Liontrust chief warns uncertainty over tax changes in UK Budget hurting investment

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Liontrust’s chief executive has warned that uncertainty over potential tax increases in the upcoming UK Budget has knocked investor confidence and fuelled fund withdrawals from asset managers in recent months.

The fund group said that its investors withdrew a net £1.1bn from its funds over the three months to the end of September — less than the same period last year, but worse than analysts expected.

Individuals pulled some £900mn from Liontrust’s funds over the quarter, while institutions withdrew more than £100mn, reducing the fund group’s total assets under management by 4 per cent to £26bn.

“The speculation and uncertainty around changes to taxation and reliefs in the lead up to the Budget on 30 October . . . have impacted investor confidence and fund flows for the whole industry, including Liontrust,” said chief executive John Ions.

“This has contributed to another quarter of net outflows as the challenging environment for active managers has continued for longer than anticipated.”

Speculation is swirling over whether the government will increase capital gains tax, which is currently levied at 10 per cent or 20 per cent depending on income when shares are sold outside of tax-free wrappers.

Concerns are also mounting that the government could scrap inheritance tax relief on Aim-listed stocks.

“The UK market has been suffering from political uncertainty [and] the rhetoric about the state of the economy and the prospect of higher taxes on the wealthy, who are ultimately the ones with the funds to invest,” said Rae Maile, analyst at Panmure Liberum.

“The Budget has become a focal point for the potential risks to pensions savings, IHT and possible risks to Aim. If in doubt there is a natural reaction of taking money off the table.”

Stuart Duncan, analyst at Peel Hunt, said that Liontrust’s “elevated” investor withdrawals reflected a “weakened” investor sentiment ahead of the Budget.

Liontrust has suffered a tough couple of years following successive quarters of outflows, as investors have pulled money from UK equity funds across the industry in search of higher returns from international stocks. The group also failed to acquire rival asset manager GAM following a backlash from shareholders.

Analysts at Investec noted that fund company Polar Capital had also suffered a weaker quarter, partly due to uncertainty over the Budget, according to an update on Thursday.

Gavin Rochussen, chief executive of Polar, said the “more challenging market environment over the last quarter” resulted in assets under management declining from £23.5bn at the end of June to £22.7bn at the end of September, noting this was “primarily due to negative market movement”.