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Escape Australia: invest offshore with these billion-dollar wealth managers

It’s a fact that fairly soon, the available amount of money in Australia’s superannuation pool will be far bigger than the Australian share market. That’s because unlike the share market, the pool of superannuation is guaranteed to grow thanks to the current compulsory super guarantee rate of 9.5%, and that percentage is multiplied by the wage of every worker in the economy.

Australia’s superannuation pool currently sits above $2 trillion and is expected to double in the next ten years. By comparison, the total domestic market cap of the ASX is $1.6 trillion.

If you follow that through, it means that eventually there will be more money than businesses on the ASX to invest in. However, the Australian share market only accounts for a measly 2% of the world’s listed stock universe, meaning that investing offshore is a no-brainer.

But very few retail investors like you or I could lay claim to having mastered the Australian share market, and unless you can reliably beat the ASX, there is no reason to believe that you could outperform overseas share markets.

Fortunately, there is a great solution to this skill gap, with the ability to invest in specialist ASX-listed fund managers with an offshore focus. So what sets each of these multi-billion dollar asset managers apart from each other?

Platinum Asset Management Limited (ASX: PTM) is the brainchild of billionaire value investor Kerr Neilson. Under his stewardship, the main international fund has over $9 billion under management. Importantly, Neilson and his portfolio managers showed an ability to outperform during the years following the GFC, with the returns from the fund far outstripping the market.

The point of difference for Platinum is the secondary flagship, the Asia Fund, which is about half the size of the main fund. With the economic centre of the world shifting inexorably towards China and India, those managers with deep experience understanding the unique quirks of the businesses operating in the region will be best placed to achieve consistently market leading returns, and Platinum looks to be ahead on that score.

In comparison, Magellan Financial Group (ASX: MFG) has far more of a focus on the current global economic powerhouse, the United States. And this point of difference has served Hamish Douglass well, with assets under management well over $100 billion.

Magellan is the kind of business that Warren Buffett would laud, with a steady 10% return annually since it was first established. This has been done by having a complex and consistent investment methodology that first looks at stocks from a bottom-up fundamental perspective, and then sorts them into “buckets” according to the major investment trend that may boost their earnings beyond what the market is currently estimating.

The approach undoubtedly works, and Magellan has phenomenal momentum, with it being the current “go-to” fund for investors seeking an overseas exposure in their portfolio.

Pacific Current Group Limited (ASX: PAC), which used to go by the name Treasury Group, is cut from a different cloth to the other two fund managers on this list.

While Platinum and Magellan have “key men” in their businesses in terms of their leaders and portfolio managers, Pacific Current does not. This is because Pacific Current is an investor in other fund managers.

The model seeks to diversify away key man, market and volatility risk by allocating funds to outperforming fund managers in a range of markets and asset classes. The model also allows investors to have a stake in typically hard to invest in asset classes like infrastructure managers.

The sale of a stake in one of the higher performing managers that Pacific Current had invested in has seen the share price dip lately, but the business model is still sound, and the company has excess funds in the bank ready to be deployed in stakes in other wealth managers when prices become more attractive.

Wealth managers operate an attractive business model, with the ability to scale effectively and increase profits without needing to invest substantial new funds. Of the three stocks on this list, Platinum shows the best long-term value, while Magellan will become more interesting after any sell-off in US stocks which might cause the share price to fall temporarily.

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Motley Fool contributor Ry Padarath has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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