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Slight wobble in Jupiter&#39s orbit?

IFAs will not have failed to notice that this year&#39s Isa season is a little quieter than the last – not just in terms of sales but in terms of industry activity in general.

Among other things, the first three months of 2001 saw the launch of Cofunds, numerous new funds, the culmination of the SG Asset Management/Virgin bet and a heated debate as to whether IFAs should be able to rebate trail commission.

This year, sales are down by 40 per cent, fund launches have been few and far between and most investment houses are keeping their heads down praying for the end of what has been a long bear market.

So maybe it is partially due to the quieter feel of 2002 that last week&#39s news that Jupiter may be up for sale raised so much interest. At the most extreme end of the scale, a handful of IFAs put Jupiter&#39s entire fund range on hold while the most cynical pundits took the news as a sign that Jupiter is in severe financial difficulty. But most IFAs believe such views are at the very least misplaced if not entirely wrong.

True enough, mergers and acquisitions almost always spell unrest for investment houses – especially bigger ones. But Jupiter must surely be an exception to this rule.

BestInvest deputy managing director Jason Hollands advised many of his clients to sell Jupiter funds in 2000, when John Duffield left the firm in a storm of controversy. However, the news that Jupiter may now be up for sale does not bother him in the least.

He says: “The reality is that those managers who were going to leave have probably already done so. They have been through one quite big upheaval – in the context of that, this is probably not a major concern.”

As chief executive Edward Bonham Carter has gone to great pains to emphasise, the main value of Jupiter lies in its human capital. As a house which has always fostered a star fund manager culture, many see Jupiter as a house of talented individuals rather than a group subscribing to a rigid investment process.

Hargreaves Lansdown head of research Mark Dampier says: “Anyone who buys Jupiter will be buying it for the fund managers and the investment philosophy. If you ignore that, you wreck the business and it would not be worth paying for. I think it is far too early to do something like put the funds on hold.”

Dampier points out that Jupiter has not been rushing out to reassure IFAs in the wake of last week&#39s announcement – testimony to the fact that it does not believe its business will be negatively affected and also that most IFAs understand this.

Plan Invest joint managing director Mike Owen says that the news of merger and acquisition activity around a firm initially worries him. However, he concedes that corporate activity is so commonplace in the fund management industry that you have to look carefully at each case rather than have a kneejerk reaction to the news.

He says: “I do not think we are too concerned in this case. The fund management industry changes daily at the moment. You could put everyone on hold for some reason or other if you wanted to. If something changes, then you can get out at that stage. But there is no need to start being pre-emptive now.”

Perhaps the biggest question that still remains unanswered is why Commerzbank would want to sell Jupiter. After the negative noise surrounding profits for 2000, some have worried that Jupiter&#39s balance sheet is still in a bad way – hence, Commerzbank is keen to get shot of the business. However, all the signs would seem to suggest that this is not the case.

Jupiter&#39s losses in 2000 were principally down to several million pounds of exceptional costs – staff incentives and accounting corrections on its Asian property funds. The expectation is that for 2001 Jupiter is back in the black, with a modest £21m profit, despite a slower year of business. Instead, it would seem that Commerzbank&#39s decision to sell Jupiter is more about problems at Commerzbank than problems at Jupiter.

Jupiter joint managing director Steve Glynn says: “The European economy has gone through a very difficult period, which has hit Germany very hard. Commerzbank&#39s profits have not been fantastic – so as a business, they have due diligence to do to their shareholders. They now have to decide whether asset management is core to their business – and if it is not then inevitably they will move to downscale it. After Jupiter&#39s profits falling in 2000 due to exceptional items, we bounced back to £21m last year. So we have a very saleable business.”

Given the nature of Jupiter&#39s business, the consensus of opinion is that its buyer will come from overseas – a big foreign player looking for a foothold in the UK market. While some have suggested that giants such as Amvescap may be interested, it seems unlikely given the troubles they have experienced in merging Invesco and Perpetual in the UK.

Glynn believes that a new foreign owner could be very positive for the business. If Commerzbank is not committed to being a global asset manager – as would appear to be the case – Jupiter will surely be better off as part of an organisation that is 100 per cent behind it.

However, for Jupiter the perfect buyer is one that is happy to keep its distance from the business, much as Commerzbank has done. These more passive owners are unfortunately increasingly thin on the ground.


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