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Lion’s share

James Smith Boutique View

With a strong claim to being the model for many boutique fund groups in the UK, Liontrust was an apt choice for the debut subject of this column a year ago.

After recruiting two major teams and losing two of its founding managers after almost 15 years, the firm seems ripe for another look.

CEO Nigel Legge believes that after the various market issues of 2008 – from hedge funds blowing up to major performance disappointment – there is a massive opportunity for a group with integrity, transparency and openness of process.

As expected, the group faced plenty of publicity in the wake of managers Jeremy Lang and William Pattisson leaving, with both part of the original launch team that came over from James Capel in 1995.

Much has also been written about the firm’s outflows and Legge is keen to set the record straight.

He says: “We were largely immune to the credit crunch and were net sellers in 2008, with assets reaching around £3.6bn and the business profitable. The departure of the two individuals in 2009 meant we lost various pension mandates but that money produced wafer-thin margins. We have clearly been in net redemptions but the assets have now stabilised in the £1.2bn-£1.3bn area.”

Amid all this, Legge says he has had more enquiries from fund managers about joining the firm than ever before, with many attracted by the freedom to execute their skills.

He stresses that not every manager would fit in, however, with a key Liontrust requirement to set out exactly how the investment processes work.

Other tests for potential recruits include being saleable into the retail and institutional markets, small teams and scalability at similar margins to the existing business.

Focusing on UK equities for its first decade, the group made an initial move outside this area in 2006, bringing in Gary West and James Inglis-Jones to head European products.

Like the rest of the group’s managers, the pair spent several months refining and documenting their Cashflow Solution process.

When Lang left, they were seen as the best option to replace him on the flagship first income fund and Legge highlights their strong start.
Under West and Inglis-Jones, the vehicle now has three stated aims – returning more than the stockmarket and income growing faster than inflation over a five-year period and yielding more than index-linked gilts.

On the European side, the pair has run a long-short fund for professional investors since 2006 and launched a retail version earlier this year.
Liontrust has added two further strings to its bow as part of ongoing efforts to broaden the product range, recruiting high-profile bond and global equity teams.

First to come on board was the European fixed income team from Ilex Asset Management, which Legge trumpets as among the best in London.

Headed by experienced CIO Simon Thorp, the team runs the Cayman Islands-domiciled long/short Ilex Credit fund, among the earliest products in this area when launched in June 2000.

Meanwhile, Liontrust also teased a global equity team out of Gam, with three managers joining in October and head Ross Hollyman to arrive in January 2010.

When the team is complete, they will develop the global value, global earnings surprise and global multi-factor equity investment processes.
Legge says this latest hire represents the group’s ongoing joined-up thinking, with Hollyman previously working under West at Flemings.
West had also taken over from William Pattisson at the same firm, when the latter left his head of UK equities role.

Legge says: “In essence, we are assembling knowhow here in the form of clearly defined investment processes and packaging that in investable form for various client groups.

“After last year, we feel many managers have been shown up as complacent, which echoes the early days of the firm when many people told us not to try to compete against the biggest firms on UK equities.”

While acknowledging the impact of the institutional outflows, Legge highlights the health of the business, recently boosted by Schroders manager Andy Brough boosting his stake.

“We launched in 1995 with no managers, no process and a name associated with a 1940s investment trust and with four teams of excellence now in place, we would rather be here than there,” he says.


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