For all the brave words, Jupiter’s move is essentially defensive
What’s gone wrong with Britain’s fund management industry? Over the past year share prices have soared globally, which usually translates into boom times for asset managers, whose income is based on a percentage cut from the total amount of money under management. Yet the UK’s industry is beset with scandals and sliding fortunes among some of the once most-revered names.
Jupiter is attempting to arrest its decline with a £370m takeover of Merian (once Old Mutual’s investment arm), creating a £65bn group that boss and serial deal maker Andrew Formica promises investors will be “highly earnings accretive”.
Weary shareholders will hope so. Jupiter has been one of the most-shorted stocks on the London stock exchange – and the negative bets have largely paid off. Its share price slumped from a peak of 630p at the start of 2018 to under half that a year later, and has recovered only mildly since.
Merian has been little better. Just 18 months after the £600m deal that saw it extracted from the arms of Old Mutual and rebranded, chief executive Mark Gregory announced a restructuring and job cuts “against a very difficult market environment”. The stock market’s perky reaction to the Jupiter takeover is largely because it has achieved a bargain basement price, not because these are businesses with compelling stories.
Formica’s talk of earnings growth and cost synergies has echoes of the logic that drove the last major deal in the sector, Standard Life’s £11bn tie up with Aberdeen. That created a £660bn “powerhouse in asset management” that we were told would take on huge US rivals. That was two years ago. Since then, the group’s funds under management have shrivelled by £80bn, and the share price has fallen to 325p from around 400p.
Standard Aberdeen is keen to point out that it has achieved much of the cost savings promised and that its share price gain over one year is looking attractive.
But the reality is that the active (and very highly paid) fund management groups of London and Edinburgh are losing the war against index tracking. Vanguard now has just over £4 trillion under management. Every month the UK fund industry’s sales figures tell the same story; at least five out of the top 10 sellers will be Vanguard funds. The others will be from Fundsmith and Lindsell Train. The rest of the fund management industry must feed itself on the crumbs left on the table. Jupiter/Merian won’t be the last of the defensive mergers in this business.
Tech giants standing on a slippery surface
Data is the new oil. It is the beating heart of the modern global economy and whoever controls it enjoys enormous power and wealth. The five big US tech giants – Apple, Google, Amazon, Microsoft and Facebook – have more clout than Standard Oil enjoyed when John D Rockefeller was its major shareholder in the early 20th century, writes Larry Elliott.
The story of Standard Oil is well known. It fell foul of antitrust legislation and was broken up into 34 smaller companies after being deemed an illegal monopoly by the US supreme court.
In the event that Bernie Sanders or Elizabeth Warren wins the Democratic presidential nomination and goes on to beat Donald Trump in November’s White House battle, Silicon Valley would have every reason to be nervous about a rerun of the events of 1911. Both have called for the breakup of the big five.
But Donald Trump doesn’t seem to have much love for the tech giants either, particularly Amazon, where his loathing of the company’s founder Jeff Bezos is visceral. So it was interesting to see last week – when attention was focused on the New Hampshire primary – that the US Federal Trade Commission ordered the big five to hand over details of hundreds of acquisitions made over the past decade.
Up until now, those running the tech giants have been able to fend off accusations that they are a new breed of robber barons by pointing out the benefits to consumers either by offering services for free or in making goods cheaper.
Now the critique is being broadened out to include other ways that the tech giants might be causing damage to consumers – such as by gobbling up potential rivals in order to stifle competition. This will be a more difficult charge to rebut.
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