According to a recent report by research house Morningstar, Platinum Asset Management underperformed its benchmark and saw a fall of $533 million in funds under management in June 2018.
“Half of the company’s FUM sits in the flagship Platinum International Fund, which declined 1.3 per cent in June, in stark contrast to its benchmark, the MSCI World Index, which advanced 1.4 per cent for the month.
“The A$533 million fall in FUM this month was largely due to investment underperformance as Chinese stock markets wobbled on the back of trade and domestic economy-based fears,” the report said.
On 11 July, UBS analysts stated that Chinese equities had taken a hit after US President Donald Trump announced 25 per cent tariffs on $50 billion worth of Chinese goods in mid-June.
The Morningstar report noted that about a quarter of Platinum’s flagship fund was weighted towards Chinese stocks, and that its two biggest holdings — Samsung and Glencore — “underperformed materially” in June.
“As China continues to experience growing pains synonymous with a transitioning developing economy, we continue to expect erratic performance over our forecast period.”
More generally, there were other headwinds that could also be affecting Platinum Asset Management.
“The industry continues to face challenges, including the trend away from active and towards passive management. Poor performance and great pressure on fees threaten to harm profitability.”
A further risk would be a fall in investor appetite for global equities, given that Platinum’s funds were “relatively concentrated” in a handful of strategies.
“The concentration presents an elevated risk of fund outflow in the event of poor performance.”
But despite fee pressure and regulatory headwinds, Morningstar analysts also said it maintained its “positive” view of Platinum’s long-term FUM growth, with Asia’s growth trajectory to also buoy Platinum over the long-term.
“We expect Platinum will be relatively unscathed being a niche fund manager with a strong long-term investment performance track record, absolute return focus, enduring brand, and lack of allegiance to any one dealer or financial planning group.”
“We see Platinum’s long-term outperformance as difficult to replicate, supporting the strong brand and underlying the firm’s competitive advantages in the challenging market,” the report said.
“Notwithstanding the high payout ratio, we are confident that balance sheet cash will continue to grow, enabling attractive dividends despite potential earnings volatility.”
Furthermore, the stepping down of Kerr Neilson as Platinum’s chief executive had only served to “lower key-man risk” as the fund manager had a “rigorous” investment process that was “team oriented”.
