Pinnacle: Resilience Amid Adverse Markets

We retain our fair value estimate for narrow-moat Pinnacle PNI at AUD 11 per share. Net inflows for fiscal 2024′s first three months were AUD 200 million. While modest at less than 1% of funds under management, it is a standout compared with other listed asset managers. The industry experienced redemptions over this period due to persistent client aversion toward risk assets, caused by uncertainty on the trajectory of interest rates.

This performance was supported by Pinnacle’s diversified offering and broad clientele. These traits, when coupled with strong performance, considerably enhances its ability to attract and retain FUM even amid adverse markets. During the last three months, net inflows into the higher-margin retail and international channels were AUD 1.2 billion; with part of that into nontraditional products like private credit, private equity, and global emerging-market funds. These flows were partially offset by institutional redemptions of AUD 1 billion.

We expect Pinnacle will experience net inflows averaging mid-single-digit rates of FUM over the five years to fiscal 2028. This is underpinned by the strong investment performance of its boutiques and comparatively low fees, helping it to capture market share from other poorer-performing competitors when industry fund flows recover. Eighty-one percent of strategies have outperformed their benchmarks over the five years to September 2023, and a growing proportion are also outperforming peers. Its fees are, on aggregate, lower than about 60% of comparable peers.

A stabilization of interest rates, possibly by the end of fiscal 2024, is also likely to revive investor appetite for risk assets and lead to new fund inflows. Slightly improved net flows into Australian investment trusts, particularly into equities and fixed-income asset classes during August 2023, mark a promising shift. This is after both asset classes experienced prolonged net outflows triggered by rapidly rising interest rates since 2022.