Jul 24 2018
Pinnacle Investment Management chief Ian Macoun is confident the fund management group’s latest acquisitions will further diversify and accelerate earnings growth, as he shrugged off the impact of any correction in equity markets.
Adding to its stable of boutique fund managers, Pinnacle on Tuesday announced plans to raise $60 million to buy a 35 per cent equity interest in Metrics Credit Partners and a 40 per cent stake in Omega Global Investors.
The group also brought forward the release of its full-year earnings noting Pinnacle expected “strong momentum” going into fiscal 2019, and would post an almost doubling in net profit from continuing operations to $23.1 million for the 12 months ended June 30, 2018.
Mr Macoun told The Australian Financial Review the capital raising would further boost the presence of institutional investors – which account for about 25 per cent – on the shareholder register, as executives were not participating.
Following the acquisitions of minority holdings in Metrics and Omega, Pinnacle will own stakes in 11 investment managers, which Mr Macoun said would protect the company against any downturn in markets.
“It would not be helpful if equity markets dropped, but we believe we are now a sufficiently diverse and robust set of businesses,” he said. “Even if funds under management dropped because markets dropped it is not devastating for us.”
As part of the Metrics transaction, Pinnacle will invest $46 million in the firm subject to the satisfaction of “certain conditions”. Metrics is a debt and fixed income manager which was set up in 2011 and has $2.5 billion in funds under management. It is run by Andrew Lockhart, Graham McNamara, Andrew Tremain and Justin Hynes.
Mr Lockhart said the tie-up with Pinnacle would help Metrics tap increased demand for its products, including from offshore investors.
“This is an important step forward and we think the market opportunity is substantial,” he said.
Metrics had been a Pinnacle distribution partner for five years, an arrangement which is being extended. The deal with Pinnacle follows National Australia Bank selling its 35 per cent stake in Metrics earlier this month to the parent entity.
Mr Macoun said the injection of funds from Pinnacle would provide “a sizeable amount of capital” for Metrics’ growth plans.
While he is cautious on the fund management industry’s correlation to equity market performance, Investors Mutual senior portfolio manager Simon Conn was upbeat on Pinnacle’s latest acquisitions.
“It looks like a smart deal … it all makes good sense,” he said.
Omega, which focuses on a “smart beta plus” rules-based investment approach, is also joining the Pinnacle group. It has more than $4 billion in funds under management.
Berkshire Capital Securities advised Omega on the sale.
Stockbrokers Wilsons and Macquarie Capital sent raising terms to fund managers on Tuesday as they kicked off an institutional placement in Pinnacle stock following a trading halt. Ord Minnett is a co-manager on the transaction.
Shares were priced at $5.50 each which was a 3 per cent discount to Pinnacle’s last close.
Tuesday’s announcement also outlined that funds under management grew to $38 billion as at June 30, up by $5.7 billion from December 31 on the back of net inflows.
On the issue of adding further affiliate boutiques, Mr Macoun noted that several would be added under the Pinnacle umbrella during this fiscal year and said he didn’t think the company was nearing capacity.
“It [number of boutiques] could be quite a lot more. We only add affiliates at a very measured pace.”
This year Pinnacle-backed Firetrail Investments opened its doors led by former Macquarie Group star stockpickers Patrick Hodgens and Blake Henricks. Other boutiques that are part owned by PInnacle include Hyperion, Two Trees, and Resolution Capital.
Pinnacle will report audited earnings in late August.