UK equity fund managers have leapt to the defence of beleaguered wealth manager St James's Place (SJP) as hedge funds have upped their bets that the firm’s share price will plunge.
SJP has come under fire in the national and trade press in recent weeks, amid criticism of its fee structure, how its advisers are incentivised and allegations of questionable practices from some of its adviser network.
With enhanced scrutiny on financial services firms since the liquidity crisis at Woodford Investment Management, the reports come at a testing time for SJP.
SJP's share price withstood the Woodford saga, but sentiment towards the stock was hit once the revelations first began, falling 20% from its most recent peak of 1,142p in mid-July to 914p in early October.
In recent weeks, hedge funds have raised their short positions against SJP to 7.4%, according to IHS Markit data. This makes it the sixth-most shorted company in the FTSE 100.
However, plenty of fund managers are on the other side of the trade.
Funds run by groups such as Baillie Gifford, BMO Global Asset Management, Allianz Global Investors and Edentree Investment Management have the stock within their top ten holdings, data from FE Fundinfo shows.
The firm's recent woes have caused most to pause, and many told Investment Week they have broached the subject in meetings with management.
While Milena Mileva, co-manager of the Baillie Gifford UK Growth Trust, said she is not worried about the impact the coverage will have on the investment case, "I read all these articles with great interest and we will follow up on specific points".
There are some misgivings. Janus Henderson's Job Curtis admitted "some of the aspects of the sales culture are indefensible", while Allianz GI's Simon Gergel added that when a company has so many advisers on its books, it is "almost inevitable it will have the occasional rogue adviser that they have to rein in".
However, on a fundamental basis, they remain positive, with Curtis noting it is a growth business that "looks very cheap".
"They are growing their assets under management at a rate that most fund management or life insurance companies would give their right arm for," he said.
Despite criticisms of its fees and charges, Gergel said it is "pretty clean in terms of its disclosure".
He explained: "What the regulator likes about St James's Place from my perspective is that it is very clear about what it does, which is that it gives advice and it has tied products.
"It is not pretending to give suitable advice; it is saying if you come to us, we will manage your assets, we will advise you, but we will also manage it in our own funds."
Curtis agreed, adding: "If you stick with them for four or five years then the charges come right down."
Further, James Budden, director of marketing and distribution at Baillie Gifford, added the one key characteristic that SJP and Hargreaves Lansdown share is that "their customers like them and the service they provide very much".
Mileva agreed: "The proof is in the pudding - they have been successful in growing customers and assets because clearly people find something of value there."
Gergel added that while SJP does not charge an explicit exit fee, which is another area that has faced criticism recently, investors do get tied into some of their assets for set periods of time.
"You can get it out, but there is an early withdrawal penalty," he explained.
"Clearly the market is evolving and that whole structure might change, but if it did it would not make that much difference. Most customers are not going to take their money away.
"If you put your pension with St James's and they are giving you advice, you are probably not going to move it anyway. Once people are released from those lock-ins, they tend not to move."
Curtis is bullish on the wealth management sector generally due to the changing face of pensions, thereby placing the onus on savers to invest their cash.
"There are a lot of people out there inheriting big sums of money, so I think there is a big market out there for advice," he said.
"St James's has cornered that market in a sense and the fact that other people are trying to get into it like Lloyds and Schroders, is a back-handed compliment to them. I think the whole area of advice is basically a growth area."
Curtis's City of London Investment Trust also owns Brewin Dolphin and Schroders within the wealth and asset management sector.