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Asset management is a tricky business. Not only are costs rising, fees falling and performance generally middling-to-dire, even when you have a money factory hidden away somewhere it has a nasty tendency to walk out the door.
Apropos, here is a trading update from Jupiter Asset Management this morning, with our emphasis in bold below.
Jupiter announces it has recruited Alex Savvides. He will join from JO Hambro Capital Management where he currently manages the £1.3bn UK Dynamic Fund (the “Fund”) as well as approximately a further £1bn in segregated mandates. Alex Savvides has managed the strategy since its inception in June 2008 and has consistently delivered strong performance. The Fund is ranked top decile over 1 and 3 years and top quartile over 5 and 10 years. Since inception, the Fund also has top decile performance and is ranked 6th in the Lipper all Company universe (as at the end of December 2023). Alex Savvides is expected to join Jupiter by the Autumn of 2024 and, upon arrival, will assume management of the £2.1bn Jupiter UK Special Situations Fund.
Ben Whitmore, the current manager of the Jupiter UK Special Situations Fund (AUM £2.1bn), Jupiter Income Trust (AUM £1.6bn), Jupiter Global Value Unit Trust (AUM £1.0bn) and Jupiter Global Value SICAV (AUM £0.5bn), and segregated mandates with a further £4.8bn of AUM, has informed the company of his intention to leave in order to pursue his ambition of establishing an independent value equities boutique in due course, subject to obtaining the necessary regulatory approvals. He will remain with Jupiter until at least the end of July 2024, during which time there will be an orderly and collaborative transition process with his successors in relation to the Jupiter assets he currently manages.
Whitmore is not just some random fund manager. In an industry with a falling number of star names he’s managed to carve out a niche as a rare successful value manager over the past decade, and currently runs about a fifth of Jupiter’s remaining £52bn of assets.
So his exit to start his own shop matters to an investment firm that also had to admit today that its net 2023 outflows clocked in at £2.2bn, somewhat worse than previously guided.
You can therefore understand why Jupiter’s shares promptly puked nearly 18 per cent this morning, pushing them back to record lows since its listing in 2010 (zoomable version):
Savvides will take over the £2.1bn special situations fund — and Jupiter had already hired Adrian Gosden and Chris Morrison from GAM to take the reins of the Income Trust — but the trading update indicates that Jupiter may have to hand management of the Jupiter Global Value Unit Trust to Whitmore’s new firm, once it’s up and running.
But whatever pedigree Whitmore’s replacements have, history shows that parachuting in external portfolio managers rarely leads to good results, and almost inevitably a lot of position churn and investor exits.
Of course, Whitmore himself might also find out that the life as an independent boutique manager is also a bit of a shit sandwich. Even without a flameout à la Woodford, retail investors aren’t quite as easily enamoured by star managers as they used to.
Returning to Jupiter, it’s all very unhelpful for a company that in many respects encapsulates some of the worst trends in asset management: subscale in an industry where size is of rising importance; active management in public markets when all the money is flowing into passive and private funds; and based in an angst-ridden market that even one of Jupiter’s own says is in “a very sorry state”. Numis analyst David McCann said that Whitmore’s departure, coming just months after the exits of Richard Watts and Nick Williamson, “once again opens the debate about whether Jupiter is an attractive place to work for top talent in the industry”.
At least it has a lot of company up the creek. Even Apollo’s Marc Rowan made some dire predictions for the traditional active management industry at Goldman’s financial services conference last month:
I think that we’re going through a rethink of alpha and beta. I think public markets, certainly the fixed income market is 100% beta. I think in the equity market, it is not quite there, but it’s really difficult for active management to provide excess return per unit of risk alpha. And I think investors are going to start buying beta really cheaply, which they’ve done for a long time through index form and increasingly do it. And if they want alpha, they’re going to have to be less liquid.
. . . I think what gets squeezed is active management because active management as an industry has failed to beat the index 85% of the time for 20 years. And I think it’s getting harder and harder as the market goes passive.
Rowan is being charitable with his 85 per cent/20 years (for US equities funds it’s actually 92 per cent over the past two decades). But the squeeze is serious and it’s starting to hurt.
Morgan Stanley analyst Michael Cyprys predicts that traditional active managers will account for about a quarter of the global investment industry’s overall assets* by 2027, down from over a third in 2021.
As a result of that and the ferocious fee pressures, “core active” will see its share of the investment industry’s total fee revenues shrink from 42 per cent in 2020 to about 33 per cent.
Jupiter has been an obvious takeover target for years now yet keeps getting cheaper. Its market value of just over £400mn is barely more than last year’s annual revenue and less than 6 times the stale consensus forecast for current-year earnings, which will be heading sharply lower today. The fact that no one has struck yet is a pretty telling indicator of what the rest of the investment industry makes of its prospects.
The good (ish) news is that asset managers don’t really die, they’re just veeery slowly emasculated by the markets until someone swoops for the twitching body and dismembers it for parts.
* The first version of the post said that the MS chart showed the share of “core active” revenues, but it actually showed the market share of global assets under management. Whoops! Sorry. Have now actually included that chart, while keeping the original as well.
