The Pinnacle Investment Management Group Ltd (ASX: PNI) share price is unmoved today while the company raises $105 million to fund the purchase of a 25% stake in Five V Capital.
Five V Capital is an Australian based private equity firm focused on high-growth small to medium-sized businesses.
Pinnacle’s purchase of Five V will be its first expansion into private equity, with its existing 14 affiliates primarily concentrated in public markets.
PNI share price
Pinnacle expands into private equity
Pinnacle will use $75 million of the $105 million capital raising to purchase a 25% stake in Five V capital.
The purchase will be paid upfront, however, $10 million is subject to future fundraising milestones.
Five V provides Pinnacle exposure to $1.1 billion in funds under management across Fund III, Fund IV, VC Fund 1 and future funds.
Pinnacle will be able to assist Five V’s in its growth by providing access to its distribution network.
While Pinnacle won’t have exposure to Fund I and Fund II – which have returned 10.3x and 4.4x respectively – it’s a positive sign of what is to come.
Commenting on the acquisition, Pinnacle Managing Director Ian Macoun said:
“The investment announced today is consistent with Pinnacle’s strategy of diversifying into higher growth alternative asset classes such as private equity; and demonstrates the attractiveness of Pinnacle as a trusted partner to fund managers across all asset classes”
None of the $75 million will go to selling Five V shareholders. Instead, funds will be used to support co-investment in funds and business development.
However, current Pinnacle Executive director Adrian Whittingham will sell 875,000 shares worth $14.6 million in conjunction with the capital raising.
Nitty-gritty
Pinnacle will raise a total of $105 million at a placement price of $16.70.
As previously mentioned, $75 million will go toward the Five V purchase while the remaining $30 million will go towards beefing up its balance sheet.
Current retail shareholders will be able to participate in a share purchase plan of up to $30,000.
Growth momentum continues
In addition to announcing the Five V purchase and subsequent capital raising, Pinnacle provided a trading update.
Its affiliates recorded an increase in funds under management (FUM) of 1.7% to $90.9 billion.
Affiliates recorded net inflows in retail FUM of $2.0 billion. However, this was offset by the loss of a $3.9 billion passive client, which had previously been flagged in August.
Pinnacle expects FY22 FUM growth of more than 30% compared to the average FY21 FUM.
My take
It looks like a great acquisition by Pinnacle.
Private market investing has been gathering plenty of interest recently given the rapid rise of public equity markets over the past 18 months.
Zooming out over a longer time horizon, private capital FUM has grown 13.4% per annum for the past 20 years.
Five V will also help Pinnacle diversify its exposure, which is a common issue for listed fund managers.
If markets fall, the underlying investments also go down, leading to lower FUM and a drop in share price.
Private markets aren’t marked-to-market each day, therefore movements in FUM occur less frequently, but are of greater magnitude.
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