Question
I noticed Jupiter is planning to float on the LSE this month. Do you think it's worthwhile buy shares?Answer
Your question arrived just before I posted this article discussing the Jupiter IPO. Take a read of the article for more detail, but in summary my view is as follows.
The business model for fund managers like Jupiter is really very simple.
Of course, the hard part is attracting the assets (i.e. fund investors) in the first place. Fortunately for Jupiter it has some very capable fund managers in its stable and strong performance has, over the years, led to lots of investors putting money in Jupiter investment funds.
The problem with this business model is that falling markets really hurt. Not only does revenue from existing customers fall (remember, annual management fees are charged as a percentage of fund value), but there’ll likely be fewer new customers and some existing customers will decide to sell their fund holdings. This hits revenue, so unless a fund group can significantly reduce costs then profits are likely to take a heavy hit during a downturn.
In Jupiter’s case it has reduced costs in recent years, largely by paying staff lower bonuses, but there’s probably not much fat left on the bone to shave off. On the plus side the flotation will allow Jupiter to cut borrowing costs by repaying its most expensive debt, but falling markets could outweigh these savings and leave the company struggling to turn a profit shorter term.
Should you be nervous about markets? Well Jupiter’s financial stocks expert clearly is. Philip Gibbs currently holds nearly one third of his Financial Opportunities fund in cash – as clear a signal as you could get about his pessimism (although knowing his 6.37% personal stake in Jupiter could be worth over £40 million should cheer him up!).
Nevertheless, I think Jupiter is a well run company and should do well longer term provided it can hold onto its key fund managers such as Anthony Nutt, John Chatfeild-Roberts and Philip Gibbs. So if you do think markets will perform well over the next few years then buying shares in Jupiter could make sense.
Personally, I won’t be buying any Jupiter shares, at least not now. I think markets are just too volatile and uncertain, with the timing of the float appearing to suit Jupiter staff better than potential investors.
I noticed Jupiter is planning to float on the LSE this month. Do you think it's worthwhile buy shares?Answer
Your question arrived just before I posted this article discussing the Jupiter IPO. Take a read of the article for more detail, but in summary my view is as follows.
The business model for fund managers like Jupiter is really very simple.
- Attract lots of assets under management (AUM).
- Charge percentage annual management fees on those assets.
- Watch the money roll in.
Of course, the hard part is attracting the assets (i.e. fund investors) in the first place. Fortunately for Jupiter it has some very capable fund managers in its stable and strong performance has, over the years, led to lots of investors putting money in Jupiter investment funds.
The problem with this business model is that falling markets really hurt. Not only does revenue from existing customers fall (remember, annual management fees are charged as a percentage of fund value), but there’ll likely be fewer new customers and some existing customers will decide to sell their fund holdings. This hits revenue, so unless a fund group can significantly reduce costs then profits are likely to take a heavy hit during a downturn.
In Jupiter’s case it has reduced costs in recent years, largely by paying staff lower bonuses, but there’s probably not much fat left on the bone to shave off. On the plus side the flotation will allow Jupiter to cut borrowing costs by repaying its most expensive debt, but falling markets could outweigh these savings and leave the company struggling to turn a profit shorter term.
Should you be nervous about markets? Well Jupiter’s financial stocks expert clearly is. Philip Gibbs currently holds nearly one third of his Financial Opportunities fund in cash – as clear a signal as you could get about his pessimism (although knowing his 6.37% personal stake in Jupiter could be worth over £40 million should cheer him up!).
Nevertheless, I think Jupiter is a well run company and should do well longer term provided it can hold onto its key fund managers such as Anthony Nutt, John Chatfeild-Roberts and Philip Gibbs. So if you do think markets will perform well over the next few years then buying shares in Jupiter could make sense.
Personally, I won’t be buying any Jupiter shares, at least not now. I think markets are just too volatile and uncertain, with the timing of the float appearing to suit Jupiter staff better than potential investors.
Read this Q and A at http://www.candidmoney.com/questions/question210.aspx
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