UPDATE 1-BlueBay's $1.4 bln hedge fund closure exposes "key man" risk

Thu Nov 20, 2014 11:23am EST
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* To shut macro fund as fund manager Neil Phillips is leaving

* Fund returned 6 pct through Nov. 14 this year, 4.3 pct in Oct

* 2014 has been a tough year for peers to make money (Adds details, performance data and investor comments)

By Nishant Kumar

LONDON, Nov 20 (Reuters) - BlueBay, one of Europe's biggest asset managers, will shut a $1.4 billion hedge fund in an unexpected move as fund manager Neil Phillips is leaving.

The decision by the $66 billion money manager, a unit of Royal Bank of Canada, is the latest example of the "key man" risk investors face even at big investment firms when a fund manager leaves.

With much of a mutual or hedge fund firm's value tied up in the brain power of its employees, the loss of an important employee exposes the firm and investors to asset flight which can even force it to sell holdings at a loss.

"His model, a pure hedge fund business with a clear key man risk, is really difficult to digest for a firm which has now been owned for years by a big bank," said Michele Gesualdi, chief investment officer at fund of funds firm Kairos Partners.

"It is a big loss, however, for BlueBay as the fund was certainly quite profitable for the firm," he added.   Continued...