There are not many businesses I'd describe as being as one of Australia's top shares. Pinnacle Investment Management Group Ltd (ASX: PNI) is one stock that I think seems very underrated by the market.
Pinnacle says that it's growing a diverse family of world-class investment managers (affiliates). Along with holding stakes in these affiliates, it also provides services like seed funding, global institutional and retail distribution, and industrial grade middle office and infrastructure services.
The company says that by providing affiliates with superior non-investment services, it enables them to focus on delivering "investment excellence" to their clients.
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Great portfolio of fund managers
Pinnacle has built a portfolio of a number of great managers, including Advantage Partners, Aikya, Antipodes, Coolabah, Firetrail, Five V Capital, Hyperion, Langdon, Life Cycle, LongWave, Metrics, Pacific Asset Management, Palisade, Plato, Resolution Capital, Riparian, Solaris, Spheria and VSS.
I like how the business is looking to deliver growth in a number of ways including new affiliates, strategies, channels and geographies, providing new levers for expansion.
If Pinnacle is willing to continue investing in fund managers based in other markets, then it has a very large addressable market to find new opportunities, making it one of Australia's top shares in my view.
The business also noted that international distribution is becoming a "strong growth engine following [an] organic, multi-year build-out of global investor networks, strategies and infrastructure".
Strong growth
The company's potential is coming through in the numbers that it's reporting, with both the underlying profit and the strength of the funds under management (FUM) growth.
The latest the market heard was the FY26 half-year result.
In that report, the company revealed record net inflows of $17.2 billion, including domestic retail net inflows of $6.8 billion, domestic institutional net inflows of $7 billion and international net inflows of $3.4 billion.
It also said that total affiliate FUM reached $202.5 billion at 31 December 2025, which represented 13% (or $23.1 billion) growth from June 2025.
Not only is the business' affiliates attracting new client money at a strong pace, but they're also growing the FUM balance thanks to the investment performance of the funds.
Pinnacle noted that the affiliates are largely delivering continued medium-term performance. It said 86% of five-year affiliates have outperformed their respective benchmarks over the five years to 31 December 2025.
Operating leverage is important for Australia's top shares
One of the best things about funds management businesses is how much operating leverage they can have. In other words, net profit can grow a lot faster than revenue because costs don't rise at the same pace.
It doesn't take 10% more staff and a 10% bigger office to manage 10% more FUM.
In the HY26 result, it reported that net profit before performance fees rose 37% year-over-year. Pinnacle's share of affiliates' net profit, excluding performance fees, grew 52%.
In my view, it looks very undervalued to me after falling around 20% in the last six months.
According to the forecast on Commsec, it's trading at 18x FY27's estimated earnings.
