Nick Train has addressed concerns about his company’s relationship with Hargreaves Lansdown following the fallout from the Woodford Equity Income fund.
In the latest monthly update for the Lindsell Train UK Equity fund Mr Train said he was aware of questions surrounding a conflict of interest between his fund group and Hargreaves Lansdown, having built a 12 per cent stake in the broker.
He said: "Woodford’s relationship with Hargreaves Lansdown has raised questions about ours to.
"HL’s share price has fallen and it is a matter of public record that LT is not only a significant shareholder in HL, but also a big recipient of HL client savings."
He added that the investment in the broker and any potential conflicts of interest were considered on an ongoing basis, but that the group does not believe such a conflict currently exists.
Last week (July 5) Hargreaves announced it was to drop the Lindsell Train UK Equity and the Lindsell Train Global Equity funds from its Wealth 50 list at the end of the month, because of the potential conflicts of interest.
It stated their holding of the Hargreaves Lansdown stock had ticked up to levels that were unacceptable to its internal governance.
But Mr Train said: "We do not believe there is a conflict, because we cannot conceive how our investment in HL shares could influence that company’s investment experts to recommend purchasing or selling our funds to its customers.
"We don’t mean to trivialise the situation – but is it really credible that LT would so openly pursue a business strategy that relied on us using our clients’ savings to try and persuade a reputable counterparty to recommend our funds against its better judgement?
"No. We made the investment precisely because we admire the integrity, independence of thought and investment acumen of the professionals who work there."
The Lindsell Train UK Equity fund returned 17.4 per cent in the year to date (July 5) compared with its sector (IA UK All Companies), which returned 0.77 per cent.
The Global Equity fund returned 22.9 per cent in the period while its sector (IA Global) returned 8.5 per cent.
In June, shares in Hargreaves Lansdown fell 15 per cent on the back of the suspension of the Woodford UK Equity fund.
The fund was suspended on June 3 following a period of sustained outflows.
But Hargreaves only dropped the fund from its buylist shortly after its suspension, having backed the fund manager right through the rocky period leading up to it.
Mr Train said the share price drop did not come as a surprise and agreed that the company’s reputation had "taken a blow".
He also agreed that it was appropriate for the media, regulator and politicians to review HL’s role in the Woodford saga.
"The final ramification of all this, and of greatest concern to LT, is the shocking sight of a run on a UK open-ended fund.
"It demonstrates the bad things that can happen when investment managers take risk with portfolio concentration and illiquidity," Mr Train said.
He added: "And the truth is – as we seek to communicate to all our investors – that there is risk inherent in the concentrated nature of our portfolio and to an extent with liquidity too."
The manager, however, made it clear in his latest update that his UK Equity fund does not invest in unquoted shares and that at least 99 per cent is invested in companies with a market cap in excess of £1bn.
Mr Woodford's fund ran into trouble partly because of its holding in unquoted shares.
