Platinum’s board has unanimously recommended in favour of merging with L1 Capital.

The merger injects new life into Platinum (ASX: PTM), helping to arrest the organic decline of its business by merging with another asset manager that has better-performing products experiencing inflows. It also potentially unlocks value by eliminating duplicate costs.

The combined entity will have greater asset class and client diversity, facilitating cross-selling and customer retention. This should help stabilise funds under management and improve earnings, mainly from cross-selling L1’s product set to Platinum clients.

Merger should be value accretive

We think Platinum’s merger with L1 should be value-accretive. The investment style and firm cultures are broadly aligned. Product overlap is marginal. L1 has a much more diversified client base and manages a select few niche strategies—such as long/short and catalyst-driven funds—that are less replicable by passive options.

Investment performance for L1’s suite of funds has been solid over the longer term. We estimate it has broadly gained consistent net flows over the last seven years with the exception of the coronavirus-stricken fiscal 2020.

That said, the merger does not improve the combined entity’s competitive positioning relative to passive investment houses or larger active peers with better scale advantages. L1’s—and Platinum’s—management fees remain above peer averages, already a disadvantage for fee-conscious investors. This places its fortunes on performance, which can vary significantly year on year.

Notably, unlike traditional active managers, L1’s business is heavily dependent on performance fees. Performance fees have accounted for roughly 60% of revenue over the last three years, presenting significant earnings and margin volatility.

Further room to reduce costs

We think there is further room to reduce costs, though downside risks could manifest in reduced flows due to concerns about team stability. The combined Platinum-L1 entity aims to further reduce operating costs by 25%- 30% by fiscal 2027.

We estimate the combined entity’s cost/income ratio (excluding performance fees) exceeds 60%. At the current fiscal 2027 target, it will likely continue to remain as such if Platinum’s revenue continues to compress and L1’s performance normalises as we expect.

Cost reductions likely involve consolidating technologies and processes, further removal of mainly non-investment staff, and additional adjustments to remuneration for the investment team.

However, this would entail another round of corporate transition following the range of recent corporate changes. These include portfolio manager departures—including the replacement of Andrew Clifford and Clay Smolinski, previous workforce downsizing, the closure of various UCITS and Cayman funds, and remuneration adjustments.

Such events typically warrant a cautious view from research houses and investors for an extended period.

What happens next?

A notice of meeting, explanatory memorandum, and independent expert’s report will be released in August 2025 before Platinum’s full-year results.

A general meeting for voting for or against the merger is scheduled for September 2025. If the merger is approved, the entity will be renamed with a new stock ticker—but the Platinum and L1 brands will be retained at the product level.

Under the proposed merger, L1 shareholders would own around 74% of the combined entity, with existing Platinum shareholders retaining around 26%.

Platinum shareholders are guaranteed a share of performance fees from L1’s long/short funds and mandates, based on the first 3.5% of annual absolute returns (after performance fees).

This helps Platinum shareholders receive a more stable income stream from these performance fees rather than being exposed to the full ups and downs of fund performance.

Fair Value retained for now

We do not expect improved flows into Platinum’s suite of funds given their poor performance. More broadly, the structural challenges facing traditional active managers like Platinum and L1 remain —namely, fee pressure and market share loss to passive vehicles such as ETFs.

We retain our fair value estimate of AUD 0.50 per share for no-moat Platinum. While we see a high likelihood of the merger proceeding, we have not yet factored L1 into our projections.

Assuming net outflows from the combined entity slows—with net inflows into L1 partially offsetting losses from Platinum—and the entity reduces costs in line with targets; our fair value estimate would increase to AUD 0.60-AUD 0.70 per share depending on the rate of outflows.

We don’t anticipate sizeable redemptions stemming directly from this merger. Platinum’s investment team does not change. For L1, its founders will step back from managing the business and focus fully on investment management—a positive.

Platinum Asset Management (PTM)

  • Fair Value Estimate: $0.50
  • Star Rating: ★★★
  • Moat Rating: None
  • Uncertainty Rating: High

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.