Ladies and gentlemen, good morning. And on behalf of the company, welcome to the Magellan Financial Group Results Presentation for the Half Year Ended thirty one December twenty twenty. I'm Sarah Thorne, and I manage the Investor Relations function at Magellan. Today, the company's results will be presented by Brett Kane, Magellan's CEO and Kirsten Morton, Magellan's CFO. Hamish Douglas, Magellan's Chairman and Chief Investment Officer, will join for Q and A at the end of the presentation.
Please note, we will host a Q and A session at the end of the presentation. Please note that today's presentation is being recorded, and a replay will be available on the Jones website. We may also have media in attendance today. Thank you, and I would now like to welcome Brett to take you through the presentation. Thanks, Brett.
Well, thanks, Sarah, and welcome, everyone, to our interim results presentation. Let me quickly run through the interim highlights. Our average funds under management corresponding period to corresponding period was up 9% to just under $101,000,000,000 Management and services fees, as a result of that, grew 8% to $311,400,000 And that drove profit before tax and performance fees, which, of course, moved around from period to period in the funds management business of an 8% increase to $256,000,000 Net profit after tax reported net profit after tax was up three percent to $2.00 $2,000,000 just over $2.00 $2,000,000 and adjusted net profit after tax, which we adjusted with such things as strategic investment costs, unrealized gains, amortization, etcetera, was down slightly 2% to 2 and $30,000,000 The interim dividend was up 5%, which reflected the growth in the funds management business to $0.09 $71 per share, again, 5% franked as previous periods. Today, Kirsten is going to talk about the group results. Then I'll come back and discuss the Funds Management business and the an overview of the business.
And before trying to questions, I'm going to ask Hamish to talk about markets, given it's been obviously, a very interesting period over the last little while, what he's seeing in markets and indeed how the global equity strategy has been positioned for that. So with that, let me hand over to Kirsten.
Thank you, Brett, and good morning, everyone. The group has delivered solid financial results for the six months to thirty one December twenty twenty. The group's statutory net profit after tax, as Brett mentioned, was up 3% to $202,300,000 compared to the prior half year. That increase was mainly due to the 9% increase in our average funds under management, and that resulted in an 8% increase in our core revenue, management and services fee. As we've mentioned in the past, performance fees by their nature will be lumpy and have the potential to fluctuate significantly period to period.
In the current half year, the group earned performance fees of $12,400,000 compared with $41,700,000 of the prior half year. During the period, Magellan made two investments in external businesses, Barron Joey and Finclear. These were held in the group's principal investments, and Brett will discuss those later in the presentation. But for now, for accounting purposes, the group classifies these as equity accounting investments and records them as a separate line in the P and L, its share of the net profit from those businesses. For the six months to thirty one December twenty twenty, this was GBP 6,100,000.0 net loss.
The group's adjusted net profit after tax for the half year was 213,100,000.0, which was down 2% compared to the prior half year. And by way of a reminder, adjusted net profit is the group's statutory net profit excluding certain items. These items are shown on Page four of the slide as of the December 2020 half year comprised of three adjustments. Firstly, a noncash item of $2,300,000 which related to the amortization expense on intangibles from the Airline Frontier businesses we acquired in prior years a $5,600,000 adjustment, which related to the unrealized losses, net of tax, in shares and units held by the principal investment portfolio. And as we record market movements in those equities directly in the P and L, we consider it meaningful to remove the unrealized market volatility from our revenue, whether they be gains or losses.
And a $2,900,000 adjustment, which relates to the one off strategic transaction costs. This year, these related to the six monthly funding costs for the DRP discount into close ended Magellan funds and some costs relating to the restructure of the global equity retail fund that completed in December. Brett will talk more on that transaction later. We continue to feel that adjusted net profit provides a meaningful performance information of our business as well as comparability year on year or half year on half. Finally, diluted earnings per share increased slightly to $110.6 per share compared to December 2019, and adjusted diluted earnings per share was $116.4 per share, which reflects a 3% decline, broadly in line with the group's adjusted net profit for the current half year.
Turning to tax and dividends on Page five of the slide. Our effective tax rate for the half year ended thirty one December twenty twenty was 22.2%. And this is lower than the corporate tax rate of 30% as it reflects the benefits from our offshore banking unit license. As has been the case in prior years, in simple terms, the group's effective tax rate ultimately depends on our mix of the offshore and domestic income and expenses, and that fluctuates year to year or half year to half year. As mentioned earlier by Brett, the directors declared an interim dividend of $0.09 $75 for the half year ended thirty one December twenty twenty.
The dividend announced today reflects Magellan's dividend policy, which is to pay out between 90% to 95% of net profit after tax of the fund management business, excluding the amortization expense and the costs related to strategic initiatives, and it excludes the crystallized performance fees at the half year. The dividend will be franked at 75%. As previously flagged, given our payout ratio and the interplay with our status of our as an offshore banking unit, dividends are likely to be partially franked. Our policy continues to be paying continues to be to pay dividends promptly, and the dividend announced today will be paid to shareholders on the February 25. On expenses, on Page six of the slide, are just a couple of comments I'd like to make about expenses.
Our main operating expense aside from tax is employee expenses, and that continues to account for about 60% of our expenses. Employee expenses were down 5% half on half, and that's mainly as a result of the remuneration decisions that we took last year due due to COVID and which was communicated in our annual results. Those decisions being bringing forward unpaid deferred bonus payments and no partial deferral bonus period for the twenty twenty bonuses. Our average number of employees remains quite stable at a 132 at thirty one December twenty twenty compared with a 128 at thirty June twenty twenty. Half of the group's remaining expenses are variable in nature, either moving in line with changes in sum or being a function of the number of investors we have in our fund.
The other half of nonemployee expenses, we would describe as fixed in nature, such as the IT or occupancy type costs. As was previously mentioned, we view costs associated with strategic initiatives such partnership benefits in our closed ended funds as investments and not day to day operating expenses. And so therefore, as I've mentioned earlier, we exclude those expenses relating to those strategic initiatives from our fund management results when calculating the dividend to shareholders. Our cost to income ratio for the half year ended 12/31/2020, is 16.8%, which is a further improvement on thirty June twenty twenty. Given this strong ratio, it's important to stress that the key driver of the profitability of our business is the movement of funds under management, not expense movement.
And finally, we expect our funds management total expenses for the 2021 financial year to be in the range of 110,000,000 to $115,000,000 but towards the lower end. And with that, I will now hand back to Brett to provide a business update.
Well, thanks, Chris. What I'd like to do is talk about the Funds Management business and then give a bit of an update as to the resilience and diversification initiatives that we've undertaken that we discussed a little bit last time last half. But look, starting with the funds management business, as Kirsten mentioned, the key driver of the funds management business, of course, is funds under management. That grew 9%, which drove an eight percent increase in management fees. There's a slight mix change in that.
It's a lot of this is rounding and also it's a very slight mix change. So our average base management fee was 61 basis points rounded to those two decimal points for the half, down from 62 basis Performance fees, as Kirsten mentioned, fluctuate quite significantly from period to period. So in a comparative sense from last six months to December 31, it's down 74%. But I would note that these comparing six months on six months performance fees is a little fraught because they do move around quite a lot. We've made a point of saying that these performance fees are very, very lumpy.
And indeed, comparing six months on six months is quite difficult to do. I would note that a number of our funds are above their high watermarks. Generally, we're very happy with the Funds Management business. There's a statistic in the bottom box here. The average FX over the period has increased 6%.
Just to give some sense as to the impact of foreign exchange on our business, about 85% of our funds under management is exposed to currency movements. 15% is obviously other than Australian dollars or hedged back to the Australian dollar. Of that 85%, if you like, 61% of farm is exposed to the U. S. Dollar.
On a constant currency basis, just to put this in context, our revenues on constant currency basis would be $12,000,000 higher, which would have meant an average an increase in management fees of about 12%. The as Kirsten mentioned, the funds management, we believe, is operating very, very efficiently with a cost to income ratio now under 17%. That obviously will move around somewhat, but it's under 17% currently. And indeed, our number of employees has been modest in growth. Our business is highly scaled.
It's highly scalable. And at some various points, we do look to employ people as resources dictate. And so I would imagine that the growth in employees will reflect that will modest over the coming periods. If we go to the next slide, please. Just quickly on our flows, this is just comparing the half in 2020 to this current half.
You can see here from institutional flows, again, they move around somewhat from period to period. We had a good period last year. This half, I should say, with inflows of about $2,300,000,000 We have around 135 institutional clients, which we have great relationships across the board with those institutional clients, and they're much valued. We've also obviously got a retail business. This half, there's about $1,400,000,000 There's a net inflow compared to the $2,400,000,000 in the corresponding half last year.
That corresponding half last year had about $900,000,000 included in that in the IPO of the Magellan High Conviction Trust. So all up for the next six months, the net inflows were about 3,700,000,000.0, which we're very pleased with. If you go to the next slide, please, Ange. Looking at that across product and looking breaking that out with flows and performance in terms of farm. Global equities had net inflows of about GBP 1,700,000,000.0 with overall net investment performance over that six months being flat.
Australian equities, as you can see here, grew $1,100,000,000 through investment performance. And global listed infrastructure, likewise, has attracted great flows, 2,100,000,000.0 to now at the December, having $18,200,000,000 of funds under management. If I can perhaps turn to the business resilience and the diversity update, really what I'd like to do here is just to talk about some of the initiatives that we've been looking at. And one the things that we were discussing last time is building some resilience into or extra resilience or layering resilience into our business. And we've been looking at this in a number of different ways, one of which, of course, we've been on a journey now for some time in broadening our retail fund base around that.
And the active ETF, which is now, what, six years old, has been was the first step in broadening that fund base. And we'd just like to report that as that has worked as we've built on that, we've tried at various points to flatten out the investor experience, remove friction and indeed get that experience to be more simplified. So a lot of work involved in doing that. It's very hard to simplify those things, particularly once they're established. But we sort of swallowed hard and looked to and we did undertake a restructure of our global equity retail funds, which was completed in December.
It was a very big event to try and get those three global equities funds into a single trust. But it is now up and going in that. And now the result is that we have one global equities fund, the retail fund, which has two unit classes. And one of those unit classes is a closed ended unit class such that the fund itself will not issue units directly and closed class units or redeem them. But of course, they are transferable and tradable under the ASX listing rules.
And the other class of units is an open class of units where the fund itself will actually issue units and redeem units directly with the fund at the net asset value in an off market as it says here in an off market access sense, but it's also tradable under the ACRA rules on the ASX as we established with the active ETF. And so what that's meant is that this now will be after a lot of work, simplified our global equities offering down into a single fund with two unit classes that have different characteristics, one being an open ended class and one being a closed class closed ended class. The open ended class has some additional functionality that was unavailable when we had two different funds, and that is by moving from essentially the what we call the issuer sponsored part of the registry base. You can now move that into a HIM, essentially onto a broker account without actually triggering a tax event. You don't have to sell one unit in one fund to buy another.
And indeed already, and this has only just been up and going for the last month or so, some 400 unit holders have elected to move from what is essentially an SRN holding to a HIN holding. We also believe that by bringing these two unit classes together over a single strategy, there is potential for the closed class closed end class units to have a more efficient trading environment, given that the now the basis risk between those two classes is essentially zero. And over time, we believe that, that will help aid in that secondary trading of those closed class units. That's really meant that over time, we've extended our process of hopefully simplifying over time and removing friction, which will then allow us to attract a broader range of investors into our retail funds, which in turn will help build resilience into our overall retail business. Next slide, please, Ange.
As part of that, we've also as many of you will know, we've undertaken a partnership offer. We've done a number of partnership offers over the last few years. So following the restructure, we are now currently offering those eligible unitholders in the Magellan Global Fund on a $1 for $4 basis. They can put and purchase new units in the global fund closed class units and we will then, as part of a partnership offer benefit, give them 7.5% of that subscription value in new units. And those closed class units themselves will also carry an additional patch option, which will be an option for three years that allows the holder of that option to purchase a unit, and again, at a 7.5% discount to the VENNAV.
And those options will be exercisable daily and will have a three year term, and we expect will be also listed on the Australian stock on the ASX. The additionally to that, the existing unitholders and indeed, the ex date for this bonus option is at, I think, on the February 26 in a couple of weeks. But those closed class unitholders will also be issued a bonus option under the same terms as the options I've just described on a one through two basis. All those partnership benefits will be funded by Magellan, as we've done previously, not the Global Fund. So it won't impact Global Fund or dilute anything within the Global Fund.
And we will fund those from our existing financial resources and our corporate protect facility if required. And I would just note that the partnership offer closes on February 23, so fill your forms out. So notwithstanding building resilience by broadening and hopefully becoming allowing our funds to
be more
accessible through the mechanisms we've talked about over the years and the restructure. We've also, of course, thought about other products in terms of building extra diversity and more resilience around the business. And we're very pleased late last year to announce the core series funds and indeed, the Magellan Sustainable Fund. We've had great feedback from both of those, particularly around the core series. It was deliberately a soft launch at the end of last year.
There will be a more formal launch of the product towards the end of this quarter. As the research houses are working through their analysis of this, we've already had a significant inquiry from the advisor community. A number of these funds are now being launched onto platforms and they're going through their approval processes. So there are three core funds. The differentiating factor here is that these are attractive management fee of 50 basis points and leverage off Magellan's research deep research and its capabilities, but are managed in a more systematic way across each of the funds.
And indeed, I think as we've mentioned previously, our core infrastructure fund has been up and going for the last ten years and has produced extremely good results. So there are three funds now available with Magellan Core International Fund. These are listed on Chiax, and you can see the codes there, MCSG for the International Fund. And it's also available, as we've talked about, in the open class unit of the global fund. It's also available directly via the fund via platform, and that's the APIR code that's quoted there.
So I won't run through the codes, but there's the Magellan Core International Fund, the Magellan Core ESG Fund and as I mentioned, the Magellan Core Infrastructure Fund. These are now available to all retail investors. And as I said, we're very pleased with the reaction that's with the reception that those funds received. The Magellan Sustainable Fund at the same time, Magellan Sustainable Strategy has been available in a wholesale sense, in an institutional sense for some time, and that's gaining good traction and very good interest. We've also had interest from the retail community, so we've made that also available as an active ETF, again, accessible via the CHI exchange or directly with the fund.
Thirdly, as many will know, we've been working on a retirement income product or a product that could be used and for that retirement income problem. We continue to work with regulators on that. A lot of the timing, as I've said in the annual report in the half time report, a lot of this is out of our control in terms of the timing of regulators. But one of the issues that I think is important is that we are attacking this problem in a slightly different way, and it's very important that we work with the regulators to make sure that we get this correct. I can understand from a regulatory point of view in terms of setting precedents and making sure that what we're seeking to do works within all the existing framework that has been set up.
So there's been a lot of work being done on that. There are some key meetings during the next month or two around that. From an internal perspective, we're very well organized. Once we flatten out and agree a number of these things with the regulators, we are very hopeful to launch soon thereafter. So stay tuned.
If I could then move to our principal investments. Until recently, of course, our principal investments, which we've had for since Magellan was really started, has been very much focused around what we're saying in our internal principal investments, which are investments in our funds, of course. We do seed new strategies. We've seeded, for example, the core fund series for a period of time. And they're largely business around the funds management business that provide capital to the overall funds management business.
We have recently, and it's really due to a coincidence of timing, we have recently made three external investments in our principal investment portfolio, external to the funds management business. And indeed and I will discuss this in a moment. Hamish and I have seen a number of proposals over the years, and we've really not done anything within that because we've been concerned about meeting a various a number of criteria, which I'll run through in a moment. But in considering these principal investments, we do think that there is some scope to both add extra layers of resilience to our business, but also potentially pick up some intellectual capital. I'll come to that in a moment.
So overall, the board has set a pretty tax hurdle of 10% per annum over the business cycle across our principal investments, which so far we've missed. So if I could go to the next slide. So the external principal investments, as I said, Hamish and I have over the years approached both from management point of view, but also from an external investment point of view. And we've really done not very much on that. Just recently, of course, we did make three investments and the timing of those really was a coincidence of when those investments came to us.
So I wouldn't read anything into the timing of those. Ideally, when considering some of these principal investments, the idea of finding some investments and spending streams that are not necessarily linked to markets. Funds management business by definition is a derivative of markets. And so our earnings obviously are a function of markets. If it's possible to add some diversity around that without and I'll come to this in a moment without creating distraction.
It's something that we'd look to consider over time on that. But of course, we're very mindful of in making these investments that doesn't upset the core business of the funds management business. And so to filter these things, we have four criteria that we try to think through. There's some nuances in each of those, of course. The first one, of course, is that we really do need to partner up with some very high quality management teams because we don't want an operational involvement in these businesses.
Of course, we need to have some oversights, usually if we can get it through a nonexecutive director representation. But we can't be in a position we don't want to be in a position, we won't be in a position where we're distracted from our funds management business. And indeed, that hurdle, frankly, is a very big filter That's not that a lot of things that have been presented to us. We just can't get there on that. Ideally, these need to be high quality companies within the sector that have got great growth prospects and can build into meaningful scale.
And if or they contribute to our intellectual capital, and that can come in a number of different ways, of course. And it couldn't provide both diversification in terms of its relationship to its earnings streams and its relationship to business and to markets, let's say, or indeed optionality in terms of what we may be able to partner with that business to do other things that could actually be beneficial to our overall business. And of course, lastly and absolutely, the investment of shareholders' funds needs to attract new financial returns on this. So if I could quickly go to the three businesses that we have actually invested in, and I'll just take you through these briefly to give you an update. The first one, of course, which was announced back in September is Barron Joey, which is an investment services company.
We've partnered here with Barranjali's partnered here with Barclays. Our investment is $156,000,000 for a 40% nondilutive economic stake. We have a 5% voting stake. We do not control this business. The business itself has begun extremely well, and they've managed to build a great deal of the key foundations and the infrastructure that's required.
We're very excited that David Gonski has agreed to become Independent Chairman of Barron Joey. Barron Joey currently employs already 150 people. Despite some of the occasional press articles, it has assembled those people from a very wide range of district institutions. Within that, there's great diversity already building within that business. And the quality of that staff is really first class.
It's going to be an extremely high quality group of people in that business. The advisory business within Barron Joey was really up and going very, very quickly after we announced this. They got the necessary licenses very quickly. It has already attracted a number of mandates and very much along its way of building out a good portfolio of mandates very quickly. The markets business will go live progressively, and it will start next quarter.
It's extraordinary that John Cincotta and his team have built these processes and can get up and going so quickly within that short time frame. It's very, very impressive that will go that will start, as I said, next quarter. The client onboarding has already commenced in that regard in the equities business and other clients. That has commenced extremely smoothly from my observation of it. And from my understanding, the clients themselves are extremely supportive of the business and are looking to come on board with Barron Joey.
And the integration with Barclays in terms of the partnership with Barclays for access to that significant balance sheet, global distribution, those things are very well progressed, that integration is a long way down the track. So overall, we're very, very excited and happy about the investment of Barron Joe's. It is moving along at more speed. It is getting all the necessary foundational planks in place for what we believe is a very bright future and could develop, we think, into a very significant institution over time. If we go on to the next one, which is FinClear.
FinClear is obviously a much smaller business. We took a 16% stake in the diluted for $20,000,000 in FinClear. The business itself is a sort of a end to end technology business that provides the trading functionality right through for financial advice, both firms or stockbroker. It's well connected right through from contract production all the way through to clearing except along that process. That industry itself, to my eye, looks like it may undergo some consolidation over time.
Would argue that Fintley is well positioned to participate in that. But more importantly, from our point of view, the relationship with Fintley and their ability to look to improve access and reduce friction for our investors over time, and particularly around the way that the chest replacement of the ASX may work its way through and what that means in terms of the distributed ledger and how that will work through, we think is a very important step to continue to make our retail offerings more easily accessible and more broadly accessible. And so we're very excited to work with FinClear on that and some an interesting project that's being developed around that. And one thing that I think that's perhaps a little not well appreciated, FinClear is very much integrated into the retail equity business in Australia. It basically touches half of all trades that are done each day.
It's one of the engine it's a key engine in the production of contract notes, for example, at Comsec. It has about a $7,000,000,000 end host on a HIM platform, which has got great scope effectively to grow as well. And then lastly, if I could turn to Guzman and Gomez. I've here taken a couple of slides from Guzman and Gomez. They're quite enamored with yellow, so you can see the yellow.
The Guzman and Gomez, for those who don't know, is a fast food restaurant chain. It's indeed probably Australia's fastest growing restaurant chain fast food business at the moment. It's growing extremely fast. So there's Mexican food. It's as it says here, it's clean authentic Mexican meats made to water.
I'd highly recommend the nachos. Since opening, Steve Marks, the founder, as it says down there, opened the first restaurant back on King Street in Newtown back in 02/2006. It's expanded now to about 148 restaurants. Most of those are in Australia. There are some in Singapore and Japan and there's a few trial restaurants in The U.
S. The USA at the moment. The significant we believe significant white space, as it says here, for both domestic and particularly international over time, growth for Guzman and Gomez. And they are, I believe, and as I say here, they are really just getting started within that. It's led by an extremely passionate and very experienced founder and CEO, Steve Marks, as I said, and he has a very great team around him and notably supported by the CFO and COO, Mike Harkowitz Herkowitz, sorry.
And it's an extremely focused business and we're very proud to be associated with GYG. And unsurprisingly, as it says here, they won the Restaurant of the Year, the Multi Site Restaurant of the Year for 2020. So if I could just quickly flip to the next slide to give you a feel for what this business looks like. Annualized sales, if you take the first sort of seven months of this financial year and annualize them, runs at about $410,000,000 globally, of which roughly $390,000,000 of that is in Australia. Very key statistics, and I want to run through all these, but a very, very key statistic here is that like for like growth and so restaurants have been around for a year, like for like over a year.
For the last financial year to date, it's growing at an enormous 27% per annum. It's at 27%, it's quite an extraordinary. And indeed, there's some evidence that's even accelerating of late. The restaurants themselves are operating very efficiently. And as it says here, 7570% of those restaurants are returning a 25 return on its investment.
We there's a lot here, we believe, notwithstanding the great growth opportunity that we can also learn from business and go there. We're obviously a long standing investor in the QSR space. But we also note here, for example, their social reach. There's a lot we can actually learn in terms of those types of areas, particularly around retail engagements that we might be able to pick up for our own retail business. So lastly, if I could just quickly turn to what that means for our principal investments overall, and I won't run through this completely.
But we've now sort of tried to bucket these with internal principal investments and now external principal investments, as Kirsten said, our equity accounted in that sense. And you can see the returns over 01/1935 and since inception with that 10% over the long business cycle hurdle timeframe in mind on the right there. So look, with that, I'm sure there are some other questions, but I won't take up too much more time there. What I'd like to do now is hand to Hamish just to cover off some thoughts on markets and in particular, the global equity strategy over that last six months. So Hamish?
Well, thank you very much, Brett, and thank you, everyone, for joining. I'd just like to say a few comments just following up from Brett before I get into sort of markets and performance, particularly the global equity strategy. I know a number of analysts have questions on that regard, I just want to address them upfront. I would say it's been extraordinary twelve months and an extraordinary six months. So I'd really like to thank all our staff at Magellan.
I think many people on the call have all had extraordinary lives as well as we've worked from home and everything else. But the last six months has actually been the busiest six months in Magellan's history, yet we've had people working from home. As Brett has outlined, we've restructured our main global equity fund. That was an enormous undertaking. We've launched the core series funds, the sustainable fund, continuous enormous work being going on in the retirement space.
And I think we're getting very close to all our internal work's done. We're dependent on the external factors at the moment. And we've embarked on the strategy in its early days of free principal investments. And it's very important we ultimately, over time, as those earnings come through, get reflected in the share price. Part of the strategy is we want to equity account base.
We want clearly visible for the shareholders, those earnings coming through. FinClear, I think, is much more of an intellectual capital play and outstanding management team there. And that's really something I think Brett and his team is going to really leverage off the back of. And I think we've got some future innovations we can think about, but we're sort of a bit stumped by where the sort of financial plumbing infrastructure is at, at the moment. And FinClear is right in the center of that with the stock exchange at the moment.
Baranjali and Guzman and Gomes are truly extraordinary opportunities. I don't think I've ever seen anything like in my life what they build at Baranjali in such a short period of time to put all the infrastructure and licenses and technology in place and then assemble just an extraordinary team of individuals. I think over the next three years, people may be surprised just what that team does. We're not we're not running it. We're just so privileged to be associated with those individuals.
And Guzman and Gomez, as Brett has said, the Australian opportunity is probably up to 500 stores and maybe 600 stores over time. We've had in our due diligence very detailed view of the next three year property plan. It's incredibly well developed. The store economics are breathtaking. As Brett said, the comps or the same store sales since the July 1, to date, are running at at at at 27%.
But what's encouraging the current comps, which is pre the pandemic, so pre pandemic to post pandemic, so you're not getting it in the dip, they're accelerating from those numbers. I'm not going to say exactly what they are. But I've been in this game for a long time, and I've looked a lot of quick service restaurants around the world, including rollout opportunities. And I've never seen anything like this before in terms of what these stores are doing and what its market opportunity is. And I think we've got a lot to learn on the digital side.
I think, Barry and Joey, there's a lot we can do in staff training and graduate recruitment and other things before we even think about other intellectual capital. So they really tickle our box, but it's modest at the moment. It's kind of 3% of the value of Magellan. So I don't want people to overemphasize these things. But I would like to have a number of businesses in the future that each of our stakes and this is when we think we would be worth $1,000,000,000 to Magellan and we'll see what happens over time.
But these are just wonderful businesses run by extraordinary people. We're in bilateral discussions. We were not in competition with anybody on any of these transactions. We did them on our terms, and we're just delighted to partner with those people. So it really has been an extraordinary six months and twelve months, and thank you so much to the Magellan team.
He's worked so hard on behalf of all the shareholders. Vernin has asked me to and obviously, we've had some questions on this and the performance, particularly of the global equity strategy. I think people ask for two questions. Is this going to lead to some of the outflows because we've had a three month performance statistic that's been under the MSCI benchmark? And what does it mean for performance fees?
So people have paid short term performance fees. First of all, I'd say is we're genuinely not concerned about the performance of our core global equity strategy over the past six months or even over the past three or four months. I've spoken to many of our large clients in the past four weeks, And I'll be very genuine, I have not come across a single client that has raised any concerns about how the strategy has performed through the pandemic, in particular, the relative performance during the last three or four months. The underperformance relative to the MSCI over that sort of three or four month period has been driven by an unprecedented repricing in risk. If you look at the scale of the repricing, particularly in November, it was a one in 50 year, I think one in 40 seven year event.
You have to go back to find a month that performed like that. What is very important here when people think about what job we're being employed to do, And that that is really deliver consistent returns above our sort of add or above our 10% return objective, but very importantly provide people downside protection. Because we're part of people's portfolios and we're sitting in this downside protection portfolio. And during the extreme volatility we had in the earlier part of the year, we performed extremely strongly through the market drawdown. And actually, we were one of the few managers that managed to do that.
And that was just a major stress test because it was such an unusual. We've had a very consistent track record over time in outperforming when things go wrong. But this was a very unusual situation in markets. And really, we came through that incredibly strongly. And the amount of client positive feedback we had globally from institutions.
But even in the retail adviser base, we're being told is, you were the only guys who delivered for us when the things got bad. So I think people just have to put in the context that that the stress of our strategy was in the downside, wasn't really on the upside. And then in our downside protection measured over time is consistently in the top one percent of all global equity managers when you look at that statistic. So in the last twelve months, we had a major, major stress event. And we kind of came through it with flying colors when many other people didn't come through that period.
The underlying performance of the strategy, if you think about it, remains right in line with the objectives we set. We don't have an objective on the strategy relative to the MSCI. That doesn't exist in our clients' sort discussions or what we're setting out to do. It's 10% per annum through cycle, but having a which is gross of fees as we stated. And we want much lower downside risk in adverse markets.
That's what we set out to do. And if you look at the and the underlying performance and where nearly all our money is, is how we think about it is U. S. Dollar performance, which would be how we report nearly all our funds under management to institutional clients. And two or you could look at the sort of hedged version of the Australian one.
Obviously, there's been a very strongly rising Australian dollar that kind of masks what really our core clients are seeing when they look at the strategy. In the twelve months to December, our return in U. S. Dollars was 11.2%. The two year return was 20.1%, and the five year return was 13.7%.
So that was really December, and what a disaster, and all our clients are going, we're pretty happy with this, with the absolute performance, and particularly with the downside performance that we saw through last years. Our clients understand there was actually, if you really understand our strategy, there was little what we could have done what happened in November and December. Our strategy always holds because of this downside protection by its construction, 50% of the portfolio approximately defensive assets and cash. And the defensive assets are largely sort of consumer staples and utility type investments in cash. That asset class, if you look at any of the bench, any of the sort of sub indices of consumer staples and utilities, they underperformed the market by 10 percentage points through November and December.
That all be done by the construction of the downside protection, and we're always running less risk to markets, nearly contributed to all the underperformance. So if you anyone who really understands the strategy, look at this and going, it's you actually didn't underperform really at all because it's just the design of what we have bought. And it's really a timing issue because these defensive assets that when you had the rotation, people talked about there was a rotation out of growth and into value. It's the biggest load of crap I've ever heard. There was not a rotation out of that into growth out of value.
Growth has continued to do very well actually. It was a risk on trade. It was the end of the pandemic. And what people did, it was a rotation out of defensive assets, and they wanted to put on economic exposure. Some of that was growth assets, like travel related growth just went through the roof.
Some of it was commodity related. At some of the banking, it would be regarded as value stocks, but it was an economic trade. It wasn't a rotation out of growth into value. And in terms of the underperformance of the defensive side of the book, we regard that just as a timing issue. Actually, the defensive side of the book is actually pretty deep value at the moment.
And I think many analysts, think and realistically, I think people have don't really understand what the strategy does unlike clients. And people then focus on the MSCI, and we get wild swings because our portfolio actually looks nothing like the benchmark. We're in 25 stocks in very, very big things. MSCI is 1,600 companies. We we we we it's it's over time, we'd like to beat it over sort of seven year periods.
But in the short term, we we we ours has not constructed anything like that benchmark at all, and we get wild swings. We've been 20% above the benchmark, and we've been 10% below the benchmark at different points in time. And just to highlight this, at the October, on a twelve month basis, we were 7.7 percentage points above the benchmark. And at the December, we were then 75% under the benchmark. So if you look at the it depends when you want to look at the picture.
And discrete points of time can just be super misleading to really how people perceive what the strategy has done over time. And what people are buying is downside protection and consistency over time. And you need to understand that the clients when they build these portfolios, they have different styles of managers. So our strategy really delivered for them when the chips were down, and other styles of strategy have delivered for them in the last three or four months. And clients want to have those different types of things in their portfolios.
If we had underperformed the market during the market downturn, that's when you should be asking the questions. And I can't speak on behalf of clients, but I'm really seeing no evidence at all that we have a sort of client outflow risk sitting in our strategy at the moment. We're told we've been consistently one of the most consistent deliveries for the clients within their portfolios, and it's performing right in line with the styles when they deconstructed. So I'm generally not losing sleep over this issue. If you ask me in October, you would have asked a different question in December.
And I'm I'm generally relaxed because I'm I'm speaking to so many clients as our team is. If anything, there's more friction around our clients around the restructure at the moment just because of how the platforms and all the plumbing when we're trying to do a corporate action. That's on sort of advisers' mind. The performance is not a material issue. But Brent has asked on markets.
I don't want to spend a lot of time on markets. I'm happy to take a question. I didn't start with that because I didn't want to obfuscate that discussion on performance here. On markets, what I would say is a lot of the economic repricing has been repriced. There is very, very little margin for error.
It's very clear that we've got stimulus in the world from the monetary authorities and the governments at a level that is beyond comprehension and should be very supportive of economic growth, particularly in The United States in the fourth quarter and maybe the first half of next year, and we could get some very, very strong numbers. The market is backing that. And of course, China is in pretty good shape at the moment, we're seeing that in commodity prices as well. But what I'd say there is very, very little margin for error at the moment. I would say in the scientific risk on the mutations of this virus, there is very, very little error for risk at the moment.
And the mutation risk is is very real. We haven't seen it to date. And if you understand the science and you speak to people, the events we've seen in South Africa was was something that was predicted to to impact efficacy of these vaccines as in stopping people can still get infected, but we thought that they would they would hold. But there have been some very important lab experiments that have been done that shows that this virus is very susceptible for an escape mutant to to to happen that would evade the current vaccines. And if that was happening, depending on its nature, we we could see some real volatility in markets moving forward.
So we're we're maintaining a fairly we're fairly fully invested, but we're pretty cautiously invested at the at the moment because this could go in any direction at any time. And we're not through it at the moment, but but people think that we're the vaccines are gonna hold up, we'll just recode them and everything else. If only it was that simple. It is a very, very complex issue. You know, our clients clearly understand where we're where we're positioned.
We're not swinging for the fences. We're just not betting on the monetary stimulus. Other people are doing that, and that's absolutely fine. We're trying to read all the scientific risk as well on this. Escape mutant risk is we'll nobody knows what the answer is to it, but it's real it's in the viewfinder, and there's a number of different scenarios how that could play out.
Some of them are fairly mild to the extremely ugly from a financial point of view. We'll
just see
what happens. And I'm not predicting it's going to be seriously ugly, if something turns against us in a mutation in this virus and our portfolio is pretty well positioned, I think if it just continues without it, I'm pretty comfortable with the portfolio's positioning at the moment. Actually, the reporting season, which has just commenced again, across the board has been incredibly strong across our portfolio. And the last thing I'd mention, and people are asking this, and Brett mentioned the very things. People in the short term get focused on performance fees.
All I would say is the high conviction fund, and it's only we're only six weeks into this six month period. It's in the money strongly at the moment, but that could reverse. So I'm not making a prediction there. And the global equity strategy is above its high watermark. So you could move and we could have very large performance fees very quickly or we may have no performance fees.
But it's not like we're chasing a hard watermark here. And the currency has been a very significant headwind in terms of where we have those $8 funds. Obviously, that doesn't affect us in our U. S. Mandates where we may have performance fees type arrangements.
So if the strategy outperforms in the next six months, and I have no idea whether it's going to be a case, we could have a large performance fee and if it doesn't, we may not have anything. But we've got no hurdles to earning performance fees in the next six months. But I can't make a prediction whether it will happen or not. I've got no idea what markets will do in the next four and a half months ahead of us to in this period. But and and they are lumpy, and you you you're seeing that, you know, we're 40 odd million down to 12,000,000 and who knows.
But they and and they can change. We're we're we're seeing performance fees, which we go up and down by $20,000,000 in a day of markets moving around. You know, and that's just how sensitive our business is to performance fees that our strategy can outperform the market by 2% in a day and it can just and it balloons in terms of the performance fees. And that's the type of differential we have to market and then you can lose it in the next few days. So it's lumpy, it's volatile, but it's part of the business, and that's what it is.
So Brett and Sarah, I might just leave those sort of comments here. I'm happy you take other questions, but why don't we hand it to you and Sarah, Brett, to sort of put my questions we have from the audience.
Thank you, Seamus. We'll now move to a few Q and A. A reminder, you can ask a question by typing it into the Q and A icon or you can press star nine on your phone. First, you have a question on the phone. This one is from Jennifer McConaughey.
Jennifer, please ask your question. Please unmute yourself and ask your question. Jennifer, if you're there, please unmute yourself.
Could you instruct how to unmute, please, Sarah?
Sure. It should be on your screen or if you're joining by phone, it's 6. Okay. We'll move on to another question. So joining us by phone ending in 5549, please press 6 to unmute yourself and ask your question.
It's Brendan Carey from Macquarie here. Can you hear me?
Yes, Brendan. Please go ahead.
Okay. Just two questions for me. Just the first on expenses. So obviously, the guidance for funds management implies about a $60,000,000 second half expense. Just wondering if you can give any comments, maybe, Kirsten, on the run rate that we could potentially expect for FY 'twenty two.
So is the second half a bit more of a normalized expense rate that we should be thinking about going forward?
I'll take that. Look, I think the range for 2022 will be somewhat above the current range. I'm not sure you could quite extrapolate the second half to that. It will depend on a number of factors within that.
One of the
big and then Kirsten talked about this was some of the resetting of some of the deferrals that we had in our bonus payments that we did last year as part of the sort of coded part of the remuneration changes that we made. Those deferrals will start to build up. So those expenses will start to you'll see those in the next year, but that will be a gradual increase on that. There's no plans will increase in other expenses. Marketing may increase somewhat, although I'd say, and Mahomes can jump in here, a lot of what was learned through this COVID period in terms of using these types of formats means a lot of that costs will probably permanently come down.
It will depend on somewhat on travel as well when that starts to open up. We noticed our travel budgets clearly come down quite significantly. So a few variables like that that we need to creep in. But yes, I would argue that the range perhaps next year will be somewhat higher.
But I would say that our business is always seasonal. The second half expenses are always more than the first. And it's just a number of sponsorships and a number of asset fees and a number of when we're doing consulting arrangements and things, they tend to be second half loaded, Kirsten. I don't know if you comment, but there's always the second half will always be a little bit higher than the first half, please, just because of the nature of the way sort of contracts and things fall for us.
Okay. That's clear. And then just one other one. Just obviously, you can't really guide to the equity kind of profits given the early stages of the business. But I'd just be interested maybe in some more holistic comments around sort of the medium term expectations for the likes of, say, Barron Joey.
And is there an expectation of or at least what's the rough time line that you're thinking that maybe that business would be moving towards breakeven and then profitability?
Look, I think we're not going to get into that. We don't want to discuss that, I think, at this stage. The Barring Joey is building its business. It's obviously got a business plan, but look, that's commercial confidence, frankly. So we'll report as things evolve.
They're clearly, as I said in the presentation, built many of the foundational work on that. There's still some more work to do. But they're very advanced, if I can put it that way, in terms of onboarding clients and client activity, we believe, both in the equity business, including already in the advisory business, likely turn up very quickly. But in terms of profitability and those sorts of things, it's too early and it's not appropriate for us to talk about at the moment.
Moving on to the next question coming from a phone number ending in +1 687. In
Jenny Howe from Morgan Stanley. I had a question about the principal investments. I'll break it into two limbs. So firstly, who has been making the recent investments in the Principal Investments division? And secondly, do you think that you'll invest in a dedicated team as this division grows?
The
group that's been doing a lot of the work in terms of analyzing the principal investments, and I must say, the amount of work is around what we've done is not as expansive as you would think in terms of resources. So there's work in the box currently got, but I'll come to the resources in a moment. Our governance and advisory group, we've done a great deal with the due diligence work and a lot of the analysis work. Ultimately, Hamish and I make decisions around this. That would seem to be good to me.
Hamish, of course, has an interest in this in terms of both from the strategy and an overview of of the business from the chairman's perspective. Businesses such as, you know, Guzman in terms of the QSR space, Hamish and neither, particularly Hamish has been staring at the quick service restaurant space for a very long time, we're very, good handling of what that business looks like and what to look for within that business. So we both looked at that. In terms of resourcing over time, we may put some structure in, but it depends on where that gets to in terms of the size of what we need to do. But important, as I said in this, and Hamish made the same point, operationally, we don't and we will not want to be involved in this business.
So we'll be in these businesses. We're looking for high quality management And and obviously, we want to have oversight of what our investment and the business is doing. So we will build those resources over time. It will depend on the number of opportunities that come. But currently, at the moment, the way it's set up is it's manageable within the existing framework of MyTime, particularly Governance Advisory, Craig, who runs that team.
I'm sure I don't know whether you want to chip in on that.
Yes. I think it's a very good question. I think we have to put it in context what we're doing. This isn't a private equity strategy where we've got operating sort of control of these businesses. So it's very, very different from a private equity approach here.
There's two things. There's one of the due diligence of going into these investments. It tends to be when you're really in at a pretty short period. You're the whole Guzman and Gomez from start to finish was three weeks from the first conversation to the public announcement. I think it was about three weeks, Brett, that process took.
Obviously, there was some intense due diligence that was done by Craig and his team. Obviously, Brett and I had quite a few conversations and things just during that process. It didn't take up enormous amount of time, but it's a space that we know and I know particularly extremely well. The the Darren Joey one was more about getting people together. You know, we didn't actually put the business together.
You know, it was kind of a blank sheet. It was agreement and to put some money in. So the due diligence side, there was nothing due diligence. It was more about the people on that one. And FinClear was very, very small and very straightforward.
So if you split what we have to do, there's two things. It's due diligence on new opportunities. And to be frank with you know, I don't want to be held to this. You know, I would be happy that over time, we end up with 10 investments. You know, this isn't gonna be a 100 investment strategy.
We don't wanna have lots and lots of small things. We'd like to have a few things that could be could compound over time into something that's meaningful in a few investments. Do we have to map that? No. It's completely opportunistic.
So we don't know what those futures will be. We may not get to 10 or we may get to 10. We'll see what happens. But when they come up, there is a short period. It could be a number of months.
Know, Grudsman was extraordinary how short it was. A number of months where Craig and his team, it's well resourced. We do do due diligence on on those, and then there would be a board paper and a consideration and information will be given to Brett and I, and we debate it and and and and forth. So the due diligence is kind of one off. It's gonna last for a few few months.
We've got a sort of internal investment banking team, which is really Craig's group that looks after that and is very well equipped to do that. Then on the second part, as you build that, it's the monitoring side of things. You know, we have board members, but formalizing that monitoring side. And I'd say when we get more of them, if you put somebody fully in charge of the monitoring, frankly, there's not much to do at the moment. You know, it wouldn't be a full time job.
But if you build out 10 of these things and just the reporting and the reporting we put to our board and the monitoring that that that would go with that, absolutely, we would put that we we we will put that structure in place, but we'll put it in place at the at the right team. From our investments from the investment team and sort of asset management, outside of myself that is fairly limited at a high level, but Brett's really taking that heavy lifting with Craig here. No one on our asset management side is involved with these sort of with these principal investments. But as it builds, as if we get more investments into the monitoring, if we need full time person to oversee that, we will put that in place. It's just not today because it's not a full time job at the moment.
Thank you. That's all the questions I have.
Right. So we will now move to the phone number ending in +1 4257. Please press 6 to unmute yourself and ask your question. +1 4257, please unmute yourself and ask your question.
Can you hear me now?
Thanks, Adam.
Thank you. Sorry, it's Ed Henning from CLSA. Just further on the principal investment business, can you just talk about the potential size limit you're thinking about these investments? Also, how you think about the holding period? Are these just set and forget?
Or will you potentially churn some of these going forward? And then lastly, just on the you talked about 10% return over the business cycle. You know, what do you what kind of time frame is that? Is that three to five years? Or is or is that longer?
Do you want me to take that, Brett? Yeah. It's a long Yeah. In in in of this, are are we looking to churn these like a private equity? Firm?
No. We don't have an intention to to churn these investments. You know, I I think one of the things we're doing here is we don't wanna compete with private equity in in in these. Every one of these conversations have been bilateral. No one else has been invited in the room on any of these discussions we've had.
They didn't wanna talk to anybody else. They didn't have any price competition on them. You know, what we wanna do is to be partners, and I think being partners where we have a significant investment, but we have no desire to control it, to a number of people is hugely attractive to them. And also the basis that we are very long term partners that we're not seeking to flip their business. And some of these people are are building businesses.
They're founders. They don't wanna think that somebody's getting in the thing to flip to to flip this investment. So I I I know that I I wouldn't I'm not putting a one in saying that we will never do something or there may be an opportunity at some time that the management wants to merge with somebody else or list the business and at some point we decide to to to to sell out. But if that that would be management's desire to do that. We really wanna be partners and supportive partners.
And I would be thinking in our ownership timeframe, probably more in that ten to twenty year sort of view than in the three to five year view of how we would think. We would love to compound our money over very significant periods of time there. And sorry, that was just sort of time period and flipping. I think I missed one other aspect of the question.
The other two were just have you thought about limiting the potential size of investments at this early stage? Or it just depends on the opportunity? And then just your return, you've talked about over the business cycle, What kind of time frame do you consider a business cycle? Is it three to five years? Or is it longer to get
that ten think in terms of demonstrating the returns, think three to five years is a reasonable thing to start getting that 10% return. Obviously, a number of these, we're anticipating we may get materially higher returns and sort of 10% per annum type returns out of some of these are extraordinary business opportunities. That's a thing. When you particularly investing in businesses or in start up mode, know, Guzman and Gomez is building out just incredible property development and marketing and other infrastructure that's gonna support a much, much larger group. And obviously, Baron Joey is at signing up people and everything else and signing on software licenses and everything else is paying out money before the revenues coming in.
But we would expect those businesses to scale and profitability returns. Our hope and those investments that they will potentially scale into something our share being pretty meaningful to the group in longer term. And the question will we commit more money? It's Guzman and Gomez, we've got an 11% interest. You know, you got other partners there.
There will be liquidity events. We've actually got preemptive rights there. Some other shareholders do as well. We're probably the ones with the biggest checkbook, you know, and at the right time, depending on what people wanna do, if people wanna sell out. At the right terms, we'd probably be delighted to commit more money to to to Guzman and and Gomez, but but we're not we've only just bought in.
No one's no one wants to sell. We actually wanted a larger holding. That's all we could all all we could secure on the terms we were prepared to offer. So we'll we'll we'll see what happens. We'll be limited in size.
It really depends on the opportunity. You're asking us to forecast. We don't even know. We could get a phone call tomorrow. We could get a call in three three years.
Someone could ring us up for a $100,000,000 and someone could ring us up for $500,000,000 It would depend on the opportunity. So at the moment, we've committed 3% of the value of Magellan to this. So even a few 100,000,000 is a drop in the ocean for us. So would we be nervous about committing a materially larger check than sort of $150,000,000 would be a bigger check than that? Absolutely.
That wouldn't give us any hesitation. But it would have to be the right deal. It would have to be something that we think would be highly scalable and meet all the criteria that Brett has outlined, where outstanding management or not operating, a lot of scale to grow, contributes to our intellectual capital. And we're very you know, have a very high conviction on the value add here. You know, there's a lot of balls to line up, and we don't want to be in competition with other people.
You know? So, you know, we're not competing in auctions. So, you know, we're we're we're we're limiting our universe there, but so far, we've found three people. It just what happens starts at the same time who who wanted to deal with Magellan and nobody else, and I kinda like doing that.
No. That makes sense. And just one last one while I've got you. You saw some equity kind of losses come through the period, obviously, with some of the businesses in start up. I imagine they will likely continue just for the next little while.
I I think you have to assume that that that that particularly the Baron Joey business, they're signing on people. And, obviously, if you're in there, you're you're from brokerage firms. You understand when you sign people on, you're probably gonna have to pay them some deferred deferred comp and things out there. That's gonna come through as as an expense. We're not paying that cash, by the way.
There's no further cash going out the door from Magellan, but we have to pick up our share of that as that happens. We suspect that room will quickly turn, but there will be a point in the beginning where there's where you we effectively they're investing in building out the platform. We take our share that will be accounted to expense that. They won't capitalize that. And then the revenues will come through, and I think they're going to come through very strongly.
But I would expect and I don't have a clue what the number is going to be, but I'd expect in the certainly in the second half of this year, losses to continuously come through from they're only starting to roll out their platform in the second quarter. So and and they're signing up people, these people are joining and and and all those sign up expenses will be expensed. Does that worry me? It doesn't worry me in the in the the the slightest. But then, you know, I would anticipate this business will move into profitability in reasonably short period.
But I can't predict. It's a bit dependent on markets. It's transactional as well part of their businesses. Anybody knows about those types of businesses. They are developing a flow business early on, particularly the equity business, so I think will be a very, very strong equity business coming out of the gates.
They've got huge DNA in that space and the people who have joined the sort of M and A advisory business is lumpier by its nature, depends what their clients are going to be doing. They could get some very large fees very quickly or they could come twelve or eighteen months later. That's just the nature of the game.
I just have question to from the Q and A from Elizabeth Maliata. Just on strategic initiatives cost break, how should we think about the quantum going forward in the 2021 financial year and beyond?
Well, we talk about it in the report. The strategic initiatives around the restructure will occur in this half. And they're going to come in two parts, if you like. One is related to the partnership benefits that will be expensed in terms of the 7.5% partnership benefit, the extra units that will be attached to the capital raising. We won't know that until the what the quantum of that is until February after the offer is closed.
And the other, which was talked about in the report is how do we account for and think about the funding of the 7.5% discounts on the options that are going to be issued. The way that the accounting works on that essentially is that once the options once we know how many options are essentially outstanding, the accounting effectively raises, as it says in the report, a liability assuming essentially all those options are exercised and you calculate what that 7.5% discount is based on the net asset value of it and you expense that upfront essentially, credit liability expense. So that will occur in this financial year once a month's capital raises are completed. And then over time, that liability effectively gets mark to market as the options that are actually exercised, remembering there are American style options, you can exercise them every day, essentially as they're actually exercised. And indeed, because it's a function of the net asset value of the fund as that net asset value per unit moves around, that gets reworked as well.
So depending on where that goes, it could increase that cost that's been expensed or in that it could be booked as a guide and the different producers. So as it says in the report, we tried to put some quantification around what that means per $100,000,000 of partnership raising, and we tried to put some numbers around what the bonus issue on the options would be within that. So that will occur in this financial year.
What I just said about moving forward, I think this restructure and when we launched things like High Conviction and the Global Trust, they were very large one off and strategic moves we made and led to large numbers in terms of these. Moving forward, I would expect that the numbers of these sort of strategic initiatives are going to be much, much smaller and really probably going to be mostly tied to either small capital raisings, like a unit purchase plan or something, or they're going to and that would be very occasional when we would do something or the unit purchase plans that we have there, which rats and mice in the scheme of that. And if you really think about what's happening here is what we're doing is we're acquiring closed end funds under management at a sort of PE of four or five times. And normally, if we went and acquired somebody's funds under management business, we record all that as goodwill. We might have amortize a bit, but a lot would be sitting on our balance sheet as a capital item.
What we're doing with these effectively acquisitions that we're making is we write it all off upfront. And it's really a capital item that gets written off and what we end up picking up is an annuity flow of funds management fees that come out of these closed end funds. But we require under accounting standards just to write off the cost of acquiring that that that that that annuity, and that that's why we really add it back, we don't count it for our dividend. It could equally under accountants had different views. It could sit on our balance sheet, but it doesn't in these circumstances.
When we bought early, it sit sat on the balance sheet. Most of it, some of the customers side get amortized here. But given these closed end funds, I guess you wouldn't be amortizing very much at all if you want to board a closed end fund as opposed to the way we're doing it. The accounting standards go, you write it off. So but moving forward, in the absence of a large strategic transaction, I would expect these in what's in our viewfinder will be much smaller in future years.
But I know if you want to comment on that. But certainly dividend reinvestment plans, it's pretty small in terms of what that those costs of underwriting a closed end unit DRP at a discount.
Yes. No, look, I would agree with that. The there is nothing more in that in in, as you say, in the viewfinder. You know, the the discounts that that we find on on the DRP is not relatively small, and they're they're ongoing, obviously, and they fall into this bucket. Previously, we've done UPPs and the discount associated with that.
But if you think through the options of attaching closed class units, essentially, that in many respects is a sort of an enduring UPP
Pre year UPP, sorry.
Pre year UPP in many respects, which were, as you rightly say, having issues being up fronted in expense today, essentially within that. So I would expect it to be very modest going forward.
And we'll just end on one last question from Ian Nicholl. In regards to the closed class units of the Magellan Global Fund and the Magellan High Conviction Trust, why are they trading currently trading at a discount to their net asset value?
Yes. Well, it's a good question. The closed class units in MGF, it has traded at a discount, that discount does move around. Been relatively modest, I would argue, within that. Is notable.
Currently, that still carries the bonus option, which is interesting in that regard. As I've said, I think the bringing the two open and closed class units into the single trust over time, it doesn't it won't happen immediately, will help the trading of those. Of course, both in the high conviction trust and the closed class, we are in a period with a partnership offering. We've been around this before. People do look to fund us in different ways in some respects.
It's possible that and we've heard and we know that this does happen, liquidating some of these units help fund the partnership offer does put a bit of pressure on it in the short term. And so I think it's a combination of those factors. In the high conviction trust, obviously, there was it's a much more concentrated portfolio. The performance of that, whilst it's now clearly quite recovering, the net asset value is up around $1.64 There was some movement around that, so that the performance potentially in the short term has an impact on where it trades versus its net asset value. I would argue that they're at a discount, the entire closed ended class, the LIC structure, LIC structure across the most of the trading environment currently, and it's just a function of where things are trading are at a discount.
So we look, we're mindful of that. As I say, I think over time in the closed class units as this partnership offer and the various things that we're doing to dissipate within that. And we've talked about the reduction or the removal of that basis risk between those two classes, there is an arbitrage that would logically start to appear within that, which will then start to bond that a little bit closer to its net asset value.
And I'll just make a comment on that. We've deliberately set up this new global trust to put the two units close in the opening in the same structure. There is a natural arbitrage that sits there, but effectively, we need to put the building blocks in place to facilitate to enable that to happen. People actually need to be able to get what is known as stock borrow over the open class units. Magellan and because it all sits in individual retail lands, it's just not sort of institutional stock borrow available at any sort of investment bank.
We are working with a number of counterparties to effectively put that mechanism in place, but it just takes a while to put it all into place. And then we have to see where the market participants would then price that, the trading of that. But certainly that will add demand and we think we'll put a floor about where the discount could go to in that structure. And Brett's been working away to do that. I don't want to get too technical exactly what happens, but it was part of the drive where we wanted all these units in a single thing to improve that whole trading experience in closed in units within our structure.
High conviction slightly differently because we don't have all the units in a single structure. It's more complicated to get that. I would note that within the limits of what we can do, we're being as aggressive on the buyback that on there, we've been buying back units. British right, sort of a lot of rips and leaks have gone out to discounts at that moment. People there is a bit of selling pressure.
It's not extreme, but there is a bit of selling pressure at the moment. People are wanting to take up this entitlement and they hold Magellan, so they sell some other Magellan things. So there's just a few issues. But all I'd say to people, we are super, super conscious of this issue and doing everything we can to give people a good experience around being in the closed class units, and we will spend capital to do what we can do. It's just that experience and look at structural ways of giving the best experience to people.
And it's on bread and my mind all the time, this issue. And it was one of the big drivers for what we did in the trust consolidation, to be frank with you.
With that, we will wrap up today's presentation. Thank you to Hamish, Brett and Kirsten for joining us, and thank you to everyone online for joining us, and we will see you in August for our full year results. Thank you so much.
Goodbye.