Jupiter dumps Starling Bank and rules out unlisted stocks

Jupiter Asset Management has sold its stake in digital bank Starling and has created a policy to stop its open-ended funds buying into private companies to reduce risks for investors.

The fund group has signed a deal with institutional investors to offload its stake in Starling, according to a letter from Jupiter to its clients seen by the FT. The stake amounts to 6 per cent of the £1bn Jupiter UK Mid Cap fund. Jupiter also holds Starling in a small number of its other products.

The buyers of the Starling stake are existing shareholders of the digital bank, including the investment trust Chrysalis. Starling was worth about £2.5bn in its last funding round in April 2022 but the period since has been a difficult one for technology stocks — the valuation of unlisted companies, including payments businesses like Klarna, have suffered as interest rates rose and investors retrenched.

Chrysalis said in a statement on Tuesday evening that it has agreed to purchase £20mn of equity, accounting for 15 per cent of the fund’s total investments. Starling is also backed by Goldman Sachs, the Qatar Investment Authority and investment manager Fidelity, among others.

Jupiter and Starling declined to comment.

Matt Beesley, chief executive of Jupiter, said in the letter to clients that “as a result of the sustained market volatility we have experienced in recent years it is also clear to us that investor sentiment towards holding unlisted assets in open-ended funds has changed.”

As a result, Jupiter said it would no longer allow its open-ended funds to make new investments in unlisted companies, which are harder to trade than businesses listed on a stock exchange. This is intended to protect investors from being overly exposed to unlisted companies during a market sell-off.

Beesley said: “While we do still retain very small stakes in a minimal number of other unlisted assets, we will prudently manage these exposures over time with a view to generating maximum value for our clients.”

Fund groups tend to have a limit on the value of unlisted holdings in a fund, which in the case of Jupiter’s UK Mid Cap fund has been 10 per cent.

Starling, which was founded in 2014 by Anne Boden, is likely to be a beneficiary of the rising interest rate environment, along with other UK retail banks. However, it has come under the spotlight for its exposure to government-backed bounce back loans amid concerns that borrowers might fail to repay.

Chrysalis, in which Jupiter has a stake, has had a difficult run as a result of tumbling valuations in some of the companies it holds, such as Klarna. The investment trust said last week that its net asset value had fallen 13 per cent in the final quarter of last year.

Boden has previously said that she hoped to float Starling Bank within the next couple of years. The app-based bank offers current accounts to individual and business customers and grew its loan book during the pandemic largely through the emergency Covid lending scheme.

The bank has attempted to broaden its loan book by acquiring Fleet Mortgages and home-loan portfolios from other lenders including Kensington Mortgages.

Starling noted last month that pre-tax profit would reach £250mn for 2023 on revenues of about £600mn.