Thank you for standing by, and welcome to the Navigator Global Investments Limited Fiscal Year 2024 Annual Results Call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Stephen Darke, CEO. Please go ahead.
Thank you. Good morning, and thanks for joining the call to discuss the 2024 Full Year R esults for Navigator Global Investments. My name is Stephen Darke. Having joined Navigator as CEO in October 2023, I'm looking forward to presenting my first full year earnings. Today, I'm joined by my colleagues, Ross Zachary, CIO of Navigator and Head of NGI Strategic Investments, Sean McGould, CEO and CIO of Lighthouse, and Amber Stoney, NGI Group CFO. Turning to the company overview on slide four, Navigator is focused on partnering with leading alternative asset managers globally. We are the only pure-play global alternatives firm listed on the ASX. Across our 11 partner firms, including Lighthouse, Navigator now manages $75 billion, up 5% for financial year 2024. This is across 42 strategies, comprising 199 investment products.
Navigator is proud to own a diversified portfolio of leading partner firms, alongside their respective founders and principals, with such investments producing strong, sustainable cash flow. During the year, our managers established new alternative strategies, including in commodities, royalties, and real estate. With established platforms, our firms have the proven ability to identify scalable, adjacent opportunities that enhance growth. Our firm's strategies typically have low correlation to global equity and fixed income markets, and to one another, and we have seen that in our partner firms' 2024 investment performance. Turning to the business model, slide five. Navigator provides growth capital and strategic engagement to a well-established, high-quality group of asset managers. Our model is simple: We acquire minority economic interests, providing financial capital to drive growth through a listed permanent capital structure, that provides strong alignment to preserve and increase value.
In addition to capital, Navigator provides strategic support to its firms, either, one, directly from the NGI management team, who have a combined 70 years experience in alts, and, B, from utilization of the 50-person business development team of the GP strategic platform of Blue Owl, our partner. NGI has a close relationship and regular interaction with Blue Owl by their board reps, the broader Owl investment team on pipeline and manager sourcing, and their value creation team on the growth and development of the portfolio. Given the breadth of many of our platforms, it's often challenging to bucket our partner firms' strategies, but the diagram shows our portfolio of 11 firms across liquid alternatives and private market alternatives, with those managers who have elements of both included in the center.
Turning the page to the next slide, in a year-end summary, this was a transformative year for Navigator. We have significant momentum positioning the company for continued strong growth. That momentum was across financial outperformance, reflecting the earnings power of the business model, also in the strong investment performance generated consistently across our partner firms. We also successfully closed a transaction and equity raise during the year to solidify our balance sheet and materially increase our free cash flow to support our continued growth. Finally, more broadly, across the asset management industry, there's a focus by all investors on increasing their allocation to the alternatives asset class. The alts industry is projected to be $60-$65 trillion AUM by 2032, according to Bain & Co.
And this comes in an environment currently where top-quality managers across most of the subsectors are generating excellent risk-adjusted returns. Turning to slide seven, financial year financial results. Firstly, NGI's ownership-adjusted AUM increased 3% during the year to AUD 26.2 billion, driven by strong investment performance. NGI's revenues increased 46% to AUD 172 million. Having upgraded earnings guidance in early June, we are pleased to announce the group's adjusted EBITDA was AUD 90.5 million, an 85% increase from the prior comparative period, and 4% ahead of the upgraded EBITDA guidance range given in June. Our pro forma adjusted EPS reflects a 9% accretion year- on- year, despite the equity issuance during 2024.
The key drivers that underpinned this strong result were increasing AUM and higher average management fee revenues across both of NGI Strategic and Lighthouse, combined with a generation of performance fees at a consistent level across market conditions. There were continued strong distributions received from the NGI Strategic portfolio. This financial year, an additional AUD 34.8 million of distributions were received as a result of NGI's early settlement of the 2021 portfolio acquisition from Blue Owl. The distributions generated at the partner firm level were in line with FY 2023, and higher than expected when NGI reported in our interim earnings for February. Pleasingly, more than a doubling of contributions from the group's specialist private markets investments to AUD 11.5 million.
And finally, an increase in Lighthouse management fees and performance fees of 10% and 72% respectively, contributing to an 18% increase in Lighthouse adjusted EBITDA versus prior period. There was a 14% increase in net operating expenses in the financial year, primarily driven from higher compensation in a very competitive market for top talent in alternative asset managers. The EBITDA exceeded our June upgraded earnings range due to three things: the expenses for the end of the financial year coming slightly lower than budgeted, higher monthly performance fees in June for some Lighthouse strategies, and a small NGI strategic distribution received that was related to 2024 profits. Turning the slide to the highlights. In terms of the earnings, pleasingly, the partner firms performed at both in a management company level and an investment strategy level.
In addition to me joining the NGI management team in October, Ross was appointed NGI Chief Investment Officer and Head of NGI Strategic. Sean, who was previously both Navigator and Lighthouse CEO, is now fully dedicated to the continued evolution and expansion of the Lighthouse business. In January, we settled the 2026 redemption payment obligation to remove a significant liability from our balance sheet and increase our cash flow. Now, NGI is entitled to 100% of the distributions paid in relation to our ownership stakes in those companies. Ross will reflect on that transaction from NGI's perspective shortly. NGI now has the capacity to fund inorganic growth from its cash flows and flexible balance sheet. We generated strong operating net cash flow of $58 million in the financial year, up 53% year- on- year.
In combination with our credit facility, enhanced and undrawn, as at 30 June, NGI has the capacity to reinvest in current partner firms, as well as acquire new investments in asset managers, in line with our disciplined investment criteria, which has not changed. The elimination of the distribution sharing to Blue Owl will significantly enhance future operating cash flows, reflecting the high cash conversion rate of NGI's business model. Turning to slide nine, AUM growth. NGI's ownership adjusted AUM increased 3% year- on-y ear, with growth across all NGI segments, especially in private markets. The growth was in line with global liquid alternative peers, with a challenging second half 2024 fundraising climate across the industry.
Over the medium term, Navigator intends institutional investors globally to increase their exposure to high-quality firms that are performing well, including in strategies to diversify equity risk, particularly given the elevated climate of uncertainty. In terms of AUM drivers on slide 10, in line with the broader industry, the growth in NGI AUM in second half was entirely generated from strong positive investment performance, with minor outflows occurring across NGI Strategic and Lighthouse. As a reminder, NGI has four earnings levers: positive investment performance, increased net inflows, improving the margin and operating leverage at the partner firm level, increasing the profitability of those managers, and then finally, investment in new partner firms. All these factors are important. However, unique on the ASX, Navigator is the owner of a portfolio of well-established alt firm, alternative firms.
Accordingly, investment performance and high margin earnings profile of our partner firms can drive NGI earnings and underpin our growth, even in a climate of lower net inflows. Finally, I would note that typically, but not always, strong investment performance is followed by increased inflows, as investors recognize capital should have been allocated across those strategies. Turning to slide 11, indicative revenue composition. Alternative asset managers have a strong alignment of interest to the economic performance of their strategies and the returns they generate. Many of the underlying strategies managed by our partner firms are subject to performance fees, with the majority of them having performance fees that crystallize annually. This slide shows the historical split of indicative revenues received by NGI from both management fees and performance fees.
Pleasingly, over the past three years, base management fees across the portfolio have grown at a CAGR of 8%, in line with AUM growth, with increased average management fee yields reflected across both Lighthouse and NGI Strategic, and 67% on average of NGI revenues on a look-through basis are generated from management fees. We have also generated consistent core performance fee revenues, reflecting our partners' firms' sustainable performance across investment cycles. Given the uncorrelated nature of our strategies and the diversification of the portfolio and the track record, there is an expectation that a portion of this overall performance fee revenue should be received every year, providing a resilient source of income from Navigator. Turning to slide 12, the robust segment growth from both NGI Strategic and Lighthouse, we break it down into management fee revenues and performance fee revenues by segment.
NGI Strategic's three-year management fee revenue CAGR of 18%, reflects the increasing importance of that part of the business, alongside recent Lighthouse growth-based management fees. Also, the consistent generation of performance fees that I acknowledged, we've actually shown on the slide there, the three-year average and the five-year average, so you can look and see the consistency of both those streams in the historical three to five-year period. For both these businesses then, the increased revenue based on a sustained margins, positions our partner firms for profit growth. Finally, turning to our business model and the key drivers for growth, this is a new slide, but it really is an attempt to sort of indicate that Navigator has a simple business model, and to outline the key components of earnings and cash flow.
We are differentiated from other Australian asset managers because we own equity interests in a portfolio of leading global managers. We grow with those firms, alongside the founders and principals, so they are fully aligned. The managers and strategies have stable and growing management fees, with limited fee pressures facing the rest of the asset management industry, and we have significant earnings potential from alpha generation, performance fees, and any increased inflows. And finally, our partner firms have strong margins, operating leverage, and these dynamics are also reflected at the NGI level, leading to high cash conversion of our business model. Now I'd like to hand over to Ross to review the NGI Strategic Investments portfolio.
Thank you, Stephen. I'll start on slide 15, which provides an overview of who our partner firms are and what alternative investment strategies they specialize in. A key differentiator, and what we find so compelling, is that our partner firms are scaled and institutional businesses, time-tested and proven through prior market cycles. These firms are known leaders in their respective alternative asset classes, with the resources to continue to generate strong risk-adjusted returns, attract talent, win new clients, and therefore generate strong profits as they extend their leadership positions in the years to come. By partnering with the management teams who have a clear alignment with their clients and their employees, we believe the partnerships are most favorably positioned as possible to generate the best financial results over time.
In addition, as Stephen highlighted, Navigator and our partner firms have a true edge in a highly competitive industry through NGI's partnership with our strategic shareholder, Blue Owl, providing unmatched insights and strategic advice through access to their value-add services and broad perspectives across their industry-leading platform. Please flip to slide 16, and we can discuss some of the key attributes of our business. We are proud of the breadth and diversification of the portfolio shown on slide 16. This segment represents a uniquely diverse set of uncorrelated, independent, alternative asset managers with AUD 58 billion collective assets under management, or over AUD 10 billion on an ownership-adjusted basis.
This diversification benefit is a key advantage to NGI as we look to grow our business and deliver shareholder value, providing unique and attractive exposure to high-quality earning streams with significant operating leverage across liquid alternatives, public and private credit, commodity-based strategies, and private real estate capital solutions. Since acquiring these assets, we have seen different firms contribute to our profits more than others in any given period. In recent years, we have been focused on further diversifying and further strengthening our quality earnings profile by adding long-term duration AUM to the portfolio. The addition of Longreach, Marble, and Invictus, as well as others in the NGI strategic portfolio, raising capital for drawdown products or permanent capital structures, has resulted in over 27% of this segment's ownership-adjusted AUM being managed in long-duration structures. We expect this to continue to grow over time.
If you turn to slide 17, you'll see a bit more detail on the key drivers of AUM growth over the past two fiscal years. Here on slide 17, you will see that the NGI Strategic segment experienced 3% AUM growth this year, following our 16% growth in fiscal 2023. Across this segment's AUD 10.4 billion of ownership-adjusted AUM, we have a very broad set of unrelated and unique growth drivers, including uncorrelated return streams, a wide variety of open-end private equity style products, and permanent capital vehicles throughout the segment. This diversification positions NGI to deliver consistent growth over time, regardless of market conditions. Our partner firms cater mostly to global institutional investors, and as a result, they experience long sales cycles and often lumpy subscriptions and redemptions.
In the NGI strategic portfolio, the outflows you see experienced this fiscal year, following a strong year of inflows in 2023, were concentrated in a small number of products or mandates with below average revenues as compared to the broader business. Therefore, we do not think it will have a directly proportionate impact on the profit distributions going forward. In fact, we are very pleased to see continued product innovation, new launches, investment in capital raising resources across several of our partner firms. As one example, our partners at Longreach Alternatives recently announced the launch of Longreach Capital Advisors to provide distribution, capital formation, trustee, and non-investment services to leading domestic, Australian domestic, and offshore alternative investment managers. This is just one example that is representative of our partner firm's proven ability to attract industry-leading talent and address market demand in a growing sector.
Please note that our private market partner firms were not in the market raising capital in earnest in fiscal 2024, as they have been deploying their most recent vintages. Given the strong market opportunity and compelling risk-adjusted returns they offer, we are looking ahead to another strong capital raising cycle for them in the fiscal 2025 to fiscal 2027 timeframe. The data on this slide and the AUM trends over the last two years illustrate that with so many growth drivers across our business, NGI is well positioned to deliver continued strong AUM growth, which results in higher profits over time. This year, investment performance continues to be strong as well, with our NGI strategic composite, which covers several flagship products across the portfolio, generating almost 7% returns year to date through June, as compared to 3% for the HFRX Index.
This follows 8.6% return in 2021, 11.8% in 2022, and 8.5% in 2023. If you please turn to slide 18, we'll provide a bit of detail about the recent profit distributions in the business. Looking at slide 18, you will see that the profit distributions from NGI strategic partner firms over time. Through a series of transactions, we have built this segment to AUD 72.9 million of distributions from eight partner firms in fiscal 2024, excluding our partnerships with Longreach and Grow. Our private market partner firms, who we partnered with in fiscal 2022 and fiscal 2023, with full consideration to be paid by the end of fiscal 2026, contributed over AUD 11 million in this year.
These businesses derive high-quality earnings from highly visible revenues generated from long-duration capital, managed predominantly through private equity style funds, in addition to some distributions related to carried interest over time. We are very pleased with the profit growth and the continued impressive execution of their highly differentiated investment strategies in two uncorrelated, broad, and fragmented areas of the U.S. real estate credit markets. On the right-hand part of the slide, you will see a summary of the historical AUM and profits of the NGI strategic portfolio, the six partner firms acquired from Blue Owl. This chart shows the total profit distributions generated, which we now own outright, as opposed to fiscal 2023 and before, where NGI only received a portion of the profit distributions.
We believe the long-term average is representative of the earnings of this highly diversified portfolio, as certain partner firms contribute more than others in any given year due to the non-correlated nature of their strategies. Currently sitting at peak AUM, high revenue yields, and sustained profit margins that reflect their scale platforms, these six partner firms are well positioned to continue to increase enterprise value over time and generate continued strong profit distributions to NGI. Turning to slide 19, we'd like to provide a quick review of the transactions which have formed this strong earnings base for the segment. The left-hand side of slide 19 provides a high-level overview of our acquisition of the NGI Strategic portfolio.
After completing the accelerated part of the transaction in January of this year, we have provided Blue Owl GP Strategic Capital with roughly AUD 366 million of headline total consideration, the large majority of which has been in the form of NGI equity. This year, the portfolio generated AUD 61.4 million in profit distributions. As you will see, the portfolio's AUM has grown over 40% since the acquisition, and we are very pleased to see that the strong alignment of interests with our partner firms is working well, where each continue to manage their businesses in a disciplined but growth-focused manner, and have retained, if not expanded, their leadership positions in their respective asset classes.
The transaction established a partnership with Blue Owl, which brings strategic benefits to the company and our shareholders that cannot be quantified, and we believe will continue to add value over a long period of time. On the right-hand side of this slide, we have summarized our investments in Marble and Invictus, our dedicated effort to partnering with established, growing and differentiated private market alternative managers. In 2022, we committed a significant amount of cash consideration over a three-year period, with the majority of it going to support the growth of these high-quality and proven firms. These transactions presented an exciting opportunity to diversify and strengthen our broader business, with the potential of improving our quality of earnings and growth profile over time, and this year, we have seen that materialize.
Two years ago, when we announced the partnerships with Marble and Invictus, we explained how we identify and provide capital to groups with clear growth opportunities. With the over 40% AUM growth to date and another fundraising cycle in the coming years, we are pleased about this growing exposure. The financial impact of their AUM growth will be felt in future years as the capital is invested in the most recent vintage funds and the funds raised in the coming few years. Over the past 12 months, these two businesses have impressively been able to deploy capital into attractive investment opportunities in dislocated markets, illustrating their leadership positions at a time where investment activity in private markets remains at multiyear lows. The partnerships and strategic dialogue with Marble and Invictus is strong, and the transactions will be fully funded by our fiscal 2026. One exciting example-...
Of this partnership is that we were just recently able to slightly increase our exposure to Invictus at an attractive time in their growth by purchasing another 3% of their management and operating companies and 1.5% of future carried interest to help in the development of their partnership. Increasing our exposure to current partner firms is not a common occurrence, but when we can do it to be helpful and generate a strong result for our shareholders, we are well positioned to do so. I'd like to briefly turn to slide 21, which lays out our broad investment criteria. The criteria on slide 21 is designed to identify well-positioned, high-performing alternative investment firms with all of the ingredients for continued success and sustainable growth.
I will not spend too much time going through criteria as we covered it during our interim results. The new acquisition pipeline remains active with several live discussions. It ranges across specialized private equity firms, private credit, real assets, as well as hedge fund firms that are all established and those that we believe will further strengthen the quality of our earnings and diversify our exposure across the globe. Naturally, some opportunities have dropped out of the pipeline as we apply a disciplined underwriting approach, and we operate in a highly competitive segment of the market.
But other new discussions have been initiated in the last few months, and we are very excited about the depth of the current pipeline and the prospects for building upon our track record of partnering with leading firms with one or more of the impressive firms we are currently spending time with. Quality and growth outlook is paramount, paramount when we look to add firms to the Navigator group, and we remain hard at work to convert opportunities that come through this pipeline. Sean, over to you to cover Lighthouse.
Thanks, Ross, and I will start on page 22. So just a quick overview of Lighthouse and the strategy. So really, no strategy changes over the past couple of years at Lighthouse. So three segments of the business that we're working on. One is our hedge fund business, which we've had now for over a decade and has built up through funds like North Rock and Mission Crest. We have our legacy allocation business, both in commingled funds and customized solutions. And we have our managed account services business, which really is using the pipes and plumbing of what we've built for our own hedge funds and our own legacy allocation funds for institutional investors to make their hedge fund investing more efficient, risk reporting, data aggregation, all of those services.
So the focus remains on those three areas. We're continuing to transform the model from more of a management fee-only model, particularly in the hedge fund segment, to one where we have some more performance fee income. Again, I would point out, we'll see on the next page the bulk of the fees that we earn continue to be management fees, but we will see more in terms of performance fees as we continue to grow the hedge fund portion of the business. Super important for us to have strategies that have low correlation to traditional markets. We saw that back in 2022, when the equity markets struggled a little, a little bit more. We did well when bond markets have really struggled up until really this year.
We've produced profits as well, so it's very important that we produce consistent profits for our clients. And then the last thing is we work very closely with our clients, and we feel like we're aligned with them in terms of what they are trying to do and the services that we can provide across the firm. So we have a number of clients that access each segment of the business, each of the three areas that I spoke about, and we want to continue to work with our clients closely to meet their needs within the hedge fund investment space. So turning to page 23, when we look at the year in total here, 10% growth in management fees, so up to about AUD 84 million.
Performance fees rose quite significantly from the prior year, so up 72%. And then total fee revenue up about 15%. You can also see on that right-hand chart, the average management fee rate has stayed fairly stable. And that's a good sign, has actually grown a little bit. Our mix of business can also determine that average management fee. The management fee that we receive on our managed account services is lower than that for what we receive on either the hedge fund segment or on the legacy allocation business. So it's nice to see that go up, but that can be influenced by the mix of business that we are growing at Lighthouse.
It's something that I look at, but more concerned, again, with just consistent profitability over time, which we've been able to deliver, and Adjusted EBITDA this year of about AUD 25.7 million. When we look at some of the highlights below, growth was AUM in the hedge fund segment, the AUM growth is primary driver to the management fee revenue growth trend that we saw. We want to continue to see that. Performance fees are going to be derived simply through the performance. The performance picked up this year. We have some more funds that are subject to performance fees. A lot of our clients prefer a mix of a management fee and performance fee type of schedule.
So I think we'll continue to see more of that going forward, and then just highlighting in this last box, this performance fee revenue will drive some increased variability in future revenues. But the good news is, with NGI overall, you know, the Lighthouse portion moving more towards incentive fees, not as significant a change as it would have been three years ago when NGI really consisted of Lighthouse, so I'm happy with the year overall from a financial perspective and where we're headed. If we turn to page 24, some of the things that I touched on will be highlighted there. Really, growth was driven through performance.
And we continue to see some growth in hedge funds, and certainly the first half of the fiscal year is a little bit more challenging in terms of performance even than the second half of the year. You can see that our customized solutions business picked up, and then managed account services, I always need to point out, in some respects, if we are doing our job in that segment and making our clients' capital more efficient within the hedge fund space, we can actually see some reduction in AUM but keep our fees consistent or actually increase. So some of the AUM is a function of the leverage and the funding flexibility that we bring our clients, which is very, very important.
We have our own dedicated treasury team, which does a great job working with our clients. So I wouldn't read too much into the AUM numbers of the managed account services business. So you can see where we are from an AUM perspective. Again, revenue increased, as we said overall, on the previous page, reported 15%. So very happy with that. And just continue to move forward again, in terms of trying to serve our clients' needs, trying to innovate with new products, which we continue to launch. And overall, if we can provide value to our clients, we will continue to grow.
Looking at the performance over the last 12 months through June 30, hedge funds, equity products, macro was a little bit more challenged this year. And that was a good result for macro. Again, continue to see strong results here, even into 2024 in the macro space. So that's good. Multi-strat as well has had a good run of the past 12 months. And I would say we are meeting our clients' expectations across all the products. You can see some of the highlights below. So equity multi-strategy terms, we're competitive, certainly against peer firms and against our benchmark industries. I just touched on the fact macro strategies were tough and have been tough.
Our strategy there is a little bit different than other macro players. We designed it to be more consistent. I think that consistency is showing through. And months like July, August have been tougher in 2024 for certain macro strategies. And we have been able to make money in both those months. So I think it's even starting to show through even more going forward, which is great. And then, market volatility certainly picked up, but we continue to be optimistic about the strategies that we're delivering, how we're putting them together, and the ultimate performance that we can derive there. We have gone through a stretch within the portfolios where our diversification is cutting our volatility more than it has historically.
Hopefully, that means we are doing a good job of putting these strategies together. But I think we've also had some macro influences that have impacted that as well. So when you look at simple things like stock-bond correlation, stocks and bonds have been positively correlated for about the past two and a half years. That is slowly starting to switch back to a more normal correlation regime of bonds being negatively correlated to stocks. There are other nuances that I think have driven down our overall volatility, but I do expect it to normalize. We continue to work pretty hard, actually, to bring our risk levels up across the board. So, but again, happy with the performance and where we're headed there.
Again, just the page 26, just on client-focused solutions. So, you know, we continue to exhibit strong relative performance, and hedge fund allocator interest remains high. So pipeline remains high. Product innovation, always looking for new products and new ways that we can help our clients. That was a key focus of mine over the past summer, looking at some quantitative strategies. So, that's very important to make sure that we stay ahead of the curve for what our clients are after. And then again, as I touched on, just very strong partnerships with our clients. So able to talk to them really about the entire gamut of hedge fund investing. Able to help them with structuring, how we think about that.
Able to talk about risk and the aggregation of data, which becomes more important. So all of those things help us to deepen the relationships with our clients. I think we have excellent data, excellent information. We get very high marks for sharing that information with our clients, and that's something that we wanna see continuing to go forward. So overall, again, I'm very happy with where we're headed at Lighthouse and what we're doing. I think finished up a solid year and, you know, very optimistic here looking forward. So with that, Amber, I will pass it over to you for the financial results.
Thanks, Sean. I'll start with slide 28. This slide sets out the key items of Navigator's 2024 financial results, both its statutory results in accordance with accounting standards, as well as providing a non-IFRS view of the Navigator Group's profitability. As Stephen noted, we're very pleased to have delivered an adjusted EBITDA of $90.5 million this year, coming in ahead of our early June guidance of $85-$89 million. Both statutory and adjusted EBITDA showed strong increases compared to the prior year at 73% and 85% respectively. Each benefited, in particular, from the additional distribution revenue earned from the NGI Strategic portfolio as a result of the January 3 transaction, as well as improvements in both management fee and performance fee revenue for Lighthouse. We consider that adjusted EBITDA and adjusted NPAT provide the most meaningful understanding of Navigator's operating results.
This non-IFRS view of financial performance looks at the core operating revenue and expenses of the business, adjusting for certain non-cash and non-recurring items. Despite a significant number of shares being issued to settle the January 3 transaction, overall, it was accretive to the FY 2024 result, with basic statutory earnings per share increasing 16% on the prior year. In addition, pro forma adjusted earnings per share, calculated by dividing the adjusted net profit after tax by the total 548 million shares and convertible note shares on issue at 30 June, was AUD 0.15 per share, a 9% increase on the prior year when applying the same methodology. The next slide breaks down in further detail the components of the adjusted EBITDA.
Our non-IFRS revenue of AUD 172.3 million represents these core operating revenues of management fees, performance fees, and distributions, and showed a 48% increase on the prior year. Operating expenses for the group when netted against related reimbursement revenues was AUD 77 million for this year, a AUD 9.2 million or 14% increase. The main driver of this related to employee compensation, which accounted for AUD 7.2 million of this change. One of the contributing factors to this was the proactive changes made to the senior executive team in anticipation of a transaction to early settle the 2026 redemption liability. The key objectives of these changes were to ensure that the group is resourced and focused on growing both the NGI Strategic and the Lighthouse business, as well as increasing our Australian-based market engagement.
Other operating expenses increased by 16%, and this AUD 2 million increase was largely due to increases in third-party distribution costs. This is consistent with the growth in management fee revenue, and while Lighthouse has in-house distribution resources, this third-party channel continues to be an important element in Lighthouse's capital raising strategy. The next slide breaks out the result across Navigator's two key business lines. As this slide shows, the NGI Strategic business delivered a strong result, with the full benefit of the NGI Strategic transaction reflected in the 73 million of distribution income. This also incorporates the higher distributions received from our private market partner firms this year, including some crystallization of carried interest profits.
While employee costs and other expenses did increase for the NGI Strategic business this year, the growth in its scale of revenue nonetheless delivered an improved a djusted EBITDA margin of 94%, demonstrating the cost efficiency of this operating model. The Lighthouse business delivered an 18% increase in adjusted EBITDA, driven by a 16% growth in fee revenue. The increase in management fees reflected both the improved management fee rate of 54 basis points, as well as an increase in average AUM, period- on- period. Employee compensation increased by AUD 4.4 million, or 9%, reflecting a focus on ensuring that employee compensation is meeting market in an environment of high competition for experience and talent. Overall, the adjusted EBITDA margin rose slightly, reflecting that the cost base increases kept pace with the revenue growth.
Overall, the Navigator group delivered a strong adjusted EBITDA result, with the margin improving to 53%, compared to 41% in the prior year. The next slide sets out the key metrics, which drives the revenue and results of both the NGI Strategic and Lighthouse businesses. On a weighted average basis, the average net management and deal fee rate over the past three years on NGI Strategic investments is 1.2%. This has shown resilience over the past few years, and the diversification across our partner firms means that changes in fee and product mix for individual firms does not unduly influence the combined average rate. Operating margins across these businesses are generally between 30%-35%.
In addition to the management fee revenue, 76% of the AUM managed by our partner firms can generate performance fees, and with the average performance fee rate holding steady at 17%. These metrics combine to deliver a growing base of management fee earnings, underpinning distributions from partner firms, supplemented by significant potential upside from performance fee earnings. The Lighthouse business is also driven by its two key revenue streams: management and performance fees. Given the breadth of product managed across Lighthouse, we were pleased to see the uptick in the average management fee to 54 basis points this year, compared to the 52 basis points in the two prior years. Of the $15.8 billion of assets under management at Lighthouse, 21% can generate performance fees.
With 94% of that AUM at or above high watermark and the strength of the calendar year-to-date performance across Lighthouse products, we're well-positioned to achieve some upside in performance fees in the 2025 year. My final slide on page 32 demonstrates the strength of our balance sheet and funding capacity. A core objective of the January transaction was to strengthen the balance sheet, and the financial position of the NGI group in closing out the 2024 financial year shows that this was achieved. Net assets as at 30 June were at $633 million, an increase of 57% on the prior year. An increase in the scale of the business meant that we renegotiated our existing loan facility to AUD 100 million, with a 5-year term with our existing lender.
As this was undrawn at year-end, we have continued to pay down the outstanding deferred consideration on private market partner firms over the past year, and that means our net debt ratio is well below 1 as at 30 June. The strength in our cash flow and the flexibility of our loan facility makes us confident we can target acquisitions of up to AUD 100 million as we continue to execute on our growth strategy, and with those final remarks, I hand back to Stephen.
Thank you, Amber. And just turning to, slide 34. There are multiple growth levers in the NGI business model, driven by, firstly, industry growth in the broader alternative space in which Navigator specializes, and it's the fastest area of asset management growth. Second, the continued partner firm organic growth, which can comprise investment performance, net inflows, and margin expansion. And thirdly, the value creation that either Navigator, Blue Owl, and now opportunistically Longreach in the domestic market, could provide to accelerate Navigator partner firm trajectories. And then finally, the addition of new partner firms, one of our core focuses. And there's also opportunities for what we call inbuilt growth to reinvest in our current portfolio, like the Invictus investment that Ross referred to. Turning quickly to industry growth, and I'm conscious of time, but last week, Bain & Co.
Estimated that the industry in alts will rise to AUD 60-AUD 65 trillion by 2032, around about 30% of global asset management industry, with growth across all alternative asset classes. They've come into favor because the business models that have dominated asset management for many years are under some pressure, both on profit margins and in terms of many traditional firms reducing management fees, causing a reduction in median revenue. Given our alternatives focus, Navigator firms are not subject to the same fee pressures as traditional asset managers. A recent fundraising has been challenging, even in private markets broadly, and net inflows have retreated from their highs. But the advantages of alternatives, including diversification, yield, and higher returns, should lead to even greater investor appetite and flows over the medium term.
It's the top-tier established alternative managers, including those that reside within Navigator's portfolio and the additional partner firms that we're evaluating, that will ultimately be the biggest beneficiaries of this secular trend in the asset management industry. Turning briefly to Blue Owl value creation. This slide was in the interim earnings report, but our strategic partner, Blue Owl, has a world-leading business development platform where they help to support the growth of their partner firms, including Navigator, in areas such as fundraising, advisory, corporate strategy, M&A, and human capital advisory. Turning the presentation to slide 37, Navigator is focused on sustainable growth, driving value creation. Disciplined capital allocation is fundamental to our strategy. We are not a roll-up firm, and we're doing M&A for the sake of gaining AUM.
We are looking to deploy capital to the areas of the highest growth and risk-adjusted return, and that's how we create meaningful incremental value over time. Navigator will, in a measured manner, allocate our investors' money to grow our portfolio investments that meet both our financial and qualitative criteria, as set out by Ross, and where we have a strong thematic conviction in the growth trend supporting the investment. We are focused on managers that provide further diversity and scale to our existing portfolio. Finally, the year in summary, page 38. Navigator's goal is to be the leading alternatives firm on the ASX and a preferred partner to quality established alternatives firms globally. The FY 2024 result demonstrates the resilience and earnings potential of NGI's diversified portfolio.
Recently, strong relative investment performance have been the key drivers of NGI's AUM growth, even in a climate of lower net inflows globally. We continue to generate strong, consistent and growing free cash flow, which we are well-positioned to deploy into growth investments. Looking ahead, we are encouraged by the strong performance across our portfolio calendar year- to- date, and remain confident of our asset managers continuing their success in FY 2025. This is an exciting time for our business. We operate in a sector benefiting from significant tailwinds, and with markets exhibiting increased volatility, coupled with the uncertainties of political and monetary policies globally, it creates an attractive investment environment for our firms to perform and grow.
Finally, I would like to thank the rest of the NGI management team and the staff for all of their hard work, and congratulate them for their success in what was a transformative year for the firm. Thanks for your time, everyone. I would now like to open the call to questions. Operator?
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, then two. In the interest of time, please limit yourself to one question and one follow-up. If you have additional questions, please rejoin the queue.
... If you are on a speakerphone, please pick up the handset to ask your questions. Your first question today comes from Lafitani Sotiriou with MST Financial. Please go ahead.
Hi, good morning, guys. Just wanted to better understand and follow up to your comment around second half 2024 being a challenging fundraising environment. What are your expectations for FY 2025? And also, if you can add some color around some of the underlying funds and potential raisings they may be planning for the year ahead. Thank you.
Yeah, thanks, Laf. Thanks for joining. I think probably the best way to address that is perhaps for Sean to talk a little bit about that in the context of the Lighthouse business, and then Ross can talk about those factors in the context of the NGI strategic business. So Sean, do you want to take it away?
Sure. Typically, I mean, there are different cycles of fundraising within the liquid hedge fund space, so it's not surprising that conditions get a little bit more challenging, particularly when traditional equity markets are doing fairly well, and then I would also say you have a little bit of backup within alts, within particularly private equity and private credit strategies that have not returned capital at a pace that has been as fast as it has been in the past, so in the case of Lighthouse, specifically, if you look at better asset raising environments, for us, it's typically when things are not going as well for traditional equity markets, so that could be back in 2022, parts of 2023. Things just slow down a little bit.
It doesn't mean that the pipeline dries up. It just means that it takes a little bit longer to get some of those allocations there. And I think it's been, you know, noted across the alt industry also, that some of the return of capital and other strategies has not been as strong as in prior periods. So, you know, we continue to raise assets across the board for the vast majority of our products, and they're more open-ended funds as far as what we're trying to do. So, I'm optimistic that the fundraising conditions will improve here over the course of the fiscal 2024, 2025 year. But again, we've seen lots of times in our 2025 year history where again asset raising has some easier times and some tougher times.
But, the pipeline, again, remains robust, and, I'm confident, of what we can do going forward.
Hey, Laf, it's Ross. To Stephen's point, just following up, you know, the key, thanks for the question. The key points that Sean mentioned are consistent with the NGI strategic partner firms. We are seeing that as the backlog in private capital realizations kind of continues, it just causes allocators to make decisions more slowly. It's not that they're not engaging with our partner firms, and it's not that asset raising, as Sean mentioned, is not gonna happen. It just takes longer, and so, I'm also really optimistic about especially the, you know, nine partner firms across the NGI strategic portfolio, Marble and Invictus, and then everything Longreach has going on over the next 12-24 months.
I think the most important thing to remember, at least from my perspective, is that when you think about everything Sean just talked about and the breadth of the nine groups that I just mentioned, there's a lot of products in market at any given time, and generally speaking, hitting different parts of the institutional investor base, and if they are talking to the same GPs, LPs, it's for different parts of their portfolio allocation, so NGI is really unique in that way, where we have so many growth drivers. In the case of the NGI strategic business, you'll see groups that are launching, you know, closed-end fund drawdown structures for a specific real estate opportunity.
And then you'll see other groups that, on the back of good performance, are seeing inflows in their flagship hedge fund strategies that have been in the business, for, you know, 15, 20 years. So because of that diversification and how many, you know, arrows we have in the, you know, out there, I'm also really optimistic for the next 12 to 24 months.
Yeah, just to add my final point on that, obviously agree with both Ross and Sean, but I think one of the challenges in a, you know, hedge fund strategies in the past four years, Laf, has been sort of a high risk-free rate. So investors have been sort of chasing yield and higher risk in a one-way market. When you've got private credit, accredited SOFR plus 8%, perhaps investors haven't been valuing the diversification value or the returns or the lack of correlation. Clearly, we're seeing more recently and in, you know, in a climate of elevated uncertainty and likely lowering of the risk-free rate with the Fed. So, you know, you could see investor appetite coming back for strategies that have truly performed differently than equities.
Got it. Thank you.
As a reminder, if you would like to ask a question, please press star then One to enter the question queue. The next question comes from Max Moser-Finch from Barrenjoey. Please go ahead.
Hi, team. Thanks for taking my question. I was just wondering, you know, the compensation drove up OpEx in Lighthouse. Are these performance-linked bonuses or, are they just, general salary and wage increases? And are there any, you know, one-off costs embedded in the FY 20 24 cost base here?
... Yeah, I'll just introduce it. I mean, typically in the alternative asset management industry and also the businesses that we have, a high proportion, you know, percentage of compensation is linked to performance, both investment and business and incentive. In terms of the actual numbers, Amber, do you want to respond to Max?
Yeah. So the majority of the increase actually relates to variable comp, so more the bonus related and performance related. Part of that pool is driven by performance fees, which were obviously really good at Lighthouse this year as well, and also just a recalibration to make sure that, you know, compensation, particularly on that variable component, is at market.
Yeah, I think fixed compensation was only up 3%, but variable compensation-
Yeah.
is up 23%.
Yeah. Key driver was the variable comp.
Yeah.
Thanks for that. And then also, with the strategic portfolio performance, how has it tracked, CY 2024 to date? You know, is it approaching the three or five-year average return at all?
Ross, do you want to take that? We have a slide in the appendix, Max, that could be helpful, but Ross can talk you through that.
Sure. And Max, just to clarify, are you talking about investment performance, or you're talking about profit distributions, this year to date?
Investment performance.
Yeah. So as Stephen mentioned, we have a highlighted. We have the investment performance highlighted on page 43. So the best we can do from a transparency perspective is we have a composite for the NGI strategic portfolio, which represents several flagship funds. As you can see on slide 43, through June, it's actually up 6.7% year- to- date, which is a fantastic result, beating the multi-strategy, the Hedge Fund Research HFRX Index by a lot, which is 2.9. Obviously below the S&P in the NGI world. But we've seen, you know, no material drawdowns this year and most of the strategies working well.
I would caution that investment performance, you know, does vary over the year, and as we talked about in prior calls, it does not, you know, completely directionally and linearly, you know, generate profits. But as you can see on the slide, as you think about the last three years, we're well in line with kind of the portfolio composite, being in the high single digits, low double digits, which is, you know, we think a really consistent good result, which not only generates profits, but also continues to give us AUM growth over time.
Thanks for that.