Good morning, and indeed good afternoon. Thank you to those of you who are joining us today to hear from Polar Capital, who announced their results earlier this morning. If you have not seen it already, you can find a note on our website with updated forecasts. The purpose of this afternoon is to hear from the management team and then take questions from the audience. As ever, please feel free to submit questions as we go through the presentation, and we will take as many as we can at the end. Without further ado, let me hand over to Gavin Rochussen, CEO.
Hannah, thank you very, very much, and good afternoon, everybody. Thank you so much for joining us this afternoon. With me, I have Samir Ayub. He is our CFO. I also have with me Iain Evans, who is currently our Global Head of Distribution. As you may have seen, we also put an announcement out this morning that he is my successor as Chief Executive. We will talk a bit about that later on, once I have been through the results and Samir has been through the financial aspects of it. The year has been a good year for Polar Capital. I think if you compare our results to many of our peers, we have actually stood up reasonably well. Obviously, we do not want to get too overconfident, but core operating profit increased 27% for the year-end of March, with operating margin increasing 29% to 32%.
We had positive net inflows, albeit modest, in the 12 months in a very, very challenging environment. Our average AUM, which obviously drives revenue, was up 17%, notwithstanding the fact that our AUM point to point was marginally down. Average AUM was up. The big inflow story is that of emerging markets, where we saw a lot of inflows, particularly in the first quarter of the financial year. That team is now the third largest in terms of AUM at Polar Capital. All of this has led us to maintain our dividend at 46% share, the total annual dividend. Whilst the market uncertainty persists, and there is a lot of uncertainty at the moment, interest in Australia remains very strong. Iain will give more color on that later on.
Very briefly, just in terms of market perspective, I won't go too much into detail here, as you've all lived with this over the course of the year. Suffice it to say that obviously the post-year-end period, in other words, April, May, and June, has been more volatile. April, particularly so, given the tariff announcements on the 2nd of April. Interestingly, markets actually rebounded relatively quickly after that first shock. Literally within the week, they were back to where they were prior to the announcement. It is an interesting time. I think markets have become slightly immune to some of the negotiating tactics of the administration and seem to be taking things within their stride. Markets are currently almost at an all-time high for certain markets. Fund performance and capacity, again, very, very briefly. What that shows is the performance of all of our key strategies since inception.
The bars above the horizontal line indicating the outperformance versus their respective benchmarks. Below that line is underperformance against their respective benchmarks. The color of the bar depicting first quartile dark blue, second quartile light blue, third quartile amber or orange, and fourth quartile is red. They are listed in sequence of inception. On the left-hand side, those are the longest-standing funds. You can see performance longer term is far better. Some of the more recently launched funds, obviously the earlier days, they've had more challenging times. Of particular mention is Smart Energy and Smart Mobility, quite significantly below benchmark, although benchmark in this case for this chart is MSCI ACWI, so All Country World Index, which is what these funds have on their fact sheets as their benchmark.
In reality, these funds are measured against their peer group index, which effectively is a peer group of holdings that actually can hold in their sustainability funds. Against their peer group, performing very, very well. A slightly misleading chart in that we are obliged by compliance to reflect MSCI performance here. Next slide shows us performance in quartile ranking. Again, exceptional performance, 100% in the top two quartiles since inception. High 80s over five years, 91% and 84% May this year and last year, top two quartiles over three years. Exceptional peer group performance. Although it should be noted that we are not measured only by our performance versus peer group, active peer group, but also performance against benchmark, which is what the next slide shows us. When measured against benchmark, still very, very good long term, but more challenging in the shorter term.
This is to the end of May, so it does take into account the really, really difficult April month. We decided to show the more current performance. Of course, it's improved since then as well. Again, we'll go into more detail a bit later on, but healthcare really suffering performance in that volatile period and also in the current quarter outflows, given the sentiment that has changed for healthcare in particular. Capacity, not going to dwell on that other than it hasn't changed that much since last time I reported this. So about GBP 66 billion of total capacity, GBP 45 billion of remaining capacity. Not all of that capacity is sellable. Some of it is in funds that are just out of favor or underperforming. Key to this slide is there is significant capacity in four of our strategies, which actually are in inflow.
Global insurance, healthcare, international small company, and emerging markets. These are four strategies that had inflows in the last 12 months. On that, I'm going to talk a little bit about flows. Iain will come back to that in his capacity as Head of Distribution. You can see our progression of AUM, an all-time high of GBP 23.4 billion in September 2021. That just precedes the interest rate hikes and obviously the peak of inflation. As you all know, we saw markets reprice on high interest rates. Yields had a big change. We saw AUM come down, and we saw outflows. We've endured in the last three years, two of those were years of net outflow, and the most recent year was a marginal net inflow. That was all precipitated by effectively sentiment going against equities. AUM recovered significantly.
You can see March 2024, GBP 21.9 billion, September 2024, GBP 22.7 billion. At the end of June, or certainly on the 20th of June, a couple of weeks ago, GBP 22.6 billion. Almost back to where it was at the peak. A lot of that being driven by markets as opposed to flows. That shows you the top graph shows you what is happening in the industry. That is global active equity funds industry-wide. You can see in the last eight years, 2017 to 2024, net outflows in most of those years. 2021, which was the tail end of the whole COVID ramp-up and obviously pre the interest rate changes, was a marginal year of inflows globally. Polar has actually fared quite well. The bottom chart on that page, you can see in those last eight years, Polar has actually had net inflows in four of those eight years.
2025, in fact, five of those eight years, 2025 was a marginal inflow. You cannot see it on that chart because it was quite marginal, GBP 12.3 million of net inflows on the back of significant gross inflows and gross outflows. Total net inflows, you can see that is done by month over the year. You can see dominated by the first quarter of the financial year and in itself dominated by emerging markets net flows. Next slide shows gross and net by strategy. You can see emerging markets and Asia, significant inflows, International Small Company, which is a recent launch with promising early flows, Global Healthcare, Insurance, Japan, marginal inflows, European small cap, small inflows. Then, of course, much lesser outflows, Global Technology, European Opportunities, North America, UK Value on the right-hand side.
I think interestingly on the slide, what really is actually quite important and encouraging is you see gross inflows and gross outflows. It's not just about the outflows. Polar has done exceedingly well in terms of generating gross inflows to almost surpass in the case of Global Technology and European Opportunities, but also U.K. Value, almost exceeding the gross outflows. This really comes down to managing a very large backbook of mature assets where you do see general churn of the older assets under management. Calendar year to date, again, we'll turn a bit to this later on, but this is effectively showing what's happened in the last quarter. You can see, given the volatility of the markets, given uncertainty created certainly by the Republican administration in the last quarter on tariffs and other geopolitical tensions, we have had outflows.
Again, just to be aware that it has been a more challenging quarter. I'll hand over to Samir to take us through the financial results.
Thank you, Gavin. Thank you, Hannah. Having just seen the profile of what's happening during the current quarter, we go back and just take a look through the last 12 months. The normal format of the next few slides, I'll count it through the highlights of the overall P&L. We'll explore the balance sheet and round up with the dividend. Essentially, over the last financial year, average AUM as Gavin indicated was up 17% to GBP 22.9 billion. That's really driven the net management fee revenue line, which was up 16% in turn. That was managed on an average net management fee yield, which was fairly consistent, 78 basis points year on year.
Now, the first point of guidance for the next year that I'm looking to provide the market is over the last few years, anyone that's followed us will have heard me say to expect a net management fee yield decline of one to two basis points each year over the medium term as we look to manage the change in product mix and therefore the fees and therefore the impact on net management fee yield. That guidance still holds over the medium term. Over the next 12 months, the guidance is to expect at least two basis points to arrive to that line. Therefore, the expected fee yield for FY2026 is 76 basis points. The reason for that is roughly half of that will be the normal product mix changes.
The other half will be delivered by a fee renegotiation on our technology trust, Polar Capital Technology Trust, which comes into place as effective 1st of May 2025. Those two things combined lead us to indicate that fee yield for next year will be 76 basis points. The higher average AUM, higher management fee income for this year feeds through, combined with managing the cost base prudently, feeds through to core operating profits being up 27% year on year to just under GBP 57 million for FY2025 at an operating profit margin of 32%. Again, managing that cost base prudently provides evidence of the operational gearing that is in place. That kicks in very, very quickly if things are going in the right direction, as average AUM expansion this year has proved.
The cautionary note that I would say is that we're starting this financial year on a slightly lower AUM. It has bounced back through to the end of June, as Gavin said, but that average AUM has been slightly lower for this first quarter. One to watch. Again, it isn't a linear expansion all the time. Therefore, not to extrapolate from that 32% just yet for this year. The other key line, important line of our profits is delivered through performance fee profits. Again, over the last few years, you will have heard me say that the expectation should be of a low to mid-single digit performance fee profit number to be delivered. That is especially true, again, given over the course of this financial year, we have taken performance fee profits off our Technology Trust and our technology open-ended UCITS vehicle.
Therefore, that average that has existed for the last few years certainly is the right average to think about as we move forward. The third line of profitability is other income. That is, remember, mark to market gains and losses on our seed portfolio net of hedging costs and interest income on bank balances. When you pull those three lines of profit together, adjusted total diluted EPS for the year was GBP 0.535, up 22%. Really, that increase in earnings has allowed the board to maintain that second interim dividend at GBP 0.32 and therefore maintained total dividend of GBP 0.46 for the full year. If we move on, please, and look at the overall cost base for the business.
Really looking at the chart on the right-hand side of that slide there, the two main drivers of the overall operating costs and finance costs at roughly GBP 147 million for the year, two things. One is with the higher profits for this year, variable staff compensation costs, which are by far the largest component of our overall staff compensation costs, have tracked in line with those increasing profits. Remember, there is a very well-defined profit sharing or revenue sharing model in place for all of our investment teams that really drives that variable compensation line across the firm. The other big change this year is a non-cash impairment write-off of intangibles, which I'll come back to later on.
If you except exceptional items, non-cash exceptional items, overall operating costs have increased 11% year on year, which again gives you an indication of how carefully we manage the cost base over the long term. The next slide takes a look at non-staff compensation related other operating costs. These are the costs that are slightly more fixed in nature. Very quickly looking at a couple of lines, we've done slightly more on the technology line and the IT spend, but mainly driven by our push in the U.S., where we've taken on that new International Small Company team that arrived halfway through this financial year. Therefore, technology-related spend, we're setting that team up. We've invested in a few back office systems to, again, put us into good stead for future growth.
We are spending a bit of money very carefully on AI-related proof of concepts to, again, find those incremental marginal efficiencies to really drive future growth and manage the cost base over the long term and find those edges wherever we can. The other line is office space, where we have done a bit more. Very carefully tied to the push in the U.S., office space for the new International Small Company team and office space for the distribution team as that has expanded in the U.S. There was a one-off refund in the prior year, which provides the remaining balance of that year-on-year increase across that rent line. Across most of the other lines within those operating costs, we have managed to find cost savings wherever we can. Overall, other operating costs are 1% down compared to the prior year.
On the right-hand side, we've set out that impairment charge on intangibles. Again, it's a mix of amortization and impairment related to the Dalton intangibles that we acquired as part of that acquisition. Really, that's been a mechanical exercise in looking at the discounted present value of those intangibles and given the decline in AUM faced by the Melchior European Opportunities team in that space. That's the team behind those intangibles. They've been in an incredibly difficult space over the last couple of years, European equities, but also especially European mid equities. That decrease in AUM has really driven the mechanical accounting calculation for that impairment charge. Again, a reminder that as a non-cash exceptional item is the way that we've treated it. That write-off does not impact the cash flows for the business in this financial year.
If we move on, we look at the first of our two slides on the balance sheet. The first slide, total cash and seed investments of roughly GBP 160 million at the end of the financial year. The change in the seed portfolio has really been the International Small Company team coming online through the year and that fund being seeded. As we allude to in the presentation further on, that team is now above $100 million. That has been really, really pleasing to note over that short period that that team's been going. On the next slide, we look at capital from a slightly different perspective. We look at excess over regulatory capital. That surplus position is roughly GBP 65 million over our reg requirement of GBP 26 million, which has held flat year on year.
Really, the other key thing that I draw your attention to is for the last number of years, we have very clearly laid out our thinking and our framework for use of capital. Again, those four principles remain intact, seeding new product ideas for new teams and product extensions for existing teams. That really forms the R&D side of our thinking and our business. We will look to continue to maintain a strong balance sheet as much as possible, both for future growth, but also to ride out challenging periods that we have seen over the last couple of years. We will continue to return capital through ordinary dividends. We will also look to do share buybacks. Historically, we have done them through the EBT. Historically, we have done them to mitigate existing equity incentive plans.
As you move forward and move to the next slide, again, pulling everything together, increased earnings for this financial year, strong balance sheet. Therefore, with those enhanced earnings, the board were able to maintain that second interim dividend, as I said, and therefore the full interim dividend at GBP 46p for this financial year. That equates to a payout ratio of 86% of total adjusted earnings for this year. Our long-standing policy remains intact, range of 55%-85% of adjusted total earnings. Again, I'm sure the question will arrive, so I will try and explain that, but very happy to pick up the conversation again later on. As we look to dividends for FY2026, the key decision point, really the next decision point is in November when we come out with our interim results.
The way we will look at this and approach this is to look at earnings for the year as they evolve over the financial year. We will look at the outlook and the market conditions that surround the business over a short and medium-term view. Again, we will look at our balance sheet strength and see how best to deploy that within the framework of capital allocation, as I have explained, that we have sort of had in place for a number of years. In terms of sensitivity and stress testing, you will have heard me say before every GBP 0.01 of dividend that the board declares and that we pay out equates to roughly GBP 1 million of outlay for the business. That gives you some sense of the strength on the balance sheet and how that could be deployed and to what extent we might feel comfortable deploying that. With that, I will pause and hand back over to Gavin for strategy and outlook.
Thank you, Samir. Just looking at the strategy, and you will all recall the strategy has been growth with diversification, so both not just growth for growth's sake, but diversification and rather satisfactory diversification and distribution footprint. You can see almost 40% of total clients are non-U.K., essentially predominantly Europe, 33% of European clients through seven principal key European markets. Really, really good progress in terms of diversifying the distribution footprint. More of that from Iain a bit later on. The next slide just shows you year on year in chronological sequence which funds we've launched and which ones we've closed down. Clearly, not everything works, and we'll be the first ones to admit that not all funds are a success. Key for us is making sure there's housekeeping.
To make sure that we're actually closing those that actually struggle to perform, close them down and free up operational and distribution capacity for those that actually do well. International Small Company Fund on the next slide. Again, we mentioned this at the half year. This team was launched in September 2024 in mutual fund format. This is specifically for the U.S. investor base. This is as we try and really, really focus on growing our U.S. client base and a very, very, very promising start to AUM growth in the first nine months of this fund post-launch. They are now through $100 million in terms of AUM and a strong interest of pipeline going forward. Team based in Tampa, Florida, and primarily focused on managing equity ex U.S. This is all companies world ex U.S. equities, mainly for the U.S. investor market.
The next one is obviously the flow story for the year. We have had material inflows achieved by the Emerging Markets and Asia team during the year. This fund was launched in the summer of 2018. It is now growing to be the third largest team by AUM at Polar Capital. There is a strong pipeline of interest for this going forward. The other one for note is obviously the Artificial Intelligence Fund, which was launched in October 2017 on the next slide. What this does is it shows significant strength and appetite for this AI fund. Just to remind you all, this is not a pure tech fund. This is a global equity fund measured against MSCI equity. Essentially, what it is doing is looking to invest in AI beneficiaries.
Essentially, what they're doing is avoiding those companies that are disrupted by AI, but actually investing in those that are beneficiaries in terms of production efficiency, business efficiency, margin expansion, and obviously profit improvement, and therefore share price improvement. It's been an inflow, certainly over the last year, and it's currently an inflow. A really compelling story managed by our core technology team, the largest team at Polar Capital. Over the page onto the next slide, just to mention one of our smaller funds, but it's an alternative fund which provides diversification for the business. This is managed by our convertible bond team. It's an absolute return objective, and it's an absolutely outstanding performance. It's never, ever had a calendar year of making a loss. Its best calendar year return was 22.9%. Its worst year was 0.39%.
Its 2024 return 9% and 2025 year to date 4.5% absolute return. A fund based on its performance and track record is currently receiving net inflows. Finally, just to talk a little bit about third-party recognition, which is important, bearing in mind our key client base are intermediaries. There are five key awards we have received during the period under review. Of note is the Morningstar Award for Investing Excellence. We are particularly pleased with that one, with the Belgium winner and shortlisted in Spain and the U.K. It is always very, very good to get third-party recognition and also for clients to see that. I will turn to the next slide, which is important, in that it was announced this morning that I will be stepping down and retiring as Chief Executive after eight years. The board conducted a comprehensive global search.
They did interview very, very good, credible candidates from around the globe. It was decided that for Polar Capital, Iain Evans, who's currently Global Head of Distribution, would be CEO designate. I'll formally hand over in September 2025 at the AGM. Iain takes over. He has 30 years of experience in the industry and two decades of experience at Polar Capital and has been responsible for the phenomenal success in the distribution and diversification of the distribution footprint. On that note, what I'm very comfortable doing is letting Iain say a few words to you. Also, if you do want to ask Iain questions, following that, what I will do is get back to the summary and outlook. Iain, over to you.
Yeah, thank you, Gavin. Thank you, Hannah. Yeah, I'm going to say I'm delighted to be stepping into the role and honored after 20 years at the firm. Over that 20-year period, I've seen the company grow both in size and geographical reach, but it's not been a straight line up. We've had challenging times and easier times. I think what sets us apart is that we are differentiated in what we're doing or what we do. Over the last 20 years, we have focused, been wholly committed to active management. As Gavin went through one of the earlier slides, it's been a challenging period for active fund managers over the last eight years. Last year was particularly challenging with record outflows. As a business, we've held up well in that context.
I think if we continue to focus on what differentiates us, elevate what we already do well, and look to improve wherever we can, then we can continue to succeed in spite of a challenging environment.
Iain, thank you. I mean, what I'll do, just I'm just noting the time. We're half an hour in, and I'm aware that some of you have other things to get onto. Just to summarize then, strong balance sheet has enabled a maintained and covered dividend. Very, very important. It is covered. AUM has recovered very, very quickly after recent volatility in the current quarter. There is growing interest in our US domiciled mutual fund range, in particular, International Small Company Fund. Also key, some of you will be aware, is that we've just completed the corporate event for the Financials Trust, where we did go through a tender offer.
That trust now has GBP 350 million in assets, providing a good platform for growth going forward. The last time this fund went through a tender offer was in COVID in 2020. This fund went to GBP 600 million or GBP 612 million, in fact, in total from a base of GBP 100 million in 2020. Also, we have announced CEO succession. When I joined Polar in 2017, eight years ago, I did say it was a five to seven-year plan for me. I am delighted to have had a most enjoyable eight years. It has had its challenges. It has had its fantastic moments as well. I am very pleased to be handing over to Iain. On that note, very, very happy to field any questions.
Super. Thank you very much. How much exposure to local government clients does Polar have?
What is your view on the prospects for the business on Local Government Pension Schemes going forward?
The short answer to that question is, at the moment, we do not have any exposure. Although historically, we have, I can think on two occasions, most recently pitched for a U.K. mandate. One of the challenges there, I think, for us as a specialist firm is they do run their portfolios to very, very tight costs. Interestingly, I attended the Investment Association Annual Conference last week, where there was a very good session on LGPS. There was a representative there, and they were saying they are looking to focus more towards value, actually, than purely on cost. That is a change of mindset, actually, for the pension fund industry. Yes, currently, no exposure.
Thank you. Could you give a bit more detail on the GBP 13 million impairment, please?
That impairment, Hannah, is reflective of the intangible assets that were on the balance sheet as part of the Dalton acquisition. That was a transaction that happened in, completed in early 2021. Really, the main vehicle within the sort of Dalton acquisition was a European Opportunities Fund and a fund that is biased towards small and mid-cap European equities. Now, as we have gone through 2020, the initial bedding in of the team and that business happened very, very well. What we could not have foreseen was, obviously, the Russian invasion of Ukraine and the impact that had on the appetite for European equities in general, but also the impact of interest rates, etc., on small and mid-cap equities. Effectively, over the last three odd years, those have been really tremendous headwinds that that fund and that team has really struggled against.
Performance has not been able to withstand either. The net result is AUM of GBP 1 billion when that transaction completed is now close to GBP 200 million. Those are the facts. From an accounting perspective, when we run the discounted present value of the intangibles versus future cash flows, the simple mechanical accounting exercises, those intangible assets, it is very difficult to hold them on our balance sheet. Therefore, remember, roughly half of that impairment, roughly GBP 5.5 million, was written off at the interim stage. The remainder, totaling up to that GBP 13.6 million, is written off at the end of March when we rerun the calculation. The accounting exercise leads us down to a stage where that needs to be written off. Having done the exercise, there are no longer any intangible assets on the balance sheet.
We move forward and navigate the environment with that team on a forward-looking basis. The team is still there. There are clients still invested. We progress from the point here on forward.
That leads me quite nicely on to the next question. What are Iain's views on acquisitions, given that the last two have not necessarily been a success the team would have hoped for?
I mean, I think open-minded is the answer to the question, Hannah, despite those two more recent challenges. Because in our history, we did an acquisition back in 2010 of HIM Capital, which was a financial specialist business. That was very successful. One of our most successful funds, Global Insurance Fund, which is north of GBP 2 billion in assets. When we acquired that business, it was GBP 60 million. I think, yeah, open-minded.
Thank you. A couple of questions on strategies. One, what is the top of your wish list for new funds and where do you see the gaps? The other one was, do you have a fund that's main focus is in infrastructure projects, investments, either in the U.K. or globally?
Can I take this one, Iain? Okay. I think top of the wish list at the moment is an all-cap international fund. This is a strategy which we'd like to launch for the US client base. This will be a mutual fund format and obviously also segregated accounts if appropriate. Essentially, equity ex US, but all cap. The current team in Tampa, Florida is smaller companies. We are aggressively interviewing teams and looking. That's effectively to fulfill our desire to grow the U.S. client base quite significantly. This is specifically for U.S. investors.
There is a lot of anecdotal evidence at this stage, and I think it's coming through more empirically now as well, Iain, in that U.S. investors are increasingly looking at non-U.S. equity exposure as an investment destination going forward. Europe so far has probably seen passive flows from U.S. investors, not active equity flows. We are counting on international or EFA mandates as being the place to be in the next decade. Second question, Hannah, just remind me what that was. That was on infrastructure. Do you have anywhere that's the main focus, either U.K. or globally? No, the answer is no. We have had a look in the past at dedicated thematic infrastructure teams for a number of reasons. We have always walked away from them. No, I mean, our individual funds will have exposure to certain infrastructure companies, but they are not dedicated.
Okay. Picking up on your comments there about the U.S., if the big opportunity is winning new flows in the U.S., can you give more color on what you're doing to grow these and your success so far?
Yeah, thank you, Hannah. We have been building our distribution team capability in the U.S. We now have a team of five covering the U.S. market. Their initial focus is on the wholesale channels, really mirroring the successes we've had both in the U.K. and growing the business in Europe. We are taking that same pattern across to the U.S. We have now three mutual fund products. The team is able to market those freely to U.S. investors. They can also market our other existing strategies, but as strategies, so they could be launched as separate managed accounts.
We'll look to, as Gavin said, as a priority to add international all-cap. Once we add an international all-cap fund, we will likely look to bolster the team further, not hugely, but by another two or three individuals, probably taking that team to eight. Okay, thank you. Sticking to the U.S., with Trump at the helm, are you seeing a move away from U.S. equities by global institutional investors? Certainly, lots of talk about it. I think, yes, is the short answer. When I was in New York in March, the tone had definitely changed from the same conference a year earlier. U.S. investors in particular are looking overseas. Last year, basically, the focus was almost exclusively on U.S. equity, domestic equity. Now, more than half of that same audience were looking beyond their own shores and overseas.
I would hope that in the next three to six months, we'll actually start to see that bearing fruit. As Gavin said, much of what's happened to date, and we can see it in European equities, has come via passives this far. I think that's really a reflection of investors viewing at least the initial move as tactical. Once that becomes a structural portfolio position, then I think active managers can benefit.
Okay. There's just another question popped up on that. These flows are moving more towards the U.K. and Europe as opposed to emerging markets, Asia, etc.?
So far, yes.
Okay, thank you. Let's have a look. What was the reason for removing performance fees from the tech trust? It doesn't seem particularly supportive of active management versus passive.
Yeah, I mean, I think in many ways, Hannah, we recognize that the pressure that active managers are under in the retail space and in the wholesale space, for many investors, actually, performance fees present a challenge because many of our wholesale investors are managing to very tight investment budgets and in terms of the overall cost of their portfolios. They increasingly struggle with the variability of performance fees. I think what we're seeing is in that wholesale channel, a move away from performance fees, but actually in the segregated account and institutional channel, perhaps the opposite happening. When we're pricing for separately managed accounts, quite often we're offering up both a performance fee-based fee structure and a performance fee-free structure and offering the choice. I think, actually, that's where we'll see performance fees more prevalent going forward and less prevalent in the retail wholesale channels.
Okay, thank you. Investment trusts have well-known advantages for active managers' NAV performance. Obviously, it's not a good time to consider new investment trust issuance, but are there not good opportunities for your teams to assume management of established funds with unhappy shareholders?
Yeah, I'm sure I have a go at that because, yes, it's an area we've looked at very, very closely. I mean, we run three fairly large, in comparison to others, investment trusts. Tech, as many of our investors know, is a FTSE 100 company. It's very successful, very large. It doesn't face the same threats that some of the smaller ones face from activism. I think that's fair to say.
We have looked at a large number, I have to say, over the last couple of years of investment trusts that have been either trading at a significant discount or underperforming or just subscale because an investment trust needs to have a certain size to make its costs worthwhile. The challenge for Polar, though, is obviously our teams run open-ended vehicles as well alongside the trusts. Often the team will not want to give up valuable capacity for another trust of possibly a subscale size. Often that is a stumbling block. The other stumbling block often is fees because the investment trust boards effectively have two levers. One is fees, and the other one is trying to outsource the management to a more effective manager.
When we get approached or when we approach a board and they say, "Well, actually, the current fees are X, but we actually want to pay X minus 30%," we have to think long and hard about that because essentially what that means is we're giving up really valuable capacity on highly specialist teams. Their answer is just, "Well, no, why should we do this?" It is an obvious question. It is a very good question, but there is no real obvious answer for it at Polar Capital.
Helpful. Thank you. An investor here perhaps looking for a few ideas. Can you give a few examples of what is in the Smart Energy Fund?
That is a good question. I guess.
That is actually directing towards the fund factsheet.
Yes. I think it is very simplistically, it is all things alternative energy. That from solar to wind energy to, yeah, battery power. They look at the entire ecosystem. They try and, again, without going into individual names, steer clear away from energy producers. They are underweight. They look at the process of electrification, etc., and the conversion to renewable energy and either the technology companies or the beneficiaries that play a role in that process rather than focusing on producers.
I mean, what they do very effectively, Hannah, as Samir said, is they focus on very specific verticals within the energy renewable space. At the moment, production is not too wide, but they will look at distribution. Energy distribution, energy storage is another key area. At the moment, they are very, very big on energy efficiency. How do you get more efficiency out of energy?
Particularly big data warehouses, which actually use a lot of energy, massive energy. How do you get more efficiency out of these big data warehouses and data centers that are being put up? That is what the team are focusing on.
Okay. We have talked about the heat going out of the U.S. potentially. Perhaps this question is directed there. How much of Group AUM does NVIDIA account for?
I mean, we will be underweight, I would say. I mean, it is a question that sort of the answer to the question changes every day because the teams will actually alter their holding. NVIDIA is over 10%, I think, currently of the index. In our usage funds, we cannot hold more than 10% of one single stock position.
Essentially, I think that the broad answer to that is we are underweight and could be underweight at any particular time because of usage rules. That is not the case, I think, within the investment trust, Iain. I think five different rules apply there. Certainly, segregated mandates, we do not have that same restriction.
Okay. Thank you. Are you looking at active ETFs?
I will direct that to Iain because Iain's team in the U.S. has been looking at this.
Yeah, we have, Hannah. We have looked in some detail in the U.S. and spoken to distributors, administrators. It is something we are considering. The challenge for us, I think, as specialist active managers, is if your underlying portfolio is 100% U.S. equity, then you can be non-transparent. You do not have to disclose your underlying holdings on a regular basis.
However, if you invest overseas and all of our portfolios are, well, one are international, then you have to give full transparency on a daily basis. As you might imagine, many of our portfolio managers are very sensitive about that because that is effectively their IP.
Okay. Yeah. No. Thank you. Second to last question, I think. I think this is trying to get a little bit of an understanding of whether you are aware of any successful or challenged exemption claims when it comes to holding Polar in an IHT portfolio.
Unfortunately, we're not aware of any successful claims. Again, this is an area where I think the ultimate judge and jury are HMRC, and they deal with these things on a case-by-case basis. There is obviously the default guidance out there. Again, the intricacies of each company are very, very different.
We're not in a position to put out how Polar might sit within individual portfolios. We are aware that a number of people do hold us with a view to planning, but that must be done on a case-by-case basis, unfortunately.
Thank you. Finally, with a new CEO, I assume the board's aspiration to reach GBP 30 billion AUM in the medium term hasn't changed.
Yeah, no, you don't have to cover that because essentially that was something we all said as an executive team about a year ago.
Yeah. Yeah. I think that remains a realistic aspiration despite the external challenges.
Super. That just leads me to bid you farewell, Gavin, and an enjoyable retirement.
Thank you.
And our audience for joining us. Samir and Iain, we look forward to hearing from you both in another six months' time. Congratulations, Iain.
Thank you, Hannah.
Thank you, Hannah. Thank you.
Thank you, everyone, for your support.