Nick Train, who runs billions of pounds across several funds, has said he is confident UK investment firms will produce returns for investors, despite a regulatory crackdown.
Mr Train runs the £1.1bn Finsbury Growth and Income Trust, the £3.8bn Lindsell Train UK Equity Fund and the £2.9bn Lindsell Train Global Equity fund.
Across the funds he manages, Mr Train has investments in some of the UK's biggest names in fund management, including Hargreaves Lansdown, Schroders and Rathbones.
He is also a significant personal shareholder in the asset management firm he co-founded and which runs all of the funds he manages for clients, Lindsell Train.
Fund firms find themselves under pressure from the Financial Conduct Authority to lower the fees investors pay, especially after years of patchy performance from traditional active managers versus their cheaper, passive rivals.
However Mr Train said a likely drop in fund management fees in the coming years won’t dent the returns achieved by investment firms.
He said he viewed the recent drop in the share prices of Hargreaves Lansdown, Rathbones and Schroders in the wake of concerns arising from the Financial Conduct Authority’s recent asset management study as a “buying opportunity.”
In the review the FCA said that there needs to be more "transparency" on fund fees.
"It has long been our expectation that..investment management fees will fall over time.
"This is a result of the clear competitive and regulatory pressures at work.
"However, just because fees will fall it does not follow profit margins or even absolute levels of profitability must fall too, or fall commensurately.”
Mr Train said any drop in fees will be managed by technological changes that allow costs to fall in a “meaningful way”.
He added “equity markets have a tendency to go up”, which leads to an increase in assets under management, and generates higher revenues for asset management companies.
“”We are hoping to invest only in fund management winners that can use increasing scale to offset fee pressures.
"Past growth is a poor guide to future, but it must be worth noting these structural industry characteristics have allowed Schroders to grow its dividend at an annual compound of 14.5 per cent since 1988.
"Rathbone’s since 1989 is 11.4 per cent and Hargreaves, since 2008, 23 per cent.
"It is worth noting because these dividend growth rates are way ahead of the market average and have driven superior total returns too.”
He pointed out that since 1991, Schroders shares have increased 17-fold, Rathbones 21-fold, while the FTSE All-Share is up by three and a half times.
Since its float in May 2007 Hargreaves shares have risen six fold – while in that time the All-Share is up 17 per cent, he added.
He said with historic operating margins of 60 per cent for Hargreaves and around 30 per cent for Rathbone and Schroders "there is scope for narrowing of margins - if this is indeed to be required of the industry".
"That would still leave this trio much more profitable than the average quoted company in the FTSE All Share.”
On the future Mr Train sees the provision of investment services as a growth industry.
"Future growth, even on lower margins, is still highly accretive for companies as inherently profitable as these," he said.
"We think it would take an industry-wide abolition of the present fee structure to undo our expectation of continued superior economic returns.
"We regard June’s sell-off for the stocks as a buying opportunity.
"At current prices Schroders sells at 1.5 per cent of its AUM, Rathbone at 3.3 per cent and Hargreaves 7.5 per cent.
"These are well below recent valuations and further below what we would regard as full strategic value for the franchises.”
Hargreaves Lansdown and Schroders are among the top ten investments in Mr Train’s Finsbury Growth and Income Trust, and the Lindsell Train UK Equity Fund.
David.Thorpe@ft.com
