The Pinnacle Investment Management Group Ltd (ASX: PNI) share price has climbed more than 40% from 27 October 2023.
Happily, I invested at around that time and have shared in this sizeable 40% return from the S&P/ASX 200 Index (ASX: XJO) stock.
I'll admit that part of me – the part that wants to avoid potential losses (loss aversion) – has been wondering whether to take profits off the table. Locking in 40% in three months is an excellent annualised return.
But I think the company has a lot more long-term growth potential. Plus, there's no need to pay capital gains tax prematurely.
For readers unfamiliar with this ASX 200 stock, it helps quality fund managers start their own funds management businesses.
Pinnacle takes a stake in a new funds business (affiliate) and then helps with a variety of services, including seed funds under management (FUM) and working capital, distribution and client services, middle office and fund administration, compliance, finance, legal, technology and more.
What's left for the fund managers to do? The most important thing: investing for clients.
The company's recent FY24 first-half result highlighted a number of reasons why I'm staying invested and why I think it's a buy.
Continuing outperformance
Pinnacle says that 81% of affiliate 5-year strategies had outperformed their respective benchmarks as at 31 December 2023, which is underpinning ongoing performance fee contributions. That shows the quality of the underlying managers.
In the HY24 result, performance fees contributed $12.3 million of Pinnacle's net profit (up from $0.9 million in the FY23 first half).
Ongoing dividend strength
The ASX 200 stock has increased its dividend payouts almost every year since 2016, apart from COVID-impacted 2020, when it maintained its dividend.
Pinnacle also it maintained its dividend payout in its HY24 results, though I expect dividend growth in the annual result if it continues the level of performance it's achieving.
FUM growth
Aggregate affiliate FUM rose 9% to $100.1 billion over the six months to 31 December 2023, which was an increase of $8.2 billion in dollar terms.
In HY24, it experienced net inflows of $4.5 billion (compared to outflows of $1.5 billion in HY23), with $1.8 billion of retail inflows.
As FUM rises, it can lead to growing management fees, which are more consistent than performance fees.
Growth initiatives
The ASX 200 stock is seeing ongoing international expansion in both affiliates and distribution. Newer affiliates in both the United Kingdom and North America are experiencing "early success".
Adding new affiliates, existing affiliates starting new funds, and growing its distribution presence into new areas – these activities expand the growth runway and increase the FUM potential.
When I add all of that together, I think Pinnacle shares can keep growing from here over the longer term.
