Jupiter’s global head of distribution has said the acquisition of Merian Global Investors was driven by delivering results for clients rather than gathering assets, but has no concerns over both firms’ underperforming absolute return funds.
Speaking to Portfolio Adviser, Wagstaff (pictured) said the deal makes the combined entity “a very significant player” in the home market, but adds new capabilities which Jupiter has been lacking.
He said there are one or two areas of overlap but “in the main” the product suites are complementary, noting Jupiter’s strength in value equities and Merian’s in growth equities, as well as Merian’s systematic capability as being beneficial to Jupiter.
“They’ve got one or two things that we don’t have and there are one or two small areas of overlap. We’ll start getting into that during the integration about what we think the overlapping products are, but I don’t anticipate a great deal.”
Wagstaff would not be drawn on specific areas of crossover.
He added: “The key thing is to make sure that you’ve got the right product suite for the clients and it’s set up properly for them. So you’ve got to make sure it’s optimal. And we’ll be working on that over the next few months.”
Dealing with the absolute return issue
Both companies’ flagship absolute return funds have struggled over the past 12-18 months.
In 2019 the Merian Global Equity Absolute Return (Gear) fund went from £9.6bn to £2.7bn, according to Morningstar flows data. James Clunie’s Absolute Return fund has suffered a long run of underperformance, delivering negative returns over all time periods, and went from £1.53bn to £1.16bn in AUM last year, according to Morningstar.
Wagstaff said he was not authorised to talk about Merian Gear, but addressing Jupiter Absolute Return, he accepted the fund has struggled over the past year against a “bizarre” and “unprecedented” set of market conditions.
Clunie has persisted in taking short positions in highly-valued growth stocks, such as Tesla and the Scottish Mortgage Investment Trust, in the hope they fall back, but the market keeps driving their prices higher.
Wagstaff said: “The overvaluation of growth relative to value is at an all-time high; that valuation metric has never been more stretched. And some of our individual stock shorts in there like Tesla, for example, have gone to record highs. Our view is that we’re right in that portfolio, but it is hurting us in the short term.
“Interestingly, we do have some buyers of that fund because they understand that it is a hedge; it is short growth style, it is long value style, it is short tech as a result of that, and as a consequence, is very much a hedge in people’s portfolios. But I can’t disagree that it’s been a challenging year for the strategy.”
Last week, Jupiter closed Clunie’s Jupiter Global Levered Absolute Return fund after a series of redemptions since the start of the year. But the fund group said it fully supported the manager, a sentiment echoed by Wagstaff.
“We’re 100% behind James, we think he’s great,” he said. “Most of the clients invested with him know him, understand his philosophy and understand how he’s positioned. Obviously, they’d prefer not to have the drawdown that he’s had, but we are keeping those investors up to date regularly with all these views.”
Richard Buxton and Merian big guns sign up
Wagstaff also confirmed that five Merian managers – Richard Buxton, Dan Nickols, Richard Watts, Ian Heslop and Amadeo Alentorn – have signed employment contracts with Jupiter.
He said: “Until last night, they were the only members of the management team that we’d engage with but that is because they run nearly 90% of all the AUM [at Merian]. In essence, my number one issue is clients don’t like uncertainty, so in announcing the deal and saying that the managers of 90% of the assets are coming over, that provides a certainty to the clients.”
It was also confirmed in a stock exchange announcement on Monday afternoon that the Merian Chrysalis Investment Trust, managed by Watts and Nick Williamson, will move over to Jupiter as part of the deal.
The announcement said: “Subject to the board conducting appropriate due diligence, the board anticipates there will be no change to the company following completion of the transaction, with Richard and Nick retaining portfolio management responsibilities.”
Wagstaff added: “This isn’t about acquiring assets and bolting on assets and adding scale. The most determinant factor of whether we succeed as a business or not, will be the quality of our investment offering and we have to focus on that.
“Can we run the funds we’re running at the scale they are and are they doing the right thing for the client? This the most important consideration for us.”
