In troubled waters, fishermen profit. Financial markets are currently experiencing volatile times and, as a result, the power of active management is becoming increasingly relevant. That is the current environment, according to Matthew Beesley, CEO of Jupiter Asset Management, the England-based firm known for its focus on active management and high-conviction strategies. “I think we are in a period that may, in retrospect, be seen as a golden era for active management,” the executive said in an interview with Funds Society.
What has changed? After the advent of quantitative easing, there was a rather “indiscriminate” inflation in asset prices. That context, notes Beesley, made it harder to outperform the broader market. “It was simply about beta trade,” he comments.
After a decade of expansionary monetary policy, that has normalized considerably, the professional explains, with inflation becoming a persistent concern and the rise of geopolitical uncertainty. “Even without wars and challenges, we are also in this period of deglobalization,” he notes, with countries and blocs trying to assert themselves more strongly on the unstable global stage and a “very unpredictable U.S. president.”
The golden era
This is the context in which active management truly shines, according to Jupiter’s CEO. “That creates a very volatile environment, but that is where active managers can really add value,” he says, something that has delivered strong results for the European firm.
Lower correlation between assets, increased dispersion in investment strategy returns, and higher volatility create fertile ground for the sector.
“Market dislocation creates opportunities for agile managers. You don’t have that benefit as a passive investor. That’s why active management can add a lot of value in these times, because you have the ability to take advantage of these short-term opportunities,” in Beesley’s words.
While passive management still has a role to play in portfolio construction, he adds, active investment selection contributes significant value.
Additionally, the main driver of passive management has also leveled out: cost. The price of active management has decreased over the years, he explains, narrowing the cost gap with passive strategies.
Diversification beyond the U.S.
Among different investment strategies, a notable ongoing trend that catches Jupiter’s CEO’s attention is investors’ view on the U.S., a market to which global capital is generally overexposed.
“There are some themes that are consistent across all markets. One is that U.S. equities have become quite expensive, and many people are already well positioned in U.S. equities,” the executive explains. Along these lines, a prevailing trend is to “look at everything that isn’t” that asset class.
This does not mean that investors are withdrawing money from the U.S. stock market, he clarifies. While there was some outflow from the asset class at the beginning of the year, it reversed in March. And it is difficult for the world’s largest economy to lose its privileged place in global portfolios.
However, there has been a reconsideration of portfolio weights: “Many people are overweight U.S. and are questioning whether that is the right decision,” the professional explains.
As a result, more international capital is looking toward Europe and Asia, seeking investments that provide income, both in equities and fixed income.
They have also seen widespread interest in liquid alternatives, driven by the challenges of these two categories. “People want daily liquidity, but they want things that are not correlated with equity or fixed income markets,” he notes.
Jupiter’s formula
In this context, the British asset manager is exploring its future options. While they completely rule out entering passive management—considering that their brand “is built on active management,” Beesley emphasizes—they are interested in the possibility of expanding into new asset classes.
“Everything we do is in liquid public markets,” he comments, but “there may be opportunities in somewhat less liquid public markets.” In that sense, one possibility would be to expand along the risk-liquidity spectrum in fixed income, where instruments such as credit restructuring, defaults, ABS (asset-backed securities), and CDOs, among others, are found.
“There are no plans at the moment,” the firm’s CEO emphasizes, but it is a possibility on their radar. “There are some less liquid fixed income asset classes that could fit quite well within Jupiter,” he adds, pointing to the “gray area” between truly private and truly public markets. “There may be opportunities for us to move there over time,” he says.
Additionally, there is the technology component, which they have been leveraging as a tool for operational efficiency. In this regard, Beesley notes that artificial intelligence will “definitely” help the sector add value for investors.
“We incorporate AI into everything we do, in our teams and investment processes,” including supporting systematic strategies, he says. And while technology is not yet driving revenue growth, it is helping them become more efficient. “We have a statistic that the average Jupiter employee has saved around 42 minutes a day on tasks now handled by AI. It doesn’t sound like much, but it is quite significant,” he explains.
M&A on the horizon?
Jupiter Asset Management has played a fairly active role in the industry’s mergers and acquisitions activity. In recent years, they have acquired two firms: CCLA Investment Management Limited, the asset manager associated with charities and the largest church in the UK, and Origin Asset Management, which manages global funds.
Looking ahead, they remain open to potential acquisition opportunities. “We have excess capital, so we have resources to invest,” Beesley emphasizes, adding that they are “still looking at opportunities to grow our business through M&A.”
While there are no concrete plans on the horizon, Jupiter’s CEO says they are looking at firms “where we can find differentiated investment capabilities or access to markets where we are not yet present,” with niche strategies.
On the other hand, they rule out being sold and becoming part of a larger firm. Many investment companies currently merging, he notes, are seeking to consolidate a scalable operating model to improve their cost base. That is not the case for Jupiter, he adds, so they have no need to be acquired by another asset manager.
By Funds Society, Madrid