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How Liontrust’s decade of dealmaking came unstuck

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When Liontrust is ejected from the FTSE 250 this month, it will cap a year in which the UK asset manager has suffered billions in outflows, attempted a doomed bid for Swiss rival GAM and shed half its market value.

The London-based money manager was once a darling of the sector, with chief executive John Ions presiding over an increase in assets from £1bn to £36bn in the decade to September 2021.

Then, Ions put the company’s success down to having the right products, listening to clients, and “momentum”, with the group benefiting from a decade of rising equity markets and later households’ pandemic-era savings.

But shares in the £27bn UK asset manager have lost four-fifths of their value since their peak in August 2021, and assets have dropped by a quarter.

Part of the pain has been sector-wide, with midsized managers finding themselves squeezed between juggernauts, such as BlackRock and Vanguard, and specialist managers, such as Baillie Gifford. The flight to passive funds has compounded pressure to cut fees at the same time as regulatory costs have been rising.

“You have got to be a trillion dollar manager offering lots of things, or you have to be a really efficiently run specialist,” said one former partner at Liontrust. “The middle of the road [firms] are all suffering.”

Liontrust declined to comment for this article.

Founded in 1995, Liontrust made its name as a boutique UK equities growth house. Since Ions was named chief executive in 2010, he has embarked on an acquisition spree, buying seven firms in 12 years as part of a push to diversify the fund house.

But that effort has had mixed results. The purchase of Alliance Trust Investments in 2017 is widely seen as a success, bringing sustainable investing expertise to Liontrust just as the theme found favour with investors.

Other deals are still to pay off. Acquisitions of Neptune Investment Management in 2019 and Architas in 2020 have yet to generate gross profits above their costs. The 2022 acquisition of equities boutique Majedie for £120mn, was an “unmitigated disaster”, said Robert Sage, analyst at Peel Hunt.

Assets at Majedie’s Tortoise fund plummeted from £712mn in May to £10mn in August after its two managers left. The manager of another Majedie fund, the £1.2bn Edinburgh Investment Trust, announced his retirement in October.

Ions’ latest attempted deal was a £96mn bid for struggling asset manager GAM, announced in May, which he declared would “create a global asset manager, well-positioned for long-term growth”.

But GAM shareholders were unmoved. The bid was derailed by activist group NewGAMe and ultimately only one-third of GAM shareholders backed the takeover in August. Liontrust was forced to retreat.

One top 10 shareholder in Liontrust said the board misjudged how the market would react to the proposed deal, saying that the benefits of the tie-up were never “crystal clear”. “It is already a tough environment and you’re doing something that people aren’t jumping at,” the investor said.

This had been the “toughest period” of Ions tenure, said the chief executive of a rival asset manager, and the collapse of the GAM deal “doesn’t make it easy for [him]”.

Investors have in the meantime pulled a net amount of £3.2bn from Liontrust funds over the six months to the end of September, on top of £4.8bn redeemed in the year to March. Market moves and investment performance have pushed assets down a further £3bn over the 18 months to the end of September.

Despite Ions’ expansion strategy, the asset manager’s main focus has remained UK equities, which are deeply unloved by investors. Investors have pulled £10.6bn from UK stocks so far this year.

Line chart of  showing Liontrust's share price has sunk lower than its competitors in the past year

Ions “lost some credibility” as a result of the botched GAM deal, said one analyst. Liontrust’s board has also come in for scrutiny, even before the failed GAM bid.

In March, a row erupted over the 12-year tenure of Alastair Barbour, who has served as chair for the past four years. Corporate governance best practice restricts board members to nine-year terms. Fellow board members Emma Howard Boyd and Quintin Price resigned, and at the AGM in September, 15 per cent of shareholders voted against Barbour’s re-election. Barbour remains in the post.

One top 25 shareholder told the Financial Times that Liontrust’s shares look cheap following the sell-off. “Some of the funds and the fund managers there are strong and have strong track records, and that’s what we are backing,” he said.

But the big risk of fund manager departure remained, said the former partner at the company. Liontrust had some “excellent” fund managers, he said. “[But] if they walk out of the door there’s nothing left.”

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