A former non-executive director at Jupiter has stuck his head above the parapet and, in an open letter, called for significant changes to turn around the business’ dwindling fortunes.
Jonathan Little, founder and managing partner at Alderwood Capital, personally holds below 3% of Jupiter having recently upped his stake ahead of sending out the letter, he told Portfolio Adviser. Without offering specifics, he said his stake is “comfortably seven figures”.
But, like other shareholders, Little has become frustrated with Jupiter’s performance and believes the asset manager has lost its way. As such, he believed that putting more skin in the game was the best way to force change.
Shares in the company closed down 3% on Monday to sit just under £1.68, which is a drop of nearly 35% year-to-date. The one year return is -38%.
‘If I was just in it for the money, I would be encouraging someone to buy it’
With Jupiter’s AGM set for Wednesday, Little hopes his letter will act as a catalyst for change that will see chief executive Andrew Formica (pictured) ultimately replaced, an end to its unsuccessful M&A activity and the company, once again, focus on what it has historically done very well.
Little said that involves focusing on “being a UK house delivering what UK investors want” rather than “setting up offices in Sydney, Denver and New York”.
“You have a short window to get back on track and if that doesn’t happen soon, it is only going to get worse.”
Little believes that Jupiter can experience a change of fortunes otherwise he would not have invested more in the business. “If I was just in it for the money, I would be encouraging somebody to come and buy it.”
Portfolio Adviser has reached out to Jupiter for a response to the letter but none was received ahead of publication.
Separately, a spokesperson told The Financial Times that Jupiter “respect[s] the views of our shareholders and will respond to Mr Little directly”.
“We have a clear, consistent strategy which we are focused on executing. We are confident that we have the right foundations in place to deliver on this, underpinned by our strong capital position. We will continue to update the market on our progress.”
See also: Jupiter shares slide as retail arm hit by £1.9bn outflows
AUM hits target but margin falls woefully short
According to his open letter, Jupiter has lost its way and become “intoxicated” by globalisation.
When he left the asset manager in 2016, after five years, Little said the business “had no debt and its prudent cost management and focus on cash generation meant a high and increasing pay-out profile with regular special dividends to shareholders”.
Jupiter was pursuing “an incremental growth strategy which avoided either significant mergers or acquisitions and risky global expansion”.
Its target was £50bn of assets under management at 50% margin within five years.
As its latest set of results can attest, AUM hit £55.3bn at the end of Q1 2022 – but that is down from £60.5bn at the end of 2021, driven by net outflows of £1.6bn and negative returns of £3.6bn as markets turned volatile.
While it may have checked the AUM box, operating margin dropped from 49% in 2016 to 39% last year.
As a result, “the share price is down by almost 70% over the last five years and approximately 50% over the last three”, Little wrote.
Being a “substantial individual shareholder”, Little is acutely aware that many “loyal long-term investors – including many retired employees – [are] nursing substantial losses”.
He described the difficulties Jupiter is facing as “self-inflicted” given the company “has now chosen a very different path to that which was outlines in 2016”.
See also: Jupiter to axe up to 90 jobs following turbulent year of outflows and senior exits
M&A misadventures
In particular, he is scathing about the 2019 acquisition of Merian, which he said “should not have been undertaken at all”.
A sceptic of asset management M&A, Little characterised the deal as “a generalist firm buying another generalist firm, with a poor recent performance history, an unstable platform and trying to integrate it without any prior experience of doing so”.
Between May 2017 and June 2020, Little was also an independent non-executive director at Old Mutual Wealth. He arrived “just in time to oversee the sale of Merian Global Investors to TA Associates for approximately £600m in 2018 – a business which Jupiter subsequently acquired for a maximum of £370m in 2020”.
“Merian had some talented investors and some excellent products but, by late 2019, was a troubled business, haemorrhaging assets, with declining performance and a badly demoralised team who had seen much of their equity disappear as the firm’s buyout from Quilter went off the rails.”
See also: Merian assets nosedive 30% ahead of Jupiter deal aided by absolute return outflows
The timing certainly didn’t help, Little added.
“Trying to integrate an unstable firm into an inexperienced acquirer in the teeth of a pandemic was foolhardy in my view.”
But M&A misfortune has not been the only anchor weighing on Jupiter’s success, Little said, describing the appointment of Formica as chief executive as “a mistake”.
“Leaving aside the question of whether a CEO change was necessary or not, I believe that this was undertaken with undue haste and without proper consideration of the risks involved.”
He expressed doubt about Formica’s recent comment that M&A will not be part of the firm’s strategy in the immediate future.
Little told Portfolio Adviser that he “has nothing against Formica, personally”, but believes his track record as co-CEO at Janus Henderson and performance at Jupiter, along with his prolific M&A history, mean he is not the right man for the job.
In his letter, Little declined to outline “a particular course of action”, but signposted what he feels Jupiter needs to address.
“I feel strongly that Jupiter has lost its way and that the board needs to urgently prove to shareholders that it has a strategy for improving operational and business performance and thus shareholder returns.”
