Platinum Asia Investments Limited (ASX: PAI)

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Platinum Asia Investments Limited (PAI or ‘the Company’) is a long-biased, absolute returnfocused
long/short product that invests in Asian equity markets (ex Japan). The Company
listed in September 2015 and is based on a similar investment strategy as Platinum’s Asia
Fund, which has a longer track record dating back to March 2003. The Manager, Platinum
Asset Management, has a strong focus on capital preservation and has the capacity to use
a range of investment tools to achieve this objective, including bottom-up stock selection;
country, industry, and thematic tilts; currency plays; shorting; and cash discretion and
derivatives. Central to Platinum’s success is the strong talent, experience, and continuity of
its core investment team. The portfolio manager (PM) is Joseph Lai who has had sole PM
responsibilities since the inception of PAI as well as PM responsibilities in the Platinum Asia
Fund since 2011. Mr. Lai is experienced and supported by a deep, experienced and stable
team of a further eight PMs and 23 investment analysts. The team, which focuses on deep,
bottom-up stock analysis and has a highly inquisitive team culture, has a strong track-record
of delivering on outperformance across all of Platinum’s international equities mandates. The
Company has underperformed since inception, although we note the Platinum Asia Fund has
materially outperformed since inception. This variability of relative performance is, in many
ways, true to the Manager’s investment style. The contrarian and value-oriented investment
style will lead to periods of relative underperformance, as the case more recently. With a
sufficient dividend profit reserve now established, the Company issued a full year dividend
for the FY18 period equivalent to a yield of 7.9%.
INVESTOR SUITABILITY
While country allocations are very dynamically managed, investors should note that the
strategy has typically had significant exposure to China, either through mainland China-listed
A-shares, Hong Kong-listed H-shares as well as US-listed ADRs. Furthermore, investors
should be comfortable with active currency exposures. With a contrarian, value-oriented and
somewhat thematic based portfolio investors need to adopt a long-term investment horizon as
performance may vary materially to the benchmark Asian market. Historically, the investment
strategy has generally outperformed in down and early recovery-stage markets and when
value investments have been in favour, and vice versa. There is a strong focus on capital
preservation and the Manager has a successful track-record on preserving capital in down
markets (as evident from the longer track record in the Platinum Asia Fund and more broadly
in the Platinum stable of investment strategies). The Company’s FY18 dividend equated to a
yield of 7.9%, based on the 30 June 2018 closing share price. With a sufficient track record and
dividend profit reserve now established, we anticipate a continuation of this relatively high,
stable and fully-franked dividend stream, in the absence of a sustained market downturn. This
may serve the needs of investors in the latter stage of their investment lifecycle.
RECOMMENDATION
IIR ascribes a “RECOMMENDED PLUS” rating to Platinum Asia Investments Limited. The
Manager’s 32-member investment team is one of the deepest and most experienced in
the domestic market. It has a proven track-record across all mandates (both return and risk),
operates based on a highly inquisitive culture and there is a strong alignment of interest with
investors. While the Company has underperformed over its relatively short track record, the
investment strategy itself (via the Platinum Asia Fund) has a solid performance track record
since inception, and particularly so during down and early stage recovery markets. We also
note that there has been an absence of dilution risk over the Company’s history, which
differentiates it from many other LICs. Tempering the positives to a degree, while combined
fees (MER plus performance fee) are in-line with the long/short global equities LIC peer
group, more broadly total fees do err on the slightly expensive side. While there is a very
strong team dynamic, the autonomy accorded to each PM for their respective mandates also
introduces a degree of portfolio composition and performance change risk should a change be
required / occur.