Chief executive in waiting believes revamped ownership structure will tempt further high-profile managers to group post-management buyout
Jupiter's group chief executive in waiting Edward Bonham Carter is keen to dispel images of newly-rich fund managers deserting the group as a result of the management buyout.
In fact, he highlights the share scheme as integral to the new structure, increasing staff alignment and allowing the group to attract further high-profile individuals.
Bonham Carter claimed once again that corporate responsibilities will not impinge on his fund management and said the same stands for board members Tony Nutt, Philip Gibbs and John Chatfeild-Roberts.
Due to complete in July, the £740m MBO is in conjunction with private equity firm TA Associates.
What was the background to the MBO?
Commerzbank originally came to us around a year ago, proposing we looked to IPO the business. The group had made a strategic decision to pull out of asset management, particularly as technical reasons prevented our performance from feeding through to underlying returns to the bank's shareholders.
At the start of this year, we came up with the MBO idea, which gives Commerzbank a clean exit and is in the best interests of our customers and staff.
When it comes to a people business like ours, the individuals creating value for customers should have a share of the company.
Why did you choose TA as the partner for the buyout?
We looked at various private equity options but there are a small number of groups with asset management expertise. TA has a long track record of investing in the space, with companies such as AIM in the US for example, and this is its tenth deal in this area.
A vital element for us is that TA was comfortable with the concept of minority investing. Some private equity funds have an issue with this but it was important for us that staff hold the majority stake in the business.
TA is also a growth investor, rather than the private equity cliché of buying cheap, cutting costs and then selling on. The group's average holding period is five years and the funds typically have a 10-year lifespan.
There is no fixed exit strategy in place but TA will eventually realise value by Jupiter listing, a trade sale or a recapitalisation where we buy them out. We have not revealed the size of the stake taken by TA but the board split, two-thirds to one-third in Jupiter's favour, offers a good clue.
How are managers and key staff tied in to the group?
There was a long-term incentive plan in place under Commerzbank, linked to Jupiter's performance, which has now paid out. People have reinvested their proceeds from this into the MBO deal, which means staff have their own money tied up in the business.
This is obviously different from awarding people phantom equity as staff have elected to put their own cash into this deal and will only benefit if the company performs well.
There will also be a share option scheme in place and we have held back some equity to offer this.
It is wrong to think this deal will allow several managers to walk off into the sunset with their pockets full of cash. The basic concept is of deferred gratification - there is obviously scope for people to make a lot of money but they will have to earn it.
We feel this structure, which includes managers and back-room staff, will be helpful in attracting further high-profile managers to Jupiter in future.
You said the deal gives the group scope to expand. Where will we see this in evidence?
It is important to stress there will not be a material strategic change to achieve growth but Jupiter will continue to evolve.
In the UK, for example, we have several top-quartile funds over the medium to long-term and yet are still small in terms of assets with around £19bn across the board.
Our core business will remain the UK and we feel the country is in the midst of a secular change towards saving via mutual funds. We see the UK moving towards the US 401(k) pension system, where there is more individual responsibility for savings vehicles.
With 120 groups in the UK offering 2,000 onshore funds, there is scope for consolidation and we are well placed to increase our share of net new business as this begins to happen.
Will the group expand into new areas?
We are developing our institutional and private client businesses and will also build on the two Sicav launches from last year, as we see scope to expand into Europe.
On the institutional side, more groups are looking to access our retail managers for mandates and the two sides of the business are beginning to converge. We recently took on a mandate for St James's Place with Ian McVeigh and John Hamilton involved.
The private client side has been growing at 15% to 20% compound per annum based on the strength of our multi-manager team under John Chatfeild-Roberts.
With the recent FSA announcement on increasing retail access to alternatives, a fund of hedge funds product from this team looks a fairly obvious progression in due course.
Jupiter is known for having strong products in core areas but has not embraced the wider investment powers available under Ucits III. Are there plans on this front?
As ever, if we see opportunities we will look at products but we have tended to avoid me-too offerings. We recently appointed Mike Buhl-Nielsen, who has a strong derivative background, to work on our European hedge fund, so we do have the expertise in place.
While we have never been a group for frequent launches, we brought a Japan Income vehicle to market last year and have a European Income offering ready to go. These both tap into the trend of increasing corporate profitability and dividend culture.
How will increasing corporate responsibilities affect your Undervalued Assets portfolio?
I have always said that if I ever feel things are getting too much, I will take myself off the fund. It is unusual to do both roles but it is not impossible as people like Bob Doll have proved at Merrills.
John Chatfeild-Roberts, Phiip Gibbs and Tony Nutt are also on the board. Will they face increased corporate responsibilities under the new structure?
They have all been on the board before at various times and there should not be a huge change in such a role under the new structure. We will only have four board meetings a year so these are not too frequent.
What continues to motivate you?
Investment management remains a stimulating area in which to be involved. There is a wide canvass of factors influencing what we do, from politics to economics and human psychology, which all come together to form an ever-changing soup of stimulation.
It is a privilege to be entrusted with people's after-tax earnings to look after and we always keep that at the back of our minds.