How to rebuild a brand when a star player leaves has been a perennial problem in fund management. Recent events have included the retirement of Europe’s best-known portfolio manager Anthony Bolton from Fidelity’s Special Situations fund, Santander’s loss of leading lights James Bevan and John Kelly to charity specialists CCLA, and a huge leakage in assets from Liontrust, following an announcement that their two star managers, Jeremy Lang and William Pattison, plan to jump ship.
Mr Pattinson – and in particular Mr Lang, who joined Liontrust in 1995, months after it was founded by HSBC refugee Nigel Legge – were seen as synonymous with the Liontrust brand. But their approach did not necessarily sit comfortably with the group’s changing business model and expanding product range.
Liontrust’s momentum-focussed investment philosophy, with its belief that an analyst’s upgrade of a stock would generally be followed by further upgrades, became known as ‘The Lang Approach.’
Since launch in 1996, Mr Lang’s First Growth fund bettered the 60 per cent of the FTSE All-Share Index over the 13-year period by 35 per cent, while the First Income fund did even better. More than 90 per cent of Liontrust clients’ assets were assigned to be managed by the pair and this reliance on just two portfolio managers was making some people nervous.
Yet this investment blueprint worked like a dream until 2005, when Liontrust announced to the stock market its plan to diversify into new asset classes, following criticism of the London boutique’s narrow focus on UK equities
The addition of new investment professionals Gary West and James Inglis-Jones from Polar Capital the following year, gave Liontrust capacity in European equities. Their long-short process became so robust that it was able to return 11 per cent to investors during 2008, when the market lost 43 per cent.
But the subsequent move into bonds – with a long-short credit team, returning 10 per cent per annum for the last 10 years – recruited from Ilex – was perhaps a step too far and Liontrust admitted “differences over strategy” regarding the direction of the boutique.
The market – together with Liontrust employees – was aghast when the golden boys announced their decision to part company with Mr Legge earlier this year. In the first six months after the news came out, assets fell from nudging £4bn (€4.4bn) to less than £2bn, although pre-tax profits fell by only 25 per cent to £12.4m. But the short-term danger of assets falling below the psychological £1bn barrier seems to have been averted, with latest figures showing a slight surge to £1.3bn.
Mr Legge and the other board members had expected this rush for the exit doors. Indeed, they were not desperately sad to see the back of some low-fee mandates engaged by UK pension funds. They had realised that many institutional clients were independently thinking about quitting UK equities, so it was a matter of how long they would stay in this asset class, especially as the performance of the Liontrust funds had started to falter slightly since its hey-day.
“We couldn’t compete in the other classes into which mandates were going,” comments Mr Legge, alluding to flows seeking global and European equity plus a broader range of fixed income strategies.
Despite the ramshackle appearance within Liontrust’s admittedly well-appointed headquarters, next to London’s Savoy Hotel, Mr Legge – fond of casual clothes and some eccentric, specially commissioned murals within his boardroom – is a deeply methodical character. A search for new premises, as well as new investment teams, is on the agenda.
He is currently busy assembling a fixed income product, and has recruited a team from GAM, under Ross Hollyman, to run global equities. Mr Legge’s employees are typically serious boffins. Sure, they will look for market gaps and fill them, just as any number of more high profile, less cerebral groups would do.But they will also back-test everything, over a 40-year period, to make sure the investment process is working properly before launch.
As his model, Mr Legge uses the Schroders’ method, in deference to a group that has come under huge criticism for losing billions in assets from UK pension schemes, while reinventing itself in terms of global reach and broadening product palate to preserve profit margins.
Similarly, Mr Legge is heartened by the £20m that has recently flowed into his long-short European equity fund. With The Lang Approach now consigned to the history books, the new process involves making a list of European large cap equity stocks that managers want to own, and another blacklist, including those they want to avoid at all costs.
The managers go long on the shortlist, those firms that cautiously managed for growth, without overhyped business plans. The blacklist of overconfident managers, with hubristic business plans and a tendency to disappoint in terms of corporate earnings, is shorted.
Mr Legge calculates that he needs to attract just one-tenth of the money lost in traditional institutional mandates into this type of long-short fund to maintain the group’s historic profit margin. He hopes that pulling in £250m into the newly fashioned, high-fee products in 2010 will do the trick. And the new money will be overseen by teams of individuals. Investment gurus, for the time being at least, are slowly slipping out of vogue.
Yuri Bender
yuri.bender@ft.com
