Jupiter Asset Management's CEO Andrew Formica and global head of distribution Phil Wagstaff speak to David Brenchley about their plans to refocus on their UK clients, growing without getting too complex and conversations with potential new fund managers.
Jupiter Asset Management CEO Andrew Formica and global head of distribution Phil Wagstaff spent six years building up Henderson Group, culminating in overseeing the mega-merger with Janus Capital Group in 2017 that created the $360bn giant Janus Henderson Investors.
After leaving together in the summer of 2018, they joined forces a year later with Jupiter - a move they both insist "was not preordained".
With $45bn in assets under management, as at 30 September, Jupiter is a fraction of Janus Henderson's size, but Formica says the move "was about getting back to something that was smaller and much more focused".
"Janus Henderson has 2,500 people; Jupiter has 500 across two floors. You can really get your hands around it."
Wagstaff notes Jupiter was a similar size to Gartmore, the firm he worked at when it was bought by Formica in 2011.
Small is beautiful
While Wagstaff admits being small has some downsides, he adds "it has quite a lot of upsides, one of which is you can be quick and nimble".
Indeed, he thinks Jupiter's size puts them in a sweet spot for the industry - "somewhere in the middle" of the very small and the very large.
He says: "There is an opportunity set for a well-established group with a great brand, that is liked by advisers and has great people. That company can attract fund managers, distribution people and, therefore, clients.
"That, for me, is the perfect combination, and Jupiter fits that mould."
There is plenty of room to grow within that, though, with the distribution head noting "it is not size that makes things difficult in business, it is complexity".
"Even if you are small and complex, you are in a difficult place."
Formica agrees: "If we start getting matrix reporting put in place, we are killing the business because that is when you start to change the shape of it.
"So, as soon as we start talking about matrix reporting, I think we are too big."
At Henderson, which had assets of around £50bn when he took over, Formica was acquisitive, snapping up New Star in 2009 and Gartmore two years later before merging the business with Janus.
When he arrived at FTSE 250-listed Jupiter, commentators speculated the firm could undergo a similar fate. Formica notes "the bar for M&A is much higher" at Jupiter than it was at Henderson, but admitted growth through acquisition was "something we should consider".
"Henderson was a much more complex business at the time I took it over than Jupiter is. I could not cut the complexity out of the business without damaging it, so I had to grow it into its complexity. I needed greater scale," he recalls.
"The acquisitions were critical to effectively provide sufficient assets and client business to lead to what we needed. With Jupiter, we do not have that problem, [but] that it is not to say we would not do [acquisitions].
"It would have to be something that we fully controlled, so a merger is probably off the cards. It would have to be more of a bolt-on acquisition that really meant the Jupiter brand, culture, approach and strategy continued and was dominant."
One area Formica plans to refocus on is Jupiter's UK presence, which he describes as its "real strength".
Under predecessor Maarten Slendebroek, the firm diversified geographically, moving from having a client base almost 100% in the UK to around 75% today.
While that diversification was critical for the business, Formica says the move towards other regions was made "at the risk of lowering our emphasis in the UK".
"That wasn't terminal, but if we carry on that path, it will lead to that. So, there is a need to make sure we reset the UK."
Wagstaff foresees that manifesting itself through "improved marketing and communications", attending "more events next year than we were at last year", and "doing more advertising… not to promote us but to promote an environment for advisers to be able to talk to their clients about Jupiter".
There will continue to be a focus on overseas territories, though, particularly Europe and Latin America, with the potential for heightened presence in onshore US run from the firm's UK base.
Another big area of focus for Wagstaff will be product development, which Formica says "was not as rigorous as I would have expected" when he joined.
"Phil has historically been very good at having a disciplined, strategic approach to product development and product management," he adds.
Wagstaff's current approach is "to get external inputs" including market data, research data, listening to clients' worries and envisaging where markets and client demand are likely to be in five years' time.
"In ice hockey terms, we want to be where the puck is going," he says.
"Launching any new funds into current market conditions is very difficult. People always want to see three-year track records and assets in the strategy before they invest. Launching new strategies is also difficult and expensive.
"You have got to make sure you get it right and get some discipline around that process; you cannot just throw mud at the wall.
"We are not in the business of building everything for everybody. We know what we do. We do not want to do passive, we do not want to do benchmark-hugging. We want to make sure we are really adding value for what we do."
Jupiter is "keen to develop more partnerships with clients", Wagstaff adds, "rather than just turn up and say, 'this is what we have got, would you like to buy it?', we would like to build things for our distribution partners".
Additionally, Wagstaff's team is checking whether "what we currently have is fit for purpose". "Evolution of the whole product suite is fundamental to our business."
Jupiter lost a big name fund manager in Alexander Darwall in November, who left to start his own boutique Devon Equity Management.
He was replaced on Jupiter's European equity funds by Columbia Threadneedle pair Mark Nicholls and Mark Heslop. Despite investors pulling over £1bn from the funds, Formica says they have had "good conversations, good engagement" with existing clients.
Formica adds Jupiter has always attracted "managers who have a natural instinct to run their own businesses or are entrepreneurial", though he notes Darwall is the first manager in the firm's 34-year history who has decided to take the plunge.
Jupiter has had "a lot of conversations with managers you may not have thought would be interested in coming to a firm this size… [but] who like the fact that we appreciate high conviction," and expects "over the next six to 12 months, you will see us add further investment capabilities".
Another large, Darwall-sized hole Jupiter needs to fill is within its investment trust business. Darwall took both his £878m Jupiter European Opportunities fund and Jupiter's head of investment trusts Richard Pavry with him across Victoria Street.
The loss of that mandate decimated Jupiter's trust business, taking it from £1.3bn in AUM to £334m. It was followed by the news the board of Jupiter UK Growth was considering appointing a new management house to oversee its portfolio after poor performance.
However, Formica reiterated his commitment to what is "a particularly UK product set" that "tends to look for true active approaches".
Formica continues: "You would think investment trusts and Jupiter were natural bedfellows, but they have not been. It would have been all too easy for me to say 'you know what, it is not a big part of our business, let's ignore it'. But that is not right - it is what we are good at."
The firm appointed head of alternatives Magnus Spence to replace Pavry and rebuild the trust business.
While Formica says Jupiter "cannot be blind" to the growth of alternative trust sectors, that is not necessarily the path Spence will take the division down.
"It will not just be launching new trusts under our managers, it might be talking to trusts that are looking for new homes and Magnus is very good at that."
In terms of overall strategy, Formica said his plan is not for a complete overhaul: "I am just changing the pace of execution and, in some cases, prioritisation."
As a result, he thinks people inside the business have bought into his leadership.
"I think in the first four weeks I was here, I met at least 95% of everyone in business. Out of that came some very obvious things that we can do and we have had to make some tough decisions.
"[But] there was no resistance; if anything, all I found was huge support."