Hargreaves Lansdown has ejected the Unicorn Outstanding British Companies fund from its Wealth Shortlist over governance concerns.
The £103.8m fund had been among the D2C giant’s favourite funds since 2019 when it debuted the Wealth 50 and was kept on after it overhauled its best buy list a year later amid the fallout of the Woodford scandal.
Lead manager Chris Hutchinson (pictured) has returned 252.4% since he launched the fund in December 2006, nearly double the IA UK All Companies average of 129.1%. But more recently his fund has struggled to beat rival peers and has wound up in the bottom quartile over one, three and five years.
However, Hargreaves said it was Unicorn Asset Management’s current governance framework which ultimately prompted it to remove the fund from the Wealth Shortlist.
“We continue to have conviction in the ability of longstanding fund manager Chris Hutchinson and the broader Unicorn investment team, including co-manager Max Ormiston. However, our due diligence into the governance processes that sit behind the fund concluded that it should be removed from the Wealth Shortlist,” investment analyst Dominic Rowles wrote in a research update earlier this month.
“This is not a call based on the fund’s performance,” he stressed. “The fund has outperformed peers in the IA UK All Companies sector since launch in 2006. We put this down to the manager’s ability to select companies with great prospects, regardless of their size or what industry they’re in. Recent performance has been less impressive, but we’re comfortable that the fund has performed in line with our expectations, given the managers’ investment style.”
HL concerned by ‘key man risk’
Chief among Hargreaves’ concerns were Unicorn’s current capabilities to manage investment activities and mitigate risk. It was also highlighted that the boutique “carries a high degree of key-person risk,” with one individual responsible for several of the firm’s important functions.
Though Rowles notes some progress has been made following a period of engagement with Unicorn, including the team hiring an operations director, he added Hargreaves “does not currently have the required level of conviction in their approach” to continue rating the fund.
Rowles said: “At a small fund management business like Unicorn, it’s inevitable that some team members are required to take on a wider range of responsibilities than they would at a larger firm, and that governance processes may be less well-resourced. But we believe, despite Unicorn’s relatively small size, the firm could be doing more to manage governance-related risks.”
Unicorn ‘surprised’ by reasons for removal
Fairview Investing director Ben Yearsley finds it odd Hargreaves are singling out Unicorn.
“There are a number of funds on their list with key-man risk in my view. Unicorn is no different,” he said. “I think they have a nice blend of experience and more youthful managers.”
Unicorn said it was “surprised” by the reasons given for Outstanding British Companies’ removal from the Wealth Shortlist.
A spokesperson for the fund boutique pointed out that it had begun the search for an operations director last December, prior to any decision from Hargreaves. The position was filled in July.
They added that Unicorn “takes all aspects of governance and risk oversight extremely seriously” and had strengthened its processes and resource over recent years.
“In consideration of Hargreaves highlighting ‘the fund’s ongoing governance improvements’, the appointment of a new director of operations, further hires expected later this year and that ‘at a small fund management business like Unicorn, it’s inevitable that some team members are required to take on a wider range of responsibilities than they would at a larger firm, and that governance processes may be less well-resourced’, we are surprised that HL has cited governance as the reason for the decision,” the spokesperson said.
“We appreciate that recent events in the industry may have prompted firms to revisit their own standards and thresholds of due diligence. As has been the case since the current leadership team were appointed in 2008, Unicorn will continue to undertake our fiduciary responsibilities with the utmost care and respect for our investors.”
See also: Hargreaves Lansdown ‘playing catch-up’ with ESG additions to Wealth Shortlist
