Kerr Neilson to step down as CEO of Platinum Asset Management

Platinum Asset Management shares have tanked the day after Kerr Neilson revealed he would handover the reins in July.

Kerr Neilson, who founded Platinum Asset Management in 1994, will continue as an executive director of the group.

Legendary stock picker Kerr Neilson is still bullish on China but cautions investors to be wary when it comes to buying exchange-traded funds as he prepares to stand back from day-to-day operations at the $27 billion fund he founded in 1994.

The Platinum Asset Management (PTM) chief executive will step down at the end of June, handing the top job over to co-founder and chief investment officer Andrew Clifford.

Platinum shares fell sharply on Friday on the news, down 12 per cent to $6.88 during midday trade.

Neilson, who is one of the nation’s wealthiest men with a personal fortune of about $1.7bn, says the decision isn’t a big deal and quipped that most investors probably thought he’d been retired for years.

“It’s along the lines of what we’ve been working through about succession planning, which we’ve been hounded about for years,” he told The Australian on Thursday night.

“We’re simply communicating to the market that we continue along the path of opening up the organisation for more people to take over the fund management roles. As I’ve been saying for years, you can give employees a nice job and pay them well but in our particular game they really want to show the market what they can do.”

The South African-born Neilson founded Platinum in the early 1990s with the backing of famed investor George Soros, who took a 20 per cent stake in the business and pumped $US120 million into the fund.

Often dubbed Australia’s Warren Buffett, Neilson soon became one of the country’s top stock pickers. When he floated 20 per cent of Platinum on the stock exchange in 2007 it debuted at a massive 70 per cent premium to its offer price, making him an instant billionaire.

While he has had countless investing successes, profiting from the bursting of the dotcom bubble is among the highlights.

“When the tech boom was wild we were able to arbitrage values between Japan and the US. We were buying similar companies and paying much less for them. So when it broke we made some huge returns from that,” he says.

“We also did quite well in the bust of Lehmans because we sort of understood that the slicing and dicing was unsustainable and the segregation of origination from ownership was a dangerous model and would lead to a lot of bad lending.”

But Neilson admits he doesn’t always get it right and says regrets are the worst part of the job.

“All you ever do is look at your errors. They’re so numerous you’re always depressed,” he jokes, laughing. You always say ‘oh I wish I had put more money into that’ or ‘I wish I hadn’t done that stupid thing’.

“More recently it’s been interesting because Andrew (Clifford) has done a better job than I have. He’s been more optimistic that the system would gradually pull together.”

Platinum has had its ups and downs, with the fund most recently returning to form with a strong investment performance and surging inflows following a tough 2017 that saw outflows gush from the fund on weak performance. Funds under management now sit at $27.1bn.

The flagged CEO changes came as Platinum yesterday posted a 7 per cent lift in profit to $102.2m for the half-year ending in December. Revenue rose 15 per cent to $185.9m in the same period and was driven by fee revenue, which was up 6.9 per cent to $166m and investment-related income, which more than doubled to $20m.

The lift in fee revenue was due to the cumulative effect of strong investment returns, net client inflows and additional performance fees earned during the period, the fund said.

On the outlook for markets, Neilson says buybacks in the US, which have been part of the suppression of volatility, may receive a little more attention from now on.

“As money becomes more worthy and we start paying for borrowing money, I think there’ll be a little more introspection about what companies are doing with all the buybacks and investors asking ‘is there no better use for your money?’ and ‘why do you have such high profitability?’

“So after 20 years of growing shares through capital we could be on the cusp of starting to see a need to think a bit more about how much goes back to labour. Now that stands out against automation and so on, so it’s not easy to say it’s definitely coming. But it’s something I’m thinking about,” he says.

He thinks the age of passive investing is over and that dispersion and market volatility are working in favour of stock pickers now. “I wouldn’t be caught dead putting 54 per cent of my money into the US market, which is what a passive would be forced to do.”

ETFs, on the other hand, are a legitimate product, he says, but retail investors are at a disadvantage even there. “By the time the average punter gets excited about a sector and buys into an ETF, you’re just helping to relieve us of our stock.”

He remains bullish on China and says while it will inevitably slow, he dismisses concerns that the country needs strong credit growth.

“We’re seeing China’s credit growing in single digits and the notion is they can’t grow any more. Well, I don’t see any evidence of a relationship between credit growth in India and economic growth and I can’t see why China can’t grow at quite a decent rate with less credit growth. The presumption is without credit growth you can’t have economic growth, and that’s not actually right.”

Asia is Neilson’s preferred market pick due to “sensible” market valuations that will probably be a lot bigger in three to five years, he says.

As to his plans for the future, Neilson said he won’t be taking a break come July 1.

“What I want to do is specialise a bit more on a few sectors, continue to work with the investment team and also try to put in more effort with the younger members of the team,” he says.

He also said he would travel around the US and Europe to “do some evangelising” about what Platinum does.

“We’re not totally unknown over there so I think that could be quite profitable,” he says.

Platinum’s share price hit a two-year high of $8.72 earlier this month before the recent crash that saw the broader stockmarket lose nearly 5 per cent in two days. Platinum is currently trading at $7.82.