Platinum Asset Management’s investment team has banked the rewards of a market-beating turn, extracting an additional $15 million in pay from the homegrown international fund manager.
Staff remuneration expenses surged 43.8 per cent to $49.2 million over 2017-18, which Platinum said was fair in light of “excellent” returns and recognition for outperformance delivered for the 12 and 36 months ruled off March 31. Most of it went to the business’s investment team; Platinum has 98 staff, 31 of which are involved in stockpicking, and it manages more than $25 billion.
But the market rout unleased by the trade war between US President Donald Trump’s administration and China saw Platinum’s global strategies take a tumble in June, outgoing chief executive Kerr Neilson said.
In his final managing director’s letter, the Platinum founder also reflected broadly on financial markets, saying “there seems to be only a tenuous understanding that companies, not governments or regulators, are the system”.
“In other words, one’s welfare is inextricably tied to the performance of companies, whether one is an investor or not.”
Mr Neilson was succeeded by Andrew Clifford on July 1 and remains a director of the business and one of Platinum’s most senior investors.
“In such a competitive environment, it is vital that Platinum is able to attract and retain high-calibre individuals,” chairman Michael Cole said.
Performance fees rose to $21.9 million from $1.6 million and net profit increased 1.7 per cent to $189.2 million. Platinum will pay a fully franked final dividend of 16¢ a share, flat against the previous half and up 1¢ versus last year’s final dividend, on September 21.
The Platinum Unhedged Fund advanced 18.6 per cent over the 12 months, and the Platinum International Fund returned 14.2 per cent.
“As a parting observation, there is a huge and almost unprecedented dispersion in the valuations of dull but profitable companies from those immaculately fashionable, profitable and fast-growing companies,” Mr Neilson said.
“What should one do when one’s instincts so favour these internet-enabled beauties versus the dull and, by comparison, unappealing alternatives? The former have re-rated while the latter have fallen in absolute value to historically attractive levels.”
A company with no growth trading on a price-to-earnings multiple of 7 times could theoretically deliver $14 in cashflow over each of the next 10 years, or $140 per share.
A growth stock trading at 25 times needs to grow at approximately 26 per cent a year over the next decade to produce the same theoretical cashflow, according to Platinum. Less than 5 per cent of the world’s top 1000 companies have done that.
In a parting shot, he lashed out at the findings of the royal commission into banking and financial services and the fees extracted by platform providers, whose fully bundled charges are comparable to fees for actual investment management, but rely on a largely automated service and do not enhance wealth.
Of the big wealth institutions, “coming under new ownership but continuing with similar practices of conflicted advice and pushing in-house products is unlikely to broaden or enhance the choice for investors,” he wrote.
Platinum shares closed at $5.30, down 4 per cent, on Thursday; it reported after the closing bell.