Platinum Asset Management Limited

• The company has announced results for the year to 30 June 2015. Total revenue grew by 12.7% to $ 360.42 million, profit from ordinary activities after tax by 12.4% to $ 213.49 million and the net profit for the period attributable to members was the same. Diluted EPS was 36.68 cents per share. The dividend declared was $ .20 per share fully franked following an ordinary dividend of $ .17 per share paid on 18 March 2015 and a special dividend of $ .10 per share fully franked on that date. Net tangible assets per share was $ 0.59 at 30 June 2015 compared to $ 0.65 at 30 June 2014 as a result of the payment of the special dividend.

• The amount of money that the company manages known as Funds under Management is the key element of the business model and a critical determinant of the profit performance. The company had a successful year because of strong growth in FUM which was aided by the solid investment performance of individual funds and investment managers and the average level of FUM increased by 17.3% over the period. As a result, management fees increased by 18.5% to $ 322.1 million. This increase, in combination with gains on the US cash holdings (up by $ 16.6 million), was more than enough to offset the decrease in performance fees from $ 27.4 million in the previous year to $ 2.3 million. Performance fees can fluctuate considerably from one year to another and it is important to note that the company was able to offset the reduction. Costs have remained relatively stable because of close monitoring and control and there was a decrease in staff costs during the year despite the increase in profits and FUM. These revenues and expenses generated an increase in net profit before tax by 15.5% to $ 301.6 million. Net profit after tax was affected by lower performance fees to which the concessional tax rate of 10% applicable to the Offshore Banking Unit applies caused income tax expenses to increase and, consequently, net profit after tax of $ 213.5 million increased by 12.4%. Diluted earnings per share rose by 13.3% to 36.7 cents per share.

• Funds under management increased by $ 4 billion to $ 26.9 billion, a growth of 17.1%. The increase can be attributed to strong investment performance which contributed $ 5.3 billion. Fund distributions net of reinvestment in the underlying funds were a record figure of $ 1.4 billion and net investment flows came to $ 0.08 billion.

• Staff costs actually declined by 10.3% or $ 3.2 million despite the growth described above. The level of bonuses paid to the investment team and the participation of selected staff in the profit-sharing scheme depends on strong relative returns or the outperformance of benchmarks and this alignment between remuneration and the ability to generate profits for investors is fundamental to the business is fundamental to the fund management business.

• The company believes that this is a far better and more accurate measure of performance when compared to simpler metrics such as the commonly used Total Shareholder Return (TSR) which measures share price appreciation plus dividend reinvestment between two points in time. Though, over long periods of time, TSR will usually reflects the underlying performance of the business, the company believes that there are a number of issues in using it as the basis for employee remuneration. For instance, shorter term variables such as interest rates are outside the control of employees but can be important to business performance. The use of TSR may therefore encourage a focus on short-term outcomes and short-term investment returns to the detriment of longer term outcomes. If the company had used TSR, bonuses may have increased significantly despite the fact that investment returns lagged the respective benchmarks by the outperformance margin that was required.

• A new MFund product Platinum Global Fund was launched on the ASX. This is a long only investment strategy which provides investors with the ability to invest through their brokers or invest directly through the company. The return has grown by around 20.2% between the inception and 30 June 2015. The company has recently commenced an IPO associated with the launch of a new investment company listed on the ASX called Platinum Asia Investments Ltd. This product provides investors with a convenient means of investing to gain exposure to the fast-growing Asian equities markets ex-Japan. The group intends to be a long-term co-investor in the company and through its wholly owned subsidiary, will subscribe to 25% of the total amount raised subject to $ 50 million. The board believes that this is a complementary investment for shareholders and, of the total of $ 26.9 billion of FUM as on 30 June 2015, an estimated one quarter represents Chinese investments listed in China, Hong Kong and other stock exchanges. As a result of extensive lobbying and the passage of new legislation, the company will shortly launch a new Undertaking for Collective Investment in Transferable Securities in Ireland which will provide opportunities to develop the brand name offshore.

• The company does have its plus points and has generally outperformed its bench marks although it has underperformed strong benchmarks for FY 2015. Over the past year, the pre-tax NAV has grown by 17.6% compared to the growth of 23.7% in the MSCI World Index. Since inception, however, it has returned just over 13% compared to 6.6%. However, it does trade at a considerable premium and we believe that it is expensive at the current price. We do not therefore recommend an investment at the present time.