Pinnacle’s FY26 ‘Messy’ But Positive

Australia | 11:00 AM

Multi-affiliate asset manager Pinnacle Investment Management beat consensus on funds under management but fell well short on profit.

• Pinnacle Investment Management’s FY26 result labelled "messy"
• FUM and funds flows beat, but profit missed materially
• Good start for Pacific Asset Management
• Earnings upside from global growth

By Greg Peel

Pinnacle Investment Management ((PNI)) delivered a messy FY26 result, UBS suggests. The simple take is that end-June funds under management (FUM) and June quarter net funds flows landed stronger than expected, which should support the FY27 outlook.

However, profit realisation during the second half missed materially with the reported $63m -25% below consensus.

UBS points to a number of factors driving the disappointment, being rising Pinnacle parent costs, performance fees realised in affiliates with higher pass-throughs to staff, and effective affiliate P&L share of 37% versus effective FUM share of 40% during the half.

Growth appears to be occurring where Pinnacle's ownership is lower.

Affiliate Base fees of $1,005.8m were up 35% year on year, with average fee rates broadly consistent versus a year ago. Affiliate Gross Performance fees of $146.6m were down -5%, contributing $35.6m to Pinnacle's profit.

Of the 35 strategies with the potential to deliver meaningful performance fees, 18 are at their high water mark, Macquarie notes, representing 67% of performance fee eligible FUM.

Pinnacle Parent Service revenues, excluding recently acquired Pacific Asset Management (PAM), were up 50%, driven by a significant increase in distribution fee revenues.

PAM contributed $6.5m of net profit from April, implying a full-year run-rate of greater than $26m.

Five key Affiliates, representing around 62% of total FUM, delivered excellent FUM growth, Macquarie highlights, comprising Lifecycle up 175% and now the group's largest affiliate, PAM up 43%, Metrics up 5%, Plato up 38% and Coolabah up 31%.

Jarden’s assessment is Pinnacle delivered an underwhelming headline result with earnings per share missing consensus by -12%, although only by -7% when adjusting for non-operating earnings.

Additionally, Pinnacle's share of Affiliates' profit of $140.9m was -6% below consensus.

Jarden still believes top-line momentum remains robust.

Breaking it Down

FUM of $229.4bn were slightly above consensus, with second half net flows of $16.3bn ahead of consensus. However, Jarden estimates some $12bn was from Life Cycle, which is expected to lose flow momentum as it matures and chases higher fees.

Although, going forward Jarden expects large one-off outflows to normalise across other affiliates.

Affiliate expenses of $1,263m were 22.3% above consensus. The miss versus Jarden’s forecasts was partially driven by not accounting for enough performance fee incentive payments.

Jarden estimates the cost-to-income ratio for FY26 was 59%, which the broker expects to reduce to 53% by FY30, driven by operating leverage and PAM.

Pinnacle shares have in recent months traded below historical averages, Canaccord Genuity notes, with investor sentiment centred on uncertainty around Metrics.

Canaccord believes this has had to do with the increased economic pressures on potential end-borrowers within Metrics’ funds, slowing net inflows, and the heightened media attention Metrics has received regarding funds where debt-to-equity swaps are permitted as a form of recovery.

Canaccord would expect the near doubling of Metrics' profit growth year on year, with further tailwinds into FY27, to potentially unwind some of the valuation discount that has crept into Pinnacle shares over the calendar year. 

Canaccord expects the full 12 months of ownership of PAM will be the single largest year on year profit driver in FY27. The broker notes the June FUM exiting FY26 was 10% ahead of that in April, suggesting the exit run-rate could be much stronger than implied by the nine-week contribution.

Beyond PAM, Canaccord expects the annualisation of significant increases in FUM in Life Cycle and Plato will be major contributors alongside Coolabah's large FUM base and potential for an improved year of outperformance.

Finally, Canaccord expects a series of cost efficiencies within Metrics that only played out partly in the near 100% profit growth result in FY26 to be on further display in FY27, with Metrics now the single largest profit contributor of the Affiliate suite.

PAM Acquisition

PAM (now wholly owned by Pinnacle) has agreed to acquire 100% of UK-based Asset Value Investors (AVI). AVI manages GBP1.9bn of FUM across a range of listed investment trusts, UCITS funds and institutional mandates.

UCITS funds are Undertakings for Collective Investment in Transferable Securities, a regulatory framework established by the European Union to govern mutual funds and investment instruments across the EU. 

PAM and Pinnacle will boost AVI's distribution capability, Macquarie notes.

Canaccord suggests scaling up AVI's existing FUM across its Global and Japanese "value" strategies will be the key opportunity for Pinnacle/PAM. Pinnacle expects the acquisition to benefit from the existing Group footprint, while also increasing the Pinnacle/PAM UK Retail presence.

Canaccord expects the acquisition to be earnings per share accretive to the Group with AVI adding additional capability to the PAM single-manager suite.

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