Mark Draper recently met with Andrew Clifford (Platinum Asset Management) to talk about the change in CEO at Platinum Asset Management and what it means for investors in Platinum funds.
Below is a podcast of the discussion and also a transcript.
Speakers: Mark Draper (GEM Capital) and Andrew Clifford (Platinum Asset Management)
Mark: Here with Andrew Clifford, Chief Investment Officer, or currently Chief Investment Officer of Platinum Asset Management, soon to be Chief Executive Officer of Platinum Asset Management.
Andrew, thanks for joining us.
Andrew: Good morning. It’s good to be here.
Mark: Shooting this in Adelaide, too, by the way. So, welcome to Adelaide, Andrew.
It was announced to the market recently that the joint founder of the business, alongside of you, Kerr Neilson, who is the current CEO of Platinum Asset Management is going to step down as CEO, still stay within the business.
I just want to talk about that this morning for our Platinum international investors.
Are you able to give us an overview? What does this actually mean for the business?
Andrew: I think what people should understand is that we’ve built over the last 24 years, a very deep and experienced investment team. I think also it would be good for people to understand just exactly how the process works internally to understand the role, how Kerr’s changing role affects us.
Across that team, one of the things that we think if very important in coming up with investment ideas is that there’s a very thorough and constructive debate about investment ideas. If you put someone in the corner of a room and leave them to their own devices for four weeks to look at a company, on average through time, they’re not going to come up with good ideas, they’re going to miss things.
Part of our process is that the ideas, even from the very beginning, should we even be looking at this company or this industry, is something that is thoroughly debated all the way along.
We have five sector teams and also our Asia team. These are teams of sort of three to five people and they’re working away, coming up with ideas, debating them internally before they’d even presented to the portfolio managers for a potential purchase.
Then what happens is we have a meeting around that and you get all the portfolio managers for whom that is relevant and the idea is further debated and one of the things to understand about the process is we’re not trying to all come to some lovely agreement about whether this company is a good idea. We’re trying to work out what’s wrong with it.
Then ultimately, what happens after all of that, invariably there’s more questions to follow up and work to be done, but what happens is then each of the portfolio managers make their own independent decision on whether to buy that company or not.
The important role of the portfolio manager, as I see it, is everyone always thinks of them as these gurus who are making a decision about buying this stock or investing in this idea, and certainly they have that final responsibility. But I actually think their most important role is leading that discussion and debate.
Indeed, what happens in the places, that you can see that if an idea comes through to buy a certain company, if I buy it and Clay Smolinski doesn’t or Joe Lai doesn’t, when it’s an Asian stock, or Kerr does, but he buys 3% in the fund and I buy half a percent, there’s some kind of difference of opinion there that needs to be further debated and discussed. We have particular meetings where we do that.
I give this all as a background to say that there’s a very—
Mark: It’s a bigger process.
Andrew: —deep and proper process there.
Mark: It’s not one person pulling the strings.
Andrew: That’s right, absolutely. When it comes to Kerr and his role, Kerr will continue to be part of the investment team, he will continue to work away on investment ideas, which is his love. When you do this job, you’re never going to stop doing that.
He’ll still be there working away on this idea or that, as pleases him. Also, he will be looking at the ideas other people are putting forward because that’s what excites him.
He will still be part of our global portfolio manager’s meeting, which is the meeting of the most senior PMs, where we actually debate those ideas, where those differences of opinion are occurring amongst the PMs.
He’s still there going to be doing that and as Kerr would say, the demands of being a—of running a global portfolio, are not inconsequential in terms of the time and effort. What he is hoping to be doing is then being able to take that time where he doesn’t have to think about absolutely everything we’re doing to focus on what he believes are the really good ideas.
It is a change, but it may not be as significant as it sounds to people.
Mark: I think the interesting thing from my perspective is that it’s not like Kerr is resigning from the company, selling all his shareholdings and just walking away. This is very much—sounds like a planned event. He is still going to be in the business, he’s just moving out of the CEO role so he can focus on the investment side and still remain contributing to the company. Is that…
Andrew: Yeah, I mean, absolutely. Because I think it’s one of these things is that you, as I said, you can’t really retire from investing. You’re going to be doing it one way or the other. This is a great way for him to continue to do what he loves doing and it’s great for the rest of the organization to still have that input from him. It’s something that the younger members of the team will value because he will, as he does today, he’ll walk across the floor to talk to someone about what they’re working on and be quizzing them on that idea.
Because along with that idea, all those sort of more formal processes of how an idea comes to life, there’s also the discussions in the kitchen when you’re making a cup of tea and what have you.
He’s going to remain there as a full-time employee and part of the investment team.
Mark: What’s he likely to do with his shareholding? Because he does own a significant amount of Platinum Asset Management. I think he said publicly in the press that he’s just retaining them. Is that—
Andrew: Yes, so it’s hard for me to talk for him, so I can really only repeat what he has said, which is that I think at the moment there’s no intention to sell any of the stock at this stage.
Mark: Going back to the funds for a second, what are the changes to the management of the funds and with a particular focus on the Platinum International Fund, which is the flagship fund, and also Platinum Asia. Probably the easiest one to start with is Platinum Asia.
Andrew: Really, for Platinum Asia, there’s no changes in the management of that. Joe Lai has been running that in its entirety for a number of years now.
What you would expect with what we’ve done with Asia previously, with myself and Joe, when I used to run that, he started at 15% of the fund and progressively moved up to half and then the whole fund. That’s something—this is all part of both the development of individual members of the team and also building in that succession planning across the firm.
While there’s no intention to change that today, at some point in the future, you would expect that we will bring in another portfolio manager to run a small part of that fund and then build that up through time.
Mark: I think that’s really interesting because Joe started out having a smaller amount of that fund, got built up, and then is now running all of it. The Platinum International Fund is not too dissimilar to that, in that Clay Smolinski, who has been with Platinum for quite some considerable time and is a very high quality investor, he’s currently managing 10% of the Platinum International Fund.
Mark: What’s going to change in that respect?
Andrew: Clay’s also been running the un-hedged fund for a number of years now.
Mark: Which has performed really, really well.
Andrew: It’s performed very well, as the European Fund did, or continued to, even after Clay left, but is also—he did a very good job running that.
What’s going to happen is Clay will take 30% of that fund and what you again might expect at some point in the future, that is a third portfolio manager will be brought in there. One of the reasons for not doing that—a lot of people ask us why we’re not doing that today and it’s simply that these types of changes now, five years ago, didn’t attract a lot of attention, these days, the research houses are very focused on these changes. We’ve already given them quite a bit to think about in the last month. So, rather than make yet another change at that point, we want to leave that for a point in the future.
But people might be interested, across the range of our funds, that besides moving to that 30%, we will essentially bring—
Mark: And then you manage 70%?
Andrew: I manage 70%.
Mark: You’re currently managing around half?
Mark: 40, so you got a lot and so does Clay.
Andrew: But some of our other funds that are similar mandates, this is not so much relevant for Australian investors, but our offshore uses product will also be 70/30. I will take over the management of Platinum Capital, whereas Clay will take over the management of—
Mark: Platinum Capital being the listed investment company?
Andrew: Listed investment company, yes.
Mark: We have some invested in it.
Andrew: But then also there are funds, the Platinum Global, which is the in fund, that its mandate is much more similar to the un-hedge fund, so Clay will take over that.
Andrew: They’ll be changes in other funds as well.
Mark: Yeah. You touched on research houses. One of the things—and this is probably more relevant for Platinum Asset Management investors, rather than investors of the funds, but it strikes me that one of the key things is what the research houses say about you in their capacity as acting as a gatekeeper between you and financial advisors, like us.
What’s been the reaction of the research houses, Morningstar, Lonsec, etc.? What’s their reaction been to this, Andrew?
Andrew: As you can imagine, we were on the phone to them, in for a meeting within 24 hours.
Mark: You’re very much on the front foot, I must say, with that.
Andrew: Yes. Both Morningstar and Zenith have reaffirmed the writings across our fund, so there’s been no change there. I don’t really want to speak for them either. They’re very independent in their views and their positions can be read. But essentially, I think, this was not unexpected in their minds and they’ve reaffirmed those writings, but as always, they’re watching carefully to see how we go.
Mark: As always.
Andrew: As it stands today, while we’ve had feedback from Lonsec, we don’t know what their final decision is at this stage.
Mark: I do know Morningstar were out in the press last week, I think, saying they think that the management of Platinum Funds just continues as is. They were actually quite supportive in the press.
Andrew: Yes. And I think that came on the back of the one that had that we won the Morningstar, not just the fund manager, the International Fund of the Year, but we also got the Fund Manager of the Year Award, which means that’s won against the entire, you know, all comers who are doing product across the range. And they assured me that was decided before any of the decisions anyway, but it was actually very nice timing to win that at that point for the organization and the investment team because it really recognizes what has been a period of very strong performance.
Andrew: After a period where actually we didn’t think our performance was that poor, but in a relative sense, we had lagged the market for a while, by a very small margin, but I think that it was very nice to win that aware at that point.
Andrew: We stuck to doing things the way we’re doing and the end result has been good. As I say, I’m not one to normally get too excited about awards, but it was a lovely time to get it and at this point in time as well.
Mark: Congratulations, by the way for that. The track record, so Clay and yourself are running the flagship fund. There’s no changes to Platinum Asia. The track record of Clay and you has been really good over a long, long period of time. Are you able to provide any context around that? I know that’s actually a hard question.
Andrew: This is the thing, I go back to where we started and talk about the process that is there, and I don’t want to take away from Clay’s excellent record, but here’s the thing, over our 24 years of history, we’ve had 14 different portfolio managers running money. Every one of them, their long-term record was one of out performance. That’s quite extraordinary. I don’t think you find that many easily, in any market.
Now, of those 14, 10 are still with us. 2 of them were other founders who have stepped aside. But I look at this say, this is the system. If I have a flippant response to people when they worry so much about the role of the portfolio manager because if I’m sitting here, I have 30 people in the office bringing me great ideas. If they only bring me great ideas, because they’re well thought through and well argued out, then all I need to do is buy every one of them or flip a coin and buy every second one, whatever it is.
Now, there’s more to it than that. But the job of running money becomes easy when you’re supported by a strong team.
Mark: The main message really here is that. This is very much a team business and it’s a big team. You’re probably one of the deepest teams in the country, in international equities.
Andrew: I think in the country, very easily and across probably all investment teams in terms of depth of experience and what have you, I mean, there will be other people globally who have similar histories.
But, you know, I think the thing that we see when we talk to clients overseas, is that the things that differentiate us very strongly, not any one of these things, but a collection of all of them, is that we’ve been going for a while, 24 years. We’re managing a substantial sum of money with 27-odd billion Australian dollars. Very defined investment approach and extraordinarily deep team, and a long-term record of out performance. You’ll find that people who have got four of the five or three of the five, but there aren’t many.
What I should say, I think one of the things that stands out with overseas clients is when we say we construct our portfolios independently of the MSCI Index, is that we genuinely do. There are many other people who say they do.
Mark: Say they do and they don’t. [Laughs]
Andrew: But they still end up with—and some of those who’ve got great records, but they still end up with 45% in the U.S., even though they say they’re not doing that, which interests us. We genuinely are—
Mark: You’re true to label though, aren’t you? You’re very much true to label. What you say you’re going to do, you do.
Andrew: We do. I think that maybe sometimes in Australia that’s not valued quite as much as it could be because we’ve been around a long time and people know us. But I think it is—there’s no one else we know of that can show all those attributes.
Mark: Our position, Andrew, is that we know the depth of your management team at Platinum Asset Management, and you individually have been managing that team for the last five years officially, I believe, in any case.
Andrew: Officially, yes. Unofficially, for longer than that. [Laughs]
Mark: Yeah, that’s right. [Laughs] From our perspective, nothing has really changed other than it’s a change of role for Kerr, but he’s still in the business. We’re still positive on Platinum Funds, clearly.
Have you got any last thing that you would like to say for our Platinum investors or PTM shareholders?
Andrew: I think the other thing that people ask about is, I’m taking on this additional role of CEO and what are the—how much of a workload, how does that—I guess the fair concern is how does that detract from the investing side of things?
Again, I think that not everyone will be aware of just how strongly our organization, that investment team is supported by the other functions. Liz Norman, who was there on day one and I think most clients and financial planners in this country know her. I make the joke, I walked into the Morningstar Awards and everyone is saying, “Hi, Liz. Who are you?”
Andrew: But you know, he’s run all of that part of the business for 24 years, does an extraordinary job. On the other parts of the business, the accounting, legal, compliance, tax, we had a great founding CFO, Malcolm Halstead. He left the business a few years ago, but he built an extraordinary team of people. There’s all these boring things people wouldn’t know about, portfolio accounting and registry, but these are very important functions because when they go wrong, they can create havoc and they can cost—well, they never cost the clients money but they’ll cost—
Mark: They cost the business and it’s a management distraction.
Andrew: It costs the business money and a lot of distraction and we have an incredibly strong team there, now led very well by Andrew Stannard, our current CFO.
When it comes to the role of CEO, the reality is that Liz and Andrew and their teams, they run the business. We want an investment person as CEO because ultimately the CEO makes the final, critical decision on important things and we want those decisions taken from a perspective of is this going to impact the investment process? You can have all these great ideas, we should have this product, we should do this, we should open an office in New York, we can have all the great ideas in the world, but ultimately, they need to be run through the filter of how does this impact the way the investment team functions.
All of those things, those sort of decisions, can impact and hurt that and that’s why I’ve taken on that role. In reality, yeah, there will be times where there’s more to do, but in fact, the way it’s worked, is Kerr and I have already long divided those responsibilities. So, most of the accounting and compliance-type discussions where it’s come through to the management committee, which is Andrew Stannard, Liz, Kerr, and myself, they’ve tended to be my area and Kerr is focused more on the client side of the business. I’ve been part of those discussions for 24 years, so it’s not like I have to all of a sudden get on top of, or how does this work or how does that work? I’ve been there the whole time.
There will be some time into that, but I don’t believe that it will be substantial.
Mark: Good answer. Andrew, all the best for the new role as CEO and I know you’ve been there forever [laughs], so all the best for the transition. Thanks very much for making the time to talk to us about it.
Andrew: Thank you.
[End of Audio]
Transcription by Fiverr.com bethfys