Neilson Softens on Japan

Kerr Neilson is in the rare position of not really wanting your money. His Sydney-based Platinum Asset Management operation is quite busy enough already finding opportunities around the world for $18.5 billion '” an amount that is growing fast enough just from successful investment.

If you insist on going to the Platinum website, downloading a prospectus and sending him a cheque, he won’t knock it back but he doesn’t really want you to. And as for his listed investment company, Platinum Capital, he really can’t understand why anyone would buy it when it’s trading at a significant premium to net tangible asset (NTA) backing and has a potentially higher fee structure than the unit trusts. Platinum Capital’s NTA was $1.73 at the end of last month but it closed on the market yesterday at $2.13.

That premium is an indication of the market’s regard for the Platinum team’s skill '” and perhaps of some investors’ inability to work out the cheapest way to get what they want. Neilson’s track record since he left Bankers Trust in its prime to set up Platinum leaves him unchallenged as the leading Australian international funds manager.

In today’s video interview and in the considerably longer audio interview (and transcript on Monday), he gives Eureka Report insights into how the investment success is achieved and what he thinks are the best investment plays coming up next.

Neilson spoke to us just after returning from one of his regular trips to Japan, the biggest single investment market for Platinum with 30% of total funds employed there. Platinum has recently attracted some unusual negative headlines for being caught with a hefty investment in Livedoor, the disgraced Japanese dot-com, but Platinum is holding its Livedoor shares. You can hear why in the audio interview, along with a not-so-obvious aspect of the Livedoor scandal.

Platinum’s Japan play has been very successful, riding a strong bull market but Neilson, being a contrarian, is now lightening Platinum's exposure. Platinum is pulling back even though the Nikkei may have further to run as Japanese domestic investors are starting to pour back into a market that received its initial shove from foreign investors.

Despite Platinum’s international specialisation, Neilson doesn’t automatically push the invest-overseas barrow. He believes private investors should stick to whatever area in which they think they might have particular expertise or an edge over the rest of the market.

What should be left alone though are the rash of private equity and hedge funds that he sees as playing an unsustainable game of one-more-sucker. He identifies the tendency of individual investors to get caught up in momentum investing as their single biggest mistake.

So what is good then, what is unfashionable? Paper is identified as just about the only commodity that hasn’t rallied and there may be opportunities in agriculture, both from food demand and as a result of alternative fuels. Korea is a offering good investment opportunities, but emerging markets in general are less attractive as the need for an appropriate risk premium is being ignored.

The investment lessons are many in this interview, but please don’t feel too encouraged by them to invest in Platinum’s funds '” Kerr Neilson is quite happy if you don’t.