A potential deal between Platinum Asset Management and L1 Capital may unlock cross-selling benefits but will be unlikely to reverse structural challenges facing active managers, according to Morningstar.
Last week, the two firms announced they are in early-stage discussions regarding a potential merger to create a firm with combined $18 billion in assets under management.
In an ASX statement, Platinum said: “If the potential merger proceeds, the combined shareholders are expected to benefit from greater scale and diversity of investment strategies and distribution channels, as well as access to meaningful cost efficiencies. The merger has the potential to deliver material earnings and value accretion for Platinum shareholders over the near term.”
Commenting on possible benefits of the proposed plan, Morningstar equity analyst Shaun Ler said a merger could indeed unlock value through the elimination of duplicate costs, but structural challenges of active management would still be a problem regardless.
“The proposed merger could unlock some value, mainly through the elimination of duplicate costs. There may also be cross-selling benefits from a larger combined distribution network, although this is difficult to quantify given potential product overlaps and Platinum’s underperformance,” Ler said.
“While the merger would create a larger entity with greater scale, it does not reverse the structural challenges facing traditional active managers like Platinum and L1 – namely, fee pressure and market share loss to passive strategies, such as via ETFs.”
The problems for active managers have been discussed widely in recent years as passive players gain prominence and fund managers are being urged to consider mergers and diversifying their product ranges if they wish to remain competitive.
Looking at the similarities and differences between the two businesses, both are international equity asset managers, but L1 focuses primarily on specialist funds such as long-short equities and hedge funds.
Morningstar also flagged L1 funds have achieved stronger performance and FUM growth in recent years, compared to declines experienced at Platinum. Funds under management at Platinum have declined from $15.4 billion a year ago to $10.2 billion at the end of March 2025, while its flagship $4 billion International Fund has declined from $6.2 billion over the same period.
“While L1 has a more diversified client base, we are sceptical that Platinum’s products – given their poor relative performance – would appeal to L1’s clients. On the other hand, Platinum’s client base is concentrated among retail and advised investors, a highly competitive segment already well served by a wide array of investment options,” it said.
“According to data from Morningstar Direct, several of L1’s retail and wholesale share classes – representing around 40 per cent of its total FUM – have achieved strong growth of between 20 per cent and 70 per cent per year over the past three years.
“This level of growth would be highly unlikely for a poorly performing manager and stands in contrast to Platinum’s persistent FUM contraction over the same period due to weak investment performance.”
