Liontrust’s rampant asset gathering may generate a perception of unstoppable success, but even the King of the jungle has its weaknesses, says Esther Armstrong, marketing consultant at White Marble Marketing.  

Stellar performance from Liontrust in the second quarter of this year – continuing an upward trajectory of flows that has lasted the best part of a decade – suggests the Big Cat of the UK investment industry continues to be one of the leaders of the growth pack.

In a trading update, chief executive John Ions, said: “Liontrust has delivered a strong first three months of the financial year [to 30 June] with positive net inflows of just over £1bn. This has helped Liontrust’s assets under management and administration reach £34bn as at 12 July 2021.”

He pointed to the strength of the firm’s fund performance, investment processes, sales and marketing, plus its early advocacy of sustainability as crucial in getting it to this point. Ions also noted the company recently won the global group award at the Incisive Media Fund Manager of the Year Awards.

Liontrust’s Golden Geordie

Ions, originally from Newcastle, took the helm of Liontrust 11 years ago when it was a boutique investment house managing a little over £1bn in assets. A decade and £33bn in assets later, it’s perhaps not surprising he is being remunerated so handsomely – his board want to hold onto him and his midas touch!

What is more surprising, is that despite the sustainability funds at Liontrust being the company’s most successful sub-sector (with £11.9bn in assets compared with £9.5bn from the second most popular, the Economic Advantage range); at the start of this month, Liontrust had to pull a planned IPO for an ESG investment trust due to a lack of investor interest.

The target for the asset raise had been £150m but Liontrust failed to raise the minimum £100m to make the ESG trust viable.

To be frank, £150m is a drop in the ocean for a team that runs close to £12bn, so I’m sure they won’t be losing too much sleep over it. But when a tried, tested and proven team struggle to raise £100m with a new fund launch, questions must be asked.

Liontrust ESG Trust: what went wrong?

Was it hubris on the part of Liontrust? Was the product itself a misfire? Have investors already become tired of ESG?

It was most likely a bit of the first, a significant amount of the second and, thankfully, not much to do with the third,

Since Liontrust already has 11 open-ended Sustainable Future funds, the choice to launch an investment trust was an interesting one. Allegedly, the idea behind it was that the trust would be able to buy shares in smaller, more innovative companies at the start of their growth phase.

The existing funds would not be able to invest in these companies due to restrictions on holding too much of any single company (in other words, concentration risk).

The intended ESG Trust would have been managed by the same team behind the Sustainable Futures fund range, which invests in companies working towards a more sustainable future across the world. Their long-term track record at Liontrust and previously at Aviva is noteworthy.

Investment trust blunder

To warrant a switch, or a blend with the existing open-ended investment company (OEIC) and the new investment trust, investors would either have to love investment trusts (mainly older, individual investors who may remain unconvinced about ESG and don’t have such large sums of money to invest), or believe the ESG Trust would be offering something sufficiently different to the main fund.

While nearly 2,000 individual investors did demonstrate confidence in the ESG Trust, according to Ions, the minimum raise of £100m set out in the prospectus was not achieved, so the decision was taken not to proceed.

This was put down to difficulty in raising assets for investment trusts more broadly in the current market environment. But the latest data from the Association of Investment Companies shows £6.3bn in assets were taken in by investment trusts in the first half of 2021 – an all-time high. Admittedly, £5.1bn of that was raised by established trusts, but that still leaves over a billion for the taking.

Likewise, sustainable fund launches reached a record high in the first quarter of 2021, attracting €120bn of flows, while 111 funds were launched with a sustainable remit over the same time period, according to Morni [i].

With the structure only partly to blame and ESG fatigue not yet apparent, what’s the main reason for the Liontrust ESGTrust flop?

Lack of USP

Through reviewing the literature associated with the fund launch, Liontrust may have been hoping to ride on the coattails of their existing sustainability franchise and the positive reputation the team has for this launch. Unfortunately, when it comes to product launches, ‘more of the same’ is not usually a message that cuts through.

There was a missed opportunity here, where Liontrust could have drummed up interest by promoting the chance to invest in the next generation of leading companies in the sustainability space. Instead, it relied on its overall ESG credentials and the premise that investors have already  invested nearly £12bn with this team, so they should be happy to invest another £150m.

If not overly confident, it certainly comes across as complacent.

It seems the three core tenets of product marketing were given little, if any, thought: Why smaller sustainable companies in an investment trust structure? Why now? Why with Liontrust specifically (besides existing assets)?

Had they spun this as something akin to an incubation strategy for the main fund, they might have experienced a different reception – not least among professional investors.

Brand is not enough

A final point to make is that given the short-termism of most retail investors, the recent slump in performance of the open-ended fund, relative to benchmark, could have proved a turnoff more generally. This can likely be explained by the rotation from growth to value over the first half of 2021, as ESG-forward companies mainly sit in growth sectors. But with this additional challenge, there would have been even more requirement for targeted, succinct and hit-you-between-the-eyes product marketing.

On this occasion, brand alone was not enough – no matter how loudly it was roared from the rooftops.