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Pinnacle’s strategic moves position firm for profitability amid market caution, says analyst

By Maja Garaca Djurdjevic
3 minute read

In assessing Pinnacle’s recent performance and future outlook, an analyst said it’s evident that the company is on a solid growth trajectory.

Earlier this year, the firm announced that funds under management had surpassed $100 billion in the first half, marking an increase of $8.2 billion from June 2023. Despite this milestone, the firm maintains a “cautiously optimistic” outlook for the upcoming half.

A couple of months later, Pinnacle announced it plans to launch a new affiliate from a team departing Royal London Asset Management (RLAM).

In a note assessing Pinnacle’s value, Shaun Ler, equity analyst at Morningstar, gave Pinnacle the ultimate compliment, noting it remains a standout among active asset managers.

“We marginally lift our fair value estimate for narrow-moat Pinnacle to $11.30 per share from $11.00, reflecting stronger-than-expected net inflows. Strong relative performance and ongoing expansion of its product range and distribution footprint helped the firm attract robust client funds over the 10 months to April 2024 amid global investor caution toward risk assets,” Ler said.

“The increase in our fair value estimate to $11.30 per share reflects not just the company’s past achievements but also its promising prospects in the investment landscape.”

Looking ahead, Ler said Pinnacle is well-positioned to capture market share from its active peers and achieve medium-term margin expansion. The anticipated growth in earnings per share, driven by increasing funds under management, controlled fee margin compression, and operational efficiencies as affiliates grow, Ler said highlights the company’s potential for sustained profitability.

“Pinnacle’s strong investment performance and competitive fees augur well for future business wins. A focus on increasing stickier, higher-margin FUM – notably through expanding its private markets offerings and broadening distribution among retail, wholesale, and international clients – is expected to mitigate downside risks from industrywide fee compression,” the analyst said.

“Additionally, the increasing number of Pinnacle strategies capable of generating performance fees supports revenue growth if affiliates continue to outperform benchmarks … These factors underpin our expectation for Pinnacle to increase earnings faster than other mature, poorer-performing asset managers.”

Aside from its focus on expanding its private markets offerings and diversifying its client base, Ler said the addition of a new affiliate, led by global equities manager Peter Rutter, is a significant development that enhances Pinnacle’s global equities exposure and opens up opportunities for revenue synergies through cross-selling.

“Morningstar Manager Research has noted that while at Royal London, Rutter’s team has adopted a diversified approach that aims to outperform benchmarks across multiple market environments,” Ler said.

“This contrasts with some other Pinnacle equity managers that may underperform in certain market cycles due to their relatively specific investment styles.”

Ultimately, Ler said Pinnacle’s business fundamentals remain strong, with a track record of outperforming benchmarks and a strategic focus on higher-margin segments.