ALEX BRUMMER: As the Woodford scandal has illustrated, the only people making money in many sub-performing active funds are managers and platform operators
Savers, pension funds and other clients who have placed their faith in the active management skills of Jupiter and Merian Global Investors would be entitled to ask what they stand to gain from such a merger.
Performance at quoted Jupiter has been lagging amid fund outflows of £4.5 billion in 2019. Chief executive Andrew Formica is seeking to bulk up with a £370m takeover of Merian, the former fund management arm of Old Mutual.
There is nothing wrong with that if savers could be assured of improved performance. Formica is a dab hand at getting bigger. He built up his previous employer Henderson with a series of deals, taking out John Duffield’s stricken New Star and Gartmore before linking up with US-based Janus.
Unsettled: Performance at quoted Jupiter has been lagging amid fund outflows of £4.5 billion in 2019
Most fund management deals largely are about taking out costs for the owners of the enterprises rather than jazzing up performance. The latest deal brings £22 billion of additional funds to Jupiter with annual management fees in the order of £140m.
The merger aims to raise earnings of the combined group by as much as 13 per cent to 15 per cent by nudging up profit margins from 45 per cent at Jupiter to 50 per cent-60 per cent. That is all very good for battered Jupiter shareholders who ought to be winners with the share price advancing 3.7 per cent in latest trading.
Merian backers should also do fine with chief executive Richard Buxton and associates in line for a £20m pay out if commercial targets are fully met. Merian investor TA Associates will acquire a 16 per cent stake in the bigger group. That might look like a case for gins and Fever-Tree all around. But there is not much joy in this for investors putting their faith in active management.
As the Woodford scandal has illustrated, the only people making money in many sub-performing active funds are managers and platform operators. They enjoy supercharged personal rewards on the back of fabulous margins, which most of the corporate world can only dream of. This might be more acceptable were the managers and platform operators transparent with clients.
Hargreaves Lansdown (HL) shamefully claims that its multi-asset funds – which were heavily exposed to Woodford – delivered value to investors. Truth is, performance has been lamentable. The over-weight exposure to the failed Woodford Equity Income Fund means that all but one of ten HL multi-manager funds lagged behind similar outfits over the last three years.
The mismatch between the fantastic rewards to Hargreaves Lansdown, fund groups, high-profile managers and ordinary savers is beyond parody. That is why so many savers are choosing passive funds and quoted Exchange Traded Funds where gains are not sucked out by fees and grasping managers. The reputation of the professional savings community has never in recent times been so dismal.
Up to speed
Among the big decisions still to be taken on HS2 is who will be awarded the initial £2.75 billion contract to build 54 trains.
The joint bid from Alstom-Bombardier could possibly be boosted by a proposed takeover of Canada’s Bombardier by Alstom maker of the TGV bullet train for £5.4 billion. The others bidders are Japan’s Hitachi, Siemens and Spain’s Talgo. Now we are all but outside the EU, the Brussels-dictated competitive bidding rules – which have been so costly for UK manufacturing – could be set aside.
UK civil servants and ministers have, in the past, been more punctilious about sticking to the rules than Continental neighbours.
The contract with the most UK industrial heritage would be Alstom-Bombardier. In the great days of Lord Weinstock, the GEC-Alstom joint venture was a world-beating combination winning contracts from South Korea to Houston, Texas. The break-up of GEC saw production (much of it in Rugby) being run down. Bombardier, with is train-building at York, remains the nearest we have to a UK-based train maker.
Given No 10’s admiration for the Chinese, don’t be surprised if Beijing comes up on the rails with a bid too good to be true.
Former Slater-Walker investment banker HJ Mark Tompkins has his hands really full as chairman sorting out the governance and finances at NMC Healthcare now that founder BR Shetty has resigned.
All of Tomkins’s experience from the last days of Slater-Walker – directly saved from the knacker’s yard by the Bank of England with the help of the late Sir James Goldsmith – should be most useful.
It too consisted of an arid web of complex interrelated shareholdings.