Higher-than-average prices and disruption in the adviser and platform market are among headwinds for Platinum, according to analysts, as the 30-year-old firm announces a two-part turnaround strategy.
Last week, the asset manager’s new CEO Jeff Peters – who joined the firm in January from the US – announced a two-part turnaround plan of reset and growth in a bid to improve the company’s performance.
Launched in 1994 by Kerr Neilson and Andrew Clifford, who both still hold senior roles at the firm, Platinum is one of Australia’s most well-known asset managers with $15 billion in funds under management (FUM).
But in its half-year financial results for the six months to 31 December, it reported a 6.9 per cent decline in fee revenue and 10.8 per cent FUM decline from 30 June 2023. The FUM decline was driven by net outflows of $1.8 billion and negative investment returns of $0.1 billion during the six months.
As such, the turnaround plan includes measures such as alignment of its expense base to current revenue conditions, reviewing its product offering, renewal of client communication strategy, deep examination of its investment platform and reviewing its remuneration framework.
Morningstar previously stated that the firm has “a resistance to making big changes”, but noted it has been making incremental ones such as lowering fees, a new CEO and board changes to adapt to its weakened market standing.
While it welcomed Peters’ announcement of a formal turnaround plan, it said the details “don’t hit the mark” and highlighted multiple factors that could still cause problems to the business.
Shaun Ler, Morningstar equity analyst, said: “We commend Platinum’s announced turnaround plans, but details are still very scarce, and the principles still don’t hit the mark for us. The intended cost reductions don’t seem to be as broad-based as we hoped. We question the need to invest more in business development and distribution now, as they are likely to erode value.
“The outlook for revenue growth is also worse than expected. Net outflows from higher-margin channels were higher than anticipated, leading to faster compression in base fee margins. More broadly, Platinum’s products are priced much higher than peer averages, meaning downside risks of fee compression in the future is higher.”
In August, it forecast material headwinds for the company ahead including competition from global equity managers and passive options, disruption in the adviser and platform market and major institutions such as super fund moving their fund management in-house.
From an investment perspective, it said the firm’s benchmark unaware process could be problematic in achieving consistent performance for clients. Its flagship $5.8 billion Platinum International Fund has returned 5.4 per cent over three years to 31 January versus returns of 11.5 per cent by the MSCI World Index.
“Platinum’s bouts of underperformance in recent years mean it has struggled to consistently grow FUM. This is due to the firm’s benchmark aware investment approach, which produces portfolios and investment returns that often don’t resemble its indexes and can be patchy. The investment team is astute but investors should brace for periods of uneven performance and earnings given the firm’s contrarian investment style and concentrated client cohort.
“Extended outperformance is required to meaningfully grow FUM.”
Without this, it forecast net outflows of 12 per cent of FUM per year over the next five years, although redemptions could be offset by positive market performance.
