Good afternoon, everyone. And on behalf of the company, welcome to the Magellan Financial Group Interim Results Conference Call for the Half Year Ended thirty one December twenty eighteen. I'm Sarah Thorne, and I lead Investor Relations at Magellan. The company's results will be presented today by the CEO of Magellan, Doctor. Brett Kens and the Chief Financial Officer, Ms.
Kersten Morton. James Douglas, Magellan's Chairman and Chief Investment Officer, is also in the room today. An investor presentation has been lodged with the ASX and is available on Magellan's website. We are not planning to step through the presentation on today's call. However, it is available for further information.
Please note that there will be a Q and A session at the end of the call. For those of you joining us via the webcast, you can submit a question by typing it directly into the webcast portal. And for those of you who have joined through the teleconference, the teleconference administrator will advise you at the end of the call how you can ask a question. Please note that today's call is being recorded and we may also have media on the line today. Please note that some of the information you may hear during our discussion today may consist of forward looking statements regarding Magellan.
No assurance is given that future developments will be in accordance with Magellan's expectations. Actual results could differ materially from those expected by Magellan. Thank you, and I will now hand it over to Brett.
Thanks, Sarah, and good afternoon, everyone, and welcome to our interim results call. And my first is Chief Executive Officer. And it has been a little bit over four months since Hamish Douglas and I affected this week's role. I became the CEO and Hamish became the Chairman, and he's, Sarah mentioned, is in the room today. Much of all this was discussed at LAGN last October.
And of course, Hamish continues to be involved in the strategy of the business. But most importantly, he continues to be in his key roles of Chief Investment Officer and lead portfolio manager of the group's core equity strategies. And this change is made to allow Hamish more time to focus on these roles. And this is important because it gets to the heart of our focus on delivering for our clients and their advisors. I can report that the change in our roles has gone very smoothly both within our firm and I said most importantly with our clients.
I want now to briefly touch upon some of the financial highlights from the six months to December 31. Average funds under management increased 35% to $72,100,000,000 This increase in average funds under management drove a 28% increase in the management and service fee revenue to a little bit over $228,000,000 The slightly lower percentage increase in the management and service fees reflects a small reduction in margin due to the change in mix of our funds under management following the early acquisition in early twenty eighteen. Statutory profit after tax was up 225% to 173,500,000.0 This substantial increase reflects both business growth, but most importantly the lower comparable number from last year where the one off costs we spent setting up in the Global Trust were expensed. This is perhaps a good juncture to pause for a moment and discuss an accounting change and then some of the metrics that we consider when we review the business. In this year's report, we've discussed this topic in a little bit more detail and may also help shareholders in a very valuable performance of the business.
Firstly, recent accounting change now requires unrealized gains and losses in our principal investments portfolio to be included, if you like, above the line in statutory profit. Previously, these mark to market moves were below the line in comprehensive income. Given the size of our principal investments, this will add some noise to our reported earnings at various times. Secondly, we now have intangible assets on our balance sheet following acquisitions of Airline Frontier. As a result, we now also have an amortization expense for accounting purposes for those intangible assets that are considered to have finite lives, in our case customer relationships.
This amortization expense is of course non cash and importantly carries with it an implicit assumption that the customers leave and are not replaced. This is not how we view the business. Therefore, now it is helpful to make a few adjustments to the statutory reported number by removing the unrealized gains and losses and the non cash amortization expense. Further to enable better comparison, we also take it in the one off costs associated with investment in building the Magellan Global Trust. When we do this, the adjusted net profit after tax becomes $176,300,000 an increase of 62% over the similarly adjusted profit for the corresponding period last year.
When we do this on a per share basis, the adjusted net profit rose at a slightly slower pace at 57%, primarily reflecting the additional shares issued for the Airline Frontier acquisitions. We also think it makes sense to go a step further and look at the business components, the funds management segment and the principal investment portfolio separately. Principal investments per share stood at 1 point dollars 5 after allowing for tax on unrealized gains, basically flat on last year albeit over the slightly greater increased number of shares on issue. The fund management segment profit before tax increased 62% to $225,000,000 And without the impact of performance fees, which are lumpy, that increase was 41% to $182,000,000 Each of these measures I've just discussed provide useful information and should all be considered. And when we view it overall, we believe the business has had a solid six months and remains well positioned.
With our new dividend policy, the directors have declared an interim dividend of $0.07 $38 per share, which is a 66% increase over the prior corresponding period. It's important to remember that last year's dividend was paid under the previous lower payout policy and therefore has positively affected the comparison. Also please note that we effectively paid a top up component to last year's final dividend to bring the full year in line with the new policy. As such, this will negatively impact the comparison next period. As per our dividend policy, dividends relating to crystallized performance fees after tax will be declared and paid in August alongside our final dividend and therefore not included in this interim dividend.
Crystallized performance fees at thirty one December twenty nineteen stood at $42,700,000 Before handing over to our CFO, Kirsten Morton, allow me to make a few additional comments regarding the business and the strategy. In this last year, our full year financial results presentation, Henry spoke about the key drivers creating shareholder value over time, mainly looking after our current clients and the funds we already have that we already managed by achieving our stated objectives for each of our strategies. Nothing has changed and this remains our core focus. The fund of $73,000,000,000 investment performance both positive and negative is an extremely powerful contributor to the changes in fund. The flow is now tend to be more incremental in comparison.
With this in mind, noting the volatility of global markets in this environment over the last few months, we are pleased with investment performance achieved by Hamish and investment team. Hamish and his team have spoken many times about the importance of managing downside risks and remains a central point to our investment approach. Our investment goal is focused on achieving satisfactory risk adjusted returns over the medium term whilst minimizing risk of permanent capital loss. Both limbs of this goal are equally important in our view. Notwithstanding our focus on we already have, we are of course working on other opportunities.
But the hurdle is high as we do not want to distract from what we're already doing. We are at various stages of several new product developments and are taking a cautious and very deliberate approach to that development. We are not in the product proliferation business. We want our offerings to meet a need and help solve the problem. For example, one area we are looking closely at is retirement income.
This is a large and growing area and one that is not easily solved. As was in the case when we developed the active ETF or developed the partnership approach to Magellan Global Trust, our aim is to develop something that meets the job to be done. Also in making progress, we're not finished and there's still a chance we will not get there. Such initiatives are not without risk, take time to execute and build traction, but they are important for building a robust business over time. Patience and focus is key to this.
In this time last year, we announced the acquisitions of Airlie and Frontier and I can happily report both those acquisitions have gone extremely smoothly. Various operation integrations have been completed and both businesses are working very well. John, David, Matt and Emma and the team at Airlie remain very focused on their clients have been instrumental in developing and launching the Airlie Retail Fund. Likewise, Bill Forsyth and the Frontier team have made a very positive impact to our North American distribution activities. Following a few words in our retail and institutional funds management business.
For the six months, retail net flows were four seventy five million dollars which is averages out monthly flows of $79,000,000 for the period. This compares with $55,000,000 per month last year. It's worth noting that while our global equity strategies are well penetrated in the financial advice channel, we do have a significant opportunities in the retail space. Notably, we continue to build out our self directed strategy. Our new unit class in the high conviction fund has been well received by investors.
Our infrastructure strategy led by Gerald Stack is growing solidly and we now have the early retail fund available to advisors and their clients. Launched in June, it was very early days for the early fund and it will take time to build a track record and join the product list of model portfolios. We also expect to have the fund available on the ASX in the coming months. Also on the January 29 year, we announced that Magellan Global Trust will conduct a unit purchase plan allowing eligible unitholders to subscribe for an additional $15,000 worth of NGG units at a 5% discount to the net asset value. The General Financial Group will fund this 5% discount in order to minimize the dilution within the trust.
We believe this is important and is consistent with our approach to the original IPO and also how we deal with the discount applied to the ongoing VIP. We view this as a partnership with our investors and we will act accordingly. The net of this consideration will depend on the take up and will not be known until the offer closes. However, it will be included in our expenses in the 2019 financial year. We view this cost as an investment in building the John Global Trust, which we believe delivers a sensible return on capital and strategic benefit.
Early feedback has been positive. It is much too early to project what the ultimate take up may be. In our report, noted the theoretical maximum expense could be roughly $25,000,000 This comes from the limitation imposed upon such purchase plans that no more than 30% of the current units on issue can be issued, which in our case equates to around $500,000,000 We do not expect to raise $500,000,000 It is highly unlikely as we would imply a take up of over 75%. Whatever the expense ends up being, we will not sit in our funds management segment and therefore not impact on dividends. Institutional business remains strong with funds under management a little bit less than $52,000,000,000 for more than 140 clients.
We view our institutional business as well diversified by our client with only four clients representing individually more than 2% of the total management and service fee revenue. We closed the global equity strategy managed by Hamish to new institutional investors on the December 31. However, we have reserved capacity for some existing institutional clients that is yet to be utilized. Our sustainable strategies have now developed a credible two year track record and are progressing well. Notwithstanding three years or even longer track records often required by many potential investors, These strategies deliver a thoughtful and differentiated sustainable investment approach.
And we were pleased to welcome our first client into a new sub fund during the half. Our global listed infrastructure strategies continue to perform extremely well. Gerald and his team have developed a differentiated approach to listed infrastructure investment and then choose the consistent long term outperformance. We are well positioned in this institutional market as interest in that sector continues to increase. Lastly, we would note there are some selective opportunities to use capacity with Ailey.
With all that, I'd like to now hand over to Kirsten who can run through some of financials. Kirsten?
Thank you, Greg. Magellan's had a solid start to the financial year. As Brett outlined, we reported net profit after tax of $173,500,000 an increase of 225% from the prior corresponding period. Reported net profit includes noncash amortization expense and unrealized loss on our principal investment portfolio and in the prior year, one off offer costs on the Magellan Global Trust. We also outlined why we have made these adjustments.
And after excluding these items, adjusted net profit after tax rose 62% to $176,300,000 Our reported diluted earnings per share was $0.09 $82 Excluding those previously outlined items, adjusted diluted earnings per share was $0.09 $98 reflecting a 57% increase from the prior corresponding period. They'd also mention that the directors have declared an interim dividend of $0.07 $38 per share, an increase of 66% from the 2018 interim dividend. The increase in the dividend reflects Magellan's revised dividend policy to pay out 90 percent to 95% of fund management profit, excluding crystallized performance fees. At the full year, we will also pay our performance fee dividends of 90% to 95% of the net crystallized performance fees after tax. The payment of dividends by the group will, of course, be subject to corporate, legal and regulatory considerations.
The interim dividend is franked at 75%. As previously flagged, given the move to a higher payout ratio and the interplay with our status as an offshore banking unit, dividends are likely to be partially franked. Our effective tax rate was 22.6%. This effective tax rate reflects the benefit of our offshore banking unit license. Moving on to the fund management business, which is Brett outlined in his CEO letter is our core operating business.
Revenues in the fund management business increased 45% to 273,200,000.0 The growth in revenues reflected 28% increase in management fees, crystallized performance fees of $42,700,000 before tax and it's important to note that performance fees do fluctuate materially period to period. Service fees of 2,400,000 which remained flat on the prior corresponding period and an increase in interest and other revenues of $2,400,000 This increase is predominantly driven by revenues we now receive from Frontier's third party fund manager distribution business. Expenses in the period decreased four percent to $48,300,000 The decrease was driven by a decline in marketing expenses, primarily reflecting the group's decision to withdraw from the Crippet Australia partnership in March 2018 and also related marketing initiatives and the cessation of U. S. Marketing and consulting fees following the group's acquisition of Frontier.
The decline in these expenses was partially offset by a 22% increase in employee expenses and a 22% increase in funding, administration and operational expenses. Employee expenses represented 64% of our overall costs during the period. Approximately half of the remaining expenses are variable in nature, either moving in line with changes in funds under management or being a function of a number of investors that we have in our funds. The other half of our non employee related expenses we would describe as fixed in nature, such as occupancy expenses or IT costs. The business has been developed to build scalability, which is reflected in the fund management cost to income ratio of 20.9%, which has improved from 28.1% in the prior corresponding period.
This excludes the positive benefit of performance fees. Total group expenses in the 2019 financial year are still expected to approximate $105,000,000 This excludes non cash amortization expense and also the expense relating to the Magellan Global Trust unit purchase plan, which Brett discussed earlier. Once the unit purchase plan is closed, we will let the market know the associated cost of the offer. As Brett said earlier, the cost of the unit purchase plan will not be included in the Fund Management segment and therefore will not affect the dividend. Now turning to capital management.
The group maintains a strong balance sheet with net tangible assets of 5 and $34,200,000 Investment assets representing cash, cash equivalents and financial assets are 451,400,000.0 Cash at December 3138 was $159,800,000 with $130,700,000 of debt due to be paid to shareholders on the February 28 for the interim dividend. The group had total net principal investments of $281,000,000 Our principal investments include investments in the Jones listed and unlisted funds. We do intend to allocate any surplus cash generated after allowing for the payment of dividends to Principal Investments. We aim to earn satisfactory returns for our shareholders and the Board has established a pretax return hurdle of 10% per annum over the business cycle for the principal investments, which to date we have achieved. Over the last one, three and five years, the pretax returns are 7.4911.6% per annum respectively.
Since inception from the 07/01/2007 and excluding the group's investment in NFS Capital Investments, the portfolio has returned pretax 10.9% per annum. With that, I'll now hand back to Sarah.
Thank you, Kirsten and Brad. With that, we will now go to questions. Could the operator please instruct teleconference participants how to ask a question. Thank
If you wish to cancel your request, please press 2. If you are on a speaker phone, please pick up the handset to ask your question.
We'll go to the first question on the phone, please.
Your first
question comes from Andre Stefanik from Morgan Stanley.
It's Andre Stefanik here from Morgan Stanley. Can I ask two questions, if I can? Can you talk about the advantages you're finding on U. S. Distribution side from, you know, full ownership of Frontier?
Yeah. Look, I think the advantages are that we've obviously got Bill working within us as opposed to being employed by us through our services arrangement. We're seeing it much better organized, seeing some opportunities as I think come through both from the third party part of that business and also as we look to explore distribution of our own products. It's still very early days, Andre, on that. We do think it's a value to us.
And maybe I can comment, it's Hamish as well here. Obviously, Bill has been absolutely instrumental in building our business in The United States. And he has very deep and trusted relationships with our core clients in The United States. And that is strategically very important to us. Bill has effectively come on board for a minimum of eight years with Magellan.
He's fully integrated the business there. Since part of his business was actually attracting third party fund managers to the Frontier platform. He's already shown, Bret and I, a number of opportunities and maybe where either they just become clients of Frontier or maybe Magellan could do something with those people. Haven't done anything, but the nature of his contacts and his business, he has his tentacles into places that we would never get to see. So I know that's how we're going to get to Rashi.
But there does look to any third party business take on new managers. And he sees a lot of people and that's quite interesting. But the cool thing about it is he is the key guy who had the key relationships in our North American businesses and we look to do new things sustainable and infrastructure and other places, he's effectively giving the leadership to that team to make sure we keep developing our funds under management in the North American market.
And my second question, just can you talk a little bit about how you ensure staff alignment and engagement? And how do you lock in your staff as shareholders? I think some people might be a bit surprised that you've managed to maintain $105,000,000 operating cost guidance despite near record performance fees in the half?
Yes. It seems like don't pat myself anymore, Andre. No, sir. I'll hand
it to Brett. That is part of it. Obviously, I think what you're asking is that why don't the cost sort of seem to go up with management fees and performance fees and these sorts of things. And we at the very early stages on this, we're now always reversing along the board as a very deliberate philosophical strategy on how we wanted the business to effectively participate in those types of areas. We pay our staff, we think, very, very well.
Bonuses and all sorts of payments are obviously part of what we pay. But as you rightly point out, we also want people to be part of the ownership structure of the company and allow people to participate in that way as well, which has worked extremely well. So it's a partnership between both sort of payments employee and also as an owner. I mean, as I've written many times, we're going to think and act like owners. We think that works well.
So it's not a formulaic cut off performance fees or management fees that you might see elsewhere. It's a much more much more partnership approach. I initially don't know if got any thoughts on that because we've put that
in Well, I think the uniqueness is that when we IPO ed the business before we had any funds under management and we enabled all the shareholders with our share purchase plan, which is very unique in its nature, the way that we provide the interest free loans, we make it voluntary and every year we give another participation. We've got a huge amount of participation in the firm in the equity. And for a lot of people, the equity they have in the firm is very material in terms of their network. So there's absolutely an alignment in terms of a huge part of their own network is aligned with them as a shareholder, of course, in an employee as well. People are very clear with how the remuneration works in here.
It's not tied to funds under management outside our infrastructure business, not tied to that. It's tied to performance and it's tied to what they're doing on a day to day basis. I think we thought upfront about the alignment. And frankly, lot of financial services firms, the employees and the shareholders are not aligned. And that's one of the big problems.
And so we knew that was one of the big problems. Many of us used to work in investment banks and saw that firsthand. And we didn't want that at Magellan. We kind of set it up with a different philosophy that we it was going to be a partnership the shareholders and the employees and we wanted as many employees as possible to become shareholders so they were partners.
I would add to that Andre, we and this touches, don't pay bonuses in shares. That share purchase plan is voluntary. It is different if people purchase something voluntarily versus being given something. So there's a subtle but a little bit of an important alignment issue around all that. And today, that's worked extremely well.
And even if
you think about the alignment, Andre, is I think I write right at the beginning, if anyone wants to go back to things about our views on options to say that we wouldn't issue our employees' options in them. And the reason we did that is because we think options have asymmetrical payoffs with the shareholders. From a shareholder's perspective, if something goes wrong, the employee bears no risk. And if it all goes well, and it could be to do with employees or not to do with the employees, they're going to get a massive payoff. And we said we just don't like the symmetry of option schemes being issued to employees.
Obviously, employees would have made, including myself, enormous amounts of money if we had an option scheme, but we just didn't think they're the right type of instrument to align employees and shareholders together. So it goes right back from inception of this firm.
Your
next question comes from Kieran Chidgee with UBS.
Just got a couple of questions. Starting on expenses following sort of the previous question, but maybe coming at it from the opposite angle, the retained cost guidance of 105,000,000 for the full year seems to imply around a double digit increase second half and first half. So just wondering what sort of underlies that, particularly given your staff numbers look fairly flat over the last half?
Do you want take that, Chris? Look,
at the end of day, I'll make a comment on that. I wouldn't get too carried away. You're talking about very small numbers. You're talking of $1,000,000 here or there when you're annualizing. So we're at $48 and of course, we're $105 So we're more than doubling in the second half.
There are some expenses in the second half that do land off and some sponsorship stuff and things land in the second half, not in the first half. So there is just a seasonality a little bit. But we're saying approximately 105,000,000 And in terms of those percentages, 1,000,000 or $2,000,000 can actually, which are tiny in the scheme of our overall business, can make a difference. So other than a little bit of seasonality, think what we do on percentage to is within the scheme of the group's overall profitability, if expenses are 1,000,000 or $2,000,000 different in the second half, it will make no difference to the overall group result. But approximately $1.05 And there are some swings and roundabouts that we put a bit of conservatism on exchange rates.
We've got a bunch of costs in U. S. Dollars. Where the U. S.
Dollar ends in the second half can move those U. S. Dollar expenses around somewhat. It's not just that you can think of some technology costs and things and subscriptions and things that may be in U. S.
Dollars. So there is a little bit of seasonality, but it's not like we're suddenly seeing a big acceleration in costs in the second half, if that's what you're asking, there's some trend going on. Yes.
All right. Okay. Second question, on some recent press reports around you guys having a look at the retirement products space. So just wondering whether or not you can elaborate on sort of any high level sort of plans around that. And also from a capital point of view, imagine anything you're thinking about is a fairly capital light strategy there.
So just keen on your thoughts.
Yes. Look, whilst I've mentioned it there, I said that we're somewhat down the path on that. I'm sort of reluctant to get into too much detail on it. But yes, capital light, so obviously, the paper it's been equated to annuities. It's not an annuity structure in sense.
But there are things that we still need to sort out on that. So I'm reluctant to say that we're that side on the track we're about to go. We are making progress on that. It may take investments, co investment, it may take different forms and all that. But you're right, we're a capital light business and that's the way that we look to attack this problem.
We're looking at it as I said in the notes to try and understand where we can make a difference and actually add a solution to that. It's not an easy problem to solve. But we do think we are making some progress. Possibly in the next six months or so, may have something more to say.
I've only had some comments. It's very important for people to understand the opportunity there. Obviously, with the agent population, there is a mass transition from accumulation to a pension drawdown phases. We are in a massive amount of accumulation models, as you can imagine in our strategy is. As people age and go into retirement, typically, you don't have a lot
You tend to change your allocations. You tend to derisk. You tend to come out of equities. People who have not a lot of money probably will go into an annuity. They tend to be very capital intensive and very expensive.
And I think that's why you're asking a capital question. They do a job for those particular, an important job for those people. But if got more money and you want something that's slightly de risking, there is just a massive gap about a good product that really solves the problem. I won't go into the whole problem that people have in retirement. And frankly, there's been virtually no innovation in this space, Obviously, I've read in twenty or thirty years in a real sense, what products are around.
You've got a number of income products around and then a number of sort of trumped up income products trying to seek the yield and you've got annuities. And then people kind of cobble together kind of solutions, but kind of a more holistic product that does something different and tries to achieve objectives. We haven't really seen. And we actually haven't really seen anywhere in the world. And that's why it's taken so long.
And Brett and Patty has been working on this for over two years looking and really defining what the problem is and then what the options are. So we're not there yet, but he's saying there. My evaluation of what they're working on is I'm very encouraged is all I would say to you that what we're thinking of something is very innovative. There's no black box type stuff that you would think of. A lot of people are coming up with sort of investment banking, structured this and structured that to solve this problem.
Both tend to not to be great solutions if you want to really take them out to the market. But a lot of work, whether it's and obviously, we have to get through regulators and other things in exactly what we're doing in this space. You asked about capital intensity. We're not going to launch a live product around that if that's the question you're asking here. But would we make an investment?
We made an investment in the Magellan Global Trust of after tax $50 something million. Would we make an investment of some form or investing in the UPP and things aligning with the interest? Absolutely, we would. But are we getting something that would be capital intensive in the scheme of Magellan? That's not the way we're that's not what we're thinking.
No. But we really don't want to go into any more details around what we're thinking in this space. But it is a very, very large space and one that is not being addressed by any investment houses across the board. And a lot of people are looking at this problem, by the way. It's not like we're suddenly magically come up and look at the problem that no one else sees.
There's a lot of focus by a lot of houses in this space. And that was a lot of focus, sorry, in One our
final quick question, if I can. Just interested in the progress in marketing and sort of institutional response around the sustainable strategies and also what the remaining installed capacity is, Hamish, under your existing global strategies in terms of the reserve capacity?
Yes. On the sustainable one, I would say that the reality is we're doing light touch so far with our institutional marketing because they're just at a two year track record. A lot of the institutions have really kind of got a minimum of over three years. So it's more talking to consultants than others. And other people would probably express through relationships they're very interested in sort of sustainability.
But in terms of a wide institutional marketing effort, you want to use your cards pretty wisely with the relationships. And we know that many of them have a minimum requirement. So would say that with the people we're talking to, we have a pretty good feeling about that. We've always been very realistic around that sort of three to five year track record. And the track records are actually developing very nicely in The U.
S. And the global strategies. And these are classic snowball things that they you have to get the track records and then build up from there. But it's sort of progressing how we think. But I don't think there's I don't want to mislead you either that we're not yet at three years on any of either of those strategies.
And on global institutionally, all I will say is we're closed for new business institutionally things we do have amounts reserved for our some of our key institutional clients. St. James' Place would be one of those obviously, because they're a flow business where they've got reserve capacity. I don't want to get into the exact numbers behind what the reserve capacity numbers
are.
Your
next question comes from Matthew Dunga with Bank of America.
It's Matt Dunga from Bank of America Merrill Lynch. Just on Slide seven, you show us the funds on the management summary. I can see the average base fee down two basis points half on half. Obviously, a little bit of a mix shift out of retail and into institutional. Are you able to give us any more color around what's driving margins?
No, I think I said it's basically early. So you're able to shift from a percentage point of view, if you like, into institutional and base fee rate. Within Infrastructure and Global,
there has been no pricing change on any of institutional product. In retail, there's been no pricing change in that. So it's really just a mix shift with Airlie coming in. And typically, Australian institutional equities are at lower margins than infrastructure and global equities are. There
are no further We have some questions in the queue. Your next question comes from Nick McGargle from Aude Minute.
Good day. It's a boring one for me. I noticed that the dividend was 75% franked. Just wanted to get a comment on that, particularly in light of the pretty significant bank that it bounced at the end of twenty eighteen.
Nick, it depends when you look at it, obviously. But the way we view this at least is if you look at our payout ratio and our average tax rate on a sustained basis, you come up roughly 75% of what the banking credit could be. And the reals really are you just need a positive dollar in the franking balance of thirty June, but we could pay things out more now, but we have to balance that up on average over time. So the timing of when you pay the franking and those sorts of things washes through. So on a sustainable basis, currently, where our tax rate looks like it is, broadly 75% looks like it's where it's sort of flat now to.
So that's what we've said about.
Okay. And then Gordon, sort a sustainable number going forward rather than sort of paying out what you can now and then?
It's a sustainable number looking forward. Yes, it is. Subject to the Yeah. I mean, there's risk around risk to it and could change if the year rate changes, the year over year changes out, mix once we're off to changes. Really, it's driven by average tax rate.
And then another question just around the performance fee, which is for the half year, obviously. There seems to be some mandates there that manage against a relative only hurdle rather than an absolute. Can you give us some color on that? I understand the Colonial funds are against the single hurdle. And is there any other significant ones that we should be thinking about?
There are. Obviously, we've got the funds, we've got the relationship with A and P and Colonial and BT, but we have separate sort of retail mandates. A number of them have performance fees attached to them. Some of them are subject to just a single hurdle, some of them are subject to double hurdles. But then we have performance fee arrangements with a number of institutional clients.
And some of those performance fee arrangements are quite bespoke depending on what the clients' objectives are. They're all different index. Some of them just over absolute numbers. Some of them are over just index numbers. So there is actually a mixture, particularly on the institutional side of the book.
We've never given an exact breakdown of how that works. And individually, it's not material. But that's why you see different performance why they're hard to forecast and they're lumpy. And some of them trigger at different times of the year. Some of them have six month periods, some of have longer periods, some of them have maybe September, some of them are June, September.
So it really depends on performance, what the measurement periods, when performance is hitting, what their hurdles are. And we've just got a myriad of those different things. And that's why it's lumpy and you trying to track exactly what performance fees and what performance fees would be in a six month period can actually be pretty hard because we may have performance fees calculated over a two year period with some institution. And you don't know when that period end is for crystallization of that.
Fair enough. Can you give
us an update on the self directed retail channel strategy? I guess sponsorships were a reasonable part of sort of getting into that new market of self directed investors that have you sort of reformulated the approach to market beyond obviously, the services that you should get with good traction? Are there any other sort of broader thoughts on that market?
Yes, I'm sure Henry should jump in as well. But the short answer is that we've sort of reviewed that. We're obviously being approached from everything from well, the under 10 for sponsorship through to larger sponsors, we're obviously not looking to do that. The nature of the way we're looking to reduce the marketing, we're very much more targeted. Know we've spoken about this in the results in the AGM.
It's much more targeted in that sense. We're doing a lot more around the events, which perhaps Hamish can talk about within that. The self directed stuff is very important to us and we continue to build unit holder bases across all the listed and those sort of products and part of UPP and all sorts of things fall into that. We're to try and build those things over time. Henry shortly points out, mean, we're happy to invest in those types of things to build a broad retail unitary device, but it will take time.
And those types of large one off events like cricket, which is a bit more opportunistic, were part of that, but it's not all of it. I'm sure of it.
Yes. This is something we've obviously spent a lot of time thinking about. I think brand is incredibly important when you go to the direct market. I think we're in a very fortunate place in terms of people who are interested in equities and brand recognition. The quicker did move things forward in a much broader sense.
I think in a brand coming to use paper coverage and things, we've got a very good brand recognition there. So first of all, I'd say it's brand there. Then how do you get people who are interested to get to you? One of our real insights and it's really starting to build it up now through these listed funds and some other things we're doing is a very big client base, 60 odd thousand people directly. Obviously, there's a lot more indirectly.
And you saw us when we did the road show, we actually had two clients sort of events including advisors where we had 1,500 people. That was a bit of a pilot program actually. We know that a huge amount of people who come into Magellan who are individuals come in because they've spoken to a friend who's had a good experience in Magellan. We know a huge amount of viral referencing plus brand is incredibly important. So what we're very focused in is how do we keep building up the base of investors that we have direct, and this is what these the Global Trust and their active ETFs were very important to.
But then how do we really communicate with that? Because, you know, if every one of those investors, told 10 friends, you're talking about over half a million people that would be getting influenced. So we think we've got a very, very decent base that's now built up. We now have to work out how we actually really interact with that base and communicate with that base to become very loyal advocates in the space. And we know direct people are underweight global equities that are actually a lot of them are very interested in that space.
And I think you'll see probably next year us do something much bigger in that sort of direct client space in terms of what we made. We're ready to to do that well takes a lot of planning, but but we're we're we're very focused on that. Are we gonna start sponsoring new cricket teams and things to do that for that brand awareness? No, we're not. Are we gonna be putting a lot of newspaper ads, sorry, for the people from the AFR in the AFR or something, as a strategy?
We actually think that's incredibly inefficient and not a great communication, for not only people reading an ad in the newspaper has that has that direct communication field. So so as we're we're we're doing those things, we're we're we're thinking about it. But this isn't easy because there's no real template of how you can talk to a mass of people who are who are individuals. And therefore, you have to get to the crowd of them and you have to get that crowd working working with you.
Okay. Thanks a lot.
But but as far
as where we're up to at this point in time, we're we're happy with the evolution of where it's heading. Particularly delighted with the listed platforms that we now have.
Okay. Thank you all for joining us