Platinum shares hit record lows after shock performance record

Platinum Asset Management’s share price has dived to record lows after investors were shocked by ongoing poor performance and outflows despite favourable market conditions, as active fund managers face rising pressure to beat competition from low-cost providers.

After trading had closed on Thursday evening, Platinum released a statement to the ASX disclosing its funds under management (FUM) had fallen from $21.1 billion to $19.4 billion from February to March.

Platinum Asset Management CEO Andrew Clifford. Credit: Dominic Lorrimer

This was driven by outflows of around $222 million, as clients pulled money from the company. The statement included a link to Platinum’s recent performance record, which revealed negative returns across almost all funds over a 1-year period and failure to beat relevant benchmarks.

The news caused a sharp investor sell-off on Friday morning when trading opened, pushing Platinum’s stock price down by more than 15 per cent to $1.88 per share – its lowest price on record since opening around $8 per share in 2007. They closed at $1.90 a share.

The active funds management industry has faced increasing pressure in recent years to justify high fees by returning above-market returns, as competition from low-cost investment products that track market indices, like exchange-traded funds (ETFs), mounts.

Platinum subscribes to a value management style of investing, which seeks to invest in stocks that are materially under-valued but have strong fundamentals, as opposed to ‘growth’ stocks that are expensive and cash-constrained, like tech and health.

The value management style typically outperforms during periods of rising interest rates to curb inflation, so investors were gearing up for Platinum’s March record to be strong, after global economies made moves to tighten fiscal and monetary policy.

However, Morningstar analyst Shaun Ler said investor expectations had not been met, fuelling the sell-off. “The market was previously expecting relative performance to improve given their value tilt and the rate of outflows to moderate,” Mr Ler said. “Up until February the performance numbers looked promising but March’s performance was disappointing and the outflows did not look like they were slowing.”

Platinum’s under-performance was a result of poor sentiment towards China and European equities, Mr Ler said. “It plays into our thesis that Platinum investors should expect patchy investment performance due to its contrarian investment style.”

Platinum’s $7 billion international fund has more than 42 per cent of assets invested in the Asia-Pacific region, with 18 per cent in Chinese companies, including real estate and financial services industries as well as media giant Tencent.

In a March performance update, Platinum said the market response to the Russia-Ukraine conflict had created a “difficult month for the portfolio”.

“In our view, driven by Western commentators, the market is too negative on China’s independent view of the conflict. China is deeply integrated in, and benefits from, the global economic system; it should not jeopardise this.”

“We should all accept that having two superpowers with differing ideologies, each trying to assert themselves, leads to various tensions.”

The company also said China was being impacted from a “double whammy” of reform policies and COVID outbreaks. “In recent weeks, this has impacted economically sensitive companies... Perhaps the uncertainty caused by war and Chinese slowdown pushed people back to their ‘safety playbook’ but we struggle with this behaviour given market bifurcation is at extremes.”

It has been a challenging time for active fund managers, with rivals Magellan suffering ongoing performance-related outflows and VGI merging with Regal after performance problems.

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