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The squeezed middle in the UK asset management industry is a painful place to be — caught between specialist funds, which can charge higher fees, and those with vast scale and large passive businesses such as BlackRock and Amundi of France.
UK-listed Liontrust is fighting a battle to grow in active fund management, partly through acquisitions. It has two obstacles to overcome. First it must quickly and efficiently integrate its purchases. Then it must show active management is worth the added costs.
The boutique has been a busy beast, having acquired Neptune Investment Management in 2019, Architas in 2020 and Majedie two years ago. It recently held early-stage talks with peer Artemis. Rolling up active managers is showing few results. Its share price has not budged for five years.
The problem lies not just with Liontrust and its dealmaker, chief executive John Ions, but the entire active fund management industry. Martin Gilbert, in his Aberdeen Asset Management days, tried a similar strategy. The end-product is Abrdn, which has dropped vowels and funds under management since selling up to Standard Life for £3.8bn in 2017. The combined group is today worth less than that price.
Ions looks like Gilbert minor. Buying Artemis would double up Liontrust’s boutique manager profile. Liontrust with £27.8bn in AUM compares with £23.4bn for Artemis. That suggests a valuation in the area of Liontrust’s £416mn market value, significantly more with a takeout premium — a lot to swallow even in an all-share deal.
Liontrust’s recent purchases have not gone well. It has yet to make much profit out of Neptune and Architas. Majedie’s original £712mn Tortoise Fund has lost nearly all its assets since 2022.
The real headache for all these groups is the diminution of UK actively managed assets. Passively managed funds under management have climbed 80 per cent since 2017 to £325.4bn, according to the Investment Association. That makes up 23 per cent of the total of £1.4tn. In the US that figure is half of all mutual funds.
Liontrust and its ilk trade cheaply at or below 10 times forward earnings. But much larger asset managers such as Germany’s DWS see little opportunity in the UK market. Instead, it prefers to grow via a low fee exchange traded fund strategy — Xtrackers — and alternatives.
That only underscores the challenge for Liontrust, holder of a lowly valued acquisition currency in an industry where its chosen speciality is shrinking.
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