Merian assets nosedive 30% ahead of Jupiter deal aided by absolute return outflows

Jupiter trading update sits in stark contrast to £492m inflows at Liontrust

Merian’s beleaguered Global Equity Absolute Return fund has led outflows at the asset manager over Q1 2020, ahead of its merger with Jupiter, which is now warning shareholders to expect lower margins and accretive earnings than previously pegged on the deal.

The Merian Global Equity Absolute Return fund, managed by Ian Heslop and Amadeo Alentorn, faced outflows of £1.4bn in the first quarter of 2020, according to figures included in Jupiter’s trading update for the first quarter. That is despite the fund outperforming the Investment Association Targeted Absolute Return sector over Q1 after a period of significant underperformance.

It fell 3.04% over Q1 compared to 25.13% losses in the FTSE All Share. The sector fell 5.99% over the same period.

The fund is now almost a tenth of the size it was when TA Associates acquired Merian for £583m in June 2018, having shrunk from £16.5bn to £1.8bn on Tuesday, according to the latest Trustnet figures.

A further £1bn was pulled from Systematic strategies with total net outflows at Merian hitting £2.6bn, higher than the £2.3bn at Jupiter, which was almost double the size at the start of the period with £42.8bn assets under management compared to Merian’s £22.4bn.

In total, Merian assets fell 30.1% to £15.7bn. Assets at Jupiter, which announced in mid-February it was buying the fund house for £370m, fell 18.3% to £35bn.

> See also: Merian managers must turnaround mass outflows for £20m windfall

Jupiter/Merian outflows in sharp contrast to Liontrust

Jupiter said the challenging market conditions were “in common with the asset management industry as a whole”, but its trading update is a stark contrast with Liontrust, which enjoyed net inflows over the period of £492m, an increase of 52% on the same period last year.

Jupiter shares were trading 5.75% lower on Wednesday, compared to 5% gains in Liontrust off the back of its trading announcement.

Liontrust net inflows represented 2.6% of starting AUM, compared to Jupiter losing 5.4% and Merian 11.6% of starting AUM to net outflows.

Nonetheless, all three fund houses took a hit from market and FX movements with £3.5bn knocked off Liontrust AUM, while at Jupiter it was £5.5bn and Merian suffered losses of £4.2bn.

Liontrust assets under management have now overtaken Merian’s with £16.1bn at the end of the quarter.

Liontrust chief executive John Ions added that in the first nine days of April the firm had brought in net inflows of £136m.

Jupiter said sales for the month so far had been “broadly flat” while Merian had faced “marginal” outflows.

Liontrust sustainable team doubles AUM

Ions highlighted the sustainable investment team had now been with Liontrust for three years during which assets have doubled to £5.1bn.

“Sustainability has been rising up the agenda, and when we emerge from the lockdown there will be even more focus on investing in companies that contribute to and benefit from making the world cleaner, healthier and safer,” he said in the trading update.

Only the economic advantage team, led by Anthony Cross, managed more assets at the quarter end, with £6.3bn.

At Jupiter, fixed income led outflows from third-party funds losing £1bn over the period. Alternatives lost £0.6bn, while the European Growth fund also faced outflows, although more than half of this represented a transfer to a segregated mandate.

> See also: Jupiter stung by Alexander Darwall departure as more money flies out the door

Jupiter warns assumptions behind Merian deal have changed

In light of declining AUM, Jupiter warned shareholders operating margins following the merger would be not less than 40%. Previously that figure had been not less than 50% and “on prudent asset level assumptions” up to 60%.

Jupiter’s existing operation margin for 2019 had been 43%.

Jupiter was less clear about the effect of the coronavirus market backdrop on accretion in earnings per share, which it had previously forecast would be in the low to mid-teens.

It now said accretion resulting from the deal would be “improved relative to expectations at the time of the announcement”.

Nonetheless, the Jupiter board said “the strategic and financial rationale of the acquisition remains compelling”. It will be calling a general meeting on 21 May for shareholders to approve the deal.

> See also: Defensive Jupiter Merian deal shows fund groups are not safe from M&A

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