British wealth manager St James’s Place (SJP) has been targeted by activist investor PrimeStone Capital for its failure to deliver meaningful value to shareholders over the last five years due to poor cost management.
PrimeStone, which has a 1.2% stake in the wealth manager valued at £60m, has made the remark after an analysis of SJP over the past year.
Following the assessment, the investor found a “bloated organisational structure” and “high cost culture” caused by excessive hiring and excessive pay.
“There are more than 120 employees with a “head of…” job title. We struggle to understand how SJP can have that many departments to be headed,” PrimeStone said.
The investor also said that the firm’s investment team of more than 100 investment professionals actually do not invest while its technology team is much bigger than that of larger peers.
The investor pointed out at the disappointing share performance of SJP and highlighted that its market capitalisation as a percentage of client funds under management has continuously dropped since 2013.
PrimeStone also pointed out that SJP has a generous compensation policy, with the annual average salary increases consistently 2% to 3% above the national average and a quarter of employees earning over £89,000 annually.
Another cause of concern is the wealth manager’s heavy losses in Asia with little chances of a recovery.
The firm has seen growth in losses every year since taking over The Henley Group in 2014, noted PrimeStone.
Currently, the business accounts for less than 1% of assets though yearly losses stand at £22m.
In this context, PrimeStone feels that SJP’s Asia investment lacks business rationale and believes that pulling plug on the operations can prove to be “highly value accretive”.
The investor said: “Only a lack of attention to shareholder value can explain the continued support given by SJP to this structurally unprofitable activity over so many years.
“At the current level of annualised losses and current valuation multiple, SJP Asia destroys around £400m to £500m of shareholder value or ca. 10% of the current market capitalisation SJP losses in the Asia business have grown every year.”
In response, the wealth manager said that is open to a dialogue with PrimeStone regarding the views highlighted.
The move comes as the firm’s net inflows slumped to £1.44bn in Q3 2020 amid a challenging market, compared to £2.11bn a year ago.
Gross inflows dropped to £3.05bn from £3.74bn.
Funds under management still ended at a record £118.7bn, up x`from £112.82bn.
SJP CEO Andrew Croft said: “Outflows for the quarter were lower than the same period last year as we continued to achieve very strong retention of existing client funds. Over the three months, net inflows were £1.4 billion, taking the year-to-date total to £6.0 billion.
“This is equivalent to 6.8% of opening funds under management on an annualised basis. Funds under management closed the period at a record £118.7 billion, up 1.5% year to-date. This performance highlights the strength and resilience of our business in these more difficult times.”