Hargreaves Lansdown raises alarm about Lindsell Train’s Risk Management

Hargreaves Lansdown is concerned about Lindsell Train’s risk management. The fund group has not assessed its investment decisions “sufficiently”, according to the firm.

In a research report, the UK’s biggest investment site stated that it found deficiencies in Lindsell Train’s “capabilities” and “resources” for overseeing their investment teams and “effectively challenging” their decisions.

Emma Wall, Head of Investment Analysis and Research at Hargreaves Lansdown, said: “At the moment, we do not feel that the current investment risk framework is robust enough, nor does Lindsell Train possess the right capabilities to provide independent oversight and challenge the investment team.”

Lindsell Train manages approximately PS19bn and is one of several UK investment boutiques under scrutiny for their risk management and governance framework.

The financial regulator asked Terry Smith’s Fundsmith to review its operations in the past year. The Financial Conduct Authority approved the firm and it did not need to take further action. Fundsmith declined comment.

According to Citywire, Nick Train is among UK’s top 10 equity fund managers. He has been one of the UK’s top performers for the last 12 months.

Since its launch in 2006 the Lindsell Train UK Equity Fund has averaged returns of 10.5% per year. However, it dropped 6.1 percent in 2022 due to a difficult backdrop of rising rates and volatile markets.

Last year, the stock prices of some of Train’s biggest investments, including consumer goods company Diageo and analytics firm Relx fell.

Train’s Equity Fund has been an investor in Hargreaves Lansdown for a long time, even though it does not rank among the top 10 investments.

Hargreaves stated that its concerns “were not a judgment of the investment abilities of the fund manager at Lindsell Train”, and noted that the investment team “had an approach which served investors well over the longer term”.

Train, who has invested in companies over a long period of time, and holds an interest in the London Stock Exchange as well, defended pension funds for reducing their exposure in London-listed shares.

He said that the City was now in the “backwaters of global equity markets” as many companies chose to list their shares in New York rather than London.

He did note that the UK has “some truly world-class” companies which global investors are grabbing.

Lindsell Train responded to Hargreaves Lansdown’s analysis by saying that they have “a clearly defined, disciplined investment process” and “protecting and increasing the real value our clients’ capital are the objectives of our investment processes”.

The firm stated that it had a committee for risk and compliance, which independently oversaw risks. This committee was headed by a non-executive independent director who “had considerable experience” in this field.

Lindsell Train recently hired a senior executive to monitor risk and noted that “we will continue to dedicate resources to this important aspect of our business”.