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Liontrust chief on the competitive edge of small asset managers

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John Ions is apologetic. It has taken more than two years and five cancelled meeting before we finally manage to speak.

“You’ll have to excuse me for that,” says the chief executive of Liontrust, a listed UK asset manager.

But then Mr Ions has been busy. Under his watch the company’s assets under management have grown from £1bn to £28.1bn over a little more than a decade, and have almost tripled since 2018 alone.

He has also spearheaded a string of acquisitions, including the purchase of rival fund house Neptune in 2019 and Axa’s Architas UK investment business in a deal that closed in November.

Mr Ions reams off a list of reasons for Liontrust’s success, including having the right products, listening to clients and “momentum”.

But then he issues a caution: “The world is a very uncertain place. Anyone who claims to know what the future holds is at best guessing. [That] is quite difficult because we invest for the future.”

Over the course of two hour-long conversations several months apart, Mr Ions speaks frankly on everything from which asset managers he thinks are doing a good job to his own future.

The investor is both self-assured and modest (his business would be in trouble, he says, if he were the brightest person there). In another contrast, he gives the impression of being an entrepreneur who is quick to make decisions, while also proclaiming the importance of meticulously following a process. 

“The whole business is anchored in process,” he says, speaking in late summer from his holiday home in Portugal, where he decamped with his family as Europe went into its first lockdown.

“Through a period of uncertainty process is key. What we are trying to do is increase the probability that the next decision is more likely to be right than the last one.”

Liontrust Asset Management

Established 1994

Assets £28.1bn

Employees 197

Headquarters London

Ownership Listed on the London Stock Exchange

When we talk a few months later, Mr Ions is in his office in London. Although working remotely had been “good”, he says being back at the London headquarters has been a “breath of fresh air”.

The business had initially coped well based on a combination of “adrenalin, fear . . . and the process that was deeply embedded across Liontrust”, he says. “But after about six months, you think there are certain bits missing [such as] that transfer of knowledge [and] interaction with colleagues.”

While some have argued that the pandemic will lead to a shake-up in working practices, Mr Ions strikes a more cautious note, arguing large-scale working from home could mean businesses like Liontrust lose their competitive edge.

“The more and more you are working from home, effectively it is a little like outsourcing,” he says. “I still believe you need people in the office, you need that interaction. You need that ability for people to learn on the job.”

The conversation turns to life after the pandemic. While we are “a long way away from returning back to a pre-Covid place”, he suggests the fallout will not be as difficult as the financial crisis.

“This is different to the financial crisis in 2008 where the banks needed bailing out. The banks now are charged with maintaining or supporting the economy. You will see that continue,” he says.

At the same time, investors are “prepared to back quality businesses through this period. We will see new equity financing coming into the market . . . and people taking up those options to back and support those businesses.”

One of the upsides of the pandemic, he argues, is that unlisted companies, which often turn to private equity for financing, may be more tempted to go public in future. “Maybe the value of the stock market — and the access to capital that the market can supply for those businesses — will be more appreciated,” he says.

Still with huge volatility in markets over the past year and often sky-high valuations, he argues, investors need to be careful when backing stocks.

CV

Born 1966 Newcastle upon Tyne

Total fixed pay £387,000

Education 

1980-85 King’s School, North Tyneside

1985-87 Undergraduate degree in business finance, North Staffordshire and City of London Polytechnic 

Career 

1987-90 Manager of offshore sales, Henderson Administration 

1990-93 Head of sales, Dresdner Bank 

1993-97 Head of distribution, Aberdeen Asset Management 

1997-2004 Joint managing director, Société Générale Asset Management; co-founder and chief executive, Société Générale Unit Trusts 

2005-10 Chief executive, Tactica Fund Management 

2010-present Chief executive, Liontrust

This is where good active managers can prove their worth, he says. Despite repeated studies finding that passive funds overall outperform active funds, including in 2020, Mr Ions says the statistics are distorted by so-called closet trackers — which closely mimic their index while proclaiming to be actively managed.

There are plenty of good actively managed funds, he says, pointing to Liontrust’s special situations product and its UK sustainable funds as examples.

Still active investors are facing intense pressure, with fees and profits falling on the back of the rise of passive management. The sector has been awash with M&A deals, as stockpickers buy up rivals in an attempt to build scale and lower costs. 

Mr Ions is not convinced, however, that you need to be a juggernaut to do well in asset management. “Size and critical mass for the past 10 years has been what people champion. But the bigger you get the harder it is for you to add value.”

“If you have $50bn in a sector, I’d argue you are not really a fund manager, you are more of an administrator,” he says, arguing that in such cases the big question is often how to deploy that capital without making a mistake.

“When . . . you are driven from a risk point of view to being closer and closer back towards the index, your ability to outperform is less. That is fine but that is called index fund management.”

Despite these concerns about size, he does not rule out any future acquisitions. He is quicker, however, to push back against the idea of a sale of Liontrust to a bigger player. “I don’t play nice with anybody,” he replies. “It is not something we are looking at.”

Throughout the interviews, he mentions peers that he believes are good at what they do, such as Impax, a listed specialist sustainable fund manager. It is interesting, I say, that you compare yourself to the likes of Impax rather than a generalist asset manager such as Jupiter.

“We like to compare ourselves with the people who are doing well. It’s very easy to beat the people behind you,” he says.

As the conversation draws to a close, he turns to his future and where he might be in five years. “Probably still behind this Formica desk,” he says, laughing. “I am very lucky . . . I would like to be a more successful and bigger business than we are, but just continuing to do what we do.”



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Oil price jumps above $70 after attacks aimed at Saudi oil facilities

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Oil prices jumped above $70 a barrel for the first time in 14 months after Saudi Arabia, the world’s top oil exporter, said its energy facilities had been attacked on Sunday, targeting “the security and stability” of global supplies.

A drone attack from the sea on a petroleum storage tank at Ras Tanura, one of the largest oil shipping ports in the world, took place on Sunday morning, the kingdom said.

In the evening, shrapnel from a ballistic missile fell in Dhahran, where state oil company Saudi Aramco has its headquarters and near where thousands of employees and their families live.

While Saudi Arabia’s ministry of energy said the attacks “did not result in any injury or loss of life or property”, and a person familiar with the matter said no production had been affected, the attacks have still unsettled oil markets that have rebounded strongly in recent months.

Brent crude, the international benchmark, rose 2 per cent to a high of $71.16 a barrel while West Texas Intermediate, the US benchmark, rose by a similar amount to a high of $67.86 a barrel.

Yemen’s Iran-allied Houthi fighters claimed responsibility for the attacks and said they had also focused on military targets in the Saudi cities of Dammam, Asir and Jazan.

A Houthi military spokesperson said the group had fired 14 bomb-laden drones and eight ballistic missiles in a “wide operation in the heart of Saudi Arabia”.

Amrita Sen at Energy Aspects emphasised that while a direct hit on oil supplies appeared to have been avoided, the threat to the market would still be taken seriously by oil traders.

“The oil price was already on a strong footing after Saudi Arabia and Opec’s decision last week to keep restricting production,” she said.

Brent crude, the international oil benchmark, has risen close to $70 a barrel since the cartel and allies outside the group, including Russia, decided not to unleash a flood of crude on to the market.

Amid uncertainty about the oil market outlook as the coronavirus crisis continues to have an impact on crude demand, the group decided against raising production by 1.5m barrels a day from April.

Given the supply curbs, while the kingdom has the extra production capacity to tap into, “geopolitical threats to supply will add a premium to the price”, Sen added.

The kingdom’s state media outlet said earlier in the day that the Saudi-led military coalition confronting the Houthis had intercepted missiles and drones aimed at “civilian targets” without indicating their location.

The Eastern Province, where Dhahran is located, is where much of Saudi Aramco’s oil facilities are located. The attack is the most severe since September 2019.

At that time the kingdom was rocked by missile and drone fire that hit an important processing facility and two oilfields, temporarily shutting off more than half of the country’s crude output.

The Houthis have ramped up assaults on Saudi Arabia through airborne attacks and explosive-laden boats and mines in the Red Sea, laying bare the vulnerability of the country’s energy infrastructure despite the kingdom’s production prowess and its hold over the oil market.

“The frequency of these attacks is rising, even if the impact on energy infrastructure appears limited,” said Bill Farren-Price, a director at research company Enverus. “We know the capacity to cause serious damage exists, so this will boost the risk premium for oil.”



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Rio Tinto set to start negotiations over Mongolian mine

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Rio Tinto is set to start face-to-face negotiations with the government of Mongolia as its seeks to complete the $6.75bn expansion of a huge copper project in the Gobi desert. 

The Anglo-Australian group is sending a team of senior executives to the capital Ulaanbaatar to try and hammer out a new financing agreement so that the development timeline can be maintained and underground caving operations can start later this year.

The discussions will focus on a number of issues including tax, a new power agreement and benefit sharing, according to people with knowledge of the situation.

Some government officials want Rio to pay more than $300m of withholding taxes on income it has received from Oyu Tolgoi LLC, the Mongolian holding company that owns the mine. 

Rio receives a management service fee for running Oyu Tolgoi’s existing open pit and the underground project as well as interest on money it has lent the government to fund its share of the development costs.

However, the officials say it is “very difficult, if not impossible” to engage constructively on the issue because the payments are the subject of arbitration in London.

For its part, Rio believes the issue of withholding taxes is dealt with in the separate investment and shareholder agreements that cover its operations in the country.

The underground expansion of Oyu Tolgoi ranks as Rio’s most important growth project. At peak production it will be one of the world’s biggest copper mines, producing almost 500,000 tonnes a year.

Although Rio runs the existing operations and is in charge of the underground expansion project it does not have a direct stake in the mine.

It’s exposure comes through a 51 per cent stake in Turquoise Hill Resources, a Toronto-listed company. TRQ in turns owns 66 per cent of Oyu Tolgoi LLC, with the rest controlled by the government of Mongolia. 

The project has been beset by difficulties and is already two years late and $1.5bn over budget. The government said earlier this year that if the expansion is not economically beneficial to the country it would be necessary to “review and evaluate” whether it can proceed.

To that end the ruling Mongolian People’s party and its new prime minister Luvsannamsrain Oyun-Erdene are trying to replace the Underground Development Plan with an improved agreement.

Signed in 2015, this sets out the fees that Rio receives for managing the project as well as the interest rates on the cash Mongolia has borrowed to finance its share of construction costs.

However, it was never approved by Mongolia’s parliament and has become a focal point for critics who say the country should receive a greater share of the financial benefits.

Rio, which recently appointed a new chief executive, has told the government it is prepared to “explore” a reduction of its project management fees and loan interest rates as well as discuss tax.

However, analysts are sceptical that the two sides will be able to put a new agreement in place by June when a decision on whether to start caving operations must be taken if Oyu Tolgoi is to meet a new target for first production in October 2022.

Rio is also at loggerheads with TRQ on how to fund the cost overruns at Oyu Tolgoi. Last week, TRQ’s chief executive resigned after Rio said it planned to vote against his re-election at its annual shareholders’ meeting.

In a statement, Rio said it was committed to working with TRQ and the government of Mongolia to enable the successful delivery of the Oyu Tolgoi Project

“Aligning and co-ordinating our joint efforts to resolve the concerns of the Government . . . going forward is of the highest priority,” it said.



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Value investor John Rogers sees an end to Big Tech’s stock market dominance

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The veteran value investor John Rogers predicted the US is headed for a repeat of the “roaring twenties” a century ago that will finally encourage investors to dump tech stocks in favour of companies more sensitive to the economy.

The founder of Ariel Investments told the Financial Times in an interview that value investing “dinosaurs” like him stood to win as higher economic growth and rising interest rates took the air out of some of the hottest stocks of recent years.

Rogers, who has spent a near four-decade career focused on buying under-appreciated stocks, said the frenzied buying of special purpose acquisition companies, or Spacs, signalled frothiness in parts of the market, even while a coming economic boom underpinned other share prices.

“This will be a sustainable recovery. I think there’s going to be kind of a roaring twenties again,” Rogers said, adding that the strength of the economic recovery would surprise people and challenge the Federal Reserve’s ultra-dovish monetary policy.

The US central bank is “overly optimistic that they can keep inflation under control”, he said, and higher bond market interest rates would reduce the value of future earnings for highly popular growth stocks such as tech companies and for the kinds of speculative companies coming to market in initial public offerings or via deals with Spacs.

“Spacs are a sign that growth stocks are topping. A signal that the market is frothy,” said Rogers, a self-styled contrarian and famed for his Patient Investor newsletter for clients that debuted in 1983.

Value investing is based on identifying cheap companies that are trading below their true worth, an approach long espoused by Warren Buffett. Value stocks and those sensitive to the economic cycle boomed after the internet bubble burst in 2000, but the investment strategy has been well beaten over the past decade by fast-growing stocks, led by US tech giants. 

“We’ve been looking like the dinosaurs for so long,” said Rogers. “We’ve been waiting for that booming economic recovery since 2009.”

Proponents of value investing believe that the combination of expensive growth stock valuations and a robust recovery from the pandemic will cause a significant switch between the two investing approaches.

Higher bond market interest rates reduce the relative appeal of owning growth stocks based on their future earnings power.

When 10-year bond yields rise, “growth stocks look way, way too expensive versus value,” said Rogers. “Value stocks are going to come out of the recovery very strong, they’re going to have a tailwind from an earnings perspective. Their earnings are going to be here and now, not 20, 30 years down the road.”

The Russell 1000 Value index outperformed the equivalent growth index by 6 percentage points in February, rising 5.8 per cent versus a drop of 0.1 per cent for the growth index. That was the biggest outperformance for value since March 2001, according to analysts at Bank of America.

“Although rising rates triggered the rotation, we see a host of other reasons to prefer value over growth,” the analysts wrote last week, “including the profit cycle, valuation, and positioning that can drive further outperformance.”

Rogers said he expected higher overall stock market volatility from rising interest rates this year but value should reward investors as it did “20 years ago once the internet bubble burst”. Ariel is bullish on “fee generating financials” and Rogers said preferred names included KKR, Lazard and Janus Henderson, while it was also bullish on traditional media, including CBS Viacom and Nielsen.

Chicago-based Ariel is one of the few large black-owned investment companies in the US, with $15bn of assets under management. It manages the oldest US mid-cap value fund, dating from 1986. 



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