The all-cap value strategy recently marked the three-year anniversary and has generated a gross return of 123% in USD1 since its inception in November 2022 through February 2026.
Strategy track record
Feb-25 Feb-26 | Feb-24 Feb-25 | Feb-23 Feb-24 | ||
Jupiter Global All Cap Value Strategy | 42.35 | 6.24 | 18.09 | |
MSCI ACWI Value NR USD | 25.27 | 14.41 | 12.73 | |
MSCI ACWI NR USD | 24.19 | 15.06 | 23.15 |
Past performance does not predict future returns. Brian McCormick managed the Merlin Monthly Income Select Fund- Cash Equity Sleeve from 03.11.22 to 29.02.2024 and started managing the Jupiter Global Value Fund (SICAV) from 01.03.24. The performance figure for the Merlin Monthly Income Select Fund- Cash Equity Sleeve is shown as a representation of Brian’s experience and is not indicative of any future performance. The strategy used for the Merlin Monthly Income Select Fund- Cash Equity Sleeve may not be representative of the strategy used for any subsequent or future funds. Jupiter Global Value D USD Acc from 01.03.24 – present. Source: Morningstar, USD, bid to bid, net income reinvested 31.01.2026 . The Merlin Monthly Income Select Fund – Cash Equity Sleeve 03.11.22 to 29.02.2024. Source: Aladdin, USD, gross of fees for the period 03 11.22 to 29.02.2024.
The strategy remains focused on buying good assets when they are trading at low prices, and taking a conservative approach to risk:
- Tilting our capital towards businesses with strong balance sheets (preferably net cash)
- Tilting our capital towards businesses run by people with skin in the game (founder/family owners), and
- Diversifying our capital across fundamental risks and exposures to ensure that we are comfortable.
Followers of the strategy will know that CAPM (the capital asset pricing model) should be held in low regard, but the strategy has maintained a Beta well below 1 over that period. Today various estimates of Beta range from 0.55-0.71x.
Turnover has been above expectations recently in part because many of our investments (including 3 of our Top 10) have been bid for or successfully acquired.
- WK Kellogg, our North American cereals business, has been acquired by Ferrero.
- Paramount Group, our US Real Estate firm, has recently announced a bid from Rithm Capital.
- Catalana, our Spanish insurance group, has been bid for by the Serra family.
- Svitzer, our tugboat holding was acquired by the Maersk family.
- And one of our smallest investments, Mandarin Oriental, has been bid for by one of our largest investments, Jardine Matheson.
Our holding in Nissan saw an approach from Honda (which unfortunately went nowhere), and more recently our small stake in the troubled ad agency WPP is rumoured to be on the shopping list of Accenture (though separating the good bits from the bad bits may be too difficult for a deal to work)2.
As mentioned in previous updates, one of those bids came as a result of our active engagement, and two of the successful bids saw us engage lawyers in the US as we believe our shares were purchased for an inappropriately low price. The capital we received from these bids has been reinvested into a collection of undervalued businesses, the most recent of which have been Shimano (c.35% of the firm’s market value now lies in net cash), Suntory Beverage (changed its tune on minority shareholders and signalled that buybacks may be in store), and Nedbank (has come through a corporate credit cycle and yields a 9% dividend on a low multiple of what should be a reasonable book value).
The state of the place
Momentum-chasing has once again reached dot-com–era extremes. For example, we noted with interest that Korean chicken stocks bounced after Jensen Huang (Nvidia CEO) was pictured eating at a Korean chicken shop.3 That kind of reaction suggests to us a speculative bubble around tech and AI.
Below is the chart that shows the EV/Sales for the MSCI World, Growth and Value indices going back to the mid-90s. To refresh on the logic: at some point there should be a relationship between how much you pay for a large company and how much stuff they sell to their customers.
This time isn’t different
EV to sales of MSCI growth and value indices (1995-2021)
History did rhyme, and the Growth index de-rated in short order from the froth of 2021. But memories of that level of capital-destruction faded quickly. The Spacs and Pelotons of the world have been replaced with a new group of high-multiple stocks with AI or quantum narratives. Below is the updated chart. Here we go again.
Updated EV to sales
AI spend looks frothy
Signs of froth are everywhere: OpenAI, with $20bn of trailing run-rate revenues, has announced over $1.4tn of relatively short-term funding commitments. Although OpenAI’s product is wonderful and growing like a weed, a company with $20bn of revenues cannot credibly commit to short-term spending of $1.4tn that they do not have.
It has since been announced that in the very short term this funding will come from NVIDIA - a circular movement of capital that sees NVIDIA invest in OpenAI, which pays Oracle to buy NVIDIA chips. That should raise eyebrows for even the most bullish of these company’s acolytes.
So too should their announcement of a $25bn data centre investment in Argentina, a country famous for its dysfunctional energy system. The timing of OpenAI’s generous foreign direct investment pledge alongside US Treasury Secretary Scott Bessent's currency swap to support Argentina President Javier Milei seemed very odd indeed. Shortly after though, that coincidence seemed less coincidental: OpenAI’s CFO implied that the US government should underwrite their rapidly growing list of commitments. Government guarantee negotiations have since been strenuously denied by both sides - then rebranded as discussions of strategic AI asset investment.
Musk’s pay deal
If we add NVIDIA+Palantir+Tesla together we have 7% of benchmark global equity savings (which is now most global equity savings). That we live in a world where most people are unwittingly handing over a significant portion of their monthly savings to directly fuel this mania is bizarre, in our view. Amidst the speculative froth, Tesla has agreed a pay deal for CEO Elon Musk so egregious that he could personally buy the entire German and Japanese auto-sectors combined if it paid out.4 Of course, some will argue that that Tesla’s value (at 1.6% of global equity savings) lies in product lines and services they don’t yet sell, so any autos comparison for this auto company is naïve.
The hit to most Americans from a normalisation in equity valuations will likely be very painful: equity market allocations are now more meaningful to US household net wealth than real estate (home equity) was in the last major cycle.
But the more systemic risk to confidence, and the US financial system more generally, perhaps lies in the more mundane world of US life insurance and pension buyouts.
Bag holder or bag holder-squared? Turning liabilities into assets
No-one should get any points for spotting the risk that Mom & Pop investors will become the bag-holders to private-equiteers as they attempt to offload their assets with prices/leverage/fees that sophisticated institutions have dismissed as unattractive. Restrictions on selling opaque, complex and high-fee investments to unsophisticated investors have developed over multiple cycles for very good reason. The profit margin on selling magic beans to the financially illiterate tends towards 100%, so protections and safeguards need to be in place. The opportunity for trusted intermediaries in private markets is huge, but the risk of malfeasance is even huger (to echo the man holding the nuclear launch codes).
That regulators are ditching many of those protections in favour of lobbyists after the cycle has turned is quite striking. Private valuations are today demonstrably overstated: if your private assets routinely trade at a 20% discount to NAV in the secondary market, then the NAV is $0.80 not $1.00. What is NAV if not the value of an asset marked to market pricing, and what is the market pricing if not the level agreed between buyer and seller?
Pension funds at risk?
But for systemic risk today we need to look at an area of the market where Mom & Pop investors don’t get to choose where their capital is going. To buy out a defined benefit pension scheme, you basically say to the trustees of a corporate pension scheme:
‘Wouldn’t it be better if you weren’t on the hook for this, and the legacy employer doesn’t have to keep any liabilities on its balance sheet. Hand that pension scheme over to us, we’re a regulated entity and have a good rubber stamp to show you. In fact, given our rubber stamp shows you a pension transfer is close to risk-free, you might breach your fiduciary duties if you don’t transfer the risk away.’
So far, so reasonable. And if the rubber stamp is a true reflection of financial soundness, everybody wins.
But what happens if that rubber-stamped insurance organisation gets bid for by an equity-privateer with a penchant for financial alchemy, and strong short-term incentives to take jam today over jam tomorrow?
Suddenly the assets backing your pension payment, or indeed life insurance policy, look like a very cheap source of funding for related-party deals.
Fear not, says your pension buyout salesperson, the insurance industry is heavily regulated and can’t possibly allocate that capital towards related-party deals! Besides, the solvency requirements in place prevent them from taking undue risk with it! If only…
PE-owned insurers
Complex regulations leave loopholes, and over time the private-equiteers have managed to lever these rubber-stamped organisations to degrees that make 2007 Lehman Bros look prudish. For anyone hoping to improve on Jupiter’s track record at the FT Alphaville quiz, the simple leverage (Assets/Equity) of Lehman in 2007 was 31x (c.$691bn/$22bn). Effective leverage at today’s PE-backed insurance holding-companies reaches well into the triple digits. OK, insurance and bank leverage ratios aren’t apples-to-apples comparisons, but beware anything geared over 100x. So what’s the cheat-sheet to the latest financial alchemy?
Step 1 is familiar. To make use of a regulatory arbitrage you move junk debt around, slice and dice it and call it low risk. Yes, rearranging junk debt, putting acronyms on it and paying a conflicted third-party to give it a gold-star is exactly what happened pre-GFC. Yes, regulations were brought in to prevent it happening again. But crucially those regulations mostly came via ‘Basel 3,’ which applies to banks and not to insurance companies. So the players changed but the game stayed the same.
Step 2 is to set up a related-party reinsurance company out of Bermuda to benefit from some more regulatory arbitrage. This lets you leverage yourself up more than the US regulator would allow and adds a sweetener of tax advantages. But it’s not reinsurance like you might expect. Normal reinsurance works like this: I sell a bunch of UK car insurance, I make some assumptions on how often people crash, but I ask Munich Re (for example) to pay me if everyone in the UK drives worse than anyone was expecting next year. I give Munich Re a fee each year for the coverage, and every now and then they might have to pay out.
This Bermuda structure of captive reinsurance is nothing like that. Here our reinsurance scheme is the name of a related party company into which I can notionally transfer most of the assets and liabilities from my balance sheet. So the liabilities I have to my US pensioners and widows theoretically disappear off to the Bermuda triangle when it comes to reporting my leverage levels, and the US regulator rubber stamps me.
Bermuda, population 64k
Now a glaring problem with transferring your assets and liabilities to Bermuda to benefit from this regulatory arbitrage, is that it would involve transferring your asset to Bermuda. It’s a risky thing to transfer hundreds of billions of dollars to a country with a population of 64 thousand.
But with the right acronyms you don’t need to do that.
ModCos (modified coinsurance) and FWH (funds withheld) are Bermudan insurance jargon for ‘pretending to actually transfer stuff but keeping it in the same place’. Your Bermudan reinsurance company (which you control) agrees to guarantee all the assets and liabilities you tell it to guarantee. It then pretends that it owns them and controls them…but in practical terms, it doesn’t. You keep the assets, you keep control of what they get invested in and you control how they’re managed. But the Bermudan reinsurance company underwrites it – a promise backed primarily by the assets it’s pretending to own but has no ownership or control of. Since the US insurance company can say to the US regulator that these ceded assets and liabilities are guaranteed by a regulated overseas reinsurance company with a good solvency ratio, the US regulator gives them a gold-star.
More laws, less justice
So yes, you are using your own assets and liabilities to guarantee your own assets and liabilities, which is very circular. Yes, that is ridiculous, but from a regulatory perspective it’s all good. As Cicero said, the more laws the less justice. Here, the more regulatory overseers the less regulatory oversight.
This gets dressed up by the Bermudan regulator as being in the interests of the US insurance policyholders because they don’t lose control of their assets; but really it’s just a way of performing alchemy and buying some soluble lifejackets from yourself. To complete the triangle, the US holding company (which owns the US insurance company which owns the Bermuda reinsurance company) either sets up a fund to provide ‘additional’ capital to the reinsurance company, or just outright provides a guarantee to the Bermuda reinsurance company to keep the Bermudan regulator sweet. So A guarantees B which guarantees C which guarantees A…and all claim to be highly capitalised because they’re all guaranteed…but no regulator is then truly responsible for looking at the assets and liabilities on a fully attributable and detailed basis (let alone resourced well enough to do it properly). A few research notes have been written by the Bermudan regulator to explore the systemic risk of this; but this is Bermuda’s business model so don’t hold your breath.
Please note strategy risks:
Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
Derivative risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the strategy's assets.
Charges from capital - Some or all of the strategy's charges are taken from capital. Should there not be sufficient capital growth in the strategy this may cause capital erosion.
Footnotes
1Past performance does not predict future returns.
2https://www.adnews.com.au/news/report-accenture-song-and-wpp-have-started-a-relationship-dance
4CNBC 24.1.26, Musk’s $1 trillion pay package renews focus on rising CEO compensation
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