Maarten, this year you’ve stepped into the shoes of Edward Bonham Carter as group CEO. How much of Jupiter’s business is on the international side?
Maarten Slendebroek: For the first time, the international business delivered more towards our overall growth last year than the domestic side. In addition, for the first time in the history of the firm, fixed income delivered more to growth than equities, and the two are, of course, somewhat linked.
We had inflows last year of £1.2bn ($1.6bn). More than 50% of that came from outside of the UK, through our Luxembourg SICAV.
Kevin Scott: With some of the larger accounts, which are often traded through an omnibus, it’s difficult to be precise but in broad terms it’s about 20%. That would be across the board – from international banks, the largest global banks, international life companies, through to local banks in each of the countries where we’re registered or local multimanager buyers.
The total of all of those assets is just under £32bn, with the obvious variable around those omnibus traded accounts. The UK business has been 29 years in the making. The international side only started around seven years ago.
MS: I would predict that, going forward, 50% of our growth will continue to come from our international businesses and 50% from the domestic business. The installed book of business is 80:20, which means the 20% will inevitably grow much faster than the UK piece, but both will grow.
Before coming CEO, I was head of strategy here for a year-and-a-half. What we’re looking at now is the execution of a strategy we set out a year ago. There is evidence that we are accelerating. We didn’t have a team of people in Frankfurt and Hong Kong a year ago but we do now. We are putting more resources behind our growth plan.
Jupiter also opened an office in Zurich last year. How is that going?
KS: In the case of Switzerland, we are focusing on professional fund buyers. The office is in Zurich and there are two sales directors based there. We have people who are experienced with the French-speaking and German-speaking Swiss clients. Switzerland is one of our key markets in terms of growth, and the reach in Switzerland from Zurich is to the largest professional fund buyers such as UBS, Julius Baer and Credit Suisse, all global players.
Last December, Jupiter entered into partnership with Emirates NBD Asset Management to run a number of mandates for them. How did this come about?
KS: We are privileged to have a number of sovereign wealth clients in the Middle East. The ‘fly-in’ approach really does work for them – we didn’t need people on the ground. Emirates
NBD was perfect for us.
They had an in-house multi-asset management base but they were looking to outsource that component.
We were part of the beauty parade and, given the history of our Merlin fund-of-fund multi-manager business, we came up on the radar as a potential partner.
We were attractive to them because we weren’t in the region. They could bring to that market something that was new and could point to a very long track record in the UK. From our point of view, we get to plug into the biggest bank in the region.
We inherited some assets because they were outsourcing what they already had, a little more than $100m, which has grown already by more than 40%.
Does that complete the picture for the international presence?
MS: We also now have an office in Stockholm. There’s a difference between an office where you have one guy, which is the case in Stockholm, or you have seven people in your own premises, as we have in Hong Kong.
Sometimes the entry to a market is a relatively light touch.
My assessment of Hong Kong, for example, was that we needed more boots on the ground to make any kind of impact.
Hong Kong is a market some people shy away from, others go in there because it has huge and intriguing possibilities. The regulation there is a mixed picture though, isn’t it?
MS: Each regulator has its own rules and sometimes peculiarities, but a lot of the regulation – and also the officers in Hong Kong – are often UK trained, so I don’t find it a particularly challenging regulatory environment.
I won’t volunteer to you which regulators I find particularly challenging but it’s not Hong Kong. It’s not as though everything is easy in Hong Kong but you can always go to the Securities & Futures Commission and they will explain to you what the problem is. You can then deal with it.
There are other regulatory environments where you have meeting after meeting and nothing ever gets resolved, because their real objective is to keep you out.
Which are your priority markets?
MS: They are the same markets as before I joined, I haven’t changed that. We have a cluster that covers Germany, Switzerland and Austria, which is really important for us, a twin focus on Hong Kong and Singapore and, of course, our home market, the UK, which still dominates absolutely everything we do.
What do you see as a positive factor in favour of the fund management industry growing healthily over the next few years?
MS: The overwhelming positive factor over the past 10 years – which accelerated as a result of the credit crunch – is that companies and governments are increasingly unable or unwilling to look after individuals’ savings and pensions, which means individuals are more and more self-driven investors.
One of the surprises here in the UK for us was the Chancellor’s decision to no longer make compulsory investment in an annuity. This prolongs the potential relationship between the asset manager and investor.
Our industry is set up for accumulation, and annuities are set up for decumulation. Our industry needs to get its head around this. How do we deliver good decumulation products?
Second, if you have high real interest rates, there’s nothing wrong with an annuity, probably, and for many people it’d be the right choice. But we are sitting here on artificially low interest rates.
In my book that’s why the Government feels it’s wrong to push people into something that has been engineered to give a negative return, and to make it compulsory to invest in something that had been engineered to be negative.
What product is used instead of an annuity has to be carefully thought through, together with the service you offer to the types of clients you’re after. We see it as an opportunity. It extends the lifecycle of the relationship with our client base, but we would have to think carefully and step up our efforts in product development to cater for that audience.
Can you put a time frame ona possible development of a product by Jupiter in order to cater for this huge change in the market?
MS: We have to ask, are we going to do that and is that the market we’re after? The answer might be no, so I’m not telling you we’re coming out with a product like that.
It would take a minimum of three years to develop such a product because, if you launch today, you need a gestation period. You need to convince professional intermediaries such as Mercer and Towers Watson that typically advise that kind of client group.
Can you imagine any acquisitions or alliances in the next year that either relate to that scenario of helping the product development or something else in the pensions space?
MS: It’s difficult to be specific but there’s a rapid ongoing consolidation in the private wealth market. We have obviously participated in that by announcing the sale of our private client business. There is also ongoing consolidation in other areas.
Insurance companies are clearly thinking, “What is it that we take to market? And how do we need to present ourselves?” These businesses are our clients, not our enemy, and they have a direct relationship with the consumer. We often don’t.
What is the overarching growth plan for Jupiter?
MS: Our business plan is very simple. We are growing organically. Selling the private client business was a one-off.
Our business strategy is to be a profitable, high-margin business and to dividend out surplus cash to our shareholders in one way or another as and when it’s generated – and acquisitions are not part of this. There could be an exception to that if we find a tiny little company sitting in a corporate shell.
Can you tell me about any moves you’re making in the global space?
MS: What I can tell you is we have recruited Martin Harris, ex-global head of distribution at Kames, who started in April. We have hired him with a narrow job specification, which is to develop our global institutional proposition. So that’s a clear initiative.
We are known as a ‘retail first’ house and to hire somebody like that, with a clear institutional objective, is an important initiative for us.
We have clients in the institutional market – pension funds, sovereign wealth funds, endowments and foundations – but as a high alpha specialist manager, there’s an untapped client base for us out there, where we think we can do more business.
What is the plan for the Hong Kong business this year?
MS: We reached what I would call full battle strength towards December last year. I’ve been out about twice in the past five months. We have started to advertise in Hong Kong locally, which we haven’t done before. Last month, I got a photo of Jupiter advertising on a tram stop in central Hong Kong. We’re going for the brand and that’s really exciting for us.
We’re obviously a flea in the local market but that’s the way we’re starting it. The five-strong team there is led by Peter Swarbreck, who joined Jupiter as head of Asia Pacific, client coverage group, in April last year (from Black Rock).
Our business plan has involved selecting 15 of the big financial institutions we already do business with in the UK, which also have operations in European countries such as Germany, Switzerland and Austria, as well as Hong Kong and Singapore.
We have said to them, “Why don’t we also do business with you in Switzerland, Germany, Hong Kong and Singapore?” That is pushing on an open door in many cases. It’s not always that easy because you have to register the fund – go through the Hong Kong regulator or whatever it is – but it’s not impossible to do that.
As soon as the big boys start doing business, there are other client opportunities with medium-sized businesses that gain the confidence to engage with Jupiter, thinking “that’s an interesting name”.
This is a gradual process, and the speed at which you do it is self-generated. I often think about ‘gating growth’. If we exceed what we set out to do I will release more resource to deal with it, because if your performance is good and clients buy it, you need more boots on the ground to look after the business.
For me, strategically, active fund management performance is what this business is all about. That is the number one. There is nothing Kevin or I can do without that performance.
There’s talk in the market of a degree of intolerance for underperformance. I suppose what you’ve just said does indicate that.
MS: What you need in a firm, or any kind of relationship, is to agree clearly what it is we set out to achieve.
What does that look like? That is not particularly controversial. I’ve been here now for 27 years so I’ve lost some of the blunt-speaking approach of the Dutchman.
Fund managers might want to be judged over a certain time period. On the other hand, you’ve got the outside industry watchers, and our clients, of course, who might have a shorter time horizon. So you come to some kind of compromise. I think it’s roughly three years’ rolling performance. That’s an important number.
Over three years we like to set out a target to beat our benchmarks and our competition after all costs. That’s what we set out to do.
If you agree a clear scorecard, the conversation becomes much simpler.
This business is tough but it’s not complex. Winning the Premier League is what you want. Coming seventh is not an option.
You’re talking about a three-year rolling performance period. In Hong Kong, a market that you’re obviously wanting to position much more prominently in, the local mind set can think in terms of a matter of days or even minutes, can’t it?
MS: We try to go after what we call ‘sticky money’. We want clients that understand what we do, and we can keep tabs on that. We try to weed out such customers we see as just pinging in and out, because that is to the detriment of all the other investors in a fund. We like the daily liquidity, but it’s a long-term savings instrument.
If we see investors that just come in for two-week periods, we try to politely weed them out. We have a lot of clients who have been in these funds for years, and the day will come that they want to sell, either because they retire or move on to the next thing.
That is what daily liquidity is for, but it’s not there as a trading instrument. There are other market propositions out there that are much better able to deal with that sort of short term liquidity – ETFs, for example.
One of the things I spend a lot of time on personally, is looking at our investment strategies, not only how these funds are invested and how liquid their holdings are, but also what the client base looks like. Does a fund have three large holders or is it 50,000 individuals? You’d rather have the 50,000 individuals because they’re not all going to sell at once.
Now you’re installed as CEO, what do you expect to have achieved by the end of the first year in that role, which will be March of next year?
MS: I look at my appointment as starting in September 2012, when I joined, and so that’s the point we started setting in motion a strategic reorientation of the business, and we’re midway through that.
We’ve already formulated a five year strategic plan and now we’re working out the components of that.
What you will see is a large degree of continuity because I was head of strategy and worked closely with Edward Bonham Carter. He is still in the business working four days a week and we still work closely together. We call it evolution, not revolution, but we’re doing more internationally.
We are becoming better at executing certain things, clearer about certain decisions, about private clients, and so what you see is more of the same, perhaps at a slightly higher pace than before.
