The analysis is based on the premise that if one seller represents more than 30 per cent of the volume, it could cause the price of the share in question to fall markedly.
Saporta conducted the liquidity analysis using Bloomberg data when the fund was £4.5bn in size, and it has shrunk since then.
Of course, at the time he conducted the analysis, Saporta was engaged in a business dispute with Liontrust, so in order to stress test the methodology he used, three other investors were approached by FTAdviser for their view on the methodology, without disclosing to them the name of the fund.
They found the 30 per cent ADV criteria to be valid, or indeed slightly more optimistic than the percentage they would use on the funds they personally run for their own clients.
Liontrust has, however, defended the liquidity and suitability of its fund.
On the question of suitability, Liontrust has told FTAdviser that, even as the fund managers have been selling assets in order to meet redemption requests, the proportion of the fund invested in small caps has not actually fallen, which should mean the suitability element does not presently arise.
Number crunching
According to the fund's factsheet on FE Analytics, all of the top 10 holdings in the Liontrust Special Situations fund are large cap, mostly FTSE 100 shares.
These would be expected to have ample liquidity and be capable of being sold quickly in order to meet redemption requests, but this may not be where advisers and their clients should be focused, according to several experts consulted by FTAdviser.
One investor says: “The thing you have to do when looking at the liquidity is the liquidity of each stock, not of the portfolio as a whole.
"This is because, while a fund could have lots of liquidity from selling the large caps, doing so would leave clients invested in a fund which is solely small and mid caps, and that may not be what the client thought they were invested in, or want to be invested in.”
A representative of Liontrust has confirmed that they do conduct analysis of the liquidity of the Special Situations fund at the stock, rather than the portfolio, level, and “maintains the balance of large and small caps held within the portfolio".
The representative adds: “Liontrust has robust and independent controls and monitoring in place, with a segregated risk team overseeing liquidity and other risks across all of our funds.
