It's no secret that Australia's system of forced savings through superannuation means fund managers able to attract the biggest share of a fast-growing superannuation pie are positioned to deliver good returns to shareholders.
This system of forced savings means much of the public rely on intermediaries (financial advisers) for advice as to where to invest their super. Two fund managers benefiting from the trend towards gaining more exposure to international equities are Platinum Asset Management Limited (ASX: PTM) and Magellan Financial Group Ltd (ASX: MFG).
Both investment managers effectively provide Australians with the opportunity to invest in global equities via their managed funds, with both having strongly grown retail funds under management (FUM) since their inception. Fund managers earn revenues by charging fees on a proportion FUM, so growing FUM through inflows is critical to success.
Notably Platinum likes to differentiate itself from other managers by outsourcing sales and distribution functions in order to emphasise its focus on investment returns. Indeed, Platinum goes as far as to state its belief that different interest groups within large (fund management) organisations tend to result in an emphasis towards funds gathering, to the detriment of investment returns.
On the surface Platinum also appears to place less emphasis on institutional business development than Magellan. While retail FUM flows can be fickle and dependent on overall confidence, institutional business development is where the big FUM growth gains can be consistently made. This July Magellan announced it had achieved net institutional inflows of $1.17 billion, yet today sells for only $11.30 on 23 times Morningstar's estimates for earnings per share of 48.5 cents in FY 2014.
Platinum in contrast sells for $6.30 on 18.6 times analysts' estimates for earnings per share of 33.8 cents per share. Platinum may derive greater profit on its FUM revenues by virtue of outsourcing the sales and distribution function to reduce costs, but Magellan's higher PE will be justified if it can continue the new financial-year anything like the way it started in July. In my opinion on current valuations to future prospects, Magellan looks a buy, whereas Platinum looks a hold.
