Investors have raised concerns about the size of several Merian Global Investors funds as the asset manager updates clients on unlisted exposure in £5.8bn worth of funds in its UK small and mid-cap range.
In September, Merian revealed it was shifting unquoted companies in its small and mid-cap funds to its closed-ended Chrysalis investment trust in light of the fallout from the Woodford Equity Income fund suspension. The investment trust sought to raise £100m for the transfer but instead landed £175m – more than it had raised at its 2018 IPO.
Merian previously updated clients with data from 21 October showing the fund with the largest unlisted weighting, Merian UK Mid Cap, had 6%. As of 26 November, that figure is now 4%, according to the latest client update seen by Portfolio Adviser.
The Merian UK Smaller Companies fund saw the largest reduction in unlisted exposure with it falling from a 5.6% weighting to 3.4% between the two periods.
Transferwise accounted for the bulk of the reduction in unquoted holdings with the holding representing between 1.4% and 2% in October and now absent from most funds with only the Merian UK Mid Cap fund having a less than 0.1% allocation.
In November, Merian Chrysalis revealed it had acquired a £4.2m holding in Transferwise from the open-ended range in addition to £36.3m bought at the end of October.
A Merian spokesperson said: “While Merian Global Investors has always managed its Oeics’ unlisted exposure within regulatory limits, recent events have resulted in a shift in perception of the role of unlisted investments in this type of vehicle. We continue to believe in the long-term investment case of Transferwise and retain exposure via Merian Chrysalis, our primary vehicle for investing in unquoted companies.”
Unlisted exposure in Merian UK SMID range
| Fund | AUM | Unlisted exposure at 26 November | Unlisted exposure at 21 October |
| Merian UK Dynamic Equity |
£483.8m | 3.3% | 4.9% |
| Merian UK Mid Cap |
£3,246.9m | 4.0% | 6.0% |
| Merian UK Smaller Companies |
£1,239.4m | 3.4% | 5.6% |
| Merian UK Smaller Companies Focus |
£347.0m | 3.2% | 4.8% |
| Merian UK Specialist Equity |
£436.6m | 3.6% | 4.9% |
Source: Merian Global Investors, FE Fundinfo
Shore drops Merian fund for smaller alternative
Several investors Portfolio Adviser spoke with raised concerns about the size of funds in the UK SMID range, which is headed up by Dan Nickols (pictured).
The largest fund, the £3.2bn Merian UK Mid Cap, managed by Richard Watts, also holds the largest weighting in unlisted companies. It holds a 2.3% weighting in health and wellbeing business The Hut Group with the next largest allocation being 0.8% in Starling Bank.
Merian UK Smaller Companies has AUM of £1.2bn with a 3.4% allocation to unquoted companies.
In September, Shore Financial Planning dropped the Merian UK Smaller Companies fund, managed by Nickols, and replaced it with the £369.8m Axa Framlington UK Mid Cap fund, managed by Chris St John.
The size of the Merian fund was part of the reason Shore Financial Planning made the switch, alongside the unlisted exposure and costs, said managing director Ben Yearsley. The ongoing charges figure is 1.03% whereas St John’s fund is 0.84%.
Another portfolio manager, who did not want to be named, said the UK Smaller Companies fund was a “bit too big”.
Merian said it is comfortable with the capacity in both the UK Mid Cap and UK Smaller Companies funds.
Merian among the best UK small and mid-cap fund managers
Willis Owen head of personal investing Adrian Lowcock is sticking by Merian, describing them as among the best UK SMID teams around. Lowcock also likes the £1.1bn Franklin Templeton Mid Cap and £1.5bn Aberdeen Standard Life UK Smaller Companies funds.
He welcomed the reduction in unlisted exposure in the Merian range stating “the liquidity issue is currently too risky especially given the funds’ size could have an impact if we saw a huge sell-off in markets”.
But he said such holdings were more appropriate in small company rather than equity income funds, like the Woodford Equity Income fund.
Morningstar senior manager research analyst Samuel Meakin said the removal of unquoted companies from the open-ended range was the “right direction of travel”.
Meakin said it was being reduced “in a manner that does not compromise the value that the team feels they can achieve from them”.
Yearsley said unlisted exposure in open-ended funds should be limited to around one or two percent and ideally zero.
The UK SMID range is core to the Merian business, Yearsley added. “It’s what launched their business years and years ago with Ashton Bradbury. Everything grew from that range.”
Bradbury launched what is now the Merian UK Mid Cap fund in 2002. He retired at the end of 2014.
