A
ANNUAL
REPORT
2020
Platinum Asset Management Limited
ABN 13 050 064 287
Platinum Asset Management Limited Annual Report 2020 B
Directors
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
Andrew Clifford
Kerr Neilson
Elizabeth Norman
Andrew Stannard
Shareholder Liaison
Elizabeth Norman
Company Secretary
Joanne Jefferies
Registered Office
Level 8, 7 Macquarie Place
Sydney NSW 2000
Phone 1300 726 700 (Australia only)
Phone 0800 700 726 (New Zealand only)
Phone +61 2 9255 7500
Share Registrar
Computershare Investor Services Pty Ltd
Level 3, 60 Carrington Street
Sydney NSW 2000
Phone 1300 855 080 (Australia only)
Phone +61 3 9415 4000
+61 3 9473 2500
Fax
Auditor and Taxation Advisor
PricewaterhouseCoopers
One International Towers
Watermans Quay
Barangaroo NSW 2000
Securities Exchange Listing
Platinum Asset Management Limited shares are listed
on the Australian Securities Exchange (ASX code: PTM)
Website
www.platinum.com.au/Shareholder-information/
Corporate Governance Statement
The 2020 Corporate Governance Statement can be viewed at
https://www.platinum.com.au/PlatinumSite/media/About/ptm_
corp_gov.pdf
Platinum Asset Management Limited Annual Report 2020 1
CONTENTS
CONTENTS
Chairperson’s Report
Managing Director's Letter
Shareholder Information
Directors’ Report
Auditor’s Independence Declaration
Statement of Profit or Loss and Other Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
The Dam Has Broken
article by Julian McCormack
2
6
16
19
47
48
50
52
54
55
101
102
IV
Platinum Asset Management Limited Annual Report 2020 2
CHAIRMAN’S REPORT 2020
Funds Under Management (“FUM”)
It has been a somewhat challenging year for Platinum Asset Management Limited (“Platinum”)
with investment returns for our flagship Platinum International Fund overshadowing some
strong investment performance in other areas, most notably our Asia ex-Japan and International
Health Care focused strategies. This underperformance in the flagship fund translated into net
fund outflows and lower funds under management, albeit that overall revenues were flat for
the year and profit after tax was down only slightly, by 2%, when compared to the prior period.
FUM at 30 June 2020 was $21.4 billion, a decrease of 14% from the 30 June 2019 closing FUM
of $24.8 billion. The reduction in FUM was driven primarily by net fund outflows of $3.0 billion.
Average FUM for the year decreased by 6% to $23.7 billion from an average FUM of
$25.3 billion for the previous year.
The ongoing uncertainty in relation to the US/China trade war and bleaker prospects for future
economic growth caused by the COVID-19 pandemic has led investors in global equity markets
to remain nervous, even as those markets have continued to appreciate in value. Investors once
again reacted to their fears by favouring companies perceived to be immune from external
events, with technology and healthcare stocks in particular being propelled to extraordinarily
high valuations relative to their future earnings prospects. In contrast, value stocks and/or those
with a degree of earnings cyclicality were avoided by the majority of investors, and those stocks
generally became cheaper.
Platinum has always believed that attractive valuations should be the starting point for any
investment decision. This growing divergence between growth and perceived safety on the
one hand and attractive valuations on the other, has consequently led to some investment
underperformance for Platinum’s funds in recent years. That said, it was encouraging to see
how Platinum’s investment approach successfully protected investor capital during the
tumultuous market sell-off in March 2020. From peak to trough1, the Platinum International
Fund outperformed the index2 by over 8% with our investors consequently avoiding a
substantial portion of the losses experienced by the broader market. Even though this strong
result was ultimately overshadowed by an unusually sharp subsequent rally (by historical
standards) in equity prices, it was pleasing to observe that Platinum’s investment process,
one that seeks to protect clients in “down markets”, performed well when our clients were
likely at their most fearful.
Also pleasing to observe was the strong performance of Platinum’s Asia ex-Japan and
International Health Care equity strategies, both of which outperformed their respective
indices3 by over 10% in the year to 30 June 2020. As well as serving clients who were invested
1
2
3
From 21 February to 23 March 2020.
MSCI All Country World Net Index in A$. Source FactSet Research Systems.
MSCI All Country Asia ex-Japan Net Index in A$ and MSCI All Country World Health Care Net Index
in A$. Fund/strategy returns are the returns of the C Class units of the relevant Platinum Trust Fund,
are net of fees and costs and assume the reinvestment of distributions. Source: Platinum for fund/
strategy returns, and FactSet Research Systems for index returns.
Past performance is not a reliable indicator of future returns.
Platinum Asset Management Limited Annual Report 2020 3
in these funds, it is important to remember that, as Platinum has just one investment
research team, these results provide encouraging signs of the underlying quality of
Platinum’s investment process and equity research capabilities.
Operating Performance
Profit before tax decreased by 1% to $220.8 million in the year ended 30 June 2020
(2019: $222.9 million). Earnings per share for the 2020 financial year was also relatively
flat at 27 cents per share (2019: 27 cents).
Total revenue and other income for the Company decreased by less than 1% to $298.7 million
in the year ended 30 June 2020 (2019: $299.3 million). This slight decline was mainly due to a
7% fall in base fee revenue being offset by performance fees (primarily from the Asia ex-Japan
strategy) and investment gains from Platinum’s seed investments. The decline in investment
management fees (excluding performance fees) was broadly consistent with the decline in
average FUM with average fee margins being largely maintained.
Costs
Included in the 2020 Remuneration Report on page 28 of the Company’s 2020 Annual Report
is a letter from the Chair of the Nomination and Remuneration Committee. I encourage all
shareholders to read this letter, which outlines the remuneration policy of the Company and
also its focus on investment performance based remuneration.
Specifically, I note that no member of the investment team received variable awards under
the Profit Share Plan and that the Chief Executive Officer (CEO)/Chief Investment Officer
(CIO), Andrew Clifford, elected not to receive any variable awards for the 2020 financial year,
either under the CEO Plan or the Investment Team Plan. This is the second consecutive year
in which Andrew Clifford has received no variable award.
Staff expenses declined 4% on the prior year, a reduction greater than the overall percentage fall
in profit. However, the cost of share-based payments provided to staff increased by $1.9 million.
This was primarily due to the current financial year including amortisation of grants made over
the past five years (2019 only included four years as the plan was introduced in 2016). This was
the main contributor to total expenses increasing by $1.5 million, to $77.9 million, for the year
to June 2020.
Other costs were well controlled. Excluding non-cash depreciation charges and non-recurring
expenditure (legal fees and a change to the lease accounting standard) of $1.1 million (2019:
$0 million) in the 2020 financial year, non-staff related expenses were down 4% year on year.
To achieve this result, Platinum successfully re-negotiated cost savings with its key suppliers and
reduced marketing spend, albeit that some of the latter item was the result of COVID-19-induced
reductions in marketing activity.
Platinum Asset Management Limited Annual Report 2020 4
CHAIRPERSON’S REPORT 2020
CONTINUED
Dividends
The Directors have declared a 2020 final fully-franked ordinary dividend of 11 cents per share.
This will be paid on 22 September 2020.
A 2020 interim fully-franked ordinary dividend of 13 cents per share was also declared during
the year.
Whilst the Company has a Dividend Reinvestment Plan in place, it has not been activated.
Business Development
Despite the limitations imposed in recent months by the pandemic, Platinum has continued to
develop its distribution presence both in Australia and offshore. In particular, our team of three
London-based staff members has been active in developing prospective relationships with
clients. We remain confident that these efforts, while hampered in the short term by investment
performance in certain strategies, will ultimately result in a more diversified business.
In addition, we continued to leverage our distribution relationship with AccessAlpha Worldwide
in the US over the last year, with trips to the US being conducted by our investment specialists
and members of our investment team, which included meetings with a number of institutional
prospects. To assist in this effort, two offshore funds were seeded in June 2020. Seeding new
funds is an important step in both building scale and FUM within these new products, and
encouraging product innovation.
Annual General Meeting
Due to COVID-19 and the related health concerns, the Company’s Annual General Meeting
(“AGM”) will be held live through an online platform where you can attend and participate in
the AGM. The AGM Notice, including details of how to join the meeting, will be dispatched to
shareholders in the coming weeks.
The Board and its Associated Committees
The Audit, Risk and Compliance Committee and the Nomination and Remuneration Committee
both had a busy and productive year.
The Audit, Risk and Compliance Committee approved Platinum’s risk management framework
and internal audit plan, received regular reporting on risk management matters and the results
of internal audits, considered the independence of the external auditor and monitored the
impact of changes to the legal and regulatory environment affecting Platinum. In addition,
the Committee oversaw an audit tender process and has recommended the appointment of
a new external auditor, Ernst & Young (EY), subject to consent from the Australian Securities
and Investments Commission and approval of shareholders at the AGM. The incumbent firm,
PricewaterhouseCoopers, has provided excellent service to both the Company and its
shareholders over many years and will continue to act as auditor of the funds managed by
PIML and will retain an advisory role for the group. However, the Board expects that the
appointment of EY will provide additional insights.
Platinum Asset Management Limited Annual Report 2020 5
The Nomination and Remuneration Committee recommended the aggregate 2020 variable
remuneration pool and awards for the CEO, Executive Directors and other senior managers
within Platinum, and continued with the Company’s program of succession planning.
Appointment of Guy Strapp to Chairman of the Company
An important discipline in any company is planning for the transition at both management
and Board levels. It is a testament to the founders of Platinum that a strong succession plan
has been put in place to ensure that Platinum remains relevant and continues to acquire the
skills required to successfully adapt to these ever-changing markets.
I have been the Chairman of the Company since its listing on the ASX in 2007. As part of the
Company’s continued director renewal program, I intend to retire as a non-executive director
of the Company and the Chairman of the Board, effective 20 November 2020, after the close
of the AGM.
Guy Strapp will join the Board as a non-executive director of the Company effective
27 August 2020 and will assume the role of Chairman of the Board effective 21 November 2020,
following my retirement. Mr Strapp (CFA) has over 35 years’ experience having worked in a
variety of roles in Australia and abroad at Bank of America, JP Morgan Investment Management,
Citigroup Asset Management and BT Financial Group. More recently, he held the positions of
CIO and CEO of Eastspring Investments (formerly Prudential Asset Management) in Hong Kong.
Guy brings to the Board his extensive local and international experience in asset management,
gained on both the investment and distribution side of the business. Mr Strapp is also the Chair
for the Australian wealth manager, First Samuel Limited.
Finally
Whilst this has been a challenging period for all value investors, Platinum still retains a strong
share of the Australian retail investor market, a highly differentiated product, and a strong
26-year investment track record.
I encourage you to read the Managing Director’s letter to shareholders by Andrew Clifford,
which explains the basis of our investment philosophy and discusses the investment outlook.
Michael Cole
Chairman
26 August 2020
Platinum Asset Management Limited Annual Report 2020 6
MANAGING DIRECTOR’S LETTER 2020
Investment Performance
The most critical variable in assessing the future prospects of our business is investment
performance, as this will be a significant driver of future fund flows. As such, it is important for
shareholders to make a considered assessment of not only our recent investment performance,
but also of our prospects for future investment returns. In order to do so, it’s important that
shareholders understand and appreciate our investment approach.
At the core of our investment approach is the idea that our cognitive biases will cause investors
to over-extrapolate good news and over-discount the bad news. It is this basic human psychology
that sets our initial filter for investment ideas, to seek out those companies that are out-of-favour
with the market, and to focus on areas of significant change, whether that be in the competitive
landscape, technological developments or government regulation. The other critical element in
our approach is that the price you pay for any investment is the most important determinant of
its future return. These two elements are the bedrock of how we invest clients’ money.
An examination of the investment performance of our global equity strategies (which account
for 63% of our funds under management, “FUM”) in the period since the end of the global
financial crisis (GFC), as demonstrated by the performance of the Platinum International Fund
(see chart 1), shows that we kept up with the market until early 2018.
Chart 1 – Platinum International Fund (C Class) Performance:
February 2009 – June 2020
$80,000
$60,000
$40,000
$20,000
$0
Platinum International Fund (C Class)
MSCI AC World Net Index in A$
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Platinum for Fund returns and FactSet Research Systems for MSCI returns. The investment returns
depicted in the chart are cumulative on A$20,000 invested in the Fund’s C Class units over the specified
period. The Fund’s returns are pre-tax, net of fees and costs and assume the reinvestment of distributions.
Although the Fund’s returns are calculated relative to the MSCI All Country World Net Index in A$,
Platinum does not invest by reference to the weightings of the Index. The Index is provided as a
reference only.
Past performance is not a reliable indicator of future returns.
Platinum Asset Management Limited Annual Report 2020
7
This outcome should be seen in the context of a global market where returns were dominated
by a strong US bull market with evermore challenging valuations. In line with our approach,
we sought opportunities in other markets and maintained a cautious stance on markets
generally, running an average net invested position through this period of 75%. With hindsight,
this portfolio positioning was less than ideal, yet in spite of it we matched market returns.
This is testament to good stock picking within the markets and sectors in which we
were invested.
Subsequently, since January 2018, the performance of our global investment strategies
(including the Platinum International Fund) has lagged the market significantly. As I discussed
in my letter to shareholders last year, the defining characteristic of global equity markets over
the period to that point, has been the extraordinary outperformance of growth stocks over
the rest of market. As we noted last year, while lower interest rates partly account for this
phenomenon, investor preferences have also played a very important role. Faced with near zero
returns on cash and risk-free assets, investors have been “forced” into equities, at a time when
there are significant uncertainties, such as the political tensions between the US and China,
and the destruction of many traditional business models by e-commerce. The result has been
a strong preference for companies that are largely immune to economic fluctuations and other
uncertainties, and it is this preference that has been a significant driver of share prices and
valuations of growth stocks.
In the intervening period, the onset of the COVID-19 health and economic crisis has further
reinforced this preference of investors as interest rates plunged even lower in the US.
Additionally, many of the growth areas, such as e-commerce, have benefited from the
COVID-19 lockdowns, further emphasising their investment appeal. However, the other story
here, is the enormous creation of new money in the financial system by central banks, as they
have intervened in financial markets, and enormous government spending programs that have
often been financed directly or indirectly by the central banks. In the US, the annual growth
rate of M2 (one measure of money outstanding), spiked to 25% in a matter of weeks1. It is
highly likely that this substantial creation of new money, at a time when global economic
output is collapsing, is responsible for the extraordinary run in the share prices of growth
stocks we have experienced in the first half of 2020. To put it into perspective, the MSCI
World Growth Index has outperformed the MSCI World Value Index2 by 35% over the two
years to June 2020, of which 25% occurred in the first six months of 2020.
1
2
Source: Federal Reserve Bank of St. Louis.
Source: MSCI. Growth stocks are the top 20% of stocks with the highest price to book (P/B) and value
stocks are the 20% of stocks with the lowest P/B. The P/B is a ratio of a Company’s current share price
to its book value.
Platinum Asset Management Limited Annual Report 2020 8
MANAGING DIRECTOR’S LETTER 2020
CONTINUED
Today, we have all the signs of a fully-fledged investment mania. Retail investors have
enthusiastically embraced the bull market, many with stories of great fortunes made from
investing little money. The market has become highly thematic with labels such as “COVID-
winners” explaining their stock price performance better than any hard-edged assessment
of business positioning, intellectual property and future earnings. Innovative financing vehicles
are often a sign of investor exuberance and today, we have SPACs (special purpose acquisition
companies), where investors are handing money over on the basis that an exciting private
business will be acquired at some point in the future. Anyone who has been around long
enough will remember the “cashbox” initial public offerings (IPOs) of the late 1980s and
what happened to investors in those vehicles.
It is in this context that we ask our clients and shareholders to assess our performance.
As high growth stocks have become progressively more expensive, we have elected to reduce
our positions in such investments, having made good returns. However, underlying our decision
was not only the extended valuation of the growth stocks, but also the extraordinary opportunities
available elsewhere. Additionally, our global strategies have remained cautiously positioned in
response to what has become an increasingly speculative environment.
This is entirely consistent with the investment approach that we have applied over the
last 26 years, one that over time has produced very good outcomes for our clients. Today,
we are often asked, can our approach still produce good outcomes in a world of permanently
low interest rates and extraordinary technological change? We would make a number of
observations. Firstly, this is not the first time that our returns have significantly lagged the market
in the latter stages of a strong bull market. We have certainly been here before. While we find
ourselves in extraordinary times, there is nothing that suggests a fundamental change in human
psychology. Cognitive biases are highly likely to be leading investors to over-extrapolate the
good story behind many of today’s strong performing stocks, as they have done in the past.
Finally, we would note the strong absolute and relative performance of our Asia ex-Japan
equity strategies (which account for 25% of our FUM) over the last year, as demonstrated by
the performance of the Platinum Asia Fund (see chart 2). What is remarkable is that a year
ago our Asia strategies were lagging the market notably on a one-, three- and five-year basis.
This rapid turnaround is possible as a result of the significant differences between our actively
managed portfolios and the broad market. Given the widening gulf in performance and
valuation between growth stocks and the rest of the market as outlined earlier, such a
turnaround in our global equity strategy performance is not inconceivable.
Platinum Asset Management Limited Annual Report 2020 9
Chart 2 – Platinum Asia Fund (C Class) Performance:
June 2019 – June 2020
Platinum Asia Fund (C Class)
MSCI AC Asia ex Japan Net Index in A$
$24,000
$22,000
$20,000
$18,000
$16,000
Jun 2019
Aug 2019
Oct 2019
Dec 2019
Feb 2020
Apr 2020
Jun 2020
Source: Platinum for Fund returns and FactSet Research Systems for MSCI returns. The investment returns
depicted in the chart are cumulative on A$20,000 invested in the Fund’s C Class units over the specified
period. The Fund’s returns are pre-tax, net of fees and costs and assume the reinvestment of distributions.
Although the Fund’s returns are calculated relative to the MSCI All Country Asia ex Japan Net Index
in A$, Platinum does not invest by reference to the weightings of the Index. The Index is provided as
a reference only.
Past performance is not a reliable indicator of future returns.
Platinum Asset Management Limited Annual Report 2020 10
MANAGING DIRECTOR’S LETTER 2020
CONTINUED
Funds Under Management – Retention and Growth
Funds Under Management ($ million, to 30 June 2020)
OPENING
BALANCE
(1 JULY
2019)
FLOWS PERFORMANCE
INVESTMENT DISTRIBUTION
AND OTHER
(30 JUNE % OF
2020) TOTAL
CLOSING
BALANCE
15,939
(2,318)
140
(520)
13,241
62%
FUNDS
Retail offerings
Platinum Trust Funds
(excluding funds fed
from PIXX and PAXX)
and Platinum Global
Fund (mFund)
Quoted Managed Funds
PIXX and PAXX
Listed Investment
MLC Platinum
Global Fund
Institutional mandates
Management Fee
Mandates
UCITS Platinum
World Portfolios
Cayman Funds
Companies PMC and PAI
848
–
486
(24)
835
(188)
2
51
9
(11)
453
2%
(62)
837
4%
–
656
3%
2,466
(290)
(32)
421
–
1
30
–
–
–
–
2,144
10%
448
30
2%
0%
352
2%
(1)
3,224
15%
(594) 21,385 100%
26
–
(8)
53
241
“Absolute” Performance
Fee Mandates
445
(85)
“Relative” Performance
Fee Mandates
3,329
(157)
TOTAL
24,769
(3,031)
Source: Platinum Investment Management Limited
The ‘Distribution and Other’ figure is comprised of the distribution from the Platinum Trust Funds/PGF/
PIXX/PAXX (as applicable). The balance also includes dividend and tax payments made by the Listed
Investment Companies – Platinum Capital Limited (ASX code: PMC) and Platinum Asia Investments
Limited (ASX code: PAI).
Platinum Asset Management Limited Annual Report 2020
11
When COVID-19 took hold in Australia in March, we were able to get the business fully
operational on an offsite basis immediately. This was a joint team effort to ensure the transition
was as smooth and effective as possible, and we were extremely delighted at how the business
was able to adapt and continue to maintain the status quo.
Retention and growth of our funds under management is largely driven by performance.
As a result of the lagging performance of our global equity strategies, the business experienced
net fund outflows over the period. There was a small offset from investment performance to
this decline, with our Asia ex-Japan equity strategies performing strongly in absolute terms
and relative to the broader market as mentioned above and illustrated by the table below.
Looking ahead, it is likely to remain a difficult environment with respect to fund flows due
to the combination of general economic conditions and our recent investment performance.
The bright spot potentially is the aforementioned performance of our Asia ex-Japan strategy.
Investment Performance to 30 June 2020
STRATEGY
FUND
3 YEARS
(COMPOUND
P.A.)
5 YEARS
(COMPOUND
P.A.)
1 YEAR
SINCE
INCEPTION
(COMPOUND
P.A.)
Global equity
Platinum International –4.1%
Fund (C Class)
3.3%
4.6%
11.6%
Asia ex-Japan equity Platinum Asia Fund
14.6%
10.3%
7.6%
14.2%
(C Class)
Fund returns are net of accrued fees and costs, are pre-tax, and assume the reinvestment of distributions.
Past performance is not a reliable indicator of future returns. Inception date is 30 April 1995 for Platinum
International Fund and 4 March 2003 for Platinum Asia Fund. Source: Platinum Investment Management
Limited.
At times like this, it is therefore important to ensure that we continue to clearly communicate
with clients our investment approach and the reasoning for our portfolio positioning. Despite the
obvious hurdles that all businesses are facing with travel bans and movement of industry events
to virtual productions, we continue to work on our engagement level with financial advisers
and direct investors. We were two-thirds of the way through our annual investor and adviser
capital city roadshow when the initial lockdown happened in mid-March, swiftly changing the
last two roadshows to live webinars. Throughout the uncertainty of markets from March
through to June, we provided regular market updates to our clients via our website, and are
now back producing our monthly video content for the website.
Platinum Asset Management Limited Annual Report 2020
12
MANAGING DIRECTOR’S LETTER 2020
CONTINUED
With regards to our offshore efforts, the UCITS vehicles in the UK and Europe during the
second half of 2019 saw a continued level of interaction via visits to various countries and
participation at industry events. Whilst solicitation of prospective investors has slowed more
recently as investors grappled with increased market volatility and focused on managing the
health of their current portfolios, the dialogue with existing managers was prioritised and
accordingly coverage efforts with existing clients intensified over this period to ensure a strong
understanding of current positioning and market views. This was rewarded to some extent,
by limited outflows in these products.
Our partnership with AccessAlpha Worldwide to develop our US institutional client base has
likewise continued to work on existing manager relationships and staying connected with the
investor network in this challenging environment. In June, we seeded the Global and Asia
ex-Japan strategies with US$10 million each, ensuring they are fully functional and ready to
accept client money.
In addition, we continue to seek opportunities to expand investors’ access to our various equity
strategies, by accessing new markets and product innovation.
Costs
The most important resource within Platinum is its employees, and this accounts for over half
of the group’s expenses. Staff costs fell by 4% to $37.2 million from $38.7 million, driven by a
combination of lower cash variable remuneration, reduced salary and recruitment costs, as well
as lower on-costs. The fall in cash variable remuneration is a direct result of our approach to linking
remuneration outcomes for employees within our investment team to investment performance.
Selected employees were also awarded deferred stock under the Deferred Remuneration Plan.
These awards defer a portion of each year’s annual variable compensation over four years and
are paid in shares. The first tranche of stock (awarded in the June 2016 introductory year)
vested in June 2020 so this year was also the last where the amortisation expense will tend to
compound. Future non-cash amortisation charges should now tend to normalise around the
annual award amount. The Deferred Remuneration Plan continues to play an important role in
ensuring that employees who contribute to the development of the business over the long term
are rewarded and also serves as an important mechanism for employee retention. Building an
“ownership” mentality amongst key staff is a crucial component in ensuring the long-term
success of the group and thus remains an area of particular focus.
Non-staff costs increased by 3%, from $32.8 million to $33.9 million. This was due almost
entirely to depreciation arising due to a change in the accounting standard for leases and
a new office fit out. Excluding these charges, and also some one-off legal costs related to
successfully defending our trade marks, the group’s underlying expenses fell 4%. This result
was largely due to strong cost control and, to a lesser extent, the impact that COVID-19 has
had on reducing our travel spend in the last quarter of the year.
Platinum Asset Management Limited Annual Report 2020 13
Outlook
COVID-19 has roiled markets. Despite the global economic and investment backdrop,
the world will reset and over time, will work its way out of recession. Importantly, many
companies will be the beneficiary of this, and it is here that the opportunity set is vast
and exciting. The investment team remains focused on ensuring the portfolios are
positioned accordingly.
I would like to express my gratitude to Michael Cole who is stepping aside as the Chair of the
company after the close of the Annual General Meeting. Michael was appointed the inaugural
Chair when we listed in 2007 and has guided us through a change of CIO, CEO and a vastly
changing investment landscape, both from what the investing world continues to put in front
of us, as well as the various changes in regulatory requirements that continually faces this
industry. We look forward to working with our new Chair, Guy Strapp who brings extensive
investment and industry experience to the role.
COVID-19 has had an all-encompassing effect on our daily lives; from families that have been
directly impacted by the disease and loss of loved ones, to those experiencing dire economic
and financial consequences, and for most of us the transformation of regular routines. This has
been, and continues to be, an extremely difficult time for many of our clients and shareholders,
and we extend our best wishes to all to stay safe and well.
Once again, I would like to thank our clients and shareholders for your continued support
during this unprecedented time.
Andrew Clifford
Managing Director
Platinum Asset Management Limited Annual Report 2020 14
Platinum Asset Management Limited Annual Report 2020 15
FINANCIAL
STATEMENTS
2020
Platinum Asset Management Limited
General Information
The financial statements were authorised for issue, in accordance with a resolution of Directors,
on 26 August 2020. The Directors have the power to amend and reissue the financial statements.
Platinum Asset Management Limited Annual Report 2020 16
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 21 August 2020.
Distribution of ordinary shares
Analysis of number of ordinary shareholders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel (of $500)
NUMBER
OF HOLDERS
OF ORDINARY
SHARES
5,478
12,073
3,530
2,331
73
23,485
559
Platinum Asset Management Limited Annual Report 2020
17
Substantial Holders
Twenty largest shareholders
The names of the twenty largest shareholders of the Company are listed below:
J Neilson
K Neilson
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Platinum Investment Management Limited (nominee)
Citicorp Nominees Pty Limited
National Nominees Limited
Pacific Custodians Pty Limited
Jilliby Pty Limited
J Clifford
BNP Paribas Nominees Pty Limited
BKI Investment Company Limited
Xetrov Pty Limited
BNP Paribas Nominees Pty Limited
Citicorp Nominees Pty Limited
Mrs Michele Martinez
Navigator Australia Limited
BNP Paribas Nominees Pty Limited
Nulis Nominees (Australia) Limited
Warbont Nominees Pty Limited
ORDINARY SHARES
NUMBER HELD SHARES ISSUED
% OF TOTAL
126,037,421
126,037,420
77,001,459
33,873,432
29,364,201
28,418,215
6,770,801
6,687,403
6,500,000
5,000,000
4,204,435
1,738,000
1,500,000
1,428,257
1,101,165
1,072,309
754,103
730,024
618,135
574,212
21.48
21.48
13.13
5.77
5.01
4.84
1.15
1.14
1.11
0.85
0.72
0.30
0.26
0.24
0.19
0.18
0.13
0.12
0.11
0.10
459,410,992
78.31
Unquoted ordinary shares
There are no unquoted ordinary shares, however under the Deferred Remuneration Plan, a total
of 7,115,680 deferred rights have been allocated to eligible employees of Platinum Investment
Management Limited, and on vesting and exercise of these rights, an equivalent number of
PTM shares (that have already been acquired on-market) will be allocated to these employees
(please refer to the Remuneration Report and Note 20 for further details).
Platinum Asset Management Limited Annual Report 2020
18
SHAREHOLDER INFORMATION
CONTINUED
Substantial shareholders
The following parties have notified the Company that they have a substantial relevant interest
in the ordinary shares of Platinum Asset Management Limited in accordance with section 671B
of the Corporations Act 2001:
J Neilson, K Neilson
J Clifford, Moya Pty Limited, A Clifford
^ Based on the last substantial shareholder notice lodged.
ORDINARY SHARES
NUMBER HELD SHARES ISSUED
% OF TOTAL
252,074,841^
32,831,449^
42.97
5.60
Distribution of Annual Report to shareholders
The law allows for an “opt in” regime through which shareholders will receive a printed
“hard copy” version of the Annual Report only if they request one. The Directors have decided
to only mail out an Annual Report to those shareholders who have “opted in”.
Financial Calendar
Ordinary shares trade ex-dividend
Record date (books close) for dividend
Dividend paid
These dates are indicative and may be changed.
3 September 2020
4 September 2020
22 September 2020
Notice of Annual General Meeting
The Annual General Meeting (AGM) of Platinum Asset Management Limited will be held
through an online platform on Friday 20 November 2020. Details of how to join the meeting
will be included in the AGM Notice.
Questions for the AGM
If you would like to submit a question prior to the AGM to be addressed at the AGM, you may
email your question to invest@platinum.com.au.
Platinum Asset Management Limited Annual Report 2020
DIRECTORS’ REPORT
19
The Directors present their report, together with the financial statements, on the consolidated
entity (referred to hereafter as the ‘consolidated entity’, ‘group’ or ‘Platinum’) consisting of
Platinum Asset Management Limited (referred to hereafter as the ‘Company’ or ‘parent entity’)
and the entities it controlled at the end of, or during, the year ended 30 June 2020.
Directors
The following persons were Directors of Platinum Asset Management Limited during the whole
of the financial year and up to the date of this report, unless otherwise stated:
Chairman and Non-Executive Director
Michael Cole
Stephen Menzies Non-Executive Director
Non-Executive Director
Anne Loveridge
Non-Executive Director
Brigitte Smith
Non-Executive Director
Tim Trumper
Chief Executive Officer/Managing Director
Andrew Clifford
Kerr Neilson
Executive Director
Elizabeth Norman Executive Director and Director of Investor Services and Communications
Andrew Stannard
Executive Director and Chief Financial Officer
Michael Cole intends to retire as Chairman and Non-Executive Director after the close of the
Annual General Meeting (AGM) on 20 November 2020. Guy Strapp will join the Board as a
Non-Executive Director of the Company effective 27 August 2020 and will assume the role
of Chairman of the Board effective 21 November 2020. Information on Mr Strapp’s experience
will be included in the AGM Notice.
Principal Activities
The Company is the non-operating holding company of Platinum Investment Management
Limited (“PIML”) and its controlled entities. Platinum Investment Management Limited
(“Platinum”), trading as Platinum Asset Management, operates a funds management business.
Operating and Financial Review
Fund Under Management (“FUM”) at 30 June 2020 was $21.4 billion and this represented
a decrease of 13.7% from the 30 June 2019 closing FUM of $24.8 billion. The closing FUM
figure at 30 June 2020 was reduced by the annual net distribution outflow of $532 million.
Average FUM for the year decreased by 6.3% to $23.7 billion from an average FUM of
$25.3 billion for the previous year. The reduction in FUM was driven by net fund outflows
of $3.0 billion. Absolute investment returns contributed $241 million to the FUM during
the financial year.
Total revenue and other income was $298.7 million for the year ended 30 June 2020,
a 0.2% decrease from $299.3 million in the prior year. Management fee revenues decreased
6.5% compared to the prior year due to the decrease in average FUM over the same period.
Performance fee revenues of $9.1 million (2019: $30,000) were primarily attributable to strong
relative performance by the Asia ex-Japan and Healthcare strategies. Other income increased
from $4.1 million in the previous year to $13.7 million in the current year due to improved
returns from seed investments.
Platinum Asset Management Limited Annual Report 2020 20
DIRECTORS’ REPORT
CONTINUED
Total costs were $77.9 million for the year ended 30 June 2020, an increase of $1.5 million
from the prior year. Costs decreased in some areas including staff costs (down $1.5 million)
and custody and unit registry fees (down $1.5 million). However, those cost decreases were
offset by increased costs including occupancy related expenses (up $1.8 million due to an
office fit out and changes in lease accounting rules), non-recurring legal costs of $0.5 million
and share-based payments expense (up $1.9 million due to an additional grant in 2020).
COVID-19 has and may continue to adversely affect the global economy, the economies of
certain nations and individual issuers, all of which may impact on investment performance
and FUM. Platinum implemented measures to maintain the ongoing safety and well-being of
employees including allowing employees to work from home. COVID-19 has not had a direct
impact on the ability to perform core business activities or on the Platinum’s revenues.
Accordingly, Platinum has not received any COVID-19 related financial assistance or support.
Platinum Management Malta Limited was incorporated in November 2019 in order to market
the funds managed by PIML to European Union (EU) professional clients post Brexit. In addition,
seed investments were made to establish two Cayman based funds targeted at United States
investors in June 2020.
Platinum continues to be well positioned for future growth because:
–
–
–
It maintains a highly differentiated product and maintains a strong position in the
Australian retail market;
Our new offshore initiatives provide a platform for growth over the medium-term; and
Our investment team continues to deliver high research quality and a large idea base.
The Company is in a strong financial position, with a strong balance sheet. However, the most
significant driver of sustainable future growth is, and will always be, the delivery of superior,
long-term, investment returns for our clients.
Likely developments
Information about the business strategies and prospects for future financial years of the
consolidated entity are included in the Operating and Financial Review. Further information
about likely developments in the operations of the consolidated entity and the expected results
of those operations in future financial years has not been included in this report because
disclosure of the information would be likely to result in unreasonable prejudice to the
consolidated entity because the information is commercially sensitive.
Platinum Asset Management Limited Annual Report 2020 21
Dividends
The Company has limited capital requirements and generally expects that most, if not all,
future profits will continue to be distributed by way of dividends, subject to ongoing
capital requirements.
Since the end of the financial year, the Directors have declared a 2020 final fully-franked
dividend of 11 cents per share ($64,534,679 including dividend paid on treasury shares),
with a record date of 4 September 2020 and payable to shareholders on 22 September 2020.
A 2020 interim fully-franked dividend of 13 cents per share ($76,268,257 including dividend
paid on treasury shares) was paid on 18 March 2020. A 2019 final fully-franked dividend of
14 cents per share ($82,135,046 including dividend paid on treasury shares) was paid on
20 September 2019.
Significant Changes in the State of Affairs
There were no significant changes in the state of affairs of the consolidated entity during the
financial year and up to the date of this report.
Environmental Regulation
The consolidated entity is not subject to any significant environmental regulation under
Commonwealth, State or Territory laws.
Information on Directors
Michael Cole AM BECON, MECON, FFIN
Independent Non-Executive Director, Chairman and member of the Audit, Risk & Compliance
and Nomination & Remuneration Committees since 10 April 2007.
Mr Cole has over 40 years of experience in the investment banking and funds management
industry. Mr Cole was an Executive Director/Executive Vice President at Bankers Trust Australia
for over 10 years. Mr Cole is Chairman of Ironbark Capital Limited. As previously noted,
Michael Cole intends to retire as Chairman and Non-Executive Director after the close of
the Annual General Meeting (AGM) on 20 November 2020.
Stephen Menzies BECON, LLB, LLM
Independent Non-Executive Director and member of the Audit, Risk & Compliance and
Nomination & Remuneration Committees since 11 March 2015 and Chair of the Nomination
& Remuneration Committee since 19 June 2017.
Mr Menzies is Chairman of Silicon Quantum Computing Pty Limited and is a past Chairman of
the Centre for Quantum Computation & Communication Technology. Mr Menzies retired as a
partner at Ashurst law firm in 2015 and until his retirement was consistently ranked as one of
Australia’s leading corporate lawyers. As Head of China Practice for Ashurst, Mr Menzies
oversaw the Shanghai and Beijing offices of that firm. Previously, Mr Menzies was National
Director of Enforcement at the Australian Securities Commission and has a long history in the
funds management sector. Mr Menzies was a director of Freedom Insurance Group Ltd until
29 April 2019 and Century Australia Investments Limited until 5 March 2019. Mr Menzies is
a director of Platinum World Portfolios Plc.
Platinum Asset Management Limited Annual Report 2020 22
DIRECTORS’ REPORT
CONTINUED
Anne Loveridge BA (HONS), FCA (AUSTRALIA), GAICD
Independent Non-Executive Director and member of the Audit, Risk & Compliance Committee
and Nomination & Remuneration Committees since 22 September 2016 and Chair of the Audit,
Risk & Compliance Committee since 24 February 2017.
Ms Loveridge is currently a Non-Executive Director for the National Australia Bank (NAB)
Group and NIB Holdings Limited. Ms Loveridge retired as a partner and deputy chairman of
PricewaterhouseCoopers (PwC) in 2015. At PwC, she had over 30 years of experience in the
Financial Services Assurance practice. Ms Loveridge has extensive senior management and
people leadership experience, knowledge of financial and regulatory reporting and risk
management. Ms Loveridge is entitled to receive payments from PwC as part of a retirement
plan. The payments are based on a set formula relating to her partnership and tenure with
PwC. The amount is fixed and is not dependent on the revenues, profits or earnings of PwC.
The Board is satisfied that this does not affect Ms Loveridge’s independence as a non-executive
Director, nor does it constitute a conflict of interest and complies with the Corporations Act.
The Board has, however, put in place appropriate safeguards to address any perceived conflicts
of interest if they were to arise from time to time.
Brigitte Smith B.CHEM ENG (HONS), MBA, MALD, FAICD
Independent Non-Executive Director and member of the Audit, Risk & Compliance and
Nomination & Remuneration Committees since 31 March 2018.
Ms Smith was co-founder and Managing Director of GBS Venture Partners for twenty years and
has worked with Australian and US fast growth companies as an investor and board member,
supporting business strategy, human resources and operations. Prior to GBS Ms Smith worked
in the US and Australia in operating roles with fast growth technology based businesses, and at
Bain & Company as a strategic management consultant.
Tim Trumper MBA, UNE
Independent Non-Executive Director and member of the Audit, Risk & Compliance and
Nomination & Remuneration Committees since 1 August 2018.
Mr Trumper is Chair of the NRMA, advisor and shareholder in Quantium, Australia’s leading
data and analytics company and holds interests in several private high growth innovative
companies. He is an authority on the utilisation of data to drive innovation, and corporate
strategy. Mr Trumper is an experienced non-executive director, former CEO, and advisor for
high-performance global and Australian companies. His career has spanned diverse categories
including artificial intelligence and machine learning, big data, digital transformation, mobility
and transport, financial services and media.
Along with fellow directors and the then Chairman the late Hon. R J Hawke, Tim helped to
establish The Bestest Foundation. This charity has raised over $4 million for disadvantaged
Australian children.
Platinum Asset Management Limited Annual Report 2020 23
Andrew Clifford BCOM (HONS)
Managing Director since 1 July 2018 and Chief Investment Officer since 8 May 2013.
Mr Clifford joined Platinum as a co-founding member in 1994 in the capacity of director of
Platinum Investment Management Limited and Deputy Chief Investment Officer. In May 2013,
Mr Clifford was appointed Chief Investment Officer. Effective 1 July 2018, Andrew Clifford was
appointed as the Chief Executive Officer/Managing Director of the Platinum group. Previously
he was a Vice President at Bankers Trust Australia covering Asian equities and managing the
BT Select Market Trust – Pacific Basin Fund.
Kerr Neilson BCOM, ASIP
Executive Director since 12 July 1993. From 31 August 2020, Mr Neilson will become a
Non-Executive Director.
Mr Neilson joined Platinum as a co-founding member in 1994 and was the Managing Director
of the Company from incorporation to 30 June 2018. Prior to Platinum, Mr Neilson was an
Executive Vice President at Bankers Trust Australia. Previously he worked in both the UK and
South Africa in stockbroking.
Elizabeth Norman BA, GRADUATE DIPLOMA IN FINANCIAL PLANNING
Director of Investor Services and Communications since 8 May 2013.
Ms Norman joined Platinum in February 1994 in a role of Investor Services and Communications
Manager. Previously she worked at Bankers Trust Australia in product development and within
the retail funds management team.
Andrew Stannard BMS (HONS), GRADUATE DIPLOMA IN APPLIED FINANCE AND INVESTMENT, CA
Director and Chief Financial Officer since 10 August 2015.
Mr Stannard joined Platinum from AllianceBernstein where he held the position of Chief
Financial Officer for the Asia-Pacific region. Mr Stannard has 30 years of finance experience
with expertise in audit, financial control, operations, funds management, financial services
regulation and corporate governance.
Information on Company Secretary
Joanne Jefferies, BCOM, LLB
Company Secretary since 17 October 2016.
Ms Jefferies is an English law qualified solicitor with more than 25 years of legal experience in
the asset management and securities services sectors, in England and across Asia Pacific.
Ms Jefferies joined Platinum in October 2016 as General Counsel and Group Company Secretary,
having spent the previous six years at BNP Paribas Securities Services as Head of Legal Asia
Pacific, Company Secretary for all Australian subsidiaries and a member of the Asia Pacific
Executive Committee. Joanne has previously held senior legal positions with Russell Investments,
Morley Funds Management (Aviva Investors) and Lord Abbett, and served as the General
Counsel for the UK’s funds management industry association, the Investment Association.
Platinum Asset Management Limited Annual Report 2020 24
DIRECTORS’ REPORT
CONTINUED
Meetings of Directors
The number of meetings of the Company’s Board of Directors (“the Board”) and of each Board
committee held during the year ended 30 June 2020, and the number of meetings attended by
each Director were:
BOARD (HELD 6)
ATTENDED
NOMINATION &
REMUNERATION
COMMITTEE (HELD 4)
ATTENDED*
AUDIT, RISK &
COMPLIANCE
COMMITTEE (HELD 4)
ATTENDED*
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
Andrew Clifford
Kerr Neilson
Elizabeth Norman
Andrew Stannard
6
6
6
6
6
6
6
6
6
4
4
4
4
4
–
–
–
–
4
4
4
4
4
–
–
–
–
* Executive Directors may be invited to attend committee meetings as guests.
Platinum Asset Management Limited Annual Report 2020
25
Interests in registered schemes
The relevant interest in units of registered schemes managed by PIML for each Director is set
out below.
REGISTERED SCHEME
Platinum Asia Fund
DIRECTOR
30 JUNE 2019
30 JUNE 2020
Andrew Clifford
4,193,585
4,596,001
Kerr Neilson
70,321,317
70,032,218
Elizabeth Norman
851,777
933,746
Tim Trumper
27,268
27,268
Platinum International Fund
Andrew Clifford
10,454,939
29,623,555
Kerr Neilson
62,910,075
36,530,841
Elizabeth Norman
Stephen Menzies
305,911
62,530
497,709
62,530
Platinum Global Fund
Andrew Clifford
5,305,945
5,566,437
Kerr Neilson
5,000,000
5,000,000
Elizabeth Norman
614,299
644,457
Platinum European Fund
Kerr Neilson
11,857,012
11,725,650
Platinum Japan Fund
Andrew Clifford
3,000,512
–
Kerr Neilson
37,581,042
37,515,151
Elizabeth Norman
235,287
235,287
Platinum Unhedged Fund
Kerr Neilson
27,393,683
27,542,508
Elizabeth Norman
144,766
153,677
Platinum International Brands Fund
Kerr Neilson
2,503,669
2,518,798
Platinum International Healthcare Fund
Kerr Neilson
12,080,257
12,650,427
Platinum International Technology Fund Andrew Clifford
94,604
–
Kerr Neilson
9,118,846
9,173,625
Platinum International Fund
(Quoted Managed Hedge Fund)
Anne Loveridge
8,221
12,454
Platinum Asia Fund
(Quoted Managed Hedge Fund)
Anne Loveridge
Brigitte Smith
Stephen Menzies
8,660
56,000
22,636
12,356
59,093
23,886
Platinum Asset Management Limited Annual Report 2020
26
DIRECTORS’ REPORT
CONTINUED
Indemnity and Insurance of Directors and Officers
During the year, the Company incurred a premium in respect of a contract for indemnity
insurance for the Directors and Officers of the Company named in this report.
Indemnity and Insurance of Auditor
The Company has not, during or since the end of the financial year, indemnified or agreed
to indemnify the auditor of the Company or any related entity against a liability incurred by
the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to
insure the auditor of the Company or any related entity.
Non-Audit Services
Details of the amounts paid or payable to the auditor for non-audit services provided during
the financial year by the auditor are outlined in Note 22 to the financial statements.
The Directors are satisfied that the provision of non-audit services during the financial year,
by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the
general standard of independence for auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as disclosed in Note 22 to the financial
statements do not compromise the external auditor’s independence requirements of the
Corporations Act 2001 for the following reasons:
–
–
All non-audit services have been reviewed and approved by the PTM Audit, Risk and
Compliance Committee to ensure that they do not impact the integrity and objectivity
of the auditor; and
None of the services undermine the general principles relating to auditor independence
as set out in APES 110: Code of Ethics for Professional Accountants issued by the
Accounting Professional and Ethical Standards Board.
Rounding of Amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission,
relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with
that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Managing Tax Risk
The Board is committed to acting with integrity and transparency in all tax matters.
The Company aims to meet all of its obligations under the law and pay the appropriate
amount of tax to the relevant authorities.
Platinum Asset Management Limited Annual Report 2020 27
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as required under section 307C of the
Corporations Act 2001 is set out on page 47.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a)
of the Corporations Act 2001.
On behalf of the Directors
Michael Cole
Chairman
26 August 2020
Sydney
Andrew Clifford
Director
Platinum Asset Management Limited Annual Report 2020
28
DIRECTORS’ REPORT
CONTINUED
Remuneration Report
A Message from the Chair of the Nomination & Remuneration Committee
On behalf of the Board, I am pleased to present the 2020 Remuneration Report.
As discussed in both the Chairman’s and Managing Director’s Reports, the final quarter of
the financial year was impacted by the economic consequences of the COVID-19 pandemic.
Despite the economic uncertainties, Platinum’s focussed business strategy has enabled Platinum
to deliver relatively solid results for the year with revenues and profits both essentially flat when
compared to 2019.
However, shareholders have been adversely impacted as Platinum’s share price, which had
previously been trading up for the financial year, declined meaningfully during March. This share
price decline has likewise impacted Platinum’s key staff through their own shareholdings in the
firm. For the CEO and the two other executive directors, a significant proportion of their variable
compensation is delivered in Platinum equity and deferred for up to 4 years, to provide alignment
with shareholders. This has been a long-standing feature of Platinum’s remuneration approach.
However, if we look past these recent events, the core purpose of the Company remains to
deliver strong investment returns to clients over the medium to long-term, consistent with
a risk profile that seeks to preserve clients’ capital. Platinum believes that strong medium to
long-term investment performance is the primary driver of fund inflows, profit growth and
ultimately long-term value creation for shareholders. As such, Platinum’s remuneration policy
is shaped around this core purpose. Importantly, the Company can only achieve strong investment
performance by attracting and retaining strong investment talent, supported by a team of
similarly talented client service and operational staff.
Accordingly, Platinum’s remuneration program has two key elements, being fixed remuneration
(salary and superannuation) and variable awards, which are made either in the form of cash or
by way of a deferred equity award. To ensure the alignment of Platinum’s investment team with
investment returns for clients, the size of the variable remuneration pool for the investment
team generally varies with the extent of investment performance generated for clients, measured
over both 1 and 3 year periods. That said, as Platinum’s investment approach builds portfolios
from the bottom up on an index agnostic basis, periods of underperformance relative to the
broader market are almost inevitable. During such periods, the Board retains the right to make
appropriate discretionary awards.
Platinum Asset Management Limited Annual Report 2020 29
Platinum’s Nomination and Remuneration Committee has been active in the 2020 financial year
and up to the date of this report. In particular, we have:
–
–
–
–
–
Continued to push forward our program of Board renewal and completed the search for
a new Chairman;
Reviewed and updated the CEO’s remuneration arrangements and KPIs;
Reviewed and recommended to the Board the aggregate 2019/2020 variable
remuneration pool for Platinum as well as the individual awards for the CEO,
executive directors and senior managers;
Overseen the development of Platinum’s corporate values; and
Approved Platinum’s revised diversity objectives and a diversity and inclusion policy.
We will continue to refine and review our remuneration arrangements to ensure that they align
with Platinum’s core purpose and we welcome your feedback.
Stephen Menzies
Chair of Nomination & Remuneration Committee
Platinum Asset Management Limited Annual Report 2020 30
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
Introduction
The Company’s Directors present the Remuneration Report prepared in accordance with
section 300A of the Corporations Act 2001 for the Company and consolidated entity for the
year ended 30 June 2020. The Remuneration Report forms part of the Directors’ Report.
The information provided in this Remuneration Report has been audited by the Company’s auditor,
Pricewaterhouse-Coopers, as required by section 308 (3C) of the Corporations Act 2001.
Summary of Remuneration Outcomes for 2020
The Board remains focussed on ensuring there is a robust and rigorous process in place to
determine remuneration outcomes. Significant oversight and judgement were applied to
ensure remuneration outcomes were aligned with individual and company-wide performance.
In determining remuneration outcomes for this year, the Board specifically considered
the following:
–
–
–
Although Platinum’s overall profit was relatively flat for the year, a number of positive
outcomes were delivered across a number of facets of the business. Accordingly, our
remuneration approach sought to reward selected individuals who outperformed during
the year. In particular, the Board believes that it is critical for the Company to maintain
its strong client service and operational excellence to incentivise future innovation and
business growth.
While the flagship Platinum International Fund underperformed the market, there were
a number of other funds and investment professionals who delivered strong investment
outcomes for the year and were consequently worthy of recognition.
The substantial existing staff shareholding in the Company delivers meaningful alignment
with shareholders’ share price experience.
–
The need to balance shareholder outcomes with retention risks within the firm.
Platinum Asset Management Limited Annual Report 2020 31
The outcomes were as follows:
–
–
–
–
As was the case in 2019, the Chief Executive Officer/Chief Investment Officer,
Mr Andrew Clifford, elected not to receive any variable awards in 2020;
Staff expenses were reduced 4% on prior year with the underperformance of the
majority of our funds versus market indices and/or lower revenues for 2020 adversely
affecting variable remuneration outcomes for Platinum’s employees in aggregate;
There were no awards made under the Profit Share Plan (“PSP”) due to the performance
of the majority of our funds versus the indices and the investment team and general
employee cash variable compensation pools were reduced. With the exception of a
small group of employees who each made outstanding contributions to the business,
cash variable awards were generally flat to down on prior year and a salary freeze for
the following 2021 financial year was also put into effect; and
A total of $8.7m (2019: 7.5m) was awarded to eligible participants under the
Deferred Remuneration Plan in the current financial year, which will vest in June 2024.
The accounting impact of the award will be expensed through the profit and loss
statement over the five year service period of the award, so the expense impact will
be apportioned over time.
The allocation of 2020 profits attributed to both shareholders and employees is outlined in the
first graph below. It shows that the compensation awarded to employees was modest, relative
to the returns to shareholders, with shareholders receiving a share of profits four times greater
than staff.
The second graph shows that alignment between employees and the owners of the business
also remains very strong, with several key staff being primarily remunerated by way of dividends
and capital appreciation/depreciation, in exactly the same way as other shareholders.
Graph 1: Share of 2020 Profit
Graph 1: Share of 2020 Profit
(pre tax and pre staff costs)
(pre tax and pre staff costs)
Graph 2: Composition of PTM
Graph 2: Composition of PTM
share ownership
share ownership
Staff costs and
Staff costs and
share-based
share-based
payments expense
payments expense
17%
17%
58%
58%
Shareholders
Shareholders
25%
25%
Tax
Tax
(community)
(community)
Non
Non
employee
employee
50%
50%
50%
50%
Directors
Directors
and staff
and staff
Platinum Asset Management Limited Annual Report 2020
32
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
Guiding Principles of KMP and Staff Remuneration
The core purpose of the Company is to deliver strong investment returns to clients over the
medium to long-term, consistent with a risk profile that seeks to protect against downside
market risk. It achieves this purpose by attracting and then retaining superior investment talent,
supported by a team of similarly talented client service and operational staff.
The success of our remuneration program can be evidenced by our strong long-term investment
performance and high retention rates amongst key investment and operational staff.
Platinum’s remuneration program has two1 key elements:
1.
2.
Fixed Remuneration: This is set at a level sufficient to attract exceptional talent. It includes
salary, benefits and statutory entitlements. Fixed remuneration is benchmarked to market
at least annually and reflects the scope of the individual role, and the required level of skill
and experience.
Variable Remuneration: Each employee is assessed annually across a range of quantitative
and qualitative factors, as well as appropriate risk management and behavioural criteria.
Variable award recommendations are generally made annually on a discretionary basis
following rigorous review by senior management and the Nomination & Remuneration
Committee, which comprises non-executive directors only, before ultimately being
approved by the Board. Variable awards can be made in the form of cash or a deferred
equity award that vests over a four year period. This deferral element is designed to foster
sustainable growth, as well as sound financial, operational and risk management practices,
and to retain talent.
1
Platinum also has two inactive long-term Remuneration Plans, being an “Options and Performance
Rights Plan” (OPRP) and a “Fund Appreciation Rights Plan” (FARP). There was no allocation under
either plan in either the current or the prior year.
Platinum Asset Management Limited Annual Report 2020 33
Fixed Remuneration
– Set to attract exceptional talent
– Benchmarked to market
– Rewards each employee for their skills,
attributes and role accountabilities
1. Fixed
Remuneration
Reward
Framework
2. Variable
Remuneration
(Deferred
equity)
2. Variable
Remuneration
(Cash)
Variable Remuneration
(Deferred equity)
– Improves alignment of employees
and shareholders
– Significant deferral element to foster
sustainable growth and sound
financial, operational and risk
management practices
Variable Remuneration (Cash)
– Performance goals set annually at the
beginning of each performance period
– Awards made annually with reference
to individual performance
– Other performance considerations include:
• Company performance
• Risk management factors
• Leadership and behavioural factors
• Competition for key staff
Variable Remuneration Plans
There were three variable remuneration plans in operation during the 2020 financial year,
which were supported by a Deferred Remuneration Plan. Each plan is overseen by the
Nomination & Remuneration Committee. The investment team has access to the Investment
Team Plan and the Profit Share Plan. All other staff are covered by the General Employee Plan.
Each variable remuneration award is then apportioned between a cash amount, which is
generally paid in June and a deferred amount, which will vest in four years so long as the
employee remains employed by Platinum during that time.
Platinum Asset Management Limited Annual Report 2020 34
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
The table below summarises the main characteristics of each plan, each of which are then
discussed in more detail in the following section.
PLAN
SUMMARY
Investment
Team Plan
PARTICIPANTS
POOL
FORMULA
CAP
Investment team Weighted
average 1
and 3 year
performance2
2x salary of
investment team
(caps out at 5%
outperformance)
AWARD
TYPE
HURDLE
MSCI3
Profit Share
Plan
Investment team Weighted
average 1
and 3 year
performance
5% of adjusted
net profit
(caps out at 6%
outperformance)
MSCI
+1%
Cash and/
or deferred
equity
award
Investment Team Plan (applies to members of the investment team only)
Under this plan, in a period where there is aggregate weighted average outperformance
(relative to a weighted benchmark comprised of nominated market indices) the annual
investment team award pool is calculated as a percentage of the aggregate base salary
of the investment team. The percentage level relates to the weighted average of 1 year
and 3 year rolling outperformance of all funds and mandates under management (relative to
a weighted benchmark comprised of nominated market indices). The pool starts at 100% of
the aggregate of the base salaries of the investment team. For each 1% increase in this average
outperformance, the pool is increased by 20% and is then capped at 2 times aggregate base
salaries when average outperformance is 5% or more.
The pool is allocated across the investment team based on performance assessments that are
based on both quantitative and qualitative measures. Quantitative measures used to assess
individual performance include the performance of any portfolios under the management of
an individual and the performance of the individual investment ideas that the person has
proposed. Individual investment performance is usually assessed over a rolling 1 year and
3 year time frame and is relative to a nominated market index.
The total remuneration outcome (comprising both fixed and variable components) for each
investment professional is also benchmarked to appropriate external market data.
2
The Board can elect to make discretionary awards in excess of the pool amount should it be required.
In this case, annual awards for investment team members may then be determined by an individual
assessment of each employee’s contribution.
3 MSCI refers to the relevant MSCI index applicable to each strategy.
Platinum Asset Management Limited Annual Report 2020 35
In a period where there is aggregate weighted average underperformance or where
performance is uneven across different funds or fund managers, annual awards for investment
team members will then be determined by an individual assessment of each employee’s
contribution to the investment team during the period. Individual awards will generally range
from 0% to 120% of base salary and reflect the business necessity of retaining high performing
talent during the inevitable short term dips in weighted 1 and 3 year investment performance.
Profit Share Plan (“PSP”) (applies to selected members of the investment team only)
The PSP is designed to reward key members of the investment team for their contribution
to the development of Platinum’s business through the generation of strong investment
performance (relative to a weighted benchmark comprised of nominated market indices).
Eligible members of the investment team are issued notional units in the PSP. The notional units
have no capital value and cannot be sold or transferred to a third party. Notional units of an
eligible member of the PSP are adjusted each year based upon a prospective assessment of
each such member’s long-term contribution potential to the future development of Platinum.
Each year the profit share percentage pool is determined based upon the weighted average
1 year and 3 year rolling outperformance of all funds and mandates under management
(relative to a weighted benchmark comprised of nominated market indices).
There is no profit share until weighted average 1 year and 3 year rolling outperformance is
greater than 1%. So, for example, if the average of the 1 and 3 year rolling performance of
our funds and mandates exceeded the weighted benchmark by 2.5%, then 1.5% of the
Company’s management fee-based4 net profit before tax would be made available to the
PSP pool. The profit share figure is limited each year to 5% of profit before tax, though the
Nomination & Remuneration Committee may elect to carry over investment outperformance
to future periods if investment returns indicate a profit share in excess of the 5% level.
General Employee Plan (applies to non-investment team staff)
Performance is assessed against pre-determined operational performance indicators relevant
to each employee. These performance indicators take into account the responsibilities, skill and
experience of each employee and their contribution during the year. Total remuneration
outcomes (comprising both fixed and variable components) are also benchmarked to
appropriate external market data.
4
Excluding investment related revenue and expenses.
Platinum Asset Management Limited Annual Report 2020 36
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
Deferred Remuneration Plan (applies to all staff)
In June 2016, the Nomination & Remuneration Committee approved the implementation of the
Deferred Remuneration Plan. The main objectives of the Plan are to foster sustainable growth,
as well as sound financial, operational and risk management practices, and to retain talent.
Eligible employees are selected by the Nomination & Remuneration Committee, generally
during the annual award cycle, and the proportion of each variable award that is deferred
varies by employee. The number of deferred rights awarded is determined by dividing the
discretionary deferred award amount by the PTM share price, using a volume weighted average
price (VWAP) of the PTM shares over the seven (7) trading days prior to the award acceptance
date. If an eligible employee remains employed at Platinum after the four year vesting period,
the employee then has a further five years to exercise their deferred right. If an employee
resigns from Platinum before they have met their service condition then, in most circumstances,
the deferred rights will be forfeited.
In order to satisfy the obligation to the Company that arises from the granting of deferred
awards, the Company intends to purchase shares on-market and then hold these shares within
an Employee Share Trust. Upon vesting, eligible employees will receive one ordinary share in
PTM from the Employee Share Trust in satisfaction of each of their rights. No amount is payable
by any eligible employee on either award or on exercise. There is flexibility within the plan for
the Committee to award cash or some other instrument rather than deferred shares, but the
Committee currently envisages awarding shares only.
Eligible employees will have no voting or dividend rights until their deferred rights have been
exercised and their shares have been allocated. However, the deferred rights also carry an
entitlement to a dividend equivalent payment. Upon the valid exercise of a deferred right
(or deemed exercise), an eligible employee will be entitled to receive an amount approximately
equal to the amount of dividends that would have been paid to the eligible employee had they
held the share from the grant date to the date that the deferred rights are exercised.
Long-Term Remuneration Plans
Platinum has two inactive long-term Remuneration Plans, being an “Options and Performance
Rights Plan” (OPRP) and a “Fund Appreciation Rights Plan” (FARP). There was no allocation
under either plan in either the current or prior year.
Platinum Asset Management Limited Annual Report 2020 37
Key Management Personnel (“KMP”)
For the purposes of this report, KMP of the consolidated entity in office at any time during the
financial year were:
NAME
POSITION
Michael Cole
Chairman and Non-Executive Director
Stephen Menzies
Non-Executive Director
Anne Loveridge
Non-Executive Director
Brigitte Smith
Non-Executive Director
Tim Trumper
Non-Executive Director
Andrew Clifford
Chief Executive Officer (CEO) and Managing Director
Kerr Neilson
Executive Director (Non-Executive Director from 31 August 2020)
Elizabeth Norman
Andrew Stannard
Executive Director and Director of Investor Services and Communications
Executive Director and Chief Financial Officer
There were no other employees that held a KMP position within the Company or
consolidated entity.
Managing Director and other KMP Remuneration
Managing Director/CEO Remuneration
Mr Andrew Clifford is both the Managing Director/CEO and Chief Investment Officer (CIO)
of the Company.
Mr Clifford is eligible for discretionary awards under the CEO Plan (capped at A$1 million),
subject to meeting certain key performance indicators (KPIs), as set by the Board.
In addition, Mr Clifford is entitled to receive discretionary awards in relation to his role as
CIO via the Investment Team Plan (ITP) and the Profit Share Plan (PSP)5.
All amounts awarded to Mr Clifford under the CEO Plan, ITP or PSP will be provided to
Mr Clifford as an equivalent award of deferred equity rights issued pursuant to the Deferred
Remuneration Plan.
Despite the achievement of a number of KPI’s, (see table below) in light of the disappointing
investment performance achieved by the international flagship fund and reduced profitability
of the Company, Mr Clifford elected not to receive any variable incentive awards from the
CEO Plan, Investment Team Plan or the Profit Share Plan. The Board accepted his election.
5
For further information on Mr Clifford’s employment terms and remuneration package, please refer
to the Company’s ASX announcement dated 4 October 2019.
Platinum Asset Management Limited Annual Report 2020 38
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
CEO PLAN:
SHORT
TERM
INCENTIVE
KEY PERFORMANCE INDICATORS AND PERFORMANCE
PERFORMANCE
MEASURES
(EQUALLY WEIGHTED)
FY20 PERFORMANCE AGAINST KPI’S
Revenue and
Profit Growth
Average base fee revenue fell by 7%
(target increase was 10%)
MAXIMUM
AWARD:
$1M
AWARDED:
NIL
Delivery against
strategic plan –
diversification of
client base
Average base fee margins maintained
Adjusted profit (excluding investment income
and performance fees) decreased by 9.5%
(target increase was 10%)
Overall Assessment: Did not meet target
Significant activity across Europe and US
New Cayman Funds seeded
Some new customer growth in UCIT funds
However, due mostly to disappointing relative
investment performance coupled with poor general
equity market conditions, overall growth in client
assets was disappointing in 2020
Overall Assessment: Partially met target
People and
Culture Leadership
Enhanced cohesion and stability of the investment
team with no regretted departures
Risk Management
& Operational
Effectiveness
Excellent results from staff culture survey
Staff engagement and performance successfully
maintained after transition to remote working
due to COVID-19
Overall Assessment: Met target
No significant regulatory issues identified in 2020
No significant errors or breaches of
investment guidelines
Continued enhancement of risk management
framework and corporate Governance
IT infrastructure strengthened and Operational
effectiveness maintained during COVID crisis
and shift to working from home
Overall Assessment: Met target
The same four performance measure will apply for Mr Clifford’s 2021 financial year scorecard.
Platinum Asset Management Limited Annual Report 2020 39
Other KMP Remuneration
Kerr Neilson continued to waive his ability to receive variable compensation. This waiver was
accepted by the Nomination & Remuneration Committee and agreed by the Board.
The variable compensation paid to Elizabeth Norman reflected her role as Director of Investor
Services and Communications and her leadership and involvement in the development of
several initiatives during the year, including the marketing of new offshore funds (to support US
business initiatives), ongoing work associated with our European business operations, research
into new onshore product opportunities, and a substantial expansion (pre-COVID) of our
communications with both advisors and investors.
The variable compensation paid to Andrew Stannard reflected both his operational leadership
and the strategic input that he provided into various business development opportunities for
the business. Highlights included the implementation of various cost savings initiatives, the
delivery of a number of operational and business development initiatives and the operational
leadership of our offshore expansion efforts.
Remuneration of Executive Key Management Personnel (KMP)
The table below presents disclosure of the remuneration provided by the consolidated entity to
executive KMP’s of the consolidated entity, based on the amounts awarded to the individuals
during the year.
SUPER-
CASH ANNUA-
TION
$
SALARY
$
VARIABLE
REMUNER-
ATION
(CASH)
(1)
$
VARIABLE
REMUNER-
ATION
(DEFERRED)
(2)
$
VARIABLE
REMUNER-
ATION AS A
% OF TOTAL
REMUNER-
ATION(3)
TOTAL
$
2020
Andrew Clifford
Kerr Neilson
Elizabeth Norman
Andrew Stannard
2019
Andrew Clifford
Kerr Neilson
Elizabeth Norman
Andrew Stannard
450,000
450,000
425,000
425,000
21,003
21,003
21,003
21,003
–
–
725,000
400,000
–
–
471,003
471,003
450,000 1,621,003
996,003
150,000
1,750,000 84,012 1,125,000
600,000 3,559,012
450,000
450,000
425,000
425,000
20,531
20,531
20,531
20,531
–
–
900,000
425,000
–
–
470,531
470,531
350,000 1,695,531
150,000 1,020,531
1,750,000
82,124 1,325,000
500,000 3,657,124
0%
0%
72%
55%
48%
0%
0%
74%
56%
50%
(1) See the “Variable Remuneration Plans” section above for further details. The “variable remuneration
(cash)” attributable to Andrew Clifford is comprised of awards under the Investment Team Plan. The cash
awards made to Elizabeth Norman and Andrew Stannard were made under the General Employee Plan.
(2) The “variable remuneration (deferred)” amount noted above reflects the award amounts attributed
to each individual in the current financial year. These awards vest 4 years after the award date.
(3) Fixed remuneration refers to salary and superannuation. Variable remuneration refers to both cash
and deferred components.
Platinum Asset Management Limited Annual Report 2020
40
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
The table below presents the remuneration provided by the consolidated entity to executive
KMP of the consolidated entity, in accordance with accounting standards.
SUPER-
OTHER ANNUA-
TION
$
(1)
$
VARIABLE VARIABLE
REMUNER- REMUNER-
ATION
ATION
(CASH) (DEFERRED)
(3)
$
(2)
$
VARIABLE
REMUNER-
ATION AS A
% OF TOTAL
REMUNER-
ATION(4)
TOTAL
$
CASH
SALARY
$
2020
Andrew Clifford
450,000
6,086 21,003
– 174,000
651,089
Kerr Neilson
450,000 (12,818) 21,003
–
–
458,185
Elizabeth Norman 425,000
6,061 21,003 725,000 343,500 1,520,564
Andrew Stannard 425,000 27,632 21,003 400,000
95,700
969,335
1,750,000 26,961 84,012 1,125,000 613,200 3,599,173
2019
Andrew Clifford
450,000 23,512 20,531
– 174,000
668,043
Kerr Neilson
450,000
(29,211) 20,531
–
–
441,320
Elizabeth Norman 425,000 20,155 20,531 900,000 224,525 1,590,211
Andrew Stannard
425,000
(14,154) 20,531 425,000
69,050
925,427
1,750,000
302 82,124 1,325,000 467,575 3,625,001
27%
0%
70%
51%
48%
26%
0%
71%
53%
49%
(1) “Other” represents the increase/(decrease) in the accounting provision for annual and long service
leave. These amounts were not received by the Executive Directors and represent provisions made in
the consolidated entity’s statement of financial position.
(2) See the “Variable Remuneration Plans” section above for further details. Andrew Clifford received no
cash variable awards from either the Investment Team Plan or the Profit Share Plan. The cash awards
made to Elizabeth Norman and Andrew Stannard were made under the General Employee Plan.
(3) The accounting fair value attributed to each deferred award is spread over the five year service
period. The accounting valuation of $174,000 attributable to Andrew Clifford represents the current
year portion of the 2018 deferred award of $1,000,000. The accounting valuation of $343,500
attributable to Elizabeth Norman represents the current year portion of the 2020 deferred award of
$450,000, the 2019 award of $350,000, the 2018 award of $350,000, the 2017 award of $300,000 and
the 2016 award of $300,000. The accounting valuation of $95,700 attributable to Andrew Stannard
represents the current year portion of the 2020 deferred award of $150,000, the 2019 award of
$150,000, the 2018 award of $150,000 and the 2017 award of $100,000.
(4) Fixed remuneration refers to salary, superannuation and provisions or payments made for annual and
long service leave. Variable remuneration refers to both cash and deferred components.
Platinum Asset Management Limited Annual Report 2020
41
Remuneration of Non-Executive Directors
Remuneration Policy
The Company’s remuneration policy for Non-Executive Directors is designed to ensure that the
Company can attract and retain suitably-qualified and experienced directors.
It is the policy of the Board to remunerate at market rates. Non-Executive Directors receive a
fixed fee and mandatory superannuation payments. Non-Executive Directors do not receive
variable compensation and are not eligible to participate in any variable remuneration plans.
The Executive Directors examine the base pay of the Non-Executive Directors annually and may
utilise the services of an external advisor to assist with this.
The Executive Directors determine the remuneration of the Non-Executive Directors within the
maximum approved shareholder limit. The aggregate amount of remuneration that can be paid
to the Non-Executive Directors, which was approved by shareholders at a general meeting in
April 2007, is $2 million per annum (including superannuation).
No other retirement benefits (other than mandatory superannuation) are provided to the
Non-Executive Directors. There are no termination payments payable on the cessation of office
and any Director may retire or resign from the Board, or be removed by a resolution of
shareholders. The Constitution of the Company specifies that any change to the maximum
amount of remuneration that can be paid to the Non-Executive Directors requires the approval
of shareholders.
Remuneration Structure
The following table displays the current Non-Executive Directors and their roles at
30 June 2020.
NON-EXECUTIVE
DIRECTOR
Board
Audit, Risk &
Compliance
Committee
Nomination &
Remuneration
Committee
MICHAEL
COLE
ANNE
LOVERIDGE
STEPHEN
MENZIES
BRIGITTE
SMITH
TIM
TRUMPER
Chair
Director
Director
Director
Director
Member
Chair
Member Member Member
Member
Member
Chair Member Member
Platinum Asset Management Limited Annual Report 2020 42
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
The table below shows how the cash salary remuneration is allocated reflecting their roles at
30 June 2020.
NON-EXECUTIVE
DIRECTOR
Board
Audit, Risk &
Compliance
Committee
Nomination &
Remuneration
Committee
MICHAEL
COLE
ANNE
LOVERIDGE
STEPHEN
MENZIES
BRIGITTE
SMITH
TIM
TRUMPER
$170,000
$130,000
$130,000
$130,000 $130,000
$15,000
$30,000
$15,000
$15,000
$15,000
$15,000
$15,000
$30,000
$15,000
$15,000
Total
$200,000
$175,000
$175,000 $160,000 $160,000
Remuneration of Non-Executive Directors
The table below presents actual amounts received by the Non-Executive Directors.
SUPER-
ANNUA-
TION
$
VARIABLE
REMUNER-
ATION
(CASH)
$
VARIABLE
REMUNER-
ATION
(DEFERRED)
$
CASH
SALARY
$
2020
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
2019
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
200,000
19,000
175,000
175,000
16,625
16,625
160,000
15,200
160,000
15,200
870,000
82,650
200,000
19,000
175,000
175,000
160,000
16,625
16,625
15,200
(from 1 August 2018)
146,667
13,933
856,667
81,383
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
TOTAL
$
219,000
191,625
191,625
175,200
175,200
952,650
219,000
191,625
191,625
175,200
160,600
938,050
Platinum Asset Management Limited Annual Report 2020
43
Stephen Menzies is Platinum Investment Management Limited’s (PIML’s) nominee on the Board
of the offshore UCITS company, Platinum World Portfolios Plc (PWP) and payments are made
directly by PWP. Amounts paid in the current year were €24,000 (equivalent to A$40,928)
(2019: €24,000 (equivalent to A$38,309)).
Managing Director and other Senior Executive employment agreements
The key aspects of the KMP contracts are outlined below:
–
–
–
–
–
–
–
Remuneration and other terms of employment for Non-Executive Directors are formalised
in letters of appointment.
All contracts (both Executive and Non-Executive) include the components of
remuneration that are to be paid to KMP and provide for annual review, but do not
prescribe how remuneration levels are to be modified from year to year.
The tenure of all Directors, except for the Managing Director, Mr Andrew Clifford,
is subject to approval by shareholders at every third AGM or other general meeting
convened for the purposes of election of Directors.
In the event of termination, all KMP are entitled to receive their statutory leave
entitlements and superannuation benefits. In relation to variable remuneration plans,
upon resignation, variable remuneration is only paid if the Executive Director is still
employed at the date of payment. However, the Board retains discretion to make variable
remuneration payments (both cash and deferred) in certain exceptional circumstances,
such as bona-fide retirement.
Mr Andrew Clifford can terminate his employment by providing twelve months’
notice. All other Executive Directors can terminate their appointment by providing
six months’ notice.
Mr Andrew Clifford has entered into a post-employment restraint whereby he may not
solicit either employees or clients for a period of twelve months.
Non-Executive Directors may resign by written notice to the Chairman and where
circumstances permit, it is desirable that reasonable notice of an intention to resign is
given to assist the Board in succession planning.
Mr Kerr Neilson will retire as an employee of Platinum Investment Management Limited
but will remain a Director of the Company (albeit a Non-Executive Director) with effect
from 31 August 2020.
Platinum Asset Management Limited Annual Report 2020 44
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
Interests of Non-Executive and Executive Directors in shares
The relevant interest in ordinary shares of the Company that each Director held at balance
date was:
OPENING BALANCE
ADDITIONS
DISPOSALS CLOSING BALANCE
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
Andrew Clifford(1)
Kerr Neilson
Elizabeth Norman(2)
Andrew Stannard(3)
240,000
40,000
22,000
41,666
18,900
32,831,449
252,074,841
766,748
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
240,000
40,000
22,000
41,666
18,900
32,831,449
252,074,841
766,748
–
(1) Andrew Clifford also has contingent rights to receive up to 165,563 shares pursuant to awards made
under the Company’s deferred remuneration plan.
(2) Elizabeth Norman also has contingent rights to receive up to 319,335 shares and vested but
unexercised rights equivalent to 48,623 shares, both pursuant to awards made under the Company’s
deferred remuneration plan.
(3) Andrew Stannard has contingent rights to receive up to 119,211 shares pursuant to awards made
under the Company’s deferred remuneration plan.
Oversight and Governance
The Board, through its Nomination & Remuneration Committee, provides oversight of
remuneration and incentive policies. This particularly includes oversight of the remuneration
and employment packages and terms of employment for Executive Directors, Non-Executive
Directors (NEDs) and Senior Managers.
The role of the Nomination & Remuneration Committee is set out in its Charter.
Its responsibilities include the following functions that are relevant to remuneration:
–
–
–
–
–
To review and make recommendations to the Board in respect of the CEO,
Executive Director, and Non-Executive Director appointments;
To review and make recommendations to the Board in respect of the variable
remuneration awards in respect of the CEO/CIO, Executive Directors, Senior Managers
and Portfolio Managers;
To provide oversight on the overall aggregate variable remuneration outcome for
Platinum, ensuring appropriate alignment with all stakeholders;
To review significant changes in remuneration policy and structure, including deferred
remuneration plans and benefits;
To oversee the Company’s strategic human resources initiatives, including diversity
and inclusion;
Platinum Asset Management Limited Annual Report 2020
45
–
–
To make ongoing assessments of the collective skills required to effectively discharge
the Board’s duties;
To review the composition, functions, responsibilities and size of the Board as well
as Director tenure; and
–
To ensure appropriate Board succession planning.
During the 2020 financial year, the Nomination & Remuneration Committee dealt with
the following significant items that relate to remuneration arrangements:
–
–
–
–
–
Continued to push forward our program of Board renewal and completed the
search for a new Chairman;
Reviewed and updated the CEO’s remuneration arrangements and KPIs;
Reviewed and recommended to the Board the aggregate 2019/2020 variable
remuneration pool for Platinum as well as the individual awards for the CEO,
executive directors and senior managers;
Oversaw the development of Platinum’s corporate values; and
Approved Platinum’s revised diversity objectives and a diversity and inclusion policy.
Remuneration services provided to management and the Committee
The firm utilised Financial Institutions Remuneration Group (FIRG) as the primary source of
remuneration benchmarking data and PricewaterhouseCoopers (PwC) as a consultant to the
remuneration and benefit plans both in Australia and also in the UK. In addition, certain KMP
roles were benchmarked to publically available information at comparable companies.
Directors’ interests in contracts
The Directors received remuneration that is ultimately derived from net income arising
from Platinum Investment Management Limited’s investment management contracts.
Loans to KMP and their related parties
No loans were provided to KMP or their related parties during the year or at the date of this report.
Other related party payments involving KMP
In the current year, the consolidated entity paid $60,000 (2019: $70,000) to OneVue Services
Pty Limited for the provision of services associated with the build, customisation and
enhancement of the Platinum web-site. OneVue is a related party of the Chairman of Platinum
Asset Management Limited, Mr Michael Cole. These services are provided on an arms length
basis and the Chairman was not involved in the decision to utilise OneVue’s services.
Shareholders’ Approval of the 2019 (prior year) Remuneration Report
A 25% or higher “no” vote on the Remuneration Report at an AGM triggers a reporting
obligation on a listed company to explain in its next Annual Report how concerns are being
addressed. At the last AGM (held 20th November 2019), the Company’s Remuneration Report
was carried on a poll and received a vote in favour of 96.69%.
Platinum Asset Management Limited Annual Report 2020 46
DIRECTORS’ REPORT
CONTINUED
Remuneration Report – continued
Link between performance and KMP remuneration paid by the consolidated entity
The table below shows Platinum’s five year performance across a range of metrics and
corresponding KMP incentive outcomes.
Closing funds under
management ($m)
Average funds under
management ($m)
Net flows ($m)
Average base
management
fee (bps p.a.)
Base fee revenue ($m)
Total revenue and
2020
2019
2018
2017
2016
21,385
24,769
25,699
22,713
22,688
23,749
25,394
26,528
23,443
25,821
(3,031)
(246)
1,034
(3,565)
(1,440)
116
276
116
295
116
307
127
296
124
320
other income ($’000)
298,666
299,320
353,290
333,549
344,658
Total expenses ($’000)
77,897
76,421
84,966
62,971
62,464
Operating profit
after tax ($’000)
Basic earnings per
155,611
158,336
191,594
192,647
199,870
share (cents per share)
26.76
27.03
32.36
31.74
34.24
Total dividends
(cents per share)
Share price at end of year
Total aggregate KMP fixed
remuneration paid ($)(1)
Total aggregate KMP variable
24
3.73
27
4.85
32
5.76
30
4.63
32
5.76
2,854,551 2,808,483 2,510,503 2,558,913 2,518,991
remuneration paid ($)(2)
1,738,200 1,792,575 4,762,595 1,721,800 1,452,200
(1) Total aggregate fixed remuneration paid represents salaries and superannuation (and includes
the Director’s Fees disclosed and paid to Stephen Menzies for his Directorship of the UCITS fund).
The amount is higher in FY2020 and FY2019 due to the appointment of additional Directors in
FY2019 and FY2018.
(2) The increase in 2018 KMP variable remuneration reflected Investment Team and Profit Share Plan awards
made to the CIO related to the significant investment out-performance generated for clients in that year.
The level of aggregate KMP remuneration paid each year reflects a combination of factors,
including investment performance for clients, the operating performance of the firm, individual
and team performance and also the degree of competition for executive talent.
Platinum Asset Management Limited Annual Report 2020
AUDITOR’S INDEPENDENCE DECLARATION
47
As lead auditor for the audit of Platinum Asset Management Limited for the year ended
30 June 2020, I declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act
2001 in relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Platinum Asset Management Limited and the entities it
controlled during the period.
R Balding
Partner
PricewaterhouseCoopers
26 August 2020
Sydney
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO Box 2650, Sydney NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Platinum Asset Management Limited Annual Report 2020 48
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
NOTE
CONSOLIDATED
2020
$’000
2019
$’000
Revenue
Management fees
Performance fees
Other income
Interest
Distributions and dividends
Share of profit/(loss) of associates
Gains/(losses) on financial assets at
fair value through profit or loss
Foreign exchange gains on overseas
bank accounts
Total revenue and other income
Expenses
Staff
Custody and unit registry
Business development
Share-based payments
Legal, compliance and other professional
Research
Technology
Mail house, periodic reporting and share registry
Depreciation of fixed assets
Rent and other occupancy
Depreciation of right-of-use assets
Finance costs on lease liabilities
Insurance
Audit fee
Other
Total expenses
11
2
20
7
26
26
26
22
Profit before income tax expense
Income tax expense
12(a)
Profit after income tax expense for the year
275,902
295,188
9,078
30
284,980
295,218
1,707
1,855
7,426
3,542
3,714
(2,599)
1,237
(2,103)
1,461
1,548
298,666
299,320
37,207
11,274
6,579
6,803
3,581
2,838
2,502
1,123
1,870
463
1,926
239
847
417
228
38,743
12,755
7,119
4,858
2,892
2,617
2,366
1,192
737
1,944
–
–
589
447
162
77,897
76,421
220,769
65,158
222,899
64,563
155,611
158,336
Platinum Asset Management Limited Annual Report 2020
49
NOTE
CONSOLIDATED
2020
$’000
2019
$’000
Other comprehensive income
Exchange rate translation impact of foreign subsidiaries
15
Other comprehensive income for the year, net of tax
(1,040)
(1,040)
(16)
(16)
Total comprehensive income for the year
154,571
158,320
Profit after income tax expense for the year is attributable to:
Owners of Platinum Asset Management Limited
155,611
157,651
Non-controlling interests
Basic earnings per share
Diluted earnings per share
–
685
155,611
158,336
10
10
CENTS
26.76
26.76
CENTS
27.03
27.03
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
Platinum Asset Management Limited Annual Report 2020
50
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Assets
Current assets
Cash and cash equivalents
Term deposits
Trade and other receivables
Total current assets
Non-current assets
Equity investments in associates
Financial assets at fair value through profit or loss
Fixed assets
Right-of-use assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Lease liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Provisions
Employee benefits
Lease liabilities
Net deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
NOTE
CONSOLIDATED
2020
$’000
2019
$’000
6
2(a)
5
7
26
8
9
26
9
9
26
12(b)
105,333
49,876
34,682
112,947
81,877
27,922
189,891
222,746
125,019
27,626
4,007
8,669
117,593
183
3,616
–
165,321
121,392
355,212
344,138
5,575
3,757
1,744
10,825
21,901
1,009
628
7,085
5,628
14,350
36,251
8,108
3,197
–
5,082
16,387
1,560
612
–
4,491
6,663
23,050
318,961
321,088
Platinum Asset Management Limited Annual Report 2020
51
CONSOLIDATED
2020
$’000
2019
$’000
717,998
723,490
(572,082)
(576,863)
173,045
174,461
318,961
321,088
Equity
Issued capital
Reserves
Retained profits
NOTE
14
15
16
Total equity attributable to the owners
of Platinum Asset Management Limited
Total equity attributable to non-controlling interests:
Non-controlling interests
Total equity
4
–
–
318,961
321,088
The above consolidated statement of financial position should be read in conjunction with the
accompanying notes.
Platinum Asset Management Limited Annual Report 2020
52
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
CONSOLIDATED
ISSUED
CAPITAL
$’000
RESERVES
$’000
RETAINED
PROFITS
$’000
NON-
CONTROL
–LING
INTERESTS
$’000
TOTAL
EQUITY
$’000
Balance at 1 July 2019
723,490
(576,863)
174,461
–
321,088
Profit after income tax
expense for the year
Other comprehensive income
Exchange rate translation
impact of foreign
subsidiaries (Note 15)
Total comprehensive
income for the year
Transactions with owners
in the capacity as owners
Treasury shares acquired
–
–
–
–
155,611
–
155,611
(1,040)
–
–
(1,040)
(1,040)
155,611
–
154,571
(net) (Note 14)
(5,492)
–
Share-based payments
reserve (Note 15)
Dividends paid (Note 17)
–
–
–
–
5,821
–
(157,027)
–
–
–
–
(5,492)
5,821
(157,027)
318,961
Balance at 30 June 2020
717,998
(572,082)
173,045
Platinum Asset Management Limited Annual Report 2020
53
CONSOLIDATED
ISSUED
CAPITAL
$’000
RESERVES
$’000
RETAINED
PROFITS
$’000
NON-
CONTROL
–LING
INTERESTS
$’000
TOTAL
EQUITY
$’000
Balance at 1 July 2018
731,245
(582,006)
185,940
75,936
411,115
Profit after income tax
expense for the year
Other comprehensive income
Exchange rate translation
impact of foreign
subsidiaries (Note 15)
Total comprehensive
income for the year
Transactions with owners
in the capacity as owners
Treasury shares acquired
–
–
–
–
157,651
685
158,336
(16)
–
–
(16)
(16)
157,651
685
158,320
(Note 14)
(7,755)
–
Share-based payments
reserve (Note 15)
Dividends paid (Note 17)
Transactions with
non-controlling interest
Decrease in retained
earnings on deconsolidation
of PAXX (Note 4)
Decrease in equity on
deconsolidation of PAXX
–
–
–
–
–
5,159
–
–
–
–
–
–
(169,130)
–
–
–
(7,755)
5,159
(169,130)
–
56,199
56,199
–
–
(1,701)
(1,701)
(131,119)
(131,119)
Balance at 30 June 2019
723,490
(576,863)
174,461
–
321,088
The above consolidated statement of changes in equity should be read in conjunction with the
accompanying notes.
Platinum Asset Management Limited Annual Report 2020
54
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
Cash flows from operating activities
Receipts from operating activities
Payments for operating activities
Finance costs paid
Income taxes paid
NOTE
CONSOLIDATED
2020
$’000
2019
$’000
277,363
299,886
(76,532)
(75,982)
(239)
–
(57,903)
(57,569)
Net cash from operating activities
13
142,689
166,335
Cash flows from investing activities
Interest received
Purchase of term deposits
Proceeds on maturity of term deposits
1,920
3,435
(339,753)
(375,752)
371,754
321,753
Payments for purchases of fixed assets
7
(2,261)
(1,367)
Dividends and distributions received
from seed investments
Receipts from sale of financial assets
Payments for purchases of financial assets
Purchase of units held directly by PAXX
(whilst consolidated)
2,558
66
(26,167)
2,421
–
–
4
–
(56,199)
Net cash from/(used in) investing activities
8,117
(105,709)
Cash flows from financing activities
Dividends paid
Proceeds from units issued
(net applications into PAXX)
Payment of lease liability principal
Net cash (used in) financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of
the financial year
Effects of exchange rate changes on cash
and cash equivalents
17
(157,027)
(169,130)
–
56,199
(1,855)
–
(158,882)
(112,931)
(8,076)
(52,305)
112,947
163,799
462
1,453
Cash and cash equivalents at the end of the financial year
105,333
112,947
The above consolidated statement of cash flows should be read in conjunction with the
accompanying notes.
Platinum Asset Management Limited Annual Report 2020
55
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Statement of Compliance
The consolidated financial statements are general purpose financial statements which have
been prepared in accordance with Australian Accounting Standards adopted by the Australian
Accounting Standards Board (“AASB”) and the Corporations Act 2001. The consolidated
financial statements comply with International Financial Reporting Standards (“IFRSs”) adopted
by the International Accounting Standards Board (“IASB”).
Basis of Preparation
The consolidated financial statements are presented in Australian Dollars, which is the
consolidated entity’s functional and presentation currency, with all values rounded to the
nearest thousand dollars (‘$000), in accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, unless otherwise stated. The consolidated financial
statements have been prepared on a historical cost basis, except for the revaluation of financial
assets and liabilities at fair value through profit or loss.
Platinum Investment Management Limited (“PIML”) has seeded or invested in a number of the
products it offers to investors and this has impacted on the accounting treatment adopted in
the consolidated financial statements as follows:
ENTITY
PIML
OWNERSHIP INTEREST
AT 30 JUNE 2020
ACCOUNTING TREATMENT
ADOPTED IN THESE
ACCOUNTS
Platinum Asia Ex-Japan
100%
Opportunities Master Fund Ltd^
Platinum Asia Ex-Japan
Opportunities Fund Ltd^
100%
Platinum Global Opportunities
100%
Master Fund Ltd^
Platinum Global
Opportunities Fund Ltd^
Platinum Asia Fund (Quoted
Managed Hedge Fund)
(“PAXX”)
Platinum World
Portfolios Plc (“PWP”)
100%
18.3%
14.8%
Platinum Asia Investments
8.2%
Limited (“PAI”)
Platinum Trust Funds
Subsidiary. Consolidation
accounting applied.
Subsidiary. Consolidation
accounting applied.
Subsidiary. Consolidation
accounting applied.
Subsidiary. Consolidation
accounting applied.
Investment in associate.
Equity accounting applied
(see Note 2).*
Investment in associate. Equity
accounting applied (see Note 2).*
Investment in associate. Equity
accounting applied (see Note 2).*
Less than 1%
in each Fund.
Fair value accounting
applied (see Note 5).
^
*
These Cayman Island domiciled funds were seeded by PIML in June 2020 (collectively referred to as
the “Cayman Funds”).
At 30 June 2020, PIML (and the consolidated entity) was assessed as having significant influence over
Platinum Asia Fund (Quoted Managed Hedge Fund) (“PAXX”), Platinum Asia Investments Limited
(“PAI”) and Platinum World Portfolios Plc (“PWP”) (Refer to Note 2 for further details).
Platinum Asset Management Limited Annual Report 2020
56
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Basis of Preparation – continued
In order to better present the accounting treatment of the investments adopted in these
consolidated accounts (as presented in the table above), management has presented the notes
in three parts:
PART A – Notes 1 to 4: Notes that explain the accounting treatment of the entities
that form part of the Platinum consolidated group or investments in associates
PART B – Notes 5 to 22: Operations – Notes that explain the operations of the
consolidated entity
PART C – Notes 23 to 29: Miscellaneous Notes that are required by the
accounting standards
Significant accounting policies
The principal accounting policies have been included in the relevant notes to which the policy
relates and have been consistently applied to all financial years presented in these consolidated
financial statements except for AASB 16 Leases which has been applied from 1 July 2019
without restating comparatives for 30 June 2019 as is permitted by the transitional provisions
(Refer to Note 26 for further details).
Critical accounting judgements, estimates and assumptions
The preparation of the consolidated financial statements requires management to make
judgements, estimates and assumptions. The areas where assumptions and estimates are
significant to the consolidated financial statements are outlined after the relevant accounting
policy in the relevant notes. The accounting impact of the treatment of the products that PIML
has seeded or invested in, is the most critical accounting judgement, estimate or assumption
within these consolidated financial statements.
PART A – Notes 1 to 4
Notes that explain the accounting treatment of the entities that form part of the
Platinum consolidated group or investments in associates
Notes 1 to 4 focus on the accounting treatment adopted in these accounts and contain key
information relating to the parent entity, subsidiaries, controlled entities and associates.
Platinum Asset Management Limited Annual Report 2020 57
Note 1. Subsidiaries and controlled entities
At 30 June 2020 and 30 June 2019, the Company’s subsidiaries and the ownership interests
were as follows.
NAME
McRae Pty Limited
Platinum Asset Pty Limited
Platinum Investment
Management Limited (“PIML”)
Platinum Employee Share Trust^
Platinum Investment Management
Australia (PIMA) Corp.*
Platinum GP Pty Limited
Platinum UK Asset
PRINCIPAL PLACE OF BUSINESS /
COUNTRY OF INCORPORATION
OWNERSHIP INTEREST
2019
%
2020
%
Australia
Australia
Australia
Australia
United States
Australia
100
100
100
100
–
100
100
100
100
100
100
100
Management Limited**
United Kingdom
100
100
Platinum Management
Malta Limited**
Platinum Asia Ex-Japan
Malta
Opportunities Master Fund Ltd***
Cayman Islands
Platinum Asia Ex-Japan
Opportunities Fund Ltd***
Cayman Islands
Platinum Global Opportunities
Master Fund Ltd***
Cayman Islands
Platinum Global Opportunities
Fund Ltd***
Cayman Islands
Platinum Europe Opportunities
Master Fund Ltd****
Cayman Islands
Platinum Europe Opportunities
Fund Ltd****
Cayman Islands
Platinum Japan Opportunities
Master Fund Ltd****
Cayman Islands
Platinum Japan Opportunities
Fund Ltd****
Cayman Islands
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
^
Platinum Employee Share Trust holds PTM shares on behalf of employees selected to participate in the
Deferred Remuneration Plan (see Note 20 for further details).
*
The entity was dissolved on 11 June 2020.
** Platinum UK Asset Management Limited and Platinum Management Malta Limited both act as sales
and servicing centres for the consolidated entity, predominantly with the objective of generating
additional fund inflows into Platinum World Portfolios Plc.
*** Cayman Funds started trading on 1 June 2020. The consolidated entity contributed US Dollar 10 million
each into Platinum Asia Ex-Japan Opportunities Fund Ltd and Platinum Global Opportunities Fund Ltd.
**** Dormant entities.
Platinum Asset Management Limited Annual Report 2020
58
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 1. Subsidiaries and controlled entities – continued
ACCOUNTING
POLICY
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all
subsidiaries of Platinum Asset Management Limited (“Company” or “parent
entity”) as at 30 June 2020 and the results of all subsidiaries for the financial year.
Platinum Asset Management Limited and its subsidiaries together are referred to
in these consolidated financial statements as the ‘consolidated entity’ or ‘group’.
Subsidiaries are all those entities over which the consolidated entity has control.
The consolidated entity controls an entity when the consolidated entity is exposed
to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns, through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to
the consolidated entity. They are deconsolidated from the date that control ceases.
In preparing the consolidated financial statements, all intercompany transactions,
balances and unrealised gains arising within the consolidated entity are eliminated
in full.
Foreign currency translation
Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the date of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the
translation at balance date exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the consolidated statement
of profit or loss and other comprehensive income.
The results and financial position of foreign operations that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
–
–
–
Assets and liabilities for each financial position presented are translated at
the balance date;
Income and expenses included in the consolidated statement of profit or loss
and other comprehensive income are translated at average exchange rates
(unless this is not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income and expenses
are translated at the dates of the transactions); and
All resulting exchange differences are recognised in other comprehensive
income in the foreign currency translation reserve.
Platinum Asset Management Limited Annual Report 2020 59
Note 2. Equity investments in associates
At 30 June 2020, the consolidated entity’s investment(s) in Platinum Asia Investments Limited
(“PAI”), Platinum World Portfolios Plc (“PWP”) and Platinum Asia Fund (Quoted Managed
Hedge Fund) (“PAXX”) represent interests in associates which are accounted for using the
equity method of accounting. Information relating to this is shown below:
a. Interests in associates
ENTITY COUNTRY
OF
INCORP-
ORATION
EQUITY
INTEREST
%
FAIR VALUE
$’000
CARRYING
AMOUNT
$’000
REASON FOR
ASSESSMENT OF
SIGNIFICANT INFLUENCE
2020
2019
2020
2019
2020
2019
PAI
Australia
8.2 8.3
30,300 30,900
34,549 32,567 Ownership interest
PWP
Ireland
14.8 14.6
64,265 63,444
PAXX Australia
18.3 14.7
26,205 23,395
was 8.2% at 30 June
2020; PIML acts as
Investment Manager (IM)
in accordance with the
Investment Management
Agreement; PIML
provides performance
and exposure reports
to the PAI Board.
64,265 61,631 Ownership interest was
14.8% at 30 June 2020;
PIML acts as IM in
accordance with the
Investment Management
Agreement; the
Company provides
performance and
exposure reports to the
PWP Board and Stephen
Menzies is a Director of
PWP and a Director of
Platinum Asset
Management Limited.
26,205 23,395 Ownership interest was
18.3% at 30 June 2020;
PIML acts as IM for PAXX
and its underlying fund,
Platinum Asia Fund.
120,770 117,739 125,019 117,593
The fair value of PAI reflects the 30 million shares held multiplied by the PAI closing share price
at 30 June 2020 of $1.01 (2019: $1.03).
Platinum Asset Management Limited Annual Report 2020
60
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 2. Equity investments in associates – continued
The fair value of PWP reflects the shares held in the sub-funds multiplied by their respective
closing share prices at 30 June 2020.
The fair value of PAXX reflects units held multiplied by the PAXX’s 30 June 2020 ex-redemption
price of $4.71 (2019: $4.20).
The carrying value reflects the consolidated entity’s share of each associate’s net assets,
including assessment of any impairment (see Note 2b for further details).
b. Share of associates’ statement of financial position
30 June 2020
Associates financial position
Platinum Asia Investments Limited
Platinum World Portfolios Plc
PAXX
Total associates’ statement of financial position
Group’s share of associate
Platinum Asia Investments Limited
Platinum World Portfolios Plc
PAXX
Total associates’ statement of financial position
TOTAL
ASSETS
$’000
TOTAL
LIABILITIES*
$’000
NET
ASSETS
$’000
432,120
454,211
146,220
13,343
418,777
5,370
448,841
3,022
143,198
1,010,816
35,650
65,034
26,758
1,101
769
553
34,549
64,265
26,205
125,019
Platinum Asset Management Limited Annual Report 2020
61
Note 2. Equity investments in associates – continued
b. Share of associates’ statement of financial position – continued
30 June 2019
Associates financial position
Platinum Asia Investments Limited
Platinum World Portfolios Plc
PAXX
Total associates’ statement of financial position
Group’s share of associate
Platinum Asia Investments Limited
Platinum World Portfolios Plc
PAXX
Total associates’ statement of financial position
TOTAL
ASSETS
$’000
TOTAL
LIABILITIES*
$’000
NET
ASSETS
$’000
401,222
426,498
168,320
33,221
62,311
24,810
7,900
4,653
9,602
654
680
1,415
393,222
421,845
158,718
973,785
32,567
61,631
23,395
117,593
*
Associates total liabilities include non-current assets of $9,236,000 (2019: $2,686,000).
c. Carrying amount of investment using the equity method
Opening balance
2020
$’000
117,593
Initial recognition of PAXX as an equity investment on deconsolidation
–
Share of associates’ profit (see Note 2d below)
Dividends paid (see Note 2d below)
Closing balance (see Note 2a)
2019
$’000
95,920
24,272
1,100
(3,699)
9,188
(1,762)
125,019
117,593
Platinum Asset Management Limited Annual Report 2020
62
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 2. Equity investments in associates – continued
d. Associate’s net income
PLATINUM
ASIA
INVESTMENTS
LIMITED
$’000
PLATINUM
WORLD
PORTFOLIOS
PLC
$’000
PAXX
$’000
TOTAL
$’000
63,942
8,664
55,278
(16,669)
38,609
5,275
715
4,560
(1,375)
3,185
32,319
7,828
24,491
–
19,464
115,725
–
19,464
16,492
99,233
–
(16,669)
24,491
19,464
82,564
1,083
3,562
262
821
–
821
–
3,562
–
3,562
9,920
977
8,943
(1,375)
7,568
(1,202)
1,812
(752)
(142)
30 June 2020
Associates’ net income
Total investment income
Total expenses
Profit/(loss) before tax
Income tax expense
Total profit/(loss) after tax
Group’s share of associate
Total investment income
Total expenses
Profit/(loss) before tax
Income tax expense
Total profit/(loss) after tax
Dividend received and dilution
of unitholding throughout
the year and foreign currency
translation impact
Realised and unrealised gain on
investment in associate
1,983
2,633
2,810
7,426
Platinum Asset Management Limited Annual Report 2020
63
Note 2. Equity investments in associates – continued
d. Associate’s net income – continued
PLATINUM
ASIA
INVESTMENTS
LIMITED
$’000
PLATINUM
WORLD
PORTFOLIOS
PLC
$’000
PAXX
$’000
TOTAL
$’000
30 June 2019
Associates’ net income
Total investment income
Total expenses
Profit/(loss) before tax
Income tax benefit
Total profit/(loss) after tax
Group’s share of associate
Total investment income
Total expenses
Profit/(loss) before tax
Income tax benefit
Total profit/(loss) after tax
Dividend received and dilution
of unitholding throughout
the year and foreign currency
translation impact
Realised and unrealised gain on
6,284
(6,552)
(268)
110
(158)
520
(543)
(23)
8
(15)
(18,038)
(6,791)
(24,829)
–
2,757
–
2,757
–
(8,997)
(13,343)
(22,340)
110
(24,829)
2,757
(22,230)
(2,635)
(992)
(3,627)
–
(3,627)
406
–
406
–
406
(1,709)
(1,535)
(3,244)
8
(3,236)
(2,390)
4,310
(1,283)
637
investment in associate
(2,405)
683
(877)
(2,599)
Platinum Asset Management Limited Annual Report 2020
64
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 2. Equity investments in associates – continued
ACCOUNTING
POLICY
Investments in associates are accounted for using the equity method. The share
of profit recognised under the equity method is the consolidated entity’s share of
the investment in associate’s profit or loss based on the ownership interest held.
Associates are entities in which the consolidated entity, as a result of its voting
rights and other factors, has significant influence, but not control or joint control,
over its financial and operating policies.
Investments in associates are carried at the lower of the equity accounted carrying
amount and the recoverable amount. When the consolidated entity’s share of
losses exceeds the carrying amount of the equity accounted investment (including
assets that form part of the net investment in the associate), the carrying amount is
reduced to nil and recognition of further losses is discontinued except to the extent
that the consolidated entity has obligations in respect of the associate.
Dividends from associates represent a return on the consolidated entity’s
investment and, as such, are applied as a reduction to the carrying value of the
investment. Unrealised gains arising from transactions with equity accounted
investments are eliminated against the investment in the associate to the extent of
the consolidated entity’s interest in the associate. Unrealised losses are eliminated
in the same way as unrealised gains, but only to the extent that there is no evidence
of impairment. Other movements in associates’ reserves are recognised directly in
the consolidated entity’s consolidated reserves.
Critical accounting judgements, estimates and assumptions
Assessment of significant influence: At 30 June 2020, the consolidated entity was
assessed as having significant influence over Platinum Asia Investments Limited
(“PAI”), Platinum World Portfolios Plc (“PWP”) and Platinum Asia Fund (Quoted
Managed Hedge Fund) (“PAXX”), as a result of its direct investment and investment
management activities and other factors outlined in Note 2a.
We have conducted an impairment assessment of the carrying amount of the
investment in associates, including a look-through of each of the underlying assets
and liabilities. Our assessment is that at 30 June 2020, no impairment write-down
was required for PAI because the carrying amount is equal to the fair value of PAI’s
underlying net assets. The carrying values of the PWP and PAXX are equal to their
fair values.
Platinum Asset Management Limited Annual Report 2020 65
PARENT
2020
$’000
158,096
158,096
2019
$’000
169,120
169,120
PARENT
2020
$’000
126,232
756,720
(10,431)
(10,431)
2019
$’000
118,574
749,062
(5,082)
(5,082)
746,289
743,980
717,998
723,490
26,950
1,341
18,854
1,636
746,289
743,980
Note 3. Parent entity information
Set out below is supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Capital reserve
Retained profits
Total equity
Note 4. Non-controlling interest(s)
The external (non-related parties) non-controlling interest in the Platinum group was $nil at
30 June 2020.
Opening balance
Profit after income tax attributable to non-controlling interests – PAXX
Additional external investment into PAXX during the year
Decrease in retained earnings on deconsolidation of PAXX
Decrease in equity on deconsolidation of PAXX
2020
$’000
–
–
–
–
–
–
2019
$’000
75,936
685
56,199
(1,701)
(131,119)
–
Platinum Asset Management Limited Annual Report 2020
66
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
PART B – Notes 5 to 22
Operations – Notes that explain the operations of the consolidated entity
Note 5. Non-current assets – financial assets at fair value through profit or loss
Platinum Trust Fund investments
Equity securities held by the Cayman Funds
2020
$’000
184
27,442
27,626
2019
$’000
183
–
183
ACCOUNTING
POLICY
Under AASB 9: Financial Instruments, the consolidated entity’s investments are
managed on a fair value basis and the consolidated entity evaluates the information
about its investments on a fair value basis together with other related financial
information. Consequently, these investments are measured at fair value through
profit or loss.
The consolidated entity has applied AASB 13: Fair Value Measurement as the
basis to value its financial assets at fair value through profit or loss. AASB 13
defines fair value as “the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date”.
The standard prescribes that the most representative price within the bid-ask
spread should be used for valuation purposes. With respect to the consolidated
entity, the last-sale or “last” price is the most representative price within the
bid-ask spread, because it represents the price that the unit last changed hands
from seller to buyer.
The fair value includes the impact of the 30 June distribution.
Platinum Asset Management Limited Annual Report 2020
67
Note 6. Current assets – trade and other receivables
Management fees receivable
Performance fees receivable
Interest receivable
Prepayments
Sundry debtors
Distribution receivable from PAXX and Platinum Trust Funds
2020
$’000
23,047
9,042
31
1,914
75
573
2019
$’000
24,467
5
246
1,561
329
1,314
34,682
27,922
Management and performance fees receivable(s) are received between three to 30 days after
balance date.
Interest receivable comprises accrued interest on term deposits and cash accounts. Interest on
term deposits is received on maturity.
ACCOUNTING
POLICY
Trade receivables represents amounts receivable for services that have been delivered.
These amounts are initially recognised at fair value. An analysis is performed at each
balance date to measure any expected credit loss. Expected credit losses are based
on the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the group expects to receive, discounted at an
approximation of the original effective interest rate. No adjustment was required for
expected credit losses during the year or prior period.
Distributions are recognised when the consolidated entity becomes entitled to
the income.
Platinum Asset Management Limited Annual Report 2020
68
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 7. Non-current assets – fixed assets
Computer equipment – at cost*
Less: Accumulated depreciation*
Software and applications – at cost*
Less: Accumulated depreciation*
Communications equipment – at cost
Less: Accumulated depreciation
Office premises fit out – at cost*
Less: Accumulated depreciation*
Furniture and equipment – at cost*
Less: Accumulated depreciation*
2020
$’000
1,615
(1,181)
434
3,937
(3,325)
612
186
(134)
52
3,492
(851)
2,641
505
(237)
268
2019
$’000
1,710
(1,312)
398
6,010
(4,691)
1,319
163
(131)
32
3,473
(1,761)
1,712
756
(601)
155
*
Movements includes some fully depreciated assets that were written off during the year ended
30 June 2020.
4,007
3,616
Platinum Asset Management Limited Annual Report 2020
69
TOTAL
$’000
2,986
1,367
(737)
3,616
2,261
Note 7. Non-current assets – fixed assets – continued
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and
previous financial year are set out below:
COMPUTER
EQUIPMENT
$’000
SOFTWARE COMMUN-
& APPLI-
ICATIONS
CATIONS EQUIPMENT
$’000
$’000
OFFICE
PREMISES
FURN-
ITURE &
FIT OUT EQUIPMENT
$’000
$’000
Balance at 1 July 2018
Additions
Depreciation expense
Balance at 30 June 2019
Additions
Depreciation expense
326
181
(109)
398
216
(180)
Balance at 30 June 2020
434
1,454
235
(370)
1,319
53
(760)
612
26
17
(11)
32
36
(16)
52
1,019
907
(214)
1,712
1,751
(822)
161
27
(33)
155
205
(92)
(1,870)
2,641
268
4,007
At 30 June 2020, there was software and applications in the course of construction and
development of $10,800 (2019: $11,984), which is included as part of the software &
applications additions and balance at 30 June 2020.
ACCOUNTING
POLICY
Fixed assets are stated at historical cost less depreciation. Fixed assets (other than
in-house software and applications in the course of construction and development)
are depreciated over their estimated useful lives using the diminishing balance
method. The expected useful lives are as follows:
Computer equipment
Software
In-house software and applications
Communications equipment
Office fit out
Office furniture and equipment
4 years
2½ years
4 years
4 years
3 – 8 years
5 – 8 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted
if appropriate, at each reporting date. The useful lives of communications equipment,
office fit out, office furniture and other equipment were adjusted during the year
ended 30 June 2020.
A fixed asset is derecognised upon disposal or when there is no future economic
benefit to the consolidated entity. Gains and losses between the carrying amount
and the disposal proceeds are taken to profit or loss.
Platinum Asset Management Limited Annual Report 2020
70
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 8. Current liabilities – trade and other payables
Trade payables
GST payable
ACCOUNTING
POLICY
2020
$’000
3,830
1,745
5,575
2019
$’000
5,995
2,113
8,108
Payables represent amounts owing at balance date. Trade payables relate to services
provided to the consolidated entity at balance date, which are unpaid. Due to their
general short-term nature, they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 14 to 30 days
of being invoiced.
Note 9. Current and non-current liabilities – employee benefits
Current liabilities
Annual leave
Long service leave
Non-current liabilities
Long service leave
Provision for payroll tax on Deferred Remuneration Plan
2020
$’000
1,826
1,931
3,757
628
1,009
2019
$’000
1,489
1,708
3,197
612
1,560
ACCOUNTING
POLICY
Employee benefit liabilities represents accrued wages, salaries, annual and
long-service leave entitlements and other incentives (including any provision for
estimated staff incentive payments and related on-costs), that are recognised in
respect of employee services up to balance date and are measured at the amounts
expected to be paid when the liabilities are settled and include related on-costs,
such as payroll tax.
Platinum Asset Management Limited Annual Report 2020
71
Note 10. Earnings per share
2020
$’000
2019
$’000
Profit after income tax attributable to the owners of
Platinum Asset Management Limited
155,611
157,651
NUMBER
NUMBER
Weighted average number of ordinary shares used in
calculating basic earnings per share
581,507,729
583,162,543
Adjustment for deferred rights that have vested but
not been exercised
13,929
–
Weighted average number of ordinary shares used in
calculating diluted earnings per share
581,521,657
583,162,543
Basic earnings per share
Diluted earnings per share
CENTS
26.76
26.76
CENTS
27.03
27.03
ACCOUNTING
POLICY
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the
owners of Platinum Asset Management Limited, excluding any costs of servicing
equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year. Treasury shares are excluded from the
weighted average number of ordinary shares used to calculate basic (and diluted)
earnings per share.
Diluted earnings per share
Diluted earnings per share adjusts the weighted average number of shares used to
determine basic earnings per share to take into account any deferred rights that
have vested but not been exercised.
Note 11. Operating segments
The consolidated entity is organised into two main operating segments being:
–
–
Funds management: through the generation of management and performance fees from
Australian investment vehicles and mandates, US investment mandates and Platinum
World Portfolios Plc. (“PWP”) and associated costs including those of the London and
Malta offices; and
Investments and other: through the consolidated entity’s investments in the (a) ASX listed,
Platinum Asia Investments Limited (“PAI”) (b) PWP (c) unlisted Platinum Trust Funds
(d) the ASX quoted managed fund PAXX and (e) the Cayman Funds. Also included in
this category are Australian dollar term deposits as well as associated interest derived
from these.
Platinum Asset Management Limited Annual Report 2020
72
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 11. Operating segments – continued
The segment financial results, segment assets and liabilities are disclosed on the
following page(s).
2020
Revenue
Management and performance fees
Interest
Distributions and dividends*
Net gains on financial assets and
equity in associates^
Net foreign exchange gains on
overseas bank accounts
Total revenue and other income
Expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense
FUNDS
MANAGEMENT
$’000
INVESTMENTS
AND OTHER
$’000
TOTAL
$’000
284,980
482
–
–
–
285,462
(77,506)
207,956
(61,699)
146,257
–
284,980
1,225
1,855
1,707
1,855
8,663
8,663
1,461
1,461
13,204
298,666
(391)
(77,897)
12,813
220,769
(3,459)
(65,158)
9,354
155,611
Other comprehensive income
(10)
(1,030)
(1,040)
Total comprehensive income
146,247
8,324
154,571
Assets
Cash and cash equivalents
Financial assets and equity in associates
Term deposits
Fixed assets
Receivables and other assets
Total assets
Total liabilities
Net assets
17,922
–
–
4,007
25,971
47,900
33,180
14,720
87,411
152,645
49,876
–
17,380
105,333
152,645
49,876
4,007
43,351
307,312
355,212
3,071
36,251
304,241
318,961
Platinum Asset Management Limited Annual Report 2020
73
Note 11. Operating segments – continued
2019
Revenue
Management and performance fees
Interest
Distributions and dividends*
Net losses on financial assets and
equity in associates^
Net foreign exchange gains on
overseas bank accounts
Total revenue and other income
Expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income
FUNDS
MANAGEMENT
$’000
INVESTMENTS
AND OTHER
$’000
TOTAL
$’000
295,218
265
–
–
–
295,483
(75,992)
219,491
(64,289)
155,202
(16)
–
295,218
3,277
3,714
3,542
3,714
(4,702)
(4,702)
1,548
3,837
1,548
299,320
(429)
(76,421)
3,408
222,899
(274)
3,134
–
(64,563)
158,336
(16)
Total comprehensive income
155,186
3,134
158,320
Assets
Cash and cash equivalents
Financial assets and equity in associates
Term deposits
Receivables and other assets
Total assets
Total liabilities
Net assets
8,294
–
–
29,978
38,272
20,325
17,947
104,653
117,776
81,877
1,560
112,947
117,776
81,877
31,538
305,866
344,138
2,725
23,050
303,141
321,088
*
The amount in the tables above disclosed as "Distributions and dividends” is comprised of:
Dividend received from investment in PAXX
Dividend received from investment in PAI
Dividend received from equity securities held by the Cayman Funds
Distribution received from investment in the Platinum Trust Funds
2020
$’000
562
1,200
82
11
2019
$’000
1,299
2,400
–
15
Distributions and dividends (total as appears in the consolidated
statement of profit or loss and other comprehensive income)
1,855
3,714
Platinum Asset Management Limited Annual Report 2020
74
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 11. Operating segments – continued
^
The amount in the tables above disclosed as “Net gains/(losses) on financial assets and equity in
associates” is comprised of:
Gains/(losses) on financial assets at fair value through profit or loss
Share of profit/(losses) of associates
2020
$’000
1,237
7,426
8,663
2019
$’000
(2,103)
(2,599)
(4,702)
The consolidated entity derived management and performance fees from Australian investment
vehicles and mandates, its “absolute” US performance fee mandates and PWP and also derived
investment income from its seed investments, as follows:
Revenue and other income breakdown by geographic region
Australia
Offshore: United States, Ireland and Cayman Islands
2020
$’000
2019
$’000
282,240
16,426
298,666
291,238
8,082
299,320
Platinum Asset Management Limited Annual Report 2020
75
Note 11. Operating segments – continued
ACCOUNTING
POLICY
Operating segments are presented using the ‘management approach’, where the
information presented is on the same basis as the internal reports provided to the
Chief Operating Decision Makers (“CODM”). The CODM refers to the Board of
the Company, who are responsible for the allocation of resources to operating
segments and assessing their performance.
Revenue as disclosed in the consolidated statement of profit or loss and other
comprehensive income is measured at the fair value of the consideration received
or receivable and is recognised if it meets the criteria below:
–
–
–
–
–
–
Management fees: recognised based on the applicable investment
management agreements and recognised as services are rendered.
The majority of management fees were derived from the Platinum Trust
Funds C Class. The management fee for this Class was calculated at
1.35% per annum of each Fund’s daily Net Asset Value.
Performance fees: recognised as income at the end of the relevant period
to which the performance fee relates, when the consolidated entity’s
entitlement to the fee becomes certain.
Interest income: recognised in the consolidated statement of profit or loss and
other comprehensive income and is based on the effective interest method.
Distributions: recognised when the consolidated entity becomes entitled to
the income.
Dividend Income: brought to account on the applicable ex-dividend date.
Net gains/(losses) on financial assets at fair value through profit and loss:
relates to net gains/(losses) on seeded and other investments, and recognised
as and when the fair value of these investments changes and if disposed, the
proceeds less costs on sale of investments.
Platinum Asset Management Limited Annual Report 2020 76
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 12. Taxation
(a) Income tax expense
The income tax expense attributable to profit comprises:
Current tax payable
Deferred tax – recognition of temporary differences
Deferred tax – credited to share-based payments reserve
Income tax expense
Numerical reconciliation of income tax expense:
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in
calculating taxable income:
Tax rate differential on offshore business income
Non-taxable losses/(gains) on investments
Share-based payments
Other non-deductible expenses
Franking credits received
Income tax expense
(b) Non-current liabilities – net deferred tax liabilities
2020
$’000
63,682
1,137
339
65,158
2019
$’000
65,985
(1,723)
301
64,563
220,769
222,899
66,231
66,870
(488)
(1,476)
334
942
(385)
(557)
(1,010)
–
8
(748)
65,158
64,563
Deferred tax liabilities comprise temporary differences attributable to:
Unrealised foreign exchange gains on cash
Deferred Remuneration Plan
Employee provisions
Unrealised gains on investments
Capital expenditure on fixed assets not immediately deductible
Expense accruals
Net deferred tax liabilities
2020
$’000
243
4,747
(1,618)
2,877
(184)
(437)
5,628
2019
$’000
851
4,082
(1,143)
1,874
(829)
(344)
4,491
Platinum Asset Management Limited Annual Report 2020
77
Note 12. Taxation – continued
(b) Non-current liabilities – net deferred tax liabilities – continued
The net deferred tax liability figure is comprised of $2,239,000 (2019: $2,316,000) of deferred
tax assets and $7,867,000 (2019: $6,807,000) of deferred tax liabilities.
The deferred tax assets that will be recovered or settled within 12 months are estimated to be
$2,055,000 at 30 June 2020 (2019: $1,487,000).
ACCOUNTING
POLICY
Current tax
The income tax expense or benefit for the period is the tax payable on that period’s
taxable income based on the applicable income tax rate for each jurisdiction,
adjusted by the changes in deferred tax assets and liabilities attributable to
temporary differences, unused tax losses and the adjustment recognised for prior
periods, where applicable.
Deferred tax
Deferred tax is accounted for in respect of temporary differences between the
tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised for all deductible temporary
differences to the extent that it is probable that taxable profit will be available
against which the asset can be utilised.
Tax consolidation
The Company and its wholly-owned Australian controlled entities are part of a tax
consolidated group under Australian tax legislation. The Company is the head entity
of the tax-consolidated group.
Offshore Banking Unit (“OBU”) Legislation
In June 2010, the Australian Taxation Office declared that the consolidated group
is an Offshore Banking Unit (OBU) under Australian Taxation Law. This allows the
consolidated group to apply a concessional tax rate of 10% to net income it derives
from its offshore mandates. The concession was applied from 1 July 2010.
Critical accounting judgements, estimates and assumptions
Recovery of deferred tax assets: Deferred tax assets are recognised for deductible
temporary differences only if the consolidated entity considers it is probable that
future taxable amounts will be available to utilise those temporary differences
and losses.
Platinum Asset Management Limited Annual Report 2020 78
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 13. Reconciliation of profit after income tax to net cash from
operating activities
Profit after income tax expense for the year
155,611
158,336
2020
$’000
2019
$’000
Adjustments for:
Depreciation of fixed assets
Cash outlay on shares and transaction costs
associated with the Deferred Remuneration Plan
Share-based payments accounting expense (see Note 20)
Foreign exchange differences
Depreciation of right-of-use asset
Interest income
(Gain)/loss on investments
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
(Increase) in sundry debtors
Increase/(decrease) in income tax payable
(Increase)/decrease in prepayments
Increase in trade creditors and GST
(Increase)/decrease in deferred tax assets
(Decrease)/increase in deferred tax liabilities
Increase in employee provisions and payroll tax
1,870
737
(8,481)
6,803
(1,461)
1,926
(1,707)
(8,664)
(7,617)
254
5,743
(353)
(2,397)
77
1,060
25
(7,470)
4,858
(1,548)
–
(3,542)
4,702
4,667
(293)
5,082
132
1,409
(166)
(1,544)
975
Net cash from operating activities
142,689
166,335
ACCOUNTING
POLICY
In accordance with AASB 107: Statement of Cash Flows, cash includes deposits
at call and cash at bank that are used to meet short-term cash requirements.
Cash equivalents include short-term deposits of three months or less from the date
of acquisition that are readily convertible into cash. Cash and cash equivalents at
the end of the financial year, as shown in the consolidated statement of cash flows,
are equal to the related item in the consolidated statement of financial position.
Under AASB 107, term deposits that have maturities of more than three months
from the date of acquisition are not included as part of “cash and cash equivalents”
and have been disclosed separately in the consolidated statement of financial
position. All term deposits are held with licensed Australian banks.
Payments and receipts relating to the purchase and sale of term deposits are
classified as “cash flows from investing activities”.
Receipts from operating activities include management and performance
fees receipts. Payments for operating activities include payments to suppliers
and employees.
Platinum Asset Management Limited Annual Report 2020
79
Note 14. Equity – Issued capital
2020
SHARES
2019
SHARES
2020
$’000
2019
$’000
Ordinary shares – fully paid(a)
586,678,900
586,678,900
751,355
751,355
Treasury shares(b)
(6,687,403)
(5,095,797)
(33,357)
(27,865)
Total issued capital
579,991,497
581,583,103
717,998
723,490
(a) Ordinary shares: entitles shareholders to participate in dividends as declared and in the event of
winding up of the Company, to participate in the proceeds in proportion to the number of and
amounts paid on the ordinary shares held. Ordinary shares entitle the shareholder to one vote per
share, either in person or by proxy, at a meeting of the Company’s shareholders. All ordinary shares
issued have no par value. On 13 September 2016, the Company announced an on-market share
buy-back program, in which shares will be bought-back if the Company’s shares trade at a significant
discount to its underlying value. No shares have been bought-back.
(b) Treasury shares: are shares that have been purchased by the Employee Share Trust, pursuant to the
Deferred Remuneration Plan (Refer to Note 20). Treasury shares are held by the Employee Share Trust
for future allocation to employees. Details of the balance of treasury shares at the end of the financial
year were given below:
2020
SHARES
2019
SHARES
Opening balance
5,095,797
3,471,866
Additional shares held
by the Employee Share Trust
1,879,335
1,623,931
Shares transferred to employees
(287,729)
–
2020
$’000
27,865
7,105
(1,613)
2019
$’000
20,110
7,755
–
Balance at the end of the
financial year
6,687,403
5,095,797
33,357
27,865
ACCOUNTING
POLICY
Ordinary shares
Ordinary shares are recognised as the amount paid per ordinary share, net of
directly attributable issue costs.
Treasury shares
Where the consolidated entity purchases shares in the Company, the consideration
paid is deducted from total Shareholders’ equity and the shares are treated as
treasury shares. Treasury shares are recorded at cost and when restrictions on
employee shares are lifted which is dependent on vesting and exercise of the rights,
the cost of such shares will be adjusted to the share-based payments reserve.
Platinum Asset Management Limited Annual Report 2020
80
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 15. Equity – reserves
Foreign currency translation reserve
Capital reserve
Share-based payments reserve
2020
$’000
(935)
2019
$’000
105
(588,144)
(588,144)
16,997
11,176
(572,082)
(576,863)
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled entities are recognised in other
comprehensive income and accumulated as a separate reserve within equity. The balance of the
foreign currency translation reserve was ($935,000) at 30 June 2020 (30 June 2019: $105,000).
The movement in the current year relates primarily to translating the net assets of Platinum UK
Asset Management Limited and the Cayman Funds.
Capital reserve
In 2007, in preparation for listing, a restructure was undertaken in which the Company sold or
transferred all of its assets, other than its beneficial interest in shares in Platinum Asset Pty
Limited and sufficient cash to meet its year to date income tax liability.
The Company then split its issued share capital of 100 shares into 435,181,783 ordinary shares.
It then took its beneficial interests in Platinum Investment Management Limited to 100%,
through scrip for scrip offers, in consideration for the issue of 125,818,217 ordinary shares in
the Company.
As a result of the share split and takeover offers, the Company had 561,000,000 ordinary
shares on issue and beneficially held 100% of the issued share capital of Platinum Investment
Management Limited. Subsequently, 140,250,000 shares on issue representing 25% of the
issued shares of the Company were sold to the public by existing shareholders.
The amount of $588,144,000 was established on listing as a result of the difference between
the consideration paid for the purchase of non-controlling interests and the share of net assets
acquired in the minority interests.
Share-based payments reserve
In June 2016, the consolidated entity established the Deferred Remuneration Plan. The amount
in the share-based payments reserve is comprised of the amortisation of the rights granted and
any associated future tax deduction.
Please refer to Note 20 for further information.
Platinum Asset Management Limited Annual Report 2020
81
Note 15. Equity – reserves – continued
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set
out below:
SHARE-BASED
PAYMENTS
$’000
FOREIGN
CURRENCY
$’000
CAPITAL
$’000
TOTAL
$’000
Balance at 30 June 2018
6,017
121
(588,144)
(582,006)
Exchange rate translation impact
of foreign subsidiaries
Movement in share-based
payments reserve
Balance at 30 June 2019
Exchange rate translation impact
of foreign subsidiaries
Movement in share-based
payments reserve
Balance at 30 June 2020
Note 16. Equity – retained profits
–
5,159
11,176
(16)
–
–
–
(16)
5,159
105
(588,144)
(576,863)
–
(1,040)
5,821
16,997
–
–
–
(1,040)
5,821
(935)
(588,144)
(572,082)
2020
$’000
2019
$’000
Retained profits at the beginning of the financial year
174,461
185,940
Profit after income tax expense attributable to
owners of the Company
Dividends paid (Note 17)
Retained profits at the end of the financial year
155,611
(157,027)
157,651
(169,130)
173,045
174,461
Platinum Asset Management Limited Annual Report 2020
82
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 17. Equity – dividends
Dividends paid
Dividends paid during the financial year were as follows:
Final dividend paid for the 2019 financial year
(14 cents per share)
Interim dividend paid for the 2020 financial year
(13 cents per share)
Final dividend paid for the 2018 financial year
(16 cents per share)
Interim dividend paid for the 2019 financial year
(13 cents per share)
2020
$’000
2019
$’000
81,421
75,606
–
–
157,027
–
–
93,313
75,817
169,130
Dividends not recognised at year-end
Since 30 June 2020, the Directors declared to pay a 2020 final fully-franked dividend of
11 cents per share, payable out of profits for the 12 months to 30 June 2020. The dividend
has not been provided for at 30 June 2020, because the dividend was declared after year-end.
Franking credits
2020
$’000
2019
$’000
Franking credits available at reporting date based on
a tax rate of 30%
54,583
64,017
Franking credits/(debits) that will arise from the
payment/(refund) of the provision for income tax
at the reporting date based on a tax rate of 30%
Franking credits available for subsequent financial
10,431
5,082
years based on a tax rate of 30%
65,014
69,099
ACCOUNTING
POLICY
A provision is made for the amount of any dividend declared by the Directors
before or at the end of the financial year but not distributed at balance date.
Platinum Asset Management Limited Annual Report 2020
83
Note 18. Financial risk management
Financial risk management objectives
The Company’s and consolidated entity’s activities expose it to both direct and indirect financial
risk, including: market risk, credit risk and liquidity risk. Material direct exposure to financial risk
occurs through the impact on profit of movements in funds under management (“FUM”) and
through its direct investments in:
–
–
–
–
Platinum Asia Investments Limited (“PAI”);
The offshore Irish domiciled, Platinum World Portfolios Plc (“PWP”);
Its investments in Platinum Asia Fund (Quoted Managed Hedge Fund) (“PAXX”); and
The offshore Cayman Island domiciled funds Platinum Global Opportunities Fund Ltd
and Platinum Asia Ex-Japan Opportunities Fund Ltd (the “Cayman Funds”).
Indirect exposure occurs because PIML is the Investment Manager for various investment
vehicles, including:
–
–
–
–
Investment mandates;
Various unit trusts, namely the Platinum Trust Funds, Platinum Global Fund,
PIXX and PAXX;
Its ASX-listed investment companies, Platinum Capital Limited and PAI; and
PWP.
The consolidated entity does not derive any management fees or performance fees directly
from PIXX and PAXX. Management and performance fees are borne at the Platinum
International Fund/Platinum Asia Fund level and are paid directly by these funds to the
consolidated entity.
This note mainly discusses the direct exposure to risk of the consolidated entity. The consolidated
entity’s risk management procedures focus on managing the potential adverse effects on
financial performance caused by volatility of financial markets.
Platinum Asset Management Limited Annual Report 2020 84
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 18. Financial risk management – continued
Market risk
The key direct risks associated with the consolidated entity are those driven by investment
and market volatility and the resulting impact on FUM or a reduction in the growth of FUM.
Reduced FUM will directly impact on management fee income and profit because management
fee income is calculated as a percentage of FUM. FUM can be directly impacted by a range of
factors including:
(i)
(ii)
(iii)
Poor investment performance: absolute negative investment performance will reduce
FUM and relative under performance to appropriate market benchmarks could reduce
the attractiveness of Platinum’s investment products to investors, which would impact
on the growth of the business. Poor investment performance could also trigger
redemptions from Platinum’s investment products and the termination of investment
mandate arrangements;
Market volatility: Platinum invests in global markets. It follows that a decline in
overseas stock markets, adverse exchange rates and/or interest rate movements will
all impact on FUM;
A reduction in the ability to retain and attract investors: that could be caused by a decline
in investment performance, but also a range of other factors, such as the high level of
competition in the funds management industry;
(iv)
A loss of key personnel; and
(v)
Investor allocation decisions: investors constantly re-assess and re-allocate their
investments on the basis of their own preferences. Investor allocation decisions could
operate independently from investment performance, such that funds outflows occur
despite positive investment performance.
A decline in investment performance will also directly impact on performance fees earned
by the consolidated entity. Historically, the amount of performance fees earned by the
consolidated entity has fluctuated significantly from year to year and has been a material
source of fee revenue.
For those funds or investment mandates that pay a performance fee, the fee is calculated either
semi-annually or annually and is based on an absolute or relative outperformance.
Performance fees may be earned by the consolidated entity, if the investment return of a
Platinum Trust Fund, Platinum Capital Limited, Platinum Asia Investments Limited, Platinum
World Portfolios or any other applicable investment mandate exceeds their hurdle rates.
Should the actual performance of one or more of these entities be higher than the applicable
hurdle rate, a performance fee would be receivable. As at 30 June 2020, performance fees of
$9,042,000 (2019: $4,842) were receivable.
Platinum Asset Management Limited Annual Report 2020 85
Note 18. Financial risk management – continued
If global equity markets fell 10% over the course of the year and consequently the consolidated
entity’s FUM fell in line with global equity markets, it follows that management fees would fall
by 10%. If there was a 10% decrease in the performance of investment funds or mandates
over the course of the year that resulted in negative absolute performance for the year, then no
performance fee would be earned.
The above analysis assumes a uniform 10% fall across all global equity markets. This is extremely
unlikely as there is a large degree of variation and volatility across markets. For example, it is quite
feasible for the Chinese market to fall whilst other Asian markets go up.
To mitigate the impact of adverse investment performance on FUM, PIML may employ strategies
to manage the impact of adverse market and exchange rate movements on the funds it manages.
Market risk may be managed through derivative contracts, including futures, options and
swaps. Currency risk may be managed through the use of forward currency contracts.
The section below mainly discusses the direct impact of foreign currency risk, price risk and
interest rate risk on the consolidated entity’s financial instruments held at 30 June 2020.
Foreign currency risk
The consolidated entity is exposed to foreign currency risk, because:
–
–
It holds foreign currency cash, as well as securities which are denominated in foreign
currencies, either directly or through its direct investments;
It derives US Dollar management and performance fees from its US Dollar investment
mandates; and
–
It invests in Platinum World Portfolios Plc, Platinum Asia Investments Limited and PAXX.
US Dollar cash
At 30 June 2020, the consolidated entity held US$10,174,151 (equivalent to A$14,740,874) in
cash (2019: US$24,204,470 (equivalent to A$34,481,758)). If the Australian Dollar had been
10% higher/lower against the US Dollar than the prevailing exchange rate used to convert the
balance with all other variables held constant, net profit before tax would have been
A$1,339,726 lower/A$1,637,347 higher (2019: A$3,132,878 lower/A$3,828,578 higher).
US Dollar fees
If the Australian Dollar had been 10% higher/lower against the US Dollar than the prevailing
exchange rate used to convert the US mandate and PWP fees, with all other variables held
constant, then net profit before tax would have been A$759,713 lower/A$928,511 higher
(2019: A$542,546 lower/A$749,602 higher).
Investment in PWP
PIML’s investment in PWP is denominated in US Dollars. If the Australian Dollar had been
10% higher/lower against the prevailing exchange rate at 30 June 2020, then the consolidated
entity’s net assets would have been A$5.8m lower/A$7.1m higher (2019: A$5.6m lower/
A$6.8m higher) (exchange rate translation effect).
Platinum Asset Management Limited Annual Report 2020 86
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 18. Financial risk management – continued
Foreign currency risk – continued
Investment in PWP – continued
PWP’s investments are denominated in various foreign currencies specific to the investments
held in each of the portfolios. The foreign currency with the largest impact on profit before
tax, if there was a 10% currency movement at 30 June 2020, was the Japanese Yen
(2019: Japanese Yen). A 10% increase/decrease in the Australian Dollar would have caused
net profit before tax to be A$1,527,009 lower/A$1,842,558 higher, based on PIML’s interest
in PWP at 30 June 2020 (2019: A$2,081,556 lower/A$2,544,124 higher).
Investment in PAI
Platinum Asia Investments Limited’s investments are also denominated in foreign currencies.
The foreign currency with the largest impact on profit before tax, if there was a 10% currency
movement at 30 June 2020, was the HK Dollar (2019: US Dollar), which was the currency with
the largest exposure in this entity at 30 June 2020. A 10% increase/decrease in the Australian
Dollar would have caused the consolidated entity’s net profit before tax to be A$1,074,700
lower/A$1,313,500 higher (2019: A$1,535,900 lower/A$1,877,211 higher).
Investment in PAXX
PAXX is a feeder fund that invests in Platinum Asia Fund (“PAF”), which invests in undervalued
companies across the Asian region-ex Japan. The foreign currency with the largest impact on
profit before tax, if there was a 10% currency movement at 30 June 2020, was the US Dollar
(2019: US Dollar), which was the currency with the largest exposure in PAXX at 30 June 2020.
A 10% increase/decrease in the Australian Dollar would have caused the Company’s net
profit before tax to be A$2,262,500 lower/A$2,765,281 higher (2019: A$980,579 lower/
A$1,198,486 higher).
Investment in Cayman Funds
PIML’s investments in the Cayman Funds are denominated in US Dollars. If the Australian Dollar
had been 10% higher/lower against the prevailing exchange rate at 30 June 2020, then the
consolidated entity’s net assets would have been A$2.8m lower/A$3.4m higher (2019: Nil)
(exchange rate translation effect).
Platinum Asset Management Limited Annual Report 2020 87
Note 18. Financial risk management – continued
Price risk
At 30 June 2020, the consolidated entity is exposed to indirect price risk through its
equity-accounted investments in Platinum Asia Investments Limited, Platinum World Portfolios
Plc, PAXX and the Cayman Funds. The impact of price risk is summarised in the table below:
ENTITY
PAI
PWP
PAXX
Cayman Funds
IMPACT ON NET PROFIT BEFORE TAX OF 10%
INCREASE/(DECREASE) IN 30 JUNE NET ASSET VALUES
2020
$’000
INCREASE/(DECREASE)
2019
$’000
INCREASE/(DECREASE)
3,030/(3,030)
6,632/(6,632)
2,620/(2,620)
3,030/(3,030)
3,257/(3,257)
6,163/(6,163)
2,339/(2,339)
–
Interest rate risk
At 30 June 2020, cash and term deposits are the only significant assets with potential exposure
to interest rate risk held by the consolidated entity. A movement of +/-1% in Australian interest
rates occurring throughout the year ended 30 June 2020 would cause the consolidated entity’s
net profit before tax to be $1,053,334 higher/lower (2019: $763,999 higher/lower), based on
the impact on its interest-bearing cash balances. An interest rate movement at 30 June 2020
will not impact the profit earned from term deposits, as term deposit interest rates are
determined on execution.
Credit risk
Credit risk relates to the risk of a counterparty defaulting on a financial obligation resulting in
a loss to the consolidated entity (typically “non-equity” financial instruments). Credit risk arises
from the financial assets of the consolidated entity that include: cash and term deposits and
trade and other receivables.
The maximum exposure to direct credit risk at balance date is the carrying amount recognised
in the consolidated statement of financial position. No assets are past due or impaired.
Any default in the value of a financial instrument held within any of the entities for which PIML
is the investment manager, will result in reduced investment performance. There is no direct
loss for the consolidated entity other than through the ensuing reduction in FUM, as noted
above in the section on “market risk”.
Platinum Asset Management Limited Annual Report 2020
88
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 18. Financial risk management – continued
Credit risk – continued
The credit quality of cash and term deposits held by each entity in the consolidated entity,
by counterparty, can be assessed by reference to the counterparty’s external credit ratings.
All term deposits are held with Australian banks that have an AA- (2019: AA-) credit rating.
At 30 June 2020 and 30 June 2019, the relevant credit ratings were as follows:
Rating
AA-
A
2020
$’000
2019
$’000
154,546
194,070
663
754
155,209
194,824
Liquidity risk
Liquidity risk is the risk that the consolidated entity will encounter difficulty in meeting
obligations associated with its liabilities. The consolidated entity manages liquidity risk by
maintaining sufficient cash reserves to cover its liabilities and receiving management fees
to meet operating expenses on a regular basis. Management monitors its cash position on
a daily basis and prepares forecasts on a weekly basis.
Remaining contractual maturities
The following table details the consolidated entity’s remaining contractual maturity for its
liabilities. The table has been drawn up based on the undiscounted cash flows of liabilities
based on the earliest date on which the liabilities are required to be paid.
2020
Trade payables
GST payable
Current tax payable
Employee-related provisions
Lease liabilities
Total
BETWEEN
OVER
1 AND 3
WITHIN
30 DAYS MONTHS 3 MONTHS
$’000
$’000
$’000
AT CALL
$’000
–
–
–
3,757
–
3,830
1,745
–
–
159
3,757
5,715
TOTAL
$’000
3,830
1,745
–
–
10,825
10,825
1,637
8,704
5,394
9,340
21,166
30,623
–
–
–
–
477
282
Platinum Asset Management Limited Annual Report 2020
89
TOTAL
$’000
5,995
2,113
5,082
5,369
–
BETWEEN
1 AND 3
OVER
MONTHS 3 MONTHS
$’000
$’000
–
–
5,082
2,172
–
–
–
–
–
–
–
7,254
18,559
Note 18. Financial risk management – continued
Liquidity risk – continued
Remaining contractual maturities – continued
2019
Trade payables
GST payable
Current tax payable
Employee-related provisions
Lease liabilities
Total
AT CALL
$’000
–
–
–
3,197
–
WITHIN
30 DAYS
$’000
5,995
2,113
–
–
–
3,197
8,108
Financial liabilities at fair value through profit or loss
The consolidated entity had no financial liabilities at fair value through profit or loss at
30 June 2020 or 30 June 2019.
The consolidated entity does not have a significant direct exposure to liquidity risk.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflects their fair value.
Capital risk management
(i) Capital requirements
The Company has limited capital requirements and generally expects that most, if not all,
future profits will continue to be distributed by way of dividends, subject to ongoing
capital requirements.
(ii) External requirements
PIML is required to hold an Australian Financial Services Licence (“AFSL”) issued by the
Australian Securities and Investments Commission (“ASIC”). The AFSL authorises PIML to
provide deal in certain financial products, provide general financial product advice in respect
of certain financial products and to operate registered managed investment schemes.
PIML has complied with all financial conditions of its AFSL during the financial year.
Platinum Asset Management Limited Annual Report 2020
90
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 19. Fair value measurement
Fair value hierarchy
AASB 13: Fair Value Measurement requires the consolidated entity to classify those assets
measured at fair value using the following fair value hierarchy model:
(i)
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(ii)
(iii)
Inputs other than quoted prices included within level 1 that are observable for the asset
or liability either directly (as prices) or indirectly (derived from prices) (level 2); and
Inputs for the assets or liabilities that are not based on observable market data
(unobservable inputs) (level 3).
At 30 June 2020, the investments by PIML in PAXX, PAI and PWP have not been measured at
fair value because they have been classified as equity investments in associates. If these were to
be measured at fair value, they would be classified as level 2.
The following table analyses within the fair value hierarchy model, the consolidated entity’s
assets and liabilities, measured or disclosed at fair value, using the three level hierarchy model
at 30 June 2020 and 30 June 2019. The consolidated entity has no assets or liabilities that are
classified as level 3.
2020
Assets
LEVEL 1
$’000
LEVEL 2
$’000
TOTAL
$’000
Equity securities held by the Cayman Funds
27,442
Platinum Trust Fund investments
2019
Assets
Platinum Trust Fund investments
–
27,442
LEVEL 1
$’000
–
184
184
27,442
184
27,626
LEVEL 2
$’000
TOTAL
$’000
–
–
183
183
183
183
Valuation techniques used to classify assets and liabilities as level 2
PIML’s direct investments in the Platinum Trust Funds are valued using their respective
Net Asset Values (adjusted for the buy-sell spread) and include the impact of the 30 June
distribution. Accordingly, management has assessed the fair value investments as being
Level 2 investments.
Platinum Asset Management Limited Annual Report 2020
91
Note 20. Share-based payments
Deferred Remuneration Plan (applies to all staff)
In June 2016, a “Deferred Bonus Plan” (now known as a “Deferred Remuneration Plan”) was
approved by the Nomination & Remuneration Committee of the Company. The main objective
of the Deferred Remuneration Plan is to recognise the contributions made by key employees
and to retain their skills within the firm.
VESTING CONDITION
Continuous
employment for a
period of 4 years
from the grant date.
PLAN
DESCRIPTION
Deferred
Remuneration Plan
Upon vesting and exercise of the deferred
rights, employees will receive ordinary shares
in the Company.
The deferred rights also carry an entitlement
to a dividend equivalent payment. Upon the
valid exercise of a deferred right, or deemed
exercise, of a deferred right, an eligible
employee will be entitled to receive an
amount approximately equal to the amount
of dividends that would have been paid to
the eligible employee had they held the share
from the grant date to the date that the
deferred rights are exercised.
The number of rights granted and the accounting expense for the current and comparative year
is shown below. The trust will generally purchase an equivalent number of PTM shares on
market and will hold these shares until the vesting date (four years from each grant) and
subsequent exercise.
Opening balance
Granted during the year
Forfeited during the year due to not meeting
continuous employment vesting condition
Vested, exercised and then transferred to eligible employees
Closing balance
NUMBER OF DEFERRED RIGHTS
2020
$’000
2019
$’000
5,095,797
3,471,866
2,341,845
1,623,931
(34,233)
(287,729)
–
–
7,115,680
5,095,797
Platinum Asset Management Limited Annual Report 2020
92
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 20. Share-based payments – continued
Deferred Remuneration Plan (applies to all staff) – continued
ACCOUNTING EXPENSE
Deferred rights granted in 2020
Deferred rights granted in 2019
Deferred rights granted in 2018
Deferred rights granted in 2017
Deferred rights granted in 2016
Total share-based payments expense
Associated payroll tax expense
Total
ACCOUNTING
POLICY
2020
$’000
1,520
1,267
2,131
831
1,054
6,803
371
7,174
2019
$’000
–
1,300
2,144
797
617
4,858
416
5,274
AASB 2: Share-based Payments requires an organisation to recognise an expense
for equity provided for services rendered by employees. The amount that is recognised
as an expense for share-based payments is derived from the fair value of the equity
instruments granted. Deferred incentives to be settled in the Company’s shares are
considered to be a share-based payments award.
The fair value of the equity instruments granted and measured at grant date is
recognised over the term of the service period. The accounting expense will
commence when there is a “shared understanding” of the terms and conditions
of the offer. The service period may commence prior to grant date. In this case,
the expense is estimated and trued-up at grant date.
The fair value of the rights granted is recognised in the consolidated financial
statements as an expense with a corresponding entry to reserves. The fair value
is measured at grant date and amortised on a straight-line basis over the vesting
period that an employee becomes unconditionally entitled to the share. In measuring
the fair value, an allowance has been made for the risk or probability of forfeiture,
which measures the risk of selected eligible employees leaving Platinum and
forfeiting their rights.
At each balance date, the Company reviews the number of deferred rights granted.
Adjustments are made to the share-based payments expense, if the number of
deferred rights granted has changed (e.g. through forfeitures). The impact of any
revision to the original estimate will be recognised in the consolidated statement
of profit or loss and other comprehensive income with the corresponding entry
to reserves.
The purchase of shares on-market by the Company through an Employee Share
Trust for future allocation to key employees is shown in the consolidated statement
of financial position as a debit entry to the “treasury shares” account with the
corresponding credit entry to “cash”.
Platinum Asset Management Limited Annual Report 2020
93
Note 21. Key management personnel disclosures
2020
$’000
2019
$’000
The aggregate remuneration that the consolidated entity provided
Executive and Non-Executive Directors was as follows:
Cash salary, Directors’ fees and short-term incentive cash awards
3,745
3,932
Accounting expense related to the KMP allocation under the
Deferred Remuneration Plan^
Superannuation
Increase in the consolidated entity’s annual and long service
leave provision
613
167
27
4,552
468
163
–
4,563
^
Andrew Clifford, Elizabeth Norman and Andrew Stannard are the only members of KMP who have
received an allocation of rights under the Deferred Remuneration Plan. The expense attributable to
KMP are based on the allocation of deferred rights in the current and prior years is as follows:
2020
GRANT
2016
GRANT GRANT
(UNVESTED) (UNVESTED) (UNVESTED) (UNVESTED) (VESTED)
2019
GRANT
2018
GRANT
2017
TOTAL
Number of rights allocated
to KMP during the year
Accounting expense
attributed to KMP
160,859
108,696
248,346
86,208
48,623 652,732
$104,400
$86,999
$260,998
$69,600 $91,200 $613,197
The accounting valuation of $613,197 represents the amount expensed through the income
statement in the current year, with respect to grants made in each year between 2016 and 2020.
Interests of Non-Executive and Executive Directors in shares
The relevant interest in ordinary shares in the Company that each Director held at balance
date was:
Michael Cole
Stephen Menzies
Anne Loveridge
Brigitte Smith
Tim Trumper
Andrew Clifford
Kerr Neilson
Elizabeth Norman
Andrew Stannard
OPENING
BALANCE
240,000
40,000
22,000
41,666
18,900
32,831,449
252,074,841
766,748
–
ADDITIONS
DISPOSALS
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
CLOSING
BALANCE
240,000
40,000
22,000
41,666
18,900
32,831,449
252,074,841
766,748
–
Platinum Asset Management Limited Annual Report 2020
94
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 22. Remuneration of auditors
During the financial year, the following fees were paid or payable for services provided by
PricewaterhouseCoopers (the auditor of the Company) and its overseas network firms:
2020
$
2019
$
Audit services – PricewaterhouseCoopers
Audit and review of the financial statements and AFSL audit
121,125
96,542
Audit services for managed funds that PIML acts as
responsible entity – PricewaterhouseCoopers
Audit and review of the financial statements and
compliance plan audit
237,660
295,992
Audit services for managed funds that PIML acts as responsible
entity – overseas PricewaterhouseCoopers firms
Audit of financial statements
Total audit and review of financial statements
58,259
417,044
54,478
447,012
Compliance and assurance services – PricewaterhouseCoopers
Compliance and assurance services
Total audit, compliance and assurance services
108,591
525,635
163,943
610,955
Taxation services – PricewaterhouseCoopers
Compliance services
Taxation services for managed funds for which PIML
acts as responsible entity – PricewaterhouseCoopers
Fund distribution compliance services
Other taxation services
Taxation services – overseas PricewaterhouseCoopers firms
Foreign tax agent fees
Total taxation services
Other services – PricewaterhouseCoopers and its
overseas network firms
Other services
Total other services
Total fees paid and payable to the
auditor and its related practices
205,639
116,745
350,130
67,408
400,130
155,887
114,962
738,139
42,597
715,539
108,355
108,355
62,926
62,926
1,372,129
1,389,240
Platinum Asset Management Limited Annual Report 2020
95
PART C – Notes 23 to 29
Miscellaneous Notes – Miscellaneous Notes that are required by the
accounting standards
Note 23. Related party transactions
Subsidiaries and associates
Interests in subsidiaries and associates are set out in Note 1 and Note 2.
Key management personnel
Disclosures relating to key management personnel are set out in Note 21 and the Remuneration
Report in the Directors’ Report.
Tax consolidation and dividend transactions
Platinum Asset Management Limited is the head entity of the Australian consolidated tax
group and is also parent entity, and consequently, is the entity that ultimately pays out
dividends to shareholders. The amounts paid are disclosed in the consolidated statement of
cash flows. Tax payable by the Australian consolidated group and dividends to shareholders
are paid using income sourced from the main operating subsidiary, PIML.
Fees received
PIML provides investment management services to:
(i)
The Platinum Trust Funds and Platinum Global Fund;
(ii)
The Irish domiciled, Platinum World Portfolios Plc;
(iii)
(iv)
Two ASX-listed investment companies (“LICs”), Platinum Capital Limited (“PMC”)
and Platinum Asia Investments Limited (“PAI”);
Two ASX quoted managed funds, Platinum International Fund (Quoted Managed
Hedge Fund) (ASX code: PIXX) and Platinum Asia Fund (Quoted Managed Hedge Fund)
(ASX code: PAXX); and
(v)
The Cayman Funds.
Platinum Asset Management Limited Annual Report 2020 96
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 23. Related party transactions – continued
Fees received – continued
PIML is entitled to receive a monthly management fee, either directly or indirectly, from each
of these entities and a performance fee based on the relative investment performance of the
Platinum Trust Funds, Platinum World Portfolios Plc, Platinum Capital Limited (“PMC”) and
Platinum Asia Investments Limited (“PAI”). The consolidated entity does not derive any
management fees or performance fees directly from PIXX and PAXX. Management and
performance fees are borne at the Platinum International Fund/Platinum Asia Fund level
and are paid directly by these funds to the consolidated entity. The total related party
fees and receivables were as follows:
2020
$
2019
$
Recognised in the statement of profit or loss and
other comprehensive income
234,373,871
245,515,816
Receivable in the statement of financial position
24,910,151
19,001,623
Investment transactions
During the year, the subsidiary PIML received a final 2019 fully-franked dividend of $600,000
(2019: $1,800,000) and an interim 2020 fully franked dividend of $600,000 (2019: $600,000)
from its investment in PAI.
PIML also received the 30 June 2020 distribution of $561,997 (2019: $1,298,813) from PAXX
and $10,980 from the Platinum Trust Funds (2019: $15,000).
During the year, PIML invested $30,005,000 into the Cayman Funds.
Other related party transactions
Mr Stephen Menzies is PIML’s nominated representative on the Board of PWP. PIML reimburses
Stephen Menzies for any incidental travel and accommodation associated with attendance at
PWP Board meetings in Ireland. During the year, the amount reimbursed was $11,042
(2019: $17,523).
In the current year, the consolidated entity paid $60,000 (2019: $70,000) to OneVue Services
Pty Limited for the provision of services associated with the enhancement of Platinum’s
website. OneVue is a related party of the Chairman of Platinum Asset Management Limited,
Mr Michael Cole.
PIML incurred a fee of $2,530,695 (2019: $1,902,272) for general marketing and distribution
services provided by Platinum UK Asset Management Limited. PIML contributed capital of
EUR1,200 into Platinum Management Malta Limited, which was incorporated during the year.
Platinum Asset Management Limited Annual Report 2020
97
Note 23. Related party transactions – continued
Other related party transactions – continued
The Company allocated additional rights to eligible employees under the Deferred
Remuneration Plan. In the current year, the amount transferred to the Platinum Employee
Share Trust was $8,710,000 (2019: $7,470,000).
Loan Agreements with related parties
There were no formal loan agreements executed with related parties at the current and
previous reporting date, but there are intercompany receivables and payables.
Note 24. Disclosure of interests in other entities
Structured entity disclosures (excluding subsidiaries and associates)
Some entities managed by PIML are considered to be structured entities. A structured entity
is an entity that is not part of the consolidated entity, despite one or more entities within the
consolidated entity purchasing units or shares in the other (structured) entity. The relevant
activities of unconsolidated structured entities are directed by the PIML by means of
contractual arrangements, such as an investment management agreement.
At 30 June 2020, the consolidated entity held an investment that can be described as a
structured entity, via PIML holding investments of less than 1% in each of the Platinum
Trust Funds and receiving fees for its role as investment manager.
The following table provides information in relation to this investment:
Net Asset Value attributable to all investors
Platinum Trust Funds
2020
$
2019
$
15,068,146
17,705,018
Maximum exposure (includes PIML’s interest & fees receivable)
Platinum Trust Funds
20,046
18,175
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
There are no guarantees entered into by the parent entity in relation to debts of its subsidiaries,
no contingent liabilities and no capital commitments.
ACCOUNTING
POLICY
The consolidated entity has applied AASB 12: Disclosure of Interests in Other
Entities. AASB 12 requires disclosure about the nature of, and risks associated
with, the consolidated entity’s interest in other entities. An interest in another
entity refers to involvement that exposes the entity to variability of returns from
the performance of another entity (excluding subsidiaries and associates).
The consolidated entity applies the standard to its interest in the Platinum
Trust Funds.
Platinum Asset Management Limited Annual Report 2020
98
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 25. Commitments
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities:
Within one year
One to five years
Greater than five years
2020
$’000
2019
$’000
89
–
–
89
1,838
8,102
1,279
11,219
The consolidated entity has no significant commitments for capital expenditure.
ACCOUNTING
POLICY
PIML has entered into a lease agreement for the premises it occupies and pays
rent on a monthly basis. Until 30 June 2019, payments made under the operating
lease were charged to the consolidated statement of profit or loss and other
comprehensive income. From 1 July 2019, the accounting policy for this lease
is as described in Note 26.
The lease commitments at 30 June 2020 relate to short-term leases for which the
lease payments made continue to be charged to the consolidated statement of
profit or loss and other comprehensive income.
Note 26. Leases
PIML has entered into a lease agreement for the Sydney premises it occupies and pays rent on
a monthly basis.
The consolidated entity has adopted AASB 16: Leases from 1 July 2019, but has not restated
comparatives for the 30 June 2019 reporting period, as permitted under the specific transitional
provisions in the standard.
(a) Amounts recognised in the statement of financial position
The statement of financial position shows the following amounts relating to leases:
AASB 16
ADJUSTMENT ON
CURRENT
YEAR
30 JUNE 2019
$’000
1 JULY 2019 MOVEMENT 30 JUNE 2020
$’000
$’000
$’000
Assets:
Right-of-use asset
Liabilities:
Lease liabilities – Current
Lease liabilities – Non-current
–
–
–
10,595
(1,926)
8,669
1,615
8,829
129
(1,744)
1,744
7,085
Platinum Asset Management Limited Annual Report 2020
99
Note 26. Leases – continued
(b) Amounts recognised in the statement of profit or loss in respect of leases
Rent and other occupancy
Depreciation of right-of-use asset
Finance costs on lease liabilities
30 JUNE
2020
$’000
463
1,926
239
2,628
30 JUNE
2019
$’000
1,944
–
–
1,944
ACCOUNTING
POLICY
UP TO
30 JUNE
2019
In the previous year, lease payments were charged to the consolidated statement of
profit and loss and comprehensive income in accordance with the AASB 117: Leases
requirements for operating leases.
ACCOUNTING
POLICY
FROM
1 JULY 2019
Assets and liabilities arising from the premises lease are initially measured on a
present value basis. Lease liabilities include the net present value of the future lease
payments, less any lease incentives receivable.
On adoption of AASB 16, the lease payments used to determine the lease liability
were discounted using an estimated incremental borrowing rate of 2.5% at the
date of initial application.
The consolidated entity is exposed to potential future increases in variable lease
payments based on an index or rate, which are not included in the lease liability
until they take effect. When adjustments to lease payments based on an index or
rate take effect, the lease liability is reassessed and adjusted against the right-of-
use asset.
Lease payments are allocated between principal and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the amount of the
measurement of the lease liability adjusted for any lease payments made before
commencement date. Right-of-use assets are depreciated over the lease term on
a straight-line basis.
Note 27. Accounting standards and interpretations not yet mandatory or early
adopted during the year
There are no other standards that are not yet effective that are expected to have a material
impact on the consolidated entity in the current or future reporting periods.
Platinum Asset Management Limited Annual Report 2020
100
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
Note 28. Accounting Standards adopted during the year
Australian Accounting Standards and Interpretations that are of relevance to the consolidated
entity but are mandatory and have been adopted for the reporting period ended 30 June 2020,
and the consolidated entity’s assessment of the impact of these issued or amended Accounting
Standards and Interpretations, most relevant to the consolidated entity, are set out below.
(a) AASB 16: Leases
The consolidated group has adopted AASB 16: Leases from 1 July 2019. Refer to Note 26 for
a discussion of the impact of this new standard.
(b) IFRIC 23: Uncertainty over Income Tax Treatments (effective from 1 July 2019)
The IFRS Interpretations Committee (IFRS IC) issued IFRIC 23, which clarifies how the
recognition and measurement requirements of IAS 12: Income taxes are applied where there is
uncertainty over income tax treatments. The consolidated entity has applied this interpretation
with respect to determining its deferred and current income tax balances. The adoption of this
interpretation did not materially affect the deferred and current income tax balances or any of
the disclosures in the financial statements.
There are no other standards that are effective for the first time in the current period that
are expected to have a material impact on the consolidated entity in the current or future
reporting periods.
Note 29. Events after the reporting period
Apart from the dividend declared in August 2020, no other matter or circumstance has arisen
since 30 June 2020 that has significantly affected, or may significantly affect the consolidated
entity’s operations, the results of those operations, or the consolidated entity’s state of affairs
in future financial years.
Platinum Asset Management Limited Annual Report 2020 101
DIRECTORS’ DECLARATION
30 JUNE 2020
In the Directors’ opinion:
–
–
–
–
The attached financial statements and notes comply with the Corporations Act 2001,
the Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements;
The attached financial statements and notes comply with International Financial
Reporting Standards as issued by the International Accounting Standards Board as
described under Basis of Preparation to the financial statements;
The attached financial statements and notes give a true and fair view of the consolidated
entity’s financial position as at 30 June 2020 and of its performance for the financial year
ended on that date; and
There are reasonable grounds to believe that the Company and consolidated entity will be
able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by section 295A of the Corporations
Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the
Corporations Act 2001.
On behalf of the Directors
Michael Cole
Chairman
26 August 2020
Sydney
Andrew Clifford
Director
Platinum Asset Management Limited Annual Report 2020
102
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PLATINUM ASSET MANAGEMENT LIMITED
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Platinum Asset Management Limited (the Company)
and its controlled entities (together the Group) is in accordance with the Corporations
Act 2001, including:
(a)
giving a true and fair view of the Group’s financial position as at 30 June 2020
and of its financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
–
–
–
–
–
the consolidated statement of financial position as at 30 June 2020
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive
income for the year then ended
the notes to the financial statements, which include a summary of
significant accounting policies
–
the directors’ declaration.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO Box 2650, Sydney NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Platinum Asset Management Limited Annual Report 2020 103
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the
financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements
of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including
Independence Standards) (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report
is free from material misstatement. Misstatements may arise due to fraud or error. They are
considered material if individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able
to give an opinion on the financial report as a whole, taking into account the geographic
and management structure of the Group, its accounting processes and controls and the
industry in which it operates.
Our audit approach takes into account work undertaken by key third party service
providers relevant to our audit. This includes the administrator which provides custodian
and administration services for the trusts that the Group manages.
Platinum Asset Management Limited Annual Report 2020 104
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PLATINUM ASSET MANAGEMENT LIMITED
Materiality
Key audit
matters
Audit scope
–
–
–
–
MATERIALITY
AUDIT SCOPE
For the purpose of our audit we
used overall Group materiality of $11.0
million, which represents approximately
5% of the Group’s profit before tax.
We applied this threshold, together
with qualitative considerations,
to determine the scope of our audit
and the nature, timing and extent of
our audit procedures and to evaluate
the effect of misstatements on the
financial report as a whole.
–
–
Our audit focused on where the
Group made subjective judgements;
for example, significant accounting
estimates involving assumptions and
inherently uncertain future events.
We conducted an audit of the most
financially significant components
of the Group. This was supplemented
by additional risk-focussed audit
procedures over corporate functions,
such as cash and treasury.
We chose Group profit before
tax because, in our view, it is the
benchmark against which the
performance of the Group is
most commonly measured.
We utilised a 5% threshold based
on our professional judgement,
noting it is within the range of
commonly acceptable thresholds.
Platinum Asset Management Limited Annual Report 2020
105
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. The key audit matters
were addressed in the context of our audit of the financial report as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. Further, any
commentary on the outcomes of a particular audit procedure is made in that context.
We communicated the key audit matters to the Audit, Risk and Compliance Committee.
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER
Revenue – $285m
Refer to note 11 – Operating segments
In relation to the key controls over recognising
fee revenue:
This was a key audit matter because revenue
is the Group’s most significant balance in the
consolidated statement of profit or loss and
other comprehensive income.
–
–
We obtained the most recent report
issued by the provider of accounting and
administration services setting out the
controls in place at the service organisation
(including those over the recognition of
fee revenue). This report included an
assessment of the design and operating
effectiveness of those controls.
From this report we developed an
understanding of: the control objectives
and associated control activities; the tests
undertaken by the auditor; the results of
these tests and conclusions formed by the
auditor; and considered the results of these
tests and conclusions formed on the design
and operating effectiveness of controls to the
extent relevant to our audit of the Group.
We also performed the following audit
procedures, amongst others:
–
–
Assessed whether the revenue accounting
policy was consistent with the requirements
of Australian Accounting Standards.
Agreed a sample of management and
performance fees to relevant supporting
evidence, such as investment management
agreements, underlying funds under
management statements and third-party
calculations.
–
Recalculated a sample of performance and
management fees.
Platinum Asset Management Limited Annual Report 2020 106
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PLATINUM ASSET MANAGEMENT LIMITED
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER
Accounting for investment
vehicles – $125m
Refer to note 2 – Equity investments in
associates
This was a key audit matter given the financial
significance of the investment vehicles, their
share of profit/(loss) to the Group, and the
judgement required in determining the
appropriate classification of, and accounting
for, the Group’s investments in accordance
with Australian Accounting Standards.
To assess the classification and accounting
treatment of the investment in each associate,
we performed the following audit procedures,
amongst others:
–
Obtained and reviewed offer documents,
Board of Director minutes, constitutions
and Investment Management Agreements
between the Group and each associate to
understand, evaluate and assess the power
and decision making authority held by the
Group by considering the following factors
(amongst others):
•
•
•
•
•
•
Equity ownership
Representation on the Board of
directors of the investee
Participation in policy-making
processes, including participation in
decisions about dividends or other
distributions
Material transactions between the
entity and the investee
Interchange of management
personnel
Provision of essential technical
information.
–
We also performed the following audit
procedures, amongst others:
•
•
•
Recalculated the ownership percentage
and agreed the key inputs (such as
total units on issue and units owned
by the Group) to appropriate
supporting data
Recalculated the carrying amount by
agreeing the key inputs (such as net
asset value and share price) to
appropriate supporting data
Assessed the disclosures in the
financial report in light of our
understanding and the requirements
of Australian Accounting Standards.
Platinum Asset Management Limited Annual Report 2020
107
Other information
The directors are responsible for the other information. The other information comprises
the information included in the annual report for the year ended 30 June 2020, but does not
include the financial report and our auditor’s report thereon. Prior to the date of this auditor’s
report, the other information we obtained included the Directors’ report, Shareholder
information and the Corporate directory. We expect the remaining other information to
be made available to us after the date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
If, based on the work we have performed on the other information that we obtained prior to
the date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors and use our
professional judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report
that gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary
to enable the preparation of the financial report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of
the Group to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend
to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a
whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with the Australian Auditing
Standards will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the
financial report.
Platinum Asset Management Limited Annual Report 2020 108
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PLATINUM ASSET MANAGEMENT LIMITED
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf.
This description forms part of our auditor’s report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 28 to 46 of the directors’ report
for the year ended 30 June 2020.
In our opinion, the remuneration report of Platinum Asset Management Limited for the year
ended 30 June 2020 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation
of the remuneration report in accordance with section 300A of Corporations Act 2001.
Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
R Balding
Partner
26 August 2020
Sydney
Platinum Asset Management Limited Annual Report 2020
THE
DAM
HAS
BROKEN
2
Designed and produced by
3C Creative Agency, 3c.com.au
Article
The Dam Has Broken
By Julian McCormack
Investment Specialist,
Platinum Asset Management
Artwork by
Dan Tague
www.messageinthemoney.com
© 2020 Platinum Asset Management Limited
THE DAM HAS BROKEN I
Nothing
is so permanent
as a temporary
government program.
Milton Friedman
Platinum Asset Management Limited Annual Report 2020 II
PREFACE
As we heralded in the New Year little did we know
what lay ahead. Full of promise, following a long-
awaited ‘phase one’ trade deal between the US and
China in December, as well as resolution on the
Brexit saga, 2020 looked to be a less troublesome
year for investors. The optimism was reflected in
equity markets, with the MSCI AC World Index
soaring to record highs in February 1.
The arrival of a global health pandemic, however, stopped investors in their tracks.
Markets don’t like surprises and COVID-19 is as bad as it gets, sending the world
into lockdown. We soon grasped the true meaning of ‘globalisation’, with the
disease spreading quickly across the world – bringing the global economy to
a standstill virtually ‘overnight’.
It was unexpected. So too was the market’s response. After the initial shock and
sell-off, far from being struck down, markets quickly collected themselves and
continued their upward march, to close not far below their February highs by
the end of June.
Markets have seemingly ignored the economic reality of collapsing businesses,
dissipating earnings and significant job losses. The extraordinary recovery in stock
markets amid the most severe economic downturn in modern history is in stark
contrast to other periods of economic weakness, such as the global financial crisis
(GFC), where even five years later, markets had not recovered to their previous highs.
All is not what it seems though. In reality, it’s been a tale of two very different
stock markets. The pre-COVID market leaders (i.e. growth stocks) have continued
to move from strength to strength, particularly those involved in technology and
e-commerce as work and shopping activities increasingly shift online, sending their
valuations to exorbitant levels and in some cases to new record highs. Defensive
stocks that are benefiting from the pandemic, as we stock up our pantries and buy
more hygiene and health-related items, have also rallied hard.
While many of these growth stocks are great companies with promising futures, the
current valuations simply can’t be justified. At Platinum, we have always maintained
that a stock’s return is a function of the price you pay – and we believe the price
people are paying for some of these stocks right now, make them
high-risk investments.
Then we have the ‘other’ market, where most stocks reside, which has been left
behind – performing as expected when faced with such a major economic collapse.
While many stocks have bounced from their March lows, they remain well below
their pre-COVID highs.
1 Source: FactSet Research Systems.
THE DAM HAS BROKEN III
Record amounts of fiscal and monetary stimulus from governments and central
banks have undoubtedly fuelled the rally. The cash has made its way to banks,
businesses, households and markets.
As the adage goes though “there is no such thing as
a free lunch”, and no truer words could be said of the
current situation.
Such levels of money creation are inflationary. While it may not be reflected in the
prices of goods and services just yet, it is evident in asset prices, notably bonds and
selected parts of the equity market. Consumer prices will likely follow in time
– as economies recover and demand rebounds.
They could rely forever on central banks – but the implications are almost certainly
inflationary. They will need to increase taxes and/or borrow from the public by
issuing government bonds. An increased supply of bonds will place downward
pressure on bond prices (i.e. long-term yields will rise), which will have implications
for equities, particularly those with stretched valuations.
The value of any asset is a function of the future cashflows that it will produce and
the appropriate risk-adjusted interest rate. In theory, the lower interest rates are,
the higher the value that should be ascribed to an asset for a given set of expected
future cashflows. Conversely, the higher interest rates are, the lower the value that
should be ascribed.
With 10-year bond yields below 1% and even negative in many countries, and
economies floundering, it may be hard to imagine higher interest rates now
– but history shows that things can change very quickly.
This pandemic is very much front and centre in our minds currently. However,
it’s worthwhile stepping back from the events of today and looking to the past.
In our feature article, Julian McCormack, investment specialist at Platinum, argues
that the global economy has likely shifted away from an inflation-targeting world
with fiscal policy secondary to monetary policy. The emergence of populists in
response to anaemic growth and social inequality began the process – history
teaches us that populists of all political stripes do not fear spending money.
The massive budget deficits in response to the impact of COVID-19 may prove to be
the coup de grâce for the post Reagan-Thatcher period of ever-lower inflation and
a belief in the primary efficacy of monetary policy. We may soon have to live with
structurally higher inflation amid much higher government deficits.
Andrew Clifford,
Chief Executive Officer & Chief Investment Officer,
Platinum Asset Management
August 2020
Platinum Asset Management Limited Annual Report 2020 IV
THE DAM HAS BROKEN
Platinum Asset Management Limited Annual Report 2020
V
THE
DAM
HAS
BROKEN
By Julian McCormack
The dogmas of the quiet past, are
inadequate to the stormy present…
As our case is new, so we must
think anew, and act anew.
We must disenthrall ourselves…
Abraham Lincoln
VI
Markets are behaving as if inflation is dead, growth
is and will remain slow, and investors must hew to
bond-like equities plus the few technology companies
that can promise a future of growth. All else must be
left in the dust.
Perhaps this is true – the motto of a new era. A new paradigm, if you will.
However, the global political economy has changed markedly in recent years.
Populists have taken power in countries across the globe, fiscal rectitude was
eroding in that context… and then COVID-19 struck. The world has changed.
Beware the dogmas of the quiet past.
Most readers will be familiar with the 40-year collapse in interest rates globally,
summarised in the chart below using the US 10-year Treasury yield1.
YIELDS ON US 10-YEAR TREASURY NOTES
% p.a.
16
14
12
10
8
6
4
2
0
1962 1970 1980 1990 2000 2010 2020
SOURCE: FEDERAL RESERVE BANK OF ST. LOUIS.
THE DAM HAS BROKEN VII
This has coincided with: atomisation of the workforce; installation of independent
central banks, which target inflation levels via interest rates; opening of vast
new pools of labour globally; decreasing trade barriers; and an anchoring amid
elected officials to the notion that government spending is regulated by bond
market vigilantes.
Many of these factors have changed radically, yet markets continue to price
ongoing low inflation and market commentary is dominated by the notion that high
multiples can be paid for businesses due to low interest rates, especially in a low
nominal growth world2.
This has translated into enormous dispersion in
markets – with highly fancied companies reaching
new highs of valuation versus those out-of-favour.
The charts below show the dispersion between the highest and lowest price-to-
earnings (PE) stocks and price-to-book (PB) stocks around the world. We sort all
the stocks in each industry in each country into quintiles based on their PE and PB.
To illustrate, if there are 500 US software stocks and five Australian gold mining
stocks, then each quintile will contain 100 US software stocks and one Australian
gold mining stock. With thanks to James Bullock, quant analyst at Platinum.
RATIO OF HIGH PE TO LOW PE STOCKS
6
5
4
3
2
1
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
SOURCE: FACTSET RESEARCH SYSTEMS, PLATINUM INVESTMENT MANAGEMENT LIMITED.
Platinum Asset Management Limited Annual Report 2020 VIII
RATIO OF HIGH PB TO LOW PB STOCKS
8
7
6
5
4
3
2
1
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
SOURCE: FACTSET RESEARCH SYSTEMS, PLATINUM INVESTMENT MANAGEMENT LIMITED.
As at all times of extreme valuation, this feels inevitable to many. In truth though,
the pre-conditions allowing for the current extremes in markets have been changing
for years. The regime of declining rates and tepid fiscal support for economies
appears to have ended.
TAKING A STEP BACK
The dollar gold standard of the Bretton Woods period ended in 1971, with the
Nixon Shock. Since then we have all navigated a world of currencies tending toward
pure fiat or unbacked currency, with no intrinsic worth. However, our institutions
and language tend to be anchored in the prior period of notes of exchange backed
by, and exchangeable for, gold and/or silver.
Governments have tended toward attempts, at least
superficially, to balance budgets and pay down debt.
No more salient example of this is the response of
major economies to the recession following the
global financial crisis (GFC) of 2008.
THE DAM HAS BROKEN Platinum Asset Management Limited Annual Report 2020
IX
X
All major economies saw large increases in budget
deficits from 2007-2010. Most major economies
then shrank those deficits from 2010 to 2016.
Stated differently, fiscal policy in major economies exercised a drag on gross
domestic product (GDP) growth from 2010 onward, rather than adding to it.
In the short run, every 1% of GDP by which a government deficit shrinks is
a 1% diminution of GDP.
SELECT MAJOR ECONOMY GOVERNMENT SURPLUSES/(DEFICITS)
% of GDP
4
2
0
-2
-4
-6
-8
-10
-12
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
SOURCE: BLOOMBERG.
Germany
UK
USA
China
Japan
GERMANY
GERMANY
GERMANY
GERMANY
GERMANY
UK
UK
UK
UK
UK
USA
USA
USA
USA
USA
CHINA
CHINA
CHINA
CHINA
CHINA
JAPAN
JAPAN
JAPAN
JAPAN
JAPAN
Amid the long, but tepid expansion following the GFC, central banks the world
over have been suggesting, nay begging, that the governments of their respective
countries spend money in order to take up the slack of economies running well
below potential for most of the post-GFC period3. This is a stark reversal of the
purpose of independent central banking, which was to provide an independent
counterpoint to spendthrift politicians4.
THE DAM HAS BROKEN XI
Coincident with the slow growth of the post-GFC period, politics in numerous
countries was riven by the emergence of potent populist movements, many of
which have been elected to power. Populism is nothing new, but more regimes
globally can be characterised as populist and more political speech is populist in
nature in the wake of the GFC5. The focus of attention has been largely on the
erosion of institutions and the ugly ethno-nationalist overtones of populists.
We live in a world characterised by stuttering growth
in the wake of a GFC, with politics tending toward
extremes… sounds familiar. Numerous commentators
have drawn parallels with the 1930s, perhaps most
notably Ray Dalio6.
Platinum Asset Management Limited Annual Report 2020 XII
LESSONS ON THE NATURE OF POPULISM FROM THE 1930s
The 1930s saw the aftermath of a global financial crisis, trade wars, geopolitical
tension and the emergence of populists on both the Left and the Right… it really
does sound familiar. For us, one of the most important lessons of the period
appears to have been largely overlooked.
Populists spend money.
Take for example, Germany under Hitler. His regime…
“ ... suspended the gold standard, embarked on huge public-works programs
like autobahns, protected industry from foreign competition, expanded credit,
instituted jobs programs, bullied the private sector on prices and production
decisions, vastly expanded the military, enforced capital controls, instituted
family planning, penalized smoking, brought about national healthcare and
unemployment insurance, imposed education standards, and eventually ran
huge deficits.”7
GERMAN GOVERNMENT FISCAL POSITION, 1925-1935
Surplus/(Deficit), million reichsmark
500
300
100
-100
-300
-500
-700
-900
-1,100
-1,300
-1,500
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
SOURCE: RECONSTRUCTED FROM LEAGUE OF NATIONS ARCHIVES VIA NORTHWESTERN UNIVERSITY, “PUBLIC FINANCE. SUMMARY OF
BUDGET ACCOUNTS” SECTION. LATEST REVISIONS USED, LOANS EXCLUDED FROM REVENUE AND REPAYMENTS OF LOANS EXCLUDED
FROM EXPENDITURES. NOTE THAT GERMANY CEASED REPORTING PUBLIC FINANCES TO THE LEAGUE OF NATIONS FROM 1935.
HTTPS://WAYBACK.ARCHIVE-IT.ORG/6321/20160901163315/HTTP://DIGITAL.LIBRARY.NORTHWESTERN.EDU/LEAGUE/STAT.HTML
THE DAM HAS BROKEN XIII
In Mussolini’s Italy, similarly, the gold standard was
suspended, the lira allowed to depreciate and a wave
of public works, social programs and militarisation
was undertaken.
For instance, Mussolini spent seven times more on education in the 20 years
following 1922 than had been spent in the history of the Italian Republic dating
back to 1862… seven times more in a third of the time8.
ITALIAN GOVERNMENT FISCAL POSITION, 1925-1938
Surplus/(Deficit), million lira
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
-14,000
-16,000
-18,000
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
SOURCE: RECONSTRUCTED FROM LEAGUE OF NATIONS ARCHIVES VIA NORTHWESTERN UNIVERSITY,
“PUBLIC FINANCE. SUMMARY OF BUDGET ACCOUNTS” SECTION. LATEST REVISIONS USED, LOANS EXCLUDED FROM REVENUE
AND REPAYMENTS OF LOANS EXCLUDED FROM EXPENDITURES.
HTTPS://WAYBACK.ARCHIVE-IT.ORG/6321/20160901163315/HTTP://DIGITAL.LIBRARY.NORTHWESTERN.EDU/LEAGUE/STAT.HTML
Platinum Asset Management Limited Annual Report 2020 XIV
In pre-war Japan, the Showa banking crisis of 1927 preceded the Great Depression
of the West. It was met by a series of hitherto unorthodox measures by Finance
Minister and briefly Prime Minister Takahashi Korekiyo, “Japan’s Keynes”.
These now read like a standard response to an economic crisis. Takahashi:
1) De-pegged the yen from gold and allowed it to depreciate steeply;
2) Lowered interest rates;
3) Impelled the bank of Japan to buy Japanese government bonds at low rates
in order to finance government spending (this is exactly the same as
quantitative easing).
The “Takahashi Intervention” appears to have
raised Japan out of the Depression by approximately
1933, with the country enjoying strong industrial
production growth in the mid- and late-1930s.
For his services, Takahashi was awarded the status of Baron among many other
honours. Ultimately, though, he fell afoul of Japan’s military by seeking to rein
in military spending in Manchuria, and was assassinated in 19369.
JAPANESE GOVERNMENT FISCAL POSITION, 1925-1938
Surplus/(Deficit), million yen
200
100
0
-100
-200
-300
-400
-500
-600
-700
-800
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
SOURCE: RECONSTRUCTED FROM LEAGUE OF NATIONS ARCHIVES VIA NORTHWESTERN UNIVERSITY,
“PUBLIC FINANCE. SUMMARY OF BUDGET ACCOUNTS” SECTION. LATEST REVISIONS USED, LOANS EXCLUDED FROM REVENUE
AND REPAYMENTS OF LOANS EXCLUDED FROM EXPENDITURES.
HTTPS://WAYBACK.ARCHIVE-IT.ORG/6321/20160901163315/HTTP://DIGITAL.LIBRARY.NORTHWESTERN.EDU/LEAGUE/STAT.HTML
THE DAM HAS BROKEN Platinum Asset Management Limited Annual Report 2020
XV
XVI
Lest we assume that only fascists spent money in response to the Great Depression,
let us consider the policies of the great American populist of the Left, Franklin
Delano Roosevelt (FDR). He was elected in a landslide in 1932 in response to the
tone-deafness and ineptness of the Hoover administration in response to the onset
of the Great Depression. He went on to win an unprecedented and never to be
matched four elections and died in office in 194510.
FDR doubled US government debt in his first two terms (before the US entered
World War II) from 1933-37 and 1937-41, from US$19 billion to US$42 billion11.
When he won re-election in 1940 for a record third term, FDR did so in one of the
greatest avalanches in US history – he won 38 of 48 states and 449 of 531 electoral
college votes: a narrower victory than in 1936, but still a landslide12.
The lesson is clear – public spending is popular.
Remember – the key characteristic of populists
is that they spend money.
Perhaps more importantly, the Democratic administration of FDR altered the role
of the state in American life forever – it was a genuine institutional revolution.
As historian Eric Foner said, the New Deal “made the government an institution
directly experienced in Americans’ daily lives and directly concerned with their
welfare”, where it had never been so before13.
As part of the New Deal, FDR’s key collection of policies, a dozen or so bodies
were established, such as the National Recovery Administration, the Tennessee
Valley Authority, the Securities and Exchange Commission and the Public
Works Authority14.
THE DAM HAS BROKEN XVIIXVII
US GOVERNMENT FISCAL POSITION, 1925-1938
Surplus/(Deficit), million US dollar
2,000
1,000
0
-1,000
-2,000
-3,000
-4,000
-5,000
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
SOURCE: RECONSTRUCTED FROM LEAGUE OF NATIONS ARCHIVES VIA NORTHWESTERN UNIVERSITY, “PUBLIC FINANCE.
SUMMARY OF BUDGET ACCOUNTS” SECTION. LATEST REVISIONS USED, LOANS EXCLUDED FROM REVENUE AND REPAYMENTS
OF LOANS EXCLUDED FROM EXPENDITURES.
HTTPS://WAYBACK.ARCHIVE-IT.ORG/6321/20160901163315/HTTP://DIGITAL.LIBRARY.NORTHWESTERN.EDU/LEAGUE/STAT.HTML
A KEYNESIAN RESPONSE?
Many readers will identify the deficit spending described above as a ‘by-the-book’
Keynesian response to a deficiency of aggregate demand… except there was no
book. John Maynard Keynes, while many of his ideas had been expressed before and
was one of the most famous public intellectuals of his generation, did not publish his
most important work, the General Theory, until 1936. This is three years after both
Hitler and FDR came to power and 16 years after Mussolini’s ascension to rule Italy.
FDR, for example, had very little theoretical understanding of economics, nor much
respect for the discipline. He was literally trying things out as he went15.
As is so often the case, practice led and economic theory followed, seeking
to explain or justify that which has already occurred.
Platinum Asset Management Limited Annual Report 2020 XVIII
ANOTHER REVOLUTION IN ECONOMICS?
A far less famous figure than John Maynard Keynes may have already begun
another revolution in economics. Warren Mosler is acknowledged as the father
of what is today known as Modern Monetary Theory (MMT). Far from being an
ivory tower type, Mosler was a successful macro trader in fixed income markets
in the 1990s.
It was his insights into the monetary system that facilitated his career in markets.
And it was this understanding that led to him setting out his ideas in two brief,
accessible and free-to-download books.
In summary, the key ideas of MMT are:
• There is nothing “debt like” about government debt in its own currency
– it can be extinguished instantly and is functionally an offset account to
reserves in the banking system – Mosler argues that it might perhaps be
better known as the “Interest Rate Maintenance Account”.
• Taxes are not collected in order to spend the money, as money can be created
instantly via issuance or purchase of government bonds (again these are just
offset accounts to bank reserves).
• Fiat currency has a value because we have to pay tax in that currency – try not
to pay tax in domestic currency and someone will show up at your door with
a court order to pay.
• There is no inter-generational burden of government debt in a government’s
own currency – remember – it can be extinguished instantly.
• The limiting factor on government bond issuance (or straight out money
creation) is currency weakness and inflation – NOT insolvency.
• Taxation is also useful in order to slow an economy down, in the event
that it reaches capacity and inflation begins to rise16.
While the policy prescriptions of MMT may be controversial, its description of
a modern, fiat currency system is not. In our view, it is insightful and useful.
THE DAM HAS BROKEN XIX
AN UNINTENTIONAL MMT ADVOCATE?
We have an example of an economy which was relatively late in an economic cycle,
but growing modestly with spare capacity, which saw a significant fiscal boost: the
USA under Donald Trump. The contraction of US deficits of the post-GFC period
was reversed by the Trump administration’s Tax Cuts and Jobs Act of 2017, resulting
in a resumption of relatively large deficits in the US. Before the impact of COVID-19
was felt, the Trump tax cuts appeared to have entrenched structural deficits of
approximately US$1 trillion, or approximately 4.5% of GDP (in a nominal growth
economy of approximately 4.5%)17.
A long history of deficits in the US provides useful context. While these appear
relatively large compared to the 1950s, they are dwarfed by the deficits posted
in the 1940s. These deficits were drawn down to fund the US war effort.
The USA’s entry into World War II is widely seen as
the factor which finally dragged it out of the Great
Depression, after a mistaken tightening of monetary
and fiscal policy in 1937-3818.
US FEDERAL GOVERNMENT FISCAL POSITION 1930-2020E,
WITH LATEST CONGRESSIONAL BUDGET OFFICE (CBO) ESTIMATE FOR 2020E
% of GDP
10
5
0
-5
-10
-15
-20
-25
-30
-35
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020E
SOURCE: HTTPS://WWW.WHITEHOUSE.GOV/OMB/HISTORICAL-TABLES/; HTTPS://WWW.CBO.GOV/PUBLICATION/56335
Platinum Asset Management Limited Annual Report 2020 XXXX
The impact of COVID-19 and the response it forced on policymakers globally has
now pushed government budget deficits to levels unprecedented in peace time.
In the US for instance, current projections are for a US$3.7 trillion deficit in fiscal
2020 – or 18% of GDP19.
This pattern is repeated all over the world, but to a
lesser degree. Governments are incurring deficits
in order to finance their responses to the threat of
COVID-19 and ameliorate the damage done to
their economies.
Investors might be well served to ask themselves if such stimulus can be rapidly
withdrawn by policymakers. When choosing between a double-dip recession
and some future inflation, the choice is, in our view, predictable.
As of late May 2020, it is expected that the German federal government budget
position will turn from a surplus in 2019 to a deficit of 5% of GDP20.
GERMAN FEDERAL GOVERNMENT FISCAL POSITION 1991-2020E,
WITH BLOOMBERG ESTIMATE FOR 2020E
% of GDP
2
0
-2
-4
-6
-8
-10
-12
1991
1995
2000
2005
2010
2015
2020E
SOURCE: BLOOMBERG, OECD.
THE DAM HAS BROKEN Platinum Asset Management Limited Annual Report 2020
XXI
XXII
As of late May 2020, it appears that China will see a consolidated budget deficit
(including provincial governments and the central government) of approximately
11% of GDP in 202021.
CHINESE CONSOLIDATED FISCAL POSITION 2000-2020E,
WITH FITCH ESTIMATE FOR 2020E
% of GDP
2
0
-2
-4
-6
-8
-10
-12
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020E
SOURCE: FITCH.
As of mid-April 2020, it appears that Japan will record a fiscal deficit of
approximately 8% of GDP in 202022.
JAPANESE FISCAL POSITION 1960-2020E,
WITH FITCH ESTIMATE FOR 2020E
% of GDP
4
2
0
-2
-4
-6
-8
-10
-12
1960 1964 1968 1072 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020E
SOURCE: BLOOMBERG, FITCH.
THE DAM HAS BROKEN XXIII
In 2017, the world witnessed a period of gentle economic expansion, heralded at
the time as global synchronous growth. The US 10-year Treasury yield exceeded
3%, emerging market and cyclicals performed strongly. Yet that period saw only
3.2% global GDP growth, basically on trend for the last 40 years23.
Since that time, the world has seen a trade war
escalate between its two largest national economies
and a global pandemic.
In the immediate term, the impact of the COVID-19 pandemic is likely to remain
deflationary, with significant underemployment in all major economies and the
cessation of whole areas of economic activity, such as travel and tourism.
In the longer term, one might do well to consider the changes obscured by
a deflationary pulse:
• Increasing calls by central banks globally for governments to spend money to
support economic activity;
• The emergence of populist political figures globally, many with an overt
preference for big spending and tax cuts;
• An emerging, influential body of economic ideas which call for governments to
create money and spend, with the only restraint on this being the emergence of
inflation – in other words, print and spend until inflation emerges;
• The onset of colossal budget deficits in response to the COVID-19 pandemic,
particularly in the US, with the attendant, tricky task of withdrawing
this stimulus.
Platinum Asset Management Limited Annual Report 2020 XXIV
THE DAM HAS BROKEN
XXV
There is every chance that the economic context
of the post-GFC world has shifted. This may entail
higher rates of inflation and nominal growth than
previously, along with steeper yield curves and
somewhat higher interest rates – certainly higher
than those prevailing now.
This may feel a remote prospect, but inflation regimes can change rapidly: In 1915,
US consumer price inflation (CPI) was 1% p.a. – in 1917, it was 20% p.a.; in 1945,
US CPI was 1% p.a. – in 1947, it was 19% p.a.; in 1972, US CPI was 2% p.a.
– in 1975, it was 12% p.a.24.
Investors who assume that low growth and low inflationary conditions will persist
indefinitely, and who therefore seek the safety of bond-like equities and the
excitement of profit-free growth may find these assets a poor store of wealth in
the years to come.
1 https://fred.stlouisfed.org/series/DGS10
2 See, for example: https://www.afr.com/wealth/personal-finance/why-lower-interest-rates-could-boost-equities-20190409-p51ce0
3
4
5
See, for example: https://www.bloomberg.com/news/articles/2019-11-11/ecb-s-mersch-adds-voice-in-call-for-more-fiscal-stimulus;
https://www.brookings.edu/blog/ben-bernanke/2020/01/04/the-new-tools-of-monetary-policy/; https://www.theguardian.
com/australia-news/2019/jul/02/reserve-bank-governor-calls-for-more-federal-spending-to-boost-economy; https://www.
washingtonpost.com/opinions/2019/03/07/risk-our-economy-secular-stagnation/; https://www.afr.com/topic/monetary-policy-5zu
See, for example: https://www.economist.com/leaders/2019/04/13/the-independence-of-central-banks-is-under-threat-from-politics
For an excellent study of this see https://www.theguardian.com/world/ng-interactive/2019/mar/06/revealed-the-rise-and-rise-of-
populist-rhetoric
6 https://www.linkedin.com/pulse/three-big-issues-1930s-analogue-ray-dalio/
7 https://mises.org/library/hitlers-economics
8
9
See https://www.cato.org/publications/commentary/economic-leadership-secrets-benito-mussolini & https://www.econlib.org/
library/Columns/y2015/Samuelsfascism.html
For a fuller understanding of Takahashi, please see Mark Metzler, “Lever of Empire, The International Gold Standard & Crisis
of Liberalism in Prewar Japan”, University California Press, 2006; Richard J Smethurst, “From Foot Soldier to Finance Minister:
Takahashi Korekiyo, Japan’s Keynes”, Harvard University Asia Center, 2009; for a good, brief discussion of his policies see
http://bilbo.economicoutlook.net/blog/?p=32355 and https://www.japantimes.co.jp/news/2016/07/19/business/economy-business/
helicopter-cash-presents-hopes-japan-history-shows-can-trigger-hyperinflation/
10 The 22nd Amendment to the US Constitution limits presidential terms at two. It was brought into law in 1947:
https://www.270towin.com/1940_Election/index.html
11 Jim Rickards, “Aftermath, Seven Secrets of Wealth Preservation in the Coming Chaos”, Penguin, New York, 2019, p56
12 https://www.270towin.com/1940_Election/index.html
13 Eric Foner, ”FDR and the Evolution of American Freedom in Depression and War”,1 April 2009; and
https://www.abc.net.au/radionational/programs/saturdayextra/eric-foner---freedom-and-america/3253998
14 https://www.newyorker.com/magazine/2013/03/04/how-the-deal-went-down
15 For more see John Brooks, “Once in Golconda: A True Drama of Wall Street 1920-1938”, Wiley & Sons, 1969.
John Brooks is one of the best market historians of the twentieth century, and is greatly under appreciated.
16 Warren Mosler, “Seven Deadly Innocent Frauds of Economic Policy”, https://moslereconomics.com/wp-content/
powerpoints/7DIF.pdf; Warren Mosler, “Soft Currency Economics”, http://moslereconomics.com/wp-content/uploads/2018/04/
Soft-Curency-Economics-paper.pdf
17 https://www.cbo.gov/publication/56309
18 See, for example: https://www.thebalance.com/the-great-depression-of-1929-3306033. However, the position is far from
unanimous, see https://www.forbes.com/sites/peterferrara/2013/11/30/the-great-depression-was-ended-by-the-end-of-world-war-
ii-not-the-start-of-it/#1ea84e0657d3
19 https://www.cbo.gov/publication/56335. The US government fiscal year runs from 1 October to 30 September.
20 https://www.bloomberg.com/news/articles/2020-04-22/german-public-deficit-to-widen-to-more-than-7-of-gdp-this-year
21 https://www.fitchratings.com/research/sovereigns/china-npc-signals-restrained-approach-to-policy-stimulus-26-05-2020
22 https://www.fitchratings.com/research/sovereigns/japan-coronavirus-response-increases-public-debt-challenge-15-04-2020
23 https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
24 Quoting Grant Williams; see also Robert Shiller’s CPI data http://www.econ.yale.edu/~shiller/data.htm
Platinum Asset Management Limited Annual Report 2020 XXVI
Disclaimer: This publication has been prepared by Platinum Investment Management Limited
ABN 25 063 565 006 AFSL 221935 (“Platinum”), trading as Platinum Asset Management (Platinum®).
This publication contains general information only and is not intended to provide any person with
financial advice. It does not take into account any person’s (or class of persons’) investment objectives,
financial situation or needs, and should not be used as the basis for making investment, financial or
other decisions. You should obtain professional advice before making an investment decision.
To the extent permitted by law, no liability is accepted by Platinum for any loss or damage as a result
of any reliance on this information. This publication reflects Platinum’s views and beliefs at the time
of preparation, which are subject to change without notice. No representations or warranties are
made by Platinum as to their accuracy or reliability. This publication may contain forward-looking
statements regarding Platinum’s intent, beliefs or current expectations with respect to market
conditions. Readers are cautioned not to place undue reliance on these forward-looking statements.
Platinum undertakes any obligation to revise any such forward-looking statements to reflect events
and circumstances after the date hereof.
© Platinum Investment Management Limited 2020. All rights reserved.
THE DAM HAS BROKEN XXVII
Platinum Asset Management Limited Annual Report 2020