A vision of the future

As Jupiter Asset Management moves closer to its £50 billion asset target, Joe McGrath asks its head of dealing, Jason McAleer how the traders are helping the business reach its goal.

Jupiter Asset Management is enjoying something of a purple patch at the minute.

Its 2015 first quarter results showed net inflows of £883 million, ensuring total assets under management rose to some £34.8 billion – another step closer to the organisation’s target of £50 billion.

While much of Jupiter’s assets remain retail money in the form of mutual funds or investment trusts, the segregated mandate – or institutional – part of the business is something chief executive Maarten Slendebroek has isolated as a focus for growth.

For the trading team, this has meant a review of processes. Ultimately, the organisation’s pursuit of institutional business has brought its own challenges for those working on the dealing desk.

It is the role of head of dealing Jason McAleer to ensure that the organisation is well equipped to manage new flows and to accommodate institutional clients with very different demands to their retail counterparts.

The trading team at Jupiter consists of three fixed income traders, five equity dealers excluding McAleer, a cash management team of three and separate teams for operations and settlements and derivatives operations.

Speaking to The Trade, McAleer explains: “We have a well-publicised corporate plan to expand assets to £50 billion over the next five years so it is about how we manage the growing pains of larger trade sizes. At the moment, [flows are] predominantly retail, but we are looking to increase the institutional side more.”

In keeping with the business’s anticipated growth in assets under management, the trading team has grown in recent months, with a new junior fixed income trader, who joined from Schroders.

But McAleer says his time is occupied with a much more complex range of challenges than recruitment.

As usual, regulation dogs Jupiter as much as it does any of its corporate rivals. McAleer spends less of his time ‘daily trading’ and more ‘managing the operations’.

He says: “My interaction is with broker relationships: Looking at transaction cost data, monitoring data with compliance, liaising with marketing and institutional business contacts, talking with clients and looking at systems.

“I work with senior management to look at how we allocate the commission spend and I am part of the commission policy group which manages the CSA arrangements.”

As you might expect, McAleer is the point of contact for the fund managers who have questions about research and commission spend. This is an area where there has been quite significant change in the business.

McAleer says: “The way we manage commission spend has evolved over the past 12 months. What we are doing is putting in place a commission governance policy, looking at how we can set our commission budget on a strategy basis.

“Rather than have an individual fund manager budget which could run away with turnover, we are being more precise about where we need research. That needs to be more specific.”

Research and commissions

Jupiter has decided to manage research budgets more strategically looking carefully at asset classes and mandate types. Next on the radar for McAleer is fixed income and work has already begun with external consultants.

The fund group currently uses independent research providers extensively and McAleer says that the Financial Conduct Authority’s last feedback statement on the use of dealing commissions could mean that further revisions are necessary to the corporate policy.

He explains: “We are fairly well-placed with the tools we have. It is going to be difficult if the FCA gets its own way and takes away use of research payment completely. We are going to have to have a fresh look at how much research we consume.

“It is still up in the air but we are waiting for that clarity to come through. The result of the ESMA finding, we hope, is that we have enhanced CSAs. We are looking at CSA aggregators as well to help us operationally to manage spend.

“We don’t have an in-house CSA team that manages all of our money and it can be quite a drain on resource to manage those budgets. Aggregators are well-placed to assist the industry going forward.”

Looking further ahead, the management at Jupiter are looking closely at the impact of changes from regulations such as MIFID II and considering how this might impact the business’s technology.

McAleer says further clarification would enable the business to reposition trading styles, particularly in areas such as fixed income and make it easier to take decisions about tech upgrades.

He explains: “Looking at new systems, we may have to evolve our order management system. Once we have clarity on the market structure in 2017 and beyond, we may to
re-evaluate our trading styles.”

Transaction cost analysis

Last month’s news that Jupiter has changed its third party transaction cost analysis vendor to Bloomberg BTCA caused something of a stir in the industry.

McAleer said that his company felt that the market abuse and fixed income offering from BTCA suited Jupiter’s specific “future business requirements”.

The asset management group changed vendor against a backdrop of its programme to attract more institutional investment mandates.

McAleer told The Trade that the decision to move to Bloomberg came as part of a series of strategic changes in the asset manager’s trading function.

He explained: “We have just switched… to Bloomberg BTCA which [we believe] is a more enhanced model. They have a better offering on fixed income. We like their product and their benchmarking system.”

Part of the changes McAleer has brought in over the past year include a new approach to research payments, in response to changing regulatory thinking and in anticipation of future changes.

He says: “We are putting in place a commission governance policy, looking at how we can set our commission budget on a strategic basis.

“Rather than having an individual fund manager budget which could run away with turnover, we are being more precise about where we need research.”

McAleer says the business is developing this by mandate type, UK Growth, UK Income or Absolute Return, for example.

He says: “Looking forward, there is going to be more of a focus on fixed income. I have done work with outside consultants with how you come up with commission spend on a net turnover figure.

“FX is not really a high priority at the moment. There has been a bit of work on FX TCA but that is not top of the agenda.”

Block trading

The recent TradeTech event in Paris showed that there are mixed views on the numerous trading initiatives which have been launched to assist the buy-side with block trading.

Like many of his industry peers, McAleer is supportive of industry buy-side initiatives that promise to assist with liquidity problems in the market, but he shares concerns of his peers about fragmentation too.

He says: “I hope there are not too many [initiatives]. We have Turquoise and Plato and a few of the larger asset managers may be teaming up but it might be that the mid- and smaller-sized asset managers get excluded.”

He says any new initiatives will inevitably be faced with scepticism from some corners about ownership and whether those members involved will profit in some way.

He concludes: “If there was just one crossing network for the buy-side, that would be fantastic!”