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Liontrust goes with the flow

The newsflow from Liontrust in the first half of the year has been raising many eyebrows in the investment industry, given its reputation as one of the more stable investment management businesses in the UK.

The firm is one of the bigger boutique offerings in the market and with flagship fund managers Jeremy Lang and William Pattisson, the group had two of the leading lights in UK fund management.

That all changed in January when the firm announced the resignation of the pair, with their departure pencilled in for 2010, in what many advisers described as one of the most unusual fund manager moves that the industry has ever seen.

Between them, Lang and Pattisson managed over £3bn of assets at Liontrust, with Lang managing the first income and first growth funds and Pattisson the large-cap and 350 fund. By close of trade on the day of the announcement, shares were down by nearly one-third to 80p after opening at 110p.

The departures were quickly followed by the group’s announcement that it had terminated all discussions over a possible takeover of the firm.

Two months later, the departure of Lang and Pattison was brought forward after Gary West and James Inglis-Jones were appointed managers of the first income and first large-cap funds while Anthony Cross and Julian Fosh took on the first growth fund.

The early departures have raised questions over asset retention, with Liontrust’s latest figures showing that UK and European equity assets under management now total £1.9bn.

Hargreaves Lansdown investment manager Ben Yearsley says the group has recruited a strong internal manager but whether that is enough to stop outflows from the business remains to be seen. He says: “The managers are obviously already there. Collectively, Inglis-Jones and West are good managers, obviously more in the European space but their processes are probably transferrable to the UK. Cross is already there and is a well respected small-cap manager.

“I would not be surprised if they brought forward their plans because of this. If it continued, the business would have been in a lot of trouble.”

Bestinvest senior invest-ment adviser Adrian Lowcock says the move makes sense for Liontrust as it removes any uncertainty and allows the company to move forward.

He says: “The income fund will be run by Gary West and James Inglis-Jones. The objectives of the fund will remain the same. They will, however, introduce their cashflow solution which has been used in the Liontrust continental Europe fund with above-average results. Equity income is a highly competitive sector.

With the likes of Adrian Frost from Artemis income and Neil Woodford of Invesco Perpetual income being strong managers in this arena, the new managers will need to prove themselves to stand out.

“Cross and Fosh will use their economic advantage process to run the first growth fund. This process identifies companies which have a durable economic advantage, allowing them to sustain a higher than average level of profitability for longer than expected. Anthony Cross has an excellent track record in smaller companies while Julian Fosh’s experience is across small, mid and large caps. They have a combined experience which ticks many of the right boxes for managing this fund.”

Bestinvest has chosen to place the funds on hold until it has met the managers while Old Broad Street Research has also chosen to remove the AA rating from the Liontrust first growth, first large cap and the Liontrust first income funds with immediate effect.

However, Liontrust chief executive Nigel Legge has been quick to highlight the appointments as forward-thinking moves on the part of the business, claiming that both the cashflow solution and economic advantage processes will be more beneficial than the current processes used by Lang and Pattisson.

He says: “We have appointed experienced managers with processes that are more up to date than the ones that are already in operation across the funds in question. Both Lang and Pattisson’s processes traditionally did well in that they found stocks that ‘surprised before they surprised’ but as time has gone on, that has become more difficult to achieve through their current processes.

We feel that these processes can do that again as they are an evolution of the work. Why should we look for a big-name fund manager or managers when we have experienced names with stellar track records in house?”

Legge views are borne out in recent returns, with Lang’s income fund currently fourth quartile over one and three years in the IMA UK equity income sector. However Pattison’s large-cap fund has performed well, sitting 85th out of 314 in the UK all-companies sector over 12 months. First growth is currently 211 out of 314 over 12 months.

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