Jupiter: continuity candidate could struggle to stem outflows

Defending the middle ground is proving tricky in the fund management sector. Active managers must fend off competition from both agile specialists and low-cost passive giants. London-listed fund manager Jupiter is struggling more than most.

The share price barely budged on Tuesday’s news that Andrew Formica is stepping down as chief executive after only three years in the role. Perhaps that is because successor Matthew Beesley is an internal promotion rather than a new broom.

Beesley says he has no plans to change the strategy. That is a mistake, at least when it comes to Jupiter’s international ambitions. Mid-market companies often lack the scale to compete internationally, while operating overseas piles on the costs.

Not every approach needs a rethink. The drive to increase institutions’ share of assets under management by 12 percentage points to 20 per cent should make for greater stability. Yet success in attracting new business depends on performance. The proportion of funds outperforming peers over three years fell 12 percentage points to 58 per cent last year, according to Jupiter. That makes it hard to staunch outflows. These have averaged £4.2bn in recent years.

The market downturn will hit margins, as fees are based on assets under management. But even in the bull market, profitability was under pressure. Operating profit margins shrunk by 11 percentage points to 36 per cent in the five years to 2021.

Under Formica’s stewardship, which included the controversial £419mn acquisition of Merian Global Investors in 2020, Jupiter has underperformed rivals. The shares are down 58 per cent since March 2019. They trade at 9.5 times forward earnings, about 15 per cent lower than peers.

Underperformance makes Jupiter vulnerable to a bid. Failing that, investors are exposed to some concentrated risks. The performance of a relatively small number of funds can be make-or-break. Jupiter prides itself on its high-conviction strategies. Beesley’s chance of staunching outflows may depend on whether those bets pay off.