Platinum outflows may be slowing but it is unlikely to be enough to improve its competitive position against peers, says Morningstar.
In its quarterly flows note earlier this week, L1 Group said outflows from Platinum funds were $308 million, down from $800 million in the December quarter. Platinum funds under management (FUM) now sits at $3.1 billion, down slightly from $3.4 billion at the start of the year.
Overall FUM at L1 Group was $17.9 billion as of mid-April, recovering from earlier outflows incurred as a result of market volatility.
Commenting on the latest figures, Morningstar equity analyst Shaun Ler noted Platinum’s flagship international fund had been consolidated into the L1 International fund, which is stronger performing, but around 20 per cent of FUM is held in funds which are not expected to consolidate.
“FUM is higher than expected, driven by slower outflows from Platinum. Even so, we do not believe the combined Platinum-L1 Capital entity’s competitive position will materially improve against passive products or higher-performing active managers.
“L1 Capital funds carry high fees, and we doubt the firm can consistently outperform its benchmarks and peers. Performance is highly volatile, and we do not expect the current strong track record to sustain in the long term. This limits the extent to which FUM and earnings can improve.”
Shares in L1 Group are up 3.7 per cent since the start of the year versus returns of 2.8 per cent by the ASX 200.
Ler also noted that L1’s capabilities are centred around equity funds which are currently facing “intense competition” from passive vehicles and fee pressures. However, the firm recently raised $900 million in an IPO for its L1 Gold Fund which is expected to begin trading on the ASX later this month.
“Equity managers face intense competition from passive vehicles that offer comparable factor exposures at lower cost. The proliferation of ETFs and model portfolio alternatives compounds this substitution risk.
“Once early integration gains come to pass, we think L1 Group looks more like a slower‑growing active manager facing rising competition from cheaper passive options and a crowded active peer set, with only limited scope to achieve above-peer earnings per share growth.”