Good afternoon, everyone, and welcome to the presentation of Magellan Financial Group's full year results for the year ended the 30th of June, 2022. I'm Craig Wright, head of Magellan Capital and Advisory, and I oversee the investor relations team at Magellan. Today, the company's results will be presented by Magellan's Non-Executive Chairman, Mr. Hamish McLennan. Chief Executive Officer and Managing Director, Mr. David George. Chief Financial Officer and Chief Operating Officer, Ms. Kirsten Morton. We're also pleased to have Magellan co-founder, Mr. Chris Mackay, here with us today. Please note that there will be a question and answer session at the end of the presentation, and I'll be back later with some instructions on how you may ask a question. Please also note that today's presentation will be recorded and a replay will be available on Magellan's website.
Also, we may have media in attendance today. Thank you, and I'd now like to hand it over to Magellan's chairman, Mr. Hamish McLennan, to start the presentation. Thanks, Hamish.
Good afternoon, everyone, and welcome to Magellan's full year results briefing for FY 22. I will surprise no one when I say that it's been a challenging year for the company. I assure you the board and the team here at Magellan are very focused on returning value to Magellan's clients and shareholders. Since our interim results in February, when I last addressed shareholders, we've been very busy. Our team's focus, as always, has been on our clients. For my fellow board members and I, our key priorities have been to continue to strengthen governance and return stability to our leadership team and employee base, and deliver on a number of important capital management initiatives flagged to investors at our interim results briefing in February.
Today, I'll take you through some of those changes that we have made in our business over the last six months in light of these priorities. This will be followed by Magellan's CEO, David George, providing an update on the business. Our COO and CFO, Kirsten Morton, to present our financial results.
Has to restart.
Finally, David will conclude with some additional remarks on the business and outlook. We will then open the session to a Q&A. As we've outlined at our interim results briefing in February, we're very focused on strengthening independence and governance across the business. This started earlier this year with my appointment as independent non-executive chairman of the group and the appointment [inaudible] .
Robert continues as Independent Non-Executive Chairman of Magellan Asset Management, our core business. Hamish, you've got an audio issue by the sound of it, and you're not able to be heard. Okay.
It's Hamish's mic.
Okay. We have also started a board review and renewal program. The program is focused on attracting high-quality non-executive directors to the board who will add skills and insights that align to the needs of our core funds management business and strategic direction. Turning to Magellan's leadership team. In May, following an extensive search, we were very pleased to announce the appointment of David George as CEO and Managing Director. David joined Magellan just under a month ago, following 14 years with Future Fund, most recently as Deputy Chief Investment Officer, Public Markets. David has deep funds management experience and, as an external hire, brings fresh perspectives to our team. David is a great fit for our business, and he will be an excellent leader in the next chapter of our growth.
We're also delighted to have Kirsten Morton take on the role of Chief Operating Officer. In addition to her current role as Chief Financial Officer, Kirsten's contribution as interim CEO is outstanding, and Kirsten continues to be a very key part of Magellan's leadership team moving forward. It is also pleasing that we can welcome back Hamish Douglass in October, who returns to the business in a new consultancy role following a period of medical leave. Hamish will be available to the Magellan investment team to provide his valuable investment insights free from board management and portfolio responsibilities. We think this new role strikes the right balance for Magellan, our clients and Hamish, and we're very much looking forward to welcoming him back in October. Finally, in March, we implemented a staff engagement and retention program.
While not reflected in our balance sheet, our people are Magellan's most important asset, and we have been very focused on retaining key talent and stability in our team during this period. The program included a retention bonus plan to be paid to staff in installments in September 2024 and September 2025, as well as the issue of employee options. These initiatives are subject to conditions around vesting and continued employment, and we believe we have structured in a way that creates significant alignment with the interests of shareholders. Turning now to capital management. We are pleased to have implemented the capital management initiatives we announced to shareholders at the interim results in February. We have commenced an on-market buyback of up to 10 million shares.
To date, we've bought back approximately 630,000 shares at an average price of AUD 12.43 per share. We're taking a measured approach to deploying the buyback, and at the current price, this has already been value accretive to shareholders. In March, we also announced the issue of a bonus option to MFG shareholders on a one-for-eight basis for nil consideration. These bonus options were issued to shareholders in April with an exercise price of AUD 35 per option and a 5-year term. We believe these options provide a potential source of value to shareholders. Finally, in May, we sold our shareholding in Guzman y Gomez for cash consideration of AUD 140 million.
The sale was a great result for our shareholders, with the sale price representing a 36% premium to our entry price eighteen months earlier when we acquired the stake in January 2021. Importantly, while we were pleased with the performance and the outlook for GYG, the sale was in line with the strategy announced to market in February to focus on our core funds management business and to not make any further investments in Magellan Capital Partners. We will continue to manage our Magellan Capital Partners investments in a prudent and patient manner. As we've previously advised shareholders, we regard our investment in Barrenjoey Capital Partners as a long-term strategic shareholding, and we are very pleased with how the business is performing. Before I hand over to David, I wanna reiterate that we're extremely focused on returning value to Magellan's clients and shareholders.
There's much work to do, but we are committed to rebuilding trust and returning to growth. With that, David George will take you through an update on the business and its performance.
Great. Thank you, Hamish, and good afternoon, everyone. As you know, I joined Magellan less than a month ago, and it is my pleasure to be here today. Before I get into today's presentation, I'd like to thank the board for the opportunity to lead Magellan. I know that our clients and shareholders have had a difficult 12 months, and that there's a lot of work to do. However, I am excited about leading the company on its next chapter. I'd also like to reiterate comments made by Hamish just now that we are highly focused on delivering excellent performance to our clients and service to our clients, and in turn, to create value for shareholders. This is the key focus of mine and of the entire Magellan team.
Now, pleasingly, my early observations of the team are of a resilient and committed group of professionals with tremendous pride to deliver for our clients. I'm also encouraged by the strength of Magellan platform, which lays the foundations for future growth. I'll speak more on this, including my first impressions and some of my key priorities later in the presentation. But before I do, I'll spend a bit of time providing a business update before handing to Kirsten for a deeper dive into the financial results. Okay. Starting with the headline financials. Adjusted net profit after tax is down 3% to AUD 399.7 million. Our statutory net profit after tax is AUD 383 million, and that is up 44% on fiscal 2021.
It's worth noting that the significant increase in fiscal 2022 comes off a very low base. Statutory net profit in fiscal 2021 was impacted by a number of one-off items, including expenses for strategic initiatives, which are primarily related to the Magellan Global Fund closed class units and options under the Global Fund Partnership bonus and bonus options issue. While statutory earnings are a key measure of Magellan's performance, it is important to be mindful that accounting standards dictate the inclusion of items such as uncrystallized gains and losses and other corporate one-off items that are not operating items, and thus these can make year-to-year comparisons more tricky. Despite a material decline in funds under management, which stood at AUD 61.3 billion as of 30 June 2022, there was a more modest decline in average funds under management of 9% to AUD 94.3 billion.
This was mostly due to the timing of client outflows, which came just prior to and during the second half of fiscal 2022. Management fee revenue was down 7%, and that's broadly in line with average funds under management decline of 9%. Finally, profit before tax and performance fees of our funds management business were down 11% to AUD 470.6 million. Now, I mentioned that clients' outflows during the period came primarily in the second half of the financial year, which in turn materially impacted profitability in the second half. On this slide, we've broken out the performance between the first half of fiscal 2022 and second half to present this. The weighting of outflows into the second half of fiscal 2022 also means that we expect fiscal 2023 results to be affected.
Turning to investment performance of our funds, the first thing I'd like to say is to point out that Magellan has a very long history and track record of growing wealth for our clients. With that being said, it is clear that recent performance in the global equity strategy in particular has not lived up to Magellan's reputation, nor the high standards of our team. Reviewing and strengthening the investment processes of the global equity strategy and across the entire business is one of my key priorities. I've devoted a significant part of my first couple of weeks to spending time with the investment team, and I am optimistic that there are scopes to further develop our capabilities. We will, of course, keep our clients apprised of these developments.
Our infrastructure strategy delivered a solid 6% for the year, and this adds to its solid long-term track record. The infrastructure strategy invests in companies with a through their very specific definition of infrastructure, which are companies that provide dependable cash flows with limited exposure to cyclical factors such as commodity prices. Our Australian equities business, Airlie, also continues to perform well and has developed a strong three-year track record in the Airlie Australian Share Fund offering in particular. Turning to funds under management. Funds under management ended the year at AUD 61.3 billion, and that reflected net outflows of AUD 49.5 billion during the period. Just over 95% of that outflow came out of the global equity strategy, and just under 90% of those net outflows came from the institutional side of the business.
In what was a challenging year for markets, there was also investment outcomes which impacted the funds under management by AUD 2.3 billion. Net of distributions, again, we ended at AUD 61.3 billion. I'd just like to say, you know, our clients have a choice about who manages their money, and over the last 12 months, it's clear that the events have impacted the, our clients' confidence in us. My priority as incoming CEO, and indeed the focus of the entire team, is on rebuilding that confidence and trust, achieving strong investment outcomes for our clients, and providing them with excellent service. If we get these things right, we will stabilize flows and in time, return to growth. Turning now to business mix, and this is based on our most recently reported funds under management as of 29 July 2022.
We continue to have good balance in this business. On the institutional side, that makes up 62% of our funds under management and 32% of our base fees and services income. The retail side, on the other hand, which is a broader client component, makes up 38% of our funds under management and 68% of our base fee and services income. I have a few highlights of the financial position, and the important point here is that Magellan retains a robust balance sheet and is in a strong financial position. There's no debt in this business, and there are AUD 915.5 million in net tangible assets on the balance sheet. There are AUD 963.3 million in cash, financial assets and investments in associates. Importantly, the business remains very cash generative.
There are AUD 434.6 million in net cash flow from operating activities in the last fiscal year. That brings me to the dividend for the second half of the financial year. As confirmed by our board in the results briefing in February 2022, our dividend policy is to pay out 90%-95% of profit of the funds management business, and an annual performance fee dividend also of 90%-95% of net crystallized performance fees after tax, and that's of course subject to corporate, legal, and regulatory considerations. The board has declared a final dividend of AUD 0.65 per share and a performance fee dividend of AUD 0.039 per share, equating to AUD 0.689 per share for the second half of fiscal 2022.
The franking rate for this dividend is 80%. That's an increase in the prior half level of 75%. With the offshore banking unit regime coming to an end in 1 July 2023, we expect our franking levels to increase in future years. That brings the total dividend for the year to AUD 1.79 per share, with a weighted average franking level of approximately 77%. The record date for the dividend is Tuesday, 23 August, and the payment date will be Tuesday, 6 September. I'll now hand over to Kirsten, who will take you through our financial results for the period in more detail. As I do, I'd like to add my thanks to those of Hamish to Kirsten for her outstanding service as interim CEO, and also congratulate her on her additional responsibilities as COO. Kirsten.
Thank you, David, and good afternoon, everyone. I would first like to take you through the financial results of the group and then followed by our core funds management business, and then finish off with the expenses outlook. Let me just get this. The group's adjusted net profit after tax for the year ended 30 June 2022 was AUD 399.7 million. Slightly lower by 3% compared to last year. The decrease is due to a mix of items, but mainly due to lower funds management fees, which are broadly in line with a 9% decrease in the average funds under management this year, most notably in the second half. Performance fees for the year ended 30 June 2022 totaled AUD 11.5 million.
They were mainly derived from the infrastructure fund's strong performance. While performance fees are lower, and as we always mention, these fees are lumpy, and they have the potential to fluctuate significantly period to period. Other revenue increased AUD 10.6 million in the current year. This revenue typically comprises distributions we earn on investments in our funds, the realized and unrealized gains and losses on those investments, from foreign exchange movements and advisory income of our U.S. business Frontier Partners Group. This year, the increase in other revenue is mainly due to foreign exchange gains and higher distributions and dividends on our investments. Our share of profit from investments in Barrenjoey, Guzman y Gomez, and Finclear totaled AUD 6.6 million for the 12 months to 30 June 2022.
All associates contributed a net profit for the period of our ownership, this year, which is a really pleasing result. Now, by way of a reminder, the adjusted net profit of is the group's statutory net profit excluding certain items. That provides comparability of results year-over-year. The items are shown on the slide on page 14. These adjustments comprise. Well, there are five adjustments this year, and I'll now step through those. The first adjustment is a non-cash item of AUD 4.6 million, which relates to the amortization expense of the intangibles from the Airlie and Frontier businesses we bought a few years ago. The second adjustment is AUD 15.8 million relating to non-cash strategic transaction costs. Now, this year, that is a benefit rather than a cost.
The item relates mainly to the non-cash accounting remeasurement of the liability relating to the Magellan Global Fund options, which we issued in January 2021. Just as a reminder, that liability moves up and down depending on the changes in the net asset value of the closed class units. It also reduces, obviously, when the options are exercised. More detail on that can be found in note 14 of the financial statements. As the financial liability decreased this year, it's actually resulted in a lower expense. If you want, a benefit. The third adjustment of AUD 65.1 million relates to the unrealized losses in shares and units held by our fund investments portfolio.
Now, as we record market movements of those equities directly in the P&L, it's meaningful to remove the unrealized market volatility from our revenue, whether it's a gain or a loss. The last two adjustments are actually new this year. There's an adjustment totaling AUD 50.6 million or, after tax, AUD 40.4 million, and that relates to one-off benefits in connection with our associates. The amount comprised of two items. The first, a gain of AUD 33.7 million from the sale in June of the group's 13% stake in Guzman y Gomez. Dilution gains of AUD 17 million. In May, Barclays made a further AUD 75 million capital investment in Barrenjoey. That resulted in an increase in the net assets of Barrenjoey, consequently an increase in Magellan's carrying value of Barrenjoey.
Therefore, while Magellan's economic interest in Barrenjoey was diluted from 40% - 36.4% as a result of that transaction, Magellan recorded a gain in its P&L for the increase in its investment value, and we call that a dilution gain in the P&L. Finally, there's an adjustment of AUD 3.3 million relating to non-cash accounting remeasurements for the staff equity loans. Now, let me explain that further in detail. The accounting impact in each period for the staff equity loans has been very stable, given predictable loan repayment profiles due to consistent dividends and bonus assumptions. Given we had no voluntary repayments, they weren't permitted. In 2021, the impact to the P&L was about AUD 200,000, and it was slightly less in prior years.
Now, while the accounting for the staff equity loans is the same year on year, there is higher volatility in the P&L this year due to changes in the repayment assumptions and the extension of the loan term to 15 years for staff loans, which we announced as part of the retention program. Now, changes in the loan repayment profile, and they differ for each employee, leads to larger timing differences between interest income and expense on those loans. Over the life of the loans, these differences always have and will continue to net to nil, but period to period, the net impact on the P&L is actually now less predictable. In light of the increased volatility on the loans, which reduces the comparability of results period to period, we've excluded the non-cash interest, income, and expense.
Now, if all of those adjustments were not made, the group's statutory profit after tax for the year ended 30 June 2022 was AUD 383 million, which is up 44% compared to the prior year. Finally, diluted earnings per share increased 43% to AUD 2.069 per share compared to last year, which is in line with the higher statutory net profit. Now, adjusted diluted earnings per share is AUD 2.159 per share, slightly down by 4% year-on-year, and that's in line with a decrease in the adjusted profit. Now, as David mentioned, the directors declared a dividend for the six months to 30 June 2022 of AUD 0.689 per share, bringing total dividends for the current year to AUD 1.79 per share.
The franking rate on those dividends will increase from 75% - 80% with immediate effect, and therefore that will apply to the final 2022 dividend that we've announced today. This is a result of the upcoming removal of the offshore banking unit license regime in Australia, and that takes effect on the first of July 2023. As we have previously flagged, this will remove the concessional 10% tax rate that we apply to certain revenues and expenses, meaning that all revenues and expenses of the group will be taxed at the corporate tax rate of 30% from the first of July 2023. All things being equal, it will result in higher income tax payments by the group in 2024 and reduce the group's after-tax earnings.
However, the flip side is that higher tax payments will result in higher franking credits available to shareholders. For clarity, Magellan will continue to benefit from the offshore banking unit license for the 2023 financial year. Now, let me step you through the financial results of our core business, our funds management business, which is on page 15 of the slides. Funds management revenue for the year ended 30 June 2022 decreased 7% to AUD 592.6 million due to lower management fees, namely in the second half as a result of lower funds under management. The average base management fee at 30 June 2022, which is a point in time, was 62 basis points.
Due to the timing of the client outflows in the second half of the year, the annualized impact of the management fees from lower funds under management is not really fully reflected in the 2022 result. For this reason, we've provided the run rate of the average base management fee. Based on our most recent funds under management announcement on the twenty-ninth of July 2022, our average base management fee run rate is 65 basis points per annum. Now, the increase in our fee rate is due to the change in the mix of the retail and institutional clients. Consistent with prior years, our main operating expense, aside from tax, is employee expenses.
Our average number of employees at 30 June 2022 is 137, which remains quite stable compared to 135 last year. Employee expenses account for approximately 68% of total expenses, broadly in line with last year. The year-on-year increase in employee expenses is largely driven by the payment of deferred bonuses that were earned in prior periods, the payment to Mr. Douglas upon his resignation, and a pro rata expense for the 2022 retention program. It is worthwhile to flag that employee expenses were AUD 3.4 million lower in the 2021 comparative, and that was due to remuneration decisions that we took due to COVID in 2020, which would typically have been paid and expensed in 2021. That therefore magnifies the year-on-year increase in 2022.
Other expenses are higher by AUD 4 million year on year, but not really due to any one particular expense type. Travel and marketing expense is higher, and that's really just reflecting post-COVID in-person activity in 2022. Fund administration has increased due to some activity levels by unitholders and shareholders, and there have been some other higher IT and professional consultancy, consulting fees. Now, after adjusting for performance fees, the profit before tax of the funds management business decreased 11% to AUD 470.6 million. Despite this increase, it's still a highly profitable business. Now, on page 16 of the slides, there are just a couple of comments I'd like to make about expenses.
Now, we guided our funds management expenses for the year ended June 30, 2022 in the range of AUD 125 million-AUD 130 million. We are in line with guidance at AUD 127.1 million, and that includes a pro rata accounting expense covering the period April to June 2022 for the retention program that we announced back in February. A cost-conscious mindset, regardless of the prevailing business conditions, has always been a central part of how this business has been run. Our team is actually very accustomed to that approach, which is a benefit as we navigate the business going forward. The business operations are managed efficiently, and when it comes to expenses, we will continue to manage the business prudently, and as we always have.
For the 2022 financial year, the cost-to-income ratio increased to 21.3%, up from 16.8% last year. While this result's still low compared to industry standards, it does highlight that there is buffer to continue to invest in our business in the future. For the coming year, we view the recurring expenses to operate our core business, funds management, for the year end of 2023 would be in the range of AUD 125 million-AUD 130 million, a level that is consistent with the 2022 result. While expense discipline is absolutely paramount, we will continue to support, I should say, client-focused outcomes and ensure that there is expenditure with a view to growth. Now, turning to page 18 on fund investments.
The fund investments portfolio is a subset of the group's balance sheet, and it's an important aspect of the group's liquidity. A summary of the funds investments portfolio, which totals AUD 358.4 million after tax, at 30 June, is shown on the slide. The portfolio actually includes co-investments in both Magellan's listed and unlisted funds, and that creates strong client alignment. Consistent with prior years, our aim is to earn satisfactory returns for our shareholders, and the board has set a pre-tax return hurdle of 10% per annum over the business cycle for the fund's investment portfolio.
Now, since inception from the first of July 2007, and excluding the group's investment in MFF Capital Investments, the portfolio has returned a pre-tax return of 9.8% per annum. We acknowledge that current return is lower than where we would like it to be, and we are highly focused on improving investment performance in our funds, which in turn should improve the performance of our funds investment portfolio. Just touching on Magellan Capital Partners, the segment that holds our associate investments before wrapping up on slide 19. We're very pleased with the performance of the investments, which have delivered an AUD 8.4 million after-tax profit for the group for the year ended June 30, 2022. In particular, Barrenjoey has delivered a profit after just two years in business.
As mentioned earlier, the investment in by Barclays in Barrenjoey this year further supports the value of Magellan's investment in Barrenjoey. We were also very pleased with the timeliness of the sale of our holding in Guzman y Gomez, and obviously very pleased with achieving a 36% premium on the initial investment, resulting in a net gain of AUD 33.7 million. The investments in Barrenjoey and Finclear are separate to our core funds management business, and as Hamish mentioned earlier, we have no plans to make any further investments in these businesses or the Magellan Capital Partners segment going forward. With that, I'll hand back to David.
Thank you, Kirsten. Excellent. Okay, before we open the session up for Q&A, I'd like to cover some of my key priorities in the short term, recognizing that I'll be providing a more fulsome update in the lead-up to our annual general meeting, and once I've really had a chance to get my feet under the desk properly as the new CEO. It has been a year of many challenges for our clients, our shareholders, and employees. We are keenly aware that recent performance in our global equity strategy has fallen short of our high expectations. However, the goal is, and it will continue to be, to protect and grow the wealth of our clients through investments in high-quality global companies that are deeply researched and carefully selected. We have an experienced team here who are all aligned to this goal.
I've been very impressed with the resilience and determination of the whole Magellan team. They are passionate about investing. Our focus, therefore, is on our core funds management business, particularly in strengthening the processes and driving consistent and improved investment performance. If we get these things right, we will rebuild trust and confidence. What is clear to me, and what excited me about joining Magellan, is that we have a strong foundation to build upon future growth. With funds under management of over AUD 60 billion, a diversified client base, Magellan remains a globally significant manager of relevant scale. Our core investment capabilities, global, infrastructure, and Australian equities, are supported by deeply experienced investment teams and strong investment processes. All of these have available capacity and are the foundation for growth.
These core capabilities also give us the capacity to innovate and build on our existing strengths, as we have seen with the development of the MFG Core Series and sustainability strategies. We have a robust balance sheet and a level of profitability that allows us to continue to invest in our core business, as well as take advantage of any other opportunities that arise. Importantly, we continue to have strong relationships with clients, financial planners, advisors, stockbroking firms, and institutions around the world. Looking ahead, my number one priority in the short term is to stabilize our core funds management business and position it for growth in the medium to long term. The key ingredient for that is improving performance in our global equity strategy. To this end, I'm working very closely with the team to focus on efficiency and effectiveness in our investment activity.
In my career, I've had the opportunity to see 1,000 investment managers, investment processes, and investment cultures in practice. I have a good perspective on what good looks like. There are lessons in there which will complement our current practice and how we turn our research advantage into portfolios that outperform. This is a very good environment for active management. We're at a turning point in the economic regime. A long cycle of lower and lower interest rates is now transitioning to one where inflation and monetary policy environment is shifting. That's going to bring some volatility, and it might mean that returns in a broader market sense are a little bit lower going forward. That's when I want an active manager instead of the index.
That's when I might want a franchises team that can dig very deeply and get granular on a consumer products company, for instance, and pick it apart product by product to figure out what elements of their supply chain are subject to cost pressures and inflation and how much pricing power they have to deal with those kinds of things. That's where deep research and active management adds its value, and Magellan can do that. When I'm not doing that, I'm gonna continue to engage with Magellan's various stakeholders, both internally and externally, to help identify areas for improvement and formulate a strategy to return value to clients and shareholders. There is a lot to do. However, the board, the team, and I are dedicated to delivering for our clients and shareholders, and I look forward to providing my further thoughts on the business in October.
Now I'm gonna hand over to Craig, who's gonna moderate the Q&A. Thank you.
Thank you, David. Thanks very much. We'll now welcome questions from the webinar and also for those of you who've joined via phone. If you've joined via Zoom, you may ask a question by typing into the Q&A icon. If you've joined us by phone, you can queue your question by pressing * nine on your keypad. When I read out the last three numbers of your phone, there'll be a prompt for you to press * six to unmute yourself before asking the question. Just as by way of housekeeping, when asking a question by the phone, can you please identify yourself by name and also, if applicable, where you're from, which firm. Also to ensure that everybody's given the opportunity to ask a question, can you please limit your questions to two per call?
If you could please provide those questions both up front, that would be much appreciated. Now I will start with questions from the webinar. The first one, the question is: where do you see Magellan in five years? I might hand that over to you, David.
Thank you. I think it's a very short answer. There's a long answer, but we'll get to that, I think, in more detail in October. The short answer is bigger and better. I think there's room for us to grow and add to our investment capabilities, and that'll be both organic, and I think there'll be opportunities to add investment people and maybe even investment teams. We'll be looking for those opportunities as well.
Thank you. Next question: you talked about a measured approach to the buyback. Can you touch on the outlook for the buyback and your willingness to contemplate the buyback in the year and ramp up the acquisition of shares from here? I might hand that over to Kirsten in the first instance.
Yeah. Thanks, Craig. Look, the buyback's being obviously used to return the excess capital to shareholders in an efficient and accretive manner. We announced that we would buy back up to 10 million shares, and you can see on Page 70 of the financial statements that we've bought back about 627,000 to date, about 5.4% of the shares on issue. We have a process for deciding if and when we're gonna step into the market, and to ensure that we deploy capital sensibly. Obviously, our buyback is impacted by some blackout periods as well, which is when, you know, we're gonna be restricted from entering into the market.
Thanks. Thanks, Kirsten. Next question: it has been said that the company will sharpen its investment process. What will this sharpening involve? David, I might hand it over to you, in the first instance. Thanks.
Certainly. I'll just preface by saying it's early days, but one of the methods that I would use is to work with the team, and I've been starting this process to look at each stage of the decision-making process that we have. As we build, we take from the research capability that we've got, which is powered by just an enormous and talented analyst team, and turn that into a portfolio, whether that's choosing which stocks and how to take risk. The key part to that is ensuring that we've got the right data and tools to support those decisions. That's my focus, and we're already started on that.
Perfect. Thanks, David. Next question: how does the company plan on using funds from the sale of Guzman y Gomez? David, I might give this to you because it's a bit of a future forward use of funds question.
Sure. Thank you. Obviously, we had a good result out of Guzman, and that brings more capital into the business. The balance sheet is very strong, and I think the first thing to say is that, while we're executing the buyback and certainly are committed to the dividend policy, we also have the headroom to invest in the business as we see fit. That's a capital management decision that I think goes to strategy and how we go forward. We are committed to ensuring that we're returning capital to shareholders, though. I expect that as part of my update in October, I'll be talking more to capital management.
Thank you. Next question: it has been said that Guzman y Gomez was sold to focus on the company's core business. Why was Guzman y Gomez sold but not Finclear? I might address this one if that's okay with everybody. Guzman y Gomez is obviously not in the financial services sector. That's one main consideration. The second consideration was its relative size. You know, it made up about 8.5% of our total asset base. Finclear's a lot smaller. It's around about 2% of our asset base. So naturally, we felt that Guzman was the first one to address. You know, we're very happy with Finclear. It's a great business led by a great management team, and they're a market leader in retail market infrastructure.
We're continually assessing our investment in Finclear, but the reality is that at 2% of our asset base, it's not very material to Magellan, nor does it take up much of our time, with one director on board, doing some quarterly board meetings. We'll move on to the next question. Can you explain why employee expenses will be the same in FY 2023 when there'll be no payout to Hamish or cost for employee options? I might hand this over to Kirsten in the first instance. David may also have some input into this.
Yeah. Look, I'll start. Obviously, we've been very able to provide you with some expense outlook. Look, acknowledging that the business obviously gone through a very significant adjustment in a very short space of time, but we have a very cost-conscious culture, and we're very cognizant of how we're gonna spend shareholders' funds. David, anything that to.
Yeah, I think there is something I would add. Thanks, Kirsten. One is that, you know, there are some costs in the fiscal 2023 expenses around the retention and options issues, so there is still some impact in fiscal 2023 for that. I guess I'll just add to what Kirsten said on it, on cost. We are a very cost-conscious organization. The company's used to it, and we will be laser-focused on finding efficiencies through the business, where it makes sense. Where we will not be compromising and will be investing with an eye to growth, is ensuring that we're focused on supporting investment and client outcomes.
That's investment performance, and that is making sure that our investor clients see great service, great operational excellence, and safety, and compliance for their funds. That's something we won't compromise on, and we certainly want to think long term to ensure that we are making investments that seed the ground for our future growth.
Thanks, David and Kirsten. The next question is about investment performance. Previous underperformance has been explained as having invested too heavily in China. Where will you redirect your investments worldwide, and why? Chris, I might hand this over to you in the first instance.
Thanks. Thanks, Craig. Actually, the firm has done very well over its 15 years in China. It was one of the first international investors into major multinationals who were very successful in China. Yes, there was a period, I think 2019 and 2020, maybe through 2021, where there was heavy investment in China, which didn't produce the results that were hoped for at the time. The movement since that time, since the main global strategy has gone ex-China, has been towards the United States. That has been very favorable. The macroeconomic analysis led by Arvid Streimann, who's one of the portfolio managers, has been excellent over the past six months. I'm certainly seeing some processes that are stabilizing and hopefully performance will follow.
At the moment, U.S. and U.S. multinationals are the main focus area for the lead global strategies. There are three other global strategies which have slightly different weightings. Thanks, Craig.
Thanks, Chris. Next question: Are there any mandates that will return as a result of Hamish Douglas returning to the business? David, I might hand this to you.
I'm not aware of any mandates that are returning because Hamish is returning to the business in a consultancy capacity. Where we've had some client wins in the past month, even since I've joined, you know, it's hard to tell exactly, you know, their reasoning, and so I wouldn't wanna put words in the clients' mouths for their allocation decisions.
Thank you. Next question. Can you touch on your gross sales inflows for the second half of 2022 and the outlook of where you see growth inflows in the near and medium term? David, I might pass this on to you again, if that's okay.
I actually don't have the figures to hand, so I can come back in terms of gross sales and inflows. We just have the net figures provided here. In terms of the forward outlook for where flows and growth is in the medium term, I'm excited about the prospects for both the core strategies around infrastructure, as well as with Airlie. I'm also quite excited about the Core Series. I think that is got tremendous potential. It's an access point for Magellan's research capability, that involves a little bit less active management on a different price point, and I think which can have quite a broad appeal to clients that we don't currently have on our roster.
Yeah, David, you have a 10-year-plus track record for the Core Series in infrastructure. It is a very successful and well-designed product. It meets client needs.
Thank you.
Thank you. Next question is in two parts: What are the cost implications of closing FuturePay, and what learnings can be leveraged for future products? I might give Kirsten the first part of that question, what are the cost implications of closing FuturePay? David, key learnings for future products, if that's okay.
Yes, sir. Thanks, Craig. In terms of the cost implications, FuturePay was immaterial to the results of the group, both the income and the cost side. In essence, that's the change on the cost implications. Obviously, when we were considering the closure of that product, we always felt comfortable that that product was developed to meet the needs and was, in fact, meeting the needs of investors who were seeking a predictable retirement income stream, and it was very unique. The decision was really made as part of the simplification of the business and where we needed to appropriately deploy the capital best.
Yeah. I might just add on the second piece of that question, that you know, that decision which has been made, again, I'm a big believer in ensuring that any change that we make has learnings and we're capturing those and ensuring that we learn as much as we can going forward from them. In this case, it's reflective of the strategy that was announced in February 2022. We are seeking simplicity in the business and focusing on both our investments and our time on the core funds management piece. Essentially, one of the lessons is that, you know, we've made a capital allocation decision and a focus allocation decision towards the core funds management business.
Thanks very much. Next question. Over the three months, with your engagement with key insto clients and financial advisors, what are the main pieces of feedback or concerns from them? David, this sort of predates you a little bit, but you may have some first impressions that you'd like to give. I might actually give this over to Chris in the first instance. I think all of Chris, Hamish, and Kirsten have been engaging heavily with clients over the last six months in particular, and will have some insights. Are you
First instance me?
Yep.
Okay. Oh, there's a lot of feedback. Principally, it's to get better. I believe the formal comments addressed many of the issues. We know that performance has to improve. For performance to improve in a sustained manner, process has to improve. David is right across that. He's come into the business like a hand in a glove, we've got a lot of work to do, and I'm confident that David and the team will get it done.
Perfect. Thank you. Did you wanna add anything?
I mean, again, my perspective is a bit further forward. Rather than three months, I've had closer to three weeks. I have had some limited client engagement, and that's something that's quite important to me going forward. I'll be listening, so both to what they want to see from us and how we can better serve clients. That's part of my forward priorities, is to ensure I'm getting that engagement right, and frequently and using that to help develop the strategy.
Thank you. Next question. How do you see the business stemming the outflows of funds under management? Do you feel that investors have lost faith in Magellan, particularly with regards to the share price as a figure of sentiment? David, I might give this to you.
I think I said it a couple of times in the presentation, and it may sound very simple, but while there are a few reasons, I'm sure, that clients trust and invest with Magellan, performance is number one and two and three of that list. That's the strategy. I think performance is improved from where it was earlier last year, but we still have a long way to go. But that's the key. When we succeed there, we should have better client outcomes.
The question deals with sentiment. Sentiment changes. I read a report on the weekend, the first one in at least a year, which described a Magellan product as being a compelling opportunity. Work to be done, but sentiment will follow improvements in process and improvements in performance.
Thank you. Next question. Is there any forecast change to the global fund objective providing downside protection in addition to 10% target returns through the cycle? I might hand that over to David in the first instance.
Certainly. My view is that we're not trying to change what the objective is. I think I wanna make clear as much as possible what that objective means. We want to invest over the long term. That's how we look at the underlying companies that we invest in. We think 10% is a target that can be reached over a very long period of time, and that's how we focus our efforts. Downside protection is created by ensuring that those companies have sustainable earnings and durable moats to their businesses. In the shorter term, as markets move, and as I said before, I expect markets to be volatile. Downside protection, there's no hiding from certain kinds of market moves and particularly over shorter time periods.
When I think of downside protection, I'm talking about over the long term and ensuring that our investments are safe and they compound and they generate wealth over time.
Perfect. Thank you. Next question. Magellan indicated the December exit fee margin was 65 basis points. I think that was actually 64. The higher retail mix has increased since then. What drove the average fee margin in the second half? There's a second question. To what extent has there been fee pressure in the institutional channel? The first part of that question I might give to Kirsten, the difference between the reported historical fee margin and the current run rate. I'll hand it to David to answer the fee pressure question.
All right, I'll kick off. The average base management fee run rate it was 64 at the interim results. This basically assumes the full year and the mix and size of the clients at that point in time. As you'd be aware, that we've made some announcements in February and March where the mix of clients has obviously changed. Some of the clients have obviously reduced the size of their mandates, and so that mix of retail and institutional has actually changed.
That's why we've actually the 62 basis points at 30th of June is obviously an as at point in time, you know, management fee calculation, which obviously covers the whole 12 months, including it when we've had SJP for, you know, the best part of 6 months of the year. The bottom line is that the most important and relevant average management fee run rate is actually based on the most recently announced FUM, which is at 29th of July, and that currently is 65 basis points.
Okay, I'll be addressing the wider discussion on fees around institutional channel, which I think is what the question was. I would say we have regular discussions with institutional clients, and they often are one-on-one discussions and happen frequently, and that's how that area of the industry works. Of course, we have those discussions, and fees are regularly a part of that, a part of those discussions. We have certainly reviewed our institutional rate card with a view to whether it remains competitive, and we do believe so. That's sort of the discussion on institutional fees.
Thanks, David. Next question. What is your broad view of the near-term outlook for the U.S. equity markets? A turning point or volatility for longer? I might give this to you, Chris, if that's okay.
Okay. Thank you, Craig. First of all, we're not in the business of giving near-term outlooks. Our view is that compounding works over time, and time in markets, particularly exposed to very high quality companies that are capable of compounding, is a key for to provide for retirement savings, to provide for children and grandchildren university fees and the like.
Having said our views on the markets or my views on the markets, if it's personal, were explained at length in the recent MFF Capital Annual Report, I was most positive in many years through May, June, July, for which we've done reports that the outlook for the very high quality companies who we believed that would get through the downturns, would get through the period of increased interest rates, who would get through the supply chain issues, would then ultimately result in higher share prices. Of course, we've had a bit of a bounce in the past 4 or 5 weeks. So positive for our portfolio of companies, Craig, but details matter.
We think that there'll be extreme divergence in performance over lengthy periods of time. Just the transition to a decarbonized economy is one of them. Deglobalization is a very important factor. The global pressures are there. As David said in his excellent presentation, we believe at this point in time, active matters. Of course, those of you who know David already and know the thought processes, the result for that is that for the investment team, there are no excuses.
Perfect. Thank you. This is the last one from the webinar. Would you consider any fee cuts in order to remain competitive in the active management landscape? I'll give that to David.
Certainly. I talked about conversations that we had before, but my view on fees is that they go to value. I am much more concerned about ensuring that Magellan can create market leading performance and getting us to the point where we're doing that consistently. I think if we're doing that, our clients will see value in what we're providing to them. I don't think it's a competitive market in that sense. Of course, we're open to conversations, but at this time we've got no plans, for instance, to review our retail rate card. I think the key is delivering on our investment promise.
Thank you. That's the last of the questions from the webinar. We're now going to go to the phones. If you want to queue to ask a question, please dial * nine. Then you'll get a prompt to ask your question. We have two people in the queue. Could the person whose number ends in 167, please follow the prompt to press star nine to ask your question.
Hi, it's Matt Dunger from Bank of America. Craig, are you able to hear me?
Hi, Matt. Yeah, we can hear you. Thank you.
Yeah, thanks very much for taking my questions, guys. Just a first one. You've set the 10% pre-tax hurdle for fund investments, noting the returns are below hurdle. Is this flagging an intention to exit part of the AUD 374 million of investment in funds?
I will. Thanks. Thanks for that, Matt. I'll hand it over to Kirsten.
David chipping in as you see. Matt, I'll just be very brief. No. The funds investment portfolio is very important for the liquidity of the business.
Yeah. I think also alignment. It shifts from when we are supporting and seeding new products. It shifts when we are participating in buyback activities, which we do around some of our funds. It is something that is important, and it is an important and ongoing element of the balance sheet.
I'll also add that it goes to the investment philosophy of Magellan. 30 June or late June was obviously a low point in markets. It was 9.8 based on the figures I thought you put up, Kirsten. Presumably it's above the 10% threshold now with the rebound in markets anyway.
Perfect. Thank you. We'll take the next caller. Will the caller whose number ends in 112, please follow the prompt and dial star six, and you can ask your question.
Hi. Hi, this is Shaun Ler from Morningstar. Can you hear me?
Hi, Shaun. How are you?
Hi. Look, thanks for taking my question. Look, my question, David, I appreciate that it's in the early days, but I've just got two questions. The first one, at first glance, I guess, do you think there's additional work needed on product extension or product enhancement? So I'm referring to maybe new structures like managed accounts, performance fee mandates, or perhaps new strategies. My second question is along the same lines. Could you provide some detail on, I guess, future distribution? How better can Magellan segment the sales of your core funds versus the Core Series ETFs, the sustainable strategy? Because it does seem that there's a lot of products out there, but just not a lot of firepower to promote them at the moment. Thanks for that.
Thank you. There's a couple in there. I'll just try to make sure I catch them all, and perhaps, Craig, you could keep me-
Sure.
Honest in case I miss one. In terms of, I think the first part of your question is about different products and how we deliver it to clients. I think we're here to be as flexible as possible to create the investment vehicle that our clients are looking for. For institutions, that might be several different forms. For the retail market, we're trying to ensure that we've got funds that are accessible and that work and are liquid and sort of fulfill what our clients are looking for from those vehicles if they're not of the scale to have something more customized. We are open for business from that standpoint, and flexible. I think the second piece was on new strategies.
I think that is something that we are actively looking at. There's an innovative culture here, I should say. There's, I think, products that we have now that are available that we can grow and really have great potential. Whether that's Core Series Sustainable that were mentioned, but also the Airlie Australian Share Fund, which is now in the retail, available to retail investors. I think there's plenty of scope to grow.
I think that innovative culture that I just referenced, you know, I'm happy to say, I've been here for a short time, but already had several conversations with members of the investment team and across the business on new ideas, some of which I think are just going to be really good and we can develop into something that can scale. Those are both part of the growth story. I think the third piece, if I'm not missing the question, was about linking that to distribution and whether we have the capacity and ability to get those products out there and be in front of clients with them.
One of the strengths of this business, and it's been built up over a decade, more than a decade, is actually our distribution capability. That's both on the institutional side as well as in particular on the retail side. I think there's plenty of capacity. There's, as I said, I have a continuous improvement mindset, and I think we can drive harder and ensure that we've got, we're using that capacity as well as we can. But I think it's the preeminent distribution platform. It's a strength of Magellan and it can represent our product set.
Perfect. Thank you, David. We have two more callers. Will the caller whose number ends in 822, please follow the prompt to press * six to unmute your phone, and you can ask your question.
Hi, Craig and David. Thank you. Look, it's James Cordukes here from Credit Suisse. Just a question on the global fund LIC and the loyalty options. The LIC is trading at a pretty large discount to its NAV, and the loyalty options are out of the money. I guess that's not a great.
Outcome from a value perspective for clients. What can you do to kind of close that, given you've already been buying back stock, and do you need to kind of buy out the options? That's the first question. The second one is, you talked about trying to improve fund performance. If you do, because you're already above your high water mark, that could generate performance fees, yet clients are still wearing the cost of, I guess, medium-term underperformance. Do you think that's a fair outcome for your clients, and, you know, do you need to consider waiving performance fees until you recover your medium-term fund performance?
David, would you like to address both of those?
Sure. Thanks. On the listed investment company, the Magellan Global Fund. I guess there's a couple of things to say on that. The first, I think, is that the first and best solution what increases demand for those units if that's the issue is actually improving performance. I won't repeat myself too often there, but it's the first answer to most things. I'll also point out that we do have the buyback program, which you mentioned, and that is very active. You know, we're well-aligned. We've certainly been active buyers of those units to support.
Also, as an investment team and a broader business, we're also holders of those units, so we are aligned. Beyond that, we're certainly looking and continually evaluating other structural solutions we can look at. It is a complex problem because there are different classes and holders and, as you said, the options. It's not clear that we've got a solution yet, but that is actually a priority that we have, and I've already had a few sessions to look at the problem.
Thank you, David.
High water mark was the second question. Yes.
Oh, I'm sorry. Thank you for keeping me honest. I missed the high water mark piece. I think that's a good question. My understanding of the product set is there are a number of different performance fee structures, and I probably have to look at those and think about fairness. I think that, you know, those structures are there. They often have trade-offs attached to them relative to what might otherwise be different management fees, given the performance fees exist. It's sort of, again, a slightly bigger problem that we'd have to look at. At this point, we haven't made any plans to change how those fees are structured.
Thanks, David. There was one last caller. Will the caller whose number ends in 685 please follow the prompt * six to unmute your phone.
Hi. It's Lisa Miliadis here, calling in from Jarden. My first question's on OpEx for the funds management business. Obviously, you've retained the cost base comparable with FY 2022. In the event that, you know, the business does continue to sit in outflows and the overall top-line numbers continue to be under pressure, how are you thinking about the cost base, you know, beyond FY 2023? Is it something that you feel like you might pull back on a relative basis to the top line, or is it something you still feel you'll need to continue to invest in to return the business back to a more sustainable way?
That is a question for David, if that's okay, David.
Yes. Thank you, Craig. Thanks for the question. I mean, we're dealing a bit in hypothetical around, you know, that fund flows assumption that you put out there. I think, you know, we have to respond to the business circumstances that we're faced with, of course. The principle around cost management here is, number one, thinking long term, and making sure that we are focused on ensuring that we're delivering the client outcome that needs to happen. We have to spend, we have to make sure we're providing the best possible approach to investing so that we can deliver performance. That's what we owe our clients. We have to make sure we're delivering excellent client service. We have to make sure our operations are watertight and our compliance is watertight.
We'll invest there, and we'll invest in the business for growth because we think that's what's in our future. Beyond that, from a cost perspective, you know, I think it's clear that we can find efficiency around the business. We always do, and we'll be cost-conscious while we do that. Where we're doing that spending that I just talked about, we'll be doing that prudently 'cause we understand that's shareholder funds, but we understand that it's a client business. As we make change, it's too early to say what kind of change that is, just to align the business towards the client, even more than it is now, you know, that's sort of the guiding principle that we're following.
Okay. Well, that is it for the questions. Thank you, everybody, for participating. We look forward to seeing you in October. Thanks very much.