Thank you for standing by, and welcome to PNI's half year FY 2023 financial results teleconference. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I will now hand over to Managing Director, Mr. Ian Macoun. Please go ahead. Thanks, Rachel, and welcome to everyone who's joined us on the call this morning. Thank you for your time. Thanks for your interest in PNI. As you've heard, this call is to discuss our results for the first half of the 2023 financial year. We posted with the ASX last night our formal results announcement, our interim financial report, including the audit-reviewed financial statements for the half, the Appendix 4D, and our investor presentation. We'll be speaking to key parts of the presentation this morning. Colleagues with me on the call are Alan Watson, our Chairman, Andrew Chambers, Executive Director with particular responsibility for institutional and international distribution, Ramsin Jajoo, retail distribution, and Dan Longan, our CFO. I'll call out the main themes and highlights of our results and also provide briefly some further contacts, context, and elaborate on a few aspects that we feel are particularly important for us to explain to analysts and shareholders. We'll leave plenty of time for questions, which you're welcome to direct to any of the Pinnacle representatives on the call. Slide two is a disclaimer that is important. We would ask you to read this at your leisure. Slide three is an agenda. Slide five is a summary of our themes for the first half of the 2023 financial year as we see them. As we've said many times, we recognize that it is for our guests on this call, analysts and shareholders, to form their own opinions on our performance and the outcomes we are delivering, as well as our future prospects. People ask us for our view, our opinion on how things are traveling, particularly given the market and industry context in the period under review. We're happy to do this to the best of our ability. Core revenues, that is, revenues other than performance fee revenues, have been resilient in difficult market conditions. Our earnings have certainly been impacted by the cost of Horizon 2 investment in both Pinnacle and the affiliates as investment for future growth continues. We believe this is money very well spent and will deliver very high returns over time. This does retard our profits in the short term and feels particularly impactful in an environment when revenues haven't grown. During the first half of FY 2023, particular market and style shifts have significantly impacted our funds under management in certain areas. The quality and diversity of our funds under management has mitigated the downside from volatile markets and from some dynamic fund flows, including the rotation from growth to more value-oriented strategies and pressure on the REIT sector during the half. We've experienced continuing success in offshore markets and in alternative strategies. These trends are ongoing. Particularly in the Australian market and in listed equities, we experienced challenging conditions for generating new business during the half. Slide six and seven elaborate these themes. You see the heading, First half FY 2023, Difficult conditions, Diversification delivering resilience, Ongoing investment for future growth. Core revenues, excluding performance fees, were resilient. The cycling of outflows to higher fee rate business that we called out in our full year results 6 months ago have continued to be evident through H1 FY 2023. Revenues, excluding performance fees, were 0.6% lower than the prior comparable period, despite average funds under management being 8% lower. Some revenues have not come through fully at the rates initially expected. We believe this is, at least in part, a short-term timing, H1 versus H2 seasonality issue, especially with Metrics. Of course, Hyperion and ResCap revenues are lower than we had expected. The key point here, I think, is that it was market movements rather than outflows that held back base revenue growth. We'll talk about performance fees in more detail shortly in slide 14. Performance fees were surprisingly low this half. This is a short-term phenomenon, and we have every confidence in the quality of our affiliates and their ability to perform over time. Their long-term records speak for themselves, with 85% of strategies having outperformed their benchmarks over the past five years. Point two, our earnings have been impacted by the higher cost base in both Pinnacle and the affiliates as Horizon 2 investment for future growth continues. Pinnacle and affiliates have continued to invest. This will drive strategic growth over the medium term. However, it moderates our profits in the short term. We estimate that about six and a half million dollars represented the impact on Pinnacle for our share after tax of the Horizon 2 investment by both the parent and the affiliates in first half FY 2023. These initiatives, as I said, create additional capacity and provide medium-term growth opportunities. As we've stated, we make no apology for incurring these costs. We believe strongly that they will produce very high returns in the future, and we have a strong track record of delivering on this. Point three, during the first half FY 2023, market and style shifts significantly impacted funds under management in certain areas. Style shift away from high growth stocks continued to impact up to 31st of December 2022. There have been signs of a reversal during January. It is early days, and we'll see what unfolds during the coming months. REIT markets also underperformed major equity markets in half. This has also reversed during January, but again, it is early days. Whilst most equity markets, but not global growth stocks or REITs, ended the half slightly up, there was significant volatility throughout. You'd recall that when we updated for the September quarter, market movements had detracted AUD 2 billion of FUM. We lost some revenue as a result of that. Continuing the themes on slide seven, point four, the quality and diversity of our funds under management has mitigated the downside from volatile markets and from some dynamic fund flows. Affiliate quality, asset class diversity, style diversity, and continuous product innovation ensures that we retain all weather relevance to investors as their preferences and the market conditions they operate in change over time. This has helped us during the half and will be an ongoing theme. We've enjoyed continuing success in offshore markets and in alternative strategies. We had AUD 650 million of net inflows from 17 countries outside of Australia, despite investors across the board remaining defensively positioned. We raised nearly AUD 2 billion in net inflows from all markets into global equities, global emerging markets, and private credit. Particularly in the Australian market, particularly in listed equities, we're confronted with challenging conditions for generating new business during the half. Domestic institutional flows were negative, the market mix improved during the half. Our largest institutional inflows were into private credit and global equities. Our largest inflows were from Australian equities and global REITs. Sorry, our largest outflows were from Australian equities and global REITs. Domestic retail flows were still net positive, net inflows were much lower than FY 2021 and the first half of FY 2022. It feels like retail market conditions have been similar to those we experienced in the second half of the 2020 financial year. Clearly, market and industry conditions have been very subdued during the half year period under review. In fact, it's been a continuation of the conditions prevailed through the second half of last financial year. We've now endured them for a little over a year following the stellar 2020 financial year, which itself was a recovery year from the 2020 pandemic depressed market conditions. Slide 8 summarizes the financial highlights. Pinnacle is not immune to market factors, our increasingly diversified platform provides resilience and will drive growth throughout the cycle. Starting with the right-hand side, net profit after tax was AUD 30.5 million for the half, down 24% on the PCP, which was the first half of the 2022 financial year. Diluted earnings per share was AUD 0.156, down 26% on the PCP. Dividend per share was AUD 0.156, down 11% on AUD 0.175 in the PCP. The dividend payout ratio was 100% of diluted EPS. Of course, franking was 100% as usual. Back to the left-hand side. Aggregate affiliate funds under management was AUD 83.2 billion at 31st of December, down 1% on 30th of June. Aggregate retail funds under management was AUD 20.8 billion at 31st of December, down 1% on six months earlier. Aggregate affiliate performance fees was AUD 29.3 billion, down 3% on six months earlier. Aggregate affiliate revenue was AUD 223.6 million, down 7% on the PCP. Aggregate affiliate base fees were AUD 220 million, down 1% on the PCP. Aggregate affiliate performance fees were AUD 3.2 million for our share... Oh, sorry. AUD 3.2 million, down 83% on the PCP. Our share was AUD 0.9 billion. Obviously, AUD 1 million. Obviously, this surprisingly low level of performance fees were the main reason for the overall revenue being lower during the year. This, together with the highest costs, including Horizon 2 investment cost, was the main reason for the lower profit. 31st of December, we had AUD 15 million of cash and AUD 164.1 million of principal investment. In terms of fund flows, retail net inflows were AUD 300 million for the half, international net inflows were AUD 700 million, domestic institutional had net outflows of AUD 2.5 billion, for overall net outflows of AUD 1.5 billion for the half. 85% of our strategies outperformed their benchmark for the five years to 31st of December. The bottom right-hand corner shows the performance of the relevant markets over the half, especially call out the NASDAQ, down 5.1%, and the non-REIT market. They were both particularly relevant to us with Hyperion and ResCap and so on. Slide 9 is a reminder of the range of affiliates that now comprise our platform, together with a few highlights of examples of developments during the half. We're very happy with the progress that Greg Dean is making with Langdon in Canada. Palisade's expansion is continuing with good progress with Palisade Impact, Palisade Real Assets, Palisade Americas, and additional assets into the main Australian diversified infrastructure strategy. Metrics is making very good progress. There are many other examples that we could have included. Slide 10 shows the growth of our NPAT and EPS since we became listed Pinnacle. We remind shareholders that it is the strength of our platform and the high-quality, award-winning investment affiliates that are the basis of us generating material earnings growth for our shareholders over time. This is something we need to remind ourselves of as we review this period where unusually we have experienced a situation where we've delivered lower earnings than in the PCP. The fundamental reasons for our growth to date have not changed. Our company is in very good shape to resume strong growth, particularly when markets improve. Nothing has fundamentally changed. We are the same company with the same strengths and competitive advantages that has delivered strong earnings growth since our inception. Slide 11 elaborates this theme of our track record of earnings growth throughout market cycles. Pinnacle affiliate revenues are linked in part to movements in equity markets. During the half, market and style shift have significantly impacted our funds under management and therefore revenues in certain areas. Pinnacle has pursued a deliberate strategy of diversification, incubating new affiliates and strategies enhanced by careful acquisitive growth into new asset classes and markets. This has allowed us to deliver continued growth in profitability throughout market cycles, albeit at lower rates during periods of market downturn or turbulence. Growth in funds under management and profitability were suppressed in the 2020 financial year, and again during calendar 2022 due to the dislocation in equity markets. Pinnacle has grown strongly on average over the three-year period to the 31st of December 2022, which encompasses both the COVID-19 crisis period and the market's regime change and sell-off during 2022. We delivered an NPAT compound annual earnings growth rate of 25% over the three-year period to 31st of December 2022. Diluted EPS compound annual growth rate was 21% over the three-year period. FUM CAGR was 11% over the three-year period. Here is our conclusion again, in case you missed it a minute ago. Since listing as a pure play funds management business in 2016, Pinnacle has delivered strong profit growth. Whilst we make no prediction for what lies ahead, we are confident that we have the platform in place to deliver continuing earnings growth over the medium term. Slide 12 shows some detail on the five-year investment performance versus benchmarks. The raw numbers are in slide 51. Slides 52 and 53 show performance over a range of time frames from one year to since inception. Slide 13 shows our funds under management history. Funds under management have grown a compound annual growth rate of 22.4% per annum over the last 10 years. Excluding acquired FUM, it was 20.7% per annum. Slide 14 addresses performance fees. This is always an important topic when considering our company's performance and future prospects, but particularly so this half, given the surprisingly low amount of performance fees earned during the half. We say surprisingly, because the probability of such a small amount of performance fees being delivered, even in the first half of a financial year, we know that second half is biased to be stronger than the first half. Even in the first half, the probability of such a low number should be very low. Only 6 of 15 strategies delivered performance fees during the half, and this didn't include the strategies with the larger funds under management. Being based purely on alpha, performance fees on the 15 strategies should be independent of each other and of market levels. There may, however, be some common threads during this particular period, which was an unusual one in markets with the emergence of inflation after such a long absence and the resulting monetary policy regime change that has been so disruptive to markets. Perhaps this is a topic for discussion in our one-on-one meetings. We do remain confident of the prospect of large performance fees in the future. We make several relevant points in the notes beside the graph on this slide. The volume of FUM with performance fee potential has increased substantially in recent years. The number and diversity of strategies with significant performance fee potential has increased in recent years, improving the annual reliability of overall performance fee revenue. The likelihood of performance fee success is generally not correlated with equity markets. It's based on performance relative to individual hurdles. The likelihood of performance fees is distinct between individual strategies. However, performance relative to benchmark can vary significantly over even particularly short periods of time. We felt it the worst over this past year that we've just been through. Several strategies which had the potential to produce performance fees during the first half outperformed their benchmarks, but earned nil or lower performance fees as they entered the period behind the relevant high water marks. Of the now 22 strategies that have the potential to deliver significant performance fees, 15 crystallize at least half yearly, with all 22 crystallizing on at least an annual basis. Performance fees crystallizing only in June each year include Metrics and Palisade. Of the 22 strategies that have the potential to deliver performance fees in the second half, eight are at their high water marks now, and a further four are within 2% alpha of earning performance fees. Slide 15 shows the progress we've made over the past 6 and a half years in diversifying our business, both by asset class and performance fee FUM. This has enhanced the resilience of our core earnings. As I said earlier, we plan to continue to diversify further in the future. Slide 16 updates for our most recent industry award wins. We win many awards year after year. These are commercially valuable for us. Slide 18 provides some further detail on the composition of our first half financial results. I'll leave it to you to review this in detail at your leisure. I've already called out the highlights. Slide 19 elaborates further. There has been continuing improvement in the average base fee rates and client diversity. We emphasize that Horizon 2 investment in growth initiatives moderates profits in the short term but will drive strategic growth through the cycle. Some examples are listing, illustrated here in the bottom right-hand corner of the slide. These are real, and they are large. They have a substantial negative impact now that will have a large positive impact on profit in future years. Key balance sheet items are listed on slide 20. Cash and principal investments of AUD 179.1 million includes AUD 140.2 million invested in strategies managed by Pinnacle affiliates. CBA facility of AUD 120 million is fully drawn and deployed into liquid funds managed by affiliates until required. We have AUD 120 million of dry powder for future opportunities. Section three covers the institutional and international markets. On slide 22, as indicated earlier, institutions have accumulated higher cash holdings and continue to rebalance away from public equities, both Australian and global. Private credit is seen as appealing. I'll leave the rest of section three for questions for Andrew Chambers. Section four, the retail market. As I indicated earlier, in the half year period under review, as well as in the previous half, so all of calendar 22, conditions have been poor for flows for the entire retail funds management industry. Investor confidence has been very low, with fear being the dominant sentiment. World stock markets fell, the economic and monetary policy regime change as inflation became a concern, together with geopolitics, the Ukraine war, et cetera. Slides 26- 31 provide relevant information on the retail market. Slide 33. I won't say a lot about Section five growth agenda, except to emphasize that nothing has changed in terms of our ambition and strategies and plans to continue to grow by way of all three Horizons. We look forward to resuming Horizon 1 organic growth as soon as possible. It's true that we haven't commenced a standalone Horizon 2 new affiliate since Langdon, which by the way, is going very well. Perhaps this is partly because we've encouraged so many Horizon 2 initiatives within existing affiliates. We have also continued to look that have not unearthed any standalone opportunities that have been sufficiently compelling. We've continued to add distribution capabilities, likely to add, for example, in the U.S. soon. Slides 35- 38 provide some further detail on Horizon 2. As I said, our ambition is undiminished. In relation to Horizon 3, again, our ambition remains undiminished, but we have had to show patience and discipline and resist the temptation and our inherent bias to get on the front foot and do things. We haven't undertaken another Horizon 3 investment since Five V, which is also going very well, by the way, but that is not for the want of trying. It's not that we haven't kept looking. We've worked very hard on several opportunities, but in the end, we've not proceeded with any as yet. We are still looking, but also still prepared to be patient and disciplined if necessary. Section six provides some information on our corporate responsibility initiatives. I wish I had time to go through this in some detail, but I need to leave it to you to read yourselves. We're proud of the progress we have made on so many fronts as outlined in these slides. My conclusion is on slides 47 and 48. Slide 47 reminds us of Pinnacle's key differentiator and source of competitive advantage. It is extremely important, particularly when markets are tough and our industry experiences significant turmoil, to remind ourselves of our DNA and how we differ from some other participants in our industry. The differences may seem subtle, in truth, they are fundamental to our success to date and our prospects for ongoing success and growth. Slide 48 sums up Pinnacle's diverse affiliate portfolio and extensive distribution channels provide robustness while fostering multiple strong growth opportunities. That is indeed what we seek: a high growth from multiple sources agenda, whilst maintaining great robustness in tough times, such as the 22 calendar year. Thank you for listening for so long. Over to questions. Thank you. If you wish to ask a question, please press star one on your telephone then wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Tim Lawson with Macquarie. Please go ahead. Hi, Ian. Thanks for taking my questions. just first on the base fee movement, and your comment in the slide around sort of timing of some of the revenue. Can you maybe add some color on, the sort of transactional component, that base fee revenue and, sort of maybe the components that add into that? Yeah, sure. Thanks, Tim. As I mentioned, we were a little surprised that our revenues didn't grow more strongly. I mean, they were robust in the conditions, but we actually thought they'd be stronger. Metrics was a key element of that. I mentioned that some revenues, there's a bit of a H one versus H two issue. Some of our affiliates, and this is certainly the case with Metrics, they get stronger growth in, for example, upfront transaction fees in the second half rather than the first half. There was some delay. There were definitely quite large fees that we expected in the first half, Murphy's Law, they come in in January, not in the first half, so that had some impact. Also, we regard Hyperion and ResCap as a sort of a temporary phenomenon in the last half. As I said, it's been substantially reversed in January, but it's early days. Can you add a little color in terms of the movement and the growth you've seen in that base in transaction, how much is coming from, say, the transaction side, and how much transaction represents of the total now? Dan might help us with this. With Metrics, of course, their base fees are quite large. So are performance fees, but the transaction fees really dominate. First of all, as their fund, as new fund comes in and they deploy it, we get transaction fees on quite a large portion of it. And then also, as their loans turn over, which they do fairly frequently, get more fees. Dan. We had large inflows sort of a year ago, and they have not yet turned over. They'll come, sort of, some of it next half and a lot next year. Yeah. Dan. What we just add to that, Tim. Unlike management fees, which are earned over time as soon as the fund arrives, transaction fees are booked once those funds are initially deployed and then each time the capital is recycled. Whilst there can be some uncertainty as to the exact timing when the revenues are booked, and the effect has definitely become more pronounced in recent times with the large increases in funds that generate these fees. We'll just point out that capital, however, is recycled regularly and reliably, so the revenue is of high quality. It just can be slightly uncertain as to when exactly it arrives. That all falls to the bottom line. I mean, obviously, Metrics have also increased their costs substantially last year and this half. Those cost increases are large. That's Horizon 2. A lot of that, and we encourage them. Metrics are growing. They are adding capability, particularly in what they call Metrics Business Finance and so on. We're seeing the cost of that and not the revenue so far, but the revenues will come. As Dan said, it's not absolutely clear the timing of that. They will come. They'll come somewhat in the second half and then big time next year and the year after. Remember that we also get a share up in the Pinnacle parent of all of Metrics' revenues. That's all been delayed in this half. Yeah. A follow on into that comment, Ian. In terms of how that sort of transaction component and how you earn that as Pinnacle is impacting your sort of total service fee line in the Pinnacle sort of P&L? Correct. Correct. Every dollar of Metrics' revenue. Yeah. As Metrics' revenue grows, so will that contribution to our top line. We get a defined percentage of every dollar of Metrics' revenue. Of course, Ian, that's not impacted by the cost increases, the revenue share model of the. That's right. It's pure revenue share. Okay. Just to Sorry, Dan, did I cut you off? No, no. We're just saying that you'll see that grow, you'll see that grow a lot. Okay. Just two more questions, if I can. Just in terms of the flows, there's obviously, you provide all the net movement, but maybe sort of gross inflow and gross outflow might then provide a bit of a more clear picture. Two questions in regard to that. In terms of the sort of mandates, one and lost, if you call it that. Can we call them sort of fully funded? I mean, how far are we through that sort of cycling of domestic insto and obviously being winning money elsewhere? Absolutely. We mentioned at our full year results and then also at the quarterly update, at your conference, Tim, at the end of September, that we had quite large, so the net flow mass would have been quite large inflows and quite large outflows. They've been quite different, the inflows from the outflows. The inflows have been at higher fees than the outflows. We quantified that, sort of from last year, that even though we had net outflows last year, the revenue on the net flows was substantially positive. Through this half, the trend has been not quite as big. The first quarter was quite large inflows and outflows. Even though they were net outflows, they had sort of not much impact. Again in the last quarter, I think the flows were not quite as large in the last quarter. Again, the impact was negligible. You know, this sort of, the revenue growth not coming through in this half, it's not as a result of the flows. What happened was that, you know, we had some market took our FUM down somewhat, and that's what caused our revenue not to grow in the way that we were expecting. How far are we through that? It's hard to say. My feeling is that, you know, we're through quite a lot of that. The, you know, a fair bit of the obvious FUM we were gonna lose from the Aussie insto market may well have gone. We just don't know. It's hard to predict. Andrew Chambers will talk about our confidence in our inflow pipeline. We don't have good visibility on insto, Aussie insto outflows. That trend has been pretty strong and quite attractive. You know, going forward, we'll take whatever good business is on offer to us, and we don't target particular fee rates. We thought it was important to point out the sort of fee and revenue impact of those flows, because if you just looked at the raw net outflows, you'd have been misled on revenue. Just last question from me. In terms of the spend on Horizon 2, the commentary around that, it's very helpful. Could I ask you just a question in regard to, is it fair to talk about any sort of maturity of those investments? Obviously you brought it up at the last result and you're talking about it again today, but is there a sort of stage or lifecycle investment that some of those investments are closer to fruition versus where we were six months ago or more historically? Yeah. They do vary. We've had some that have come in very quickly. Some take longer. We sort of don't do Horizon 2 if we don't think we can get a return on it within 3 years. These are at various stages. If you look at sort of Aikya is about to pop, Langdon will take longer. A number of the initiatives within affiliates, I mean, Metrics, there'll be revenue coming in from their initiatives in the second half, but really it'll be much bigger FY 2024, FY 2025. Similarly, things like FiveV, you know, they're doing a lot. They've added, you know, they've probably doubled the number of people they've had on since we joined with them. That'll be a 24/25 story, particularly 25. Yeah, I know we ask you to be patient and we have to be patient ourselves, but the, you know, the big story will be sort of 2024 and 2025 and beyond. To that as well, Ian, if I just might add. Palisade Impact with a $450 million odd dollar raise out of the gate, $250 million dollar target raise, they haven't really drawn any of that capital yet to start deploying. It's not reflected in our flow numbers. As they start to deploy that capital, it will get reflected and obviously that will have them produce a profitable revenue line. Yeah. Yeah. Profit line. Yeah. That's helpful. Thank you. Your next question comes from Nick Macgregor with Berenberg. Please go ahead. Hi, guys. Just a question around the dividend. You paid out a 100% payout ratio in the first half. Is there anything to read into that, in terms of confidence around the second half, or is it more about having executed on the M&A, so you're being diligent with your capital management? Yeah. It's probably a bit of both, Nick, but the main logic that our board applied was, we are confident this level of performance fees is just very surprisingly low. You know, recognizing that paying out 100% felt still pretty conservative. Yeah, if you wanna call it some signaling of future confidence, that's absolutely correct. We think this is a trough in earnings with those performance fees. We're always mindful about, you know, we like to have dry powder, we like to keep cash. We've also said that paying out dividends, because we've got all the franking credits there, is a discipline on ourselves. If we want capital, we should ask the market for it, which we've already done to some extent a year ago. Just to, obviously, the management margin comments that you made at the full year around the 20% run rate, that had assumed a smoothing out of the Metrics origination fees, but it's fair to say that that's more skewed to the second half. Yeah. to year given some of the things that slipped period, into the second half. Is that right? That's right, Nick. You know, we made that comment in good faith. We don't seek to mislead. There's no mileage in that. It's always a bit dangerous. We made the comment. It was sort of an annualized revenue comment. Yes, look, with the benefit of hindsight, I should have called out the H-one, H-two thing. Yes, it was a sort of like a per annum comment. The Metrics H-one, H-two thing has sort of come out and embarrassed us a little bit. Also, I think Hyperion and ResCap, you know, that surprised us a bit. That's held back our revenue. Our revenue growth hasn't been as strong as we were fully expecting. Markets have been what they've been. They went down, they've come back up, but growth and REITs have been particularly subdued. We're a little bit embarrassed by that comment. It's still true, you know, and we look for a recovery in those revenues. The transaction fees to that point with Metrics tend to cluster around three particular periods in the course of the year. Yeah. At the end of December, just before Easter, and then around June, so just before the end of the financial year, to give you further context. There tends to be more in the second half than the first half. We had the additional thing that some that were expected in December trickled over into January. Just in, when you look at the flows, we can work out roughly that Metrics had about AUD 1.1 billion, I think it flows for the half year. Would those have all, or I think it'd be at the rough ratio of about 40%-45%, have an origination element? Would those have had originations attached to them in the first half? Is that again adding to that balance of originations that probably slipped into the second? Some did, but yeah, there's a sizable chunk will be H-two. I mean, just in terms of the profitability of Metrics, because it is growing into a larger contributor to the group, can you give us a sense on some of the Horizon 2 investments that they're making, not just in asset management, but in other parts of the, of the credit space? I think it's known that they've done some things with Payright. They've moved to a controlling stake in that. I think Andrew Lockhart has been clear that they are working hard to build a call it non-bank lender capability, which will be large. What they call Metrics Business Finance will be large. It's sort of SME lending and so on, but they're moving into sort of adjacent areas. They have big plans, and those plans are being executed. That costs them quite a lot, which is good. We're happy with it. We're talking quite large scale. The other two components would be real estate equity. They'll have a new fund coming to market during this particular half, also impact of sustainable finance initiatives. Both ethical as well as sustainable strategies for the market as well. Those have incurred additional resources and costs as well to the business in expanding those areas. The additional business lines that they're looking to get into, is that the expense and then obviously the equity account of losses from Payright? Have they been included in that AUD 6.5 million comment for Horizon 2 investments? Yes. There's a lot of cost in there in Metrics. They just expense it as we do. Now, I can't assure you of every dollar of the accounting, Nick, but I know there's a lot of expense. People, legal costs, all sorts of things. It's quite large. If we put Metrics cost step up to the side, 'cause that was about AUD 20 million in FY22, and obviously the annualizing it and increase into 23, were there any significant incremental investments made amongst other affiliates in the first half? Oh, my goodness, it's ongoing. We set out a few examples in that slide on Horizon 2. There's so many of them, Nick. It's like every one of our affiliates has added people and are doing new and additional strategies, sort of capitalizing on their standing in the market. It was always to plan that Spheria would add global, Firetrail would add smalls and global. Antipodes are adding additional strategies. You can just go through them all. Five V's adding. Yeah. ResCap added the GLI and real assets teams a while ago. Yep. ResCap have added, GLI and real assets. I mean, there are models- The annualized incremental investment wasn't material, given you're at AUD 6.5 versus AUD 12 for the whole year last year. It's sort of a small step up, but not- Yeah. not gonna step change traditional investing. Yep. Those estimates, they're only where we identify very explicit defined initiatives. They're net. While the revenues haven't come through at the rates we've expected in the half, and they have started coming through, so that's a net figure. Yeah, we net off revenues that have come from any Horizon 2. This is. You know, our affiliates have been doing this for some time, and they've got the foot to the accelerator. Plato's doing some new strategies. I mean, I could go on and on. Maybe just to I'll wrap up so I don't ask too many questions. The principal investment losses, your share was or seed investment losses within the affiliates was about a AUD 1 million drag in the half, and it was a AUD 5.7 million drag last year. Can you comment on what particular strategies those are invested in? If the rebound in Hyperion Global got 15% absolute for January, ResCap's up sort of 7% or 8%. Does that help that movement, that mark-to-market turn into potentially a profit as we sit here in the beginning of second half? Yeah, absolutely. The largest amounts that affiliates have invested in their own funds are Hyperion, ResCap, Antipodes. They're the biggest ones. You know, Hyperion have quite a lot of seed there. ResCap have always had quite a lot in their own funds, and that's all ongoing. These are just mark-to-market unrealized losses that go through their P&L. Yes, as of January, that would've turned, and they would've turned into positives. Who knows for the rest of the half? They shouldn't be the big net negatives that they've been over the last calendar year. All right, thanks. I'll jump back in the queue. Your next question comes from John Hynd with Goldman. Please go ahead. Good morning. Thanks for taking my question, gent. My question's been asked, but perhaps drilling down on performance fees again. Metrics had a pretty good year with performance and then capacity opportunity. Notwithstanding the comments you made, I think you're guiding us to a greater contribution in the second half, you know, on a year-on-year basis. Outside of that, and Palisade, can you give us some color on the meaningfulness of the affiliates? I think you mentioned there are 8 that are higher water marks. Are we close to them being able to contribute more meaningfully in the second half? Yes, sure. Yes, Metrics are annual performance fees, pretty much all, and Palisade as well. They're second half. I mentioned that we've got eight strategies at their high water marks and four within 2% alpha. In terms of numbers, AUD 10.7 billion of FUM with performance fees are in that first category. They're at the high water mark, so that's 37% of the total performance fee FUM. Another AUD 7.1 billion or 24% are within that 2%. We've got 61% or AUD 18.8 billion at high water marks or within 2% alpha. You know, we can all do our own estimates of what's likely to emerge out of that. My chairman counsels me not to go making forecasts about performance fees, cause every time I do, I get it wrong. I sure as hell didn't ever expect the performance fees to be as low as we got in this half, there you go. You know, that is looking quite good for the second half, who knows? I mean, some of them, there's AUD 7.7 billion that's a long way behind, you know, we won't get in the second half. That's Hyperion especially and some Firetrail perhaps. Plus, there's also individual mandates, John, which have struck at different time periods to the funds. Therefore, the capacity of those to earn performance fees is different to that of the fund vehicles. You know, Hyperion actually could be a good case in point of those when those mandates actually started. Their performance fee journey has been different to the funds. Yeah. Yeah. I mean, That's a good point, Andrew. ResCap's got a different, I guess, structure as well within its funds. It was well-positioned last time we spoke. Has the recent performance had an impact on the potential in the second half for ResCap? Yeah. Yes, that's right. Only 2 of the 22 strategies have a sort of an absolute return hurdle as well, and ResCap is one of those. ResCap is actually at its high-water mark. It's accrued performance fees, significant performance fees. The only reason it didn't collect last year was that the absolute return hurdle was not met. That re-rates have come screaming back in January. They're probably around their high-water mark. If not, though, I don't know, I have to look up the numbers. You can, you can look them up on their unit prices, but it'll depend on what happens in the next five months, whether they collect at the 30th of June. Okay. Thanks. Just moving on to that affiliate investment cost. I think at a gross level, we're sort of, I think, calculating about AUD 50 million worth of investment. Can you... Obviously, Metrics took up a lion's share of that. What were the other? Give me some color on the buckets by affiliate for that, for the remaining investment that were made so we could look out for that being added in time. Sure, John. The other places, there are the two new adjacent clinics in Palisade we've mentioned. There are costs in there. There are the new strategies and teams being built out within Plato. There are the additional GLI and real assets teams in ResCap, to a slightly smaller degree, but still there are the global team in Spheria and in the Firetrail global and small companies teams that have required additional people. They're the main areas. And, and the nature- Metrics. Sorry, Ian. No, no, I just said, and Metrics is substantial as well, of course. Yeah. It's definitely. The nature of those costs are that they're, it sounds like they're largely fixed, as well looking forward and how we think about the affiliate, the new baseline- Yeah. -affiliate margins. Yeah. The majority of it is people, and, those affiliates are staffed up to deliver those strategies. They don't need any more people as they go from sort of zero towards the capacity of them. You know, I mean, Hyperion staffed up for global. It's only got a few billion in that, but eventually, it's got, you know, north of AUD 10 billion of capacity, etcetera. All of those, they don't need to add people. As markets recover and you take FUM on board, there's serious leverage available, I guess. Absolutely. As their track record builds in new strategies, et cetera. Very, very strong leverage. Just on the offshore expansion, just finally from me, can you give us a bit more of an update on the progress there? Obviously, Langdon's been launched. You've made some key hires globally as well. Where are their focuses now? Can you generally give us an update on sort of how the KPIs are tracking and how are you thinking about that offshore pipeline specifically? I think that's probably one for Andrew. Yeah. Aikya and Langdon are going well. Yeah. Yeah. Let's start with Langdon. We've raised about CAD 50 million of committed and invested capital from financial advisors in Canada. They've gone on to five other top five platforms in Canada for their Canadian and global small cap mutual funds, which is almost unheard of. You need obviously pledges from financial advisors to get them on the platform to begin with. There's a very strong profile there is raising fairly capital amongst those channels. Of course, they're very high fee takes as well. I think, well over 1% plus a performance fee for those particular strategies. That's off to a very good start, and obviously, we're looking to bring into the Australian market and the U.S. market in particular in helping raise global small cap money. Aikya, the focus has very much been in the Europe, Middle East, and Africa, in terms of actual sales in the last half. The majority of that has been happening in wealth management channels rather than traditional institutional channels. Again, much higher fee margins driven from that business, mainly from the, from the large private banks in Europe, in South Africa, in places like Guernsey and others, which are traditional locations for a lot of these private wealth groups. They're in very good shape. They've secured another very strong global consultant on a top five. They're probably one of the best credentials managers in that stable today with global consultant ratings across the board. Sentiment until recent times has been relatively negative towards emerging markets, and that's now starting to turn. Obviously, emerging markets up 25% since their low points back in October of last year. People are becoming much more positive on emerging markets for new money. They're in very good shape, and we're just about to seed our very first U.S.-based investment, investor into our U.S. onshore vehicle, which will be a Delaware fund in the United States, which will happen in the first quarter. That's a committed capital from a client. Hopefully we can expand very quickly with Aikya now in the U.S. Seen very good search activity for Antipodes and also flows into Antipodes from the U.S. market and Canadian markets in particular. We've had several consultants over there which are actively supporting the firm for new money, looking to launch in addition to the global strategy a non-U.S. international equity offering as well to that market because still the majority of capital in the United States flows to partitioning U.S. and non-U.S. asset, assets rather than investing globally. We're seeing lots of search activity from the major consultants there in that global value space and a lot of interest as well in decarbonization mandates in that global value space. It's one of those areas very hard to solve for in the value-oriented style because they typically invest more capital-intensive, carbon-intensive industries. The climate change portfolio in that really helps align well with the net zero target of these asset owners and as a consultant. A lot of focus for Antipodes in North America, seeing this very good search activity in flows here in Australia and New Zealand too. AQ has been more India, but increasingly more of the Americans. Metrics secured its tenth Japanese client during the course of the half. Funding basically from Japanese corporate pension plans into that strategy. The next period of time, the Japanese allocator put mainly to work will be in February of next year. They tend to have a seasonal characteristic to the way they inject their flows. We're doing a lot of work in Japan as well in terms of raising money for Metrics, and we just secured our first client for AQ, which is expected to fund soon out of the region as well. Is that a helpful summary? That's a great summary. Thank you very much. The next question comes from Dylan Jones at Ord Minnett. Please go ahead. Morning, gents. Thanks for taking my question. Just wanna delve a little bit more into the affiliates' profit margin. The profit margin has swung around quite considerably during the last 12 to 18 months. Obviously got some things that you call down in the revenue timing impacts, market impacts and Horizon 2 investment. How should we think about the new normal for the affiliates' profit margin going forward? As Ian mentioned earlier, we're probably at the bottom in terms of the margin, given that the spending has been played on pretty heavily and we haven't yet seen the revenues come through. We would expect to see that happening from here. Whilst there will be additional incremental cost added, we would expect to place the revenues to pick up. Yeah. Beyond that, it's gonna be, you know, at what rate we get flows and so on. We can all make our guesses at that when the market's gonna turn. Just to remind people, we have a lot of operating leverage when markets turn, you know, and we just continue to build more and more and more capacity and operating leverage. We think we've got AUD 300 billion of capacity and all this Horizon 2 keeps growing that capacity. Got it. No, thanks for that. Just maybe on M&A opportunities, I guess, firstly, how sort of appealing evaluations are getting at this point in time? I mean, clearly you've got the balance sheet capacity, but with, I guess, the volume of the Horizon 2 investment currently being undertaken, would you sort of say that you have, I guess, the time and sort of intangible capacity to take on another affiliate at this point in time? We certainly do, Dylan. It's not because of sort of capacity that we haven't done things. We have our own quality standards, and we are not gonna proceed with a Horizon 3 if it's not high enough quality. Our valuation is also relevant, but, you know, we're prepared to pay a fair value for things because we think we can then add value by helping with distribution, et cetera. It's not as if we're looking for bargains out there. High quality bargains. Quality is very important to us, and then we look at valuation needs to be reasonable. Look, there are definitely gonna be possibilities, but we're not gonna go ahead with anything that's not really good enough. Everything has to align for us. Got it. No, thanks for that. I'll leave it there. Yeah. We, we're under time pressure to get to a meeting. Sorry, have we got more questions? No, there are no further questions. That's great. Look, thanks, everybody. Sorry I went on a bit. Thanks very much for your time.