L1 Capital scoops up stake in Platinum amid merger talks

Kerr Neilson’s Platinum Asset Management and L1 Capital are in merger talks to create an $18bn asset manager, marking a further shake-out of Australia’s under pressure funds management sector.

Veteran stockpicker Kerr Neilson has sold most of his stake in Platinum to L1 Capital. Picture: Hollie Adams/The Australian

Kerr Neilson’s Platinum Asset Management and L1 Capital are in merger talks to create a $18bn asset manager, marking a further shake-out of Australia’s under pressure funds management industry.

Following weeks of merger discussions that were confirmed on Thursday, L1 has also acquired just shy of 10 per cent ofPlatinum for $30m from co-founder and long-time number one shareholder Mr Neilson, as it considers the tie-up.

Mr Neilson, who started Platinum in the early 1990s and left the business in 2022 with a 21 per cent stake in the firm, 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.

Platinum shares surged 11 per cent to 64c through the session but are still down 50 per cent over the past six months, with the stock taking a hit in December as Phil King’s Regal Partners walked away from a potential takeover.

If a deal with L1 were to go ahead, it would 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.

With Mr Neilson’s share sale a sign of his support for a deal, Platinum and L1 touted the benefits for both parties.

“L1 Capital is a first-class manager with a strong investment track record. The potential merger provides an attractive opportunity to combine expertise and resources, and we will continue to explore if it’s in the best interests of Platinum shareholders,” Platinum CEO Jeff Peters said.

L1 Capital co-founders Mark Landau (left) and Raphael Lamm.

L1 Capital co-founders Mark Landau and Raphael Lamm said a merger had the potential to deliver material earnings and value accretion for shareholders.

“L1 Capital brings a strong investment track record and a loyal, diverse and growing investor base. This has allowed L1 Capital to grow profitably over many years and successfully launch new funds and strategies,” they said.

“Platinum has been one of the pioneers of global equities investing since the 1990s, with a strong brand and diverse client base. We expect the combined business to benefit from improved resourcing and capabilities across investments, client service and operations, as well as increased diversification across investment strategies and distribution channels”.

L1, which manages money privately and in ASX-listed invested companies such as the $2bn L1 Long Short Fund, recorded a $101m net profit from $171m revenue for fiscal 2024.

The discussions are still at a preliminary stage, and there is no guarantee that any transaction will eventuate. Both parties will now conduct due diligence on the transaction, with no firm timeline but an expectation of an outcome in the coming weeks.

Morningstar analyst Shaun Ler said the synergies from a merger would likely be on the cost side rather than revenue, adding that the deal looked reasonable based on PE multiples.

Australian Eagle Asset Management portfolio manager Alan Kwan said the potential merger reflected the pressure the funds management industry is under.

“We’ve been watching all the machinations within the sector: Regal was interested in Platinum a few months ago, Magellan took a stake in Vinva (in August)... Undoubtedly the industry is under pressure. All the big customers, the super funds, are going on to private assets, equity or debt or infrastructure; listed equities is a tough business,” he said.

Platinum has suffered extensive outflows in recent years amid lacklustre performance. It currently has about $11bn in assets under management and restructured as recently as February in an attempt to turn around its flows.

As part of the restructure, Andrew Clifford and Clay Smolinksi stepped down as Platinum’s co-chief investment officers and long-short global equity manager Ted Alexander joined the firm as portfolio manager of its flagship international fund.

Its international fund initiated positions in several pharmaceutical companies in the lead-up to Donald Trump’s ‘Liberation Day’ which fell deeply in the red in April as the US administration threatened to heap tariffs on the industry.