio managers will run distinct portions of the assets in the fund, four of whom will focus on Europe, four on Japan and two on Asia Pacific ex-Japan. 

Harbor Funds said the firm imposed an expense ratio cap on the International fund in November 2017 to help ensure its total expense ratio (TER) remained competitive while the fund experienced a decline in assets due to elevated redemptions.

As of now, the TER is set at 0.64% for the retirement share class, 0.72% for the institutional share class, 0.97% for the administrative share class and 1.09% for the investor share class.

The firm said it expects to maintain lower expense ratios than the 2017 levels through at least 2020.

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