Liontrust boss warns of uncertainty over tax changes in UK budget affecting investment

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The chief executive of Liontrust has warned that uncertainty over potential tax rises in the UK’s upcoming budget has dented investor confidence and fueled fund withdrawals from asset managers in recent months.

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

Individuals withdrew around £900m from Liontrust funds during the quarter, while institutions withdrew more than £100m, reducing the fund group’s total assets under management by 4% to £26bn of pounds sterling.

“Speculation and uncertainty about changes to taxation and relief in the run-up to the October 30 Budget. . . have affected investor confidence and fund flows for the entire industry, including Liontrust,” said chief executive John Ions.

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

Speculation is rife over whether the government will increase capital gains tax, which is currently levied at 10% or 20% depending on income, when shares are sold outside tax-free packages.

It also raises concerns that the government could scrap the inheritance tax exemption for Aim-listed shares.

“The UK market is suffering from political uncertainty (and) 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 potential risks to pension savings, IHT and possible risks to Aim. If in doubt, there’s a natural reaction to take money off the table.”

Stuart Duncan, an analyst at Peel Hunt, said the “heavy” withdrawals by Liontrust investors reflected “weak” investor sentiment ahead of the Budget.

Liontrust has suffered a tough few years following successive quarters of exits as investors pulled money out of UK equity funds from the industry in search of higher returns from international shares. The group also failed to acquire rival asset manager GAM following a backlash from shareholders.

Analysts at Investec noted that funds company Polar Capital also suffered a weaker quarter, partly due to budget uncertainty, according to an update on Thursday.

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