Fees tiff throws Platinum spanner into L1’s takeover machinations; Ballarat’s stars align for charity

L1 Capital co-founders Rafi Lamm and Mark Landau.

L1 Capital founders Mark Landau and Rafi Lamm may have big plans for their takeover of struggling Platinum Asset Management but a skirmish over the fund manager’s fees and performance may pose an early test for the deal.

We’re talking about the future of listed investment company Platinum Capital (PMC), whereby L1 has thrown a spanner into the PMC board’s plan to move shareholders in the underperforming listed investment company into an exchange traded fund.

First floated late in 2024, the proposal would result in PMC holders swapping their shares for units in Platinum’s International Fund. The decision came after a long review of the listed investment company by its board, led by Margaret Towers.

It found that shifting shareholders to an ETF would, at the very least, help fix the lag between the listed vehicle’s share price and the value of the assets it holds.

The plan was delayed because of a takeover offer from PM Capital Global Opportunities Fund earlier this year.

But, amid its own merger discussions with Platinum, L1 found time and cash to chuck a spanner into PMC’s plans as well, snap up a 17 per cent stake in the listed investment company and announce its opposition to the board’s ETF plans.

That’s almost certainly enough to block the scheme from going ahead, as it needs 75 per cent support at a shareholder meeting on August 12.

This has more than a few long-suffering PMC shareholders riled up, as they consider the L1 move as a way for Landau and Lamm to keep management and performance fees rolling in from the listed investment company at their expense.

Lamm and Landau have long billed L1 as Australia’s leading fund manager, largely based on the performance of their flagship, the ASX-listed L1 Long Short Fund. The fund, according to L1’s website on Monday, has delivered annual returns of 10.3 per cent since its inception in 2018 – 1 per cent above their chosen benchmark, the ASX-200 Accumulation Index.

But fee generation is where L1 really holds an advantage over its rivals. Last year the fund manager was easily the most profitable of the private fund managers assessed by The Australian, booking a $103m profit which was almost twice that of nearest rival Hyperion.

And a big part of that is the $2bn Long Short Fund, which generated $27m in management fees last financial year, and an extraordinary $58.3m in performance fees.

Why so high? Because the fund pays a 20 per cent performance fee on any return on investment through the year – provided it doesn’t reduce in overall value – not just on returns that come in ahead of a selected benchmark, which is a common bar in the industry.

Effectively that means L1 still collects fat fees from the fund even if it doesn’t beat the index, which it hasn’t been doing for the past three years, when returns have been running at 3.8 per cent a year against 9.6 per cent for the ASX 200, according to L1’s own figures from May.

As L1 was keen to point out on Monday, the five-year figures are far better, at an average 19.2 per cent return a year against the 12.1 per cent gained by the ASX 200. And it does recommend a five to seven-year investment horizon. That still leaves plenty of time to improve the returns for shareholders who bought in since 2022, we suppose.

But, on figures released by L1 on Monday, the Long Short Fund is still trading more than 10 per cent below its pre-tax net tangible asset backing – exactly the reason PMC’s board is recommending its shareholders back a shift into an ETF instead.

Which L1 opposes.

All of this may go some way to explaining why PMC shareholders have the hump with Lamm and Landau. That, and the fact that L1 has still to spell out its reasons for opposing the shift, although the fund manager tells Margin Call it definitely has plans to create value for PMC shareholders.

PMC is valued at only $405m by the market. It is something of a sideshow in the potential merger between L1 and Platinum, which still has about $8bn in funds under management, even after another $428m went out the door in June.

But, as PMC shareholders gear up for a fight over the matter, the skirmish could have ramifications for the Platinum merger, given that Margin Call is told there are significant crossholdings between the two companies.

For its part, L1 is sticking to its guns, telling Margin Call it believes there is a “a superior opportunity for shareholders than simply running the same strategy as the open-ended equivalent of Platinum International Fund”.

“Focus should be on delivering the best risk-adjusted returns over the long term, not simply rewarding short-term traders looking to conduct a perceived arbitrage,” L1 said.

Fleet of foot in the name of charity

While Margin Call devotes most of its column inches to the failures and foibles of the rich and powerful, occasionally it’s nice to drop the cloak of cynicism and talk about something a little more heartwarming.

So, congratulations are due to the Ballarat Foundation’s annual Dancing with Our Stars event, which on Saturday crossed the $1m fundraising mark in its fifth year of being held, and which Margin Call had the pleasure of attending on the weekend (at our own expense, we should add).

For those who haven’t come across the quirky event, it’s much the same as the TV show from which it is named. Except the dancers aren’t the C-grade celebrities who sign on to dance on the telly in the hope of reviving their own careers. They are ordinary citizens.

This year’s event featured the local vet, a primary schoolteacher, a car dealer and the boss of the Ballarat Turf Club. The closest thing to a celebrity was Anthony Ingerson, who crossed from the Adelaide Crows and notched up 121 games with the Melbourne Demons back in the late 1990s.

All were prepared to turn up to weekly dance lessons (put on gratis) by local dance teacher Shelley Ross, before risking embarrassment in front of their friends and family at a black-tie event. Not that the appreciative crowd was prepared to find fault; there’s always the risk of being dobbed in to perform the following year.

Congratulations to all, raising an average of $200,000 a year is a hefty task for any regional city, however good the event.

Margin Call is only surprised the idea hasn’t been knocked off by other regional towns across the country.

Atlassian co-founder’s iron constitution

Congratulations also to Atlassian co-founder Scott Farquhar, who has apparently been using his spare time to train for his first ironman event.

Farquhar took to social media on Monday to tell his followers he’d completed his first competitive event in Germany, of all places, in 11 hours, complete with “Team Farquhar” T-shirts for his support crew (or his wife, Kim, at any rate). Nothing like being a billionaire to help boost your achievements.

Given he took on the role of chairman of the Tech Council of Australia only in March, as it was still reeling from the impact of Richard White’s scandals, the ironman training will probably do him no harm.