Fund selectors must do more to "hold to account" fund managers who drift from their investment style or expose investors to inappropriate risks, according to the CEO of Momentum Global Investment Management (MGIM) Ferdinand Van Heerden, who said the implosion of Woodford Investment Management in October has "tainted" the asset and wealth management sector.
Van Heerden, whose firm sold Woodford IM funds having obtained them as part of an acquisition of multi-asset portfolios, told Investment Week that further cultural change needs to take place in the industry to avert similar crises, with engagement and transparency top priorities.
He said: "As multi-asset investors, we need to hold these managers to account when they deviate from their philosophy.
"Star managers in particular sometimes deviate from that because they want to deliver the best outcome at all costs."
Underlying liquidity was a key issue in the suspension of the Woodford Equity Income fund (WEIF) in June, which was the beginning of the end for the firm.
The vehicle far exceeded the regulatory illiquid holding limit with investments including unlisted companies.
Van Heerden said NURS and UCITS funds, such as WEIF, "were intended as retail solutions", and as such are "intended to be liquid".
He added: "It comes down to how honestly you run these solutions. And when you say they are liquid and they comply, fund managers must implement these requirements. Retail seems safe. But in this case, it was not so."
Van Heerden said this highlights a cultural problem in asset management of "how we engage and communicate" at all levels of the value chain.
He explained: "We as an industry need to work on culture. That for me means how we engage with end investors, how we engage with distribution, how we engage with consumer bodies - how we engage more generally.
"We need to show humbleness - as opposed to what often comes across as arrogance - in the way we present ourselves."
This, Van Heerden said, should include engagement on how fund products are presented and sold to the end investor, either through an adviser or through fund supermarkets.
He said: "It is easy to look at [examples such as Woodford] happening in the industry and point the finger, but it comes back to how you engage.
"First and foremost, fund managers have an obligation to make sure people who think they are invested in liquid solutions should never lose capital permanently.
"But there is also an obligation on us to understand what our funds are intended for, and what it is used for by clients.
"We need to be confident that fund information is being given to clients in a clear way that is safe to distribute."
MGIM's multi-manager portfolios "never bought Woodford and only sold him", according to Van Heerden, explaining that it had "inherited" WEIF within multi-asset portfolios it had acquired.
He said the fund "was still on the up" at the time of acquisition and had delivered "lots of good outcomes" from its existing illiquid holdings.
However, MGIM took the decision to sell the holdings having deemed the philosophy "too risky", particularly regarding the size of the illiquid positions.
Van Heerden said: "It was the star manager [with too much control] and it was the type of management style that does not suit us.
"In investment decision-making sometimes there can be a tendency to think ‘everybody else is invested and it has a good track record, so if something goes wrong it will not be my fault'."
He added: "We need to be able to show higher levels of maturity and understanding, and make sure collectively that we get people invested, and we keep them invested over time."