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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.”