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Edited Transcript of PNI.AX earnings conference call or presentation 3-Aug-20 11:00pm GMT

Full Year 2020 Pinnacle Investment Management Group Ltd Earnings Call

Sep 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Pinnacle Investment Management Group Ltd earnings conference call or presentation Monday, August 3, 2020 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Chambers

Pinnacle Investment Management Group Limited - Executive Director

* Dan Longan

Pinnacle Investment Management Group Limited - CFO

* Ian Macoun

Pinnacle Investment Management Group Limited - MD & Executive Director

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Conference Call Participants

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* John Hynd

Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst

* Nicholas McGarrigle

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

* Tim Lawson

Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Pinnacle Investment Management Group Limited Full Year 2020 Financial Results Teleconference. (Operator Instructions) And just please be advised today's call is being recorded.

But I will now hand the conference over to your first speaker today, Mr. Ian Macoun. Thank you, and please go ahead.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [2]

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Good. Thanks, Myles, and welcome and thanks to everyone on the call. We appreciate the time and your interest in PNI. So as Myles said, this is the 2020 financial year full year results for PNI.

The Pinnacle representatives on the call today are our Chair, Alan Watson; Andrew Chambers, who's an Executive Director with particular responsibilities for institutional, including offshore distribution; Dan Longan, our CFO; and myself, Ian Macoun, MD. You'll be welcome to direct questions to any of the 4 of us after I take you briefly through the presentation.

So earlier this morning, we lodged with the ASX and on our website an announcement letter setting out the highlights of our financial results; an investor presentation, which is about 40 slides all together; our annual report, which includes our remuneration report and audited financial statements and notes; and our Appendix 4E. We've also lodged our corporate governance statement on our website. So I hope that everyone on the call has access to these documents. I'll be referring mainly to the presentation.

So Slide 1 sets out some disclaimers that we invite you to read. On Slide 2, we have sought to summarize the main themes for the year as we see them. Now obviously, it is for the analysts and shareholders out there to reach your own conclusions on our results, but we thought we should share with you our own take on the year and how we see the condition of the company moving forward from here.

We think our financial outcome was solid in the prevailing circumstances. We could use words such as reasonable or respectable. We've chosen solid given the circumstances, although, of course, they are below our expectations at the start of the year and even what we were expecting at the start of the second half. There was a lot of action, as everyone knows, in the second half.

We are encouraged that the period of diversity demonstrated the benefits of our strategies that we've been pursuing for some time now of increasing our diversity. So increasing the diversity of asset classes and investment strategies of the affiliates, the diversity of our client types and domicile, and the size and diversity of the performance fee potential of our affiliates, which came through nicely in the year. Now we're only partway through this process of increasing diversification, and therefore, the resilience of our companies. Indeed, we may never finish that process but it has produced valuable benefits already.

And we believe we are entering the 2021 financial year poised to resume growth. We're able to react to any further external adversity that may come our way as we did in the second half of 2020 financial year. And indeed, we stand ready to take advantage of any attractive opportunities that may materialize. So that was it there on Slide 2, just sort of in a nutshell, a summary of how we see the year.

So Slide 3 sets out the financial highlights of the 2020 financial year. Net profit after tax was $32.2 million, up 5.6% from $30.5 million in the 2019 financial year. This translated into basic EPS of $0.18 -- sorry, $0.188 per share, up 2.7%; and diluted EPS of $0.179, up 4.7%. Pinnacle's share of the after-tax profit of affiliates was $38.0 million, up 14.8% from 2019. Now that includes $6.6 million, which was our share of performance fees earned by affiliates in the 2020 financial year compared with $3.2 million in 2019. And it also includes our share of Coolabah's after-tax profit, which is about 6.5 months since we acquired the stake in the middle of December 2019.

We had cash and principal investments of $50.1 million at 30th of June. Our $30 million CBA loan facility was fully drawn in December and used to fund the acquisition of a 25% interest in Coolabah. And we have declared a fully franked final dividend of $0.085 per share payable on the 11th of September. That takes the total dividends for the year to $0.154, the same as in FY '19.

Now there are a couple of footnotes on this slide that I would like to draw your attention to, footnote 1 in particular. Now as I said earlier, it's for the analysts and the investors on this call to make their own decisions as to how to interpret our results. Of course, people are very welcome to simply look at the raw unadjusted NPAT of $32.2 million, and say it's up just 5.6% on last year. That's a legitimate conclusion.

I personally always adjust out the net return on our PIs to calculate and adjust it, or you might say some kind of underlying profit. Footnote 1 does that, and it shows that adjusting for the net return on principal investments, our NPAT, excluding the $474,000 negative net return on PI that we incurred this year, it would have been $32.7 million, which was up 17.6% on the equivalent adjusted NPAT of $27.8 million in '19 because in 2019, we actually had a positive net return of $2.7 million. So I actually adjust for return on PI as not being an effect of operating results, and our result is better if you do that. I've always done that in the past when it made our results look less of an increase on the previous year as well.

Then some people like to treat performance fees as in some way abnormal. And footnote 2 shows that adjusting for our share of the performance fees of affiliates, our share of NPAT from affiliates would be $31.4 million, just -- up just 5% on the previous year. Now I personally don't make that adjustment at the current level of performance fees, which I don't believe is extraordinary. And I don't make that adjustment given that 32% of our funds under management or $18.9 billion now attracts performance fees, and we have diversified sources of performance fees now. Something like 10 of our affiliates have substantial performance fee potential.

So I would argue that we should receive material, meaningful performance fees each year. But I'm not looking to debate that right now. As I said, I'm just delivering the results with a little bit of interpretation, if I may, and hopefully, that, that is helpful. Everyone can make up their own minds, as I said, about our results.

Now footnote 3 just points out our dividend yield. So with the amount of dividend that we have declared, this represented a yield of 3.9%, grossed up to 5.6% for the franking benefit. That was based on share price after close on 30th of June. The yield is more like 3% or 4.4%, grossed up based on our closing share price yesterday. So that's just in a nutshell the financial highlights for the year.

Slide 4 shows the financial results in a little more detail. I'm not going to spend much time on this. At the top is Pinnacle parent's revenues and expenses. Pinnacle parent revenues were up 6.2% to $22.4 million. That included dividends and distributions on principal investments which were lower this year than last year. Our expenses in Pinnacle parent in raw numbers were up 18%.

But if you look at footnotes 2 and 3, I would say our true expenses are up hardly at all. So footnote 2 points out that Pinnacle parent's expenses includes $400,000 of interest on the CBA loan. Now that's fine, that's in Pinnacle parent. But the revenue from that expense, our share of Coolabah's profits is in our share of affiliate profits, not in Pinnacle parent. That still seems a little bit.

Also, as mentioned, the expenses of Pinnacle parent includes the realized and unrealized gains mark to market or losses. So there's losses this year. So they're in expenses. Previous year where it was a gain, it was a negative expense. So that will distort the comparison with the previous year.

If you take out just the adjustment for gains and losses on PI, our expenses increased by $1.8 million or 7.2%. If you then take out the $400,000 of interest and $700,000 of PL8 and a bit of increase in noncash LTI, there was negligible change in Pinnacle parent's expenses. That's more than enough talk of our numbers. The rest of this slide just shows some of those adjustments and is self-explanatory.

Slide 5 shows movements in our funds under management. I'll just call out the highlights here. So our aggregate affiliates' funds under management at 30th of June were $58.7 billion. This was up $4.4 billion on the 30th of June last year, or 8%. But that includes $3 billion that was acquired with Coolabah. So our FUM was up just $1.4 billion on the year if you exclude the $3 billion acquired.

And our FUM was down $2.9 billion over the 6 months. And people would be aware that the drop in the market impacted our FUM, and our inflows were lower as a result of the crisis that -- the virus crisis. Our aggregate retail funds under management are now $13.1 billion. That was up from $11.6 billion a year ago but down from $14.3 billion 6 months ago. And again, the 1-year number includes $1.6 billion that we acquired with Coolabah.

Our funds under management was, as I said, impacted, of course, by the sharp drop in equities markets in late February and March. The ASX was down 10.8% over the whole financial year, was down 11.9% in the second half. The MSCI World was flat over the full year, down 7.1% in the second half.

So overall, we had decreases in our FUM due to market movements. I mean we say due to market movements/investment performance because we can't really split those, but it was basically market movements. That was -- during the financial year, was down $1.6 billion, our FUM, on account of market movements and $1 billion of that was retail. So that was during the financial year.

In the second half, our total FUM was actually down $3.9 billion on the half, of which $1.2 billion is retail. So we were quite seriously impacted by the market movements. And then finally, on this slide, we make the point that we have an increasingly diversified client base. Now more on this later. We believe this is a very favorable sense -- trend for our company and was very helpful during this crisis period.

I'll move quickly through a few more. Slide 6 outlines our net inflows. We achieved, as I said, net inflows for the financial year of $3 billion, $1 billion of which was in the second half. So it was $2 billion in the first half and $1 billion in the second half.

The retail net inflows for the second half was just $19 million, kind of tiny number, but positive. And that was comprised of $68 million of what I call sort of normal retail inflows and LIC outflows, which were buybacks of $49 million. So these inflow numbers, of course, were much lower than in the comparable previous period. But at least, we didn't have large outflows at all as many fund managers did. It was pleasing that even in the half, we were marginally in positive territory.

So we felt that shareholders will be interested in the pattern of the second half retail net flows just briefly. So in the second half, we achieved net inflows in January and then May and June. The average net inflows for those 3 months was $117 million a month. We experienced net outflows in February, March and April, but these were very modest except in March, where we had the large net outflows of $238 million in that 1 month of March. So the half year was kind of our toughest half year we've ever had. But it was really quite concentrated in that month of March. And then overall for the half, it was just a tiny bit net inflow overall.

And in institutional, we achieved net inflows of $2.1 billion during the year, $900 million of which was in the second half. So this was clearly lower than we had expected originally because a number of institutional allocators deferred the decision-making. I'm sure there'll be questions on this, and I'm sure Andy Chambers would like to take some time to speak to it later. But just in summary, we had deferrals of inflows that we were expecting, but we believe our institutional prospects currently remain strong.

Pleasingly, this is from an increasingly diverse client set. And although we make the point that institutional flows are lumpy. And though 2 swallows don't necessarily make a spring, it's nevertheless quite pleasing that the institutional net inflows were stronger again in May and June. So at the end of the year, we've had quite strong net inflows.

Slide 7, just a few points on affiliates, which I won't go through in detail. We commenced 3 new affiliates during the year: 2 of those for Horizon 2, Reminiscent and Aikya; and 1 Horizon 3, which was the acquisition of 25% of Coolabah. And we were pleased that 5 affiliates earned meaningful performance fees for the year, totaling $26.7 million, and our share of those was $6.6 million in the 2020 financial year, and it's almost entirely received in the second half.

Slides 8 and 9 seek to provide further explanation of the financial outcome for the year very briefly. Our total affiliate revenues were $291.1 million during the year, including the $26.7 million of performance fees. This was up 22.9% on the 2019 year or 19.4% if you want to exclude performance fees. The table on Slide 8 traces the affiliate aggregate revenue down to aggregate affiliate after-tax profits, and then our share of that.

Slide 9 highlights the more significant components of the results. In Pinnacle parent, we had -- we do have a certain amount of success base and some base distribution fee revenue, which was held back due to the market dislocation in the second half with, as I mentioned, certain deferrals of the institutional allocations and lower retail net inflows. Our staff numbers didn't grow significantly during the year, and we did not make cuts to our core capabilities. We think that's very important.

There were significant reductions in short-term incentives. Our remuneration was restrained for the year. We did achieve significant growth in our share of affiliate profits compared with the previous year, and there has been continuing investment in additional resourcing by several of our affiliates, including Metrics, Plato, Firetrail, Antipodes, Palisade and Spheria. And the direct costs of these new affiliates that are not yet profitable is included as negative NPAT. But there's -- also cost of servicing those affiliates are in the Pinnacle parent costs. We don't charge those affiliates for our services until they're profitable.

Slide 10 points on our balance sheet. I don't -- I won't particularly call out anything there. I think people are aware that we record the value of our investments in affiliates on an equity accounted basis, essentially cost, not what one might consider a market value of them.

Slide 7 (sic) [11] shows graphically the growth of our FUM over the years. And really those Slides 7 to 11 are all about our FUM. Slide 12 is -- and I should say, the diversification of our FUM.

Slide 12 is for the analysts who like to see the FUM by affiliates every 6 months. We've set that out. And that's there to be examined.

Slide 5 (sic) [13] is the 5-year performance slide. This is the classic measure of long-term performance that the industry considers should always be reported and we always do report it. Pleasingly, 90% of our affiliate strategies and products that have a 5-year record have outperformed their benchmark. Short-term performance will always vary, but long-term performance is what matters most.

The next 2 slides, 14 and 15, show the 1-year and more performance of all of our affiliates. We might get to those in question time.

Slide 16 records the major industry awards that our affiliates wins. We do very well in industry awards. Slide 17 is, yes, this major theme of our presentations of recent years, building a resilient diversified business. And happily, this came through for us in this difficult year. And we believe this diversification will continue to stand us in good stead, and this is demonstrated in the next 7 slides, which provide further detail of this diversification. I won't go through them.

Let's skip to Slide 22. And just quickly, this shows how our revenue -- our FUM and our revenue, particularly from retail, has grown from 27% when we rolled up and the listed company became Pinnacle 4 years ago to 43% now. And industry super funds that some people express concerns about only represent 14% of our revenue. So no time to go in just more detail on that, but we believe it shows a great trend in the diversification of our funds under management.

Slide 23 there shows that retail FUM have grown 14.6x over the past 7 years, while our total FUM has grown 5.4x. And Slide 24 shows the growth in FUM that's eligible for performance fees. I mentioned before, 32% of our FUM or $18.9 billion is all eligible for performance fees now and across quite a diversified range of affiliates.

So I'm almost to the end now. I better stop. I'll stop on Slide 25, if I may. This is a slide headed Our Response to the COVID-19 crisis.

We believe that we've performed very solidly during this terrible crisis, as I mentioned. And we've been saying for a long time this quote at the beginning of this slide, but we believe that the reputations and future success or otherwise of investment management companies are often determined by their behavior and performance during periods of crisis, and their capacity to resume growth depends on the strength of the capabilities with which they emerge from such crises. So we think this is very important. This has been and still is at the forefront of our minds, both prior to and during the crisis.

Now we're not making any predictions as to the future half of the crisis and related market conditions. But we are confident that we entered the new financial year poised to resume strong growth and able to respond to any further external adversity that may come our way as it did in the last half, and able to take advantage of any attractive opportunities that may materialize.

Now apologies, I've gone on a bit too much. I will stop talking now and hand it back to Myles for questions. And again, please address questions to any one of the 4 of us.

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Questions and Answers

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Operator [1]

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(Operator Instructions) But we do have a first question on the line from John Hynd from Wilsons.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [2]

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Just a couple of quick ones from me. In regards to FUM diversification, has there been any material developments not evident to the naked eye in this result which we should probably focus on? And perhaps an update on the progress of the recent additions to the distribution team. Where are we seeing the greatest traction? And I mean, is there an update on how successful the new members have been to date, please?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [3]

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Yes. So look, I might just start, but Andrew Chambers, I'm sure, will have more to say on this. The one thing that perhaps isn't too apparent in our slides is that we've had further growth in our offshore, funds sourced offshore. And it's still reasonably early days, but we are very happy with the way that's traveling and the prospects there.

Chambers, do you want to talk to John's question?

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [4]

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Sure. So I would support Ian's view that certainly, we've seen some significant growth outside of Australia. During the course of the financial year, we received inflows from about 15 countries outside of Australia. So that's all the 3 major regions of the globe. That's in the Asia Pacific region, the EMEA region and the Americas, significant flows out of EMEA region in particular.

We did note we've added people during the course of the financial year in the Americas with Alison Maschmeyer, based in New York City; and also with responsibility of Japan, Hajime Kobayashi, who has come to us with significant experience working for a major competitor institution. So with the business today, we have employees in all the major regions of the globe, that being the Americas, Asia Pacific region and EMEA and covering specialized markets such as Japan.

So we are very much operating in the business day of all of our investors and allocators enable us to conduct business very actively. It's now being supported by very good flows. Of course, we've been flying in and out of those key global markets for over a decade now. So a lot of work had been done prior to people arriving. But this has been now capitalized on the opportunity set for our boutiques as they continue to globalize both their products but also their presence in offshore markets.

I should highlight that on one hand, one might assume that pandemic has pushed the work -- the world further away from us. In many ways, I think it brought the world closer to us. As you've seen encouraging signs of work adaptation from asset owners, consultants around the world work around through virtual due diligence. Once upon a time, you need to conduct on-site due diligence with the fund manager before making allocations. These days, many funds are moving to virtual due diligence workaround, which brings Australia close to the rest of the world. So that's a very encouraging development.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [5]

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And John, we did point out that we had some good net inflows in the last couple of months. Overall, we had $1 billion of net inflows in the second half. As I mentioned, a lot of fund managers did a lot worse than that. There were outflows. We could spend more time on the sort of turmoil in the markets during the period. And we can't predict what lies ahead. But it feels quite good to us coming out of the financial year at this stage.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [6]

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And Ian, if I may add to that. I just make an observation that the net flows from the 3 major distribution channels, which is institutional, international and retail, ebbed then flowed with the tide of government and central bank action. So obviously, you saw drawing of outflows in terms of cash accumulation and liquidity provisioning in February, March and April. But then in May, June and July, we have observed significant cash deployment into risk assets by all 3 of those major channels.

From an institutional perspective, what we've really observed has been the cumulative impact of deferred allocations, many of which have had -- has had multiyear sales cycles to them; capital portfolio rebalancing back into risk assets and new opportunities, which have emerged since and in response to the crisis itself. That would be a good way to summarize it.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [7]

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I think in the first half, you provided us a FUM from international investors that was invested in international pooled funds for about $4 billion. Are you able to give us any color on how that's changed with -- it looks like some of the -- obviously, what you're talking to, some of the funds have had success especially in April this year. How much has that changed?

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [8]

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So a number of -- Ian, do you want me to respond to that?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [9]

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Yes. Thanks. Yes.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [10]

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So I guess, a number of our key managers were able to source capital from offshore. I'd say, in particular, the standout during this period has been Resolution Capital. It's probably been the most advanced of all our affiliates in terms of its globalization trend as it started from the point in which we partnered with them back in 2007. So that would be the most progressed.

I would highlight that the $4 billion of FUM that you -- was mentioned included funds sourced in offshore funds as well as from offshore investors. So it includes potentially Australian-based investors' investment in offshore funds also. So the effects of institutional capital from offshore going into -- allocating to us from offshore investors have been probably larger than what you probably observe on the surface.

We're seeing quite a bit of market interest in the likes of activities with the global long strategies and in a lot of our private capital management as well in hedge fund strategy. In terms of key locations in terms of larger sourced fund would be the Middle East and Africa, and Canada has been a significant market for us. And also would highlight Japan and most recently, the United Kingdom.

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Operator [11]

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(Operator Instructions) But the next question in line we've got are from Nicholas McGarrigle from Ord.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [12]

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In terms of flows, you mentioned that late in the financial year, you saw quite strong flows. Can you just give us a sense on where that was flowing to in terms of the managers? And any sort of trends, whether that's retail or institutional in terms of taking a bit more confidence in allocating at the moment?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [13]

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Yes. Well, again, I'll let Chambers talk to the institutional. But those last 2 months, we had nice inflows in both retail and institutional. As Andrew Chambers said earlier, there was a real pattern to the half. He said ebbed and flowed, so definitely quite made disruption in late February and March, and that appeared to have really somewhat reversed by May, June. Now as I said, these are reasonably short time frames but that was a very clear pattern. But the inflows in May and June were both retail and institutional.

Chambers, do you want to speak to sort of where about in institutional? Res Cap has been doing well, for example, but it was a number of affiliates.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [14]

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Yes. I'd highlight -- in addition to Resolution Capital, be worth highlighting, singling out Coolabah Capital in terms of receiving new allocations, Metrics Credit Partners also in receiving new allocations, Hyperion into its global strategy, which we've been talking to you about -- with investors for some time. So we're seeing very promising time of that new deployment.

And I'd also highlight, we're seeing similar flow increases in the retail market as well. So I think they're averaging a little over $20 million net a month at the moment from retail investors into their global strategy. So...

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [15]

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Hyperion Global is building in retail as well.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [16]

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Sorry, what was that number a month? And what is it sort of standing at now in terms of FUM?

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [17]

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So about $20 million of net flows a month, I think about $22 million is the exact number if I took the average. And the total FUM, you can see in the pooled funds today is around about $400 million, I think, at last count.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [18]

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Okay. And it seems like some of the affiliates really control their cost bases through the last year because obviously, the profit contribution was outsized as compared to the revenue that we can see in the annual report. Was that a focus for the underlying affiliates?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [19]

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No. I don't think -- I don't think our affiliates are excessively -- I mean, obviously, everyone is being careful about costs in this environment. But no, I called out quite a number of our affiliates that have actually added resources ahead of further growth, where they're adding new strategies, Nick.

So no -- I think their revenue was quite a bit higher. That caused their profits to be higher. I don't think it was particularly a cost control or cost reduction factor.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [20]

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That's good. That's fine. The final year numbers looked pretty solid across the board versus what I was expecting apart from Two Trees. Can you just give us a sense on what's going on there? And then potentially some of the long tail -- the long wave Riparian, Reminiscent and Aikya, what their sort of outlook is for FY '21.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [21]

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Yes. So when you said the end of year numbers, you mean the performance numbers?

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [22]

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No, no, sorry, just for FUM. For FUM, I mean, sort of a bit ahead of what I was expecting, which is great. And then just comment on Two Trees.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [23]

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Yes. So Two Trees are systematic global macro, and they had won some very nice money early in their life, institutional money, which in that terminal period that Andrew mentioned, some of the big super funds were sort of taking money from wherever they could find it that hadn't been impacted by the equities market drop. So hedge funds haven't dropped in value in the way that equities did. And so they had some significant redemptions from super funds that I think were looking to take cash and probably have substantively redeployed into equities, which was quite bad luck.

You know that whole hedge fund -- that global macro hedge fund space has struggled somewhat, performance-wise, during the crisis. Some of the big names have done very poorly. So they were -- that was a bit of bad luck for them in terms of losing that fund. We're hopeful it will come back again when things become more normal.

The other -- look, we're very pleased -- Chambers, we're very pleased with how Aikya and Reminiscent and Riparian are traveling along. I mean we won't win big money early, Nick, in these. But we're very happy with the way they're traveling.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [24]

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Yes. Ian, just to add to that. In terms of the asset class, particularly the hedge fund ones where it's lower [FUM] or AUM that you win, but there's typically much higher margins, whereas something like Aikya being long only, the allocations will tend to be larger. Noting that the capacity is probably around about USD 5.5 billion for that, but the allocation will typically be higher than what you would see for the hedge fund or cash plus type strategy such as Two Trees or Reminiscent Capital or Riparian for that matter. We showed a bit more of a profile, that latter one, more akin to Palisade given it's mid-market focused. So it can only deploy probably a couple of hundred million dollars per annum.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [25]

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The affiliates that are sort of newer to us that will win the large funds quickly are the established ones, so Coolabah and Metrics. And we're very pleased with the performance of both of those and with their prospects.

There's no question that Metrics in particular lost pipeline. There was a lot of money really to come into them that was deferred, and that was unfortunate. The MXT capital raise had to be cut off because of the impact of the crisis on the market. So they're impacted, but we're very pleased with -- between Coolabah and how they're traveling.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [26]

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Yes. In fact, those 3 -- just as a follow-on to you, Ian. So Metrics has received 3 new allocations that previously deferred their decisions since that period earlier in March. So people are resuming their activity prior to the crisis, our comment in...

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [27]

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Some of that in July, I think, will be in the numbers that we've put out. And Res Cap's also interesting, Nick. Remember, I mean, Res Cap had tremendous alpha and their asset class went up a lot pre crisis. We actually had quite substantial outflows from all the inflows in Res Cap over the last couple of years, but we're seeing very strong inflows from offshore. And you'll see -- whether that trends in domestic inflows reverses somewhat as well remains to be seen.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [28]

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It's really good to see, obviously, Coolabah as well adding $600 million over the 6 months. Can you give us some context on that growth? And was that sort of largely to the acquisition and the assistance from your distribution team? Or was that natural momentum that they had and given cash rates moving where they are, they've seen a bit more uplift?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [29]

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Well, we'd love to claim credit for our distribution genius who's been responsible for it. But do you want to comment on that again, Andrew? They're going well. They're doing very well. They're getting new clients and extra allocations from existing clients.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [30]

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Yes. I think just to add to that, Ian. So there's always a sales cycle to any partnership you have with an affiliate. So there was very good momentum for that business, there's no doubt about it. Most of the flows came from family offices and institutions, but also wealth management as well. So it's a combination of sort of generated momentum, but also, obviously, assistance we provided since. But the answer is it's a combination.

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Nicholas McGarrigle, Ord Minnett Limited, Research Division - Head of Institutional Research & Small-Caps Industrial Analyst [31]

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Yes. That's great. And can you provide us a bit of an outlook? I mean, the net overheads seem to be relatively well-managed in light of the difficulties on distribution, but any sort of outlook into next year around some of the more -- main contributors to the Pinnacle parent revenue line, like things like LICs and material distribution, I guess, of some the affiliates that you've got those relationships? Can you comment on that net overhead into next year potentially?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [32]

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Yes. I mean, LICs, I think, had a question mark over them in terms of certainly equity allied IPOs. I think that will be quite challenged in the short term until the market adjusts to the government's new policy. We would hope to be able to do some top-ups of existing LICs such as Metrics especially, but it depends on market conditions.

Look, it's hard to predict what the conditions are going to be like over the next year, Nick. We feel pretty good. Our Pinnacle parent revenues have held up reasonably well, and we do have prospects for some more success-based revenues there from the likes of Res Cap and our retail efforts especially. There are a number of [affiliates] that are going to do well in retail going forward, including Hyperion Global, Res Cap, Coolabah, Metrics and so on, and they all pay us fees.

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Operator [33]

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We do have another question in line from Tim Lawson from Macquarie.

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [34]

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Just a point of clarity. I think you mentioned Metrics might have had some funding into July. So maybe I'll ask a more general question. Just of those sort of May and June particularly institutional flow, I mean, how much of that was fully funded at 30 June? And how much sort of still in the pipeline to collect going forward?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [35]

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Andrew?

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [36]

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Yes. So I don't think we received any commitments that were undrawn during the balance of the financial year. So everything we're talking about was fully drawn. So I think the ones I've highlighted in relation to Metrics that have come on this side on 30 June are in the July month. So they're not -- they wouldn't be reflected in our full year numbers.

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [37]

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Yes. No, I appreciate that, but sometimes you might get 50% funded and then there's 50% to come. Is there any balance that is effectively committed, not in your numbers but to be funded in July, August, September?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [38]

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So if I can just sort of answer. So we do know that there are a number of mandates that we've been told will be arriving in August, September and so on. But typically, we have, Tim -- we don't want to make predictions of market conditions and make promises that we disappoint on. So we've been a bit cautious, but certainly, we said it feels very good going into the new year. And we certainly have a number of people who've told us that we're going to win money.

But the problem we have is that we've been in this position before. We've talked about a pipeline and then circumstances change and it gets deferred. So we tried to avoid doing that. So just trying to give you a balanced response there. But we certainly do have money that we believe is coming in August and September.

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Andrew Chambers, Pinnacle Investment Management Group Limited - Executive Director [39]

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Maybe the moderate word to use is we're quietly confident about the prospects ahead.

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [40]

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Yes. Okay. Okay. And just a second question. You called out, I think it was 32-and-a-touch percent in performance fee -- FUM that can attract performance fees. Just trying to think about how that's trended the last couple of years. And also, probably more importantly, how much of that is sort of at or near a high watermark?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [41]

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Yes. So it's been growing, Tim. I think it was 30% a year ago. Now it's 32%, growing quite a lot up to that last year. So I think we have some slides there that show that it's grown -- in the last, say, 4 years, it's grown a great deal. So that's a very good thing.

Look, as I said, it's across -- like 10 of our affiliates have quite meaningful potential performance fee contribution. So it's quite diversified as well. Obviously, the 2 largest are Antipodes and Firetrail high conviction behind their high watermarks. Of course, these things can turn very quickly. But they are behind at this stage. But there's quite a lot of it -- but the fact that we received performance fees in '20 means that those are all not behind their high watermarks. So if they produce further outflows, they can get performance fees in the near term.

Another one is Res Cap, which had 9% outflow during the year. Its performance fees are all on its funds, which is about $900-odd million of funds. But it has a dual test, not only retail investors. So it had very strong alpha but it doesn't get paid performance fees if the absolute return for the year isn't positive, which it wasn't because the [market saw much]. But it goes into the new year.

We're carrying forward all of that alpha, which is a nice position to be entering the new year. But it needs to -- would need to not give the alpha back and also to have positive absolute return in the year ahead. That's just one, Res Cap.

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [42]

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Does that positive absolute return reset to the level at 30 June? Or does it have to make up what the lost performance for last year was in absolute sense?

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [43]

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It's a good question. I think it just has to be absolute during the year, but I'd need to check that, I'm sorry, [when I get the opportunity, yes].

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [44]

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Yes. And just last question for me. The performance fees, obviously, you preannounced that, but again, it was slightly higher. Just trying to understand that was -- where that was from. Was it from one of the 5 affiliates that you named? Was it -- just trying to understand the slight variance there.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [45]

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Well, the variance on what we preannounced?

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [46]

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Yes.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [47]

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Well, Dan, can you help with that? I think it's something to do with what we preannounced. He was trying to have a go at impact on Pinnacle overall as opposed to our share.

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Dan Longan, Pinnacle Investment Management Group Limited - CFO [48]

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Yes. There's a couple of bits here. We obviously announced very early, Tim. A couple of those performance fees are on mandates that pricing isn't finalized until a couple of weeks later, so we went with a fairly conservative estimate. And we also announced the $7.7 million, just the total impact on PNI, which includes some distribution fees associated with those distribution revenues. The $6.6 million is just purely our share of those performance fees through the affiliates' profits.

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Operator [49]

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(Operator Instructions) Okay. There appears to be no further questions at this stage. I might hand back to you for now to wrap up, Ian.

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Ian Macoun, Pinnacle Investment Management Group Limited - MD & Executive Director [50]

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Okay. Thanks very much, Myles. So look, thanks for your participation, everyone. We can only do so much in an hour. We've tried to draw out the scenes really at the beginning and the end of our presentation, and we're going to have one-on-one meetings with lots of fund managers over the next few days. So there will be plenty of opportunity for further questions.

Overall, a very tough half, obviously, for the whole world, and for fund managers generally. But we think we've done okay in the circumstances. We are very pleased to see the benefits of that diversification really help us in a tough period. And we do feel good about moving forward, that kind of whatever conditions we might face, we feel as though we're in quite a strong position. So yes, that's really a summary of the year. And we look forward to speaking with major shareholders one-on-one.

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Operator [51]

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Okay. Ladies and gentlemen, that will conclude today's conference call. Again, thank you for all participating today. You may now all disconnect.