Investors in the £700mn Jupiter UK Mid Cap fund suffered a writedown on their investment in Starling Bank as the manager scrambled to fullfil a promise to sell the stake in the unquoted challenger bank.
The sale of the Starling Bank shares took place, but the price agreed was lower than the price at which the shares were valued in the fund’s own factsheet, although the the fund made a profit overall on the investment.
Among the buyers of the stake was Jupiter’s own Chrysalis investment trust.
Both funds are managed by Richard Watts, meaning he was technically buyer and seller though FTAdviser understands he recused himself from the negotiations on either side.
In February 2023, as investors generally became wary of investing in early stage unquoted assets, and with a general move against the practice as a result of the Woodford debacle, Jupiter announced the Mid Cap fund would divest itself of all unquoted holdings.
The fund has been hit by outflows over the past year or so, with investors at one stage withdrawing £100mn a month from the fund. It has shrunk in size from £3.7bn in September 2021 to £690mn now.
In performance terms it last lost 33 per cent over the past five years.
When it came to agreeing a valuation for the stake held by the Mid Cap fund, a third party company was hired to do this calculation.
FTAdviser understands the valuation ascribed to the Starling Bank stake by the independent valuer was lower than might otherwise have been the case because Jupiter had signalled to the market it needed to sell in order to meet its commitment to exit unquoted holdings.
FTAdviser understands best practice guidelines for valuing unquoted stakes are called The International Private Equity and Venture Capital Valuation, and these were deployed by Jupiter’s valuation adviser.
The guidelines define the fair value of an investment as being the price that can be achieved during an “orderly transaction”.
But FTAdviser understands the fact Jupiter had signalled its desire to sell meant that achieving an orderly transaction required the stake being sold at a lower price than would otherwise have been the case.
The valuation was controversial in other ways, with Starling Bank chief executive Anne Boden resigning within weeks of the share sale happening, citing a conflict between her role as chief executive and as a shareholder in the bank.
All of the buyers of the Starling Bank shares, including the Chrysalis investment trust, were existing shareholders in the trust. Chyrsalis latest investment amounted to £20mn.
Watts manages both funds, but didn’t have any input on the sale side, with Jupiter’s authorised corporate director and external adviser, Citi, handling the transaction.
On the buy side, the chairman of the Chrysalis trust handled the deal. Investment trusts have independent boards so the chairman of the trust is not a Jupiter employee.
Both Jupiter and Watts personally are substantial shareholders in the Chrysalis investment trust, with FTAdviser previously reporting that Watts and his co-manager received a performance fee for their work on the trust of £60mn, which they agreed to receive in shares, rather than cash.
Jupiter received a performance fee of £50mn, of which just more than half was paid as shares in the investment trust.
The performance of the trust began to decline around the same time as the performance fees were paid, and the trust has since negotiated a different, less generous, agreement with both Jupiter Plc and the individual managers.
FTAdviser understands Watts remains convinced that Starling Bank is a good investment, despite the recent share sale.
Jupiter declined to comment for this article.
david.thorpe@ft.com
