Having raised £250m with launch of two retail funds, group is looking to use strategies which made Jupiter a success
There is more coverage of New Star Investment Management than any fledgling retail group with a couple of 'bog standard' funds has a right to. True, the company has been set up by John Duffield, who made Jupiter Investment Management a household name in the 1990s. And the fact that New Star is noisily expanding just as everyone else in the industry is stealthily trying to contract merits some attention.
A lot of interest is driven by the very public acrimony surrounding Duffield's split last year with Jupiter and its parent, German finance house Commerzbank. The deal ended badly and has prompted an unusually public turf war between one-time colleagues. While Jupiter soon proved it could survive life post-Duffield, New Star at first appeared to generate more heat than light.
For the first few months after the split, the company's fortunes and future appeared hostage to the ongoing cat-fight. 'If New Star's strategies orientate too heavily around scoring points off Jupiter, the business may never reach its full potential,' noted BestInvest director Jason Hollands earlier this year.
But the launch of New Star's first two funds in July has given investors their first glimpse of that potential.
An impressive £250m was raised in just 10 days, believed to be a record for a UK launch, and all the more surprising in the current investment climate. Some will say this early success was always on the cards, but public comments made about New Star over the past year suggest such confidence was not universal.
There were doubts about Duffield's ability to put the Jupiter clash behind him and about the strength of his personal motivation and commitment to build another big retail investment house in a highly competitive environment. Critics said the man whose name is invariably linked to words such as 'controversial' or 'irascible' would find it difficult to assemble and retain another team with sufficient depth. Others felt that having secured his personal fortune from two large payouts, Duffield would have lost the hunger ' the 'fire in his belly', as one said ' to tackle life in the markets again, at age 60.
It is already hard to find anyone to repeat those doubts on the record. 'Sure, most people would be happy to retire at the point Duffield has reached,' commented one fund manager. 'But he is passionate about the business. He loves making money, even if he has a lot already. So straight after Jupiter, he jumps in for more.'
Blaze of ambition
Far from wearing him down, the controversy appears to have lit another blaze of ambition. If the media reporting has not been to his taste at times, it has also had its uses. 'It has kept a lot of people entertained and of course it has been free publicity for Duffield at a critical time,' noted one fund consultant.
Expectations of the new enterprise are high precisely because there is a fighting chance that Duffield can repeat his 1990s success story. But is New Star essentially a one-man band, albeit a talented individual? It is taking some time but it is clear the rest of the hand-picked team are strong players too.
On the investment management side, Duffield had a head start when Richard Pease, formerly the manager of the top-performing Jupiter European fund, and Alan Miller, who ran the equally successful Jupiter Special Situations fund, came to New Star with him. He has since hired Toby Thompson from Newton Investment Management, who is due to start in the next few months, and the highly regarded analyst Tim Steer, manager-designate of another UK fund.
The corporate line-up has been constructed with equal care. The highly regarded Mark Skinner was pulled in from Norwich Union, and the equally experienced Rob Page came from Baring Asset Management. With two investment trusts already, the hire of sector specialist Ravi Anand from HSBC points to more in the pipeline, possibly by the autumn.
The choice of corporate financier Howard Covington (ex SG Warburg, Wasserstein Perella) as CEO, confirmed the market's view that acquisitions would feature strongly in New Star's development. Jupiter started with one or two heavyweight acquisitions that propelled it to the top of the league, and the formula appears to be the same for New Star. One of Duffield's first moves was to buy WorldInvest, which had £1bn under management and a strong private-client business.
Covington has a reputation as a man who walks quietly and carries a big stick. New Star was the leading name in the frame when Aberdeen Asset Management, one of Scotland's finest houses, was reputedly in play, and there were strong rumours of 'chats' about the sale of the asset management arm of Royal & Sun Alliance. Nothing came of either, but that has not quelled the speculation.
Duffield has commented that the inevitable consolidation in the investment management industry as the global economic slowdown begins to bite will provide him with exceptional opportunities, both on the investment and corporate fronts.
Sceptics feared he would be tempted into challenging but riskier niche markets. But they have been relieved to see New Star sticking to the area Duffield knows best ' the high-margin retail business.
Clients still want, in Duffield's own words, 'bog standard' products that come up with the goods. They usually get the former but seldom the latter, he says.
For investors, the star attraction of the new company is the managers and the bet that they will be in situ for some time. 'Duffield must have Pease and Miller, at least, pretty securely locked in,' commented one fund manager. 'But I would guess the real tie would be the New Star culture, if it's actually what it's cracked up to be.
'Many managers are fed up with all the supervision in the big investment houses and the clashes of style with foreign owners. Duffield more or less lets his guys operate freely. Many would probably like the call [to join] but few are chosen.'
The refreshing energy associated with the new company is palpable. Instead of the customary blurb about 'difficult markets', New Star has a go-getting approach. 'Our funds are managed for out-and-out capital growth invested entirely on the manager's conviction for an individual stock, with no reference to benchmarks or sector weightings.' In other words, believe or be gone.
This stockpicking style is almost ideally suited to the current market conditions. The managers are free to range up or down the market value scale and across sectors to find outstanding prospects. The funds are substantial already, but still small enough to manoeuvre quickly. All the theory says greatest growth is among newly launched funds, especially those with experienced managers.
Given these advantages, many intermediary firms are prepared to waive their usual insistence on a track record before recommending New Star funds to clients. Among Duffield followers, faith is more powerful than mere fact. There is a sense of riding the tail of a comet, getting in at the beginning of another wonderful creation. They make allowances. 'It's like Tony Blair said of John Prescott after some dust-up: 'That's John for you.' Duffield is a character, and he's made some mistakes. But we think he has learned from them.'
Hype or reality?
So is New Star hyped by an undue focus on Duffield and the twists in the leftover legal wrangle with Jupiter? Almost certainly, but does that matter to the investor who eventually does well in the funds?
The company appears to be dealing with its challenges and selling the new Duffield incarnation. In addition to intermediaries until April 2002, Skandia is the only company distributor of the New Star retail funds ' that restriction seems only to add to its appeal.
The galaxy has changed a bit since Jupiter was born. There are now 130 retail investment houses in the UK; the top 10 have 50% market share. 'New Star missed the Isa season in April when 44% of business with retail investment houses is done,' noted one intermediary. 'There is plenty to catch up. Ten years ago Jupiter Income was virtually the default UK fund. Duffield has some good managers but there are others now equally as good.'
Investors playing the long game are also keeping an eye on the company itself. 'There is no doubt whatsoever that the funds will be successful,' commented a corporate finance executive. 'Duffield will not let it be otherwise. But I already have a European growth fund. What I would like to know is when they will float New Star. That is the really interesting question.'
THE NEW STAR LINE UP
• Duffield founded Jupiter Asset Management in 1985 and built it into one of the UK's most successful retail fund management businesses.
• Within 15 years, Jupiter's funds under management grew to £14bn and it attracted one million investment accounts. In the five years before he left Jupiter it received more than 100 investment awards.
Alan Miller, chief investment officer
• Miller is the former head of the specialist UK investment team at Jupiter Asset Management and a former Jupiter main board director.
• He managed Jupiter's UK Special Situations fund, which under his management achieved top-10 status in its sector between its launch in May 1996 and when he stopped managing the fund on 30 November 2000, beating 202 other funds by turning £1,000 into £2,140, a growth of 114% compared with a sector average of 63%.
Richard Pease, head of European equity management
• He is the former manager of Jupiter Asset Management's high-performing European fund, which under his management achieved number one status in its sector between 31 January 1990 and 29 December 2000, when he stopped managing it.
• During this period he realised an astonishing 462% compared with a sector average of just 281%.
Tim Steer, UK Equity Fund Manager
• He is one of the City's leading small and mid-cap company analysts, having worked for HSBC, Merrill Lynch and Collins Stewart.
• Since 1993, he has consistently been ranked in the top three by analysts surveys carried out by Reuters and Extel.
• In the last Institutional Investor Survey he was ranked first in his sector.
Richard Lewis, European Equity Fund Manager
• Lewis has 15 years' investment experience and joined the WorldInvest team in 1989 from Capel-Cure Myers Capital Management.
• At New Star, his responsibilities will include European market research and stock selection.
Source: New Star Asset Management
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