Head of NGI Strategic Investments, and Amber Stoney, NGI's Group CFO. Let's begin on slide four of the presentation, where you can see that Navigator is the only ASX company focused exclusively on partnering with leading alternative asset managers. 100% of Navigator's revenues are attributable to alternatives. We provide growth, capital, and strategic engagement to a diverse portfolio of 11 partner firms. As at 31 December, the partner firm level, Navigator's affiliates manage over $79 billion, which is up 5% during the half in US dollars and 12% in Australian dollars. This is managed across 43 investment strategies, invested via 205 products, with these strategies typically having low correlation to global equity and fixed income markets and to one another. Turning to Navigator's first half financial highlights on slide 5.
We're really pleased with the first half performance, with NGI's ownership-adjusted AUM increasing 3% during the period, $27.1 billion, representing an 11% increase in local currency. That drove NGI's first half revenue up 28% to $92.3 million, with the group's adjusted EBITDA for the first half being $41.4 million, a 16% increase from the prior comparative period. The key driver for improved revenue and EBITDA was the Lighthouse business, driven by a robust 2024 investment performance across their strategies and the resulting material increase in performance fees. The NGI Strategic business continues to be a key driver of sustainable growth. At an aggregate level, our partner firms have continued to deliver AUM growth, both through net inflows and strong risk-adjusted performance.
Based on how the businesses have performed, we expect that full-year earnings will be higher than FY 2024, subject to market conditions and the timing of revenue receipts. On Slide 6, you can see our AUM growth and key drivers. During calendar year 2024, we saw a 4% increase or approximately an addition of $1 billion in our ownership-adjusted AUM. Most of that organic growth occurred during the last 6 months and reflects an 8% CAGR over the past 3 years. Given the strong 2024 investment performance, the recent and prospective new product launches across our portfolio, the strong positive sentiment from capital allocators, and a generally improving fundraising environment across the industry, we expect higher net inflows across NGI's investment firms in 2025.
In particular, Lighthouse continues to innovate, launching new strategies and key partnerships, which should add scale and diversification to its business over the medium term. Lighthouse has a long track record of return generation and product innovation for their clients, with industry tailwinds as we enter 2025. To slide seven, alternative managers have a strong alignment of interest to the economic performance of their strategies and the returns they generate for their investors. Thank you, Rocco, and welcome to everyone joining the call this morning to discuss Navigator's first half results for the 2025 financial year. I'm Stephen Darke, Navigator's CEO. I'm joined today by my colleagues, Ross Zachary, CIO and Head of NGI Strategic Investments, and Amber Stoney, NGI's Group CFO.
Let's begin on slide 4 of the presentation, where you can see that Navigator is the only ASX company focused exclusively on partnering with leading alternative asset managers. 100% of Navigator's revenues are attributable to alternatives. We provide growth, capital, and strategic engagement to a diverse portfolio of 11 partner firms. As at 31 December, the partner firm level, Navigator's affiliates manage over $79 billion, which is up 5% during the half in US dollars and 12% in Australian dollars. This is managed across 43 investment strategies, invested via 205 products, with these strategies typically having low correlation to global equity and fixed income markets and to one another. Turning to Navigator's first half financial highlights on slide 5.
We're really pleased with the first half performance, with NGI's ownership-adjusted AUM increasing 3% during the period, $27.1 billion, representing an 11% increase in local currency. That drove NGI's first half revenue up 28% to $92.3 million, with the group's adjusted EBITDA for the first half being $41.4 million, a 16% increase from the prior comparative period. The key driver for improved revenue and EBITDA was the Lighthouse business, driven by a robust 2024 investment performance across their strategies and the resulting material increase in performance fees. The NGI Strategic business continues to be a key driver of sustainable growth. At an aggregate level, our partner firms have contributed - have continued to deliver AUM growth, both through net inflows and strong risk-adjusted performance.
Based on how the businesses have performed, we expect that full-year earnings will be higher than FY 2024, subject to market conditions and the timing of revenue receipts. On slide 6, you can see our AUM growth and key drivers. During calendar year 2024, we saw a 4% increase or approximately an addition of $1 billion in our ownership adjusted AUM. Most of that organic growth occurred during the last 6 months and reflects an 8% CAGR over the past 3 years. Given the strong 2024 investment performance, the recent and prospective new product launches across our portfolio, the strong positive sentiment from capital allocators and a generally improving fundraising environment across the industry, we expect higher net inflows across NGI's investment firms in 2025.
In particular, Lighthouse continues to innovate, launching new strategies and key partnerships, which should add scale and diversification to its business over the medium term. Lighthouse has a long track record of return generation and product innovation for their clients, with industry tailwinds as we enter 2025. To slide seven, alternative managers have a strong alignment of interest to the economic performance of their strategies and the returns they generate for their investors. Here we show Navigator's revenue composition, looking through to our share of the underlying revenues of our partner firms, including Lighthouse. Our managers have shown consistent growth in management fee revenues and a track record of generating performance fees across market cycles. 2024 saw a 30% increase in underlying revenues from the prior year, with a record level of both underlying management and performance fees revenues generated.
NGI has grown underlying revenues at a 10% compound annual growth rate over the last 3 years, with management fees being, on average, 60% of that 66% of that total revenue stream and growing steadily in line with AUM growth. Over that same period, and longer, Navigator has generated resilient underlying performance fee revenues, as evidenced by the blue bars. 2024 further showed the stability of this cash flow stream with yet another strong year. Importantly, Navigator is not seeing fee compression on the average management fee or performance fee rates, as investors are prepared to pay managers who can truly generate higher net returns across market cycles. Looking at the composition of revenues in some more detail on slide 8.
Over the past three years, Navigator has seen underlying management fee revenues increase at a CAGR of 10%, broadly in line with both increased AUM and overall revenues, with most of that growth coming from the NGI Strategic portfolio flows and strong investment performance across the firms, especially in this last calendar year. It's pleasing to see the continued step up by Lighthouse in terms of management fee revenues over the past three years, that trajectory is expected to continue. It's important to note that this growth has been exhibited in an environment of muted global flows to hedge funds and reflects the quality and scale of the Lighthouse business. The average total performance, underlying performance fee revenue to Navigator over the past three years has been $94 million.
We've included in this presentation a three-year rolling average of the underlying performance fees generated across the portfolio to show the relative stability and growth of that revenue stream. In calendar year 2024, the investment performance across both Lighthouse and NGI Strategic was strong. We note that it continues with a positive start in January, February to date, although we recognize it's early in the year. This is despite, or perhaps due to, the volatility and market risks facing investment strategies over the past 12 months. It continues the successful long-term track record of our partner firms. There was a significant step up by Lighthouse in its contribution to performance fee revenues, generating $37 million for the year, of which $31.7 million crystallized in this half.
We also saw yet another consistent performance fee contribution from the NGI Strategic portfolio, generating underlying revenues of $88 million throughout calendar year. A strong result, no doubt, but broadly in line with the three-year average performance fee revenue from that portfolio. There is an ongoing expectation that this trend continues and that the range of overall performance fee revenue should be received every year, providing a resilient source of income for Navigator and its shareholders. Turning to slide 9, you can see the earnings power of the Navigator portfolio. We are very pleased with the ongoing consistent investment, performance, management, and earnings generation by our partner firms. They continue to be some of the leading alternative asset managers globally in their respective areas of specialty.
This is increasingly evident following, 1, the acquisition of the additional distributions from the NGI Strategic portfolio from Blue Owl that closed early in 2024, providing the material step up last year. 2, the incremental impact from the private market investments that Navigator made in 2022. Most importantly, the ongoing growth and performance of our portfolio. This year, Navigator saw a 16% increase in adjusted EBITDA, driven by an increased contribution from the Lighthouse business to $26.4 million, up 74% on the prior corresponding period. During the half, NGI Strategic Investments contributed $14.7 million to NGI's adjusted EBITDA. This lower contribution was simply a function of the timing of distributions, with the portfolio delivering strong investment and business performance during 2024.
As many of you know, we only book revenues from NGI Strategic when we receive the cash dividends from our underlying partner firms. A significant proportion of distributions are received in the second half of the financial year, following the settling of respective compensation decisions at the manager level, post 31 December. We again expect a majority of distributions in the second half 2025. Since this 31 December reporting date, Navigator has received over $10 million of additional distributions that are not included in these numbers. Now I'll hand over to Ross to provide an update on the NGI business.
Thank you, Stephen. I will start the update on slide 11, which provides a high-level overview of the underlying alternative investment firms, which drive NGI's business. As Stephen mentioned, a key differentiator and what we find so compelling is that Lighthouse and each of our partner firms are scaled and institutional businesses, time-tested and proven through prior market cycles. In addition, Navigator and our partner firms have an additional edge, accessing the unmatched insights and strategic advice of our strategic shareholder, Blue Owl. In today's market, larger, proven firms like those you see here on this slide, are best positioned to attract and retain client assets and generate strong investment results. Please flip to slide 12, and we can review the composition of this business. We are proud of the breadth and diversification of NGI today, which is clear on slide 12.
If there is one thing to take away from this update, it is that today, NGI is a highly diverse business with earnings derived from an extremely broad set of independent drivers. This diversification benefit is a key advantage of NGI as we look to grow our business and deliver shareholder value over time. If you turn to slide 13, you'll see a summary of the key drivers of AUM growth during the first half of this year. NGI Strategic, as a segment, has returned to positive organic growth in the first half of fiscal 25, and Lighthouse continues to increase overall AUM, now at all-time peak levels, primarily by delivering exceptional investment performance.
With $11 billion of ownership adjusted AUM in the NGI Strategic segment, we benefit from a broad set of growth drivers through a wide variety of open-end, private equity style closed-end fund products, and permanent capital vehicles throughout the business. We remain incredibly impressed by the new product and capabilities that these firms are constantly bringing to the market. 30% of this AUM in NGI Strategic is now in long-duration products with highly visible revenues. We expect this will increase over time. Lighthouse is a scaled and diverse business in its own right. It continues to demonstrate their long-term track record of innovation by creating and offering new hedge fund products, which leverage the breadth of their platform to meet today's client demand. We are excited about these initiatives and the potential to drive substantial growth in the years to come.
With all these independent growth opportunities offered to various client channels globally, investment performance is often a key indicator and a driver of future demand. Please turn to slide 14, where we can provide an update on recent investment results. You'll see on slide 14 that Lighthouse and our partner firms in the NGI Strategic Portfolio have generated impressive investment results for their clients in 2024. Not only are the 2024 results exciting, but we believe the 3 and 5-year risk-adjusted returns and the current opportunity set to generate strong results in the years to come, position NGI for success going forward. Due to the nature of our portfolio and the absolute return strategies represented, we believe performance will continue to contribute to AUM growth on a consistent basis.
It is important to remember that the underlying returns here show very little correlation to one another. This is a unique and attractive trait of our company and positions NGI to grow AUM and revenues in a compounding manner going forward. If you turn to slide 15, we can focus on our growth strategy, where we continue to focus on adding high-performing firms that offer incremental diversification to grow the business. We remain intensely focused on identifying and capitalizing on additional growth opportunities and are proud of the results of the acquisitions we have made to date. These transactions scaled the company, diversified our earnings, and generate a high level of cash flow, which support our future investments. The left-hand side of slide 16 provides a high-level overview of our acquisition of the NGI Strategic Portfolio.
This transaction not only provided our shareholders access to market-leading franchises who have performed very well over the past 3 years, but it also brought Blue Owl on as an aligned and strategic shareholder. We are excited about the competitive positioning and outlook of these 6 exceptional partner firms. On the right side, we have summarized our investments into Marble and Invictus, our dedicated effort to partnering with established, growing, and differentiated private market alternative managers. These sizable transactions in 2022 presented an opportunity to diversify and strengthen our broader business, with the potential of improving our quality of earnings and growth profile over time. With over 70% AUM growth to date and another fundraising cycle kicking off just now, we are very optimistic about growing this exposure and the contribution to NGI in the years to come.
We believe that continuing to add similar high-quality partner firms with similarly exciting growth profiles of these private market specialists will benefit shareholders over time. Slide 16 lays out our broad investment criteria designed to identify such opportunities. The criteria in slide 16 is informed by our deep experience from investing in and operating alternative investment management firms. As part of this considered scale and diversification effort, we intend to increase exposure to areas of alternative asset management that are experiencing secular growth, such as private equity and other areas of private credit and the broad real asset sector. Our pipeline remains active, although highly competitive for high-quality partner firms, we are excited about the depth of the current pipeline and the prospects of building on our track record with one or more of the impressive firms we are currently spending time with.
If you turn to slide 18, you can see a snapshot of the broad opportunity set where we focus most of our efforts. On slide 17, you will see a summary of the universe of independent alternative management firms in the market today. We believe that established firms, generally with 1 billion to 10 billion of AUM, have a track record and team in place that not only position them for outsized growth in today's competitive landscape, but also have the institutional mindset to be good partners to us and have a true interest and a need for a strategic partnership. They also have a track record and a business plan that we can assess to develop a view on their outlook and determine if they are a strong fit for Navigator.
It is this size firm that has the clear need for capital and offers a very compelling risk return for NGI shareholders. This already broad opportunity set of over 1,700 companies continuously evolves, with smaller firms growing into it over time. With that said, there are only a select number of financial and strategic partners focused on this area of the market, and within that group, each offers varying types of partnerships and approaches. This places NGI well to compete in an environment that we see continuing into the future, where the need for GP capital and a long-term oriented strategic partner far exceeds the number of groups like Navigator, with the qualifications to be such a partner.
While we remain prudent and patient, we are confident that our continued focus on executing our already proven growth strategy will be successful over time. Amber, over to you.
Thanks, Ross. I'll start with slide 19. As Stephen outlined earlier, this first half of the 2025 financial year has started strong at $41.1 million of adjusted EBITDA. The key theme for this half is that a period of prolonged positive investment performance across our partner firms, particularly over calendar year 2024, has delivered a first-half result that demonstrates the earnings potential of a diversified business that has been built over the past few years. Of the 28% growth in revenue, half on half, the highlight is a strong performance fee revenue of $31.7 million delivered by Lighthouse. This performance fee revenue is up $25.4 million on the prior comparative period. Turning to slide 20, this demonstrates that not only did adjusted EBITDA increase, but statutory EBITDA and NPAT showed even stronger growth.
Whilst the prior period result was impacted by the accounting for the settlement of the redemption liability on the 3rd of January 2024, regardless, this half benefited from strong fair value gains on our investments in our partner firms. With increases in underlying AUM driving steadily growing financial performance, as well as an improvement in market multiples in the alternative asset management space, the value of partner firms increased by AUD 68 million for the period, based on valuation ranges provided by an external valuer. AUD 44 million of this is recognized in the P&L for this period. Our focus, though, is on adjusted EBITDA, which excludes these unrealized gains and instead provides a cash-focused measure of profitability, which demonstrates the group's ability to harness its operating profits towards additional growth to further expand and diversify our business.
The next slide, slide 21, shows the strength of both our minority stake business in NGI Strategic and our wholly owned operating subsidiary in Lighthouse. Whilst the NGI Strategic result for this half is coming in at 25% below the prior period, this is largely driven by the timing of cash distributions, which varies by partner firms and from year to year. In addition, the prior period included receipt of carried interest from one of our private market firms, which, based on their product profile, is expected to occur on a roughly biennial basis. Margins on this business remain strong, with adjusted EBITDA representing 92% of revenue this half. Lighthouse showed 78% half on half adjusted EBITDA growth. The increase in performance fees is offset by a corresponding staff bonus expense.
As outlined in the remuneration report published in our 2024 annual report, the policy is for 50% of performance fees to be allocated to the Lighthouse staff bonus pool. At a group level, the margin is slightly down at 45%. With NGI Strategic expected to contribute a much higher proportion of second half earnings, we expect the full year margin will be more in line with the prior financial year, coming in above 50%. The next slide, slide 23, sets out the key financial metrics of our business across both NGI Strategic and Lighthouse. In relation to NGI Strategic, the average management fee rate remains steady, as that reported at 30 June at 1.2% per annum. As AUM increases and it increases in this business, the steady fee rate supports growing management fee earnings.
In terms of performance fee earnings, the metrics on our aggregated partner firms continue to show an average performance fee rate of 17%, with an estimated 79% of AUM able to earn performance fees. Another metric, which has also remained steady, is that our partner firms continue to distribute approximately 90%-95% of their profits. Previously, we've provided indicative margins on management fee earnings for this business segment. However, note that in this deck, we're presenting an indicative margin range on combined management performance fee earnings. Based on 3 years of historical data, this range is between 33% and 43% on a weighted average basis. Metrics are also resilient in the Lighthouse business. The average management fee has held steady at 54 basis points, supporting the consistent growth in Lighthouse management fees over the past few years.
In relation to performance fee potential, the proportion of AUM, which can earn performance fees, is 22%, and currently 95% of this AUM is at or above high watermark. With an average performance fee rate of 12%, the potential that these financial metrics create is demonstrated in Lighthouse's earnings for this half. We've provided indicative margins of 25%-30% for Lighthouse on a full year basis, taking into account the different earnings profile of the first and second half for Lighthouse. On the next slide, this shows the trends in the group's key revenue items, half on half over the past few years. NGI Strategic has had very strong distributions over the recent past, with three and five-year historical averages being $49 million and $65 million respectively.
Whilst it's always difficult to forecast future distributions, as they're dependent on a number of factors, including prevailing market conditions, we continue to consider that this 3-5-year average provides a reasonable guide to the distribution potential of a typical year for NGI Strategic. We would note that the business sits at a higher AUM level now as compared to 3 and 5 years ago. Distributions are historically lower in the first half, and as per normal trends, we've started to see more cash being received from managers post our half-year balance date as they close their books for 31 December and begin to distribute profits. As of today, we've received AUD 27.1 million of distributions year-to-date for the 2025 financial year.
Pleasingly, Lighthouse management fees show a steady growth trend, with this period's fees of AUD 43.5 million contributing to build half on half over the past few years. My final slide on slide 24, sets out that we've maintained a strong balance sheet with plenty of funding flexibility to pursue our growth strategy. We expect our strong cash generation from operating results will continue to be the solid foundation for capital deployment, with our existing AUD 100 million credit facility that has another four years until maturity. We're targeting new partner firm investments that can be funded from existing cash flow and debt sources. With that, I hand it back to Stephen.
Thanks, Amber. We'll turn to slide 26. Just to summarize the first half for Navigator, we are very pleased to exhibit a financial outperformance across top-line revenues, bottom line earnings, and a material increase in net assets, driven in part by high valuations of our partner firms. We saw continued strong investment performance across the portfolio. The company generates significant cash flow and has a flexible, largely undrawn credit facility to fund transactions. Alternatives are the fastest segment of the asset management industry and over 2 x the overall market. A recent Goldman survey indicates strong and broad support and sentiment for allocators to hedge funds and an improving fundraising environment in 2025. We are seeing that reflected at the partner firm level.
These tailwinds are expected to further support AUM and revenue growth of NGI partner firms over the medium to longer term. Slide 27, FY 2025 outlook. In terms of the outlook for the business for the rest of the year, based on a strong calendar year, the new product launches across the portfolio and the investment environment, NGI expects our portfolio of managed firms to continue to perform across market cycles at both the management company level and also the investment strategy level. In particular, with a dedicated focus from Sean and the leadership team, the Lighthouse platform is performing well and is well placed to benefit from net inflows and the launch of new strategic initiatives. NGI Management is focused on measured acquisitive growth, targeting 1-2 new partner firms investments per year that meet our investment criteria and are positioned for material scale.
We are focusing on maximizing return on invested capital and executing new investments that can contribute earnings in the near term and provide diversification and scale benefits as part of NGI's portfolio. As previously noted, based on how the businesses have performed and are continuing to, we expect that FY 2025 earnings will be higher than financial year 2024, noting the variability and timing of the revenue receipts and any changes in market conditions. Turning to slide 28, Navigator's growth will be driven by a number of key factors. Growth in the broader alternatives industry in which Navigator specializes, increasing demand for our partner firm strategies. 2, continued growth and scale of our partner firms, generated by investor performance, net inflows, new product launches, and/or increasing the operating margins at the partner firm level. All of these drive earnings, not just inflows.
Supplemented opportunistically by value creation that either Navigator does directly with its partner firms or Blue Owl's business services platform, of which Navigator and its partner firms can access. Both of these provide acceleration of partner firms' growth trajectory. Finally, the addition of new partner firms to expand the portfolio. We remain focused on further investments that meet our strict criteria. Finally, on slide 29, Navigator is the only pure-play alternatives firm on the ASX. Our partner firms have deep expertise across diverse sectors of the industry that is benefiting from structural growth tailwinds. We remain well-positioned to deliver superior performance for our shareholders across market cycles. Thank you for your time, everyone. I would now like to open the call to any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Today's first question comes from Phillip Chippindale with Ord Minnett. Please go ahead.
Hi, Stephen, Amber, and team. Thanks for your time. Firstly, just on slide six, Stephen, you mentioned just in terms of the net flow outlook in 2025, you're expecting improved performance. Can we just unpack that? Clearly, your performance for the business overall has been very good. Is that the reason for the confidence, or is it really a combination of that, plus perhaps conversations you're having with investors and potential investors?
Yeah, thanks, Phil, and thanks for joining. It, it's partially that. I think a strong investment, as Ross had mentioned, typically does lead to investor appetite. I think the second thing I would say is what was exhibited during calendar year '25 was an environment of some volatility and risk, as we all know, and that increased dispersion amongst a lot of different asset classes, and that's an environment at which Navigator's strategies and managers perform very well in. G oing into to calendar year '25, that environment is continuing. And so we see an investing environment that's very conducive to the strategies that, that we provide to our investors. You are right, though, it is based on discussions with our underlying managers.
There are new product launches, which we're happy to discuss in the group and individual sessions, as much as we can. These are new products and launches, of closed-end funds and open-end funds that are various of our partner firms, that are taking advantage of what in clients and investors want. Yes, you know, we, we are optimistic, based on investor interest to date, and what we see as the pipeline, that these will result in net inflows as we go into calendar year 2025. We do have some visibility into the redemption pipeline at Lighthouse, and that's at the lowest, according to Sean, for a multiple-year decade.
Of course, every manager does have a redemption pipeline because their underlying LPs often maybe want liquidity for their own purposes. To have that pipeline be the lowest for a multi-year period is very exciting. I think, though, it's not that surprising when you see the performance that Ross had noted during his deck across the entire portfolio. Phil, there's a couple of other industry dynamics that are driving the interest, you know, in alternatives, but I think rather than going to them now, I just highlight those, those few key factors that are giving us definitely more confidence than last year on a range of factors. Ross, did you have anything to add to that?
No, I think you're spot on. The only small thing I would add is a very similar dynamic, Phil, as Stephen mentioned, with the Lighthouse redemption pipeline. In our normal dialogue with them, we're also seeing lower levels on the redemption queue, which, as Stephen said, gives us confidence with all the growth initiatives underway that will be converted to net inflows.
Okay, thanks. Ross, clearly on, I think it's slide 26 or 27, you reference these 1 : 2 targets potentially each year. Can you give us a flavor of what the current pipeline of conversations is like and perhaps the confidence level that you'll execute something this half?
I t's always fun every 6 months to talk to you guys about this because so much happens in a 6-month period. It is very active. What I would say is the, the key drivers for a strategic partner and the need for growth capital continue to be really front of mind for leading firms. That is, hey, we have LP demand, which requires GP commitments, and we have new products we wanna launch, and we wanna keep growing. In what's been a, a, a roughly, you know, 2-year period of very hard fundraising for these, these firms. What we've done is we continue to focus on the firms we think are good candidates. Number one, from a diversification standpoint, in strategies and geographies which are not very well represented in our current business.
Areas in private equity. As we said, specialized private equity, we think, is a great sustainable place, which has, you know, high quality of earnings for, you know, stakeholders like us, but also a very attractive investment opportunity set, which we think limited partners or their clients will continue to have demand for. We do spend time in areas of private credit as well, where we think regardless of all the changes that could happen with bank regulation and other things in the capital markets, there's. You know, if you've built a true edge in origination and underwriting, and you're in an area of private credit, which is adding value to your borrowers while generating good returns, those are businesses that we're happy to partner with.
Those are really the two areas that are most well-represented in the pipeline. L ike always, there's probably a handful or so of active. With regards to confidence, I'd say our confidence is kind of as high as it always is. We're spending, you know, some really good time with, you know, a good amount of time with some really exciting firms, but you never know until you reach that point where you form the partnership.
Understood. Just on slide 22, and this might be a question for Amber. Clearly, the Lighthouse performance fees for the half were, were stellar. There's a metric in here that sort of reflects on something you've spoken about historically. That is the 22% of AUM that can earn performance fees in Lighthouse. I'm just trying to think about how sustainable, you know, and how best to model performance fees going forward. My understanding is that 22% was a, a lot lower, say, 3 or 5 years ago. Can you give us a sense of how much lower that potentially was and if you can cast your mind back?
I don't want you to hold me to it, but I have a feeling it was, you know, down to about 12%, maybe 14%. The key increase is actually the North Rock Fund. As the North Rock Fund has grown out over the last few years and is open to external investments, a large part of its AUM is actually subject to performance fee. Also what's been launched in the last couple of years is our Mission Crest product, which is also sits in that hedge fund AUM bucket, and that is all performance fee, AUM. The, the growth of the hedge fund section of the Lighthouse business is what's been driving up that AUM percentage that's subject to performance fees.
Okay, thanks. That's really useful. I'll jump back into you.
Actually, I might just add something to that, Phil. Before the next question, this goes into a bit of specifics, but maybe think about it. Like, there is a launch of levered versions of both the Mission Crest and the North Rock product coming up, and they have performance fees at a higher level. The new products that are in the pipeline typically have performance fees higher than that 12% level. Of course, we don't know the scale and size of those products or the success of it, but we would expect over time, as the Platform Services business, you know, maybe a little less, you actually might see that average fee actually increase over time in accordance with the last couple of years of history.
Thank you. Our next question today comes from Tim Lawson at Macquarie. Please go ahead.
Hi, guys, thanks for taking my questions. Maybe just to clarify, clarify on the, one of the ones that Phil asked about. Just with Mission Crest, Amber, you talked about 100% of that being performance fee, AUM. Are you saying that's 100% of the revenue is performance fee related, or there's a base and a performance fee, and just happens that the farm is all able to get a fee?
That one actually has a fairly unique fee structure for Lighthouse, where it's literally a performance fee only product, so there's no base fee or minimum. North Rock is a little bit different. Its fee structure, even on the performance fee side, has the performance fee is the higher of 50 basis points or the performance fee. That's slightly different to Mission Crest, where we continue to get kind of a minimum level of performance fee on that AUM anyway. We kind of treat that as management fees, though, given that it is a consistent return on that AUM.
Then just continuing on with performance fees. Other than the, just general good performance and those two structural things you've called out with North Rock and Mission Crest being a larger part of the group, is there anything else that's driven that large performance fee in this half?
I think if you're comparing it to the calendar year 2023, you know, if we cast our minds back, the North Rock performance for the 12 months to December 2023 was more around 4%. North Rock's one of the key drivers of the increase in the performance fees, you know, its return is, I think it's like 13%. For this calendar, for the calendar year 2024, plus it's been at above high watermark for the majority of the period as well. Even at June, we were in the 90+% above high watermark, and so that's continued with this consistent good performance. I think you're really just sort of seeing the benefit of those consistent returns over more than a calendar year, really paying off in terms of generating those fees now.
Tim, it's Ross. If you reference slide 14 under the Lighthouse section, you'll see the returns for 2024, across the areas that Amber just mentioned were just, you know, much higher than 2023. That's really what's, what's driving it. And as she said, that puts them in a position to earn an even higher fee next year, given the base AUM is higher, and I think this year is off to a pretty good start as well. You'll see the comparison on, on slide 14 in terms of year-over-year.
We always give the health warning, not too early in the year, no guarantees, but the potential is definitely there if the performance continues, given where we're sitting at high water marks.
It's worth pointing out, Tim. Hi, thanks, thanks for joining us. If you look at the five-year averages across those Lighthouse products it's been a good year in 2024. In fact, a lot of people I'd like to speak to, it's the best year in hedge funds for a little while. W hen you look across the longer term, it's actually not hugely higher on a long-term basis. A good year, but not one that, that stands out as being incredibly extraordinary. I think 2023 actually was a bit on the weaker side, perhaps because of the strength of equity markets at that point.
We have a return of, risk and dispersion , which is a really fantastic investment backdrop for our portfolio.
Ye Just staying on performance fees and on slide eight, how you split management fees, and that's obviously pretty clear, but just the way you've combined sort of NGI Strategic portfolio performance fees and Lighthouse performance fees. Just trying to understand those NGI Strategic portfolio performance fees a bit better. They seem much more consistent; this is something I'll probably not focus on as much as the Lighthouse side on the performance fee.
Yeah, Ross, whether you want to take it more from there?
M aybe I'll start, and I think high level, Tim, you know, 76% of the AUM in the NGI Strategic side is able to earn performance fees, right? And so with six businesses with very unique absolute return strategies, we, we, we've always believed, and now we've seen for 3, 4 years in a row, that in any given year, several of those will perform really well, and the other will kind of others will do their job as well to a varying degree. And what that has created is, is a pretty elevated but consistent level of performance fees, coming through. The ultimate profit distributions to us vary, as you know, given the margin and ownership stakes of, of those four.
What we were trying to illustrate here, and what we've been really thrilled about, is the consistency at the portfolio level, of those partner firms. Because they're direct hedge fund and credit-oriented firms that are predominantly in, no hurdle rate performance fee products.
Yeah, that's captured in that historical average total distributions on slide 23, that 49 for 5 years and 65 for 3 years. Then just on just maybe a little bit of an update on Marble and Invictus, please. I think you sort of alluded to it when you talked about the sort of, was it biannual? I think maybe the term you used, in terms of, sort of income from those strategies. Can you just talk maybe a little about those two investments and where those funds, risings, and performance and when that might flow through?
I would love to. One of the more fun things to talk about for us. As you, as you would see on kind of what is slide 11, which lays out just a very high-level profile of all our firms, we're now talking about, you know, Marble at $3 billion of AUM and Invictus at $4 billion. You know, those, the, those have almost doubled since when we made the investments, you know, two and a half years ago, as a result of two things: one, cycle of vintage fundraising, so closed-end funds with 7-10-year pretty visible revenues, as well as direct institutional separately managed accounts. We are just entering now another cycle, where both those groups will be launching their fundraise for the next fund. Both have deployed the prior fund into a really exciting environment.
We expect in the next, call it 12-24 months, another step up in the growth. Now, obviously, you do see prior portfolios realized, you lose some AUM, but given the growth-oriented nature of those platforms, those are smaller funds rolling off. That's exciting for us. You never know until they raise the funds, the fundraising environment continues to be somewhat challenging, it's about a 12-24 month process that they've kicked off in the case of one of them, late last year, in the case of the other one, just about now, is exciting. The other thing is, you know, the earnings profile of those we like for several reasons. They're scaled on the management fee side, they already operate at pretty attractive management fee margins.
As they bring those next funds on, maybe they add a little bit to deploy, but they're pretty much scaled to manage that capital, which means the management fee side of the profit distributions, increases, which is great. Then likewise, we own carried interest in varying levels in those firms. As the prior funds, you know, get bigger, there's a impact in the future years, all those years down the road, as Amber mentioned. Both firms are really, you know, executing their growth plan, and both operate in areas of the US, real estate market and credit markets that continue to have a need for their capital.
S o if we look at the contribution from those two firms in the sort of, in particular, five-year but probably also three-year, NGI Strategic distributions, they're, they're probably underrepresented on what their capacity is now to make distributions?
Yes, and I think that's right. I think what we'll see is last year, as you know, was a very good year because, as Amber mentioned, we received some carried interest on an earlier legacy portfolio. What we're hoping for is kind of roughly flat for this year, and then there's definitely a step up, and they can should contribute more materially. I f you think about that 3-5 year average, they're underrepresented, considering we started the, you know, the profits really started coming in what, our first half of fiscal 2023.
W e went into 2022 really not until FY 2022.
That's a good observation for sure, Tim.
Yeah. Okay, just two more quick questions. I appreciate the questions on the pipeline. Can we talk about slide 24 and the, the walk you provide on the funding strategy? One, j ust a starting point, and then you've got FY 2024 cash flows in there. I just want to understand that and then the debt capacity as well as how, how that relates to sort of 1.5 x adjusted EBITDA.
Ju st with the cash flow, we've picked up our full-year cash flow from last year, taking into account that we don't have to pay the Blue Owl share of the distributions anymore. That $93 was actually kind of the operating cash flow, ex that Blue Owl payment from last year. Given how strong the current year has actually been, we're pretty comfortable that that's a reasonable estimate of, you know, the cash flow over the next 12 months that can go into that funding strategy. On the debt capacity, we've got $100 million, so 1.5, probably. I don't even know that our debt capacity would take us up to 1.5 at this point in time, so we'd have to renegotiate our limit.
Right. Okay, that, so that's the capacity rather than 1.5 x adjusted EBITDA.
The one thing to keep in mind, though, is that our debt includes deferred consideration and not just the $100 million debt. If we did do another transaction that included deferred consideration payable in a couple of years, that would be added on to our net debt target.
A ll right. That's really clear. Just last question for me, just there's obviously some press on the Fortress relationship with Lighthouse. Maybe, if you could just provide some color on that, please.
H appy to do that Tim. T he article wasn't the, the best because it referred to this sort of word merger, which, you know, so I got some reverse inquiries that, that people thought potentially it was a sale of the Lighthouse business, which is not happening. T hat's a really exciting initiative. When I was referring earlier to Lighthouse as being innovative and thinking about what's next in the world of hedge funds. There's a real consolidation happening across the business. It's very hard for small firms to actually raise money, and there's also an increase in joint ventures strategically.
In that second bucket, I would put this: it's not documented yet, and the idea is in the second half, though, there will be a sizable, you know, opportunity, a joint venture between Fortress Investment Management Group, very well known in the credit space. They have a new multi-manager program, in particular, with a very, a very impressive portfolio manager, called Jeff Runnfeldt, used to work for Citadel and Balyasny, he's known Sean for a long period of time. They are really working together to try and create a new, very scaled product that'll be launched later this year. It's too early, though, to determine the success of that. Also, it's unlikely to have, you know, in the short term, a material impact on the earnings of the business, but it certainly is very exciting.
It's actually something that this team at Navigator essentially has been working with Sean and Fortress on, and we look forward to seeing whether it can be consummated.
Okay. Thank you. Thanks for taking my questions.
Thank you. Our next question comes from Lafitani Sotiriou with MST. Please go ahead.
Good day, guys, and congratulations on a good result. Can, can I just follow up on the carried interest? I know the timing of distributions from the underlying equity stakes can take time, but when you talk to the variability, are you concerned that some of it may not fall in this half? Based on the performance that you can see on the underlying funds, why is there not more confidence around the numbers, or am I missing something around the guidance that you set?
Hey, Laf, it's Ross. I'll start, we can all touch on aspects of that. What I would say is there's definitely not a lack of confidence in the results, right? We've, as you said, we've seen the investment performance. We have a strong understanding of the profit margins and historically speaking, what profit distributions come out. However, without formal line of sight in terms of timing, we didn't really want to put out specific numerical guidance. I think in the indication of it being higher than last year, we tried to provide as much confidence as we could, just given the nature of what those.
It's not really any confidence, really, given you're already tracking quite well above it on the first half. Sure, there's a floor there that's being provided, but based on the higher AUM and the improved performance, is there any reason why we should be considering the carried interest to go backwards?
Well, the carried interest is actually cyclical, usually every two years. I don't think it's the carried interest that's actually necessarily the issue, because we're not really expecting any more to come in of carried interest.
Performance-driven distributions.
It's just the performance-driven distributions. W e're pretty confident, and we have a fair idea, but there are decisions that are still being made at the, the manager levels, where we don't have full insight into exactly what their distribution amounts could be. Given the potential kind of range, it's very hard to put a guidance number out where it could have a level of variability. We're feeling really confident it's coming in above last year. We've obviously banked the Lighthouse performance fees, so that sets us up really well. But just this early stage, we'll be in a position, you know, in the next couple of months as things have been banked and getting closer, that we'd be more confident around providing a guidance, a specific guidance number.
Like, Laffan, I thought you would have been happy with that. I mean, last year, I think we said something pretty lowball , the second half is gonna be higher than first half. T his year, in February, we've come out and said we expect that it's going to be higher than the full of last year. I mean, without actually revealing.
We always want more, Stephen. We always want more.
I know you do.
No, it's good.
I know you do, but if we equity-account these, I think we're in a better position, but we don't. We have to wait for this cash, and there is a history of the cash coming in. Just say, for example, a large distribution came in July 1 and not June 30. I don't want to be sitting here in six months saying to you, "We missed." I think. Look, high conviction on how the portfolio is performing, and we'll, we'll see how the next couple of months plays out as we receive the money.
No problem. Can I just have one follow-up on the acquisition pipeline? Appreciate the extra detail, Ross, around targets and so forth. Can you just talk to us to, some of the deals you possibly have missed out on, in the last 6 months? Because a lot of that heavy lifting that you've done or where, what sort of asset classes you think are, are, are most appropriate or priced most appropriately at the moment or any extra color you could give?
H appy to. Disappointingly, I would say in the last six months, we've probably missed out on a couple opportunities that would have been a great fit. One of them was a specialized real estate strategy that operated at a very, very attractive fee structure with very high-quality investors in a broadly what we would call attractive sector of real estate that was going under global, but especially U.S. change with regards to logistics and shipping patterns, other things that this team just had a lot of expertise on. Frankly, we lost it. I wouldn't call we lost it out. We didn't transact based on price. It, it ended up transacting at a price that we would not be comfortable with.
We also spent a lot of time with a transportation-based firm, which again, had a very attractive financial profile. Unfortunately, in that case, because of how attractive their financial profile was, their ability to finance their business without selling an equity stake, meaning taking on some, some more debt-like securities, actually solved their objectives. That's a dynamic that we again, isn't a great fit for us in, in terms of building long-term strategic partnerships as opposed to a financial transaction. Those are, those are two examples that helped. Again, as I said, it's very broad, and we have a great opportunity set, but for the best firms, it certainly gets competitive. Areas that, that we're spending time on that we're excited about are in private equity and in private credit still.
T he private equity market has had a lot of negative headlines for two reasons at the mega-cap and large level. One reason, obviously, is the tremendous slowdown in distributions for LPs, and I think that's real. I think new allocations are slower as a result, and performance of certain portfolios, are a work in progress. However, the size of the private market investable opportunity set, especially in the middle market and lower middle market, for people who have been doing it for a long time, is really, really attractive to us because they have a repeatable edge, and that's where the LPs who are allocating to private equity want to.
I t's a very similar analogy to what happened in the hedge fund space over time, in the sense that people really just want to pay for the best results, and that's where they see sustainable returns being generated. We spent a lot of time there, and we continue to spend a lot of time there. Again, the financial profile of those firms is quite attractive because these are not operationally intensive. When they get to $1 billion or so of AUM, they're scale at a really attractive margin, and the team is primarily incentivized, through carried interest, which we then share in. We feel like you can establish a sustainable alignment of interest. That's certainly one area.
Then again, in private credit, same thing, there's definitely headline risks with regards to, portfolio issues and over-leveraged structures that have, that have floating rate, et cetera. There are areas of private credit where people will always need fast-moving, credible capital to either achieve an M&A deal, a recap, or something, or for, quite frankly, finance, receivables and other types of assets that there's not really a lot of attractive bank f unding out there for that we don't see coming back.
We're spending time with firms who've been doing that for the same thing, 10, 12, 20 years, and have built a process, an LP base, and a real edge in that. I'd say that's two areas. Despite the misses I mentioned in areas, real estate and transportation, we still like real assets as well. There's just not as many firms in the very near-term pipeline we're spending time with there. Hopefully, that helps.
No, it does. Thank you. That's it for me.
Just last a sidebar on that in terms of, and I won't obviously know details, but I have started to have some conversations, here domestically, Ross and I. T here's transactions I know there's transactions we could have done. T he challenges were they actually didn't meet our criteria around growth and various other aspects. O bviously, that's not what you were asking about, but just letting you know we're just trying to be very measured and prudent about what we're doing. And domestically yet to find an opportunity that actually hits on the criteria that Ross outlined on his slide.
Got it. Thanks.
Thank you. Our next question comes from Kevin Ong with Amitell. Please go ahead.
Hi, Stephen, and congrats on the great performance in the house. Just wanted to touch on that article that came out on Bloomberg and Hedgeweek, reporting that Lighthouse is doing a deal with Fortress, the co-manager, new multi-manager offering under the leadership of Sean. It sounds really exciting, given that Navigator will be able to leverage off Fortress's exceptional ability to raise AUM, and you'll be working with both Blue Owl and now Fortress, two of the two most successful largest alt manager firms globally. Can you just share broadly about what this means for Navigator from a high-level strategic perspective? Thanks.
I t's worth just clarifying a couple of things. Lighthouse does this quite a lot. They, they have strategic partnerships in the market. Sean has been leading that team to do these types of initiatives for many years. I think that this is just the latest that was reported in Bloomberg, another initiative. In terms of Navigator's involvement, it really is via our ownership of the Lighthouse business. Sean has been spearheading this with his relationships. I hear you about Fortress's ability to raise money. O ne of the irony is, though, Sean and his business development team, really are going to bring that sort of expertise also to the partnership.
As you think about it, this is all assuming it goes ahead, you know, really they bring different things. They bring investment knowledges, Sean brings the platform, brings sales and distribution, and brings an opportunity to bring both brands to the market. In the end, it's gonna be dependent on successful in-investment performance. In terms of how it impacts Navigator, you've seen the growth in the Lighthouse, you know, recently and over the longer term, this is just another one of those initiatives that may actually continue to improve margins because it is going to be a pass-through structure, continues to be a Platform Services client, and, and a new one, should add to the performance fee potential by, you know, an instrument that financially gives Navigator earnings.
Hopefully, is another track record and product. I n terms of details, I probably shouldn't go into any more, but really one of the real benefits of working with Sean and his team is that he's got a number of products that have an existing track record and an existing number of portfolio managers. We believe this will not be seen by investors as being necessarily a brand-new product and can really leverage the track record of Sean and his team on the investment side.
I think that's probably all I should say, but you are right in your, your underlying comment that it is quite exciting, but I would also just counter everyone to say that, you know, that article by Bloomberg is a bit premature, and there's still a lot of heavy lifting to do to have this done, and we're not exactly sure what financial result that will be on, on either the Lighthouse or the Navigator business. Maybe we should have this discussion this time next year.
Have it in June.
Maybe June.
Thank you, though. All right, thanks.
Thank you. Our next question comes from Nicholas McGarrigle with Barrenjoey. Please go ahead.
G'day, just a quick one on the strategic side, what was the split between the kind of original Dyal portfolio and Marble and Invictus Longreach in that, in the AUD 15.2 million reported for the half?
Long reach, leaving in it, sort of fits more in the corporate, just from a pure financial reporting, and then the split. Yes.
Nick, so on a distribution, I don't know which slide you're looking at, if it was, like, the segment split out. At the distribution level, which we provided last time, of the $16.6, in the period, it was about $11 of NGI Strategic and about $7 or, excuse me, $5 and change from Marble and Invictus.
Right. Marble and Invictus are on track for a year that's in line with prior year, is it? If you kind of annualize that first half at all.
Marble and Invictus tend to be pretty similar first half, second half, whereas the NGI Strategic portfolio is very heavily weighted to cash distributions coming in in the second half.
Then I guess we've had a lot of questions on that, but maybe just ask another one. If you look at the composite performance, even on an ownership-adjusted basis, it looks like it was ahead of last year in terms of absolute returns. Is there any reason why the underlying profit, putting aside whatever the distribution decisions are, why the underlying profit of the NGI Strategic portfolio wouldn't be higher in CY 2024 versus CY 2023?
I t's a frustrating point, Nick, but I'll start, so feel free to shoot the messenger. It really also comes down to which firms in that composite are performing well on the investment side, what their margins are, and then what our ownership at stake is. As you remember, we have 7%-25% ownership stakes across the NGI Strategic portfolio. Unfortunately, if a firm that we own 7% of really does fantastically well, even within that ownership adjusted composite, it's gonna lead to a different result of a firm that we own 25% and it's at our margin.
It just comes down to the mix, which is why, again, we keep looking at that 3-5 year average, because you get a sample where different firms contribute more in any given year. That's the only reason, Nick, that portfolio composition is around .
Yeah. Okay. I know that these instances are, can be a bit opaque. Is part of the answer you don't have the calendar year profit numbers yet in all of them? Is that why you're being suitably conservative in talking about the strategic segment?
That's right. S ome of them we're still, we're still receiving final, final year numbers. As Amber highlighted, after those numbers, also understanding if there's any capital that's going back into the business or is gonna not be distributed, which again, as you know, in our range of 90%-95% varies, depending on which firms are doing what in terms of expansion plans and other things, it impacts the ultimate profits we receive.
Yep. I guess last year, you didn't give the year-to-date distributions at February. This year, you've said AUD 27.1. Do you, I'm not, you might not have the numbers to hand, but do you have that number as of last year at the same time in February?
It was actually pretty similar, pretty close to the 22.6. We actually didn't receive a lot prior to doing our interim last year, hence we didn't really report the number because it wasn't that different. That really just comes down to the individual manager timing, so it was pretty similar to where we're at at the moment.
That's helpful to know. Thank you for that. Then obviously, the Lighthouse employee expenses stepped up considerably. Like, if you look at the $32 million of management fees, is there a rule of thumb that you'd say is paid back to staff just so that we're not rolling forward a higher OpEx base? Just trying to understand what the step up from $25 million to $40 million of employee expense, how much of that is underlying versus performance fee linked?
Yeah, the rule of thumb, just on the performance fee component of it, is pretty much 50% goes into the bonus pool. Just of the roughly, I think it's AUD 15 million step up AUD 12.5 million of that would be pure differences, you know, performance fees half on half. The other thing that's a little bit tricky at half year, though, is that we're kind of estimating and accruing, we don't necessarily have the same. It's not a straight line accrual, and we might have some adjustments at June that change the overall profile for the full year that aren't impacted in half year. For example, we looked at comp for senior Lighthouse staff, including Sean, it's obviously published in the rem report.
That was a step up last year to his comp that didn't really get factored into the half-year number because it wasn't determined until after half year. I don't know if that really necessarily helps from that point of view, but I think you can certainly isolate the part that's performance fees, if that makes sense.
Yeah, that's definitely helpful.
I would just say, Nick, does that answer your question? There's a bit of noise where, for example, on the comp, you know, I joined halfway through that first half last year. Sean had a step up after that first half, there's a little bit of noise. We don't estimate that the 56 or the 59 tracking ahead of the revenue growth, that's not what you should put in your model. It's going to be closer to the 50/50, we'll know better at full year and certainly when we deal with the accrual properly. It's a little tricky, this business at half year, as you, as you know.
Yeah. No, understood. Just in terms of the seasonality of performance fees in Lighthouse, I know that you kind of get fees every six months, but is there a bigger skew to calendar year versus June?
Yes, there is. Definitely the majority of Lighthouse performance fees crystallize in December, and that includes the North Rock product. In the second half, our Mission Crest product actually has some different crystallization dates, so that could drive some fees in the second half, but you can see from historically, they're usually lower than what we get in the first half.
Yeah, last year's experience, where it was almost even between first half, second half, that was a rarity based on more Mission Crest producing second half performance fees?
Yeah, and because, you know, really, I think the first half was probably a bit, you know, pressed compared to what we would have liked given the performance.
T here was some redemption-related crystallizing performance fees last year that were a bit one-off. I don't know how much of that $5.7 billion it was.
It was a component of it.
I t was 'cause if it's inter year and you're in one of those products and you redeem, you pay the accrued performance fee. That was, that was a portion last year.
Hopefully, we don't get any of those in the second half. 'Cause we prefer to keep the AUM.
N o, that's great. I appreciate you providing a bit of extra context on that. Thanks.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Darke for closing remarks.
Oh, I think there's nothing for, for final from me, Rocco. Thanks for everyone to joining and their support, and, have a good day. Thank you.