The basic profit-making challenge of the big banks like Commonwealth Bank of Australia (ASX: CBA) is to make more on what they lend than they pay on what they borrow.
The basic challenge for money managers is to grow funds under management (FUM), while keeping a lid on costs, this is because revenues mainly come from fees charged as a percentage of total FUM. The challenge is complicated though as charge too higher fees and investors go elsewhere, too low and you can’t make a profit.
All money managers should enjoy the tailwinds of changing demographics and a growing superannuation pool, but which are the best to boost your returns?
Magellan Financial Group Ltd (ASX: MFG) appears to have the hottest sales and distribution team in town and money managers are heavily reliant on sales efforts to grow FUM. Institutional business development is the key and given Magellan’s strong investment performance it’s possible to imagine some powerful presentations being offered up to persuade local and offshore institutions to partner with Magellan.
If it maintains the momentum Magellan looks a strong long-term prospect. Selling for $12.12 it’s priced for growth but should deliver.
Rival Platinum Asset Management Limited (ASX: PTM) has been able to grow FUM at a rate almost as impressive as Magellan. Impressive performance and rising markets the growth drivers, although the fact remains it prefers to outsource sales and distribution functions where possible. Selling for $6.37 it looks an opportunity, as like Magellan it has a streamlined business model fit for the future.
Across town in Sydney is Perpetual Limited (ASX: PPT), a money manager that has undergone a radical transformation under the leadership of chief executive Geoff Lloyd.
On announcing his Transformation 2015 strategy in June 2012, Lloyd talked of three goals, which were to work “hard and fast” to deliver growth, slash costs, and reinvigorate the sales and distribution network. Shares rocketed in value as Lloyd delivered on the first two with gusto, however, efforts on sales and distribution reform have yet to deliver decent FUM growth, despite strong investment performance. Selling for $46.17 Perpetual is priced for growth and has work ahead to justify its valuation.
Perpetual has a focus on Australian equities, whereas Platinum and Magellan focus on global equities. Institutional and retail FUM flows seem increasingly attracted to global mandates as Australian investors look to diversify. Magellan and Platinum also have the specialist capital-light, no passengers, type business and employment model pioneered by Macquarie Group Ltd (ASX: MQG). This makes them look the profit-growing blueprint for the money managers of the future, with Magellan the standout for my money.
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