Jupiter Fund Management (JUP) has sold its stake in unlisted digital bank Starling with about a third of the holding in its £1bn UK Mid Cap fund bought by Chrysalis (CHRY ), the group’s struggling closed-end growth capital fund.

In a letter to clients, Jupiter’s new chief executive Matthew Beesley said the asset manager would no longer invest in private companies through its open-ended funds.

‘As a result of the sustained market volatility we have experienced in recent years it is… clear to us that investor sentiment towards holding unlisted assets in open-ended funds has changed,’ said Beesley.

Jupiter’s exit from Starling will see the stake sold to multiple existing shareholders in the coming weeks, he continued.

Chrysalis, which focuses on fast-growing private businesses looking to float and is run by Jupiter UK Mid Cap’s manager Richard Watts with Nick Williamson, announced yesterday afternoon it had agreed to buy £20m of equity in Starling.

The transaction will raise Chrysalis from a 12% to 15% position, the second biggest in the portfolio. 

Its shares rose 3% to 81.5p as the investment company’s board said the valuation of its holding could increase after the transaction.

Jupiter’s investment in Starling, a rapidly growing online business bank, was held in the UK Mid Cap fund, where it was at a 6.5% position at the end of January. The portfolio’s weighting to hard-to-trade private businesses had repeatedly neared the 10% limit set by the regulator last year.

Fellow backers of the digital bank include Goldman Sachs and Qatar’s sovereign wealth fund. It is not clear which other existing shareholders are participating in the deal.

Explaining the change in policy to stop its daily-dealing funds from investing in unquoted stocks, Beesley (below) said other smaller positions, such as UK Mid Cap’s investment in Secret Escapes, would be wound down gradually.

‘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 client.’

Other Jupiter funds which have held Starling include Dan Nickols’ £623m UK Smaller Companies fund.

Jupiter will be hoping the Starling sale and subsequent policy change draw a line under a saga that, on top of illiquidity concerns, has also brought scrutiny to the interplay between Chrysalis and the open-ended funds run by the same UK smaller companies desk. Those concerns have included the divergent valuations at which vehicles have held Starling as well as a furore over performance fees and cross-holdings.

The implied valuation at which Jupiter has offloaded its stake in Starling is unclear. Talks over a deal were first reported in August.

The digital bank, which is profitable month-on-month, was previously valued at around £2.5bn in a funding round last April.

Jupiter’s UK Mid Cap fund sold some of its position at that time. However, the portfolio’s total weighting to unquoted stocks still hit 8.1% at the end of May on the back of investor outflows and sharp losses for the rest of the public equity portfolio.

The valuation of Starling across the open-ended funds has since been written down multiple times in response to market conditions.

Purchases of the UK Mid Cap fund were recently suspended on Fidelity’s retail investor platform.