Hargreaves Lansdown raises alarm over Lindsell Train risk management

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Hargreaves Lansdown has raised concerns about Lindsell Train’s risk management, warning that the fund group is not evaluating its investment decisions “sufficiently”.

The UK’s largest investment site said in a research note it had found shortcomings in the ‘skills and resources’ it Lindsell train has to oversee its investment teams and provide “effective challenge” to their decisions.

Emma Wall, head of investment research and analysis at Hargreave Lansdown, he said: “At this time, we do not believe that the investment risk framework currently in place is robust enough, nor that Lindsell Train has the adequate capabilities to provide strong independent oversight and challenge the investment team.”

Lindsell Train, which manages around £19bn, is among several UK investment boutiques that have come under the spotlight for their risk and governance framework in recent years.

The financial regulator asked Terry Smith’s Fundsmith firm to undertake a review of its operations last year. The firm subsequently received approval from the Financial Conduct Authority and needed to take no further action. Fundsmith declined to comment.

Nick Train, who co-founded Lindsell Train two decades ago, is one of the UK’s leading equity fund managers and has been in the top 10 performers for the past 12 months, according to data from Citywire.

The Lindsell Train UK equity fund has delivered an average annual return of 10.5% since its launch in 2006, although it fell 6.1% in 2022 amid a challenging environment of rising interest rates and volatile markets.

Shares of some of Train’s biggest investments, such as consumer goods firm Diageo and analyst firm Relx, fell last year.

Train’s equity fund has also been a longtime investor in Hargreaves Lansdown, although it is not a top 10 investment.

Hargreaves said his concerns “were not a judgment on the investment abilities of Lindsell Train’s fund managers,” noting that the investment team had “an approach that has served long-term investors very well.”

Train, who invests in companies for long periods of time and also holds a stake in the London Stock Exchange, recently defended National Pensions for reducing their exposure to London-listed stocks.

He warned that the City has fallen into the “backwaters” of global equity markets, as a number of companies have chosen to list in New York instead of London.

However, he noted that the UK had “some truly world-class companies” that global investors were buying up.

Lindsell Train said in response to Hargreaves Lansdown’s analysis that it has “a clearly defined and disciplined approach to investing” and that “the protection and growth of the real value of our clients’ capital is the focus of our investment process” .

The firm said it had a risk and compliance committee that independently oversaw risk, chaired by an independent non-executive director with “significant experience in this area.”

Lindsell Train also recently hired an executive to focus on risk monitoring, noting that it “will continue to commit resources to this important part of our business.”