The ASX share L1 Group Ltd (ASX: L1G) is one of the most compelling businesses around right now, in my opinion.
It's a fairly new name to the ASX because it recently merged with/acquired Platinum.
While the L1 Group share price has already jumped around 40% since the merger, I think there's plenty more to come.
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Integration benefits
When two businesses merge, it's expected that they will be stronger together than apart. In this case, it's not just being larger that L1 is aiming to benefit from – the funds management business expects significant synergies.
L1 announced that its cost reduction target range is between $30 million to $35 million within 18 months after the transaction, of which at least 50% will be achieved by October 2026.
Cost reductions should largely add to the bottom line, so this is a profit-boosting endeavour by the ASX share.
Good business model
There are a number of reasons to like how a funds management business operates.
Firstly, it can provide capital-light growth. It doesn't necessarily take 10% more staff or 10% more office space to manage an extra 10% more funds under management (FUM). This means that higher management fees can largely flow to its profit line.
L1 says that it has significant growth capacity across all funds.
Funds management companies usually trade on a fairly low price-earnings (P/E) ratio, which means they look cheap for their growth potential, and they can provide investors with a pleasing dividend yield. The capital-light model also means it can have a high dividend payout ratio without necessarily lowering its earnings growth potential.
Strong FUM growth potential
L1 has a goal to build the best listed investment management business in the Australian market, and I think there are signs it could achieve that.
The ASX share has reportedly been "inundated" with enquiries from leading domestic and offshore fund managers looking to join or partner with L1. It also points to valuable seed capital allocation opportunities.
L1 also says that there are opportunities to deploy capital into very compelling value-adding "situations". The fund manager said it will be selective in pursuing opportunities.
The company also states that a pipeline of exciting new fund launches is underway, with strong client interest in the global long short strategy. It also points to expansion into North America, Europe, the Middle East, and Africa.
Ultimately, many of L1's funds have delivered strong investment returns, enabling good growth of FUM and attracting clients to invest more. Between 2014 and October 2025, L1 delivered organic FUM growth of an average of 30% per year.
I think this ASX share is one to watch over the next few years.
