Highly regarded Europe manager Alexander Darwall is leaving Jupiter Asset Management to set up his own company – Devon Equity Management, a small investment management company, which will be based in London.
It had already been announced in April that Mr Darwall would step down as manager of the Jupiter European (GB00B5STJW84) and Jupiter European Growth (LU0946223368) funds. But he was going to continue to be head of strategy, European growth at Jupiter, and manage Jupiter European Opportunities Trust (JEO) and his longstanding segregated institutional mandates. Jupiter also said that there would be a transition period of several months, with Mr Darwall continuing to work on the former two funds until the fourth quarter. The funds' new manager Mark Nichols joined Jupiter this week, and European small- and mid-cap manager Mark Heslop will join Jupiter on 2 September.
A spokesperson for Jupiter said Mr Darwall has not yet resigned from that company and still expects “the new team will take over the funds in the fourth quarter, so we don’t imagine the transition period will be any shorter than expected”.
Mr Darwall is waiting for approval for his new company from the Financial Conduct Authority (FCA). Devon Equity Management was incorporated in April and its other directors are Luca Emo Capodilista, who helps Mr Darwall to manage Jupiter European Opportunities, and Richard Pavry, head of investment trusts at Jupiter. Mr Darwall has agreed with Jupiter that his company will not launch any Undertakings for the Collective Investment in Transferable Securities (Ucits) compliant funds for two years. Most open-ended funds available to UK private investors conform to this structure, so Devon Equity Management may not launch any open-ended funds for at least two years.
However, the board of the investment trust Mr Darwall runs, Jupiter European Opportunities, is considering appointing Devon Equity Management as the company which manages it, and has instructed its professional advisers to conduct due diligence and consult with its shareholders. The trust’s board is also in negotiations with Jupiter regarding its management arrangements and contract.
Mr Darwall personally holds around 3.7 per cent of Jupiter European Opportunities’ shares, worth about £36m, according to Bloomberg data.
At market close on Monday 1 July, before Mr Darwall's plans were announced, Jupiter European Opportunities' share price was 873p and it was on a premium to net asset value (NAV) of 0.2 per cent. At close on Tuesday 2 July, it had only moved slightly to 874p and a discount to NAV of 0.1 per cent. But if the trust’s board does not follow Mr Darwall to his new company, the trust’s share price could fall and it could move to a wider discount, as the trust has made very strong returns while he has managed it.
But analysts at broker Numis said: “We would expect [the trust's board] to stick with Alexander, who has an exceptional long-term track record, and a strong following among retail investors and private wealth managers. Since [he started managing it in] November 2000, Jupiter European Opportunities has delivered NAV total returns of 13.2 per cent a year versus just 4.9 per cent a year for MSCI Europe ex UK index, through a stockpicking approach investing in a focused portfolio of growth companies. Alexander’s departure from Jupiter should not cause concern for [the trust’s shareholders], particularly if its board confirms that the management can transfer smoothly and that the investment approach will remain the same. We do not see these announcements as a reason for the discount to widen materially. As a result, we would view any material discount widening as a buying opportunity.”
If Jupiter European Opportunities’ board decides to appoint Mr Darwall’s new company as manager, for at least the next two years this trust may be the only way to access his stockpicking skills. Ryan Hughes, head of active portfolios at AJ Bell, thinks this may create strong demand for the trust in the coming months and this could push up its share price and move it up to a higher premium to NAV.
But Jupiter European Opportunities often has a very high annual charge because of a performance fee. This was triggered in its financial year ending in May 2018, and took its basic ongoing charge of 0.9 per cent up to 2.5 per cent.
There are many other Europe funds with good performance records and much lower fees, some of which we highlight in the IC Top 100 Funds. However, if Jupiter European Opportunities changes its management company to Devon Equity Management a new fee arrangement will be put in place. If this does not involve a performance fee and or has a lower base fee, the trust’s charges could fall.
