Platinum role split a sign of the times for fund management

When Andrew Clifford was appointed chief executive of Platinum Asset Management just over five years ago, taking over from his mentor Kerr Neilson, he thought he could combine his existing role as chief investment officer with the top job.

After all, that was what Neilson himself had done when he left the high-flying BT stable and went out on his own to found Platinum in 1994 as a specialist fund manager focusing on international equities, taking with him like-minded young fund managers like Clifford.

But as Clifford admitted in an interview with The Australian on Monday, handling the joint roles turned out to be too much.

“If you compare things now with 30 years ago, when we started, the competition has been extraordinary,” he says.

“The business model was based on great results and strong client service. If you did those things, the money would come in the door. That’s no longer possible.

“We need to compete, with strong distribution, and it creates much more complexity to the business.”

Once US executive Jeff Peters (a fan of Australia who lists his passion as bird watching) gets his visa, hopefully in January or February next year, Clifford will step back from his joint role – with some considerable relief – to go back to focusing on being CIO, allowing him to concentrate on investment, with Peters running the business.

The move to split the roles is something which Kerr Neilson himself, who left the board just over a year ago but remains the largest shareholder with 21 per cent, has been agitating for for some time.

In media interviews in February, he called for Clifford to step down as CEO and for the roles to be split, expressing his frustration that he was unable to convince the board to go along with his idea.

In August this year, Clifford made his own announcement of his plans to step down as CEO.

It has been a tough five years at the top of the once high-flying fund manager.

When he took over, Platinum managed more than $25bn in assets. In recent times, the group has been hit by a combination of a lack of confidence in its investment strategy as well as a much tougher market for fund managers. Its funds under management were down to only $15.5bn at the end of November.

Incoming Platinum CEO Jeff Peters. Picture: Adam Yip

The group saw a 35 per cent fall in underlying profit for the year to the end of June to $76.5m on the back of a 19.8 per cent fall in fee revenue to $202.7m over the year as a result of declining funds under management.

Clifford’s decision in August came as Platinum suffered a $900m net outflow of funds during that month. The latest figures for November show net outflows of $186m.

Platinum investors, who have seen their shares plunge from around $6 in early 2018 to around $1.30 this week, voiced their frustration with management with a first strike at the AGM in November.

There are several themes at play here.

There is the fall of the hero fund manager in Australia with the departure of Kerr Neilson at Platinum, and the messy departure of Magellan founder Hamish Douglass.

While he managed both jobs, Clifford was unable to replicate the hero fund manager role Neilson had achieved.

This was partly due to Platinum’s focus as a value investor at a time of near zero interest rates, which favoured growth stocks.

Platinum has also never been a big fan of America where the market has continued to grow, despite all predictions that its rise has been overdone.

But the fall of the Australian dollar over the period should have been a big tailwind for Platinum, given its 100 per cent focus on offshore stocks.

Platinum has also suffered a similar fate as other Australia-based funds, which is fuelling consolidation and takeover activity in the sector, including bids for Perpetual.

At the top end of the market, the big industry super funds that now manage some $1.2 trillion in assets – and which were once cash-rich clients of fund managers – have been pulling their money away from fund managers and bringing their investment management in-house.

The net result has been much more competition for funds, which is putting downward pressure on fees.

The $300bn AustralianSuper now manages some 58 per cent of its assets in-house with a team of 335 people. The fund estimates that it has saved a cool $1bn over the past decade by doing so.

The $124bn UniSuper manages 70 per cent of its assets in house. The $160bn Aware Super now manages 30 per cent of its assets in house, with a staff of 110. It plans to expand this to 50 per cent by 2025, which will see its in-house professional staff rise to 200 over time.

Aware has just joined industry super fund investment house IFM Investors and AustralianSuper by opening an office in London to help increase its in-house expertise in global investing.

The industry super funds have had a clear division between the CEO and CIO roles from the start, a model which has served them well.

The end of the fat investment dollars from super funds and downward pressure on fees have come at a time when there are many more options for the retail investors, who have also been big clients of Platinum in the past and like to follow hero fund managers.

When it started almost 30 years ago, Platinum provided a rare opportunity for retail Australians to invest offshore with a trusted local fund manager. But since then, there has been much more competition in the market. There was the establishment of Magellan and the rise of US index fund giant Vanguard in the Australian market.

At the same time, it has never been easier for ordinary Australians to invest offshore through their broker or an ETF.

Platinum shareholders, including Neilson, will be hoping that CEO Peters can stem the outflow and re-establish its reputation in the market.