Much of excitement is building around the upcoming IPO of Platinum funds onto the Australian ASX. The reasons? First the funds are under the control of one of Australia’s most talented managers Kerr Neilson and second the stellar returns he seems to be generating.
By now I have read number of articles and commentaries about this float and all of them without an exemption were fairly positive. Every financial commentator seems to be over himself and can’t really wait to get a piece of Platinum’s action.
And what an action it seems to be. According to the published information Platinum (to be floated under code PTM) managed an average 17.3% return on its equity since its inception in 1995. Furthermore, they made the 2006 revenue of about A$300 million out of which it managed to keep A$268 as pretax profits! All the estimates also indicate, that the 2007 results are going to be pretty much in line with 2006. So we are basically looking at a business with 63% profit margin! I don’t know many of those do you?
But even at such numbers, I am somehow in two minds about this. Sure I would love to have an investment compounding at 17.3% but, by nature suspicious about any kind of fund, I also have few concerns about this one:
- Results achieved in favourable environment
The fund was only started in 1995 and where had the market had any down year ever since 1995?
Edit: 23 May 2007: Ok I understand that, contrary to the common knowledge, this argument may come as a bit of shock to most of you. So please have a look at the Australian All Ords numbers since 1985. Your comments on this are welcome.
Another edit: 24 May 2007: Why do I use All Ords as a benchmark for an international fund? In short I believe, that an individual Aussie investor, whose only investing playground is the local sharemarket, may consider All Ords as a more apropriate benchmark for his/her portfolio. After all why would you let anybody dictate you how to measure the returns on your money?
- 12 years of historical performance not good enough
I may appear to be too prudent about this, however I don’t really consider its promoted stellar performance of only 12 past years sufficient enough to put my money in it for the long haul. - Listing on historical highs
As any of you would probably know, in the last few weeks the ASX has been breaking its historical records on almost daily basis. Just how long this run can continue and, more importantly, how can any manager keep on generating similarly stellar returns from such a high cost basis are the questions an intelligent investor surely needs to ask himself. - Buying IPO = higher risk
I don’t particularly like any kind of unnecessary financial risk. Without much of past data, value of any IPO is basically almost taken “out of the blue�? by the high float fees charging investment bankers. Buying into IPO, an investor never knows whats coming. It is almost like a 50/50% bet in the casino. Sure with Kerr Neilson perhaps one has some kind of peace in mind, but the amount of risk is high nevertheless. And yes I understand, that some short term profits may be warranted by the excitement generated amongst the investing public, but “short term�? is just too close to “speculative�? in my mind. - Fees fees fees
For those who don’t understand it, make no mistake, the world of managed investments is the world of fees. To go into all the details about the Platinum’s fees structure would make this post a very lengthy reading indeed so lets just try to name them all:
Establishment fee, Contribution fee, Withdrawal fee, Termination fee, Administration costs, Investment costs, Investment performance fee, Switching fee and Advisor service fee. To be fair, I must also mention, that majority of these fees as listed in Platinum’s PDS are currently not charged. However having to come up with such a comprehensive fee structure must have required some thinking so I am not entirely convinced, that the free transactions won’t disappear before too long. After all it is not in Platinum’s interest to scare off their potential investors now, just before their IPO, is it?
In any case, since you have most likely already made up your mind about the Platinum IPO, let me just remind you, that it will start trading on ASX tomorrow, 23 May 2007. The size of the float is 112 million shares, which initially caps this IPO at not too shabby A$2.8 billion.
Its initial subscription orders were taken at the level of $5 per share (estimated P/E 15) and were apparently all filled within a single day. If you missed out and still plan to purchase from some excited early days holders, better get ready for a hefty purchase price. As for me, being in two minds, I will pass on this opportunity and wait for the market to throw me something closer to my circle of competence. 
Other news:
In economics investment includes things that can be used for future benefit, so planning is most important thing before investing anywhere. So it is very important to have such planning that can cover investment risk, before you go for some big corporate investment. Those who always look for quick profit, usually go for forex investment. While on the other hand people looking for secure investment love to go for mutual funds certificates.
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