Lindsell Train chairman warns of key man risk on trust

Lindsell Train Investment Trust’s chairman has warned investors about the risks from the dominance of the trust’s holding in the Lindsell Train company.

The £69.3m investment trust was first launched in 2001 with a small holding in the company founded by by manager Nick Train (pictured) and Michael Lindsell.

But that holding, in Lindsell Train Limited, has now grown to nearly 25 per cent of the net asset value of the Lindsell Train Investment Trust.

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And the trust’s chairman, Donald Adamson, has acknowledged that the trust is increasingly being judged based on the value of Lindsell Train the firm rather than the trust’s own net asset value.

In the trust’s latest annual report, he warned of the “key man risk” inherent in the trust because of the managers’ unique approach to investment.

“The directors’ primary concern is that this idiosyncratic if highly successful approach to investment, which has been developed and executed by Nick Train and Michael Lindsell alone over the 24 years they have worked together may not be transferable and in any event is subject to material key man risk,” he said.

The chairman said such a problem is unlikely to manifest soon as neither manager looks set to retire imminently.

But he said the “elevated levels of key man risk” was a key reason behind valuing Lindsell Train the firm at a fairly low valuation of 7.7 times earnings.

Mr Adamson also reiterated his plea to new investors to “think carefully before buying the company’s shares at a premium to net asset value, which as I write is at 6 per cent”, due to the danger that the premium may fall if the trust’s style moves out of favour.