Money managers Platinum, L1 Capital set to tie the knot after revising prenup

Platinum Asset Management and L1 Capital are working towards completing their merger within weeks, as one of them continues to bleed funds.

L1 Capital founders and co-chief investment officers Mark Landau (left) and Rafi Lamm.

A bigger player is set to shake up Australia’s investment community.

Platinum Asset Management and L1 Capital have tweaked the commercial terms of their prospective merger as they work towards getting a deal finalised in the coming weeks.

But the tie-up comes as Platinum continues to bleed funds: The deal was originally touted as a $18bn merger between the two investment managers, but since the May 1 announcement, Platinum has already suffered outflows of $2bn.

Following a period of due diligence and discussions, Platinum on Wednesday said L1 Capital shareholders would own 74 per cent of Platinum shares once the merger completes, with existing Platinum shareholders holding the remaining 26 per cent.

In early May, when it first flagged the merger, Platinum had proposed a 75/25 ownership split to get the deal over the line.

There has also been a change in terms of performance fees. The combined entity will now receive participation in performance fees relating to the first 3 per cent of absolute returns (gross performance net of management fees) generated by the L1 Long Short funds, with any excess performance fees on returns above 3 per cent in LSF distributed to existing L1 Capital shareholders. That’s down from the 5 per cent proposed last month.

Platinum Asset Management and L1 Capital are inching closer to finalising their merger.

L1 manages money privately and in ASX-listed invested companies, such as the $2bn L1 Long Short Fund.

In an update to L1 shareholders last week, joint managing director and co-chief investment officer Mark Landau said he and co-founder Raphael Lamm plan to step down as managing directors once the merger completes.

“Rafi and I will not be involved in managing any platinum funds or managing the integration process. That role will be managed by Joel Arber, our chief operations officer,” Mr Landau said.

“We also intend to step down as managing directors and do not plan to sit on the listed company board.

“To be clear, there would be no changes to LSF portfolio management or the investment team.”

The parties have progressed talks and are now seeking to finalise negotiations of the merger implementation deed, which will set out the full terms of the deal.

“Platinum remains of the view that the combination with L1 Capital would deliver value for Platinum shareholders,” the firm said.

Any transaction remains subject to final Platinum and L1 board approval, with Platinum cautioning there was no guarantee at this stage that a deal would be done.

Still, The Australian understands both parties are working toward finalising the merger in the coming weeks.

Platinum co-founder and billionaire Kerr Neilson declined to comment on the latest update, but last month said he supported the merger as he sold close to half of his 21 per cent shareholding to L1, pocketing $30m in the process.

Mr Neilson has been publicly critical of Platinum’s management since he stepped down as chief executive seven years ago, and in May told The Australian that while the merger wasn’t cheap for Platinum, it was the price the firm had to pay for errors of strategy.

The global equities house, founded by Mr Neilson and Andrew Clifford in the early 1990s, has suffered years of underperformance in part due to an unrelenting bet on China at the expense of US growth stocks.

The underperformance has seen Platinum suffer extensive outflows in recent years, with those outflows continuing even after the potential merger was announced. The fund manager experienced net outflows of approximately $1.6bn in May alone, including a $958m mandate from Colonial First State, an additional institutional redemption of $360m and net outflows from the Platinum Trust Funds of approximately $293m. It currently has about $8.3bn in assets under management, down from the $10.3bn it held before the merger announcement.

As part of a restructure to overhaul the fund manager in February, Platinum co-founder Andrew Clifford and Clay Smolinksi stepped down as Platinum’s co-chief investment officers. Global equity manager Ted Alexander joined the firm to lead its flagship international fund.

Platinum shares rose 5 per cent at the open to 52c but struggled to maintain the momentum through the session and finished up 1 per cent at 50c. The stock has tumbled 53 per cent over the past year.

Originally published as Money managers Platinum, L1 Capital set to tie the knot after revising prenup