Ladies and gentlemen, good morning, and on behalf of the company, welcome to the Magellan Financial Group results presentation for the half year ended 31 December 2020. I'm Sarah Thorne, and I manage the investor relations function at Magellan. Today, the company's results will be presented by Brett Cairns, Magellan's CEO, and Kirsten Morton, Magellan's CFO. Hamish Douglass, Magellan's Chairman and Chief Investment Officer, will join the Q&A at the end of the presentation. Please note, we will host a Q&A session at the end of the presentation. If you have joined us via the webinar, you may ask a question by typing it into the Q&A icon at any time.
Please note that today's presentation is being recorded, and a replay will be available on Magellan's 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 AUD 101 billion. Management and services fees, as a result of that, grew 8% to AUD 311.4 million. That drove profit before tax and performance fees, which of course, move around from period to period, in the funds management business of an 8% increase to AUD 256.2 million. Net profit after tax, reported net profit after tax was up 3% to just over AUD 202 million. Our adjusted net profit after tax, which we adjust with such things as strategic investment costs, unrealized gains, amortization, et cetera, was down slightly 2% to AUD 207.1 million. The interim dividend was up 5%, which reflected the growth in the funds management business to AUD 0.971 per share.
75% franked as previous periods. Kirsten's going to talk about the group results. I'll come back and discuss the funds management business and an overview of the business. Before throwing 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. With that, let me hand over to Kirsten.
Thank you, Brett. Good morning, everyone. The group has delivered solid financial results for the six months to 31 December 2020. The group's statutory net profit after tax, as Brett mentioned, was up 3% to AUD 202.3 million 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, being management and services fees. As was mentioned in the past, performance and 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 AUD 12.4 million, compared with AUD 41.7 million of the prior half year. During the period, Magellan made two investments in external businesses, Barrenjoey and FinClear.
These were held in the group's principal investments. Brett will discuss those later in the presentation. For now, for accounting purposes, the group classifies these as equity accounting investments and records them as a separate line in the P&L, its share of the net profit from those businesses. For the six months to 31 December 2020, this was AUD 6.1 million net loss. The group's adjusted net profit after tax for the half year was AUD 213.1 million, which was down 2% compared to the prior half year. 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 slides, and for the December 2020 half year, comprised of three adjustments.
Firstly, a non-cash item of AUD 2.3 million, which related to the amortization expense on intangibles from the Airlie and Frontier businesses we acquired in prior years. AUD 5.6 million adjustment, which related to the unrealized losses net of tax in shares and units held by the principal investment portfolio. As we record market movements in those equities directly in the P&L, we consider it meaningful to remove the unrealized market volatility from our revenues, whether they be gains or losses. A AUD 2.9 million adjustment, which relates to the one-off strategic transaction costs. This year, these related to the six-monthly funding costs for the DRP discount in two closed-ended Magellan funds and some costs relating to the restructure of the global equity retail fund that was 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 AUD 110.6 per share compared to December 2019. Adjusted diluted earnings per share was AUD 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 slides. Our effective tax rate for the half year ended 31 December 2020 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 have declared an interim dividend of AUD 97.1 for the half year ended 31 December 2020. The dividend announced today reflects Magellan's dividend policy, which is to pay out between 90%-95% of net profit after tax of the funds 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 as an offshore banking unit, dividends are likely to be partially franked.
Our policy continues to pay dividends promptly, and the dividend announced today will be paid to shareholders on the 25th of February. On expenses, on page six of the slides, there 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 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 2020 bonuses. Our average number of employees remains quite stable at 132 at 31 December 2020, compared with 128 at 30 June 2020.
Half of the group's remaining expenses are variable in nature, either moving in line with changes in FUM or being a function of the number of investors we have in our funds. The other half of non-employee 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 as partnership benefits in our closed-ended funds as investments and not day-to-day operating expenses. Therefore, as I've mentioned earlier, we exclude those expenses relating to those strategic initiatives from our funds management results when calculating the dividends to shareholders. Our cost-to-income ratio for the half year ended 31 December 2020 is 16.8%, which is a further improvement on 30 June 2020.
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. Finally, we expect our funds management total expenses for the 2021 financial year to be in the range of AUD 110 million-AUD 115 million, but towards the lower end. With that, I will now hand back to Brett to provide a business update.
Well, thanks, Kirsten. 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 at last half. 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 8% increase in management fees. There's a slight mix change in that. It's a lot of surrounding and also it's a very slight mix change. Our average base management fee was 61 basis points, rounded to those 2 decimal points, for the half down from 62. Our performance fees, as Kirsten mentioned, fluctuate quite significantly from period to period. In a comparative sense from last six months to 31 December, it's down 74%.
I would note that comparing six-month-on-six-month 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-month-on-six-month is quite difficult to do. I would note that a number of our funds are above their high water marks. 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 either in Australian dollars or hedged back to the Australian dollar. Of that 85%, if you like, 61% of FUM is exposed to the U.S. dollar.
On a constant currency basis, just to put this in context, our revenues on a constant currency basis would be AUD 12 million higher, which would have meant an increase in management fees of about 12%. As Kirsten mentioned, the funds management, I 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. Indeed, our number of employees has been modest in growth. Our business is hardly scaled. It's hardly scalable, at some various points, we do look to employ people as resources dictate. I would imagine that the growth in employees will reflect that and be 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, within flows of about AUD 2.3 billion. 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 AUD 1.4 billion. That was a net inflow compared to the AUD 2.4 billion in the corresponding half last year. That corresponding half last year had about AUD 900 million included in that in the IPO of the Magellan High Conviction Trust. All up for the net six months, the net inflows were about AUD 3.7 billion, which we're very pleased with. If you go to the next slide, please, Ange.
Looking at that across our product and breaking that outward flows and performance in terms of FUM. Global equities had net inflows of about AUD 1.7 billion, with overall net investment performance over that six months being flat. Australian equities, as you can see here, grew AUD 1.1 billion through investment performance. Global listed infrastructure, likewise, has attracted great flows, AUD 2.1 billion, to now at the end of December, having AUD 18.2 billion of funds under management. Really what I'd like to do here is just to talk about some of the initiatives that we've been looking at. One of the things that we were discussing last time is building some resilience into or extra resilience or layering resilience into our business.
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. The active ETF, which is now what, six years old, was the first step in broadening that fund base. We'd just like to report that 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. There's a lot of work involved in doing that. It's very hard to simplify these things, particularly once they're established. We swallowed hard and we did undertake a restructure of our global equities retail funds, which was completed in December last year. It was a very big event to try and get those three global equities funds into a single trust.
It is now up and going in that. Now the result is that we have one global equities fund, a retail fund, which has two unit classes. One of those unit classes is a closed-ended unit class, such that the fund itself will not issue units directly in closed class units or redeem them. Of course, they are transferable and tradable under the ASX listing rules. 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. It's also tradable under the AQUA rules on the ASX, as we've established with the active ETF.
What that's meant is that this now, albeit after a lot of work, has 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 being a closed-ended class. The open-ended class had some additional functionality that was unavailable when we had two different funds, and that is moving from essentially what we call the issuer-sponsored part of the registry base. You can now move that into a HIN, 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. 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-ended class units to have a more efficient trading environment, given that now the basis risk between those two classes is essentially zero. 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.
Following the restructure, we are now currently offering those eligible unit holders in the Magellan Global Fund on a one for four basis that they can put and purchase new units in the Global Fund closed-class units. 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 attached option, which will be an option for three years that allows the holder of that option to purchase a unit at, again, a 7.5% discount to the then NAV. Those options will be exercisable daily and will have a three-year term, and we expect will be also listed on the ASX.
Additionally to that, the existing unitholders, and indeed, the ex-date for this bonus option is at, I think on the 26th of February, in a couple of weeks. Those closed class unitholders will also be issued a bonus option under the same terms as the options I've just described on that on a one for two basis. All those partnership benefits will be funded by Magellan, as we've done previously, and not the Global Fund, so it won't impact the Global Fund or dilute anything within the Global Fund. We will fund those from our existing financial resources and our corporate debt facility, if required. I would just note that the partnership offer closes on the 23rd of February, so fill your forms out.
Notwithstanding building resilience by broadening and hopefully allowing our funds to be more accessible, through the mechanisms that 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. 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'll 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, but we've already had 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.
There are three core funds. The differentiating factor here is that these attract a management fee of 50 basis points and are leverage off Magellan's deep research and its capabilities, but are managed in a more systematic way across each of the funds. Indeed, I think as we've mentioned previously, a Core Infrastructure Fund has been up and going for the last 10 years and has produced extremely good results. There are three funds now available, the Magellan Core International Fund. These are listed on Chi-X, and you can see the codes there, MCSG for the International Fund. 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.
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. As I said, we're very pleased with the reception that those funds have received. The Magellan Sustainable Fund at the same time, Magellan Sustainable Strategy's 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-X exchange or directly with the fund. Thirdly, as many will know, we've been working on a retirement income product or a product that can 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 half-time report, a lot of this is out of our control in terms of the timing of regulators. 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. There's been a lot of work being done on that. There are some key meetings due over 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. Stay tuned. If I could move to our principal investments. Up until recently, of course, our principal investments, which we've had since Magellan has really started, has been very much focused around what we're saying are 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. They're largely a business around the fund's management business that provide capital to the overall fund's management business. We have recently, and it's really due to a coincidence of timing, but we have recently made three external investments in our principal investment portfolio, external to the funds management business. Indeed, and I will discuss these in a moment.
Hamish and I have seen a number of proposals over the years. We've really not done anything within that, because we've been concerned about meeting a number of criteria, which I'll run through in a moment. 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. Overall, the board has set a pre-tax hurdle of 10% per annum over the business cycle across our principal investments, which so far we've missed. If we could go to the next slide. The external principal investments.
As I said, Hamish and I have, over the years, been approached both from a funds 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. I wouldn't read anything into the timing of those. Ideally, when considering some of these principal investments and the idea of finding some investments and earning streams that are not necessarily linked to markets. Funds management business, by definition, is a derivative of markets. 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've looked to consider over time on that.
Of course, we're very mindful of, in making these investments, that it doesn't upset the core business of the funds management business. To filter these things, we have four criteria that we try to think through. There's some nuances in each of these, 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 oversight. Usually, if we can get it through a non-executive director representation. 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. Indeed, that hurdle, frankly, is a very big filter that's knocked out 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 their sector, and they've got great growth prospects and can build into meaningful scale. If all, they contribute to our intellectual capital, and that can come in a number of different ways, of course, and it could provide both diversification in terms of its relationship to its earning streams and its relation to, as I said, 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. Of course, lastly, and absolutely, the investment of the shareholders' funds needs to attract financial returns on that.
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 Barrenjoey, which is an investment services company. We've partnered here, or Barrenjoey has partnered here with Barclays. Our investment was AUD 156 million for a 40% non-dilutive 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 it's required. We're very excited that David Gonski has agreed to become Independent Chairman of Barrenjoey. Barrenjoey currently employs already 150 people. Despite some of the occasional press articles, it has assembled those people from a very wide range of 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 Barrenjoey was really up and going very quickly after we announced it. They got the necessary licenses very quickly. It has already attracted a number of mandates and is 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 timeframe. It's very impressive. 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. From my understanding, clients themselves are extremely supportive of the business and are looking to come on board with Barrenjoey. 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, and that integration is a long way down the track. Overall, we're very excited and happy about the investment in Barrenjoey. It is moving along at warp 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 I could go on to the next one, which is FinClear. FinClear is obviously a much smaller business. We took a 16% stake, fully diluted for AUD 20 million in FinClear.
The business itself is a sort of an end-to-end technology business that provides a 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. I would argue that FinClear is well positioned to participate in that.
More importantly, from our point of view, the relationship with FinClear and their ability to look to improve access and reduce friction for our investors over time, and particularly around the way that the CHESS 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. We're very excited to work with FinClear on that, and it's an interesting project that's being developed around that. 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 a key engine in the production of contract notes, for example, at CommSec. It has about an AUD 7 billion end host on a HIN platform, which has got great scope effectively to grow as well. Lastly, if I could turn to Guzman y Gomez. I've here taken a couple of slides from Guzman y Gomez. They're quite enamored with yellow, so you can see the yellow. Guzman y Gomez, for those that 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. It's Mexican food. As it says here, it's clean, authentic Mexican food. It's made to order. I'd highly recommend their nachos. It's very nice. Since opening, Steven Marks, the founder, as it says down there, opened the first restaurant back on King Street in Newtown back in 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 USA at the moment. There's significant, we believe, significant white space, as it says here, for both domestic and particularly international over time, growth for Guzman y Gomez, and they are, I believe, and as they say here, they are only just getting started within that. It's led by an extremely passionate and very experienced founder and CEO, Steven Marks, as I said, and he has a very great team around him, notably supported by the CFO and COO, Mike Hirschowitz. It's an extremely focused business, and we're very proud to be associated with GYG. Unsurprisingly, as it says here, they won the restaurant of the year, the multisite restaurant of the year for 2020.
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 AUD 410 million globally, of which about roughly AUD 390 million of that is in Australia. Very key statistics, and I won't run through all these, but a very key statistic here is that like-to-like growth, and so restaurants have been around for a year, like-to-like over year for the last financial year to date is growing at an enormous 27% per annum. It's at 27%, it's quite an extraordinary, and indeed, there's some evidence that it's even accelerating of late. The restaurants themselves are operating very efficiently. As it says here, over 70% of those restaurants are returning a 25% return on its investment.
There's a lot here we believe, notwithstanding the great growth opportunity that we can also learn from Guzman y Gomez. We're obviously a longstanding investor in the QSR space. 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 engagement that we might be able to pick up for our own retail business. 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 those internal principal investments and our external principal investments, as Kirsten said, they are equity accounted, in that sense.
You can see the returns over one, three, five, and since inception, with that 10% over the long business cycle hurdle, timeframe in mind on the right there. Look, with that, I'm sure there are perhaps 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. Hamish?
Well, thank you. Thank you very much, Brett, and thank you everyone for joining. I'd just like to say a few comments just following on from Brett before I get into sort of markets and performance, particularly of the global equity strategy. I know a number of analysts have questions on that regard, and I just want to address them upfront. I would say it's been an extraordinary 12 months and an extraordinary six months. 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. 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 firm. That was an enormous undertaking.
We've launched the Core Series funds, the Sustainable Fund, continuous enormous work been going on in retirement space and I think we're getting very close. 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 three principal investments. 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 these. We want clearly visible for the shareholders, those earnings coming through. FinClear, I think, is much more of an intellectual capital play, an outstanding management team there. That's really something I think Brett and his team's going to really leverage off the back of.
I think we've got some future innovations we can think about, but we're sort of a bit stumped by where the financial plumbing infrastructure's at the moment. FinClear's right in the center of that with the stock exchange at the moment. Barrenjoey and Guzman y Gomez are truly extraordinary opportunities. I don't think I've ever seen anything like in my life like the build at Barrenjoey in such a short period of time. To put all the infrastructure and licenses and technology in place, 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 running it. We're just so privileged to be associated with those individuals. Guzman y 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 1st of July, to date, are running at 27%. 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. I've been in this game for a long time, and I've looked at 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. I think we've got a lot to learn on the digital side.
I think Barrenjoey, there's a lot we can do in staff training and graduate recruitment and other things before we even think about other intellectual capital. They really tick all our box, but it's modest at the moment. It's sort of 3% of the value of Magellan. I don't want people to overemphasize these things. I would like to have a number of businesses in the future that each of our stakes, and this it wouldn't be FinClear, would be worth AUD 1 billion to Magellan. We'll see what happens over time. 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. We're just delighted to partner with those people.
It really has been an extraordinary six months and 12 months, and thank you so much to the Magellan team who's worked so hard on behalf of all the shareholders. Brett has asked me. Obviously we've had some questions on this and the performance, particularly of the global equity strategy. I think people ask the two questions. Is this going to lead to suddenly outflows because we've had a three-month performance statistic that's been under the MSCI benchmark? What does it mean for performance fees if people have 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 is performed through the pandemic and 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 47-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. That is really deliver consistent returns at or above our 10% return objective. Very importantly, provide people downside protection. We're part of people's portfolios, we're sitting in this downside protection portfolio. During the extreme volatility we had in the earlier part of the year, we performed extremely strongly, through the market drawdown. Actually, we were one of the few managers that managed to do that. That was just a major stress test because it was such an unusual situation. We've had a very consistent track record over time in outperforming when things go wrong. This was a very unusual situation in markets. Really, we came through that incredibly strongly.
The amount of client positive feedback we had, globally from institutions, but even in the retail advisor base, we're being told is, "You were the only guys who delivered for us when the things got bad." I think people just have to put in the context that the stress of our strategy was in the downside, wasn't really on the upside event. Our downside protection measured over time is consistently in the top 1% of all global equity managers when you look at that statistic. In the last 12 months, we had a 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 client discussions on what we're setting out to do. It's 10% per annum through cycle, which is gross of fees, as we stated. We want much lower downside risk in adverse markets. That's what we set out to do. The underlying performance, and where nearly all our money 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. Or you could look at the 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 12 months to December, our return in U.S. dollar was 11.2%.
The two-year return was 20.1%, and the five-year return was 13.7%. Everyone's looking at December and going, "What a disaster," and all our clients are going, "We're pretty happy 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, in defensive assets and cash. The defensive assets are largely consumer staples and utility-type investments in cash. That asset class, if you look at any of the sub-indices of consumer staples and utilities, they underperformed the market by 10 percentage points through November and December.
That of its own, by the construction of our downside protection, and we're always running less risks than markets, nearly contributed to all the underperformance. Anyone who really understands the strategy, look at this and going, "You actually didn't underperform really at all," because it's just the design of what we have bought. 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 value, 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. 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 bankings, it would be regarded as value stocks. It was an economic trade. It wasn't a rotation out of growth into value. 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. Realistically, I think people don't really understand what the strategy does, unlike our clients. People then focus on the MSCI. We get wild swings because our portfolio actually looks nothing like the benchmark. We're in 25 stocks in very, very different things. The MSCI is 1,600 companies. Over time, we'd like to beat it over seven-year periods.
In the short term, ours is 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. Just to highlight this, at the end of October, on a 12-month basis, we were 7.7 percentage points above the benchmark. At the end of December, we were then 75% under the benchmark. 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. What people are buying is downside protection and consistency over time.
You need to understand that clients, when they build these portfolios, they have different styles of managers. 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. 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. 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 deliverers for clients within their portfolios, and it's performing right in line with the styles when they deconstruct it. I'm generally not losing sleep over this issue.
If you asked me in October, you would've asked a different question in December. I'm generally relaxed because 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 advisors' mind. The performance is not a material issue. Brett 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 the 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, we could get some very, very strong numbers. The market's backing that. Of course, China's in pretty good shape at the moment, and we're seeing that in commodity prices as well. Where 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. The mutation risk is very real here. We haven't seen it to date.
If you understand the science and you speak to people, the events we've seen in South Africa was something that was predicted to impact efficacy of these vaccines, as in stopping people can still get infected, but we thought that they would hold. 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 happen that would evade the current vaccines. If that was happening, depending on its nature, we could see some real volatility in markets moving forward. We're fairly fully invested, but we're pretty cautiously invested at the moment because this could go in any direction at any time. We're not through it at the moment. People think that the vaccines are going to hold up and we'll just recode them and everything else.
If only it was that simple. It is a very, very complex issue. Our clients clearly understand 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, well, 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, and we'll just see what happens. I'm not predicting it's going to be seriously ugly, but if something turns against us in a mutation in this virus, and our portfolio's 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. The last thing I'd mention, and people are asking this, and Brett mentioned it, very things. People in the short term get focused on performance fees. All I would say is the High Conviction Fund, and 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. The global equity strategy is above its high watermark. You could move, and we could have very large performance fees very quickly, or we may have no performance fees. It's not like we're chasing a high watermark here.
The currency's been a very significant headwind in terms of where we have those [AUD] funds. Obviously, that doesn't affect us in our U.S. mandates where we may have performance fees type arrangement. If the strategy outperforms in the next six months, and I have no idea whether that's going to be the case, we could have a large performance fee. If it doesn't, we may not have anything. We've got no hurdles to earning performance fees in the next six months. 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, too, in this period. They are lumpy. You're seeing that, we're AUD 40-odd million down to AUD 12 million, and who knows? They can change.
We've seen performance fees literally go up and down by AUD 20 million in a day, of markets moving around. 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 balloons in terms of the performance fees. That's the type of differential we have to markets, and then you can lose it in the next few days. It's lumpy, it's volatile, but it's part of the business, and that's what it is. Brett and Sarah, I may just leave those sort of comments here. I'm happy to take other questions, but why don't we hand it to you and Sarah, Brett, to sort of coordinate questions we have from the audience.
Thank you, Hamish. We'll now move to a few Q&A. 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 star six. Okay, we'll move on to another question. Please press star six to unmute yourself and ask your question.
Oh, hi, it's Brendan Carrig from Macquarie here. Can you hear me?
Yes, Brendan, please go ahead.
Okay. Just two questions from me. Just the first on expenses. Obviously the guidance for funds management implies about an AUD 60 million second-half expense. Just wondering if you can give any comments, maybe, Kirsten, on the run rate that we could potentially expect for FY 2022. 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'll depend on a number of factors within that. One of the big, and 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 COVID part of the remuneration changes that we made. Those deferrals will start to build up. Those expenses, you'll see those in the next year. That will be a gradual increase on that. There's no planned real increase in other expenses.
Marketing may increase somewhat, although I'd say, and Hamish, you can jump in here, a lot of what we've learned through this COVID period in terms of using these types of formats means a lot of that cost will probably permanently come down. It'll depend on somewhat on travel as well when that starts to open up. You'll notice our travel budget's clearly come down quite significantly. So there are 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.
I would say that our business is always seasonal. The second-half expenses are always more than the first, 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, the second half will always be a little bit higher than the first half at least just because of the nature of the way contracts and things fall for us.
Okay, that's clear. Just one other one. Just obviously you can't really guide to the equity account of profits given the early stages of the business, I'd just be interested maybe in some more holistic comments around sort of the medium-term expectations for the likes of, say, Barrenjoey and, is there an expectation of, or at least what's the rough timeline that you're thinking that maybe that business would be moving towards breakeven and then profitability?
Look, we're not going to get into that. We don't want to discuss that, I think at this stage. Barrenjoey's building its business. It's obviously got a business plan, but, look, that's commercial in confidence, frankly. We'll report as things evolve there. Clearly, as I said in the presentation, built many of the foundational work on that. There is still some more work to do. 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 and clearly already in the advisory business, will likely turn up very quickly. In terms of profitability and those sorts of things, look, 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 1687.
Hi there, Jenny [Fay] from Morgan Stanley. I had a question about the principal investment. I'll break it into two limbs. Firstly, who has been making the recent investments in the principal investments division? Secondly, do you think that you'll invest in a dedicated team as this division grows? Thank you.
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 What we've done is not as expansive as you would think in terms of resources. There's work there with what we've currently got, but I'll come to the resources in a moment. Our governance and advisory group have done a great deal of the due diligence work and a lot of the analysis work. Ultimately, Hamish and I make decisions around this. That team reports to me. Hamish, of course, has an interest in this in terms of both from the strategy and an overview of the business from the chairman's perspective.
Businesses such as Guzman, in terms of the QSR space, Hamish and I, but particularly Hamish with his experience at the quick service restaurant space for a very long time, we have a very good handle on what that business looks like and what to look for within that business. We both looked at that. In terms of resourcing it over time, we may put some structure around it. It depends on where that gets to in terms of the size of what we're going to do. Importantly, 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. In these businesses, we're looking for high-quality management and obviously want to have oversight of what our investment and the business is doing.
We will build those resources over time. It will depend on the number of opportunities that come. Currently at the moment, the way it's set up is it's manageable within the existing parameters of my time and particularly governance and advisory, and Craig largely runs that team. Hamish, I don't know whether you want to chip in on that.
Yeah, 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 control of these businesses. It's very different from a private equity approach here. There are 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. The whole Guzman y Gomez from start to finish was three weeks. From the first conversation to the public announcement, I think it was about three weeks, Brett.
Yeah.
That process took-- Obviously, there was some intense due diligence that was done by Craig and his team, and obviously, Brett and I had quite a few conversations and things just during that process. It didn't take up an enormous amount of time, but it's a space that we know and I know particularly extremely well. The Barrenjoey one was more about getting people together. We didn't actually put the business together. It was kind of a blank sheet. It was agreement and to put some money in. The due diligence side, there was nothing to due diligence. It was more about the people on that one. FinClear was very small and very straightforward. If you split what we have to do, there's two things, is due diligence on new opportunities. To be frank with you, and I don't want to be held to this.
I would be happy that over time we end up with 10 investments. This isn't going to be 100 investment strategy. We don't want to have lots and lots of small things. We'd like to have a few things that could compound over time into something that's meaningful in a few investments. Do we have them mapped out? 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. When they come up, there is a short period, it could be a number of months. Guzman was extraordinary how short it was.
A number of months where Craig and his team, it's well-resourced, would do due diligence on those, and then there would be a board paper and a consideration, and information would be given to Brett and I, and we'd debate it and so forth. The due diligence is one-off. It's going to last for a 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. On the second part, as you build that out, it's the monitoring side of things. We have board members, 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. It wouldn't be a full-time job.
If you build out 10 of these things and just the reporting and the reporting we put to our board and the monitoring that would go with that, absolutely, we will put that structure in place, but we'll put it in place at the right team. From the investment team and asset management, outside of myself, that is fairly limited at a high level, but Brett's really taking that, the heavy lifting with Craig here. No one on our asset management side is involved with these principal investments. As it builds, if we get more investments and for the monitoring, if we need a 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.
Great. We will now move to the phone number ending in 14257 . 14257, please unmute yourself and ask your question.
Can you hear me now?
Yes. Thanks, Ed.
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? Lastly, you talked about 10% return over the business cycle. What kind of timeframe is that? Is that three to five years or is that longer?
Do you want me to take that, Brett?
Yeah, if you like.
Yeah. In terms of this, are we looking to churn these like a private equity firm? No, we don't have an intention to churn these investments. I think one of the things we're doing here is we don't want to compete with private equity 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 want to talk to anybody else. They didn't have any price competition on them. What we want to 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. Also the basis that we are very long-term partners, that we're not seeking to flip their business. Some of these people are building businesses.
They're founders. They don't want to think that somebody's getting in the thing to flip this investment. I'm not putting a line in the sand 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 sell out. That would be management's desire to do that. We really want to be partners and supportive partners. I would be thinking in our ownership timeframe, probably more in the 10 year- 20 year view than in the three to five year view of how we would think. We would love to compound our money over a very significant periods of time there. Sorry, that was the sort of time period and flipping.
There was 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? Then just your return you've talked about over the business cycle. What kind of timeframe do you consider a business cycle? Is it three or five years? Is it longer to get?
Yeah. I really think in terms of demonstrating the returns, I 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 than sort of 10% per annum type returns out of it. Some of these are extraordinary business opportunities. You know that's a thing. Particularly in investing in businesses who are in startup mode, Guzman y Gomez is building out just incredible property development and marketing and other infrastructure that's going to support a much, much larger group. Obviously Barrenjoey is signing up people and everything else and signing on software licenses and everything else. It's paying out money before the revenue's coming in.
We would expect those businesses to scale and profitability and returns, our holding those investments that they will potentially scale into something, our share being pretty meaningful to the group in the longer term. The question, will we commit more money? Guzman y Gomez, we've got an 11% interest. You've got other partners there. There will be liquidity events. We've actually got pre-emptive rights there. Some other shareholders do as well. We're probably the ones with the biggest checkbook. At the right time, depending on what people want to do, if people want to sell out, at the right terms, we'd probably be delighted to commit more money to Guzman y Gomez. We've only just bought in. No one wants to sell. We actually wanted a larger holding. That's all we could secure on the terms we were prepared to offer.
We'll see what happens. Would we limit it 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, or we could get a call in three years. Someone could ring us up for AUD 100 million, and someone could ring us up for AUD 500 million. It would depend on the opportunity. At the moment, we've committed 3% of the value of Magellan to this. Even a few hundred million Australian dollar is a drop in the ocean for us. Would we be nervous about committing a materially larger check than sort of AUD 150 million? A bigger check than that? Absolutely. That wouldn't give us any hesitation. 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. We're very, have a very high conviction on the value add here. Those are a lot of balls to line up, and we don't want to be in competition with other people. We're not competing in auctions. We're limiting our universe there. So far, we've found three people, just by happenstance at the same time, who wanted to deal with Magellan and nobody else. I kind of like doing that.
No, that makes sense. Just one last one while I've got you. You saw some equity account losses come through the period, obviously, with some of the businesses in startup. I imagine they will likely continue just for the next little while?
I think you have to assume that particularly the Barrenjoey business, they're signing on people. Obviously if you're in there, you're from brokerage firms, you understand when you sign people on, you're probably going to have to pay them some deferred comp and things out there. That's going to come through 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 wound will quickly turn, but there will be a point in the beginning where 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. Then the revenues will come through, and I think they're going to come through very strongly.
I would expect, and I don't have a clue what the number's going to be, I would expect 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. They're signing up people, and these people are joining, and all those sign-up expenses will be expensed. Does that worry me? It doesn't worry me in the slightest. I would anticipate this business will move into profitability in a reasonably short period. I can't predict. It's a bit dependent on markets. It's transactional as well. Part of their business is anybody knows about those types of businesses. They are developing a flow business early on, particularly their equity business, I think will be a 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&A advisory business is lumpy 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 12 months or 18 months later. That's just the nature of the game.
Thank you very much.
Thank you. I'm just going to have a question from the Q&A from Elizabeth Miliatis. Just on strategic initiatives cost, Brett, 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 what the quantum of that is until end of February after the offer is closed. The other which was talked about in the report is how do we account for and think about the funding of the 7.5% discount on the options that are going to be issued.
The way that the accounting works on that essentially is that 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. You create a liability and expense that. That will occur in this financial year once the capital raise is completed. Then over time, that liability effectively gets marked to market as the options that are actually exercised, remembering they're American-style options, you can exercise them every day, essentially as they're actually exercised. 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.
Depending on where that goes, it could increase that cost that's been expensed, or indeed it could be booked as a gain and it reduces. As it says in the report, we've tried to put some quantification around what that means per AUD 100 million of partnership raising, and we've tried to put some numbers around what the bonus issue on the options would be within that. That will occur in this financial year.
Brett, 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 this. 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. That would be very occasional when we would do something or the DRP, the unit purchase plans that we have there, which are rats and mice in the scheme of that. 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 P/E of four or five times.
Normally, if we went and acquired somebody's funds on a management business, we'd record all that as goodwill. We may have to amortize a bit, but a lot would be sitting on our balance sheet as a capital item. What we're doing with this effectively acquisitions that we're making is we write it all off upfront. 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. We're required under accounting standards just to write off the cost of acquiring that annuity and that's why we really add it back and we don't count it for our dividend. It could equally, under accountants have different views, it could sit on our balance sheet, but it doesn't in these circumstances.
When we bought Airlie, it sat on the balance sheet, most of it, some of the custom a side get amortized here, but given these closed-end funds, I guess you wouldn't be amortizing very much at all if you went and bought a closed-end fund, as opposed to the way we're doing it, the accounting standards go, you write it off. 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. Brett, I don't know if you want to comment on that, but certainly dividend reinvestment plans, it's pretty small in terms of what those costs of underwriting a closed-end unit DRP at a discount.
Yeah. No, look, I would agree with that. There is nothing more in, as you say, in the viewfinder. The discounts that we fund on the DRPs are relatively small. They're ongoing, obviously, and they fall into this bucket. Previously, we've done UPPs and the discount associated with that. If you think through the options attached on the closed class units, essentially, that in many respects is a sort of an enduring UPP.
Three-year UPP, sorry.
Three-year UPP in many respects, which we're, as you rightly say, hay Hamish, is being up-fronted and expensed today, essentially within that. I would expect it to be very modest going forward.
Okay, thank you. We'll just end on one last question from Ian Nichol. In regards to the closed class units of the Magellan Global Fund and the Magellan High Conviction Trust, why are they currently trading at a discount to their net asset value?
Well, it's a good question. The closed class units in MGF, it has traded at a discount, and that discount does move around. It's been relatively modest, I would argue, within that. It is notable. Currently, that still carries the bonus option, which is interesting in that regard. As I've said, I think bringing the two open and closed class units into the single trust over time, it won't happen immediately, will help the trading of those. Both in the High Conviction Trust and the closed class, we are in a period with a partnership offer, and we've been around this before. People do look to fund this in different ways, in some respects.
It's possible that, and we've heard and we know that this does happen, that liquidating some of these units to help fund the partnership offer does put a bit of pressure on it in the short term. I think it's a combination of those factors. In the High Conviction Trust, obviously, 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 AUD 1.64, there was some movement around that. That performance potentially in the short term has an impact on where it trades versus its net asset value. I would argue that whilst they're at a discount, the entire closed-ended class, the LIC structure, the 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. 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 do 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 bind that a little bit closer to its net asset value.
Yeah. I'll just make a comment on that. We deliberately set up this new global trust to put the two units, the closed and the open, 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 hands, there's just not 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. It just takes a while to put it all into place, and then we have to see whether market participants would then price the trading of that.
Certainly that will add demand, and we think will put a floor about where the discount could go to in that structure. Brett's been working away to do that. I don't want to get too technical exactly what happens, 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. Brett is right, a lot of LITs and LICs have gone out to discounts at the moment. 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. There's just a few issues. All I'd say to people, we are 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'll spend capital to do what we can do, assist that experience and look at structural ways of giving the best experience to people. It's on Brett and my mind all the time, this issue. It was one of the big drivers for what we did in the trust consolidation, to be frank with you.
Well, with that, we will wrap up today's presentation. Thank you to Hamish, Brett, and Kirsten for joining us. Thank you to everyone online for joining us. We will see you in August for our full-year results. Thank you so much.
Goodbye.