3 ASX growth stocks loved by high-performing managers

If you’ve never heard of Mohnish Pabrai, I suggest you take the time to familiarise yourself.

In addition to being praised in a personal letter from Warren Buffett and having built a net worth of hundreds of millions of dollars, Pabrai’s partnership has reportedly exceeded the returns of the S&P 500 by more than 5% p.a. between 2000 and 2024[1].

What has Pabrai got to do with ASX growth stocks? Well, it’s less about the companies themselves and more about the strategy.

Pabrai is well known for his ‘cloning’ strategy. Simply, he looks at the investment portfolio of successful investors that he respects and uses that as a starting point for his research.

Despite managing over a billion US dollars, he runs his firm essentially like it’s his own portfolio, making the vast majority of investment decisions himself, and employing a minute team to support him. For individual investors managing their own portfolios, his approach may well be of interest. He says:

“When you only basically buy ideas that other great investors have already bought after studying them, the error rate you will have will be a small fraction of what you would have if you went out on the prairie on your own. If you go out on your own and look at 10,000 stocks and pick 10, your error rate will be off the charts. But if you pick 10 out of the 40 that great investors have bought and you have looked into why they bought them, it’s like bowling with bumpers.” – Mohnish Pabrai (emphasis added).

I’ve been lucky enough to speak with dozens of great investors over the last 10 years, and in that time, I’ve learned who to pay attention to when it comes to ASX small caps.

Following the release of the December 2024 fund updates, I took the time to trawl through the reports of 20 fund managers I admire to identify stocks that were widely held among them. These managers all have strong long-term track records, are generally owners in the management company, and usually invest in the funds they run.

Of the 164 unique companies I could identify in the disclosed holdings of these managers, just 12 were held by four or more firms:

Let’s take a look at the top three in this list – IPD Group, Pinnacle Investment Management, and Generation Development Group.

Generation Development Group (ASX:GDG)

Generation Development Group is a diversified financial services company run by none other than Grant Hackett, OAM. It operates two key businesses:

1. Generation Life, which includes:
   a. Investment bonds. A structured financial product that resembles superannuation, minus the preservation rules. Generation Life is the leader in this niche (approx. 50% of industry inflows), and competition is limited by strict regulations.
   b. Annuities. If investment bonds resemble superannuation, annuities resemble a pension – investment bonds enable accumulation, while annuities enable drawdown. Generation Life is a relatively small player in this market, with just $33 million of FUM. For reference, Challenger Life, the market leader, has over $24.8 billion of AUM.
2. Lonsec Group, which includes:
   a. Lonsec Research and Ratings. Provides research and ratings on investment products such as managed funds and superannuation funds (via SuperRatings). Financial advisers and their licensees, along with the managers issuing the products, are the key market for these products.
   b. Lonsec Investment Solutions. Provides managed accounts for end investors via financial advisers. Between June 2020 and September 2024, this division has produced a CAGR of 97% in AUM (off a low base) to reach $11.7m. 

Research and Ratings accounted for 60% of revenues, and 65% of gross profit for Lonsec Group in FY 2024, with Investment Solutions accounting for the remaining 40% and 35%.

While this might seem complex at first glance – and some of the products involved certainly are – all four divisions benefit either directly or indirectly from growth in Australian investment assets, both inside and outside the superannuation system. As Australia’s population ages and the last of the Baby Boomers reach their preservation age, this industry benefits from significant long-term tailwinds.

Hackett was recently appointed CEO of GDG, after being the MD/CEO of Generation Life since 2020. The move follows GDG’s full acquisition of Lonsec, which was completed in August last year. The company previously owned 38.1% of Lonsec, acquiring the remaining shares via a combination of cash and equity that was announced in June 2024.

The combination of mature businesses with market leading positions (Gen Life’s investment bonds and Lonsec’s research), with small, growing businesses in attractive industries (Gen Life’s annuities and Lonsec’s managed accounts), is extremely compelling. Management has proven their ability to turn around what was previously a struggling business and grow it well beyond previous highs.

I feel reasonably confident in the outlook for these underlying businesses.

However, as investors, we also need to consider the price paid. And unfortunately, it seems that many others have already cottoned on to the idea – as you would expect given its popularity amongst fund managers.

If the company missteps in any significant manner, it could be punished heavily by the market.

On top of that, Generation Development Group is positioned to benefit from Labor’s proposed changes to superannuation laws, but unfortunately for GDG, these changes seem unlikely to pass in their current form.

At the current share price of $4.47, Generation Development Group trades at around 42 times the median of analyst estimates for FY 2026 (per Morningstar). It generated free cash flow of almost $20m in FY 2024 and had net cash over $167m at the end of that year. It recently reported that December 2024 funds under management were up 31% on the same time last year.

This is one to keep on the watchlist, but given the current valuation, I won’t be buying it at this stage.

Disclosure: Claude Walker, who edited this article, does own shares in Generation Development Group.

Pinnacle Investment Management Group (ASX:PNI)

I’ve been a fan of both the business model and the management team at Pinnacle for a long time. Back in 2021, I interviewed founder and managing director, Ian Macoun, for Livewire Markets. The stock had just had a strong run, rallying ~150% in the prior 12 months, but despite a dip in the share price in the years that followed, it’s doubled again since that article was published. Coincidentally, the stock is up ~150% in the past 12 months again as I write this.

Pinnacle operates a ‘multi-affiliate investment management firm’. Essentially, they provide capital and services to boutique investment managers, while taking a minority stake in their business. Great investors are rarely great marketers or salespeople, so Pinnacle takes on this responsibility, allowing the managers to focus on what they do best – investing. Pinnacle also invests in the funds of its affiliates via its Principal Investments, which had a carrying value of $153.7m at 30 June 2024.

One of the keys to Pinnacle’s success has been the performance of its affiliates. Of the affiliates’ strategies with a track record of five years or longer, 85% outperformed their benchmark in the five years to 30 September 2024. Since Pinnacle separated from Wilson Group in 2016, only two of its affiliates have ceased operations, and both were integrated into another Pinnacle affiliate.

In recent years, the company has focused on diversifying its FUM across asset classes, geographies, and markets. The FUM – which now exceeds $100b – covers Australian and global equities, as well as real assets and credit across both public and private markets.

Flows from international distribution have also picked up, with 70% of net flows coming from outside Australia in FY 2024. Pinnacle stepped up its investments in this area in FY 2025 with a capital raising in November for two new investments in the US and UK. The management of both these new investee firms retained their existing shareholding, ensuring no loss of ‘skin in the game’.

At the current share price of about $25, Pinnacle trades on about 34 times median analyst estimates for FY 2026 (per Morningstar). It generated over $73m in free cash flow (excluding investments in affiliates) in FY 2024, so I am not concerned by its net debt of around $68m. With average earnings growth over 20% in the last 5 years, Pinnacle could grow into its valuation over time but does not seem particularly cheap to me.

I’m not ready to buy Pinnacle shares, but I’m watching for future opportunities, should Mr Market offer the stock at a more palatable price.

IPD Group (ASX:IPG)

Unlike the previously discussed companies, IPG has not come onto my radar previously. The company listed on the ASX in December 2021 with a market capitalisation of around $100m after raising $40m, which was split 50/50 between capital for new investment, and partially buying out existing shareholders.

The company’s revenue comes primarily from the distribution of electrical infrastructure products. Its biggest markets are commercial construction, infrastructure, mining, data centres, water, and power utilities. Together, these segments cover almost 90% of their revenue. It also operates a services division, though this accounted for just 7% of revenue in FY 2024.

According to the Australian Energy Market Operator (AEMO), Australia’s energy consumption is expected to nearly double by 2050. Over this timeframe, rooftop solar is expected to increase 4-fold, with grid-scale wind and solar expected to increase 6-fold, and storage capacity expected to increase by a factor 16.

AEMO estimates that $122b needs to be invested in essential electrical infrastructure annually between now and 2050. Their Integrated System Plan 2024 identified $16b in near-term projects just for electricity transmission[2].

43% of IPD’s FY 2024 revenues came from power distribution – by far its largest product type.

Increasing demand for data centres represents another key avenue for growth. Australian data centre capacity is forecast to grow from 1,350MW in 2024, to 3,100MW in 2030, requiring significant investment in infrastructure[3].

However, management recently provided disappointing earnings guidance for the first half of FY 2025, resulting in a significant sell-off in the shares. While some investors dumped the stock, I sense an opportunity.

While guidance is higher than the corresponding 2024 result, it implies declining organic earnings once two recent acquisitions are accounted for. Management pointed to ‘macroeconomic challenges’ in commercial construction as the driver for the lower earnings. Given the cyclicality of commercial construction, these would appear to be short-term issues.

Interestingly, one director spent almost $3.8m purchasing shares at just under $3.80, after the sell-off. The company said this transaction:

“demonstrates his strong confidence in the Company’s future prospects and his commitment to the Company.”

With fund managers QVG Capital, Greencape Capital, MA Financial Group, and Platypus Asset Management all disclosing significant positions (over 5% of issued capital) in late 2024, it seems that plenty of smart investors also believe IPD Group has strong future prospects.

At the current share price of $3.84, IPD Group trades at around 13 times the median analyst forecast for FY 2026. It had net debt of $8.8m at the end of FY 2024, but this is not a concern given it generated over $17m in free cash flow last year.

While I don’t currently hold a position in IPD Group (ASX: IPG), I intend to buy shares at least two days following the publication of this article. Claude Walker, who edited this article, already purchased shares late last year for reasons disclosed at the time. Data sourced from Morningstar and author’s own research. Data as at market close, 31 January 2025.  

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Sources:

1. Mohnish Pabrai’s Guest Lecture at University of Nebraska, Omaha.
2. AEMO, ISP 2024.
3. ITBrief, Australia’s data centre investment to exceed $26bn by 2030.