This call will contain forward-looking statements, including statements of current intention, opinion and predictions regarding the company's present and future operations, possible future events and future financial prospects. While these statements reflect expectations at the date of this call, they are, by their nature, not certain and are susceptible to change. The company makes no representation, assurance, or guarantee as to the accuracy of, or the likelihood of fulfilling any such forward-looking statements, whether express or implied, and except as required by applicable law or the ASX Listing Rules, disclaims any obligation or undertaking to publicly update such forward-looking statements. Participants recording this call may use such recordings for their internal business purposes only and are prohibited from making any part of such recordings available to the public without the prior written permission of the company. I would now like to hand the conference over to Mr. Tim Carver, CEO.
Please go ahead.
Thank you, and thank you everyone for joining us for our half-yearly result. We are joined here by my partner and our Chairman, Rajiv Jain, our CFO, Charles Falck, and our Head of Distribution, Steve Ford. Let's dive right in, and if we can go to slide three, please. Provide the financial highlights for the period. We ended the period with FUM of $156 billion. That's U.S. dollars. We had net outflows of the period of $15.1 billion. That was offset by about $7.2 billion in returns on our portfolios. We had net revenue of $397.2 million for the period, and net operating income of $301.8 million, each roughly 1.5% lower than the same period in the prior year.
Our board has declared a second quarter dividend of $0.0362 per share, a 90% payout ratio of our distributable earnings, and a slight increase over our Q1 dividend. If we go to slide four, for anyone on this call who doesn't know who we are, we're a global equity boutique. We've been around for about 10 years, and we've raised about $150 billion in that period. We tend to run concentrated, highly active portfolios. Our business is defined by a well-diversified distribution capability, well-diversified client assets by geography, client type, vehicle type, and strategy. If you look at the pie chart on the right-hand side here, you can see that we have a highly diversified book of business across four core strategies, where our international equity strategy represents just under 50% of the business, or of our assets, I should say.
Our emerging markets and global equity strategies, each just under 25%, and our U.S. equity strategy just under 10%. Our investment approach is to target high single digit to low double digit rates of return over a full market cycle, with significant downside protection and lower volatility. We have historically been successful in delivering against this, and this is what our clients expect of us. For those of you who have been on calls with me before, you know that I say that this business begins and ends with performance. If we go to slide five, I think it is no surprise to anyone that in the short term, our one-year performance has lagged the index. That is in a market where we have seen sort of historically extreme market returns. That is not atypical for the way we manage money.
In other words, when markets run like this, we oftentimes will underperform on a relative basis. I think that that also defines the primary driver of why we have had net outflows for the period, because we have had clearly some investors who have chased performance coming in and now are reversing that as our relative performance has lagged over the one-year basis. I think it is very important to understand this contextually. If we go to slide six, what you see is that our three-year returns across all strategies have compounded at double-digit rates of return. So right in line with what clients would expect of us, and frankly, maybe slightly better than we would expect of ourselves. We have done this with substantially lower volatility.
If you go to the next slide, you will see that our downside capture ratio is significantly better than our peer group, and we have lower volatility than the market. What this means is that for our core client base, over the past three years, they are experiencing exactly what we have set out to do, what our goals are, and what they would expect of us. That does not mean that we will not continue to have outflows by more short-term oriented investors. It does mean, I believe, that our core client base, our core consultants that support us, our core institutional clients, our core platforms, all recognize what we set out to do over the long run and are satisfied that we are accomplishing that goal.
If we go to the next slide, you can see what this means to the business over the past three years. What we have tried to do here is show a bridge from where our assets were three years ago, adding or subtracting net flows, and then adding the total returns from our various portfolios. As you can see, that has led to a very robust, very resilient, very stable business. We will get into a little bit more details on this throughout the presentation, but before we go into any more depth on this, I want to hand over to Charles and ask him to go into detail on the financial result.
Thanks, Tim. I'll start on page 10 with the highlights. As Tim mentioned, we closed the half year at $156 billion. Average FUM actually increased a little bit for the H1 over last year and was at $164.5 billion. I'll touch on how that drives management fees and overall revenues on the next page as we get into a little bit more of the details. $397.2 million in net revenue resulted in net operating income of $301.8 million. And you see the strong operating margin in the chart on the bottom left, the line indicating 76% profit margin for the H1. This resulted in $228.4 million net income to shareholders. We adjust net income for non-cash items when determining the dividend, and you'll see at the top right, distributable earnings was $234.9 million, resulting in a dividend declared for the H1 of $211.8 million.
On a per share basis, that equates to $0.0716 per share or $0.08 of EPS. With that, I'll move on to the next page to comment on a little bit more detail on what's driving the income statement. As mentioned, the increase in average FUM resulted in higher management fees. Additionally, we were also able to increase the fee realization to, excuse me, 48.6 basis points for the H1. Those improvements were, as Tim mentioned, offset by a reduction in performance-based fees, which was lower this year, resulting in $397.2 million in net revenues for the H1, a reduction of about $5.8 million in revenues or 1.4%. Drilling down on the expenses, there's offsetting trends there. Compensation and benefits, as well as IT and services increased.
The former is a result of merit increases awarded to the staff and the latter of price increases from some of our data providers, as well as the applications and services that we consume. Those increases in expenses were more than offset by a reduction in third-party distribution fees, as well as a reduction in general and administrative, resulting in total operating expenses of $95.4, $400,000 lower or half a percent lower than they were for the same period last year. If we go down to the provision for income taxes, you see that that also improved, both on an absolute as well as a relative basis, and that is due to the apportionment methodologies in some of the state and local taxes that we're subject to in the U.S. So a positive development there that resulted in $228.4 million of net income to shareholders for the H1.
With that, I'll move on to the next page. Balance sheet. We continue to have a strong balance sheet, high liquidity with $168.9 million cash as of mid-year, and no debt outstanding. Moving on to the cash flow statement on page 13. We continue to have strong cash flow as a result of operations, and the predominant use for that cash is dividends paid out as well as working capital. You'll note on the bottom right, the board, and Tim mentioned this as well, the board declared a second quarter dividend of $0.0362 per share or $107.1 million in aggregate. That continues to represent a 90% payout ratio. And the dates on that will be ex and record date at the end of August, on August 26th and 27th. And then a payment date of September 25th.
Before I hand it over to Steve, I wanted to just take a minute to zoom out, and if you look at page 14, you see our history. This chart illustrates in the blue charts, excuse me, in the blue bars, what our FUM was starting at the end of 2020 prior to us going public and ending with the June 30th number that we just reported of $156 billion. I think this, further to the point that Tim made on our growth and our compound growth, I think this illustrates how much we've grown over this period of six years and how the flows and market performance have contributed to that growth and how they also compare in relative size to our overall asset size. At $156 billion, we are within 10% of our maximum FUM over the course of our history.
With that, I'll hand it over to Steve Ford for comments on our distribution.
Thanks, Charles. Appreciate it and good to reconnect with everyone again. I want to spend just a few minutes thinking about our client base and what I believe is part of the underlying resiliency that exists, while fully acknowledging that we've had a challenging short-term period in terms of net flows. Our team has been very busy being very proactive in engaging our clients all around the world, across all channels. You'll see that if you follow our written strategies and communications at all. I'd have you think about the core client here, which I think is probably more durable than the market appreciates through the lens of that, a long-term core client. You have to think about a client that's been with us, say, four or five years. If you move to slide 16, this is a very interesting way to look at it.
We talk about this usually as basic pure performance, but this is actually client experience because this is rolling five-year periods in all of our strategies. Look at the percentage of those experiences that are above the line or below the line. There's always going to be variations in performance. As you start to zoom out and think about what's the long-term experience of the core client here, it's actually still quite positive overall. Also, if you move to slide 17, you'll see that we continue to live up to our focus on downside protection, which is a huge element of how we think about compounding capital over time. Tim alluded to it in the downside, or more than alluded to it, showed it in his downside protection numbers and as part of that overall three-year compounded return stream that you see.
And then if you move to slide 18, the long-term risk-adjusted return picture remains quite positive. You combine that with, also I think, an underappreciated element is that call it two-thirds of our assets come through the wholesale channel. That is through our own efforts and through sub-advised partnership efforts. And within that, there is a large percentage that is actually taxable. So when you zoom out and you think about the long-term experience still being generally quite positive, combined with very strong absolute returns, many of those investors also have created a taxable situation. That does not mean that we are immune to performance variation. But I think it does create an additional stickiness in that part of the client base that is probably underappreciated. So if we move to the next slide 19.
We have covered this before many times if you have been on with us, but all of what I just said is in fact then bolstered by the fact that we have a very diverse business for a manager of our type by strategy, by geography, by client type. There is no meaningful institutional investor concentration to speak of, and there are literally thousands and thousands of clients that make up this overall diversity. Slide 20. If you follow along with our monthly numbers, there are no surprises here. The new data is just how it breaks down by channel. And what you see is actually a relatively consistent behavior this year across channel, which I think speaks overall to the type of investors that we approach regardless of channel.
And then finally, slide 21, I want to spend just a little bit of time actually forward-looking where I think there are perhaps some green shoots, especially as we expect our performance hopefully to mean revert. This is a view of our growth that we have experienced in retail managed accounts, and also active ETFs. And in particular, I want to spend a little bit of time on the active ETF. We launched our first fund in this category in the U.S. roughly a year ago. And despite having the most challenging one-year performance of our firm's history, we have seen this vehicle grow considerably. And so what we have done here is, I think, proved our operational capability, which requires an additional level of technical expertise to implement these vehicles in a tax-efficient way.
But in the U.S. market in particular, there is a strong tailwind for platforms to add these vehicles. And I think now that we have built a solid operational base to move forward from, I think there is significant opportunity for product development that exists in active ETFs, and we are hopeful to see that as a future growth engine. With that, I am going to pause there. I am going to turn it over to Rajiv Jain, our Chairman and Chief Investment Officer, and let him give you an update on current market outlook and portfolio positioning.
Thanks, Steve, and thanks, everybody, for joining. As you know, we've had challenging performance over the last 18 odd months. I think some of the things we do need to keep in context is that the two types of market conditions that we generally don't tend to do well, one is when markets are very cyclically oriented or very frothy and are coming out from a bear market. This is not atypical. However, I think there have been some things that we have grossly, we've clearly underestimated. One is obviously demand for compute, and the broadening out of industrial growth in almost all the larger countries in the world, maybe to the exception of China. As the earnings estimates continue to come through very robustly, in fact, if you look at last summer, NVIDIA was 35 times earnings, now it's 16, 17 times earnings.
I mean, I can go through a list of names which actually are selling at lower multiples today than they were last summer, when we had sort of cut our exposure to these areas in a meaningful manner. As you know, we do not have any philosophical issue owning these. We have owned some of these in a big way before. Including deep cyclicals, whether it's coming from energy, as you know, in 2021, 2022. We exited tech in 2021, bought back in 2023. So, we have owned all of these historically. As we reassess our exposure and looking at the demand, some of the data points that began to shift in February, March or thereabouts in terms of GPU rentals, in terms of the pricing for compute in general, and some of the other demand indicators that we're looking at.
It turned in February, March, and as a consequence of that, we began to sort of change some of the names that we owned, and where we are seeing fairly strong outlook on a go-forward basis. As we speak today, we are actually overweight technology. We are overweight semiconductors. The only portfolio that we are not overweight tech and semiconductors is actually emerging markets, where it is essentially South Korea and Taiwan, which is almost 40% of the index combined in tech. So we are slightly underweight, but all of the other ones we are actually overweight. We cut back quite aggressively utilities, healthcare, staples. Some of them did not do as well as we had thought. All the earnings picture have been okay in utilities, et cetera, but clearly could not keep up with the significant increase in estimates you've seen.
In fact, it's quite unprecedented the estimates revisions you've seen in some of these areas. Our view is that the valuations today, if you believe these companies have slightly longer duration, I think they could be reasonably attractive. So I think the portfolio looks meaningfully different to it. I think that's not atypical of what we have done. This is not the first time I've underperformed this much. In fact, unfortunately or fortunately, I've been here before. I've underperformed far more than this, and we recovered. That is part of active management. Our core proposition is being adaptable. We talk about it all the time, but it does mean that from time to time, we will miss some of the trends. But the question is, does the fundamentals want to come back in those areas or new areas?
I think we feel quite excited in terms of how the portfolio's positioned, and what the demand drivers are. And we remain optimistic about our longer-term performance outlook. Tim?
Thanks, Rajiv, and thanks everyone. I think we can open it up now for Q&A if anybody has questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask a question. Please limit your question to two questions at a time. If you wish to ask a further question, please rejoin the queue. Your first question comes from Julian Braganza with Goldman Sachs. Please go ahead.
Good morning, guys. Just the first question. I was wondering if you could provide some color just around the gross flows and gross outflows. Just be interested. I know you don't provide the numbers, but just be interested to see how that's been tracking more recently.
Hi, Julian. Thanks for the question. As you know, we don't break that down. It's sort of hard for me to answer that in any generality without providing selective disclosure here. But what I'd say is that we continue to have positive inflows on a gross basis and obviously outflows on a gross basis. So it's not completely one-sided.
Okay. Then maybe just then, in terms of the tax rate, the 25.3%, is that sustainable from here going forward?
Yeah. So I think that as we've talked about before, the unique nature of U.S. tax for a firm like ours is that we have many different states that we pay taxes in. So we pay federal tax plus state taxes. And the state tax rates change all of the time. And it's obviously unpredictable to know exactly where tax rates will change state by state. So the best way to think about taxes has been just to take the current print and extrapolate that forward. I think that's the most accurate way to project taxes out in the future. We know, of course, that they will change, but there's no reason to believe that they should directionally change one way or the other. So I think that the best thing to do is just extrapolate from the most recent tax rate and carry that forward.
Okay. Thanks so much for that.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Elizabeth Miliatis with Macquarie. Please go ahead.
Good morning, and thanks for taking my question. I am sorry if I missed it. I was just on another call. Just around portfolio positioning, overall we have been noticing a bit more of a lean into tech across the four funds. Just your view on what has shifted there.
Yeah. We have found better opportunities simply because some of the drivers on the compute side seems to be far more sustainable here versus even six months ago. For example, if you look at GPU rentals late last year were actually declining. Now they turned up a few months ago. If you look at the reseller price of GPUs, same thing. They were selling a meaningful discount late last year. That has begun to turn. The last part is the valuation of some of these hyperscalers had come off significantly. For example, NVIDIA, as I mentioned, was 35 times last summer, is 16, 17 times. Amazon was again, high 20s or 30 times earnings back to 20 odd times earnings. So multiples have come off some of these names.
The second part is in this sell-off in Korea and Taiwan, we thought that this is an excellent opportunity to actually go back in some of these names simply because we do believe that the markets might remain tighter for longer and the free cash generation is fairly strong. So that is the other area we added. So net net, if you look at it today, the portfolio positioning seems to be fairly different from where it was March. So we are actually overweight tech and semiconductors across all the books, marginally underweight emerging markets still. But if you look at, for example, in international, it is a few hundred basis point overweight. But I think the other big part is that the industrial CapEx numbers seem to be broadening out, whether you look at Europe, Asia for most part, but definitely North America.
That's the other area that we added. I think there's a lot less defensive posture in terms of our positioning as of now.
Okay. Got it. Maybe just around on the financials, just costs going forward. How are you feeling around that cost to income ratio should flows continue to remain negative?
Yeah, Liz, the way I'd answer that is that we obviously are very careful about managing expenses. We obviously don't provide guidance, but there's no reason to believe that our aggregate expenses have to be meaningfully higher or are somehow abnormally low right now. I think we'll just continue to be careful in managing expenses. As we've said before, obviously, the margin is driven by revenue, right? If you had market off by 10% or flows off by 10%, our margin would be impacted, of course. Equally, if markets are up 10% or we had significant growth in revenue, our margins would expand. So it's really the revenue line, and obviously it's unpredictable what the revenue line would be. But all things being equal, there's no reason to believe that our margins would change materially from here.
Okay, got it. Thank you.
Thank you. Your next question comes from Siddharth Parameswaran with JP Morgan. Please go ahead.
Thank you for taking my question. Just a question for Rajiv. Rajiv, it seems like you've considerably changed your sector posturing, and I suppose even some of the logic that you were previously giving around being defensive on tech. I think previously you were talking about a secular funding, et cetera. Just curious, firstly, is that not an issue anymore? Secondly, it's such a rapid change in your assessment of this. How are your clients reacting to this? It seems like, having taken a very extreme stance leading to some of the performance we've seen, to switch now, it seems like it's probably the right thing to do, but have you had conversations? How are they taking this? Could you just give us some idea of exactly whether they're on board with this?
Yeah. Look, I think, Tim, you want to take that?
Well, Rajiv, I was going to offer, let me take the client piece, and then maybe you can talk about how you got to repositioning. Siddharth, I think it's important to understand that this is actually not atypical for us. We don't have it in the slide deck this year, but if you go back and look at our historical earnings releases, you'll see that the movement, we move the portfolio around, and often quite meaningfully and quite rapidly. That's part of what we're known for, is we talk about having a very adaptable approach, and we're following the data. It's bottom-up, stock by stock. Clients expect that. As long as it's international and they understand that what we're seeing in our research is causing us to move portfolios, clients are on board for that.
That's what they're expecting us to do, is we often say, if you want a dogmatic growth manager or dogmatic value manager, you can go find them. But what clients hire us to do is to move and be fairly aggressive in moving the portfolio, be adaptable, and follow the data very rigorously. I don't think we have any risk with clients being upset about the portfolio moving. Now, what we have to do is make sure that we are communicating that clearly and that we're doing that for the right reasons. There may be some clients who have their own views, and they will sell our portfolios because our views are no longer in line with theirs, but it won't be because of the fact that we moved the portfolio. That is something that clients expect.
Yeah, look, I think as Tim said, if you go back to 2021, H2, we cut back very aggressively in the last quarter of 2021. Meaningful overweight tech to significant underweight tech, and we wrote about that extensively. In 2022, we entered 2022 with very little in tech and almost a high-teen exposure to energy. Okay? We exited 2022 with something similar, and in February, March, we were back overweight tech, right? I think this is not atypical. I can go back over 25 years. We've done this again and again. But the question is why we're doing this. The reason is that whether the data points sort of indicate if you're getting paid or not for the names that we would love to buy based on the valuation growth and obviously durability of that growth.
It's the question of the conviction, and we did not have that high a conviction, and obviously the multiples are high. Now, as I said, where we have underestimated is the demand strength for compute and the pricing. If the pricing changes, look, the GPU rental is $1.50 or $4 or whatever it is. I mean, that changes economics for a lot of different things. I think our job is to refresh the book on literally on a daily basis. It is bottom-up, name by name, and we'll make mistakes as we have done before. But I think in the long run, this adaptability has served us very well, because if, for example, things change again, it doesn't mean we are wedded to these names.
I mean, that's actually, as Tim said, most of the clients come here for, not sort of saying we're going to be long, fastest-growing names forever, or we're going to be long energy forever. I mean, that depends on the bottom-up basis expected returns.
Yep. Okay. Thank you. That makes sense. Just a second question, if I can. Just fees, I mean, average fees held up quite well. Just keen to understand if any conversations at all are being pursued by clients around fees. If you could just make some comments around the fee outlook.
No, there's nothing material on any. I mean, we have obviously thousands and thousands of clients, so I can't speak to every single client, but there's no material pushback on fees. I think our fees are very favorably priced in the marketplace. We started out the business that way. It's very consistent. So, no fee pressure of any substance there. The one place that I would note is obviously in this period, we did not have performance fees, and in prior periods we have. So that's a significant contributor to the revenue line. But even still, the number of assets on which we have performance fees is sort of single-digit percentage of our overall book. So it's not a huge driver to the business in any event.
Okay. Thank you very much.
Thank you.
Thank you. There are no further questions at this time. I will now hand back to Mr. Carver for closing remarks.
Wonderful. Well, thanks again, everybody, for joining us, and thank you for the thoughtful questions. We will look forward to seeing you on our roadshow here in a couple of weeks. Wishing everybody all the best.