Platinum Asset Management ‘a falling knife’, Regal Partners warns as AUM falls below $10bn

Regal says it walked away from Platinum deal because the price was too high. Beleaguered fund manager’s assets drop below $10bn.

Andrew Clifford, former chief investment officer at Platinum Asset Management. Picture: David Swift

Regal Partners has warned Platinum Asset Management is “a falling knife” as its funds under management push further below $10bn.

Regal chief executive Brendan O’Connor on Tuesday said the fund manager walked away from a takeover for rival Platinum due to concerns it was paying over the odds for the beleaguered global fund manager.

Regal last September lobbed an offer equivalent to $1.10 a share which was rejected by Platinum. Talks between the pair were then canned in December. Platinum is currently pursuing merger talks with peer L1 Capital.

“Very simply your future returns are intrinsically linked to the price you pay,” Mr O’Connor said.

“They wanted too high a price for the business, which frankly is a falling knife or a melting ice cube in terms of funds under management.”

“It is very hard to build conviction around what you should pay for an asset when the fund was going from $12bn to $11bn to $10bn and I think that was $9bn this morning,” Mr O’Connor told the Macquarie Australia conference.

“At some point that fund will probably level out in terms of price you would pay for that. But the price they were seeking, we kept our nerve and said no we’re not prepared to pay that price and we will focus elsewhere.”

Platinum’s funds under management dropped below $10bn by the end of April and look set to fall at least a further $1bn this month as the under-pressure asset manager attempts to lock up a merger with L1.

As much as $243m in outflows, along with lower equity markets, pushed Platinum’s funds under management down to $9.6bn by the end of April, from $10.3bn at the start of the month.

In what could be just the start of clients pulling mandates ahead of the proposed merger, Platinum also revealed a further $958m will be pulled from the fund by the end of this week.

“Last night, Platinum received notice of termination of an institutional mandate of approximately $958m to take effect on 9 May 2025. This figure has not been included in the funds under management figures above and will flow through to 31 May 2025 figures,” Platinum said in a statement.

Colonial First State confirmed to The Australian it was the unnamed client that pulled the near $1bn from Platinum. Quant fund Vinva Investment Management picked up the mandate. Magellan Financial owns 29.5 per cent of Vinva.

Platinum’s shares tumbled following the update, dropping as much as 6.7 per cent to 62c.

The fund manager has recorded net outflows every month since August 2022, when it managed $18bn, with clients steadily pulling hundreds of millions of dollars out of its funds in the years since, due to consistent underperformance.

The latest institutional client to cut ties with the troubled fund manager made the move days after Platinum announced it was in merger talks with peer L1 Capital.

If a deal with L1 goes ahead, it will create an $18bn asset manager and see Platinum acquire its peer in return for the issue of new ordinary shares in Platinum.

L1 shareholders would end up owning around 75 per cent of the business, while Platinum shareholders would hold the remaining 25 per cent.

Both parties are in the middle of their due diligence on the merger, with no firm timeline but an expectation of an outcome in the coming weeks.

Unlike previous overtures Platinum has quickly dismissed, the fund manager is, at this stage, in favour of the merger.

Kerr Nelson has thrown his support behind the L1 deal.

Its biggest shareholder, veteran stockpicker Kerr Neilson, is also in support and has sold just under half of his 21 per cent shareholding to L1. He has also granted a call option to L1 over the majority of his remaining shareholding in Platinum, exercisable only in the event of a competing proposal. If exercised, it would see L1 hold a total 19.9 per cent shareholding in the fund manager.

The merger is a lifeline for Platinum, which has suffered years of underperformance in part due to an unrelenting bet on China at the expense of US growth stocks.

It has been battling, unsuccessfully so far, to turn around its lengthy underperformance and the negative flow profile, going as far as removing Andrew Clifford and Clay Smolinksi as co-CIOs in February and bringing in long-short global equity manager Ted Alexander to manage its flagship international fund.

Mr Neilson last week told The Australian Platinum lost its way when stockpicker rewards were untethered from investment performance after he stepped down as CEO in 2018.

“If you’ve been waddling around for several years without any performance culture, you need outsiders to come in and enforce it. What I had been saying is the sooner we make the change, the better. And it’s dragged on a bit, so that’s the cost,” he said.