Pacific Current Group is a multi-boutique asset management firm with investments in 17 managers globally with a combined FUM of $52.3 billion* at September 2016. It was formed via the merger of Australian-based and ASX listed Treasury Group and US based Northern Lights Capital Group. Whilst both Treasury Group and Northern Lights have had a strong history of making solid, profitable investments, some recent investment managers have underperformed, resulting in large FUM losses which has reduced the value of the underlying businesses, and impacted both the earnings and the share price performance of PAC.

More recently however, the board and management have taken steps to reduce costs significantly at the corporate level, optimise the portfolio via divesting underperforming boutiques, and then recycle that capital into alternative strategies which are more relevant to today’s investors, including those that focus on after-tax returns, smart beta & ESG. From an earnings perspective, the profits of these strategies are also less correlated to traditional market movements, FUM and Flows. Having said that, recent FUM performance across the group has improved with $1.5 billion* of net inflows across the September 2016 quarter alone.

Another positive near term catalyst relates to the work being undertaken to simplify the structure of the Trust within which the boutiques investments are held. This will not only reduce balance sheet liabilities relating to future conversion of unlisted unit holders to PAC shares, but also provide the equity market a much cleaner look through value. We believe that once this occurs PAC will begin to track towards its fundamental, sum-of-the-parts which remains well above the current share price.

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