Platinum Capital Limited (ASX: PMC)

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Platinum Capital Limited (PMC or ‘the Company’) is a long-biased, absolute return-focused
long/short product that invests in equity markets globally. The Company listed in 1994 and
is based on the same investment strategy as Platinum’s flagship International Fund. 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 bottomup
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. Chief Executive Officer (CEO) and Chief Investment
Officer (CIO) Andrew Clifford took over as the Company’s portfolio manager (PM) in July this
year from Platinum co-founder Kerr Neilson. Mr. Clifford is highly 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 materially outperformed since inception
but investors should note that the contrarian and value-oriented investment style will lead to
periods of relative underperformance, as has been the case more recently. The Company has
a track-record of paying relatively high, fully franked and stable dividends.
INVESTOR SUITABILITY
Based on its investment style, the Company will invariably hold a very differentiated portfolio
to its benchmark and the vast bulk of other active international equities mandates. With a
contrarian, value-oriented and somewhat thematic based portfolio investors need to adopt
a long-term investment horizon as it is highly likely that performance will vary materially to
international equities in general in certain market environments. Historically, the investment
strategy has tended to outperform in down and early recovery-stage markets and where value
investments are in favour, and vice versa. Further, over the course of the last few years, the
portfolio has maintained a materially overweight exposure to the Asia region and underweight
the US market, reflecting the Manager’s investment views as well as an index agnostic
investment style. There is a strong focus on capital preservation and the Manager has a
successful track record on preserving capital in down markets. A track-record of relatively high,
stable and fully franked dividends may also serve the needs of those investors in the latter
stage of their investment lifecycle. Given the material buffer of retained earnings, we would
anticipate a relatively smooth and visible dividends profile over the foreseeable future.
RECOMMENDATION
IIR ascribes a “RECOMMENDED PLUS” rating to Platinum Capital 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. The
investment strategy has a solid performance track record, and particularly so during down
and early stage recovery markets. Risk has been notably below benchmark, consistent with
objective and philosophy. We also note that there has been an absence of dilution risk over
the Company’s long track record, 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. Further, a slight reservation we have is notwithstanding the deep firm
resources and distinctive firm-wide investment approach we believe there is still a degree
of key man risk in the unforeseen event of Andrew Clifford departing. While only taking over
the reigns as PM in July 2018, Mr Clifford has had a long involvement in the flagship Platinum
International Fund (effectively the same mandate as the Company) which he co-managed
with the Company’s long-time PM Kerr Neilson. The very autonomy accorded to each PM for
their respective mandates does introduce a degree of portfolio composition and performance
change risk should a change be required.