Several negative events affecting ASX-listed asset managers reinforce Morningstar’s assessment.
In a statement to InvestorDaily, equity analyst Shaun Ler noted that boutique managers face higher redemption risks compared to “moaty” asset managers like Pinnacle Investment Management.
Ler highlighted several challenges, including inconsistent group-level performance, limited product diversification, and risks stemming from a concentration of key personnel.
“Platinum is a case in point, having experienced net outflows in eight of the past 10 years, even after excluding distributions,” Ler said.
His comments follow Platinum’s announcement on Monday that Regal’s planned acquisition was terminated, an event Ler believes has “likely” been exacerbated by ongoing net outflows at Platinum over the past two months.
“This dashed hopes for shareholders seeking a favourable exit,” he said.
On the same day, GQG announced its funds under management (FUM) remained reasonably steady in November, after the fund manager’s share price plunged by as much as 20 per cent following the news that executives of Adani – a key holding of GQG – were charged with alleged bribery in the US.
While GQG’s November FUM remained flat, after dropping in October, Ler said this is “rare in the firm’s history” and indicates some client redemptions.
“We reduce our fair value estimate for GQG, reflecting weaker near- to medium-term net flow expectations,” the equity analyst said.
“We anticipate elevated gross redemptions in the short term, driven by weaker near-term performance and some reputational setback. However, these events are unlikely to impair GQG’s ability to gather new client funds.”
For Platinum, Ler also announced a reduction in the firm’s fair value estimate, reflecting its newly announced 0.20 cents per share special dividend, funded by its cash and investment assets.
“The dividend, with a cut-off date of December 12, 2024, was likely introduced to appease investors after the failed Regal acquisition,” Ler said.
Earlier this year, Ler told InvestorDaily that while upcoming rate cuts may offer short-term relief to asset managers, the sector faces long-term challenges from high interest rates, with underperforming funds at risk of closure and ongoing consolidation likely through mergers and acquisitions.
He also cautioned fund managers pursuing mergers, noting that “not all fund manager consolidations have gone smoothly”.
Citing Perpetual’s 2023 acquisition of Pendal as an example, Ler argued that the similarity in investment styles and products between the two firms hindered value creation.
He stressed that successful mergers require complementary differences, such as distinct asset classes, distribution teams and investment strategies, to generate revenue synergies and cost efficiencies.
