Platinum/L1 merger no panacea says Morningstar

Mike Taylor

Managing Editor and Publisher

11 July 2025

The merger of L1 Capital and Platinum Asset Management will not improve the combined entity’s competitive positioning relative to index funds and large active managers, according to Morningstar analysis.

While acknowledging that the proposed merger “injects new life into Platinum” Morningstar senior analyst, Shaun Ler has suggested that the structural challenges facing traditional active managers will remain – namely, fee pressure and market share loss to passive vehicles such as exchange traded funds (ETFs).

“We think Platinum’s merger with L1 should be value-accretive. The investment style and firm cultures are broadly aligned. Product overlap is marginal. L1 has a much more diversified client base and manages a select few niche strategies—such as long/short and catalyst-driven funds—that are less replicable by passive options,” Ler’s analysis said.

“Investment performance for its suite of funds has been solid over the longer term. We estimate it has broadly gained consistent net flows over the last seven years with the exception of the coronavirus-stricken fiscal 2020.”

“That said, the merger does not improve the combined entity’s competitive positioning relative to passive investment houses or larger active peers with better scale advantages.

“L1’s—and Platinum’s—management fees remain above peer averages, already a disadvantage for fee-conscious investors. This places its fortunes on performance, which can vary significantly year on year. Notably, unlike traditional active managers, L1’s business is heavily dependent on performance fees. Performance fees have accounted for roughly 60% of revenue over the last three years, presenting significant earnings and margin volatility.

“We think there is further room to reduce costs, though downside risks could manifest in reduced flows due to concerns about team stability. The combined Platinum-L1 entity aims to further reduce operating costs by 25%-30% by fiscal 2027.

“We estimate the combined entity’s cost/income ratio (excluding performance fees) exceeds 60%. At the current fiscal 2027 target, it will likely continue to remain as such if Platinum’s revenue continues to compress and L1’s performance normalizes as we expect.”