Jupiter is “in a stronger place” thanks to its acquisition of Merian, its outgoing chief executive stressed, after revealing the group suffered a substantial hit to profits as outflows gathered pace in the first six months of the year.
Speaking at an analyst presentation for the firm’s interim results, Andrew Formica (pictured) defended the £370m deal, which he said has “contributed significantly” to the FTSE 250 fund group’s profits and put it on “much steadier footing” by broadening its product range and extending its geographic reach.
Questions have been mounting over the success of its acquisition of Merian. Since snapping up the rival business in July 2020, its share price has more than halved, and now trades at an all time low of £1.21. The union has also failed to help Jupiter reverse billions of pounds of net outflows.
In its latest interim results, Jupiter revealed investors had pulled £3.6bn from its funds in the first six months of 2022, up considerably from £2.3bn a year ago.
Coupled with £8.1bn lost from negative market movements, this shaved 19% off the firm’s assets under management, which plunged to £48.8bn from £60.5bn in December 2021. Jupiter’s AUM is only £6.1bn higher now than it was at the end of 2018, one of its most challenging years.
A scathing open letter from former director Jonathan Little, accusing the company of “losing its way” and becoming “intoxicated” by globalisation, has only added fuel to the fire. Less than two months after Little’s blistering attack, Formica announced he would be stepping down as chief executive.
‘No doubt in my mind the combined group is stronger’
Formica, who will pass the baton to CIO Matthew Beesley in October, said Jupiter would have been hit far harder during the pandemic without Merian due to a lower capital surplus.
Despite a tougher economic backdrop, 62% of AUM in the Merian funds is outperforming over three years, he noted, including the previously beleaguered Jupiter Merian Global Absolute Equity Return (Gear) fund, which has returned to net inflows.
On top of the performance pickup, the addition of Merian’s funds have helped Jupiter branch out into new areas like alternatives, which has added £3.5bn in assets, and broaden its exposure in UK mid and small-cap, as well as fixed income.
“While not every aspect has taken place exactly as we would have expected back in 2020, there is no doubt in my mind that the combined group is in a stronger place in terms of profits, investment performance and capital base as a result of the acquisition,” he said.
See also: Jupiter shares slide as retail arm hit by £1.9bn outflows
Jupiter maintains interim dividend despite profit hit
However, compared with other asset managers who have reported their H1 2022 earnings so far, Jupiter has had a much more difficult time.
Net revenue was 10% lower at £202.4m during the first half of the year, reflecting lower than average AUM of £54.8bn. After factoring in rising staff costs due to inflationary pressures and one off-charges relating to performance fees, underlying profit before tax was £29.7m, nearly two thirds lower than H1 2021 (£78.2m).
Falling markets, as well as rising inflation and interest rates have created “a perfect storm” and a “risk-off” environment for both equities and fixed income, Formica said.
“Between all these macro challenges, the appetite for risk is waning to levels I have not seen since the global financial crisis.
“Year to date global stocks are down over 20%, while bonds have fallen 13%. When these asset classes move down in lockstep, it really does affect our clients. They have a difficult decision to make over their investment allocations, which leads them to adopt a risk off sentiment across both asset classes.”
Despite this, Formica stressed the company has remained well-capitalised, with around £90m of surplus capital. As such, it has retained its interim dividend of 7.9p.
Bezalel’s Jupiter Dynamic Bond fund drives outflows
Most of the pain was felt by Jupiter’s retail and wholesale business, which suffered net redemptions of £3.8bn. Similar to 2018, the Jupiter Dynamic Bond fund, run by Ariel Bezalel, was the main culprit behind net outflows, while investors also exited its growth focused strategies, including European Growth and UK Mid Cap.
Most of the money coming out of the €7.5bn Jupiter Dynamic Bond was from European and Asian-based clients. Bezalel’s fund has seen performance slip, following the team’s view central banks will have to reverse recent rate hikes as global growth slows sharply in the second half of the year. It is has lost 14.1% over the past year, according to Trustnet, while the average peer is down 2.4%.
However, Formica said clients were once again becoming more positive on duration and had started re-allocating to the strategy.
On the opposite side of the spectrum, Jupiter’s value biased strategies, such as Asian Income, run by Jason Pidcock, Japan Income and Global Value Equity helped offset some outflows in the interim.
