The emergence of what some commentators have called the “Warren Buffett of Australia” this week underlines a steadily growing stock market bubble Down Under – and also puts some of the world’s top hedge fund managers to shame.
Shares of Platinum Asset Management, Australia’s biggest hedge fund, which manages A$22bn of international stocks, rose as much as 76 per cent on their first day on the Australian Stock Exchange on Wednesday, instantly making a billionaire of the company’s founder, Kerr Neilson, reports Bloomberg.
The stock closed up A$3.80 to A$8.80 in Sydney, valuing the firm at A$4.9bn. Platinum sold A$561m ($460m) of shares to individuals at A$5 each in an IPO, although it offered only 25 per cent of its shares in the float, with the rest held by Mr Neilson, his wife and employees.
Mr Neilson, 57, attracted customers including US investor George Soros to his international share funds by generating returns more than twice as high as the MSCI World Index for more than a decade. Wednesday’s surge in Platinum’s stock values his holding in the company at nearly A$3bn.
“Neilson’s reputation is very strong and the stock was very scarce,” Andrew Sekely, head of equities at Intersuisse in Sydney, told Bloomberg. “It was a sensational opening.”
Writing on Crikey.com, the Australian website, Stephen Mayne, Crikey’s chief business commentator, said Mr Neilson had written “a new chapter in Australia’s stockmarket bubble”.
Mr Neilson’s company is now Australia’s 60th most valuable; but Mr Neilson’s remaining majority stake is worth almost $3bn, “meaning he’s only behind Rupert Murdoch, James Packer, Frank Lowy and Andrew Forrest in terms of single investments in Australian listed companies”, writes Mr Mayne.
So who is this “Aussie Buffett”? “At one level, Neilson is just someone who has got obscenely rich clipping the funds management ticket in the easiest game in town. However, whilst there are a lot of ordinary canoes paddling in this $1 trillion river of money created by Paul Keating [former Australian PM who floated the dollar and undertook radical economic reforms in the early 1990s], Neilson is unquestionably the stand-out performer,” says Mr Mayne.
“A shy South African who traditionally shuns the media spotlight, Neilson will now have to put up with enormous attention,” he writes. And Mr Neilson’s secret? “Many fund managers who only buy Australian stocks are a dime a dozen. If they don’t get the returns, some other local player will. What makes Neilson different is that he specialises in international investing for Australian retail investors,” says Mr Mayne.
In business terms, Mr Neilson has been a “brilliant marketer” to the retail investment community, “and he’s done it again with the float by rewarding long term clients with bigger allocations of shares.”
However, Neilson “still had a hell of a record to sell”, says Mr Mayne: “Long term out-performance of international benchmarks — and he deserves every dollar of his wealth because he has literally created tens of billions of value for Australians. Punters gave him their money, he took it offshore, out-smarted his competitors on the global stage and delivered big returns over a long period of time. We need more of this.”
Mr Neilson, who worked at Bankers Trust before creating his own company in 1994, and his wife own at least 57 per cent of Platinum, according to a report by Aegis Equities Research, says Bloomberg. The two would have held 62 per cent of the firm, the April report said, before agreeing to offer an extra 5 percent of the stock to individual investors earlier this month.
Reuters, meanwhile, says that Mr Neilson’s success merely demonstrates how buoyant equity markets and an upbeat outlook for Australia’s pension market are luring fund managers and financial services firms to seek share market listings; and that trickle “could turn into a flood”, analysts say.
Already, the banking and financial services sector accounts for roughly a third of Australia’s benchmark stock index. It was also the most popular sector among Australian retail investors, according to a study by the country’s stock exchange, says Reuters.
The founders of Platinum Asset Management “have long resisted the temptation to go public” but with the industry looking rosier than ever before, they decided to capitalise on some of the value they have created, it adds.
Still, warns Reuters, “while the good times are seen continuing, a prolonged bear market and departure of key fund managers could turn the tide against a sector which is highly geared to stock markets.”
“Analysts say a market downturn could trigger fund outflow, putting pressure on fees earned by asset management firms. And that could compress price-to-earnings ratios of fund management companies in a bear market.”
“The price-to-earnings multiples of fund managers tend to increase during rising markets and fall during falling markets,” said Reuters, quoting a Credit Suisse report.
Another key risk associated with some fund businesses is the over-reliance on an individual fund manager, Reuters noted. “Let’s face it, Neilson is Platinum and Platinum is Neilson,” one analyst, who declined to be identified, told Reuters.