Hargreaves Lansdown sounds alarm over Lindsell Train’s risk management

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

The UK’s largest investment site said in a research note that it had found shortcomings in the “capabilities and resource” that Lindsell Train has for overseeing its investment teams and providing “effective challenge” to their decisions.

Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said: “At present, we don’t feel that the investment risk framework currently in place is sufficiently robust, nor that Lindsell Train have the correct capabilities, to provide strong independent oversight and challenge of the investment team.”

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

Terry Smith’s firm Fundsmith was asked by the financial regulator to undertake a review of its operations last year. The firm subsequently received approval from the Financial Conduct Authority and did not have to take any further action. Fundsmith declined to comment.

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

The Lindsell Train UK Equity fund has returned 10.5 per cent on average annually since its launch in 2006, although it fell 6.1 per cent in 2022 against a challenging backdrop of rising interest rates and volatile markets.

Stocks of some of Train’s largest investments, such as consumer goods business Diageo and analytics company Relx, fell last year.

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

Hargreaves said its concerns were “not a judgment on the investment capabilities of the fund managers at Lindsell Train”, noting that the investment team had “an approach which has served investors very well over the long term”.

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

He warned the City had fallen into the “backwaters” of global equity markets, as a string of companies have opted to list in New York instead of London.

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

Lindsell Train said in response to Hargreaves Lansdown’s analysis that it had “a clearly defined and disciplined investment approach” and that “protecting and growing the real value of our clients’ capital is the objective of our investment process”.

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

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