Rather than investing your hard earned cash in managed funds and paying huge management fees, investors might want to consider investing in the asset managers themselves.
Not all of them are listed of course, and most of Australia's wealth is handled by our big four banks. In rising markets, they can produce strong returns as funds flow into their coffers, although the opposite can occur if markets fall. The recent pullback could be an opportune time to invest.
If you're interested in the non-bank fund managers, here are 6 you might want to take a closer look at…
BT Investment Management Ltd (ASX: BTT)
Shares in BT have soared more than 40% in the past year, thanks to strong inflows. At the end of June 2015, BT had $78.9 billion in funds under management (FUM). Strong fund flows usually leads to strong financial performance and that is no different with BT. The company says it has received $14.4 million in performance fees in the 2015 financial year compared to $8.2 million the previous year. BT has a 3.7% trailing dividend yield.
HFA Holdings Limited (ASX: HFA)
HFA has seen its share price soar by more than 70% in the past year but has an unusual structure. It's actually the holding company for US-based Lighthouse Investment Partners, LLC – which manages portfolios of hedge fund assets. HFA sold its non-core Australian business, Certitude Global Investment Limited in March 2015 for around $3 million. Lighthouse had US$8.2 billion in assets under management and advice (AUMA). HFA currently sports a 5.5% dividend yield (unfranked).
Henderson Group plc (ASX: HGG)
Shares in Henderson Group have only gained 24% in the past twelve months, a relative underperformance compared to the two companies above. Henderson is a dual-listed UK-based asset manager with £89.4 billion in assets under management. But the company is driving growth in Australia with recent acquisitions of Perennial Fixed Interest, Perennial Growth Management and 90 West. That will see Australian assets triple from $4.9 billion to $15.7 billion and vault Henderson into the top 30 Australian asset managers.
Magellan Financial Group Ltd (ASX: MFG)
Over the past 12 months, Magellan has climbed 51% to $17.47 currently, but that pales into comparison with its performance over the past five years. Shares are up 1,474% since July 2010 and Magellan now has $36.4 billion in FUM, compared to just $1,147 million at the end of June 2010. Clearly, the company and its high-profile CEO Hamish Douglass have been doing something right with its 6 managed funds – focused on investing in global equities.
Perpetual Limited (ASX: PPT)
Surprisingly, Perpetual has less FUM than Magellan, with $34.7 billion under management at the end of March 2015. The asset manager operates in several financial services sectors, managing investment both locally and globally, while also offering financial advisory and trustee services. The investment side of the business is the biggest money spinner, generating more profit than the other businesses combined.
Platinum Asset Management Limited (ASX: PTM)
Led by Australian investing legend Kerr Neilson, Platinum is a competitor for Magellan, focusing primarily on offshore investments. The company has been hugely successful, vaulting Mr Neilson's wealth into the billions. Mr Neilson holds around 57% of the company. At the end of June, Platinum had $26.9 billion in assets under management and has a trailing dividend yield of 4.9% fully franked.
Foolish takeaway
Investing in fund managers needs to be done carefully. Invest at the top of the market and falling funds under management is likely to see profits and share prices suffer. Remember that almost all fund managers make money by taking a percentage of assets under management (AUM or FUM). As FUM falls, fees fall by a corresponding amount.
The recent market pullback may mean the fund managers are deserving of a closer look. Magellan and Platinum would be my first choices.
