Thank you for standing by, and welcome to the Navigator Global Investments Limited conference 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 Amber Stoney, Navigator's Chief Financial Officer. Please go ahead.
Thank you. Good morning, everyone, and welcome to the Navigator Global Investments presentation on our interim results for the six months to 31 December 2020. With us today, we have our Chief Executive Officer, Sean McGould. We also have Ross Zachary, who has been heavily involved in the portfolio acquisition that we completed just at the beginning of February. We also have Scott Perkins, who is Executive Managing Director at Lighthouse. With that, I'd like to hand over to Sean to just make some opening remarks about the six-month period and the current business.
Thank you, Amber. Thanks, everyone, for joining this morning or this evening, depending on where you are in the world. Appreciate you taking the time to listen. This was a very busy six months for Navigator and for the company in general. Very pleased to report that the fund performance was very strong since July and through the end of the year, and continues through the midpoint of February here. Obviously, the end of the second half of the fiscal year last year was a little bit disappointing. This year, so far, fiscal year has exceeded expectations, and we saw a broad rebound in the strategies that we pursue at the Lighthouse level. I'm very happy with the changes that we made in terms of allocations and what we did in the April timeframe to capture some of the opportunities throughout the end of the year.
As I mentioned, this year is off to a very strong start as well. Performance certainly helped with the financial results in the first half of the fiscal year, and continue to go well. A good pipeline of investment potential. Some very unique things happening in the markets that we can get into a little bit later in the preview. The investment performance was a big driver of the results here for this first fiscal half of the year was just the transaction go through in much more detail as far as what we did there. I do think it transforms Navigator into more of a boutique asset manager. I feel that we know the alternative asset management space very well. We are lucky to have a partner in Dyal that knows the space well also.
I think the combination of the two groups, and what Dyal has contributed to the holding company, to Navigator Global is really transformative and will continue to help the company grow going forward. We continue to work on a number of opportunities that we're very excited about. We think the deal flow that we will continue to work with and access through Dyal is very unique, as Dyal is the largest buyer of these stakes in the world. We're very happy to have closed the transaction here in the first part of 2021.
Really two drivers that we have going forward here, and I'm going to allow each of my colleagues to speak in more detail about how we're structured right now, go through the financials for the first six months of this fiscal year, talk a little bit about our client and marketing effort at the Lighthouse level, and then I'll close with some comments. A lot to go through this evening, but I'm very happy with the results we've generated so far. Very optimistic about what we're doing going forward. With that, I'm going to turn it over to Ross Zachary to start on page four here and just discuss the group structure, how we're structured now just to make sure there's a clear understanding of the various components of our business. With that, Ross, I'll turn it over to you.
Great. Thanks, Sean. Good morning, everyone, and thank you for taking time to participate on the call. As Sean mentioned, slide four provides an overview of our current group structure. We operate as a holding company that's focused on partnering with, operating, and investing in leading investment managers globally. Our expertise lies within the alternative asset management sector, and we do expect this will remain where we're focused going forward. We see a lot of opportunity in what is a large dynamic and growing area of the industry. The group today is well-diversified and populated by well-established and prudent businesses. We currently have over $20 billion of AUM on the platform. This figure includes Lighthouse's assets as well as the AUM of the acquired portfolio on an ownership-adjusted basis.
Although we believe this is the right way to represent the earnings power of our group, this AUM figure does not fully capture the scale of the firms in which we are invested. The businesses within the group are well-established, with an average of 23 years in business. In fact, the newest boutique on the platform was founded 16 years ago. We operate or have exposure to 30 highly specialized and distinct investment strategies, which are offered through 131 products globally to a wide variety of clients. The businesses operate across the world in nine countries. Most importantly, we feel that there is a strong alignment of interest across the platform between the respective management teams, investment teams, their clients, and Navigator shareholders. A proper alignment of interest results in strong results for clients, therefore positioning businesses to increase their enterprise value over time.
This will remain a key focus for us, we expect to work with current and future partners to ensure this alignment remains as each business naturally evolves over time. On slide five, I can walk through a brief update of some of our key drivers of the business. I'd say, as Sean highlighted, the transaction with Dyal closed on February 1st. The financial results won't hit until next reporting period, the June quarter results, we will highlight some of the expected impact later on in the presentation. As we stated at the announcement, the deal is accretive on a cash earnings basis, we are excited about this partnership with Dyal. Sean also highlighted we saw strong investment returns across all portfolios, particularly in December, in the fourth quarter of 2020. During this period, the long-short equity parts of our portfolio, particularly Lighthouse, performed well.
We are happy to say, again, as Sean highlighted, I'm sure we'll guarantee further, all portfolios have performed well in the recent market volatility. Just want to hit again on the scale and diversification of our business. Fundamentally, we believe that well-established and scaled platforms are best positioned for long-term success. This doesn't always mean multiple billions of AUM, but it does generally mean a properly and well-resourced business for a particular focus or strategy, and we seek to look for new partners going forward that share this characteristic of the current platform. We ended the year 2020 at Lighthouse with $13.2 billion of AUM, and the acquired portfolio ended the year with an estimated AUM of $38.2 billion on a non-ownership adjusted basis, which really shows the scale and breadth of that portfolio. We remain focused on new opportunities.
As Sean highlighted, there is a strong pipeline of what we see as unique and exciting opportunities under consideration. There can be no assurance that any of these discussions are executed upon, but we remain focused on finding new accretive growth opportunities for the platform. We will be highly selective, targeting additional transactions that have substantial growth prospects and that will be earnings accretive and bring diversification to the group. Amber, with that, I'll turn it over to you to dig into the financial results.
Thanks, Ross. Firstly, I'm just going to touch on a couple of key numbers. As Ross and Sean had mentioned, at 31 December, our assets under management, which represented Lighthouse assets, obviously at that date, was $13.2 billion. That's up 12% from June, and that good result is a result of a particularly strong December quarter performance, which was very pleasing. Management fees have come in at $37.7 million for the half and performance fees at $9.8 million. That $9.8 million is one of the largest quantums of performance fees that we've earned in quite some time. All of this has given us an underlying EBITDA of $15.1 million for the six months, and the directors have determined a dividend of $0.035 for the period.
The next slide just takes us through the statutory interim results, setting out our revenue expenses and coming down to our statutory EBIT and net profit. I'm not going to spend a lot of time on this particular slide just because we go into detail on all of those elements in the following slides. I'll just move to the next one. This slide is just setting out how we arrive at our underlying EBITDA number. Our statutory EBITDA number came in at $15.5, and we make a couple of adjustments. We just wanted to be clear on how we arrive at that $15.1. In order to get there, we actually add back the cash lease payments that we've actually made for the six-month period of just under $1.4 million.
These are the expenses that relate to payment of office rent, which before the new lease standard came in on 1 July 2019, just sat in operating expenses, but now sit outside of EBITDA due to the accounting standard. We continue to do this just for historical comparability. I know that there is some difference on how these are looked at across companies in the market, but at least this way we're really clear about what that number actually represents. The other thing we've adjusted for is the transaction costs that have been expensed in relation to the portfolio acquisition for the six months to December. From there, I'll just take us through the revenue. Obviously the key revenue item is our management fees.
$37.7 million, it's down 19% on the prior comparative period, which was to December 2019, it's down 12% from the June, like six months to June management fee revenue of $40.9 million. This has been a combination of a reduction in the average AUM between the prior comparative periods, as well as a reduction in fee rates that we've experienced, particularly in this half. The fee rate change is really due to a shift in the composition of our assets under management. We've actually had net outflows coming from our commingled funds and net inflows have come into our platform services.
In Scott's part of the presentation, he'll take you through the AUM in a bit more detail and also how we look at that AUM across the various business services and how we'll look at it going forward. Our performance fee revenue was AUD 9.8 million for the period. As I said, an exceptionally strong half result, and that was due to some excellent performance, particularly for the December quarter. Our reimbursements from fund expenses is AUD 4.4 million. It's up from the prior comparative period. However, there's a directly offsetting expense, so that item actually has a nil impact on EBITDA. In terms of our other revenue, we had AUD 800,000 of revenue come from provision of office space and services. Again, this is a direct offset of expenses that we've incurred. We don't make a markup on providing those services.
In terms of our operating expenses, they came in at $38.4 million for the period, up 13% on the prior December half. Our key expense, as always, relates to employee expenses. It was up for $2.5 Million. The key driver of that was the fact that we have a higher bonus pool, directly linked to the higher performance fee revenue that we earned for the half. We made reference to that when we released our update on the 11th of January regarding the performance fees to indicate that the net impact on EBITDA would be $4.5 Million, as estimated. Offsetting that increase from the bonus pool is actually a reduction in average employees and hence a decrease in salary costs compared to the prior half.
Our professional consulting fees are up on a statutory basis, although I do note that that includes about $950,000 of those transaction expenses, which are non-recurring. If you exclude those, then our professional consulting fees came in at $3.2 million or down half a million. IT continues to be a key area of spend for us. We have kept developing a number of in-house and important risk and trading systems, and bedding those in comes with some additional costs. We are looking on a go-forward basis, some of those costs may be able to be allocated towards the funds. We don't expect a continued trend on that front in terms of IT. What we pay to third parties for distribution relationships, it's linked directly to our commingled fund AUM. As you'd expect, that's decreased as our commingled AUM has decreased over time.
In terms of our other expenses, they're actually down about 40%, down to $1.6. A key element of that is travel. As a global business, we actually, in normal circumstances, pre-pandemic, had a reasonable travel spend, but clearly that has been curtailed for the last almost 12 months or so. From there, I'll just move on to the balance sheet. Our balance sheet remains strong. We have $34 million of cash at 31 December, still strong cash-generating operations. Our investments are recognized at fair value, they've not moved materially. Obviously, we have investments in our Lighthouse funds, they have increased due to the good performance for the December quarter. Our trade and other receivables are in at $24.8.
There's an increase compared to 30 June, and most of that will relate to the higher performance fee earnings for the December quarter, as you would expect. Other than that, our intangibles remain the same. Having been through a much more positive six months than the period leading to June, we're happy that there's no indicators of impairment on any of those assets. We continue to use our deferred tax assets in the Lighthouse Group. We keep chipping away in terms of reducing our tax payable in relation to earnings from the U.S. Probably a really important one this time is our dividends. The directors have declared a $0.035 dividend for the period, and I'm sure that at first glance, it probably looks a little bit lower than perhaps would be expected. There's two key reasons for that.
One is that the dividend includes the shares that were issued and the shares via the convertible notes that were issued as part of the transaction. We're actually paying a dividend on the equivalent of 270 million shares rather than 162 we had previously. The other part of that is the performance fee revenue. The EBITDA uplift of approximately $4.5 million wasn't actually picked up until post 31 December when obviously the entities that generated those fees were closing their books. If we were able to pay our dividend out of consolidated accounting profits, it wouldn't be a problem. Unfortunately, under the law, we have to actually pay our dividends from the parent entity, and so we weren't able to actually move that revenue up and recognize it by that 31 December date.
We haven't been able to take that into account when determining the half year dividend. It will come into effect for the full year dividend, and we do expect that the full year dividend payout ratio of between 70%-80% will be met, which will mean a higher payout ratio for the final dividend. That's probably the key messages I wanted to get across for that one. What we wanted to do is just take a look at what the contribution from the acquired portfolio is likely to be for the remainder of the period to 30 June.
With the participation of the dividends or the Dyal issued shares in the dividend, one thing we were conscious of is wanting to ensure that while they're participating in profits earned by the existing group for those six months, that we would also let our shareholders participate in income earned on the portfolio in that proceeding period. Contractually, we agreed that our first profit-sharing period will actually run for 18 months through to 30 June, which means we get to actually take into account distributions received on that portfolio all the way from back that relate to calendar year 2020. The really good news for us is that we're not just looking at a pro rata share of the minimum distribution amount. It means that we apply that arrangement to 18 months' worth of earnings. Happy to say, we've actually hit the minimum distribution amount already.
As at closing, there was $15.8 million of distributions already received, and we're actually over that amount at this point as well. I'm not going to go through all of the detail. I guess what we really wanted to point out is that for this six months, there's a little bit of a disconnect between what we get to put through accounting versus what we actually pick up as cash. The accounting arrangements will be a little bit noisy, and we won't be able to recognize the full amount of that $17 million as income in our accounts. We do get the cash, and it will increase our NTA and our cash holdings for the group, which is a big positive.
That kind of disappears. For FY 2022, the accounting and the cash contribution align and become the same. I'm sure as you can appreciate.
Yeah
it's been a pretty complicated transaction, and it's certainly given me a lot to have to learn in relation to accounting for something that's probably a little bit outside the norm in terms of arrangements.
Yeah.
Amber, I was going to add on slide 14, I think that was very well said. I think the two main takeaways are that, we always knew that fiscal 2021 was going to be noisy. I think the good thing, as you mentioned and you highlighted, is we've exceeded the preferred minimum annual already for this period, and that'll be the first earn-out period. The five years will continue, and fiscal 2022 will be kind of a clean year where we can report the cash distributions off this portfolio on a go-forward basis.
I think it's fair to say that whilst the Dyal shareholders are participating in the dividends, our shareholders are more than making up for that with that fuller period and the full minimum distribution for this period as well. Just in terms of guidance then, we thought it was important to just update our guidance on the back of the performance fees and also what we think the contribution will be from the Dyal portfolio. We're expecting an underlying EBITDA for FY 2021 of between $28 million and $31 million. Just in terms of providing a little bit of a ladder back to where our statutory EBITDA will come out, that excludes about $5.5 million of transaction costs to be expensed.
Also puts in the $3 million cash as an extra expense to bring us back to where we would expect to report our statutory EBITDA for the 12 months. Within that number, we're picking up, from an accounting perspective, $2 million-$3 million of portfolio acquisition income. The cash benefit to us will be much higher than that as we stepped through on the previous slide. With that actually brings us to the part of the presentation about Lighthouse, I will hand it over to Scott Perkins.
Thanks, Amber. Skip to slide 18. As you've heard, we ended the calendar year at $13.2 billion, which is up 12% from June 30 of 2020. If you look at the table below, the movements for the six months to 31 December 2020, you'll see commingled funds are slightly down, with much of the outflows being offset by the strong performance as discussed in the fourth quarter of the calendar year, with much of the outflows coming from the commingled multi-strategy complex. Customized solutions increased as we had inflows, primarily coming from some Middle Eastern clients. Platform service increased as well as we closed on three new relationships during the first six months of the fiscal year.
As mentioned in prior calls, these platform clients tend to take some time to ramp up, and can take up to two years to fully mature, depending on the overall size of the client and their ALTS program. Moving now on to slide 19, it shows a breakdown of AUM. If you look at the services chart, a couple of things. One is you'll see that the AUM is now roughly split equally across commingled, custom, and platform, which has been a function of the continued growth of both the custom and platform buckets over time. On the commingled AUM breakdown, compared to, say, June of 2020, you'll see a flip from the multi-strategy complex, which was actually slightly bigger then, the equity-based strategies, to now the equity-based strategies representing 57% of the total assets under management.
This was expected, given the strong performance in the equity complex relative to the multi-strat. A good proxy for this dynamic can be seen on slide 20 in the one-year performance column for the diversified and the global long short funds. Moving on to the investor geography. You will see a slight pickup in % compared to last June, particularly in the Americas. That is really solely a function of the new platform clients coming on board. The forward pipeline of opportunities that we have and that the team is working on, I believe it may be the most geographically diverse pipeline we've ever had at the firm. With about 40% of it coming from the Americas and 30% coming from both Europe and Asia.
Which is exciting to see the resources and the effort we put in globally for business development start to really feed through the pipeline. With that, I'll turn it back over to Sean for some final comments.
Yeah, just a few final thoughts before we open it up for Q&A. With the closure of the Dyal transaction, obviously this transforms Navigator Global and the holding company into really holding seven different businesses, all of which are performing well right now. I think that the trade-off, obviously, in this particular six-month period was the dividend. Sharing that with Dyal and with the increased base. As Amber mentioned, and Ross highlighted, we will more than make up for that, and really already have so far at this point. The company's transformation, I think, is significant. The Dyal transaction, just receiving that first $17 million of profits off of those companies is quite significant. The stability that provides to the holding company, I think, is very significant as well. We're very happy that this is done.
We're very happy to have Dyal as a partner and a significant shareholder in this business. I think that was definitely the first transformation for the six-month period. The second thing is obviously the performance of the fund has rebounded. The equity portion of our funds last year did extremely well. Again, continues to do very well this year. The multi-strategy funds had an excellent first fiscal half of this year. I think when we look at the more difficult months of October and January so far moving through the whole fiscal year, the multi-strategy funds produced profits in both those down months for equity markets and other types of investments. Those portfolios have been revamped substantially. Again, with some of the assets that flowed out, we have again picked up the concentration in what we have the highest conviction of.
We made significant changes to the portfolio back in the April time period. Those turned out to be good decisions as well. As Scott mentioned, right now the pipeline across all areas of the firm, whether it's equities or multi-strat or the platform business, is very diverse. I would say towards the end of the calendar year, the conversations with clients started to pick up related to hedge fund exposures. I think some of that is really being driven by two reasons. One, equities rallied quite strongly last year to the extent that clients were at full allocations. Those allocations grew. They need to reallocate those assets. I think the second point is that global interest rates from government bonds are really flat to negative in some parts of the world. That is not necessarily a place where these assets can be reallocated.
I think we're in a very interesting stance like after the global financial crisis. I think that which led to much lower volatility or at least a normal volatility regime, which is very good for the trading activity that we engage in. If we see a more normalized level of volatility, more winners and losers in terms of specific companies or securities, that certainly benefits the business. I think also the investments that we have made in the various offices around the globe, we've had very good results out of Asia. We've had very good results out of Europe, out of the U.S. as well. I feel like we're well covered from an investment standpoint, which certainly our clients expect on a global basis. As Scott mentioned, the pipeline that we have is also reflective that we have global distribution.
In addition to that, we also have resources that can be brought to bear from Dyal's business services team. As we continue to integrate with that team as well, that opens up other opportunities for us to connect to clients that we haven't been able to reach previously. Also as we acquire interests in other firms, those services will also be available for them. We're quite optimistic that we can continue to grow the holding company through both acquisition and through organic growth. Again, are pleased with the results that we generated this quarter. Or excuse me, for this six-month period. With that, we will stop there, and open it up for any questions or comments.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. The first question comes from Tim Lawson of Macquarie. Please go ahead.
Hi. Thanks for taking my questions. Just in terms of you covering a little bit pipeline, can you also talk about just where you're at on some redemptions around Australia that have had some difficulty?
Yeah. I'll start this off.
Go ahead, Scott. Yeah, I'll add in. Okay.
I was just going to say, it's interesting on a forward-looking basis, particularly in the multi-strat side, but across the firm, I think from here looking out 6 months to 9 months, the redemption activity seems fairly light. What do I think has gone on there? I think that there were investors that were probably on the fence that pulled forward their redemption activity into the last six months of 2020. Particularly some of the investors in the multi-strategy complex that were disappointed with March performance. I think some of those folks got out at the end of the third quarter and at the end of the year. Again, it was nice to have strong performance and end of year in positive territory and those portfolios for those clients.
Again, I think a lot of it got pulled forward and we've really seen the total redemption activities to be lower than what I would consider normal.
Okay. That's great. Just in terms of the guidance and just what you've included, so any performance fee assumptions, if any?
We've actually just assumed the usual relatively small amount of performance fees. Not a large component of that for the second half. Generally, performance fees are much larger for December because most of our funds crystallize then. Potentially upside, but only a fairly nominal amount in the second half.
Okay. Just on the new investment with the fund, I think from memory it decreased since the announcement. Just how that flows through from your cash point of view, if they have particularly strong fund performance flowing through into profitability, just how that flows through into Navigator.
From the investments in the portfolio of managers.
Yeah, Dyal. Yep.
Yeah. From that portfolio, we only recognize into our income as and we receive distributions from those managers, be it coming from their management or performance fees. We're not equity accounting those managers. We aren't picking up shares of management or performance fees from that point of view and putting them into our numbers. We're treating them like they're a dividend. If they declare it and pay it, that's when we recognize it. The one thing we really like about that is that means the cash is in the bank, and we can add it to our dividend to our shareholders, and you don't get some noise about whether or not those performance fees might crystallize for those managers in the future.
In that underlying guidance you've given, the transaction closed on the first of February. How much Dyal contribution is in that underlying EBITDA if you're talking about recognizing it on a declared or paid basis?
Just, I'll go back to that slide. From a six months to 30 June, I've only looked at having $2 million-$3 million of EBITDA, from an accounting perspective in that $28 million-$31 million guidance. Mainly because a lot of the money that relates to that has actually already been banked. It was there before we even closed. There was actually $15.8 million of distributions already received at closing. As at today, that's actually at $21.1 million. Sorry, let me look at the right slide. Most of that's already been banked. Then anything we get after that is actually going to be revenue for us.
The problem is that if it's been received pre-closing from an accounting perspective, it's sort of considered to be pre-acquisition profits and just has to come onto our books as cash rather than through the P&L. That's why this six months is a bit noisy, and we really wanted to differentiate between that cash versus the accounting. From a cash perspective, we've already got $15.8 million receivable, but we've given some scenario analysis on that slide 14 just to show that for this year, the two to three is very achievable that we've put into our guidance.
You talked about sort of $4.5 billion drop through from the performance fee. As you finalize that performance fee number, is that the rate it did drop through into the DA8?
Yes. As you've seen in our annual report, our remuneration policy sets out that we set aside from performance fee revenue into the bonus pool, 50% of that. We had estimated a relatively, originally a pretty small amount of performance fees for the first six months, and have to say that we were pleasantly surprised given how strong the December performance itself actually was. That's why there was such a big impact compared to the previous guidance that we had given.
Thank you.
Yeah. Amber, it's Ross. If I could just touch on one thing Tim said at the outset. The AUM of the portfolio, where it pleases up meaningfully since announcement adjusted basis, it was around $35 billion at announcement up to $38. Despite market events in March, it was a strong year for performance across the portfolio. We can walk through that in more detail at another time as well.
Thank you.
Once again, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. The next question comes from Phil Chippendale of Ord Minnett. Please go ahead.
Hi, good morning, guys. Just a question, sorry, follow-on from Sean's comment earlier about the Dyal Business Services team. It potentially offers opportunities to connect with some of their clients and to increase offerings. Just wondering if you can unpack that a little bit more about what exactly you're talking about there. What is it that you can potentially do with either their clients or your existing clients?
They have a business services team that is made up of both distribution specialists, consultants, effectively, that work with asset management firms on best practices and compensation best practices and IT security, all of those sorts of things. Their distribution team, and given the breadth of the portfolio companies that they have, which are over 40, as you can imagine, they have very strong insights into the allocation trends of some of the largest investors in the world. Having access to that information, which groups are allocating, which regions are active, what products we're interested in, all of those things, and that information is collected on a very systematic basis. Now that we are part of the ecosystem, we are able to access that information and their people as well within the business services group and have conversations with them, get introductions where necessary.
They've spent a lot of time building out that group. They will continue to make more investments in that group as well. I think that just augments what we're doing already and what Scott has highlighted. I wouldn't say that has kicked in massively at this point as we just closed the transaction February 1st. Certainly there's already conversations going. We've had conversations prior to the closing, and I think over this next 12 months, we'll start to yield some results.
Okay, thanks. Just turning to the economics of Dyal. I think the number was $15.8 that had been realized at the time of closing. If I understand correctly, that's for the 13 months period. Is that right?
Yes. It's any distributions that related to calendar year 2020. Yes.
Okay, understand. Obviously $17 million on a 12-monthly basis is what you get access to from 100% standpoint. Can we just get a bit of a comment about the $15.8 versus the $17, obviously a COVID year, et cetera, is that really just to maybe explain that level there? Obviously you've got a fair bit of confidence going into the 30 June number. Can you maybe just unpack the reasons for that confidence?
I'm happy to take it, and maybe Ross can then comment. The $15.8 was the cash that was there. Actually between then and the 18th, we're actually at $21.1. There's been more distributions received even post-close. The remaining five months, we expect that there will be additional distributions. Keep in mind that they relate to calendar year 2020, and there's some time between the managers actually earning those distributions and then paying them to us as we would recognize them on a cash basis. I think maybe, Ross, you might want to talk a little bit, perhaps about how those managers fared through the calendar year 2020 and some of the offsetting performance among the managers from a diversification point of view.
Yeah. No, I'm happy to. Phil, one thing I would say about the $15.8, even though that's, I call it 12-13 month period, I wouldn't think of it as a full year number for distributions related to 2020 earnings because there is a meaningful performance fee component to these. Similar to the performance fee assets that are within the Lighthouse business, those earnings generally crystallize 12/31. If you think about us as a equity or equity-like owner of these businesses, our distributions will come, generally speaking, after they're crystallized. There's a bit of a lag there. As you can see on slide 14, the $15.8 million that was at closing, February 1, is already up to $21.1 over the following two weeks.
Some of that was management fee-related earnings, some of that was performance fee, and they're kind of managed one and the same. That'll give you a little bit of a sense of why we're confident that for the first earn-out period, which runs through June 30, we feel like it's a good kind of representative year of what we were thinking about. As the sensitivity analysis shows, kind of the range of outcomes there. From a performance perspective, I think the year 2020 certainly was another year where we were able to watch the diversification benefits of this portfolio. Each of the six managers operates in a very different strategy. There was a wide dispersion of returns. Overall, each of them rebounded and/or performed well through the end of the year.
Each of those businesses, we remain really impressed with the management teams and how they manage those in a professional basis. Are also investing for growth and trying to open new innovative strategies to capitalize on a lot of the opportunity set, which, as Sean mentioned, we see the managers that Lighthouse allocates to as well, capitalizing on going forward. I feel like when we look back on 2020, we were encouraged by what we saw within the portfolio.
Okay, thanks. Last one from me is just you've sort of made it reasonably clear about the cash versus accounting point we'll rectify in FY 2022, but just trying to think about the cost going forward. On that slide 14, you reference $1 million of incremental expenses for the balance of FY 2021. Should we sort of pro rata that for FY 2022? Is that effectively $1 million for five months and therefore it's a bit over $2 million we should sort of expect for FY 2022? How should we think about that?
The $1 million is probably maybe a little bit on the heavy side because I like to be a bit conservative. Keep in mind, this is our first year, and so we've got quite a bit of compliance in terms of especially U.S. tax compliance, getting all of these new entities into place within the group. I think it might be a little bit top-heavier, I guess, in these first few months as we go forward. You may recall that we have always estimated back in the EM like a $1 million-$2 million incremental cost. I imagine that as it settles over time, it'll fall within that band.
Okay, thanks. That's all from me.
The next question comes from Mark Hancock of Precept Investment Actuaries. Please go ahead.
Hi, can you hear me, Amber?
Yes, I can hear you, Mark.
Yeah. Okay. Just first question, just to clarify the guidance for FY21, $28 million-$31 million. That includes $2 million-$3 million from the acquisition. It implied $26 million-$28 million, excluding the acquisition, versus $15 million first half. You're guiding to a reduction of $2 million-$4 million.
Yeah. keep in mind-
Assuming that's largely-
$4.5 million of EBITDA coming from those performance fees.
Yeah.
That kind of accounts for most of the difference. Yeah.
That would be offset by an uplift in some average FUM during the second half that you've enjoyed to date.
Yeah. Definitely. Yeah. We're starting from a higher point, but we're also quite conscious that we've seen some of those shifts amongst the categories of service have brought the average fee rate down a bit.
Yeah. Right.
taking those into-
That knocks out part of that.
account, I'd expect that Things change, unfortunately. This is a pretty dynamic business as well. That guidance is really probably looking for a similar level of management fee income in the second half compared to what we got in the first, for management fee income, just taking into account the impacts of that drop in the fee rate.
Wouldn't that have already been reflected in the first half, that average fee rate?
Partially it has. That's sort of where it's being driven. Keep in mind, it depends across the period and how those actually shake out as well.
Right. Just on the costs, the wages costs were up more than I expected, notwithstanding a reduction in staff numbers and the bonus. Just getting the figure. That it was up roughly $2.5 million in employee costs. I guess that would mainly be the bonus, and that's more than offset the reduction in average employee count.
Yes. If you're looking at that sort of ballpark AUD four and a half million, that's really, essentially the equivalent of the bonus increase as well.
Yeah
turning that to two and a half, you've got a reduction of other staff costs of $2 million.
Yeah. Okay. Just going back to the acquisition and the whole accounting for it's very confusing.
Yeah, I know. It is very confusing. I agree.
Are you basically saying after this year washes out in FY 2022, we go back to reflecting cash distributions into profit?
Because we're carrying these as fair value through OCI, which means these investments are just carried at fair value. We don't put any change in the carrying value of those assets through P&L. That's going to go through other comprehensive income. The income going forward will be whatever we receive in cash as distributions, and so they will actually marry up.
Yeah. EBITDA will reflect it for FY 2022?
Yes.
The cash amount.
If we get the minimum distribution amount in FY 2022, that's the $17 million of cash and $17 million of distribution income. That will tie. Obviously anything above that from a profit-sharing perspective.
Okay. I'm a little bit confused in regard to I'm trying to find the slide. The actual cash position at December, did that reflect the $15 million?
No.
I'm looking at your-
No
cash of $34.1 million.
That does not reflect the $15.8 million because that only comes into the group when we actually completed the transaction on 34th of August.
Okay. It's sort of a technicality. It's not Yeah. On a pro forma basis, it would've been there.
Uh-
You would've had cash of $50 million.
Yeah.
$49 million.
If that arrangement is in place earlier, then yes, that cash would've been coming to us as opposed to sort of being acquired when we close the transaction and bring those entities into the group from a consolidation basis.
Going back to the time of the acquisition, there was an indication that the acquisition of Dyal would be EPS accretive to NGI. Can you sort of discuss where you sit with that now?
Yeah.
Is that still the case, or how do you explain it?
I think from FY22, it's going to be a lot clearer because obviously you're going to see that come through as the minimum distribution amount hitting the full amount of profit going forward. We don't get the luxury, I guess, of considering this purely on a cash basis for this six months. There is a difference between the accounting and the cash, where the cash sits there. There's definitely accretion to the shareholders from the transaction, but you'll get it through the EPS accretion in FY22.
Yeah. You still believe that the acquisition will be accretive in FY 2022?
Yeah. Keep in mind, accretion also gets impacted by how profitable the rest of the business is as well.
Yeah
Lighthouse's performance fees have increased that.
That was an exceptionally good six months and not necessarily-
Yeah
going to be fixed going forward. If we look at more the core of the business and the management fees and the earning power on that, then definitely yes, this is accretive from that perspective.
Okay. I don't know, I don't want to use up more time if there's more people asking questions, but just in respect to the dividend, you've said it's a low payout ratio this time, but I get the impression you're talking about making up for it in the second half with a disproportionate second half div?
Well, yeah. What we'll look at when we're setting the final dividend is the full year profit, and that 70%-80% ratio-
Yeah
and paying out on that. Just from a math perspective, that means that the payout ratio just for the second six months will have to be higher to make up for the slightly lower one in the first six months. Overall, on a full year basis, we're looking at meeting the 70%-80% payout ratio.
That's good. Okay. That's clearer. I just got a question for Scott Perkins. I don't quite understand how the funds have actually done quite so extraordinarily well, given the largely hedged nature of them. In the December quarter, you did about 5% or more in December month, but you did about 10% in the December quarter, which was almost equal to or better than ordinary equities. Can you just talk us through that a little bit?
Yeah. Sean, feel free to chime in as well, Sean, but when we break down how the returns were generated, and we look at this on a day by day, month by month process in terms of how we're generating the returns in the funds. While in many of the portfolios, and particularly in the equity portfolios, given that the markets had run so much, we did probably pick up a little more beta than historically was the case. Alpha generation was still very strong. Those are the things that we're looking at, that the hedged component of it still worked, but the markets ran, as you suggested, fairly strong. We did pick up more beta exposure than maybe we would have in the past.
I would suggest that the portfolios performed as we would've expected, particularly given also the increase in volatility that we've seen in the markets.
The 3% loss in January in the long-short fund, can you just talk us through that?
Yeah. That was, you'd have seen it in the news around some of the GameStop dynamics, the short squeeze that went on there. We didn't have really much exposure to GameStop or to some of those names that got squeezed or to the hedge funds that got punished the most in that dynamic. It triggered a bit of a risk reduction across the industry. We saw even some of our, not just our long-short managers, but our market neutral managers start to cut some of their exposure on the heels of that. That was probably a three-day period, and then it started to revert back to normal for us, but it happened right there at the end of the month. That's what you're seeing reflected in the January performance.
Historically, when you see those types of events occur, this risk reduction based on some sort of triggering event, these things can persist for a couple of days weeks. This one was fairly short-lived and fairly finite in terms of what the impact was, and largely we ducked it and then, we saw the portfolios earn all of that back in the early part of February.
Okay. No, that's excellent. Thanks, Scott, much appreciated.
Thanks, Amber.
Yep.
There are no further questions at this time. I'll now hand back to Mr. McGould for closing remarks.
Amber and Ross touched on, some of the accounting for this fiscal year is a little bit tricky. Hopefully we were able to highlight the cash that we were receiving, which will not be recorded on the revenue side, as well as just what we expect for the remainder of this fiscal year as far as the statutory earnings, which will be a little bit different than the cash. Obviously, what we care about the most is cash flow from a shareholder perspective. The accounting will work out on this over time. We appreciate if there's any questions related to that, please feel free to reach out to Amber, myself, Ross or Scott for further clarification on that, because this is an unusual transaction in how we set it up.
We think we set it up for the best of all shareholders and including Dyal as a new shareholder. We are very optimistic about our partnership here with Dyal and going forward. Again, appreciate everyone listening in today. Please feel to reach out with any questions or comments. Thank you very much for your time.
That does conclude our conference for today. Thank you for participating, and you may now disconnect.