Over the long run people drive performance for mutual funds. The Wall Street Journal stresses that simple and oft overlooked fact with a look at how succession plans can go wrong at a fund firm. Thompson Plumb, where a hand off of the PM reins from father to son -- John W. Thompson to John C. -- left the two barely talking is a downside example while Hodges Fund and Paradigm Capital provide contrasting examples.

The story is especially timely as annual portfolio manager turnover jumped from 24 percent in 2003 to 39 percent in 2006, according to Morningstar data.

A succession handoff at Thompson Plumb, the elder John W. Thompson tells the paper, turned into "a family nightmare." Give the pair credit for taking the time to open up to a reporter and discuss the matter.

One of the issues at Thompson Plumb Growth was a matter of style. The elder Thompson, the son of a dairy farmer, was disappointed with his son's courting the media after to talk about the fund's strong performance. Meanwhile, John C. sometimes traded stocks first and told his father later. The tensions increased as the son bet on financial giants like AIG and Fannie Mae.

The losses cost the fund 90 percent of the $1.4 billion in peak AUM. The father retook the reins and son John C. founded his own firm last year.

Not all of the successions lead to splits.

At the $750 million AUM Hodges the issue was more of sibling rivalry as father Don Hodges prepped a handoff to sons Clark and Craig Hodges. That tension was solved with a split in duties. Clark overseas marketing at the firm while Craig picks stocks with father Don.

Meanwhile, Paradigm Capital founder Candace Weir doubts the wisdom of a founder passing along the company to a child. That led her to prep daughter Amelia with "long talks about what could go wrong."

Amelia is research director and co-manager of Paradigm's hedge fund. She also tells the paper that her succession is "absolutely not in stone." 

Edited by: Sean Hanna, Editor in Chief


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