The Board of Jupiter US Smaller Companies (JUS) has announced that it intends to appoint Brown Advisory as the Company’s investment manager. Brown Advisory will manage the Company using its US Small-Cap Growth Strategy, which invests primarily in the shares of small US companies possessing above-average growth potential. The appointment is subject to the satisfaction of a number of conditions (detailed below), but it is currently anticipated that the appointment of Brown Advisory will become effective on or before 1 April 2021, which is when the current lead manager, Robert Siddles of Jupiter, is expected to retire.
Christopher Berrier, who has more than 20 years of investment experience, will take over as lead manager. He is supported by George Sakellaris, who has worked closely with Chris since joining Brown Advisory in 2014, as well as a 30-strong experienced team of equity research analysts. As part of the move, JUS will benefit from a lower management fee structure (see details below) which the board says should result in a lower ongoing costs ratio for the company. There will also be a management fee waiver from Brown, until 1 April 2021, to avoid any double-charging of management fees, together with a contribution by Brown to cover all of the Company’s costs of transition. Subject to shareholder approval, it is intended that the Company’s name will be changed to Brown Advisory US Smaller Companies PLC.
Comments Gordon Grender, the chairman of Jupiter US Smaller Companies
“I am delighted to announce that Brown Advisory has agreed to become the Company’s new investment manager. The Board undertook a very comprehensive manager selection process and we believe that the Brown U.S. Small Cap Growth Strategy, with an impressively long track record and annualised returns of 14.5% over 10 years stood out in a highly competitive field. We believe that the appointment of Brown should lead to strong performance, a narrower discount and ultimately the ability to grow the Company over time.”
Comments Logie Fitzwilliams, Head of International Business at Brown Advisory
“We are very much looking forward to taking on this investment management mandate. Brown Advisory has a strong track record of successfully investing in US smaller companies, stretching back more than 27 years. We are confident that current and future shareholders will benefit from our established and high-performing investment philosophy and process, supported by our deep US expertise and investment rigour. We are committed to marketing and growing this Trust, and believe our appointment, future performance and a committed marketing strategy can help narrow the discount and drive shareholder value.”
Background to the appointment of Brown Advisory
On 8 October 2020 the Board of JUS announced that it had been advised by the existing investment manager, Jupiter Asset Management Limited (JAM), that Robert Siddles, the fund manager of the Company since 2001, had, for family reasons, decided to retire with effect from April 2021. As a result of this, the Board decided to undertake a review of alternative options for the management of the Company and conducted a comprehensive selection process of those managers who had the requisite ability to manage the Company. Following this process, the Board has concluded that it is in the best interests of shareholders to appoint Brown Advisory as the new investment manager of the Company.
Who is Brown Advisory?
Brown Advisory is an independent investment firm with AUM of over $100 billion from clients in all 50 US states and 39 countries worldwide. The firm has over 700 full-time employees, each with an equity interest in the firm, collectively owning approximately 70% of the firm. Brown Advisory has managed active equity strategies since its inception in 1993 with various flagship strategies, including the US Small-Cap Growth Strategy. JUS’s board says that adoption of this strategy would offer current and future shareholders access to a well-established and high-performing philosophy and process, supported by the depth, expertise and investment rigour of the firm, which has a proven track record of successfully investing in US smaller companies for over 27 years.
The Brown Advisory US Small-Cap Growth Strategy
The Brown Advisory US Small-Cap Growth Strategy invests primarily in the shares of small US companies possessing above-average growth potential. JUS says that the Strategy’s investment team employs a disciplined, long-term investment philosophy based on a careful analysis of business fundamentals relative to the price of the security, seeking to own sound businesses at attractive prices where our view of the world differs from that of the consensus. Underpinning this philosophy are three core tenets:
- to think and act differently;
- to exploit inefficiencies;
- and to focus on businesses that possess three qualities in particular:
- durable growth,
- sound governance, and
- scalable go-to-market strategies.
Disciplined, bottom-up research is the foundation of the Strategy’s strong risk-adjusted returns.
Christopher Berrier to be the new lead manager
JUS’s portfolio will be managed by Christopher Berrier, who has more than 20 years of investment experience, 15 years of which have been with Brown Advisory. Christopher is based in Brown Advisory’s Baltimore office and is supported by associate portfolio manager George Sakellaris, who has worked closely with Chris since joining Brown Advisory in 2014, as well as a 30-strong experienced team of equity research analysts.
Benefits to Shareholders
The Board believes that the change in Investment Manager will provide the following key benefits to Shareholders:
- Access to Brown Advisory’s 50 person US-based investment team, including the experienced portfolio managers of one of the firm’s flagship equity strategies with a proven, sustainable long-term track record in investing in US smaller companies.
- Access to a Strategy which has generated annualised returns net of fees to 30 November 2020 of 14.5% over 10 years, 15.3% over 5 years and 16.7% over 3 years, compared to the Russell 2000 Index return of 10.7%, 9.8% and 6.8% respectively, and is ideally positioned to address the Company’s investment objective of “long-term capital growth for shareholders from a diversified portfolio primarily of quoted US smaller and medium sized companies”.
- A fundamental, bottom-up approach that is benchmark- and sector-agnostic, with a concentrated selection of 50 to 80 companies representing the Brown Advisory investment team’s best thinking and analysis, which strives to exploit market inefficiencies in the US small-cap universe with a long-term investment horizon.
- Potential for narrowing of the discount to NAV at which the Company’s shares trade as a result of Brown Advisory’s long-term performance track record and a commitment by Brown Advisory to focus on marketing the Company as the only closed-ended way of investing in this Strategy.
- A lower management fee structure (see details below) with competitive fixed costs resulting in a lower ongoing costs ratio for the Company.
- Management fee waiver until 1 April 2021 to avoid any double-charging of management fees together with a contribution by Brown to cover all of the Company’s costs of transition.
FundRock Partners Limited to be appointed as the AIFM and company secretary
FundRock Partners Limited will be appointed as the AIFM and the Company Secretary and will work alongside the new Investment Manager. FundRock has an established investment trust business and presents the Board with the added advantage of an existing close partnership with JPMorgan’s depositary, custody and administration services, which will be kept in place. Subject to shareholder approval, the Company’s name will be changed to Brown Advisory US Smaller Companies PLC.
Conditions to be satisfied
Under the Heads of Terms, the formal appointment of Brown Advisory as the Company’s investment manager is conditional upon the satisfaction of a number of conditions, including: (i) the passing of the Company’s continuation vote, (ii) the entry into a new IMA with Brown Advisory, and (iii) approval by the FCA and appointment of FundRock as the Company’s AIFM.
New fee arrangements
Under the terms of the proposed AIFM Agreement and Portfolio Management Agreement, Brown Advisory and FundRock will be paid fees equal to 0.70 per cent. per annum of the Company’s net assets on the first £200 million, reducing to 0.60 per cent. per annum on the next £300 million of net assets and 0.50 per cent. per annum above £500 million net assets. It is proposed that Brown Advisory’s appointment will be for an initial term of 12 months and may thereafter be terminated by either party giving 6 months’ notice.