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Platinum Asset Management hits new yearly high on brighter market mood

Platinum Asset Management (ASX: PTM) hit a high of $6.43 a share recently, returning to and slightly surpassing a previous high set in July. Why is it back up? Since it is a fund manager, its bread and butter is the returns on investment it gets from the equities it buys into. And as a manager, it gets its fees for management that can be based on certain percentages of the funds it manages.

Over 2013, the company explained that its funds under management (FUM) increased from $14.9 billion to $19.8 billion, or a 32.9% rise. Not only do they have more money to invest and potentially achieve a higher rate of return, but the value of their management fees at the same percentage rate expands accordingly.

Unluckily listing just before the GFC did it no favours, but is it about to shine and return to higher altitudes? Assuming that its net profit margin of 58.4%, and 37.5% return on equity either stay the same or head higher, more funds under management will mean more earnings.

So an investor should consider where they think the financial markets go from here. Is the Australian market going to head up itself? Will the China story be stronger for longer? Will the Aussie dollar settle back down further? Also consider the US market. Has that bull market, born in the depths of the GFC, got more to run? Or is this rise simply preceding another financial crisis?

Since June 30, FUM increased by $900 million to $20.7 billion by September 30. It seems that investors are chanting a market growth mantra, which will translate into even more earnings for the company. Make hay while the sun shines.

Foolish takeaway

Investors can also look at other fund management companies such as Perpetual (ASX: PPT), Magellan Financial Group (ASX: MFG) and Challenger (ASX: CFG) to see how they are performing in the same investment climate. Its not always rocket science to understand investments. As long as the investments don’t become too esoteric, opaque to valuation, or lean too much on leverage. Remember, a small slice of a big pie can be a big piece in itself.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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