The Pinnacle Investment Management Group Ltd (ASX: PNI) share price has risen in response to the company’s HY24 update.
Pinnacle helps investment professionals start their own funds management business, it takes a stake in that business (called an affiliate) and helps with various back-office tasks such as legal and compliance.
Strong performance fees
The company advised that nine of its affiliates have ‘crystallised’ performance fees for the six months to 31 December 2023, totalling approximately $41.9 million at 100% gross in aggregate.
Pinnacle isn’t entitled to all of those performance fees, its net share after tax payable by the affiliates on this revenue is $12.3 million, compared to $0.9 million in the prior corresponding period. This may be what’s driving the Pinnacle share price higher.
The company revealed there are now 25 strategies with the potential to produce “significant” performance fees each year, and 18 of those had the potential to crystallise in the first half. Of those 18, 13 “delivered” in the first half of FY24. In the second half, all 25 strategies have the potential to crystallise performance fees.
However, nine strategies are below their ‘high water mark’. In other words, if the fund value falls (like we saw in 2022 and 2023), then the fund needs to recover back to that former peak before it can start earning performance fees again.
Other commentary
Its principal investments contribution for the financials were $3.7 million, with $3.6 million of that being dividends and distributions, and another $0.1 million of fair value gains on financial assets at fair value through the profit statement. This relates to money invested in Pinnacle affiliate funds.
During the first half of FY24, digital wealth platform OpenInvest undertook a funding round (which Pinnacle did not participate in) and it has recognised/changed the value of its investment on its balance sheet, which represented a write-down of $3.4 million – Pinnacle’s valuation is now $240,000.
Overall, the positive of the performance fees is offset by the reduction of the value of OpenInvest, lower principal investments, higher interest costs and higher employee costs.
Final thoughts on the Pinnacle share price
With share markets recovering, it seems Pinnacle has a promising outlook. It has rallied in the last few months, but it may keep rising if it continues to attract funds under management (FUM). I’d call it a buy at this stage while it’s in a recovery phase.
