Platinum Asset Management Ltd (ASX:PTM) versus Platinum Asia Investments Ltd (ASX:PAI)

I was asked recently whether I prefer Platinum Asset Management Ltd (ASX:PTM) headstock to one of its listed funds, Platinum Asia Investments Ltd (ASX:PAI), to harness emerging markets. PAI offers pure exposure to Asian markets whereas PTM is diversified globally with an emphasis on Asia. 25% of funds under management (FUM) is in the Asian fund and 58% of FUM is in the flagship International fund which has around 50% allocation to Asian countries.

I like PTM better than PAI because it pays a higher dividend even though it offers less exposure to emerging markets. Imagine PTM managed only closed ended funds then FUM would be driven entirely by investment performance. If PTM charges a percentage of FUM (which it does), then it can pay out all its profits as dividends whilst maintaining the benefit of the reinvested underlying funds. The fund will not achieve the same return because it has to reinvest gains to grow them in absolute terms over time. External fund flows complicate the picture, but longterm outperforming managers (like Platinum) will likely attract a net inflow over time. If they do so then this is an additional profit driver for the owners of the headstock but not for the owners of the underlying fund.

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