The Platinum Asset Management Limited (ASX: PTM) share price is down 10.4% to $4.93 today after the Asia-focused asset manager revealed that its founder Kerr Neilson and Judith Neilson sold down 60 million shares in the business for $300 million at $5 per share.
This leaves the two Neilsons still controlling 43% of the company and they have agreed not to sell anymore shares for at least another year in an olive branch offered to the institutional investors taking the scrip at $5 each.
This is because the instos would be understandably fuming if the Neilsons offered another 300 million shares for sale in a few months' time at a price of of say $4.80.
I've covered before how I wouldn't rate Platinum as investment grade as it outsources most of its institutional business development and retail distribution functions, which is not a strategy aligned to growth in my opinion anyway.
It may also make the stock look misleadingly cheap on a cost-to-income ratio for example as its costs are lower, but consequently it finds it harder to generate consistent FUM growth.
Platinum's founder Mr Neilson has previously stated the group adopted this structure as it wanted to focus solely on investing in the belief that its returns would do the work in attracting fund inflows.
This is an admirable strategy, but out of sync with peers such as Magellan Financial Group Ltd (ASX: MFG) and overseas rivals of a comparable size.
The stock is down around 40% over the past 10 years (excluding dividends) and has recently attracted short seller interest partly on the back of its anachronistic looking structure in a competitive environment.
Like all other fund managers it also faces the market share and fee pressure headwinds of the rise of exchange traded and passive investment funds that offer ultra-low fees to investors, often for superior returns.
The one thing that could turn it around is if its investment performance knocked it out of the park for a couple of years.
This is not impossible, but not likely either as generating consistently strong outperformance is a tough task for even the world's best investors constrained by investment mandates required to attract institutional money and credibility.
Recently, I admitted to nearly choking on my cornflakes when I read in the Weekend AFR that Platinum's 'top short stock pick' for 2019 was U.S. database-as–a-service high flyer MongoDB.
Just over 2019 MongoDB stock is up 73% and up nearly 250% over the past year. I can't help thinking there could be better stocks to try shorting than a business growing revenues and blue-chip clients at breakneck rates like MongoDB. While in the interests of full disclosure I'm long MongoDB stock.
For an investment in the asset management or diversified financials space I'd still suggest Magellan or Macquarie Group Ltd (ASX: MQG) as, inter alia, both offer exposure to the strong U.S. economy.
