The Merian duo responsible for billions of pounds of outflows from the business during its ownership by TA Associates face an uphill task rebuilding their assets in order to partake in a £20m deferred payout as part of Jupiter’s proposed purchase of the business.
Ian Heslop (pictured) and Amadeo Alentorn Farre are among five managers eligible for the payment, which is subject to fund managers “growing and retaining revenues in their investment strategies”. Their Global Equity Absolute Return fund has lost investors 11.5% over one year. In contrast, the Investment Association sector average has returned 4.2%.
Merian Global Equity Absolute Return fund performance
|Merian Global Equity Absolute Return||-11.34||-10.52||-1.40|
|IA Targeted Absolute Return sector||4.25||5.12||8.76|
Source: FE Fundinfo
When TA Associates acquired Merian for £583m in June 2018, the then £16.5bn fund was reportedly bringing nine-figure sums via its 0.75% management fee and performance fee. It has since shrunk to £3.5bn and is not eligible for its performance fee.
This week, Jupiter confirmed it was acquiring Merian in a deal worth £370m paid through the issue of new shares to Merian shareholders.
AJ Bell head of active portfolios Ryan Hughes said the fund suffered poor performance during the financial crisis and bounced back but said the managers face an uphill battle regaining assets.
Hughes said: “Consistency is everything for investor confidence in this space. When absolute return funds don’t deliver on their absolute return mandate then that confidence is very quickly evaporated and you can see assets flow out very quickly because of it.”
Richard Buxton goes off the radar
The Gear duo are not alone in needing to bounce back from a period of underperformance.
Merian UK Alpha manager Richard Buxton, who led the OMGI spin-out from Quilter when he was then CEO of the firm, has “gone off the radar”, said Hughes.
“That fund has gone from pretty much a household favourite for UK equity exposure to to one where he got quite a few calls wrong on the broader economy and Brexit in particular. That’s led to some pretty consistent underperformance of the sector.”
Buxton was optimistic on the UK outlook after the 2017 election and remained positive into 2018 predicting UK GDP growth of 2%. It instead came in at 1.4%.
Over a five-year period, the Merian UK Alpha fund has returned 30% compared to the 37% average in the IA UK All Companies sector.
Merian UK Alpha performance
|Merian UK Alpha||13.89||21.02||30.04|
|FTSE All Share||9.40||17.53||35.42|
|IA UK All Companies||13.26||19.47||37.00|
Source: FE Fundinfo
When TA Associates acquired Merian in June 2018, assets under management were £2.1bn compared to £1.7bn today, according to FE Fundinfo.
The £982m Jupiter UK Growth fund, which is managed by Steve Davies and returning just 3.2% over five years, is an obvious candidate to merge with Buxton’s fund, he said.
Capacity issues drive investors away from UK small and mid-cap funds
Even top-quartile managers Dan Nickols and Richard Watts must overcome capacity concerns dogging their respective £1.4bn UK Smaller Companies fund and £3.6bn UK Mid Cap fund.
“We’ve had some pretty honest conversations with them about our view of capacity and liquidity,” Hughes said. In the aftermath of the Woodford Equity Income suspension, the Merian small and mid-cap raised £100m via its investment trust, Merian Chrysalis, to offload unquoted companies from its open-ended range.
Despite strong performance, assets have remained level in the period since the TA Associates acquisition, which Hughes attributed to investor concerns over capacity.
Both are top-quartile over a five-year period, returning 102.9% and 80.8% respectively.
Merian UK Mid Cap performance
|Merian UK Mid Cap||26.46||31.65||80.79|
|IA UK All Companies sector||13.26||19.47||37.00|