Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Negative.
The Negative Outlook reflects Fitch's view that Jupiter's business profile remains sensitive to net fund outflows and market valuation adjustments, which the agency expects to remain under pressure in the current challenging market climate, in turn weakening its financial metrics.
Key Rating Drivers
Small Versus Peers: Jupiter's IDR reflects its well-established
Jupiter's AuM of
Increasing Institutional Share: One of management's key strategic aims is to increase geographical diversification and to grow the proportion of institutional clients. Jupiter has seen some success in this respect with international AuM now comprising 36% and institutional business increasing to 18% at 1H23 from 8% at end-2021. Fitch expects that this will lead to less pressure on net outflows in the medium term but it could also lead to a more volatile flow pattern due to the larger size of individual institutional mandates.
Greater but Still Limited Diversification: The 2020 acquisition of
Sound Risk Controls: Fitch views Jupiter's risk controls as robust, with sophisticated risk management systems in place. Nevertheless, its fund managers adopt a high conviction approach, which can lead to both fund performance and seed investment performance volatility, increasing Jupiter's risk profile relative to peers'.
In 1H23 52% of its mutual fund AuM delivered above-median performance over three years against their peer group, down from 58% in 2021. Individual seed investment exposure can be large but total exposure is managed within a limit of
Decreasing Profitability: Profitability has been on a declining trend with the fee-related EBITDA margin falling to 22% for 2022 from 30% for 2021, largely a result of declining average AuM.
Jupiter has a significant proportion of variable costs, which can protect margins and management have been undertaking a restructuring exercise to cut the cost base to bolster profitability. We expect these measures should start to make a positive impact on profitability, but it will also depend on AuM growth driving management fees.
Modest Debt: Jupiter's only drawn debt is
Healthy Capital Surplus: Management conducts regulatory capital assessments as well as capital and liquidity stress testing via the annual ICARA process under the new
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Renewed net outflows, particularly in relation to new strategies, or erosion of margins beyond that naturally accompanying a greater proportion of institutional business, weakening our assessment of its 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
The Outlook could be revised back to Stable if we see a sustained trend of net inflows leading to a stabilisation of Jupiter's AuM alongside fee-related EBITDA margin of 20% or higher
An upgrade is unlikely in the medium term unless Jupiter sees a material increase in overall scale and geographic or asset-class diversification, leading Fitch to revise upwards its assessment of its company profile
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Jupiter's
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The subordinated notes' rating is primarily sensitive to a change in Jupiter's Long-Term IDR, from which it is notched.
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
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
(C) 2023 Electronic News Publishing, source