Get into Jupiter's orbit

Fund management is a people business, so picking the right investment managers and providing them with the right incentives is crucial. And if a happy workforce is an efficient one, then Jupiter Fund Management should be a good example. The group has been around in various guises since 1985, but it was only last June that its shares were floated following a management buyout three years earlier. Its shares remain tightly held, with 38 per cent of the equity owned by employees even after the subsequent listing. Investment performance has been impressive, quite possibly influenced by the fact that Jupiter's fund managers are actively encouraged to invest their own money in the group's range of funds.

Managers are rewarded for their performance, and investment returns have been impressive. Over the past three years funds representing around two-thirds of Jupiter's mutual funds (ie, unit trusts and open-ended funds) have produced investment performance that put them in the first or second quartile of their peer group. So performance-related pay lifted administrative expenses by £22.8m to £115.1m in 2010, although these were more than covered by a 27 per cent rise in net revenue to £231m. However, Jupiter's own income is not significantly dependent on investment performance, with performance fees last year of just £5.7m. The bulk of the revenue comes from managing clients' money, and net management fees last year rose 29 per cent to £205m.

Jupiter focuses primarily on managing equity investments, and these represent around 83 per cent of assets under management. Of these, a vast majority are made up of mutual funds, which are open-ended funds raised from a group of clients and invested in equities. Of the £24.5bn of assets under management at the end of March, around £18.7bn were made up of mutual funds, and were generated largely through recommendations from intermediaries, such as independent financial advisers. This is important because retail investors tend to move funds around a lot less than institutional clients. That makes them more valuable to fund managers than money from institutional investors, and last year 76 per cent of Jupiter's assets under management came from the retail sector. Jupiter also operates a discretionary investment management service for wealthy clients, which makes up 7 per cent of assets under management.

So how does Jupiter shape up to the opposition using assets under management (AUM) against market capitalisation as a yardstick? With AUM of £24.4bn and a market value of £1.4bn, not that well at first glance when considering that Aberdeen Asset Management has a market value of £2.7bn and assets under management of £181bn. But these are early days and, as a newly-listed company, Jupiter has some catching up to do, a process it has already started, lifting AUM last year by 24 per cent, while Aberdeen suffered a small net outflow of funds.

Last year's strong performance for Jupiter has continued into the new year, with assets under management rising by £400m in the first quarter, primarily as a result of £333m of net inflows. Mutual funds contributed inflows of £397m, but set against this was a £71m net outflow from special pooled investment, mainly as a result of one client redeeming some of their portfolio, although this was done as part of a fund reconstruction rather than on performance grounds. There was also a net inflow of funds into Jupiter's other investment products including hedge funds, investment trusts and from wealthy private clients.

Group finances are in reasonable shape, too, helped by last year's flotation which provided the opportunity to swap high-coupon preference capital for ordinary shares and pay down some debt. So, from £140m at the start of 2010, net debt is now down to £63m.