Ann: PTM turnaround program update, page-92

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At 74, Kerr Neilson, oneof the godfathers of Australia’s funds management industry, should be enjoyinga quieter life like many septuagenarians. One that focuses on investing hisprivate share portfolio, on philanthropy and on his passion for travel. Instead,for the past six years, the driven and confident billionaire has been intent onrecouping the $585 million wiped from his personal wealth.

Neilson’s wealth took asubstantial hit after his 21.5 per cent shareholding in Platinum AssetManagement plunged almost 80 per cent in value since mid-2018. That was theyear he stepped down as chief executive of that funds management group.

“I have actuallyremedied that loss that I suffered by being active in the markets,” saidNeilson. “I’ve been working hard.”

Lastyear, Neilson’s wealth was estimated at $1.24 billion by The Australian Financial Review’s annual rich list.

Neilson’swealth was also cut substantially after the 2015 divorce from his wife JudithNeilson, which resulted in their joint shareholding of 43 per cent being split.Her wealth was estimated at $1.43 billion last year.

In a wide-ranginginterview, Neilson discusses his current portfolio, which mostly comprisesinternational stocks; the picks that helped him remedy his Platinum loss; andalso the investments that have not done so well.

Neilsonalso explains why his Platinum shareholding is no longer for sale.

Neilson co-foundedPlatinum Asset Management in 1994 with Andrew Clifford. Neilson, originallyfrom South Africa, had set up Platinum after a stellar career managing money atBankers Trust. One of Platinum’s first investment mandates came frombillionaire hedge fund trader George Soros.

Neilsonsteered Platinum through years of good and bad performance but in 2018, hedecided to step down as chief executive and was succeeded by Clifford.

Inthe ensuing years, Platinum’s performance, funds under management and shareprice began to deteriorate. Neilson, who remained a director on Platinum’sboard, started to privately and then publicly agitate for management andstrategic change, including the removal of Clifford as CEO.

Clifford was originallyappointed into that role with Neilson’s blessing. When he became CEO, Cliffordalso retained his role as chief investment officer. As the fund manager’sperformance declined, this dual role would become a sore point.

Cliffordhas avoided commenting and engaging in a public spat with Neilson.

In 2022, Neilson quitthe Platinum board in frustration. He said the board wasn’t heeding the changeshe thought were required to stem Platinum’s decline.

Then in early 2023,Neilson effectively put his Platinum stake up for grabs. Neilson is Platinum’slargest shareholder.

Sincethen, Neilson has done an about-face on his intention to sell his stake, partlybecause some of the changes he agitated for at Platinum have now occurred,including Clifford stepping down as CEO. Also, the idea of Platinum potentiallybeing merged with another fund manager didn’t appeal.

Neilsonsaid he wasn’t interested in an outcome for Platinum that would have been “justto smash companies together and take out costs”. “My position from four yearsago was to use my 21 per cent to get a new CEO appointed,” he said.

“I was more interestedin understanding who’s going to lead this change because to smash thingstogether without changing the structure within the investment team would do nogood.”

Heconfirmed one of those suitors had been Phil King’s Regal Partners, which hashad an active role in consolidation in Australia’s funds management sector.

Regal Partners took a5.6 per cent stake in Platinum in late 2022 but it sold out last year.

Anotherspeculated contender for the stake was veteran fund manager Geoff Wilson andhis eponymous firm. However, Neilson said he hadn’t spoken to Wilson or anyonefrom his firm.

Neilsonsaid if his Platinum shareholding was offered to Wilson, then it was possiblythrough an opportunistic third party.

Wilsondeclined to confirm if Wilson Asset Management was approached. Instead, Wilsonsaid the big question for Platinum now “is whether the new CEO and managementteam can turn the business around”.

LastDecember, Clifford was replaced as CEO by Jeff Peters. Peters formerly workedfor Columbia Threadneedle Investments and Putnam Investments. He had also runthe asset management practice at McKinsey.

Neilson participated inmeeting the CEO candidates that were to replace Clifford but he wasn’t involvedin the final decision that settled on Peters. He’s since had one meeting withPeters.

Followinghis appointment, Peters did a review and announced changes to the leadershipand structure of different Platinum funds, and also that $25 million in costswould be taken out of the business.

Neilsonsaid he expected that Platinum would lose some momentum as it went through thecurrent restructure. “They have the personnel to rebuild the business,” hesaid. Asked whether the cuts were enough, Neilson said more savings, inaddition to the $25 million, could be found in the administrative side ofPlatinum.

In March, Platinumrevealed it had suffered a further blow to funds under management, with theloss of a $1.4 billion mandate. In February, its funds under management stoodat $15.6 billion. It was a substantial fall from mid-2018, when its funds undermanagement were $25.7 billion.

Theprincipal driver of funds under management is an asset manager’s performance.Platinum’s performance has suffered more recently because of its underweight positions in UnitedStates tech stocks, weighing on its relative returns.

Neilsonsaid he would be watching the performance of the two principal Platinum fundsfor a sign the turnaround was working. “If you turn your performance aroundwithin six months, people start noticing. So then, redemptions cease and thenwithin 12 months, you could start seeing some inflows,” he said.

Neilson has a personalportfolio of nearly 100 stocks. In contrast to Platinum, he’s been a big holderof some of the US tech stocks for the past six years, some of which havedoubled in value. “I’m a very patient investor. I do have long holding periods.We’ve been in a rollicking bull market,” he said. Still, he believes the UStech stocks are beginning to “get a bit expensive now”.

Thebiggest positions in his portfolio have been in Amazon, Meta, Microsoft,Alphabet, Booking Holdings, Flutter Entertainment, Fujifilm, Siemens, Samsung,General Electric and Saint-Gobain. More recently, he said he had built a bigposition in Puma.

Healso owns Toyota and a number of gold stocks including Barrick. In theAustralian market, he has a holding in Paladin Energy.

Asan example of his stock picking, he explained why he liked Fujifilm. He saidit’s the company’s successful reinvention of itself throughout its history, andmore recently with its Diosynth Biotechnologies division, which is one of theworld’s largest contract manufacturers of biopharmaceuticals.

Lesssuccessful investments in Neilson’s portfolio have been bets on Canada’s MercerInternational and Japan’s Rakuten.

Hesaid about one-third of his portfolio was exposed to the US.

Neilson said it was notjust about picking individual stocks, but understanding different economies,finding opportunities and removing doubts, and then sizing the bet andfinessing the timing of it.

Hesaid Chinese stocks were looking cheap now, but questions remained about theChinese government’s ability under President Xi Jinping to bolster domesticconsumption, particularly as China’s troubled real estatemarket is such a big drag on growth.

Andas for Platinum, he’s patiently waiting and watching.