Hi John,
Pinnacle Investment Group Ltd (PNI) – a multi-affiliate asset manager that partners with boutique investment firms, taking equity stakes and earning fees from their funds while leaving portfolio management independent.
PNI’s growth equities affiliate Hyperion has seen a material performance drawdown due to the sell-off in software stocks, with its Australian Growth strategy ~40% below benchmark over the past year (to end of Feb). PNI owns 49.9% equity in Hyperion and represented ~11% of its ‘effective-FUM’ at Dec-25. Further, they have exposure in Private Credit via Metrics, and fixed income via Coolabah (+ many others) – areas which have also struggled in recent times, with FUM growth in private credit in particular likely to be difficult for a while.
PNI earnings are ultimately driven by the amount of money managed by affiliates (overall AUM), and whether or not affiliates are outperforming benchmarks, which then unlock performance fees. Affiliate FUM will be down, and in the case of Hyperion, any performance fee income will be a long way off. We can understand the market selling off PNI quiet aggressively despite a well-received 1H26 result.
That said, we like the diversified nature of the PNI business, not relying on one asset class, manager or strategy, and this is a model now being employed by the likes of Regal & Magellan. It’s far more defensive, however the issue currently (for all investors) is very few asset classes have been resilient. Normally, bonds/fixed income will do well when equities don’t and vice versa, however in this current sell off, equities are down on growth concerns, bonds are down on changes to interest rate expectations, and private credit is seeing global redemptions, even precious metals have been hit hard.
This will correct itself in time, and we’ll continue to hold PNI through this tough period. If we had no exposure, PNI is a great vehicle to look at when we start to get some improvement in the Middle East, while the AI disruption trade is also a factor. In that regard, we believe the Software Sector is close/at a low, and if that proves the case, PNI would benefit from a recovery there.
Metcash Ltd (MTS) – a wholesale distributor supplying independent retailers (like IGA supermarkets, liquor stores and hardware chains) with groceries, liquor and hardware products, earning margins on distribution rather than retailing directly.
Metcash is seeing reasonable underlying trends in the Food pillar but is facing margin pressure in Hardware and Liquor. Without the housing cycle driving hardware sales growth and margin expansion, the outlook is fairly flat at present.
MTS is now trading on just 10.7x earnings, it’s cheapest level since COVID, on a yield of 6.3% fully franked. There are risks here as rates rise and cost of living pressure bite. In food, MTS’s competitive advantage is convenience rather than price, and is therefore more leveraged than the majors to consumer confidence and employment, while Hardware (their growth engine) is obviously influenced by housing conditions. Higher rates are clearly biting.
In terms of near term catalysts, the obvious one is a de-escalation in the middle east that would see interest rate expectations ease. Then, MTS are an April year end, reporting FY earnings on the 22nd June.
- Distilling this down, MTS under $3 remains good value in our view, and we continue to hold the stock in the Income Portfolio.
