Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable.
These rating actions are part of Fitch's global peer review of traditional investment managers (IM).
Key Rating Drivers
Jupiter's IDR reflects its well-established
Low leverage is a strength for Jupiter and profitability is healthy; however, Jupiter has witnessed net outflows over recent years and its retail focus and smaller scale can increase its vulnerability to net outflows versus peers'.
Jupiter is a
The Merian acquisition led to greater diversification of Jupiter's strategies, in particular, alternatives. However, Jupiter's AUM exposure to the
Management also have a strategic aim to expand the institutional client base to 20% of AUM over the medium term from the current 8%. Fitch believes that this will be positive for stability of net flows as Jupiter's retail focus can lead to volatile flows during periods of market uncertainty although the larger-sized institutional mandates can also result in uneven flows.
Fitch views Jupiter's risk controls as robust with sophisticated risk management systems in place. Nevertheless, Jupiter's risk profile is heightened by its high-conviction approach and the high proportion of equities in its AUM mix. Direct market risk is limited and mainly results from Jupiter's seed book exposure (
Net flows have been negative over the past four years at 8.9% on a four-year average basis, which partially reflected one-off developments, such as the departure of a key fund manager in 2019. Nevertheless, the continued net outflows in 2021 highlight Jupiter's vulnerability to its largely retail client base particularly in periods of risk aversion. Positively, new strategies have seen net inflows over the past four years.
Profitability is healthy with the fee-earning EBITDA at around 33% of revenue for 2021. This metric has been decreasing over recent years with a four-year average at around 39%, which is partially due to Merian's lower-margin business as well as general fee pressure seen throughout the industry. We would expect to see continued moderate margin attrition due to the increasing proportion of institutional mandates in the AUM mix but we expect margins to remain healthy. Jupiter also benefits from a significant proportion of variable costs, which can protect margins in the event of revenue declines.
Jupiter's only drawn debt is
Management conduct regulatory capital assessments as well as capital and liquidity stress testing via the annual ICAAP process, which has now moved over to the ICARA process under the new
SUBORDINATED DEBT
Jupiter's
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The inability to stem net outflows of investor money particularly in relation to new strategies, or material erosion of Jupiter's margins that weakens our assessment of business profile;
Inability to execute new strategic objectives aimed at diversifying the business model and growing the institutional investor base
Deviation from Jupiter's current strategy of avoiding leverage within the business (bar the Tier 2 notes)
A major operational loss challenging the robustness of Jupiter's risk-control framework
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Material increase in overall scale and geographic or asset-class diversification, leading Fitch to revise upwards its assessment of Jupiter's company profile.
SUBORDINATED DEBT
The subordinated notes' rating is primarily sensitive to a change in Jupiter's Long-Term IDR, from which it is notched.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
BBB
Affirmed
BBB
subordinated
LT
BBB-
Affirmed
BBB-
Page
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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