U.S. Markets closed

Edited Transcript of MFG.AX earnings conference call or presentation 13-Aug-19 1:30am GMT

Full Year 2019 Magellan Financial Group Ltd Earnings Call

, Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Magellan Financial Group Ltd earnings conference call or presentation Tuesday, August 13, 2019 at 1:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brett Peter Cairns

Magellan Financial Group Limited - CEO, MD & Executive Director

* Hamish Macquarie Douglass

Magellan Financial Group Limited - Chairman & CIO

* Kirsten Morton

Magellan Financial Group Limited - CFO

* Sarah Thorne

Magellan Financial Group Limited - IR

================================================================================

Conference Call Participants

================================================================================

* Andrei Stadnik

Morgan Stanley, Research Division - VP

* Brendan Carrig

Macquarie Research - Research Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Nicholas McGarrigle

Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Sarah Thorne, Magellan Financial Group Limited - IR [1]

--------------------------------------------------------------------------------

Good morning. On behalf of the company, welcome to Magellan Financial Group Results Presentation for the Year Ended 30 June 2019. I'm Sarah Thorne, and I manage the Investor Relations function at Magellan. The company's results will be presented today by Brett Cairns, Magellan's CEO; Kirsten Morton, Magellan's CFO; and Hamish Douglass, Magellan's Chairman and Chief Investment Officer.

Please note that there will be a Q&A session at the end of the presentation, so we would appreciate if you could please hold your questions over until that time. Due to legal restrictions, we are unable to discuss the process, logistics or details around the placement other than the basic terms referred to in the announcement. We will be unable to respond to questions regarding the process of the placement.

For those of you joining us by teleconference, you will be placed on mute until the Q&A session. The teleconference administrator will advise you at the end of the presentation how you may ask a question. Additionally, some of you may be joining via our live audio webinar; note you can submit your questions on the screen.

Please note that today's presentation is being recorded, and an audio replay will be made available on Magellan's website. We may also have media in attendance today.

And thank you. I would like to welcome Brett to walk you through the presentation.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [2]

--------------------------------------------------------------------------------

Well, thank you, Sarah, and welcome, everyone, and welcome to everyone online and on the teleconference. It's a great pleasure to present the results for Magellan for this year. It's been, we believe, a very successful year with net profit -- excuse me while I take this up -- with net profit up 78% to just under $377 million. Adjusted net profit grew by 35% to just over $364 million. I will spend a bit of time, I think, at the February results and also on annual report discussing those adjustments.

We think that both measures are important in this. In a comparative sense, the adjusted measures, which I'll let Kirsten talk to in a moment, does provide some useful information. But irrespective of which some measures you look at, obviously, those 2 growth numbers have been driven by strong growth in our average funds under management, which was up 28% to just over -- just under $76 billion. That in turn drove management and service fees up 22% to $472.5 million. That of course, includes performance fees, which is -- we've made the point many times, are lumpy and do vary from period-to-period, although not this year, as it turned out. There's one metric we do encourage people to think through is profit before tax of the Funds Management segment of our business before performance fees, which was up 29%, as you can see there, to just over $376 million.

And indeed, from that Funds Management segment where we paid the dividends, the dividends for the 6 months were $1.114 per share, of which about $0.334 was attributed to the performance fees. Took total dividends for 2019 to $1.852 per share, which was up 38% from the previous year. Underpinning all that, which I'll get to when I come back and talk, is the strong performance of our global equity and global infrastructure strategies in what are challenging and -- but in my view, very interesting market conditions at the moment.

So what I like to do for the rest of this presentation is to hand over to Kirsten, who is going to run through some of the financials in a bit more detail. I'll come back and talk about some of the business overview. Hamish then would like to talk about some of the strategy, particularly on the partnership. He is going to talk about the share placement as we've heard without saying much. And then we can take some Q&A.

So I'll hand it over to Kirsten.

--------------------------------------------------------------------------------

Kirsten Morton, Magellan Financial Group Limited - CFO [3]

--------------------------------------------------------------------------------

Thanks, Brett, and good morning, ladies and gentlemen. We're very pleased to report the group's net profit after tax for 2019 is up to -- up 78%. So let me just get this right too. All right. Here we go. So we're very pleased to report that the group's net profit after tax for 2019 is up 78% to $376.9 million. And as Brett commented as well, our adjusted net profit after tax is also up 35% to $364.2 million. And I'll just step through shortly those revenue and expense adjustments.

But in looking more closely at the drivers of our results, adjusted revenue is up 28% to $577.3 million, which as you can see on the slide, is really driven by 2 main factors. That first factor being strong growth in the management and services fees. The 22% increase is broadly in line, as Brett indicated, with an increase in our average funds under management, which grew 28% for the year to $75.8 billion. And Brett's going to talk a little bit more detail on the funds under management, generally, later. The second factor is the crystallized performance fees, which were up 110% to $83.6 million.

The other revenue basically comprises advisory fees from our U.S. distribution business, Frontier; some interest on our cash balances; and distribution and dividend income from Principal Investments portfolio. The slight decrease is due to lower distribution income from some funds year-on-year. So it's a strong result from a revenue viewpoint.

Now turning to expenses. Adjusted expenses have only modestly increased by 3% to $104 million. And overall, expenses are slightly lower than our 2019 expense guidance of $105 million. And I'll talk a little bit more on some of the key expense movements when we cover the Funds Management business results.

I'd like to turn to the 3 adjustments made to the reported net profits to actually derive the adjusted net profit after tax of $364.2 million. And as you'll see on the slide, and sorry, I won't do it in any necessarily order, but the amortization expense on -- of $4.5 million arises on the intangibles from acquiring our Airlie and Frontier businesses last year. And we exclude that expense from adjusted expenses as it's a noncash item. We've also got some unrealized gains which are net of tax from our Principal Investments portfolio of 21 -- $28.1 million. These are required to be recognized in the P&L as required by the accounting standards. But they are very -- they are unrealized and they are lumpy and they have the potential to distort year-on-year comparisons, so again, we have excluded those from adjusted revenues.

And finally, we have costs from the group's strategic initiatives. And in 2019, after tax, those costs were $10.9 million and they've been incurred in 2019 on the Magellan Global Trust unit purchase plan and the 5% discount on the dividend -- the distribution reinvestment plan. We view these costs as investments, not part of our day-to-day operating expenses, and therefore, we exclude those costs from adjusted expenses.

So in theory, by adjusting those amounts, we feel that, that provides more meaningful information to best understand the operating performance of our business and also from period-to-period.

Reported earnings per share was $2.131, and that's up 75% from the prior year. The increase reflects the growth in the profitability of the group. Although it's at a slightly slower pace due to the increased number of shares are issued during the year. Excluding the 3 adjustments that I just walked through, the adjusted earnings per share is up 33% to $2.059 per share.

Now in turning to the results of our operating businesses, the Funds Management business remains our core business and is the key driver of our group's profitability. As I covered earlier, our revenues have been driven by the strong growth in management and performance fees this year. The Funds Management expenses have modestly increased by 4% to $101.5 million, and that was mainly driven by a 21% increase in our employee costs to 60 -- $62.8 million, along with some slightly higher fund administration costs in line with higher FUM and higher information services expenses, which is namely from research services and also some annualization of the Airlie costs. These expenses were offset by a reduction in marketing costs, reflecting the group's decision to withdraw from the Cricket Australia partnership in '18 and also the cessation of the U.S. marketing and consulting fees following our acquisition of the Frontier Group in 2018.

Our Funds Management business continues to deliver a very attractive cost-to-income ratio, which, excluding performance fees, was 21.3% in 2019. And it's actually improved since last year and that just really reflects the scalability of our business and also our focus on operational efficiency. Overall, the funds management business has reported a 39% increase in net profit before tax to $459.8 million and after adjusting for performance fees, the increase in profit before tax increased 29%.

Moving on to tax and dividends. The group's effective tax rate for the 2019 year is 23.6%. Whilst that's higher than last year, it's really just a function of the group's increased profitability, offset by some of the benefits of our offshore banking unit license, which is the driver for the group's effective tax rate below 30%.

And finally, as mentioned earlier, the Board has declared a dividend of $1.114 for the 6 months to June and that comprises our final dividend of $0.78 and a performance fee dividend for the year ended 30 June of $0.334, and those dividends will be franked at 75%. That brings total dividend to $1.852 per share, which is up 38% compared to last year. And the increase in the dividend reflects, again, a higher performance fees earned this year as well as our solid profitability.

Our dividend policy remains unchanged, which is to pay out 90% to 95% of the net profit of our funds management business, excluding the performance fees and -- along with an annual performance fee dividend of 90% to 95% of the net crystallized performance fees after tax.

And with that, I'll hand back to Brett.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [4]

--------------------------------------------------------------------------------

Thanks, Kirsten. What I'd like to do now is just sort of step through the drivers, if you like, and some of the underpinnings on the revenue side of the equation, of which clearly the funds under management is the key driver of revenue. As you can see here, this shows the growth in funds under management over the last 3 years. And one of the key drivers, of course, is the average funds under management across each year. As you can see, the increases, although the percentages is not on that chart, but the increases are roughly close to 30% in each year. Our FUM at the end of July, just to put that in context, is -- was $89.7 billion, which obviously is meaningfully above that $75.8 billion, which was the average over the last financial year.

What the bright end of our FUM shows is the change of the mix that's occurred over the last couple of years, notably with the introduction of Airlie and the Australian equities, but I would also note that the Funds Management -- funds under management for the global infrastructure has also increased as a percentage, notwithstanding the introduction of Airlie, and it does reflect the very strong interest that we've seen in the global infrastructure business. The change in the mix has driven the small reduction -- or the relatively small reduction in the average base management fee from 65 to 62 basis points. That's a mix reduction. It does not reflect a reduction in the fees across our general -- our global equities or global infrastructure. There's been no change in our fee structure on that.

And as you can see at the bottom of that the table, about 1/3 of our FUM is subject to performance fees. That tends to be dominated by our FUMs, particularly in the retail sector, although there is meaningful performance fees in some of our mandates with our institutional clients. The mix and the nature of those performance fees are not quite generic across each of those. Some of them are quite structured a little bit differently, different hurdles, so it is a little bit hard to sort of make a generic statement across those. And as we've spoken about previously, it will turn up in different periods and are quite lumpy, so we caution people to not extrapolate performance fees too far into the future. But we do think they'd be able over time. I think I wrote in the Chairman's letter a year or 2 ago and gave some analysis on how they turn up. So it doesn't detract from their value, but they do and can distort some comparative analysis from period-to-period.

Of course, underpinning our funds under management is our investment performance. And this table shows our investment performance across our strategies, global equities, the infrastructure, the High Conviction, which obviously we made an announcement about, the launch of a High Conviction Trust today, which I'll talk about in a moment, and also Airlie. As you can see, the Global Equities and Global Infrastructure, relative to their benchmarks, are ahead across all periods, which is very important. What's not shown in that slide, of course, is the downside capture. This is really the upside part of the equation. The downside capture, which Hamish and his team focus very much on and Gerald as well in the infrastructure business, has been very, very good. And indeed, we think it's a very strong part of what the offer of Magellan's investment performance delivers.

Airlie, as you can see at the bottom, they had a relatively tough year. It is early days with Airlie. It's a concentrated index-agnostic approach to the fund. It is a tough index, I must say. The Australian 200, it is very dominated by a few stocks at the top end of that. We have a great deal of respect for John and Matt, who are in the room today. They are a very safe pair of hands, and we are early days on that, and we expect over time that fund to grow and attract investors.

The flows of funds under management across the year, this table shows it over the last 5 years. On the left-hand side is the institutional flows. Hamish's strategy has been closed to institutions now for a couple of years, I think, Hamish? Bit more. But of course, as we've noted, there is reserve capacity which has been drawn on selectively over that time that's contributed to those flows. The infrastructure strategy has also seen some very meaningful interest from institutions, which is pleasing. And I would note that our sustainable strategies, which are building a track record and they're coming up on their 3-year track record, notably the global strategy run by Dom, is coming up on its 3-year strategy. We are seeing some increased interest. They're not reflected in these numbers necessarily in a meaningful way, but we are now starting to see some increased interest and indeed some detailed discussions around that Dom's strategies evolving the UCITS fund, and we're indeed looking to see the U.S. mutual fund in the short term for that strategy.

On the retail side of the equation, those flows include the IPO of Magellan Global Trust last year in 2018 and also the UPP that we undertook this year. The UPP was, we thought, a very successful undertaking. That was a 50% take-up, which was extremely strong. In that we rose $277 million. And indeed, Hamish is going to talk in some detail around the partnership approach that we've sort of written about. That UPP had a 5% discount attached to it, which MFG funded as part of that partnership, which is also attached to the DRP within that.

When we think about the retail side of this equation, of course, and indeed the institutional side, it does really reflect the hierarchy of decision making. In many ways on the institutional side of things, of course, there are less decision makers attracting each dollar of FUM. And as you work your way through the retail side of it as well, of course, various advisers have different groups, some are aligned, some are in model portfolios, and it does start to work its way down obviously through to more self-directed, which I'll talk about in a moment. In the advice side of it, the global equities strategy is somewhat mature in the advice part. We are represented in many of the model portfolios, not to say there's more work to be -- can't be done there, but we are somewhat mature in that. We have been seeing, however, great flows retail -- from retail from across the board in global infrastructure, and you can see that in the listed active ETF niche, so you can see the flows of that has been -- have been quite strong.

The -- it's interesting in the adviser side of this equation, of course, as what we've seen over the last sort of while is that, that itself notwithstanding the aggregation points in that are starting to fragment to some degree. The number of advisers leaving some of the aligned institutions and number of institutions leaving the advisers, I should say, is [other around] does increase the barriers to entry somewhat. It does make it harder to get across that network of advisers. We are very well set up to do that. That is our bread and butter. We have a strong distribution team. We have good data in that regard, and we're actually getting better at that, in my opinion. We're very well positioned to play into that changing mix. Whilst we may be somewhat mature in the global equity space for the adviser part, of course, we are not in the self-directed. They are very underweight in aggregate around global equities, and there is still a very great need for diversification in that. And you can see that some of those flows through our listed product, which I'll come to now.

So if you look at our listed product, and this is a chart of our listed unitholder growth since a little over 4 years ago, where we started from effectively nothing. We now have a bit over $4.2 billion in listed funds under management. And we're pushing on towards 70,000 unitholders. This is a very useful platform that's been developed, and we continue to invest in. We see this is a very important part of Magellan going forward. And indeed, the High Conviction Trust, which we announced this morning, has no broker panel. We're looking to leverage this existing unitholder base and that network to undertake that offering, which Hamish will talk about in a moment. We are spending more money and increasing our communication and our activity around the listed and implied self-directed space within that. We had some of our expenses, which I'll talk about in a moment, having directed to increased events. You may have seen the In Review magazine, which is over there on the way out if you like to grab one, which has had great -- we have received very good feedback on that.

These growth in unitholders, the big jump, of course, is, when we did MGG. The steady growth around that comes from our active ETFs. Of course, you would have read in the press that ASIC has now put a pause on new issuance of active ETFs, so it doesn't affect existing ETFs. In our view, and these charts, I think, show this, one of the reasons that we spent a lot of time with ASIC, 4, 5 years ago when we developed this, was we thought there was and we do believe there still is a clear need and a clear benefit to allow the intellectual property of the funds management industry to be available on exchange, in addition, obviously, to what is very valuable index to our product. We, obviously, support ASIC's review of this as these markets filled out and more investment managers are looking to utilize this active ETF structure time sensibly. I think that this clearly regulatory regime makes sense that we're going to work within. ASIC taking some time to review that, which is obviously sensible. I think we support that. We're working with ASIC, and we look forward to seeing where that review goes.

From an institutional client perspective, this is a chart we show many times. We're very diversified across institutions. There is something over 140 of them. You can see the breakdown of the top 5 and top 10 institutions that contribute to our management and services fee. The large bar on the left is St. James’s Place. I must say that's a wonderful relationship. It's a very, very solid relationship. They have a very, very good business, and we're part of that. We continue to see very meaningful flows from St. James’s Place, and we look forward to continuing that relationship in the future.

So turning from the revenue drivers to the expenses, Kirsten touched on the way that we at least think about expenses. From a strategic initiative point of view, we don't put those in the Funds Management business. We would like to focus on what the day-to-day operating expenses are within that business, and therefore, it's excluded in the way we think about it. From the dividend payout ratio, if you look at our expenses within the funds management business, it's, of course, dominated by our employee staff or as though, one of our directors pointed out, it's only second to what we pay to the government in tax. So leaving the tax aside, our expenses are dominated by people.

Look, the business itself is highly scalable and our organic, really, growth now will reflect that. There'll be modest increases in headcounts over time. But our -- various parts of our business do reach sort of constraints at different points in time. So there won't be even increases in our headcount going forward. They may come in little bursts and then we may have periods where there's nothing. However, we do see that being modest over time. Some of our expenses, just for clarity, do vary with -- are a function of funds under management, foreign exchange moves, and they often reflect changes in revenue as well. Others are a bit more driven by unitholder activity. You think about statement mailings and those sorts of activities, we need to obviously cover those expenses. So some are variable along with revenue, some not so much, some are obviously fixed as well, but there's a great scalability in this business.

As we've put in the annual report, we expect the Funds Management segment expenses this year for 2020 to be in the range of $115 million to $120 million. That reflects a budgeting process. It does reflect some anticipated new hires around some of the scalability issues I was just talking about. It is some hires that have been held over from last year. It reflects, obviously, where some of our estimates are on some unitholder activities, foreign exchange and those sorts of things.

But one of the things I'd like to point out, most obviously, we're very focused on expenses, and we still don't have biscuits here, which is a good thing. We do have Kit Kats, but no biscuits, that's right. We are clearly very focused on our expenses. But with a 20 -- a low 20% cost-to-income ratio, it's not expenses that drive profitability, obviously. It's the movement in our revenue, which is driven by our funds under management. I did put in the annual report, and you can quickly do the math, $5 million moving our expenses up, let's say, is roughly the equivalent of a 1% move down in our FUM annualized in our revenue, which just happened last night, and it does move around. So it's really the FUM that drives the profitability.

Just turning to sort of growth areas that we see going forward. Obviously, I've just spoken about the sustainable strategies. They are coming up on their 3-year track record. They are meaningfully above their benchmarks, which is very, very important. As I said, we are seeing some strong interest now, and some detailed discussions are starting to emerge. Infrastructure, we've seen solid interest across retail and also institutional. This is a great track -- long-term track record. It is a unique definition amongst those offerings with a remaining capacity of about another USD 6 billion.

The self-directed, which I've touched on, we can -- there is a continued emphasis there. The High Conviction Trust, which we announced today, which Hamish will touch on in a moment, and the partnership that we're looking to develop with investors and investing over time, we think there's great scope in this area. And indeed, it does build layers of resilience to our business as well as we diversify our client base across that self-directed and greater retail business.

Airlie, as I said, I think we are in early days. We've got great respect for John and his team. They are a great self -- safe pair of hands. We're patiently going to build that retail offering out, and indeed, there's more scope on the institutional side with Airlie as well.

On retirement income, which I know lot of people are very interested about, look, we've spent a great deal of time working on this. There is a clear need, we think, for a differentiated post-retirement income solution. There are, obviously, more people retiring and those numbers are growing, and there are clear limited choices, we believe, within that. Low interest rates, obviously, exacerbate that problem. We are working on a solution. We do think we have got some very interesting solution around this that are based around our core skills and what we do. I must say, and I want to make this very clear, this is not going to be an annuity product. And there are some, I think, misunderstandings that this is going to be a capital-intensive product; it will not be. We are not in the capital-intensive business. We will put some money towards this as we have done with MGE. We're thinking something like a contribution of $50 million on that, which as I said, is very similar to the amount that if people look at it, we seeded MGE with when we first got that going. But I must caution here, we're still not done on this. This is a difficult and complicated area, although the solution, I think, that we're presenting is a quite simple way to think about this problem. But there's regulatory, there's tax and all these sorts of issues that we need to make sure that we've got right and that we've got efficiently structured and that's -- we're working on that, but we're not done yet. We're hopeful and still remain confident that we'll get something sorted within the next 6 to 12 months, but many of these decisions and these discussions are out of our hands to some degree. So we are working with a number of players on all that.

And then lastly, we do have a number which we're not going to detail here, but another early -- a number of other early seedings with different strategies that we are considering, and they are underway.

So with that, let me hand over to Hamish, who's going to try and not talk about the placement and talk about our partnership's approach.

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [5]

--------------------------------------------------------------------------------

Well, thank you, Kirsten, and thank you, Brett, and thank you for everyone who has come here today and who has joined us on the line. I do want to speak about our partnership approach, and this is critical to where we are at Magellan and how we see the future of what we can do. And I really want people to get and understand the potential scale of what we are thinking here. In my view, it is quite a game changer for how we're thinking about the future of Magellan's business. In our view, the partnering with our clients who invest particularly in our closed-end funds is very important to creating enduring long-term shareholder value.

The partnership concept is a very critical concept because in a partnership both sides of the partnership, both participants, have to benefit. So we want to give people who participate and partner with us real financial benefits of coming with Magellan. So people who went into the Magellan Global Trust originally got a loyalty unit of 6.25%. They then participated in the DRP at a 5% discount. They participated in the UPP at a 5% discount, and they've just been offered an opportunity to participate in a new trust raising at a 7.5% discount. Effectively, they'll be given loyalty units. So a whole series of benefits being given to people who come into the structures with us.

On the other side of this, of course, we believe that we get a very attractive financial return on those investments. And the clients, in our view, is by partnering with them and giving them a great experience, it's going to increase engagement, it's going to increase loyalty of those shareholders, and we think because people will start to understand that if you're in the club, you'll get benefits, it may well attract more investors to come into the club over time, and we're actually creating a platform of scale that we can leverage.

We think this is truly a win-win outcome for both our investors and for Magellan. And we see now after we have tested this with the Magellan Global Trust and the follow-on offering with the unit purchase plan and our offering now of the Magellan High Conviction Trust, we see that there is a very substantial opportunity to do much bigger things in the future. And I quoted and I was very deliberate about it, we have only scratched the tip of an iceberg here. We have raised so far $2.2 billion in the Magellan Global Trust. We're doing another raising, which we don't know how much we'll raise because we're not using a broker syndicate, and I'll talk about that. But we have the opportunity to more funds, more follow-on offerings out of those funds and do other things that we think we're about to do that may not even be apparent to people at the moment under this partnership approach.

Closed-end funds of themselves actually, of course, build the resilience of our business over time, but they also provide us optionality in our business, I don't want to quite go through, but there I think you will see over time what we mean by optionality there. And what they also do here is we're building a very large direct investor base. We have come from absolutely scratch. We have now got 63,000 investors in our listed funds from 2 years ago at 0. If you add the 21,000 unitholders we now have in MFG, we've got 84,000 direct investors. Sitting behind platforms and clients of advisers, we've probably got another 0.5 million clients. But we have now got 84,000 clients, and we can now reach out and communicate and talk to those clients directly. We would like to get many hundreds of thousands of direct investors.

We have just mailed out, I think, 55,000 magazines to those direct investors. I think we've printed 65,000 of those that Kirsten kind of -- she just went on, say those numbers. We'll be doing an investor road show in February next year. We have booked capacity for 15,000 people to come today. And again, I think that is the tip of the iceberg of what we could do. I'm not sure there's a group outside of Magellan who'll be able to confidently think they can fill 15,000 seats to come in here, talk to their investment matters. It's not exactly an Adele concert they're coming. They come -- so we'll have to entertain them in some ways, and they'll get something out of it at the end of the day.

So if we look at the one side of our partnership and that's the benefits we offer to our investors, MGG's, the Magellan Global Trust, we gave 6.25% and then we have 2 follow-ons, a DRP and a UPP at a 5% discount. We pay all of that. We have now spent $97 million on those benefits to the Magellan Global Trust. They're pretax numbers. When you looked at the Magellan Global Trust unit purchase plan, just how attractive a unit purchase plan at a 5% discount, people don't offer discounts anymore because they're dilutive to unitholders. The only way you overcome the dilution is someone else writing the check, and that happens to be us. So we write the check. There was a 50% take-up in that UPP, and it rose $277 million.

Imagine if we have a whole series of these vehicles with many, many more unitholders sitting there of the scale of what we could -- of what we do. And of course, we're launching our second closed-end vehicle, which I'll talk about, the Magellan High Conviction Trust, and we're doing it without a broker syndicate. We're not paying any fees to anyone. That's a bit of a conflicted remuneration, but it's also to demonstrate the power of the direct platform that we're building up here at Magellan.

If you then look at our side of the equation, the shareholder side of this equation, why are we paying so far $97 million? So obviously, it will be materially higher than that after we do the Magellan High Conviction Trust. Why are we outlining that quantity of money? Where we probably could raise funds under management without paying any money away at all? And the reason is because we think the partnership concept is incredibly powerful about loyalty and attracting more people, and financially, from our point of view, if you looked at the Magellan Global Trust of that $97 million we have spent, that has cost us on the first-year base management fees alone, within it performance fees based on the funds under management raised, around 4x P/E for closed-end funds under management. And if you look at the Magellan High Conviction Trust at the top end of the range at the 7.5% discount, that's a P/E of 5x. The mix should come in because we got a general public offer at 2.5%. The mix should come in at less than 5.

And at the bottom, we say every dollar we spend on these partnership investments results in materially more than $2 of shareholder value. If we trade at a P/E of more than 8 to 10x, we create materially more than $2 of shareholder value here. So if we traded at 20x P/E, we create $4 to $5 of shareholder value for every dollar we spend. I think shareholders should celebrate every time we spend money here. The more money the better, from my point of view. It is the fundamental reason we're doing this share placement. We see substantial opportunity to do more of these in the future.

So what is the High Conviction Trust? And what are we doing here? Closed-end trust can be listed on the stock exchange. It actually mirrors our very successful High Conviction Fund, which are managed with Chris Wheldon who is here, 6 years, 16.6% per annum annualized return. That's not -- doesn't guarantee about the future. So it's got a very strong track record. It's actively currency managed. It's going to offer people a 3% dividend yield. So it's going to be paid semiannually there. We are offering MFG shareholders, investors in the Magellan Global Trust, which was our closed-end vehicle and investors who are in our High Conviction Fund. So we're no longer offering this to every single fund. We're starting to narrow down the meaning of partnership, of which vehicles they're in. We are offering those shareholders the right to subscribe for up to $50,000 worth of unitholders -- units in this fund. And they would get under the priority offer a loyalty bonus worth 7.5% of the value of their subscription. There are 70,000 people we are making this offer to.

We don't know what it's going to raise, but you can do the math. We did a $15,000 UPP in only the Magellan Global Trust at a 5% discount, and we had a 50% take-up of slightly over, I think, $14,000 per unitholder. And we're also going to have a wholesale and general public offer. And if you subscribe under that offering to this trust, you'll get an IPO bonus. They're called IPO foundation units worth 2.5% of the value of your subscription. Why do we set it at 2.5%? Because typically when you raise these funds, you pay 2.5% to the stockbrokers as commissions and fees, so we've decided not to have an offering out to the stockbroker community. There was an issue about conflicted remuneration. I think it's a genuine issue about conflicted remuneration. There is something called incentive-caused bias. You pay incentives and people may do things because they're getting the incentive. Clearly, brokers now, we're speaking to the brokers, any client who takes this up or any broker who advises their client is because they think it's a fundamentally good product. So we are passing back the typical cost straight back to all the unitholders. They're receiving all the benefits. This will be a material one-off expense this year. It'll be part of a strategic initiative. It will not affect the dividend payout at all in our business.

So we would hope that people find that attractive. How much we raise will depend on market conditions, what happens over the next 6 weeks or so. So we don't actually have an estimate of. We've just set a minimum of $250 million for the offer. I think I've said in a release that I'll take up my priority offer and take up at least $20 million of additional units under the wholesale offer as well.

Now let's talk about the institutional share placement. So we have undertaken today an underwritten share replacement. It's fully underwritten by Macquarie Bank, $275 million we're raising. Let's just put that in context. In the last period, we have spent $97 million on strategic initiatives around partnership investments. We're announcing today that we're anticipating we'll make a one-off contribution, I mean a one-off contribution to the retirement product, which we think will get a very attractive return on. It is not a capital-intensive product at all. And people -- if people think it is, I think they should wait to see the product before they opine on that. We're also going to have the costs associated with the Magellan High Conviction Trust. We're not putting out an estimate there because we actually don't know how much that is going to raise. And really, this is going to provide significant flexibility to pursue more partnerships to all investments and other growth opportunities that may come our way.

So we think this will really give us significant flexibility to pursue the strategy that we have clearly got in our minds at the moment. As I mentioned, it's a small offering. It's $275 million. It may sound like a lot, but that's 2.7% of our issued capital being raised at $55.20, which is a 6% discount to our share price closed yesterday and a 4.5% discount, this is adjusted for the $1.11 dividend to the VWAP over the last 5 days. We think that is a very tight discount for what we're pursuing here, but it's not material to the overall capital structure of Magellan in terms of the number of shares. We're issuing shares that are going to rank equally with all existing shares other than they're not entitled to the final dividend, the final performance dividend this year. That's why we have adjusted it out of the VWAP, and Macquarie Bank has done a terrific job on this, so I'd have to say a very professional job, and they've fully underwritten the offer.

And the last slide, I just want to lead, and we set this out last year, but it's very important to think about how we think of our business. If we keep the funds under management that we have, our $89 billion, and you took a reasonable period of time, let's say, 7 years, we would expect, based on the objectives of those strategies, we could maybe generate revenues of 7% to 9%. So effectively in our business, we get pricing growth of 7% to 9% per year. It's not equal in every year. Then you have to think about volumes in our business, which I'll come to that Brett's spoken to, we -- so 7% to 9% revenue growth, we probably don't get huge amounts of operating leverage when you're operating at 21% cost-to-income ratio, dividend yield of 4% to 5% depending on where our share price is at the time. That existing business, without any more funds under management, without any more partnership investments, without any retirement products may be able to deliver 11% to 14% returns to our shareholders per annum. And then on top of that, we then think about the volume growth in our business as opposed to the price growth in our business, which is really returns on our funds under management, which is price growth. The volume growth then comes from the initiatives Brett was talking about. We can start with our sustainable strategies.

The global ones just coming up to its 3-year track record, it's meaningfully ahead of its benchmarks. It's performed strongly. Actually, the U.S. fund is ahead of its benchmarks as well, but it's not quite as far on its 3-year journey at the moment. We're now starting to have some very interesting discussions. Very rarely, you'll get the institutions before you get 3 years' track record, and 3 years is early in the piece, often you have to wait for 5, but we're starting to now get some meaningful conversations. Infrastructure is going fantastically. Well, there is another USD 6 billion of capacity in that strategy. Retirement, I'm very optimistic on the retirement. Suppose Brett's is giving the usual caveats of what we have to do. I'm very confident we're going to solve all those issues. We've been working on it for many years. And now we're near the head of the point here of just sorting out some final tax and other issues we just need to get right, but the solution is very simple, and I think very compelling for clients there.

And then we have this whole partnership model that I think can drive our direct business to another scale here. And as we drive that direct business and our retirement business and our infrastructure business and our sustainable business and then Airlie, so we start building out that, the whole nature of our business starts to change as well in terms of its resilience that we have. Who knows what that plus sign looks for. And if you look at a lot of our competitors, they may have had pricing growth, maybe it hasn't been quite as strong as ours because the performance hasn't been quite as strong. But what they've been doing is they've been losing funds under management for a decade. So their funds under management haven't really gone anywhere, and it's because price has been going up and volumes have being going down. What we have to do is make sure that we have at least some volume growth in the business. So price growth, on average, over time, I'm fairly comfortable with that and the nature of what we do.

So I may leave it there, quite a lot for people to consume. We're very happy now to open up to Q&A. So I think Sarah is going to coordinate between the room and the phones.

--------------------------------------------------------------------------------

Sarah Thorne, Magellan Financial Group Limited - IR [6]

--------------------------------------------------------------------------------

Yes. Yes. Thank you, Hamish. We're now ready for the Q&A. We'll open up to questions on the floor first, and then we'll go to teleconference. We're just coming around with the microphone, so if you could put your hand up if you have a question, and we'll come to you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Andrei Stadnik, Morgan Stanley, Research Division - VP [1]

--------------------------------------------------------------------------------

Andrei Stadnik from Morgan Stanley. Just wanted to ask 2 questions. The first one just continuing on the theme, can you -- could you talk a little bit about the vision for Magellan, maybe more from a product and asset class point of view in a 5- to 10-year view, where do you see the group heading? Do you envision adding more asset classes, more diversity?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [2]

--------------------------------------------------------------------------------

Andrei, I don't envisage that adding lots of asset classes and diversification is a strategy that actually works. You make your business more complex, and at the end of the day, when I look around all the fund managers in the world who have pursued that strategy, I don't have admiration for nearly any of them from a business model perspective. There's a few people I do, but that sort of thinking of just adding more and more products and fixed income and all these other stuff and ending in a place you've ended with a better business, I'm deeply skeptical of that thinking. You bring a whole lot of complexity, your cost-to-income ratio will start to escalate and you lose focus. What we want to do is have real scalability around things that play to our core strengths. I think retirement products really plays to a core strength of ours at Magellan. And I think this whole attack we have on the direct business and the scalability, it's very, very hard to scale hundreds of thousands of people. But if we can scale that and create a platform and leverage that platform, as we say, there's maybe 84,000 people on that platform that we have at the moment, if we can scale that and then also scale up our closed-end funds under management, I think in 5 and 10 years we'll have a business that is substantially different to our business today. And I would say if we pull it off, we'll probably be close to the best Funds Management business in the world. It would be my vision and very, very different from other models. So diversification in products and what other people do, I've got a close to 0 interest in that as you can imagine.

--------------------------------------------------------------------------------

Andrei Stadnik, Morgan Stanley, Research Division - VP [3]

--------------------------------------------------------------------------------

And a follow-up question. Just thinking about -- because you spoke about the capacity in 2 out of the 3 main areas and you haven't mentioned how much capacity is remaining in the retail channel. But conceptually, given how well closed-end funds are going, should you actually be shutting and stopping the open-ended funds because you can arguably get better outcome from the closed-ended funds? Should your focus really be shifting there given capacity is rather limited in existing strategies?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [4]

--------------------------------------------------------------------------------

Andrei, you're right that it's more attractive in the long term to have the new closed-end funds business provided you get the partnership and you deliver real value to the investors there. And my concern, like in our global one, we have closed it to new institutional investors there. We deliberately left capacity for our retail business. And over time, inevitably institutions turn over, and as they turn over, if we could end up morphing a portion of that into retail and closed-end funds in a decade from where we are today, but we are very relaxed where we're at, at the moment that we have sufficient capacity and flexibility to effectively morph the strategy of what we're thinking about in the future.

We're very liquid in our global strategy. And we have pretty small ownerships of the company. I think the largest investment -- largest ownership of a register we have is a bit over 5% and that's in Yum! Brands. Most investments we have, we don't have anywhere near 1% of the registers in our global equity strategy. So we're very, very comfortable on the global side. And it's one of the reasons we closed it a number of years ago. And if people start to think about the -- I haven't really spoken about the active ETFs and the closed-end funds, to be honest with you, this is a jigsaw puzzle that Brett and I have been putting in place over a number of years. And there's still other few bits of the puzzle that we're putting into place, but the active ETFs and the closed-end funds and the partnership and how the closed-end worlds and the open worlds effectively intersect is part of a sort of much broader vision we have of how all this can -- how this can all come together.

--------------------------------------------------------------------------------

Brendan Carrig, Macquarie Research - Research Analyst [5]

--------------------------------------------------------------------------------

Brendan Carrig from Macquarie Securities. Just trying to reconcile the comments that you made about how simple the retirement income product has been to set up and/or potentially is to set up and then the fact that it's 6 to 12 months away potentially, that was earlier comments that were made. And then also how easy would it be for, say, a competitor to potentially replicate the product that you're aiming for? Or are there mitigating factors in place, potentially a partnership arrangement that would make it more difficult for this to be replicated?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [6]

--------------------------------------------------------------------------------

Yes. I think what we're saying to the end customer, the product is going to be very simple to understand. The underneath of getting there has been complex in simplifying the product. So there's a difference between -- we always like things that are incredibly simple when they go out to clients, but there's a lot of intellectual capital that goes into simplifying to get something that's very consumable by the end clients without sort of black boxes and things here. The structure is going to definitely get to sort of have a partnership element. With the seeding, it's $50 million sort of seeding, a big barrier to entry to other people, probably not. The underlying components of what they're doing, I think they could -- people could replicate the structure. The actual investment solution, I think, is very difficult to replicate unless they got pieces in the puzzle that somehow is manufactured by people who've really got certain elements to it.

And then I think when you go out there, brand's going to be important as well. But is it going to be only available to Magellan to do something different in the retirement space? The answer is no. But the answer is no in infrastructure, the answer has been no in global equities as well. It's a competitive space. But I think this is much harder for other people to do than simply competing in infrastructure with global equities has been. I do think there's more intellectual capital and other things that need to be brought to the table. Brett, would you agree with it?

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [7]

--------------------------------------------------------------------------------

Yes. Look, I think the comment on simplifying is exactly what Hamish is saying. It's -- the problem itself is not straightforward. We think presenting something that is simple and understandable is obviously where I'm getting at in terms of nature of it. So it's not a complicated black box. It doesn't involve sort of unknown derivatives or any of those sorts of approaches. What's taken some time is to really get to the heart of what this problem actually is. And it's actually not that straightforward to think through. So it's -- in the retirement space, there were lot of conflicting desires essentially. The whole thing is built on conflict. I'd like to have growth, but I'd like to take regular income out of that growth. I'd like to have something as a hedge for longevity, but I'd not like to like -- lock my money up. I'd like it to be liquid. So when you start to think about those things, they're all in conflict. So it's trying to actually work through what the actual problem actually is in all that.

And we think we've done a lot of work now. We do think we understand the nature of this problem very well. And therefore, the solution itself actually does add a great deal of what we call utility to the way that people think about their retirement. Getting that to work in a structure that doesn't have tax inefficiencies, that works through its regulatory side of things. I note some commentary that it needs to be under [operated]. It isn't. It's a fund structure. We're not looking to do something under a live company or any of those sorts of things. It's around what we do for a living. We're offering a solution through what we do in terms of our core investment process. It does have extra thoughts around how we're actually managing the various risks around providing income out of what we do. I don't want to get into the details there. We can talk about this for hours. But there are some complications around that we've had to look at. And we've actually worked through those and tried to understand the basic problems underneath those, and that's really what I was getting at. The nature of the structure, of course, in terms of tax and those sorts of things, we've got to work within the rigidities of what are the regulatory regimes and the taxation regimes to make sure that, that all works, and that's taking some time.

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [8]

--------------------------------------------------------------------------------

And the other barrier to entry here is actually this is largely, in our view, going to be solved probably by the adviser community as solutions. The barriers to entry up there is actually getting these things righted and into those retirement model portfolios. That is a very significant barrier to entry. Particularly if you're coming up with something new, you may normally have to have a fairly long track record. I'm pretty confident that we have bridged that track record completely, and I'm not sure that nearly anyone else could in terms of that. So I do think we may get a 3-year head-start on others if they want to try and replicate what we're doing.

--------------------------------------------------------------------------------

Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [9]

--------------------------------------------------------------------------------

Kieren Chidgey with UBS. Couple of questions, maybe just starting on capacity you outlined, sort of remaining capacity in infrastructure and Dom's strategy as well. But can you just remind us what's sort of the reserved capacity around the existing global strategies are for the current..

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [10]

--------------------------------------------------------------------------------

We don't -- we haven't disclosed that.

--------------------------------------------------------------------------------

Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [11]

--------------------------------------------------------------------------------

All right. And the -- when we think about...

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [12]

--------------------------------------------------------------------------------

It's competitive information, and therefore we're not disclosing it. So for our strategy we have of doing more partnership investments, we're very comfortable we've got sufficient capacity to do that.

--------------------------------------------------------------------------------

Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [13]

--------------------------------------------------------------------------------

Okay. When we think about sort of those partnerships in the close-end funds, you've said there's substantial opportunity there. Do you have the breadth of existing strategies to sort of underpin the launch of additional closed-end funds? Or are we talking about building up additional new underlying strategies to sort of supplement that over the medium term?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [14]

--------------------------------------------------------------------------------

All I'll say is watch your space. We have a series of thoughts in minds that are not fully developed at the moment. But we have -- part of them could be new funds, part of them could be existing things we're already doing. So it can move in multiple different directions, the partnership approach, and which one we choose to do first will really depend on what we feel how the ordering will go. We haven't decided exactly. I don't want to get into too much detail on that because that's still sort of work in progress. But we see substantial opportunities that could be new funds, that could be existing funds, that could be doing things with some of our existing funds. There's all sorts of different things we have in mind.

--------------------------------------------------------------------------------

Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [15]

--------------------------------------------------------------------------------

Okay. All right. Just related to that obviously, you've demonstrated the IRR on those investments obviously, very good sort of -- the cost you're stripping out of your adjusted EPS is sort of a one-off, but these are obviously becoming a more recurring feature of the group on a go-forward basis. So how should we think about sort of the ongoing cost of sort of this partnership strategy?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [16]

--------------------------------------------------------------------------------

Yes. We view them really capital items. We don't view them any differently to buying Airlie Funds Management, okay, or buying Frontier. We are effectively putting money upfront to get 30 or 40 years maybe of fees in the future back. So we're viewing them much more as M&A, and people don't typically expense their M&A in their P&Ls. It's just under accounting standards we're required to expense the nature of these, but we really regard them as a capital investment for Magellan. So we reviewed it much more as a balance sheet item than we do as -- and a balance sheet item that we just haven't capitalized and called goodwill, we have just expensed it straight off and maybe we could have an argument with the auditors that we should be capitalizing that, which I don't think is -- well, I don't think it makes any difference whether you do that. You have to just think of the economics where making an acquisition and then we're getting fees in the future. Instead of putting that called goodwill or intangibles on our balance sheet, we're just expensing it upfront.

So we really don't think it affects -- the dividend should be paid out of the ongoing fees if we generate lesser costs. And these are capital ones and it's a debate of just how you -- what the accounting treatment. If we record goodwill, you wouldn't even be asking the question. It's just we're expensing that and maybe we're electing to expense that there through the P&L.

--------------------------------------------------------------------------------

Sarah Thorne, Magellan Financial Group Limited - IR [17]

--------------------------------------------------------------------------------

We will now go to the teleconference. Can the moderator please open up the lines?

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Matt Dunger with BAML.

--------------------------------------------------------------------------------

Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

Matt here. Just on the strong performance in both markets and your outperformance you've seen, can you give us an indication of what hedging is in place to protect downside?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [20]

--------------------------------------------------------------------------------

Matt, there's no hedging in place. It's how we design the strategies. We could take you through off-line. We run certain risk ratios through our strategies, but we don't have any direct sort of hedging of indices or anything in our core strategies. But I think to date, our downside participation any quarters where the markets have gone down, I think our Global Equity strategies had a downside participation ratio of 0.5 and its upmarket participation ratios in any quarter that's gone up over 13 years has been slightly over 1. And I don't think there's another global equity manager that we have seen that has a downside participation ratio below 0.7. So ours has actually been reasonably good, but we don't hedge.

--------------------------------------------------------------------------------

Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

Right. Just if I can confirm, on the cost guidance to next year, the $115 million to $120 million, what does that spend include in terms of the funds being raised for the placement? So you've said it's excluding the High Conviction Fund spend. Does it include spend on retirement income, products, seeding and other costs?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [22]

--------------------------------------------------------------------------------

It excludes the High Conviction cost raising, it will exclude the placement cost raising, but it will include any development costs like consulting costs or legal costs or anything in the development of products and any salaries, and all that are in expense base. That's correct.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [23]

--------------------------------------------------------------------------------

Yes. So again, the seeding, if you like, the $50 million that we've talked about is part of that strategic initiative outside the Funds Management area.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Nick McGarrigle from Ord Minnett.

--------------------------------------------------------------------------------

Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [25]

--------------------------------------------------------------------------------

Just a quick question about the direct-to-consumer market and how you are planning to tackle that, the marketing and some of the other aspects that might go around really activating that direct-to-customer base.

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [26]

--------------------------------------------------------------------------------

Yes. Nick, it's a good question. We obviously started out with Cricket Australia and that was a brand awareness campaign. That significantly moved the needle in just general brand awareness of who Magellan was. In an ideal world, we would have done that for 3 years. But what happened, happened, and actually, we probably got a bit more benefit that we probably didn't pay for just because of all the publicity, but it was -- it worked out very well. But we really would have done that for 3 years, but we think we really moved the needle in terms of brand awareness about Magellan.

The second thing is activating the client base we've got. So the 84,000 direct people across Magellan in our listed funds that we have at the moment is activating those people to effectively become the referral network for Magellan. So we've upped, if people haven't seen the new In Review magazine that we have got fantastic feedback from, we're going to do, as we said, an investor event at the beginning next year, maybe 15,000 people. We do a lot of video and other communications, but I don't think you should expect us to do more sort of just general brand sports sponsorship-style activity. That was always going to be the front end of our strategy. We're really moving to sort of the viral referral network side of the business and including doing things that would encourage new investors to come onboard. We think this High Conviction thing and sending signals that if you participate you'll get additional benefits by being inside the club, we think will attract more people. And then if we do things where we're directly communicating on scale and mass with people, the one that Brett and I would say is kind of a Berkshire Hathaway event that Berkshire Hathaway has, it might get 40,000 or 50,000 people to the event. 15,000 people is a start. Maybe 1 year, we'll get 40,000 or 50,000 people coming to hear some entertainment there.

But it's mainly going down that path, Nick, of starting to scale the platform that we've already built to then increase the scale. So the numbers of people we have directly on our register is a very important benchmark of how we're succeeding in that game. And then we have do very good ways of communicating with those people. And I think you would expect us in a Magellan way to keep upping the ante in how we do that and the quality of what we do. I'm very focused on that side of the equation as Brett is as well.

--------------------------------------------------------------------------------

Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [27]

--------------------------------------------------------------------------------

And I guess that's maybe a foray into the next question just around distribution of the retirement product. Obviously, a lot of retirees do seek advice with those types of products, but there is, obviously, a direct-to-consumer market there. Can you talk about the paths to market for that product? Will it be platform-listed product unitized? What will be the sort of broad strokes of that?

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [28]

--------------------------------------------------------------------------------

Well. In an ideal world, I think we'd like all of the above. We -- certainly, the adviser market is going to be a very, very important market to start with, but also our direct-to-consumer market in the listed form. Obviously, ASIC has put a slight timing on a new active ETF being done. But we do think they're going to end up supporting that market. So both of those channels, I think, are going to be important, Brett, ultimately, but initially the adviser market is a very, very important market here.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [29]

--------------------------------------------------------------------------------

Yes. Look, I absolutely agree. In our thinking about how to think about this, of course, we're not just excluding one over the other, we're solving for it all, frankly. And ideally we'd like to make this simple and seamless across actually both of those, so -- both the listed and unlisted part of the equations. So what we're looking at is, yes, it's a fund; yes, it's unitized. Could it be listed under what we've done? Yes, subject to way things come out. And can it be accessed by a platform? The answer is going to be, yes. So the idea is to make it available, Nick, as you rightly point out, across the spectrum.

--------------------------------------------------------------------------------

Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [30]

--------------------------------------------------------------------------------

Is it fair to say that the retirement product will be more about innovative management than innovative structuring and maybe part of that management will be some sort of a quant overlay on top of the process that you're already running?

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [31]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Hamish Macquarie Douglass, Magellan Financial Group Limited - Chairman & CIO [32]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [33]

--------------------------------------------------------------------------------

Look, it's not the forum to get into it.

--------------------------------------------------------------------------------

Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [34]

--------------------------------------------------------------------------------

(inaudible) ahead of data science, so I thought there might be some data science going in behind the scenes.

--------------------------------------------------------------------------------

Brett Peter Cairns, Magellan Financial Group Limited - CEO, MD & Executive Director [35]

--------------------------------------------------------------------------------

It's not so much data science. There's some -- perhaps not the forum to talk about this, but the structure of this is actually important. There has been a lot of modeling that we've had to look at to try, and as I said earlier, once you get to the base of this problem, then trying to think about the ways to actually mitigate some of those issues that come out of this problem has required a lot of modeling. Paddy, who, I think you're referring to, has been very instrumental in that. We've looked at some -- we don’t get too far into this -- some machine learning to get some learnings out of this, not to drive the product, but to learn how we could actually think about solving some of these issues around that. So it's not a quant thing. It does have some structural elements that we think are important in mitigating these particular risks that are in this trying to provide income out of a growth pool of assets, but it's not a quant overlay.

--------------------------------------------------------------------------------

Sarah Thorne, Magellan Financial Group Limited - IR [36]

--------------------------------------------------------------------------------

Great. Well, that concludes today's presentation. Thank you, Hamish, Brett and Kirsten. And thank you all for attending both in person and by teleconference. We look forward to seeing you at our Annual General Meeting in October.