A tale of two sucess stories
Company reporting season is coming to a close, happily for some, not so happily for others. As noted in last week's Hedge Clippings it is, or can be the "moment of truth" for many companies, and therefore for their investors. Fund managers have had their head's buried in the results for the past month or so and will no doubt be looking forward to the end of it and a return to normality - until the next time.
As listed companies a number of managers have played a dual role, not only studying the results of others, but having to report the results of their own funds management businesses, including two of the largest, Magellan and Platinum, whose Managing Director and founder, Kerr Neilson provided some insights into the way he's thinking, and in so doing reflecting perhaps on competitor Magellan at the same time.
It is worth noting that while both are highly successful operations, and have been particularly successful at attracting investors, there are some significant differences between the two. Following a stellar career as a fund manager with BT, Neilson left and founded Platinum in the early to mid-90's before listing the management company on the ASX in 2013, and has approximately $22 billion in funds under management investing globally across a range of long-short funds, regions and sectors. Performance has been excellent over the long term, although both performance and FUM suffered in the GFC, but has recovered strongly since.
Magellan, headed up by ex-investment banker Hamish Douglass launched Magellan in 2007, just ahead of the GFC, and also listed the management company in 2013. In another of Australia's financial services success stories, Magellan has amassed $50 billion in FUM from local and global investors. Interestingly over time, albeit that Platinum has a significantly longer track record, the performance of each manager's flagship funds are similar, although they vary from year to year.
Back to Neilson's comments made with the release of Platinum's results: Acknowledging the reason some investors might have recently shorted Platinum, he was keen to point out that as the funds' investment performance had been strong over the past year, performance fees would add significantly to the bottom line. Equally FUM has recovered from the dip in 2008/2009, and even though management fees across the sector are under pressure, he is not keen to join the "race to the bottom".
Magellan's performance fee income has been under pressure recently, (as has its share price) and management fees are also reducing, although both managers, with $22 and $50 billion in FUM, have a significant annuity income stream - provided, as Neilson pointed out, performance is maintained to ensure existing investors remain, and new investors invest.
The major difference in approach, as Neilson was keen to point out, even if not naming Magellan, was the approach or focus in staffing in their respective investment and sales & marketing operations, where Magellan has built a significant distribution machine. At the end of the day it is difficult to criticise either given the successful business each has created.
Platinum also referred to the current active vs passive management debate, and while acknowledging the funds flow into the latter, suggesting that the key to active management is to pick the right active manager.
Hedge Clippings would agree, and argue that we have been beating that particular drum for over a decade.
