I have for a long time been an admirer of Kerr Neilson, the founder of Platinum Asset Management. But in recent times I have begun to wonder whether Neilson was just fortunate to have obtained some very large returns fairly early on in the history of Platinum that has made the overall record of his funds look much better than what more recent investors have actually experienced.
It may be interpreted as some sort of signal that up to the 31 December 2009 Platinum Trust Quarterly Report, there were colour pictures of each portfolio manager smiling, then in the 31 March 2010 Report they changed to black and white pictures of each portfolio manager looking much more austere. Why? Was Neilson concerned that they looked too happy given the actual performance of the funds? Yes, I do think that’s the answer.
The latest Platinum Trust Quarterly Report (available on Platinum’s web site) shows that the International Fund (managed by Neilson and by far the biggest of the Platinum funds), has returned zero percent over the last five years and 12.1% compound since inception (in 1995).
I guess I have two issues with this.
Firstly, does a compound return of 12.1% per annum over 16 years justify Neilson’s estimated 2011 net worth (by Business Review Weekly) of $A2.1 billion?
I would say absolutely not, that sort of return should not be sufficient to propel a fund manager to that level of stupendous wealth. If you can return 20%+ over that time frame, sure, I would grant you billionaire status, but the difference between 12.1% and 20% over that time frame is the difference between turning $1 million into $6.2 million versus $18.5 million.
Secondly, the Platinum funds are able to take short positions (something the vast majority of mutual funds cannot do). Therefore, one would think that Platinum could have positioned itself to be far more market neutral than its performance indicates it has been. If the commentary in various Platinum Trust Quarterly Reports is any indication, Platinum has traditionally performed poorly with its short positions.
The problem it seems to me is that Platinum has tried to pick individual companies to short (with limited success) and has also not maintained a sufficient proportion of its portfolios short in order to make it more market neutral. I would have had a much higher percentage of the portfolios short and I would have done this over certain (European) markets – not individual companies.
The other problem is that Platinum seems to form (not always accurate) macro economic views and then invest accordingly (and I might add somewhat stubbornly, being slow to change a view when circumstances clearly change).
Yet another problem is the division of funds into geographic areas: Asia, Europe, Japan etc. If Europe is in deep trouble and you have a European fund (that only has 6% of the portfolio short), what’s going to happen to the investors money? Answer: Kiss it goodbye! And sure enough, the latest Platinum Trust Quarterly Report shows this fund lost 14% in the last quarter – yes, in one quarter, this is staggering!
The Platinum Trust Quarterly Reports are always written in a very articulate style and always give the impression that the writer knows exactly what he/she is talking about. Complex and uncertain economic situations are discussed with breathtaking simplicity and confidence.
But the actual fund results don’t fully support such confidence. For example, how can the Platinum Asia Fund (a $A3 billion fund) lose a whopping 17.2% over the last year when it has the ability to take short positions and is presumably being managed by people who know what they are doing?
(Incidentally, I have always thought that Kerr Neilson either writes or edits every single one of the various commentaries, the writing style is so similar for each fund, but that just might be me being a bit too cynical).
Absent a significant rally on global markets and Platinum’s continued refusal to take larger short positions, I cannot see how Platinum is going to improve its returns to investors.
Most of Platinum’s investors are Australian and as such have been able to get bank interest rates of anywhere from 5% to 7% over the last five years, so I would say, why pay fees to get zero percent?
