The business Pinnacle Investment Management Group Ltd (ASX: PNI) is my favourite S&P/ASX 200 Index (ASX: XJO) stock right now.
This is a very interesting business, in my view. It invests in emerging funds management businesses and helps them grow.
Pinnacle can help with seed funds under management (FUM) and working capital, but it also can offer a number of services to help those fund managers focus on investing. The ASX 200 stock can help with distribution and client services, middle office and fund administration, middle office and fund administration, compliance, finance, legal, technology and other business infrastructure.
Some of the fund managers it's invested in includes Hyperion, Plato, Palisade, Resolution Capital, Solaris, Antipodes, Spheria, Firetrail, Metrics, Longwave, Riparian, Coolabah, Aikya, Five V Capital, Pacific Asset Management, Life Cycle and VSS.
There are a few reasons why I think this ASX 200 stock is a great buy right now.
Lower valuation
The Pinnacle share price is still significantly lower than where it was in February 2025 – it's down 29% from 5 February 2025.
It's not too surprising it has fallen heavier than the ASX 200 because its earnings are largely reliant on FUM. The FUM would have taken a hit following the stock market sell-off, but not a 29% drop.
According to the forecast on Commsec, the Pinnacle share price is valued at 34x FY25's estimated earnings. It's not cheap, but I think it has been oversold in the last couple of months, particularly when we consider how the fund managers are growing their businesses.
Growing affiliates
One of the easiest ways for a fund manager to grow its FUM is just to deliver investment returns with its funds. Those fund managers can also make moves to boost the scale of their businesses. In the FY25 half-year period, ASX 200 stock's affiliates made a number of moves to help deliver additional growth.
For example, Antipodes completed its acquisition of Maple-Brown Abbott in August 2024, Coolabah raised over $3 billion of investor funds and Metrics' Metrics Real Estate Multi-Strategy Fund (ASX: MRE) exceeded its initial public offering (IPO) target of $300 million.
An affiliate adding a new growth avenue by launching a new fund or acquiring something can help accelerate growth. It also adds diversification to that affiliate's earnings.
Pinnacle is now invested across a number of areas including Australian shares, global shares, public and private 'real' assets, and public and private credit.
Strong net inflows
One of the most important factors for a fund manager is whether clients are collectively adding money to the fund manager or withdrawing it. This is called net inflows or net outflows.
For the first six months of FY25, the ASX 200 stock reported total net inflows of $6.7 billion, which is a solid growth rate considering the business ended HY25 with $155.4 billion of FUM.
Within that net inflow figure of $6.7 billion, it delivered domestic retail net inflows of $3.7 billion, domestic institutional net inflows of $2.2 billion and offshore net inflows of $0.8 billion.
As long as Pinnacle's net inflows stay positive, I think the ASX 200 stock has a very compelling future.
