Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Who is selling-down Australian fundies?
The heat is on, and fund managers are sweating up a storm following heavy share price losses as the crisis in Ukraine deepens. Panicked investors have been offloading shares in any fund management company and this seems to be occurring regardless of performance or capital inflows.
Chinese stocks are suffering the same fate, whipping up and down in volatile trade as worried investors head for the exit. On the flip side, some traders see this as a great opportunity to load-up on Chinese shares at such an attractive valuation despite the regulatory overhang and mounting concerns over Beijing’s ties with Russia.
Some of the hardest-hit were the largest fund managers – Magellan Financial Group (ASX:MFG) is down almost 75 per cent since its 52 week high, while shares in Pinnacle Investment Management (ASX:PNI) have erased half of their value just in the last four months. Platinum Asset Management (ASX:PTM) shares were down almost 60 per cent and Pendal Group (ASX:PDL) down 52.3 per cent from its 52 week high.
This is a diverse group of businesses operating in many different sectors of global asset markets, so the selloff appears to be a change in sentiment against the industry as a whole. But at what point does value come in?
Despite the loss in investor confidence because of events unfolding in Ukraine together with the massive sell-off in fund manager shares, some of the heaviest-hit companies are looking very attractive. What we are seeing is herd behaviour (or momentum) at its finest.
Humans observed at times of danger such as war go through fear and panic, which then quickly turns into irrational behaviour as people flee together in a pack to safety. It’s then that you see headlines such as “Investors turn to crypto funds, as Russia-Ukraine crisis escalates”.
With Pinnacle down 50 per cent, the movement isn’t surprising. The company is fairly leveraged to Australian and global equities and its fall is inline with its peers. In other words, it isn’t so much stock-specific. If its recent interims are anything to go by, the company posted a good result.
- NPAT came in at $40m up 32% which was better than expected, and PNI has a strong pipeline of opportunities.
- Basic earnings per share (EPS) attributable to shareholders of 21.5 cents, up 23% from 17.5 cents in 1HFY21
- Fully franked interim dividend per share of 17.5 cents, up 50% from 1H FY21
- Performance fees earned by Pinnacle Affiliates, post-tax, contributed $6.4m of Pinnacle’s NPAT in 1H FY22 ($11.0m in 1H FY21)
- Record retail net inflows of $2.9 billion during the half year were the largest in any six month period in our history.
Pinnacle has also noted in its commentary that the recent geopolitical events have resulted in heightened volatility, so it will increase exposure to private capital markets, including private equity.
