Jupiter outflows slow as it tries to turn its fortunes around

Investors in Jupiter Fund Management (JUP) have had at least eight years to ponder why the company’s strategy was going so very wrong, with annual fund outflows in the billions. However, these results started to show some promise as the company tries to turn its fortunes around under a new chief executive.

The company’s new emphasis on winning institutional mandates showed some signs of success at the group level. While net outflows continued, these moderated to £2.2bn, compared with an outflow of £3.5bn at this time last year. Institutions accounted for £1.8bn of inflows and institutional clients now make up 19 per cent of total assets under management. Total institutional funds increased to £10bn, out of total assets under management of £52.2bn. Average assets under management (AUM) was £50.9bn.  

The increase in institutional mandates wasn’t quite enough to offset the weakness in retail and wholesale investor demand. Outflows of £4bn, offset by £2.8bn of market returns meant the AUM in this channel ended the year a billion lower at £42.2bn, as investors chose to take advantage of higher interest rates and move into cash. However, there is another problem in taking on more institutions as clients – in general they are not as profitable.   

The challenge for management is how to move over to a more diversified business model, which offers stable flows, but which also means giving up the high margins that retail funds can generate. That process was obvious in these results, with the average net management fee margin reducing from 73.5 basis points to 69.5 basis points as business switched over to lower-margin institutional clients. Inevitably that affects the bottom line, even when stripping out the impact of lower assets under management.   

That makes controlling costs a priority and a headline fall in operating costs of 12 per cent to £265mn, or an underlying 4 per cent once the impact of performance fees is excluded, showed some promise in this regard.

Broker Investec said that Jupiter had done a reasonable job of managing the areas within its control, but it is not able to turn around weak retail market demand without a big change in sentiment. Investec forecasts underlying earnings per share of 9.3p, giving a normalised price/earnings ratio of 9.6 for this year. Investors shouldn’t discount the recovery potential, but it will be a long road. Hold.

Last IC view: Hold, 116p, 28 Jul 2023