Jupiter’s Leadership Pounce Is No Game-Changer

(Bloomberg Opinion) -- Jupiter Fund Management Plc’s move to snap up Andrew Formica as its new chief executive officer is both opportunistic and smart. But the challenges he’ll face in his new role remain formidable, and the experience of shareholders at Henderson Group Plc, the firm he previously ran, suggests a big merger may not be the best cure for Jupiter’s ills.

Jupiter’s Leadership Pounce Is No Game-Changer

Formica engineered Henderson’s merger with Janus Capital in 2017, and was co-CEO of the merged Janus Henderson Group Plc until he was unceremoniously ditched at the end of July. The 8 percent slump in the company’s shares the day after his departure was announced is indicative of his standing with investors.

Jupiter clearly decided Formica was a prize it couldn’t afford to miss. In a statement on Tuesday, the company said its board had felt that its next leader would likely be appointed in the next couple of years.

But with Formica likely to be wooed by several suitors – Swiss fund manager GAM Holding AG, for one, is sorely in need of a new permanent chief – Jupiter decided to accelerate its plans to appoint a replacement for incumbent Maarten Slendebroek.

In recent years, Slenderbroek was adamant that Jupiter wouldn’t seek a merger to increase in scale, cut costs or add distribution. He told Bloomberg News in May 2017 that his strategy was to avoid meeting with investment bankers pitching potential deals. Instead, he focused on growing the firm’s emerging-market and fixed-income businesses to reduce the firm’s reliance on more volatile equities, and boosting the firm’s number of institutional clients, who are typically less fickle than retail customers.

At London-based Henderson, Formica took the alternative route to coping with the deteriorating environment that investment managers have found themselves facing in recent years by allying with Denver-based Janus. “Others will say they wish they’d done it or they’ll contemplate it as well,” Formica said in a discussion of the merger in October 2016. With hindsight, shareholders may not be so convinced of the benefits of that combination.

Jupiter’s Leadership Pounce Is No Game-Changer

You’d struggle to slip a cigarette paper between the performance of Janus Henderson since its merger and those of Standard Life Aberdeen Plc, itself the product of a merger, or Jupiter. Combining two different cultures is always tricky; in asset management, where the firm’s assets walk out of the door every day, it can be particularly challenging.

It’s far from clear what Formica can do to reverse the trend that saw Jupiter’s assets under management decline to 42.3 billion pounds ($55 billion) at the end of last year. The 5 billion-pound drop in the final quarter came mostly from 3.5 billion pounds of market losses, something no CEO can control, while the rest came mostly from retail investors spooked by market losses.

There’s not much scope for cutting costs, with Jupiter’s cost-income ratio already down to about 54 percent, in line or better than its peers. And Henderson was as reliant on retail customers as Jupiter is, suggesting Formica may struggle to shift the business toward institutional investors.

Still, Jupiter’s 12 percent rally so far year, in line with its peers but better than the broader stock market, suggests investors may be anticipating a better outlook for investment managers.

Slendebroek deserves credit for making way after five years at the helm of Jupiter, recognizing perhaps that, after overseeing a 50 percent drop in the company’s market capitalization last year, it was time for a change. The chalice he bequeaths may not be as poisoned as the one on offer at GAM; but Formica could still find himself with a nasty aftertaste.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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