Some big time fund managers have been under the pump but James Dunn reckons he has snagged two worth a punt on. Listed funds compete in a tough environment and investment performance hits or helps funds under management (FUM), which determines fees, profits and share prices.
Here are two funds management businesses, apparently going in different directions on the FUM scale; but both might be interesting buying opportunities.
- Regal Partners (RPL, $3.21)
Market capitalisation: $826 million
12-month total return: 26.2%
Three-year total return: –15.1% a year
Estimated FY25 dividend yield: 6% fully franked (grossed-up, 8.5%)
Analysts’ consensus valuation: $4.50 (Stock Doctor/Refinitiv, five analysts)
Regal Partners, the former RPL Partners, listed on the Australian Securities Exchange (ASX) in June 2019. The company has grown massively since brothers Phil and Andrew King set it up in 2004, particularly in recent years: RPL has acquired $9.5 billion of FUM since June 2022, to reach $15.1 billion.
The biggest growth factors have been the merger of Regal and listed long-short global equity investor VGI Partners in mid-2022, which brought with it $2.5 billion in FUM; the acquisition of the $2.7 billion manager PM Capital in November 2023; and the just-completed acquisition of Melbourne private credit lender Merricks Capital, which brought with it $2.9 billion of assets.
Along the way, Phil King has become one of the most famous names in Australian investing, and the combined Regal-VGI powerhouse has become a diversified asset manager that has a major focus on the fastest-growing sector of the global asset management industry – ‘alternative’ assets, which are considered to be asset classes that are not strongly correlated (or even better, uncorrelated) with movements on the global share and bond markets.
The group invests, on behalf of institutions, family offices, charitable groups and private investors, in a broad range of investment strategies covering global shares, resources royalties, small companies, private credit (in which RPL lends to private companies), the market-neutral hedge-fund strategy, a long-short strategy in healthcare, global ‘alpha’ (out-performance of market indices) and water. But all up, there are 16 discrete investment strategies managed by seven global investment management businesses under the Regal Partners umbrella, with most of the investments made in the Asia-Pacific region.
About half of RPL’s portfolios are ‘liquid’ strategies (that can be easily sold, such as listed shares), with the remainder being more traditional alternatives (credit, royalties, ‘real’ assets such as property and commodities). Two of the most recent additions are the resources royalties strategy, added in 2022 (and which now holds 18% of assets), and the water strategy, which was added via its acquisition of farm and water asset manager Kilter Rural in 2019. Regal also picked up energy and environmental commodities fund manager Attunga Capital in 2021.
After the Merricks Capital acquisition, the private credit/royalties segment – which can be thought of as alternative cashflows – has swelled to about half of the enlarged company’s FUM, almost matching equities. Performance fees (additional to standard management fees) made up about 22% of revenue last year.
It is a vastly different business than it was just a few years ago, when it was equities-based and Phil King was the star stock-picker: although the ‘key person’ risk has been lessened by the diversification, King remains very important to the business. Following the merger with VGI – after which VGI investors own 33.3% of the merged Regal Partners – Phil King owns 21% of the business, with former VGI founder and managing director Robert Luciano owning 19.4%, and VGI’s former co-chief investment officer Doug Tynan (now running his own funds management firm, GCQ Funds Management) holding 5.1%.
RPL is arguably the best-positioned listed Australian funds management group, on the back of the strong tailwinds for the asset management industry in general, and the favourable outlook for alternative asset managers as investors look to diversify more broadly. In the alternatives sector, investors are prepared to pay for outperformance, and management fees are thus not under the same pressure that prevails in much of the broader asset management industry, in which investors are increasingly opting for very cheap ‘passive’ strategies that simply offer index performance.
The Australian share market has generally not picked up on the Regal Partners story, and although the stock has performed well in the last 12 months, the analysts who follow it see plenty of room for growth from the current price. RPL really looks like one of the best prospects on the ASX, with an analysts’ consensus price target implying price appreciation of more than 40% from here – the outlier is Morgans, with a price target of $4.70 – and there is also the prospect of burgeoning fee income flowing into a very lucrative prospective dividend yield, too, to augment the total-return argument.
- Platinum Asset Management (PTM, $1.04)
Market capitalisation: $605 million
12-month total return: –34.2%
Three-year total return: –35.3% a year
Estimated FY25 (June) dividend yield: 8.6% fully franked (grossed-up, 12.4%)
Analysts’ consensus valuation: $1.11 (Stock Doctor/Refinitiv, nine analysts)
Seemingly heading in the opposite direction to Regal Partners is Platinum Asset Management, which was a household name among Australian investors long before anyone but investment nerds had heard of Phil King. Platinum Asset Management was formed in March 1994, when Kerr Neilson and Andrew Clifford and a team of five other former BT Funds Management international equities portfolio managers left to form their own investment boutique.
From the start, the Platinum team was highly active, building a very concentrated portfolio of unloved shares. But the firm is not a “value” manager as the term is usually understood, basing its purchases on value, profitability, growth and earnings leverage over time.
Platinum grew steadily after it listed in May 2007. At listing, it had $21.7 billion of funds under management; that amount number peaked at $29.4 billion in May 2015. But the FUM figure has been more than halved, to $13.6 billion at the end of May 2024, savaged by performance issues and change at the top, and public disagreement between the co-founders, Kerr Neilson and Andrew Clifford, which resulted in Clifford stepping down as the fund manager’s chief executive, in August 2023.
Platinum cannot seem to take a trick. In February, when reporting its half-year result, Platinum told investors that a turnaround was both “required” and “underway,” as average FUM for the six months slid 9.1%, causing fee revenue to fall 6.9% for the half-year, to $92.4 million, and underlying net profit to decline by 6.3%, to $37.3 million. But the market liked the detailed turnaround plan, aimed at improving performance and cutting costs, and lifted the share price by almost 16%.
But the very next month, an announcement to the stock exchange that an undisclosed client had pulled a $1.4 billion investment mandate from the struggling firm triggered a 21.5% share price fall.
Platinum is extremely cheap, compared to its listed peers: its 12-month prospective price/earnings (P/E) ratio is only 7.7 times, according to Stock Doctor, versus an industry average of 26.9 times. And its dividend yield is 12.5%, versus an industry average of 4.7%. Those are cheap valuations – but there has been good reason for that.
Platinum is still a brand-name with high recognition; more than 70% of the firm’s FUM is retail. It currently offers nine global funds, four Asian funds, two Japan funds, and three industry-specific strategies focusing on capturing the respective opportunities in the consumer, health care, and technology sectors worldwide, as well as a global transition fund. The stable also offers five ASX-listed vehicles, comprising two listed investment companies (LICs) and three quoted managed funds.
I think a case can be made that Platinum Asset Management has, at long last, turned the corner. Analysts appear to believe so; but they’re not prepared to stretch their price targets very far. There is a healthy dividend yield in prospect as a sweetener, and factoring-in a lower fully franked dividend than the 14 cents PTM paid in FY23: analysts expect, on consensus, 11 cents in FY24 and 9 cents in FY25. But on the share price fall, those flow into relatively high yields.
On balance, though, I don’t think an investor can buy PTM as confidently as they can invest in RPL.
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