Good morning, on behalf of the company, welcome to Magellan Financial Group results presentation for the year ended 30 June 2019. I'm Sarah Thorne, and I manage the investor relations function at Magellan. The company's results will be presented today by Brett Cairns, Magellan's CEO, Kirsten Morton, Magellan's CFO, and Hamish Douglass, Magellan's Chairman and Chief Investment Officer. Please note that there will be a Q&A session at the end of the presentation, so we would appreciate if you could please hold your questions over until that time. Due to legal restrictions, we are unable to discuss the process, logistics, or details around the placement other than the basic terms referred to in the announcement. We will be unable to respond to questions regarding the process of the placement. For those of you joining us by teleconference, you will be placed on mute until the Q&A session.
The teleconference administrator will advise you at the end of the presentation how you may ask a question. Additionally, some of you may be joining via our live audio webinar. Note, you can submit your questions on screen. Please note that today's presentation is being recorded, and an audio replay will be made available on Magellan's website. We may also have media in attendance today. Thank you, I would like to welcome Brett to walk you through the presentation.
Well, thank you, Sarah, and welcome everyone, and welcome everyone online and on the teleconference. It's a great pleasure to present the results for Magellan for this year. It's been, we believe, a very successful year with net profit. Excuse me while I take this off. With net profit up 78% to just under AUD 377 million. Adjusted net profit grew by 35% to just over AUD 364 million. We spent a bit of time, I think, at the February results and also in annual report discussing those adjustments. We think both measures are important in this. In a comparative sense, the adjusted measures, which I'll let Kirsten talk to in a moment, does provide some useful information. Irrespective of which measure you look at, obviously, those two growth numbers have been driven by strong growth in our average funds under management, which is up 28% to just under AUD 76 billion.
That in turn drove management and service fees up 22% to AUD 472.5 million. That, of course, includes performance fees, which as we've made the point many times, are lumpy and do vary from period to period, although not this year as it turned out. One metric we do encourage people to think through is profit before tax of the funds management segment of our business before performance fees, which was up 29% as you can see there, to just over AUD 376 million. Indeed, from that funds management segment where we paid the dividends, the dividends for the six months were AUD 1.114 per share, of which about AUD 0.334 was attributed to the performance fees. That took total dividends for 2019 to AUD 1.852 per share, which was up 38% from the previous year.
Underpinning all that, which I'll get to when I come back and talk, is the strong performance of our Global Equity and Global Infrastructure strategies, in what are challenging and what I haven't written there but are, in my view, very interesting market conditions at the moment. What I'd like to do for the rest of this presentation is to hand over to Kirsten, who's going to run through some of the financials in a bit more detail. I'll come back and talk about some of the business overview. Hamish would like to talk about some of the strategy, particularly around the partnership. He's going to talk about the share placement, as we've heard, without saying much. Then we can take some Q&A. I'll hand it over to Kirsten.
Thanks, Brett. Good morning, ladies and gentlemen. We're very pleased to report that the group's net profit after tax for 2019 is up 78% to AUD 376.9 million. As Brett commented as well, our adjusted net profit after tax is also up 35% to AUD 364.2 million. I'll just step through shortly those revenue and expense adjustments. In looking more closely at the drivers of our result, adjusted revenue is up 28% to AUD 577.3 million, which as you can see on the slide, is really driven by two main factors. That first factor being strong growth in the management and services fees.
The 22% increase is broadly in line, as Brett indicated, with an increase in our average funds under management, which grew 28% for the year to AUD 75.8 billion. Brett's going to talk a little bit more detail on the funds under management generally later. The second factor is the crystallized performance fees, which were up 110% to AUD 83.6 million. The other revenue basically comprises advisory fees from our U.S. distribution business, Frontier, some interest on our cash balances, and distribution and dividend income from principal investments portfolio. The slight decrease is due to lower distribution income from some funds at a year-over-year. It's a strong result from a revenue viewpoint. Turning to expenses. Adjusted expenses have only modestly increased by 3% to AUD 104 million, and overall, expenses are slightly lower than our 2019 expense guidance of AUD 105 million.
I'll talk a little bit more on some of the key expense movements when we cover the funds management business results. I'd like to turn to the three adjustments made to the reported net profits to actually derive the adjusted net profit after tax of AUD 364.2 million. As you'll see on the slide, and sorry, I won't do it in necessarily order, but the amortization expense of AUD 4.5 million arises on the intangibles from acquiring our Airlie and Frontier businesses last year. We exclude that expense from adjusted expenses as it's a non-cash item. We've also got some unrealized gains, which are net of tax from our principal investments portfolio of AUD 28.1 million. These are required to be recognized in the P&L as required by the accounting standards. They are unrealized, and they are lumpy, and they have the potential to distort year-on-year comparisons.
Again, we have excluded those from adjusted revenues. Finally, we have costs from the group's strategic initiatives. In 2019, after tax, those costs were AUD 10.9 million. They've been incurred in 2019 on the Magellan Global Trust unit purchase plan and the 5% discount on the distribution reinvestment plan. We view these costs as investments, not part of our day-to-day operating expenses, and therefore we exclude those costs from adjusted expenses. In theory, by adjusting those amounts, we feel that that provides more meaningful information to best understand the operating performance of our business and also from period to period. Reported earnings per share was AUD 213.1, and that's up 75% from the prior year. The increase reflects the growth in the profitability of the group, although it's at a slightly slower pace due to the increased number of shares on issue during the year.
Excluding the three adjustments that I just walked through, the adjusted EPS is up 33% to AUD 2.059 per share. Now, in turning to the results of our operating businesses, the funds management business remains our core business and is the key driver of our group's profitability. As I covered earlier, revenues have been driven by the strong growth in management and performance fees this year. The funds management expenses have modestly increased by 4% to AUD 101.5 million. That was mainly driven by a 21% increase in our employee costs to AUD 62.8 million, along with some slightly higher fund administration costs in line with higher FUM and higher information services expenses, which is namely from research services and also some annualization of the Airlie costs.
These expenses were offset by a reduction in our marketing costs, reflecting the group's decision to withdraw from the Cricket Australia partnership in 2018, and also the cessation of the U.S. marketing and consulting fees following our acquisition of the Frontier Group in 2018. Our funds management business continues to deliver a very attractive cost-to-income ratio, which excluding performance fees was 21.3% in 2019. It's actually improved since last year, and that just really reflects the scalability of our business and also our focus on operational efficiency. Overall, the funds management business has reported a 39% increase in net profit before tax to AUD 459.8 million. After adjusting for performance fees, the increase in profit before tax increased 29%. Moving on to tax and dividends. The group's effective tax rate for the 2019 year is 23.6%.
Whilst that is higher than last year, it is really just a function of the group's increased profitability, offset by some of the benefits of our offshore banking unit license, which is the driver for the group's effective tax rate below 30%. Finally, as mentioned earlier, the board has declared a dividend of AUD 1.1147 for the six months to June. That comprises the final dividend of AUD 0.78 and a performance fee dividend for the year ended 30 June of AUD 0.334. Those dividends will be franked at 75%. That brings total dividends to AUD 1.852 per share, which is up 38% compared to last year. The increase in the dividend reflects, again, higher performance fees earned this year, as well as our solid profitability.
Our dividend policy remains unchanged, which is to pay out 90%-95% of the net profit of our funds management business, excluding the performance fees, and along with an annual performance fee dividend of 90%-95% of the net crystallized performance fees after tax. With that, I'll hand back to Brett.
Thanks, Kirsten. What I'd like to do now is just step through the drivers, if you like, and some of the underpinnings on the revenue side of the equation, of which clearly the funds under management is the key driver of revenue. As you can see here, this shows the growth in funds under management over the last three years. One of the key drivers, of course, is the average funds under management across each year. As you can see, the increases, although the percentage is not on that chart, the increase is roughly close to 30% in each year. Our FUM at the end of July, just to put that in context, was AUD 89.7 billion, which obviously is meaningfully above that AUD 75.8 billion, which was the average over the last financial year.
What the breakdown of our FUM shows is the change of the mix that's occurred over the last couple of years, notably with the introduction of Airlie and Australian Equities. I would also note that the funds under management for the Global Infrastructure has also increased as a percentage, notwithstanding the introduction of Airlie, and it does reflect the very strong interest that we've seen in the Global Infrastructure business. The change in the mix has driven the relatively small reduction in the average base management fee from 65 basis points to 62 basis points. That's a mix reduction. It does not reflect a reduction in the fees across our Global Equities or Global Infrastructure. There's been no change in our fee structure on that. As you can see at the bottom of that table, about a third of our FUM is subject to performance fees.
That tends to be dominated by our funds, particularly in the retail sector, although there is meaningful performance fees in some of our mandates with our institutional clients. The mix and the nature of those performance fees are not quite generic across each of those. Some of them are quite structured a little bit differently, different hurdles. It is a little bit hard to make a generic statement across those. They, as we've spoken about previously, will turn up in different periods and are quite lumpy. We caution people to not extrapolate performance fees too far into the future, but we do think they are valuable over time. I think I wrote in a Chairman's Letter a year or two ago and gave some analysis on how they turn up.
It doesn't detract from their value, but they do and can distort some comparative analysis from period to period. Of course, underpinning our funds under management is our investment performance. This table shows our investment performance across our strategies, Global Equities, the Infrastructure, the High Conviction, which obviously we made an announcement about the launch of a Magellan High Conviction Trust today, which we'll talk about in a moment, and also Airlie. You can see, the Global Equities and Global Infrastructure relative to their benchmarks are ahead across all periods, which is very important. What's not shown in that slide, of course, is the downside capture. This is really the upside part of the equation. The downside capture, which Hamish and his team focus very much on, and Gerald as well in the infrastructure business, has been very good.
Indeed, we think it's a very strong part of what the offer of Magellan's investment performance delivers. Airlie, as you can see at the bottom there, had a relatively tough year. It is early days with Airlie. It's a concentrated index agnostic approach to the fund. It is a tough index, I must say. The S&P/ASX 200, it is very dominated by a few stocks at the top end of that. We have a great deal of respect for John and Matt Williams, who are in the room today. They are a very safe pair of hands. We are early days on that, and we expect over time that fund to grow and attract investors. The flows of funds under management across the year, this table shows it over the last five years. On the left-hand side is the institutional flows.
Hamish's strategy has been closed to institutions now for a couple of years, I think, Hamish? A bit more. Of course, as we've noted, there is reserve capacity, which has been drawn on selectively over that time that's contributed to these flows. The infrastructure strategy has also seen some very meaningful interest from institutions, which is pleasing. I would note that our sustainable strategies, which are building a track record, and they're coming up on their three-year track record, notably the global strategy run by Dom, is coming up on its three-year strategy. We are seeing some increased interest. They're not reflected in these numbers necessarily in any meaningful way, we are now starting to see some increased interest and indeed some detailed discussions around that.
Dom's strategy is available in the UCITS fund. We're indeed looking to see that U.S. mutual fund in the short term for that strategy. On the retail side of the equation, those flows include the IPO of Magellan Global Trust last year in 2018, also the UPP that we undertook this year. The UPP was, we thought, a very successful undertaking. There was a 50% take-up, which was extremely strong, in that it raised AUD 277 million. Indeed, Hamish is going to talk in some detail around the partnership approach that we've sort of written about. That UPP had a 5% discount attached to it, which MFG funded as part of that partnership, which is also attached to the DRP within that.
When we think about the retail side of this equation, of course, and indeed the institutional side, it does really reflect the hierarchy of decision-making in many ways. On the institutional side of things, of course, there are less decision-makers attracted to each AUD of FUM. As you work your way through the retail side of it as well, of course, various advisors have different groups. Some are aligned, some are in model portfolios. It does start to work its way down, obviously, through to more self-directed, which I'll talk about in a moment. In the advice side of it, the Global Equities strategy is somewhat mature in the advice part. We are represented in many of the Model portfolios, not to say there's more work can't be done there, but we are somewhat mature in that.
We have been seeing, however, great flows from retail from across the board in Global Infrastructure. You can see that in the listed active ETF, MICH. You can see the flows of that have been quite strong. It's interesting in the adviser side of this equation, of course, as what we've seen over the last little while, is that that itself, notwithstanding the aggregation points in that, are starting to fragment to some degree. The number of advisers leaving some of the aligned institutions and number of institutions leaving the advisers, I should say, as the other side around, does increase the barriers to entry somewhat. It does make it harder to get across that network of advisers. We are very well set up to do that. That is our bread and butter. We have a very strong distribution team.
We have good data in that regard, and we're actually getting better at that, in my opinion. We're very well positioned to play into that changing mix. Whilst we may be somewhat mature in the global equity space for the adviser part, of course, we are not in the self-directed. They are very underweight in aggregate around Global Equities, and there's still a very great need for diversification in that. You can see that some of those flows through our listed product, which I'll come to now. If you look at our listed product, and this is a chart of our listed unitholder growth since a little over four years ago, where we started from effectively nothing. We now have a bit over AUD 4.2 billion in listed funds under management, and we're pushing on towards 70,000 unitholders.
This is a very useful platform that's been developed, and we continue to invest in. We see this as a very important part of Magellan going forward. Indeed, the High Conviction Trust, which we announced this morning, has no broker panel. We're looking to leverage this existing unitholder base and that network, to undertake that offering, which Hamish will talk about in a moment. We are spending more money and increasing our communication and our activity around the listed and implied self-directed space within that, where some of our expenses, which I'll talk about in a moment, are going to be directed to increased events. You may have seen the "In Review" magazine, which is over there on the way out if you'd like to grab one, which we've seen very good feedback on that. These growth in unitholders, the big jump, of course, is when we did MGG.
The steady growth around that comes from our active ETFs. You would have read in the press that ASIC has now put a pause on new issuance of active ETFs. It doesn't affect existing ETFs. In our view, and these charts, I think, show this, one of the reasons that we spent a lot of time with ASIC four or five years ago when we developed this was we thought there was, and we do believe there still is a clear need, and a clear benefit to allow the intellectual property of the funds management industry to be available on exchange, in addition, obviously, to what is a very valuable index style product. We obviously support ASIC's review of this.
As this market's filled out and more investment managers are looking to utilize this active ETF structure, it's only sensible, I think, that there's clearly a regulatory regime that makes sense, that we can all work within. ASIC taking some time to review that, which is obviously sensible. I think we support that. We're working with ASIC, and we look forward to seeing where that review goes. From an institutional client perspective, this is a chart we show many times. We're very diversified across institutions. There's something over 140 of them. You can see the breakdown of the top five and top 10 institutions that contribute to our management and services fee. The large bar on the left is St. James's Place. I must say that's a wonderful relationship, it's a very, very solid relationship.
They have a very, very good business, and we're part of that, and we continue to see very meaningful flows from St. James's Place. We look forward to continuing that relationship in the future. Turning from the revenue drivers to the expenses, Kirsten touched on the way that we at least think about expenses. From a strategic initiative point of view, we don't put those in the funds management business. We like to focus on what the day-to-day operating expenses are within that business. Therefore, it's excluded in the way we think about it from the dividend payout ratio. If you look at our expenses within the funds management business, it's of course, dominated by our employee staff. As one of our directors pointed out, it's second to what we pay to the government in tax.
Leaving the tax aside, our expenses are dominated by people. The business itself is highly scalable, and our organic really growth now, will reflect that. There'll be modest increases in headcounts over time. Our various parts of our business do reach sort of constraints at different points in time. There won't be even increases in our headcount going forward. They may come in little bursts, and then we may have periods where there's nothing. Excuse me. We do see that being modest over time. Some of our expenses, just for clarity, do vary with and are a function of funds under management, foreign exchange moves, and they often reflect changes in revenue as well. Others are a bit more driven by unitholder activity. You think about statement mailings and those sorts of activities, we need to obviously cover those expenses.
Some are variable along with revenue, some not so much. Some are obviously fixed as well, there is great scalability in this business. As we've put in the annual report, we expect the funds management segment expenses this year for 2020 to be in the region of AUD 115 million to AUD 120 million. That reflects our budgeting process. It does reflect some anticipated new hires around some of the scalability issues I was just talking about. It is some hires that have been held over from last year. Excuse me. It reflects obviously where some of our estimates are on some unitholder activities, foreign exchange and those sorts of things. One of the things I'd like to point out, whilst obviously we're very focused on expenses and we still don't have biscuits here, which is a good thing.
Kit Kat.
We do have Kit Kats, but no biscuits, that's right. We are clearly very focused on our expenses. With a low 20% cost-to-income ratio, it's not expenses that drive profitability, obviously, it's the movement in our revenue, which is driven by our funds under management. I did put in the annual report, and you can quickly do the maths, a AUD 5 million move in our expenses up, let's say, is roughly the equivalent of a 1% move down in our fund annualized in our revenue, which just happened last night, and it does move around. It's really the fund that drives the profitability. Just turning to growth areas that we see going forward. Obviously, I've just spoken about the sustainable strategies. They are coming up on their three-year track record. They are meaningfully above their benchmarks, which is very, very important.
As I said, we are seeing some strong interest now and some detailed discussions are starting to emerge. Infrastructure, we're seeing solid interest across retail and also institutional. This is a great long-term track record. It is a unique definition amongst those offerings. There's a remaining capacity of about another U.S. $6 billion . The self-directed, which I've touched on, and there's a continued emphasis there. The Magellan High Conviction Trust, which we announced today, which Hamish will touch on in a moment, and the partnership that we're looking to develop with investors and invest in over time, we think there's great scope in this area. Indeed, it does build layers of resilience to our business as well as we diversify our client base across that self-directed and greater retail business. Airlie, as I said, I think we're early days. We've got great respect for John and his team.
They are a great safe pair of hands. We're patiently going to build that retail offering out, and indeed, there's more scope in the institutional side with Airlie as well. On retirement income, which I know a lot of people are very interested about. Look, we've spent a great deal of time working on this. There is a clear need, we think, for a differentiated post-retirement income solution. There are obviously more people retiring, and those numbers are growing, and there are clear limited choices we believe within that. Low interest rates obviously exacerbate that problem. We are working on a solution. We do think we've got some very interesting solution around this that's based around our core skills and what we do. I must say, and I want to make this very clear, this is not going to be an annuity product.
There are some, I think, misunderstandings that this is going to be a capital-intensive product. It will not be. We are not in a capital-intensive business. We will put some money towards this, as we have done with MGE. We're thinking something like a contribution of AUD 50 million on that, which, as I said, is very similar to the amount that if people look at, we seeded MGE with when we first got that going. I must caution here, we're still not done on this. This is a difficult and complicated area, although the solution I think that we're presenting is a quite a simpler way to think about this problem.
There's regulatory, there's tax, and all these sorts of issues that we need to make sure that we've got right and that we've got efficiently structured, and we're busily working on that, but we're not done yet. We're hopeful and remain confident that we'll get something sorted within the next 6months- 12 months, but many of these decisions and these discussions are out of our hands to some degree, so we are working with a number of players in all that. Lastly, we do have a number, which we're not going to detail here, but a number of other early seedings with different strategies that we're considering, and they are underway. With that, let me hand over to Hamish, who's going to try and not talk about the placement and talk about our partnership approach.
Well, thank you, Kirsten, and thank you, Brett, and thank you for everyone who's come here today and who's joined us on the line. I do want to speak about our partnership approach, and this is critical to where we are at Magellan and how we see the future of what we can do. I really want people to get and understand the potential scale of what we are thinking here. In my view, it is quite a game changer for how we're thinking about the future of Magellan's business. In our view, that partnering with our clients who invest, particularly in our closed-end funds, is very important to creating enduring long-term shareholder value. The partnership concept is a very critical concept because in a partnership, both sides of the partnership, both participants have to benefit.
We want to give people who participate and partner with us real financial benefits of coming with Magellan. People who went into the Magellan Global Trust originally got a loyalty unit of 6.25%. They've then participated in a DRP at a 5% discount. They participated in a UPP at a 5% discount, and they've just been offered an opportunity to participate in a new trust raising at a 7.5% discount. Effectively, they'll be given loyalty units. A whole series of benefits being given to people who come into the structures with us. On the other side of this, of course, we believe that we get a very attractive financial return on those investments. The clients, in our view, is by partnering with them and giving them a great experience, it's going to increase engagement, it's going to increase loyalty of those shareholders.
We think because people will start to understand that if you're in the club, you'll get benefits. It may well attract more investors to come into the club over time, and we're actually creating a platform of scale that we can leverage. We think this is truly a win-win outcome for both our investors and for Magellan. We see now after we've tested this with the Magellan Global Trust and the follow-on offering with the unit purchase plan and our offering now of the Magellan High Conviction Trust, we see that there is a very substantial opportunity to do much bigger things in the future. I quoted, and I was very deliberate about it, we have only scratched the tip of an iceberg here. We have raised so far AUD 2.2 billion in the Magellan Global Trust.
We're doing another raising, which we don't know how much we'll raise because we're not using a broker syndicate, and I'll talk about that. We have the opportunity to do more funds, more follow-on offerings out of those funds, and do other things that we think we're about to do that may not even be apparent to people at the moment under this partnership approach. Closed-end funds of themselves actually, of course, build the resilience of our business over time, but they also provide us optionality in our business. I don't want to quite go through, but I think you'll see over time what we mean by optionality there. What they also do here is we're building a very large direct investor base. We have come from absolutely scratch. We've now got 63,000 investors in our listed funds from two years ago at zero.
If you add the 21,000 unit holders we now have in MFG, we've got 84,000 direct investors. Sitting behind platforms and clients of advisors, we've probably got another half a million clients, but we've now got 84,000 clients, and we can now reach out and communicate and talk to those clients directly. We would like to get many hundreds of thousands of direct investors. We have just mailed out, I think, 55,000 magazines to those direct investors. I think we printed 65,000 of those. Kirsten kind of shivers when I say those numbers. We'll be doing an investor road show in February next year. We've booked capacity for 15,000 people to come to that. Again, I think that is a tip of the iceberg of what we could do.
I'm not sure there's a group outside of Magellan who will be able to confidently think they can fill 15,000 seats to come and hear talks about investment matters. It's not exactly an Adele concert they're coming to. We hope we'll entertain them in some ways, and they'll get something out of it at the end of the day. If we look at the one side of our partnership, and that's the benefits we offer to our investors, MGGs and Magellan Global Trust, we gave 6.25% off, and then we have two follow-ons, the DRP and the UPP at a 5% discount. We pay all of that. We have now spent AUD 97 million on those benefits to the Magellan Global Trust. They're pre-tax numbers.
When you looked at the Magellan Global Trust unit purchase plan, just how attractive a unit purchase plan at a 5% discount, people don't offer discounts anymore because they're dilutive to unitholders. The only way you overcome the dilution is someone else writing the check, and that happens to be us. We write the check. There was a 50% take-up in that UPP, and it raised AUD 277 million. Imagine if we have a whole series of these vehicles with many more unitholders sitting there of the scale of what we do. Of course, we're launching our second closed-end vehicle, which I'll talk about, the Magellan High Conviction Trust, and we're doing it without a broker syndicate. We're not paying any fees to anyone.
That's a bit about conflicted remuneration, but it's also to demonstrate the power of the direct platform that we're building up here at Magellan. If you look at our side of the equation, the shareholder side of this equation, why are we paying so far AUD 97 million? It's obviously will be materially higher than that after we do the Magellan High Conviction Trust. Why are we outlaying that quantum of money where we probably could raise funds under management without paying any money away at all? The reason is because we think the partnership concept is incredibly powerful about loyalty and attracting more people. Financially, from our point of view, if you looked at the Magellan Global Trust, of that AUD 97 million we have spent, that has cost us on the first-year base management fees alone.
We've earned performance fees, but based on the funds under management raised around 4x PE for closed-end funds under management. If you look at the Magellan High Conviction Trust at the top end of the range at the 7.5% discount, that's a PE of 5x . The mix should come in because we've got a general public offer at 2.5%. The mix should come in at less than five. At the bottom, we say every dollar we spend on these partnership investments results in materially more than AUD 2 of shareholder value. If we traded a PE of more than 8x- 10 times, we create materially more than AUD 2 of shareholder value here. If we trade it at 20x PE, we create AUD 4 to AUD 5 of shareholder value for every dollar we spend. I think shareholders should celebrate every time we spend money here.
The more money, the better. From my point of view, it is the fundamental reason we're doing this share placement. We see substantial opportunity to do more of this in the future. What is the High Conviction Trust and what are we doing here? Closed-end trusts can be listed on the stock exchange. It actually mirrors our very successful High Conviction Fund, which I manage with Chris Weldon, who's here six years, 16.6% per annum annualized returns. That's no guarantee about the future. It's got a very strong track record. It's actively currency managed. It's going to offer people a 3% dividend yield, so it's going to pay semi-annually. We're offering MFG shareholders, investors in the Magellan Global Trust, which was our closed-end vehicle, and investors who are in our High Conviction Fund. We're no longer offering these to every single fund.
We're starting to narrow down the meaning of partnership, of which vehicles they're in. We are offering those shareholders the right to subscribe for up to AUD 50,000 worth of unit holders, units in this fund, and they would get, under the priority offer, a loyalty bonus worth 7.5% of the value of their subscription. There are 70,000 people we are making this offer to. We don't know what it's going to raise, you can do the math. We did a AUD 15,000 UPP in only the Magellan Global Trust at a 5% discount, we had a 50% take up of slightly over, I think, AUD 14,000 per unit holder. We're also going to have a wholesale and general public offer. If you subscribe under that offer into this trust, you'll get an IPO bonus. They're called IPO foundation units worth 2.5% of the value of your subscription.
Why do we set it at 2.5%? Because typically when you raise these funds, you pay 2.5% to the stockbrokers as commissions and fees. We've decided not to have an offering out to the stockbroker community. There is an issue about conflicted remuneration. I think it's a genuine issue about conflicted remuneration. There is something called incentive-caused bias. You pay incentives, and people may do things because they're getting the incentive. Clearly, brokers now, we're speaking to the brokers. Any client who takes this up or any broker who advises their client, it's because they think it's a fundamentally good product. We are passing back the typical cost straight back to all the unitholders. They're receiving all the benefits. This will be a material one-off expense this year.
It will be part of a strategic initiative that will not affect the dividend payout at all in our business. We would hope that people find that attractive. How much we raise will depend on market conditions, what happens over the next six weeks or so. We don't actually have an estimate. We've just set a minimum of AUD 250 million for the offer. I think I've said in a release that I will take up my priority offer and take up at least AUD 20 million of additional units under the wholesale offer as well. Let's talk about the institutional share placement. We're undertaking today an underwritten share placement. It's fully underwritten by Macquarie Bank, AUD 275 million we're raising. Let's just put that in context. In the last period, we have spent AUD 97 million on strategic initiatives around partnership investments.
We're announcing today that we're anticipating we'll make a one-off contribution, I mean a one-off contribution to the retirement product, which we think will get a very attractive return on. It is not a capital-intensive product at all. If people think it is, I think they should wait to see the product before they opine on that. We're also going to have the costs associated with the Magellan High Conviction Trust. We're not putting out an estimate there because we actually don't know how much that is going to raise. Really, this is going to provide significant flexibility to pursue more partnership-style investments and other growth opportunities that may come our way. We think this will really give us significant flexibility to pursue the strategy that we've clearly got in our minds at the moment. As I mentioned, it's a small offering. It's AUD 275 million.
It may sound like a lot, it's 2.7% of our issued capital being raised at AUD 55.20, which is a 6% discount to our share price closed yesterday and a 4.5% discount. This is adjusted for the AUD 1.11 dividend to the VWAP over the last five days. We think that is a very tight discount for what we're pursuing here. It's not material to the overall capital structure of Magellan in terms of the number of shares we're issuing. The shares are going to rank equally with all existing shares other than they're not entitled to the final dividend, the final performance dividend this year. That's why we've adjusted it out of the VWAP. Macquarie Bank has done a terrific job on this, I'd have to say. A very professional job, and they've fully underwritten the offer.
The last slide I just want to leave, and we set this out last year, but it's very important to think about how we think of our business. If we keep the funds under management that we have, our AUD 89 billion, and you took a reasonable period of time of, say, seven years, we would expect that based on the objectives of those strategies, we could maybe generate revenues of 7%-9%. Effectively in our business, we get pricing growth of 7%-9% per year. It's not equal in every year. You have to think about volumes in our business, which I'll come to, that Brett's spoken to. 7%-9% revenue growth. We probably don't get huge amounts of operating leverage when you're operating at 21% cost-to-income ratio.
Dividend yield of 4% to 5%, depending on where our share price is at the time. That existing business, without any more funds under management, without any more partnership investments, without any retirement products, may be up to deliver 11% to 14% returns to our shareholders per annum. On top of that, we then think about the volume growth in our business as opposed to the price growth in our business, which is really returns on our funds under management, which is price growth. The volume growth comes from the initiatives Brett was talking about. We can start with our sustainable strategies. The global one's just coming up to its three-year track record. It's meaningfully ahead of its benchmarks. It's performed strongly. Actually, the U.S. fund is ahead of its benchmarks as well, but it's not quite as far on its three-year journey at the moment.
We're now starting to have some very interesting discussions. Very rare you get the institutions before you get three years track record, and three years is early in the piece. Often, you have to wait for five. We're starting to now get some meaningful conversations. Infrastructure is going fantastically well. There's another U.S. $6 billion of capacity in that strategy. Retirement, I'm very optimistic on the retirement space. Brett's giving the usual caveats of what we have to do. I'm very confident we're going to solve all those issues. We've been working on it for many years, we're now down at the pointy end of just sorting out some final tax and other issues we just need to get right. The solution is very simple and I think very compelling for clients there.
We have this whole partnership model that I think can drive our direct business to another scale here. As we drive that direct business and our retirement business and our infrastructure business and our sustainable business, then Airlie, we start building out that, the whole nature of our business starts to change as well in terms of its resilience that we have. Who knows what that plus sign looks for. If you look at a lot of our competitors, they may have had pricing growth. Maybe it hasn't been quite as strong as ours because the performance hasn't been quite as strong. What they've been doing is they've been losing funds under management for a decade. Their funds under management haven't really gone anywhere, and it's because price has been going up and volumes have been going down.
What we have to do is make sure that we have at least some volume growth in the business. The price growth on average over time, I'm fairly comfortable about in the nature of what we do. I may leave it there. Quite a lot for people to consume. We're very happy now to open up to Q&As. I think Sarah's going to coordinate it between the room and the phones.
Thank you, Hamish. We'll now go to Q&A. We'll open up to questions on the floor first, and then we'll go to the teleconference. We're just coming around with the microphone. If you could put your hand up if you have a question, and we'll come to you.
Good morning. Andre from Morgan Stanley. Just wanted to ask a few questions. The first one, just continuing on that theme, can you talk a little bit about the vision for Magellan? Maybe more from a product and asset class point of view. In a five to 10-year view, where do you see the group heading? Do you envision adding more asset classes, more diversity?
Andre, I don't envisage that adding lots of asset classes and diversification is a strategy that actually works. You make your business more complex. At the end of the day, when I look around all the fund managers in the world who have pursued that strategy. I don't have admiration for nearly any of them from a business model perspective. There's a few people I do, but that sort of thing of just adding more and more products and fixed income and all this other stuff, and ending in a place that you've ended with a better business, I'm deeply skeptical of that thing. You bring a whole lot of complexity, your cost-to-income ratio will start to escalate, and you lose focus. What we want to do is have real scalability around things that play to our core strengths.
I think retirement products really plays to a core strength of ours at Magellan. I think this whole attack we have on the direct business and the scalability, it is very hard to scale hundreds of thousands of people. If we can scale that and create a platform and leverage that platform, as we say, there is maybe 84,000 people on that platform that we have at the moment. If we can scale that and then also scale up our closed-end funds under management, I think in five and 10 years, we will have a business that is substantially different to our business today. I would say, if we pull it off, we will probably be close to the best funds management business in the world, would be my vision. Very different from other models.
Diversification of products and what other people do, I've got a close to zero interest in that, as you can imagine.
Thank you. A follow-up question. Just thinking about, because you spoke about the capacity in two out of the three main areas, and you haven't mentioned how much capacity is remaining in the retail channel. Conceptually, given how well the closed-end funds are going, should you actually be shutting and stopping the open-ended funds because you can arguably get better outcome from the closed-ended funds? Should your focus really be shifting there, given capacity is rather limited in existing strategies?
Andre, you're right that it's more attractive in the long term to have the new closed-end funds business, provided you get the partnership and you deliver real value to the investors there. Am I concerned, like in our global one? We've closed it to new institutional investors there. We deliberately left capacity for our retail business. Over time, inevitably, institutions turn over. As they turn over, if we could end up morphing a portion of that into retail and closed-end funds in a decade from where we are today. We are very relaxed where we're at at the moment, that we have sufficient capacity and flexibility to effectively morph the strategy of what we're thinking about in the future. We're very liquid in our global strategy, and we have pretty small ownerships of the company.
I think the largest ownership of a register we have is a bit over 5%, and that's in Yum! Brands. Most investments we have, we don't have anywhere near 1% of their registers in our global equity strategy. We're very comfortable on the global side. It's one of the reasons we closed it a number of years ago. If people start to think about that I haven't really spoken about the active ETFs and the closed-end funds. To be honest with you, this is a jigsaw puzzle that Brett and I have been putting in place over a number of years, and there's still other few bits of the puzzle that we're putting into place.
The active ETFs and the closed-end funds and the partnership, and how the closed-end worlds and the open worlds effectively intersect is part of a sort of much broader vision we have of how this can all come together.
Hi, Hamish. Brendan Carrig from Macquarie Securities. Just trying to reconcile the comments that you made about how simple the retirement income product has been to set up or potentially is to set up. The fact that it's 6 to 12 months away, potentially, that was earlier comments that were made. How easy would it be for, say, a competitor to potentially replicate the product that you're aiming for? Are there mitigating factors in place, potentially a partnership arrangement that would make it more difficult for this to be replicated?
I think what we're saying to the end customer, the product is going to be very simple to understand. The underneath of getting there has been complex in simplifying the product. There's a difference between, we always like things that are incredibly simple when they go out to clients, but there's a lot of intellectual capital that goes into simplifying to get something that's very consumable by the end clients without sort of black boxes and things there. The structure is going to definitely have a partnership element. With the seeding, is AUD 50 million a sort of seeding, a big barrier to entry to other people? Probably not. The underlying components of what they're doing, I think people could replicate the structure.
The actual investment solution, I think is very difficult to replicate, unless they've got pieces in the puzzle that somehow is manufactured by people who have really got certain elements to it. I think when you go out there, brand's going to be important as well. Is it going to be only available to Magellan to do something different in the retirement space? The answer is no. The answer is no in infrastructure. The answer's been no in Global Equities as well. It's a competitive space. I think this is much harder for other people to do than simply competing in infrastructure or global equities. Has been. I do think there's more intellectual capital and other things that need to be brought to the table. Brett, would you agree with that?
I think the comment on simplifying is exactly as Hamish is saying. The problem itself is not straightforward. We think presenting something that's simple and understandable is obviously where I'm getting at in terms of the nature of it. It's not a complicated black box. It doesn't involve unknown derivatives or any of those sorts of approaches. What's taken some time is to really get to the heart of what this problem actually is, and it's actually not that straightforward to think through it. In the retirement space, there are a lot of conflicting desires. Essentially, the whole thing is built on conflict. I'd like to have growth, but I'd like to take a regular income out of that growth. I'd like to have something as a hedge for longevity, but I'd not like to lock my money up. I'd like it to be liquid.
When you start to think about those things, they're all in conflict. It's trying to actually work through what the actual problem actually is in all that. We've done a lot of work now, and we do think we understand the nature of this problem very well, and that therefore the solution itself actually does add a great deal of what we call utility to the way that people think about their retirement. Getting that to work in a structure that doesn't have tax inefficiencies, that works through its regulatory side of things. I note some commentary that it needs to be under APRA. It isn't. It's a fund structure. We're not looking to do something under a life company or any of those sorts of things. It's around what we do for a living.
We're offering a solution through what we do in terms of our core investment process. It does have extra thoughts around how we're actually managing the various risks around providing income out of what we do. I don't want to get into the details of it. I could talk about this for hours, but there are some complications around that we've had to look at, and we've actually worked through those and tried to understand the basic problems underneath those, and that's really what I was getting at. The nature of the structure, of course, in terms of tax and those sorts of things. We've got to work within the rigidities of what are the regulatory regimes and the taxation regimes to make sure that that all works, and that's taking some time.
The other barrier to entry here is actually, this is largely, in our view, going to be sold probably by the advice community as solutions. The barriers to entry out there is actually getting these things rated and into those retirement model portfolios. That is a very significant barrier to entry, particularly if you're coming up with something new, you may normally have to have a fairly long track record. I'm pretty confident that we have bridged that track record completely, and I'm not sure that nearly anyone else could in terms of that. I do think we may get a three-year head start on others if they want to try and replicate what we're doing.
Kieren Chidgey, UBS. A couple of questions, maybe just starting on capacity. You outlined sort of the remaining capacity in infrastructure and Dom's strategy as well, but can you just remind us what sort of the reserve capacity around the existing global strategies are for the current-?
We don't. We haven't disclosed that.
All right.
It's competitive information, and therefore we're not disclosing it. As I say, for our strategy we have of doing more partnership investments, we're very comfortable we've got the sufficient capacity to do that.
Okay. When we think about sort of those partnerships and the closed-end funds, you said there is substantial opportunity there. Do you have the breadth of existing strategies to sort of underpin the launch of additional closed-end funds, or are we talking about building out additional new underlying strategies to sort of supplement that over the medium term?
All I'll say is watch this space. We have a series of thoughts in minds that are not fully developed at the moment, part of them could be new funds, part of them could be existing things we're already doing. It can move in multiple different directions, the partnership approach, which one we choose to do first will really depend on what we feel, how the ordering will go. We haven't decided exactly. I don't want to get into too much detail on that because that's still sort of work in progress, we see substantial opportunities. They could be new funds, they could be existing funds, they could be doing things with some of our existing funds. There's all sorts of different things we have in mind.
Okay. Just related to that, obviously, you've demonstrated the IRR on those investments, obviously very good. Sort of the costs you're stripping out of your adjusted EPS is sort of a one-off, but these are obviously becoming a more recurring feature of the group on a go-forward basis. How should we think about sort of the ongoing cost of this partnership strategy?
Yeah. We view them really capital items. We don't view them any differently to buying Airlie Funds Management, okay? Buying Frontier. We are effectively putting money up front to get 30 years or 40 years, maybe a fees in the future back. We're viewing them much more as M&A, and people don't typically expense their M&A in their P&Ls. It's just under accounting standards, we're required to expense the nature of these, but we really regard them as a capital investment for Magellan. We review it much more as a balance sheet item than we do as a balance sheet item that we just haven't capitalized and called goodwill, we've just expensed it straight off, and maybe we could have an argument with the auditors that we should be capitalizing that, which one, I don't think makes any difference whether you do that.
You have to just think of the economics. We're making an acquisition, and then we're getting fees in the future instead of putting that called goodwill or intangibles on our balance sheet, just expensing it up front. We really don't think it affects. The dividends should be paid out of the ongoing fees that we generate, less the cost. These are capital ones, and it's a debate of just what the accounting treatment. If it would be called goodwill, you wouldn't even be asking the question. It's just that we're expensing that, and maybe we're electing to expense that there through the P&L.
Thanks. Okay, we'll now go to the teleconference. Can the moderator please open up the line?
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Matt Dunger with BAML. Please go ahead.
Thanks, guys. Matt here. Just on the strong performance in both markets and your out-performance you've seen, can you give us an indication of what hedging is in place to protect downside?
Matt, there's no hedging in place. It is how we design the strategy. We could take you through offline. We run certain risk ratios through our strategies, but we don't have any direct sort of hedging of indices or anything in our core strategies. I think to date, our downside participation, any quarters where the markets have gone down, I think our global equity strategy's had a downside participation ratio of 0.5, and its up market participation ratios in any quarter that's gone up over 13 years has been slightly over one. I don't think there's another global equity manager that we've seen that has a downside participation ratio below 0.7. Ours has actually been reasonably good. We don't-
Great. Thank you. Just see if I can confirm on the cost guidance for next year, the AUD 115 million-AUD 120 million? What does that spend include in terms of the funds being raised for the placement? You've said it's excluding the High Conviction Fund spend. Does it include spend on retirement income products, seeding them, and other costs?
It excludes the high conviction cost raising, or excludes the placement cost raising, but it will include any development costs, like consulting costs or legal costs or anything in the development of products, and any salaries and all that are in the expense base. That's correct.
Yeah. Again, the seeding, if you like, the AUD 50 million that we've talked about, is part of that strategic initiative outside the funds management area.
Great. Thank you very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Nick McGarrigle from Ord Minnett. Please go ahead.
Hi, guys. Just a quick question about the direct-to-consumer market and how you're planning to tackle that, the marketing and some of the other aspects that might go around really activating that direct-to-customer base?
Yeah. Nick, it's a good question. We obviously started out with Cricket Australia, and that was a brand awareness campaign. That significantly moved the needle in just general brand awareness of who Magellan was. In an ideal world, we would've done that for three years. What happened happened, and actually, we probably got a bit more benefit that we probably didn't pay for just because of all the publicity. It worked out very well, but we really would've done that for three years. We think we really moved the needle in terms of brand awareness about Magellan. The second thing is activating the client base we've got. The 84,000 direct people across Magellan and our listed funds that we have at the moment, is activating those people to effectively become the referral network for Magellan. We've upped it.
People haven't seen the new In Review magazine. We've got fantastic feedback. We're going to do, as we said, an investor event at the beginning of next year, maybe 15,000 people. We do a lot of video and other communications. I don't think you should expect us to do more sort of just general brand sports sponsorship style activity. That was always going to be at the front end of our strategy. We're really moving to sort of the viral referral network side of the business, and including doing things that would encourage new investors to come on board. We think this high conviction thing and sending signals that if you participate, you'll get additional benefits by being inside the club, we think will attract more people in.
If we do things where we're directly communicating on scale and mass with people of, you know the one that Brett and I would say is kind of the Berkshire Hathaway event that Berkshire Hathaway has that may get 40,000 or 50,000 people to the event. 15,000 people is a start. Maybe one year we'll get 40,000 or 50,000 people coming to hear some entertainment there. It's mainly going down that path, Nick, of starting to scale the platform that we've already built to then increase the scale. The numbers of people we have directly on our register is a very important benchmark of how we're succeeding in that game. We have to do very good ways of communicating with those people.
I think you would expect us, in a Magellan way, to keep upping the ante in how we do that and the quality of what we do. I'm very focused on that side of the equation, as Brett is as well.
I guess it's maybe a foray into the next question just around the distribution of the retirement product. Obviously, a lot of retirees do seek advice with those types of products, but there's obviously a direct consumer market there. Can you talk about the paths to market for that product? Will it be platform, listed product, unitized? What would be the sort of broad strokes of that?
Well, in an ideal world, I think we'd like all of the above.
Yeah.
The advisor market's going to be a very important market to start with, but also our direct consumer market in the listed form. ASIC has put a slight timing on a new active ETF being done, but we do think they're going to end up supporting that market. Both of those channels I think are going to be important, Brett, ultimately. Initially, the advisor market is a very important market here.
Look, I absolutely agree. In our thinking about how to think about this, of course, we're not just excluding one over the other, we're solving for it all, frankly. Ideally, we'd like to make this simple and seamless across actually both of those, so both the listed and unlisted part of the equation. What we're looking at is, yes, it's a fund, yes, it's unitized. Could it be listed under what we've done? Yes, subject to where things come out. Can it be accessed by platform? The answer's going to be yes. The idea is to make it available, Nick, as you rightly point out, across the spectrum.
Is it fair to say that the retirement product will be more about innovative management than innovative structuring? Maybe part of that management will be some sort of a quant overlay on top of the process that you're already running?
No.
No.
No, this is not the forum, again.
You're also head of data science, so I thought there might be some data science going in behind the scenes.
It's not so much data science. There's some, perhaps not the forum to talk about this, but the structure of this is actually important. There's been a lot of modeling that we've had to look at to try and, as I said earlier, once you get to the base of this problem, then trying to think about the ways to actually mitigate some of those issues that come out of this problem has required a lot of modeling. Paddy, who I think you're referring to, has been very instrumental in that. We've looked at some, I'm going to get too far into this, some machine learning to get some learnings out of this, not to drive the product, but to learn how we could actually think about solving some of these issues around that. It's not a quant thing.
It does have some structural elements that we think are important in mitigating these particular risks that are in this, trying to provide income out of a growth pool of assets. It's not a quant overlay.
All right. That's all from me. Thank you.
Great. That concludes today's presentation. Thank you Hamish, Brett and Kirsten, and thank you all for attending both in person and via teleconference. We look forward to seeing you at our annual general meeting in October.