Unicorn Asset Management has said it is “surprised” by the reasons that fund supermarket Hargreaves Lansdown has given for removing one of its funds from its recommended list.
Hargreaves Lansdown recently announced it had dropped the Unicorn Outstanding British Companies fund from its Wealth Shortlist, citing governance concerns as the major reason.
Offering its reasons, the fund platform said it thinks Unicorn’s current governance framework “could be better at managing investment activities and mitigating risk”.
It added that it sees a “a high degree of key-person risk, with one individual responsible for a number of the firm's important functions”.
Part of this is due to the smaller size of the company, which Hargreaves said will inevitably lead to some team members taking on a wider range of responsibilities and duties than they would have to at a larger firm.
This additional responsibility means that “governance processes may be less well-resourced”. But even with the Unicorn’s smaller size, the platform felt that the firm could still be doing more to manage governance-related issues.
Hargreaves said it had engaged with Unicorn on these governance concerns and that some progress was being made. Unicorn hired a new operations director and has plans for further hires in the year, which Hargreaves said is one step to reducing the “key person dependency” issues.
“While the team is moving in a positive direction, we do not currently have the required level of conviction in their approach to continue to include the Unicorn Outstanding British Companies fund on the Wealth Shortlist,” Hargreaves said.
It added that it will continue to monitor the fund’s ongoing governance improvements and will review its decision once changes have been fully implemented.
Unicorn Outstanding British Companies manager Chris Hutchinson told Trustnet that the operations director hire had already been made and others had been in the works for some time before Hargreaves made the decision to drop the fund.
He added that he himself had worked personally with Hargreaves long before and since the fund was added to the shortlist in 2019, making regular trips to the Bristol offices to work with the platform’s investment research and governance teams.
The fund platform highlighted that it still has conviction in longstanding manager Hutchinson, who has run the Unicorn Outstanding British Companies fund since launch in 2006.
The FE fundinfo Alpha Manager was joined by Mac Ormiston at the start of this year to help run the portfolio.
Responding to the fund being dropped, Unicorn said it was pleased that Hargreaves continues to back Hutchinson’s abilities and the broader Unicorn investment team, but it was “surprised by the reasons given for removing the Unicorn Outstanding British Companies fund from the Wealth List”.
The fund house said it “takes all aspects of governance and risk oversight extremely seriously” and has continued to strengthen both its resources and processes over the years.
Unicorn defended its governance process, saying it remains “confident” that it has the utmost focus on protecting the interests of its investors.
The fund house stressed its surprise at Hargreaves claims of governance issues and how a small company size could negatively impact them.
“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,” it added.
It is worth noting that Hargreaves said it had not based this decision on the fund’s performance and stressed that this decision is not a recommendation for investors to change their portfolios in response.
Indeed, since it launched the Unicorn Outstanding British Companies fund has outperformed the average IA UK All Companies portfolio, and the FTSE All Shares by almost two-fold.
Performance of fund vs sector and index since launch
Source: FE Analytics
Though its long-term performance record has been strong it has struggled near term, falling to fourth quartile over one, three and five years.
Still, Hargreaves said this near decade of outperformance is down to the manager’s style and “ability to select great companies.” The fund’s process has not changed and Hargreaves believes the fund “still has the potential to perform well over the long term.”