‘Investment mania’ running through markets says Platinum co-founder and CEO Andrew Clifford

Funds under management fell to $21.4bn, down 14 per cent on the year prior as it suffered $3bn in net outflows.

CEO of Platinum Asset Management Andrew Clifford. Photographer: Adam Yip

Platinum co-founder and chief executive Andrew Clifford has warned of a “fully fledged investment mania” running through markets in the wake of the COVID-19 correction, as he handed down a slight dip in net profit for the fund manager after billions of dollars flowed out from its flagship fund.

Cautioning on the investor exuberance in the market, Mr Clifford, who has been in the top job at the $21bn fund manager since 2018, when Kerr Neilson stepped down from the role, sought to justify Platinum’s value investing approach after years of underperformance.

“Today, we have all the signs of a fully-fledged investment mania. Retail investors have enthusiastically embraced the bull market, many with stories of great fortunes made from investing little money.”

The market had become highly thematic, with labels such as “COVID-winners” determining stock price performance more than “hard-edged” assessments of business positioning, intellectual property and future earnings, he cautioned.

“Innovative financing vehicles are often a sign of investor exuberance and today, we have SPACs (special purpose acquisition companies), where investors are handing money over on the basis that an exciting private business will be acquired at some point in the future.

“Anyone who has been around long enough will remember the ‘cashbox’ initial public offerings of the late 1980s and what happened to investors in those vehicles.”

The creation of new money in the financial system by central banks, and government spending programs, was also partly behind the rapid sharemarket rise, he said.

“It is highly likely that this substantial creation of new money, at a time when global economic output is collapsing, is responsible for the extraordinary run in the share prices of growth stocks we have experienced in the first half of 2020.

“To put it into perspective, the MSCI World Growth Index has outperformed the MSCI World Value Index by 35 per cent over the two years to June 2020, of which 25 per cent occurred in the first six months of 2020.”

As high-growth stocks had become progressively more expensive in recent years, Platinum chose to reduce its positions to take profit and invest the money in the “extraordinary opportunities” it saw elsewhere.

Its value-investing approach, in contrast to peer Magellan’s growth-investment style, has been increasingly questioned by investors frustrated by its underperformance.

For the 12 months through June, its flagship international fund returned -4.1 per cent compared to the benchmark MSCI AC World Net Index, which delivered a 3 per cent return.

As at June 30, its funds under management sat at $21.4bn, down 14 per cent on the year prior as it suffered $3bn in net outflows.

“While we find ourselves in extraordinary times, there is nothing that suggests a fundamental change in human psychology,” Mr Clifford said as he sought to remind investors of the fund’s value approach.

“Cognitive biases are highly likely to be leading investors to over-extrapolate the good story behind many of today’s strong performing stocks, as they have done in the past.

Total revenue and other income dipped 0.2 per cent to $298.7m, while management fee revenues fell 6.5 per cent due to the decrease in average funds under management.

Performance fee revenues of $9.1m, up from $30,000 in 2019, were primarily attributable to strong relative performance by its Asia ex-Japan and Healthcare strategies. Its Asia ex-Japan fund returned 14.6 per cent for the year.

Platinum earlier this month announced that co-founder and former CEO Kerr Neilson would be stepping down from his analyst role on the investment team but would stay on as a non-executive director.

“The trouble with high performance investing is that it requires total immersion; it is all consuming of one’s time,” Mr Neilson said at the time.

Its chairman Michael Cole, meanwhile, also announced his retirement effective November 20, and will be replaced by veteran banker Guy Strapp.

“Working from home has softened me up and caused me to ponder wider social issues. Having seen the team grow and mature over the years, I am confident in their ability to meet clients’ high expectations.”

Platinum shares ended Wednesday’s session down 1.37 per cent at $3.60, before the aftermarket release of its results.