The present day Liontrust business has been built in part on the early success of its Special Situations fund, which is run by one of the longest-serving fund managers in the industry, Anthony Cross.
But now, with the fund experiencing choppier waters, its future direction has been called into question by some experts-though Liontrust states it has the right processes when it comes to managing liquidity.
This makes the situation all the more remarkable, given that despite the company's expansion via an acquisition spree, taking it into multi-asset and sustainable investments, the Special Situations fund has continued to account for more than 20 per cent of the business's total assets.
The Liontrust Special Situations fund has exposure to large, mid and small caps.
The problem speculated on by one adviser, who wants to remain anonymous, may be that, if in response to outflows, the managers sell the larger holdings and clients are left with a fund with a much greater exposure to small caps. But there is no evidence of this happening with existing or future outflows. Liontrust say the mix of large mid and small caps has not changed, and a separate, dedicated team work on liquidity management.
It is worth noting that the management team also operates a dedicated smaller companies fund for clients with that as a preference.
Outflows
Liontrust Special Situations peaked at £6.5bn in August 2021, and is presently £3.8bn in size. October was the worst month for outflows in more than three years, at £148mn.
As the table (below) shows, there have only been four months in the past three years where outflows resulting from clients withdrawing cash have not exceeded inflows.
In a letter to Liontrust chief executive John Ions, the French billionaire investor Albert Saporta – a former activist shareholder in GAM, a fund house Liontrust unsuccessfully bid for – wrote: “I can imagine the fund could face a liquidity crisis in the case of accelerated redemptions or adverse market conditions.
"According to Bloomberg, the fund has 56 positions ranging in size from £179m to £8m.
"However, I was shocked to see that only seven of them, representing about 24 per cent of [the assets], could be deemed as liquid, that is, the position size represented between one and seven days of trading assuming 30 per cent of the average daily volume (ADV).”
The letter was published on the NewGam website. NewGam is an investor group that controls 9.6 per cent of GAM Holding AG.
ADV is the standard measure for assessing liquidity and means the proportion of the daily trading in a stock that would be taken up by just one seller; so the exercise is conducted on the basis of Liontrust’s exiting a stock in the Special Situations fund over the course of one week, and its selling position representing 30 per cent of the daily trading in a stock.
