Early stage investors in VGI Partners Ltd (ASX: VGI) will be chuffed this October with the stock tripling since it handed out 13.6 million new shares at $5.50 each during a June 2019 IPO.
The IPO investors were a select group of prior investors, friends, and high roller associates who've all watched the value of their equity rocket thanks in part to the complex structure of the IPO pricing.
Today VGI reported funds under management (FUM) has gone nowhere over the quarter to September 30 2019 to remain flat at $2.6 billion.
However, this number does not include the more than $500 million raised as part of its VGI Partners Asian Investments Fund that offered existing investors in other VGI funds free 'bonus' or 'alignment' shares in return for investing.
In this sense VGI has taken a leaf out the Magellan Financial Group Ltd (ASX: MFG) play book by incentivising retail investors to tip in more FUM as asset management is a scalable business that boasts excellent operating leverage.
VGI has also followed Magellan in launching exchange traded actively managed funds, with VG1 Partners Global Investments Ltd (ASX: VG1) and its soon to be launched Asian fund.
For now though it appears VGI is largely just targeting retail and high-net-worth investors partly because it does not yet have any institutional business development, or potentially has no intention to win institutional mandates.
Personally, I wouldn't invest in a fund manager that doesn't target institutional mandates or outsources institutional business development and retail distribution functions.
That's not to say you cannot make money investing in VGI, as the huge returns for early investors show.
For many reasons outlined previously the only two asset managers on the local market I'd consider investment grade for now are Magellan and Macquarie Group Ltd (ASX: MQG).