Regal bid for Platinum ‘reasonable’ says Morningstar

The move by Regal Partners to acquire Platinum Asset Management appears reasonable, according to research and ratings house, Morningstar.

It said that Platinum’s outlook as a standalone entity “remains challenged”.

In an analysis issued soon after confirmation of the Regal bid, Morningstar equity analyst, Shaun Ler said the bid seemed reasonable in the context of a 14% takeover premium to Morningstar’s fair value assessment of Platinum and the last closing price.

Morningstar said that it was maintaining its fair value estimate in the context of the Regal’s indicative proposal.

With the caveat that Morningstar does not cover Regal Partners, the analysis said that on the surface, being part of a more diversified asset manager like Regal could allow Platinum to leverage Regal’s broader distribution network, reach a wider audience and mitigate outflows via cross-selling.

“Additionally, Regal may need to improve operating efficiencies through improved economies of scale and to eliminate duplicated back-office functions. However, not all fund manager consolidations have gone smoothly, with Perpetual’s acquisition of Pendal being a case in point,” Morningstar said.

“Platinum’s outlook as a standalone entity remains challenged. Its performance continues to lag its peers, and its fee structure remains relatively high. Past advantages from intangibles and switching costs have weakened and no longer warrant a moat for Platinum. The firm also has slower product enhancement and distribution initiatives relative to peers like Pinnacle.”

The Morningstar analysis said that, collectively, these factors have led to persistent client redemptions that inflows could not offset.

“In its current state, we forecast Platinum’s after tax profits over the next five years to sit around 30% below fiscal 2024’s $45 million and roughly 60% below fiscal 2023’s $81 million—averaging $31 million per year,” it said. “This is driven by shrinking funds under management, with cost reductions and a shift toward higher-margin retail FUM partially offsetting this decline.”

“Platinum is currently executing its turnaround strategy but quantifying its upside potential remains difficult as it remains in the early stages. Planned new product rollouts, such as a quantitative hedge fund, will take time to attract new assets and will unlikely offset the larger-scale redemptions it is experiencing,” the analysis said.

“The planned introduction of products in other asset classes managed by external managers—covering both public and private markets—appears to be more of a defensive measure to keep up with competition and is unlikely to garner significant flows. This is because the multi-boutique/asset class model has long been pioneered, and the space now consists of established players, including Pinnacle, Fidante Partners, Ironbark, Grant Samuel, and Regal.”