I was actually hoping for a drum roll, and then it is Tony Robinson. But, good morning. I am Tony Robinson, the Chair of Pacific Current Group and the Chair of this meeting. I'm delighted to welcome you all to the annual general meeting of shareholders of Pacific Current Group. Thank you for your attendance today. I'd appreciate it if all mobile phones can be turned off or put on silent. The time is now 10:00 A.M., and as we have a quorum of members present, I declare the annual general meeting open. I'll now introduce the directors. Joining me today is Paul Greenwood, our Managing Director, CEO, and Chief Investment Officer. On my furthest, on my left is Gil G uérin , Lead Independent Director. Next to him is Jerry Chafkin, and Mel Donnelly, Chair of the Audit and Risk Committee.
I should also say Gil is now Chair of the Remuneration and Nomination and Governance Committee. Peter Kennedy, the present Chair or the person stepping in that role of Chair of the Remuneration, Nomination, and Governance Committee, is unable to join us today as he's currently overseas. Peter is retiring at the end of this meeting, and I'll make some comments on his long and valued contribution later in my address. I'd like to thank each director for their support and contribution during the year. Others here today that make a tremendous contribution to our business is David Griswold, our General Counsel and Chief Compliance Officer, Ashley Killick, our Chief Financial Officer, Trent Erickson, our Chief Operating Officer, I think, and Claire Craven, our Company Secretary.
Finally, I note that Richard Silver of Ernst & Young, and Janice are here from the external auditors, will provide a reasonable opportunity to answer questions you may have about the conduct of the audit. You're not getting a show today, apparently. The agenda for today's meeting is set out on your screen. Before commencing with the formal matters before the meeting today, I will outline the formalities of the meeting and make some general comments, and then hand over to Paul Greenwood, who will present an overview of activity during the financial year 2023, comment on strategy, and provide an outlook for the business. A question and answer session about the financial statements, the audit, and general questions of management will be held before the resolutions are put to the vote of shareholders.
Only shareholders and proxy holders participating in person will be able to ask questions. Any shareholder or visitor who is listening to the audio webcast will not be able, unfortunately, to ask questions. Formalities of the meeting. Today's meeting was made available to all shareholders on our website, where you'll also find the minutes of the 2022 AGM, our constitution, and the 2023 annual report. I'll take the notices read and deal with the business of the meeting in the order it appears in the notice. Before we do that, I'll explain how voting and questions will work for the meeting. When you registered your attendance this morning, you would have been issued with an attendance card. Those with a blue card can ask a question and vote at the meeting. Those with a yellow card can ask a question, but not vote.
Visitors with a white card are not entitled to vote or ask a question. Your board has determined that voting at the meeting will occur by way of a poll for all resolutions which require a vote. So that you have enough time to vote, I will shortly open voting, and it will stay open until the meeting closes. As advised in the notice of meeting, either the original facsimile or electronic transmission of the proxy form and any power of attorney or under which they are signed, must have been received at least 48 hours prior to the date and time of this meeting, no later than 10:00 A.M., Australian Eastern Daylight Savings time on Saturday the 19th of November, 2022. That can't be right, so, 14th of 2023. Any proxy form received after this deadline, including at the meeting, is invalid.
Only attending in person and by proxy may vote on the resolutions. As we formally put a resolution at the meeting, the proxies received in that resolution will be shown. Now, on your screen, that number will include votes on undirected proxies cast by me as Chair. As set out in the notice of meeting, as Chair, I will vote all directed proxies in accordance with the direction provided by shareholders, and all undirected proxies I will vote in favor of all resolution. Today, we've appointed Tim Hewat of Computershare, the company share register, as the Returning Officer. After the votes have been counted and reviewed by the Returning Officer, the results of the meeting will be issued to the ASX and available on our website.
I now declare voting open on all items of business, and you can now submit your votes to the Returning Officer at any time. In relation to questions and comments, general business questions will be taken for item one, and questions relevant to each other item of business will be taken following introduction of that item. We ask that you keep your questions short and to the point, so that as many shareholders as possible have a chance to ask questions. If you wish to ask a question, please hold up your registration card, and when invited to speak, please identify yourself and then ask your question. I'll either answer the question or pass it to the most appropriate person to respond. As Chair, I reserve the right to rule out questions that do not relate to the business of the meeting.
Please note that if we receive multiple questions on one, they may be amalgamated together for a response. We will also not answer questions that are the same or substantially similar to questions that have already been answered. Otherwise, we'll endeavor to answer as many questions asked as we can. Before I hand over to Paul Greenwood, I will make some general comments. Firstly, in relation to the strategic process overseen by the Independent Board Committee, the co-chair of that IBC, Jerry Chafkin, will speak on this matter after the CEO's presentation. We remain committed to achieving a great outcome for all shareholders. Secondly, based on the proxy results received, which will be displayed after discussion on the remuneration report, the company will receive a First Strike on the remuneration report.
We believe this is a product of the uncertainty strategic process, and we've made no material changes to remuneration arrangements or disclosures over the last 12 months, or disclosures related to remuneration over the last 12 months. However, we will ensure that is correct by talking to our shareholders. Turning now to Peter Kennedy. I'd like to recognize the significant contribution that Peter has made to the Pacific Current Group, and before that, to Treasury Group, prior to its merger with Northern Lights Capital Group in 2014.
Peter joined the board of Treasury Group, as it was then, on the 4th of June, 2003, and has served continuously since then, including for many years as Chair of Pacific Current's Remuneration, Nomination, and Governance Committee, as a member of the Audit and Risk Committee, and as Chair of Treasury Group Investment Services Proprietary Limited. With over 40 years of experience in common law, Peter's deep industry insight, legal knowledge, commercial and strategic acumen, and constructive and collegiate work ethic, have been in guiding the board and management through a number of major strategic transactions. One of Peter's pivotal achievements was overseeing the merger of Treasury Group and Northern Lights in 2014. This strategic move transformed Pacific Current from a single loan-only focused boutique to a well-diversified collection of boutiques, each offering unique investment propositions.
Throughout Peter's tenure, Pacific Current Group experienced numerous successful investments and divestments. Notably, among these were investments in GQG Partners, Victory Park, Banner Oak, Cordillera, Pennybacker, Investors Mutual, Rare, and Proterra. Just reminding people, I think with GQG, which has got to be the standout investment of that. I think we put about AUD 3 million into it. I'm probably rounding there a bit, and on listing, our holding was worth AUD 300 million. So it really has been a period of extraordinary investment decisions and outcome. Also, the strategic sale of Investors Mutual and Rare, as well as investment in and out of Aperio Group. Pacific Current Group share price nearly doubled. Its market capitalization has increased almost 6.75 x, from about AUD 75 million to approximately AUD 500 million, and total dividends paid out through that period were approximately AUD 400 million.
Funds under management have grown from AUD 2.4 billion to an impressive AUD 215 billion as of our most recent announcement. On behalf of the board, I'd like to thank Peter for his tireless efforts and valued contribution as a director, which have been greatly appreciated by his fellow directors for over 20 years. With Peter retiring, the board has commenced a board renewal process and expects to appoint a new independent director within the coming months, who will be based in Australia, with a view to that director ultimately taking over the role of chair. I'm now going to hand over to Paul Greenwood to present the business overview. Before I do, I'd like to note that it was an outstanding year, both in its own right and as a foundation for the 2024 financial year. Paul, over to you.
Thank you, Tony, and thank you all for attending our AGM. We appreciate your interest in our company and your attendance here today. I'd also like to thank our board, that's been wonderfully supportive and engaged over these many years. I'd like to thank the senior management team, Killick, Trent Erickson, and David Griswold, who are all here today as well. It's an honor working with very experienced professionals who are working at the top of their game. I'll briefly recap FY 2023, and then talk a little bit more about the outlook for the company. The succinct recap of FY 2023 is that it was a good year, but the progress we made during that year really is, will become evident this year.
And highlights include, for the year, strong FUM growth, 16% growth in US dollar terms. Our ownership-adjusted funds under management, which is a new metric that we've begun releasing, grew 9% in US dollar terms from $12.9 million to $14.1 billion. We invested $30 million in Cordillera Investment Partners, a very distinct private capital firm that is sort of has developed some market-leading and highly distinctive private capital strategies. We sold one of our interests in Proterra Asia for more than 40 x the distributions we received from that stake. Our management fee revenues, which are the sort of the core of the business, grew 13% during the year in US dollar terms, while performance fees, which are the smaller and more volatile component, declined by 22%.
Underlying NPAT declined 11%, largely due to growth in interest expense. And we had to when we drew on our credit line, we ended up, for some idiosyncratic reasons, drawing on it a little earlier than we probably should have, with the benefit of hindsight. Our dividend for the year was AUD 0.38 a share, which was flat on a year-over-year basis. That dividend was 67% franked. For the first time during the year, we released our estimates of our fair value NAV. And I will elaborate a little bit more on this later. And I will touch on our outlook a little later as well. On page 12 of our presentation, we recap a slide that we the year-end results presentation.
As a reminder, the accounting standards require us to use a broad variety of accounting methodologies for our different investments. The net result is that some of our investments, we can't report our estimate of their fair value, but rather we can only write down the value of those assets. We can't write them up. This tends to understate the value of equity accounted boutiques. The difference, the differences are largest for our portfolio at Victory Park, Pennybacker, and Rock. And page 12 sort of highlights the difference between the reported book value and our internal estimates of, of the fair value of those assets. When we adjust our reported NAV for estimates of fair value, we come up with a fair value adjusted NAV of approximately AUD 11.92 a share at 30 June.
If you go to page 13, the Fair Value Adjusted NAV has created some confusion among, among people just interpreting what that means. Accordingly, I, accordingly, I want to elaborate on what this number represents. So this page here on page 13, please no one anchor to the size of the, the, bars in the chart. This is a purely conceptual table. And really what we've done is say, we take that AUD 11.92, which is the, the net assets of our company per share, subtract the net liabilities per share, and you get that number. But, but, since there's been discussions about selling the firm, people think, is that, is that the target price? What the what, how do I interpret that number?
What we'd say here is that some buyers would will adjust that AUD 11.92 up or down based on their view of the value of the assets. So if they think those asset values are conservative, they may adjust them upward. And if they thought or if there it might not only be just the value of the assets, they might value the track record. There's other things about the firm they may value. And that could lead to a higher than AUD 11.92. And then the bar that you see going, the middle bar here, underlying operating. It's really important to keep in mind that if you owned all these assets today, there's still considerable expenses you need to put against those assets. Those expenses are ongoing accounting, legal, and portfolio management expenses.
Obviously, the size of those expenses could vary under different scenarios. So I think just conceptually, that's how we look at the value, and like I said, any, any party is going to ascribe different values to those. But at least conceptually, that AUD 11.92, I think, should be looked at in the context of any additional upside, less, less the decrementing that value for the ongoing operating expenses. Page 15 just highlights. This was in our year-end presentation. It just highlights that in general, our assets continue to grow. I often tell people that when you're investing in Pacific Current, we're trying to diversify away as much systematic risk as we can. And so what that means is we're trying to reduce our exposure to capital markets.
Really, in a perfect world, the risk we're taking will never, this will never work precisely this way. But conceptually, we're taking a host of idiosyncratic risks, and those idiosyncratic risks primarily relate to fundraising risk. Each one of these managers, in order to grow their business, has to grow their assets under management. And as we look at that, we want that risk to be the primary risk we're taking versus exposure to, for example, equities. We go to page 16, depicts. This is a new exhibit this year, which takes our the reported funds under management we give to the market. I think can and interprets it a different way, and it takes that and adjusts it for our ownership stake. And so have here is our ownership adjusted funds under management.
Really, I think the thing to take note of here, it's just a steady progression upward. That's what we're trying to achieve. I often tell people, you know, we are trying to be the tortoise, not the hare, and we want to steadily grow that number. And I know that we're at $14.1 billion right now, and that number will continue to, I think as of September 30, it's $14.3 billion. So the point there is, continues to slope upward, and that's what we're endeavoring to do. On page 18 and 19, we highlight our expectations for the year ahead. And obviously, there's been a process to potentially sell the firm, and Jerry Chafkin is gonna speak to that in a minute.
But just in terms of the comp, the performance of the company, it's a good news, you know, we feel great. The good news is we expect a strong year. We expect strong gross inflows into our managers. We have said that we expect $2-$5 billion of gross new commitments to our managers, aside from GQG. I think the first quarter of the year, I believe we were close to $1 billion, so we're well on our way, and I think we'll probably approach the low end of that range by the end of this calendar year. We've also reclassified some of our investments. Our two new investments, Cordillera and Avante. We've classified those as Tier 1 investments, while also moving Pennybacker from Tier 2 to Tier 1.
Aether Investment Partners has been reclassified from Tier 2 to Tier 1. So, and then lastly, we were making great progress on securing outside capital manage. And so if things quiet down on the acquisition front or in terms of us being acquired, we would hope to resume the progress, and if we can pull that off, we'll be able to add meaningful revenue to the business. Lastly, we expect record revenues this year, with our immense operating leverage should be great for the bottom line. Thank you for your time, attention, and interest, and I will hand the reins over to Tony.
Thank you, Paul. I'm now going to hand over to Jerry Chafkin, co-chair of the Independent Board Committee. He'll make a few comments about the status of the strategic process, but before I do that, I'd just like to say a couple of words to give context to what Jerry's saying. There's always a risk with these things that, you know, using an analogy of, you know, a great race is being run, and, you know, it's been an unbelievable race and, you know, the race is coming to an end. People are forgetting about the quality of the running of the race and starting to focus on the last couple of strides, you know, as you get near the finish line.
And the reason I say that is that, it's an outstanding group, an outstanding group of executives, and in their industry. You know, that all of the shareholders that are in this business are in it because of the quality of the executives and the, and the board and the decisions they've made. They've bought unbelievably well. I can't think of any other fund manager in Australia who, in four yearcs, has turned AUD 3 million into AUD 300 million. So, it's. And that's just been one of the outstanding investments, you know, of this group. So, you know, that's the first point to see in the context, as we get to a situation where we've needed to respond, to someone saying: Well, this is the finishing line.
You know, by making an offer and then us starting a process to see if there are other offers there. It's easy to forget the only reason people are interested in this group and are interested in the price is because of the outstanding individuals in the business, both at the executive level and at the board level. The other problem is we've been trading well below what we've said, a fair asset, and we've said that for a very long time. And we're absolutely delighted that there's now actually you know external parties voting with their money, saying the same thing, that this is worth a lot more than they've ever traded with. An absolutely fantastic outcome. You know, we've had two offers. You know, the one shareholder, notwithstanding, that's a significant increase on our trading price.
One shareholder even worth more, which is what a great compliment to the quality of the management team and the portfolio of assets that they've built. That even though it's a 50% premium, the indicative offers to the recent trading price, one well-informed, thoughtful shareholder thinks it's worth even more. So we continue to explore ways to identify routes to prove them right, to the benefit of all shareholders, or to deliver the best value possible to all shareholders by any other route. Part of that has been the establishment of the Independent Board Committee. It was necessary to delegate from the whole board, because there was a prospect of a couple of us having a conflict. I chair River Capital. I actually don't, in any way, involved in the fund's management of inside River Capital.
I really chair what is effectively the license holder. But there was always the belief that there could be a perception, even though I'm not involved in any of the decisions about how the money is managed or deployed or, you know, what decisions they make, that it was better for all that I wasn't involved to ensure that there was clarity of that. And Mel and Paul obviously have an association with GQG, and very quickly, GQG indicated they have a bid. So the job of running that process to try and see how we maximize shareholder value and see whether we can find an outcome that works for all shareholders fell to Jerry, to a very small group, Jerry, Gilles, and Peter Kennedy. Two of those are here today, as I said, unable to attend as he's overseas.
I'm now going to ask Jerry to give us a bit of an understanding of how that process worked.
Thank you, Tony. As has been announced to the public, the board of PAC has felt, has long felt that the company's shares have traded at a discount relative to fair value of the company. And as such, PAC has been actively engaged in a process to enhance shareholder value that included a couple of components. One was for detailed reporting, as at June 30, or 30 June, of the fair value of PAC's portfolio, so that investors assess PAC's value proposition, and performance. Also, conducting a professionally advised process to explore strategic transactions that may help PAC shareholders and the public, and the public markets more broadly, to more fully realize the true value of the PAC business.
As part of this step, we retained both UBS and counsel from Allens to assist us in exploring strategic alternatives. As Tony referenced, the good news in all of this is that we've received market confirmation that the company is worth more than PAC's stock price was trading for leading into this strategic process. Because of the importance to PAC shareholders, I'd like to take this time to provide you with information about the process as undertaken to date. Following the July announcements of River's involvement in the Regal bid, as well as the GQG Partners indication of intent to submit a NBIO, the PAC board also established an independent board committee, the IBC, as we'll refer to it.
Given the position of PAC's Chair, Tony Robinson, as Chair of the River Capital Board, and the positions of directors, Paul Greenwood and Mel Donnelly, as members of the GQG board, the IBC was subsequently formed, comprising myself, Gilles Guérin, and Peter Kennedy. To pursue its objectives, the IBC instructed UBS to conduct a broad and comprehensive process aimed at maximizing value for all PAC shareholders. As part of the process, UBS conducted a wide and global process to engage with a range of parties that may be interested in a potential acquisition of PAC. 11 firms in total from Australia, North America, and Europe, expressed interest in a potential strategic transaction with PAC.
Each interested party signed both nondisclosure and standstill agreements, in order to receive preliminary materials necessary to submit a non-binding indicative offer or NBIO. Of those, eleven initial firms, UBS and PAC management team met with five firms, to provide more in-depth discussions. Ultimately, two parties with the most compelling proposals advanced to what the IBC called Phase Two of the process. They were offered additional due diligence materials, as well as access to the IBC and PAC affiliates, along with several additional weeks, for deeper due diligence analysis. Throughout our initial process, as well as Phase Two, we worked diligently with UBS to ensure all parties were treated equally and consistently throughout the process. This means we periodically rejected requests to provide preferential treatment to any parties.
Although Regal announced the withdrawal of its NBIO on 28 September, GQG continued to progress through the Phase Two due diligence process. GQG recently noted to the IBC that its due diligence efforts are effectively complete. As you may have seen in two recent ASX announcements, both a GQG offer and a draft River offer were presented to the IBC for consideration. Neither offer, as presented, was achievable. Given this outcome, the IBC is ceasing its work to find a buyer for the entire business. However, the company intends to continue to explore specific alternative ways to work constructively with interested parties to achieve an outcome for shareholders that reflect the value that has been created. Of course, there is no guarantee that we'll be able to reach a satisfactory resolution.
In the absence of any sort of transaction, we will continue to be watchful of costs and additional revenue opportunities, most notably, by managing outside capital. We remain confident that transaction or not, PAC is well positioned to have a very strong year. And, Gilles and I will be available for questions during the Q&A portion later in this meeting. So happy to answer any questions you might have at that time.
Thanks, Jerry. We now come to the formal part of the business. The first item of business is the receipt and consideration of the 2023 annual report of Pacific Current Group Limited, and there's no resolutions to be considered by shareholders. The 2023 annual report contains the financial report, directors' report, and the independent auditor's report. A copy of the 2023 annual report was made available on the company's website, the ASX platform, and was sent to those shareholders who requested a copy. The financial statements have been approved by the directors and audited by. I'll take the 2023 annual report as read. Questions may also be asked of the auditors in relation to the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the company, and the independence of the auditor.
At this time, I'd like to take any general questions or comments about the 2023 annual report or for the auditors. No questions for the auditors were received. I did, however, receive a number of questions from one shareholder, which I'll ask Paul to briefly answer. Paul?
Sure. Thank you, Tony. I have a list of five questions we received from a particular shareholder. The first question was: the spread between NGA and the share price is clearly becoming wider through continued FUM growth since the boutiques were originated. Surely, the time is right to commence a share buyback to narrow the gap if the takeover doesn't proceed. Our response to that is, we are certainly willing to consider buying back shares at the right price, and that is one option we would consider if there's no PAC transaction. To remember, however, is that it's very rare for our company to be in a situation where we can do this.
This is because, so often we are in well-advanced discussions to either buy a significant new asset, or one of our portfolio companies is in advanced discussions to sell a significant piece or all of their business. Because of that, we are - that material, non-public information, we are frequently, more often than not, precluded from transacting in our own stock. And that's, you know, it's a question we've received a lot, and that's, you know, it's unfortunate that that's just the nature of our business, that it makes buybacks difficult, not - though not impossible. Question number 2 was: What boutiques will likely move from Tier 2 to Tier 1 in the next 12 months?
I think I responded to that, or I actually addressed that in my opening remarks, is that we are classifying Cordillera, Avante, and Pennybacker as Tier 1, two of those investments, new investments, while Aether is being moved from a Tier 1 to a Tier 2 because of slower than expected fundraising progress. The next question is: is Victory Park likely to proceed to an IPO in the short to medium term? Answer, the question four, within commercial real estate, comment if there's any impact on the boutiques with redemptions or capital raises. The capital raising market has been more difficult since interest rates started moving up. This is particularly true in real estate.
That said, one of our two real estate investments, a firm called Pennybacker Capital, has bucked the trend and raised a large fund over the last 18 months, while also getting a new product. Our other real estate, Banner Oak Capital, has not been attempting to raise capital, given the current market conditions, but will once things stabilize. Decline in some real estate segments has had a slight negative impact on our revenues, but not enough that we would consider it at all material. Indeed, we expect revenues at both Pennybacker and Banner Oak to grow in this fiscal year. Question number 5: can we get an understanding of staff numbering and why the employee costs are relatively in relation to revenue? The employee count at Pacific Current Group has been remarkably stable at 19-20 for at least five years.
Keep in mind the scope of what those 20 people do. They provide distribution service, services, boutiques in North America and Australia. They do all the financial reporting for our company, which is far more complex than most companies. They review 150 new investments a year, execute all those investments and dispositions, and manage all of those relationships, all while providing the operational infrastructure necessary to be a public company. The investment management is a very people-centric business in terms of the cost structure. It's worth reminding people that our business is largely a fixed cost business, which means our operating leverage is immense. We can't lose costs from where we are today without reducing capabilities. However, the incremental expenses associated with growth are exceptionally low and at times approach zero.
For instance, if to the extent, you know, we expect our revenues to grow dramatically this year, and that will have no sort of direct link to any expense growth. With regard to Question on employee expenses. If you look at underlying employee expenses, which includes cost of salaries and bonuses, it has been managed very well. In AUD terms, it has grown about 3% a year over the last four years. In U.S. dollar terms, which is more appropriate, since that's where most of our cost structure is. It's actually grown at about 1.5% a year, which is far lower than inflation. That is all the questions we received.
Thank you, Paul. I would say also, just on costs, there's roughly AUD 18 million worth of costs, you know, in the business, and we manage about AUD 500 million worth of fund. If I think of this business, you know, in four parts, one is the, the pool of funds, 500 million. I think of running a fund manager, and you know that we are thinking of that as a fund manager because we're now trying to raise money, for that fund manager to raise, to manage on behalf of others rather than just managing the balance sheet money. We've got a sales team out there, and we run a public company.
Of the AUD 500 million, a fair fee to pay the fund manager is about 1.5%, so that's AUD 7.5 million. The cost of running the fund, transaction fees and audit fees associated with unit pricing, et cetera, of that fund run at about AUD 2 million. The sales team run at about AUD 4.5 million, and they run at AUD 4.5 million on a break-even basis through the cycle. The sales cycle, the way the accounting works is that you bring into account all of the revenue of a sales achievement in the year you do it, notwithstanding the cash is received over a 3-year period. And it costs about AUD 4 million to run the public company. It's expense on audit and listing fees and so on.
So that's really the dissection of the AUD 18 million. AUD 18 million is really AUD 13 million net. If the sales team run at, you know, at break even through the cycle, which we know they do, we've looked at it. Of that 13.5, 3.5-4 is the public company. And as I said, there's probably AUD 2 million associated with the fund and transaction fees. So the real cost of running the money is about AUD 7.5 million, and that represents about 1.5% of the funds under management. And by comparable standards, that's, you know, at the low end, we're often going into fund managers who are charging 2%. So it's a good question.
Maybe we can do better at explaining it, in the way we report to shareholders, but we're very comfortable with that structure. So, before I move on to the next item, are there any other questions anyone would like to ask?
Thank you. Chairman Peter Rae, I'm representing the Australian Shareholders Association. I'm holding proxies for around 17,000 shares in PAC. Just a quick question. I thought if, tell me if I'm not correct. I thought one of the items on the slide up there said that there would be no franking the dividend next year. Is that correct? And just wondering what is?
Yes, good question. I'll let Ashley explain that, but I can give you the answer why that, why we're in that situation at our point in time. It's simply we don't really have any significant Australian earnings contributions. All our blue chips are offshore, or almost all of them, Rock's an exception. But and the profit out of Rock versus the costs in Australia of significant number, the public company costs are Australian expenses. So there's no Australian profit to create Australian tax liabilities that in turn create a franking credit. So the profit that we earn is, as I said, offshore. There's no franking credit generated by tax paid on offshore earnings to offshore governments. Ashley, next 2025 is the last year?
No.
This is the last year we will have any franking credit. 2025-2030 with zero.
So the interim dividend that we paid recently was 2/3 franked. So that exhausted-
That's it.
- our franking account.
So no franking.
So therefore, there's no more franking credit and no foreseeable opportunity.
Another question?
Yeah, sure. Just to follow up, so the profits generated offshore could they be repatriated to Australia to generate tax here in Australia? Is that a-
No.
- possibility?
By the time you've earned the profit, you're just transferring after tax. Thankfully, there's no additional tax payable when it arrives here, but there's no way for that, you know, for any structure to be created that would see it come in as revenue rather than transfer of profit. If it was revenue, maybe it could be, but no, there's no way of doing that. That, you know, yeah, I mean, there's just no way. I'm trying to say to get into any arrangement that would be, you know, anywhere near close to the tax boundary. So, we just treat it as it is, profit earned in that country. We've paid tax in that country, and it's remitted back as
Yeah.
- you know, retained earnings back to the Australian business.
Yeah, sure. Thank you.
Thanks. Any other questions?
John Huskey from holding proxies for Bellwether Investments. I just want to firstly thank the board for the increased disclosure through the year. I think the transparency now on the portfolio makes it much easier for investors to understand. Particularly interesting from our perspective is the Fair Value Adjusted NAV, and again, the bridge was easy to understand. But the Fair Value Adjusted NAV, the AUD 11.92 is conservative. Does that mean that the expectation when we go to realize those assets over time is that we will achieve a higher price than that?
Well, I'm going to have a go at this first, and then I'm going to hand over to Paul. The answer is twofold. The first, you know, I know you know this, but we can't actively sell a shareholder. And that's because we need their permission, and it's unlikely they'd give us permission. So if I think about this, you know, in three places, a way to think about value, and each of them is arbitrary. The first is what's our estimate of the present value of the future cash flows associated with that investment, and that feeds back into what the underlying boutique will be doing. That's always a complicated process because the auditors can't do anything that isn't complicated. No, that's unfair.
But it's a complicated process because what discount rate do you use? But also it's arbitrary because, you know, when you think FUM is a guess. You know, and one of Paul Greenwood's great lines, you know, is that past performance is no indication of future performance, but it's a very good indicator of future fund flow. So good performance, you know, and you don't know when an organization will have a period of bad performance, and that can dramatically alter the expectations we've used in our cash flows about when FUM will arrive. So discount rates and timing of fund flow, and you know, what drives that is obviously performance are guesses.
I've talked to the auditors about we should come up with a normal distribution of all possible valuations using all possible variations on, you know, discounts within a range and also fund flow, and then maybe take the mean of that or pick a value that's within ±5% of that mean. But they are just an infinite range of possibilities using that approach. There's then try and guess what our value would be if we tried to sell it and with permission, and we assumed that the party that we were seeking permission from would use that opportunity to squeeze us, you know, as minority shareholders can. You know, majority shareholders can, for minority shareholders looking to transact. And the last is what we're likely to get.
Majority shareholder decides to sell, and they've got a vested interest in getting the best price, and we're forced to tag along. The answer is, if you take that last one, we like to think that the numbers are conservative. We like to think in a sale, which we have no control over and therefore isn't relevant for accounting purposes, we'd like to think that we can achieve or that the owners of the majority of those will achieve something that is better than our fair value. And our history says that's been the case, you know, Aperio being a nice simple example. But, but broadly, there's a lot of views of values.
Our comment on conservative is related to one view that's completely outside our control, but history says that on realizations when we're being dragged along that we've achieved results that have been fair. Paul, do you want to add something to that?
Yeah, I, I, you. T hat's a great response, Tony. I, I just two things. One is, I know there's a lot of accountants in the room that will correct me if I, but, but the, when, when valuing these companies, their value for statutory purposes, or they're, they're valued at, at sort of an in-use or what, what do we call that? Right? So sort of like you hold it forever, not, not intending to sell it. I think the interesting thing is, theoretically, our port if all our portfolio companies decided they want to sell their businesses, and ran, a competitive processes to do that, we'd undoubtedly fetch more than $11.92. If we try to get them to sell their businesses, we first of all, we have no ability to compel that.
But, you would undoubtedly, if you could, you'd get far less than that. So it, it's so, I actually think I sort of like where that fair value sits, because it's sort of, to me, a realistic estimate of probably what they're worth, adjusting for the fact that most of them aren't going to engage in a process to sell in any, you know, maybe one a year or something like that. So.
Just one, you know, simple illustration of value, you know, and, you know, in this business, trying to come up with a value at, you know, year-end, you know, is, you know, we've now got a methodology that we've got consistently. But, you know, the only thing you know is the number that we come up with, at year-end. The only thing with absolute certainty you know about that number is it's not right. Firstly, you know, when you come up with a number, there's a time that's passed since the date you're trying to estimate the value. You're looking backwards at a thirty June moment in time.
Because there's so many variabilities, you know, in that, you know, in that, calculation, and there's therefore almost an infinite number of others, the chance you've got the one that was right at that time is all better. You know, in a way, perhaps the best example, you know, of that, all of these businesses are key people dependent. So you aren't even guessing to an extent on the longevity of the key individuals in the business, and there's no better illustration of that than the fabulous investment team. If you hear half an hour beforehand, before anyone else in the world, that Rajiv Jain at GQG has died, sell the shares or buy a massive number of shorts, because the price of GQG will decline significantly based on, you know, the, you know, the existence of one person.
So valuations are enormously arbitrary, you know, arbitrary process. You're trying to do the best you can to give comfort to shareholders, you know, both that you've got a good process and that it's applied consistently so that the movement over time becomes as important as the absolute value. If you ask another question, Josh, I'll give you an even longer answer to what?
So the other input to the valuation equation was the way that people think about the costs. And, you know, the costs can generate more investment managers, more investments, and contribute to growing NAV. i.e., they can be, you know, an asset in a way, or they can detract from value because they're a cost of management. And, you know, the issue, not the issue, but the issue for Pacific Current, in a way, is a lot of your investors run their own funds management businesses.
Yeah.
They think about, you know, their revenue encompassing the cost of both the investment team and the distribution team and the finance team. That all fits within a, you know, 1.5% management fee, using your example, and they manage to earn 50% margins on that.
Yeah.
I understand the breakdown of the cost is helpful. I understand that the public company adds complexity.
Yeah.
And I understand that investors can see the total fee as the total cost, but just from the efficiency of the business that we are running in here-
Yeah.
How should we think about that cost base?
So we invest in a lot of businesses that charge 2%. There's probably funds that you've seen that run at 2%, you know, even 1.5%. At 1.5%, as a general rule, the cost of establishing the fund is treated separately. You know, including the audit fee, is not borne by the fund manager. So if I say that of the AUD 18 million of expenses, AUD 3.5-AUD 4 million are related to the public, and no other fund manager has that burden. So I'm now down to, to give them as easy AUD 4 million, to AUD 14 million. And I say that it costs us AUD 4.5 million to run the sales team, and that's break even. So our AUD 18 million is really, thirteen and a half net.
But if I go back the other way and say 18 less 4, and if I start reporting the sales team net of revenue, which is something we probably should do, so that people can see it's not 18, it's a net 13.5. But if I say those two 3.5-4 and 4.5, if I take the aggregate of those as 8, I'm left with AUD 10 million of costs. 2 of them relate to transactions. It's an expensive business to execute. We're buying and selling in a year, and the audit of it is expensive, especially the tax accounting plus the audit process to come up with a unit price, and that's roughly two. That leaves 8. 8 on AUD 500 million. We're saying now AUD 11 a share.
There's 50 million shares on issue, so 550. 8 on 550 is about 1.5%. You're saying 1.5% is reasonable. We would agree with you to be able to run it at 1.5%. But the beauty, if we can get a AUD 400 million fund up to run with of external money, and we can earn a 1.5% fee on that, it's AUD 6 million. Paul said that there's almost no incremental costs associated with that. So, you know, instantly, we're probably running at about 50 cents in the dollar. We definitely have a scale issue, and we've been very upfront about that, and it's why we've been reluctant to pay too much out as dividends or do buybacks, because it just compounds the scale benefit.
We could easily run $400 million in US dollars, so I'm translating those in Aussie dollars to get the 50 cents on the, 50 cents on the dollar. But at 1.5% break even, yeah, we'd love it to do it. We know it's a scale problem. We're most of the way through. Obviously, the IBC process, you know, the sale process disrupts the fundraising. I think we're reasonably confident leading up to that of $400 million. We've had expressions of interest, so the fund would have been $400 million, and that, that would have got us to the 50 cents on the $ 1.5.
I also think, and as I mentioned earlier, it's a fixed cost. It's a fixed cost business, just saying it in a different way. And this year, you know, we should have pre-tax EBITDA margins. Yeah, we should have EBITDA margins, I would hope, well above 50%.
But again, remember that you've got to think of that when we talk about that, and, and maybe it's something we start doing. Half of that goes to the fund. You know, our fund manager breaks even. So but it's a great return on the AUD 500 million. And again, the same thing, you know, just a reminder of how well the executive and the board have actually done. They've built this business, you know, from, you know, a spot where there was, you know, a radically less high performing and outstanding caliber set of, you know, assets in the business. Gabe, might you introduce yourself?
Gabe Neri from Bellwether Proxy here.
Well, I don't think we've seen your proxy, Gabe, have you? No, that's okay.
Appreciate the color on buybacks. That's, that's helpful. I guess, given how significant the gap between fair value and the share price is today, would it make sense to pause transactions until that gap has been closed?
Well, we know that if you pause the transaction, it's way more likely. All, you know, there's many futures. At any moment in time, looking forward, there's always lots of futures. There's always lots of different possibilities of what they might be. One possibility is that if we pause it, it'll return to fair value at AUD 11. It's much more likely that I think, that it'll return to AUD 7, where it was pre-commencement of a process. So, yeah, we could pause it, but as I said, it's I think, more likely that it goes down to trading value than up to realization value. We think that, you know, we've always said fair value is great.
We've always said that if, you know, we've acknowledged and always made the point that, you know, we expect that to be a conservative number if we're dragged. So, pausing it might allow us to restart, but it definitely, not definitely, it's unlikely to see the share price improve. If I was betting, I would say that it would go down. And it's like all things, trying to find, you know, a point I've made consistently, you know, the board's always got a different agenda to any individual shareholder. Each individual shareholder has an agenda that they need to be pursuing. The board's agenda is to look after all shareholders, you know, as a whole, which is a, you know, a much more average, you know, average process.
But seeing the share price go back, to, you know, the level that it, it was, and that significantly larger gap is certainly something we'd like to avoid for all shareholders, some of who have to sell today, or tomorrow, or the next day. They don't necessarily have the luxury of taking the same long-term view as do, and therefore, others bring a different agenda.
Sorry, to clarify, does it make sense to pause asset acquisitions until that gap has been closed, given that acquisitions prevent us from doing buybacks?
Well, we have paused. We've been forced to pause asset acquisitions. You know, yeah, we completed one, Avante. It's an outstanding, you know, acquisition. If you're, you know, grading ones that are gonna sort of really take off and create significant value, Avante would be sort of among them, probably, in my lifetime, you know, the one with the highest upside. You know, GQG, obviously, the one that delivered the most. But yeah, we've been forced to, Paul, do you want-
We can't control minority, isn't it?
Yeah, I would, I would say that, you know, in order to get the fund up and running, a fund, or I should say, a pool of capital, to, to manage, because I think that allows us to monetize an existing capability in the business, right? And, and, you know, just in case, you know, Tony mentioned sort of a circa $400 million vehicle. If you were able to get that standard, fees for that are probably between 1.5% and 2%, and that, that four hundred would be a, a US target. So now you're talking, you know, $9 million of sort of incremental, revenues that could, could hit the bottom line.
I think, you know, depending on where we are, that if we can get that momentum to the fund, then that, even if PAC was going to invest, it would be investing at much smaller increments because it would be investing alongside so much more capital. So...
But the other thing, the point to make on it is that, you know, firstly, Nelson has just made the point that, you know, we're almost fully deployed, you know, anyway. And we aren't in control of the timing of the sales, and we don't know when we would have more money to do. We could draw a bit more on debt, but of course, no one wants to get involved in a, you know, a business selling to a business that they're not really selling to. You know, yes, look, I'll sell some of my shareholding to Pacific Current, but who am I really selling it to? So it's been stopped. The process has stopped it.
Maybe just-
The last, the last observation, Gabe, is the same one I've made, that if you do, release some funds, you know, you've got two, two problems. One is there's a drag for a public company. There's an uncomfortable drag because you're sitting on cash, and the difference, it's better now that interest rates have risen, but the PNL drag from the absence of the fully deployed capital is significant on the PNL, and to at least some extent, we're priced off the PNL. And the other is, you know, using cash to buy back increases the scale issue.
You know, eventually, if I've got to make a choice that you're winding up the business and writing it off, you're finding a buyer for the pool of assets, or you're continuing to go forward to try and reduce the scale issue by, you know, deploying retained earnings.
Thank you. That's, that's helpful. A business update would be great to hear if there's been any significant fundraising in the key boutiques since the result, particularly Victory Park, Pennybacker and Aether?
Victory Park, Pennybacker and Aether. So we've announced, obviously, at the end of October, put an update out there that had the latest numbers. I'd say I don't think anything has changed from that, aside from, I think, Pennybacker has secured some additional commitments. But that's the only thing that's changed since our last public announcement. Yeah.
Any other questions? Brilliant. There are no more questions. I'm now going to move on to the next item of business. The remuneration report. The first resolution of the meeting is the adoption of the remuneration report. It's an advisory resolution and does not bind the directors or the company. I've already made comment on this report. You know, it's contained within the 2023 or made comment on the vote, so I won't spend a lot of time on this. It's in the 2023 annual report on the company's website, have been posted to shareholders, so I'll take it as read. Putting the resolution before the meeting, the proxies are behind me.
We'll advise shareholders, the company will disregard any votes, as stated in the voting exclusion statement related to Resolution 1, as set out in the notes for meeting. Note that each director has a personal interest in their own remuneration from the company, as set out in the remuneration report. The directors unanimously recommend shareholders in favor of it. But as I said, we do note that this resolution is not going to reach the 75% required. We do think that's not a comment on the remuneration arrangements or disclosure, simply because none of that's changed in any material over that 12-month period. But we will be talking to shareholders to ensure that's right.
If there's no further discussion, I'll now put the resolution to the meeting and the proxies received in relation to this resolution. As I said, they're shown before me. I'll pause for a minute to allow for voting, and then I'll move on to the next res. Claire's asking me something? Oh, I'm assuming there's no questions on the REM report. Any questions? You're right. I should have... Thank you, Claire. I'll now move on to the next resolution. Resolution two and three are each to be considered as ordinary resolutions and must be approved by a simple majority of the votes cast by shareholders, present and entitled to vote on the resolution. Resolution says, the most important resolution of the whole day, and it involves my reelection. I'll hand over to, Gil as the lead independent to, to deal with that.
Thank you, Tony. Good morning to all. So Tony Robinson retires in accordance with the company's constitution and being eligible, offers himself for election as a non-executive director of Pacific Current Group. Tony Robinson joined the board on August 28, 2015, as a non-executive director. He became an executive director on April 20, 2016, before resuming as a non-executive director on September 1, 2018. Tony was appointed as chair of Pacific Current on October 1, 2018. Tony has significant expertise and experience across a number of industries, including banking, financial services, telecommunication, and transport. He is an experienced company director and chief executive officer. He is currently managing director of PSC Insurance Group Limited, ASX PSI, and chair of River Capital Property Limited.
Tony holds a Bachelor of Commerce and a Master of Business Administration from the University of Melbourne. The board considers that Tony, if elected, will not be an independent director due to his position as non-executive director and chair of River Capital Pty Limited. Further information in relation to Tony's background and experience is in the notice of meeting. The resolution is set out on your screen. This director wills Tony abstaining, recommend shareholder vote in favor of the reelection of Tony Robinson as a director of Pacific Current Group. Are there any questions or comments? Is there... Yeah.
I think Tony indicated earlier that, with the replacement of Peter Kennedy as a new board member, that Tony would probably take over as chair at some point. So just interested in Tony's comments on, on, standing in the future.
Well, I've a lovely question. Thank you, Peter. It's a, yeah, I love it. I think it's a great business. We've been involved with some wonderful people. I've been involved with some wonderful people at the, you know, at the board. But it's, yeah, definitely time for someone new, in that role. You know, we've started the process, started to talk to shareholders about names, and we'll hopefully quickly find someone.
Thank you.
If there is no further questions or discussion, I will now put resolution to the meeting. The proxies received in relation to this resolution are shown on the screen. Please complete your voting card for resolution. I'm now handing it back to you, Tony.
Well, I'll wait for the end of the poll, but very supportive proxy, so thank you everyone, who voted. The next resolution of the meeting is to consider, and if thought fit to approve in accordance with ASX Listing Rule 10.17, and Article 7.3B of the company's constitution, the increase in total aggregate maximum annual remuneration payable to the directors of the company, by the way, of directors' fees from AUD 750,000 to a maximum of AUD 1 million. The increase is proposed to take effect from the first of July 2023. Further information about this resolution is also in the notice of the meeting.
Before putting resolution 3 to the meeting, I'd like to advise shareholders that the company will disregard any votes as stated in the voting exclusion statement related to resolution 3, as set out in the notice of meeting. In the interest of good governance, the board does not make a recommendation to shareholders in relation to this resolution. The resolution is on the screen. Are there any questions? If there are no further questions, I'll now put resolution 3. The proxies received in relation to this resolution is shown on the screen. Please complete your voting card for resolution 3. It's important that you do complete the voting, because I am about to close the poll. If anyone has a form that they're holding onto that they haven't marked, now would be the time to be doing that.
Ladies and gentlemen, that concludes the discussion and voting on the resolution of the meetings. The voting system will close at the end of the meeting. Once voting has been closed, all voting will be final. It cannot be changed. Can you please check that you've voted on all the resolutions? The returning officer will collect your voting forms. That concludes the-
Tony, have you closed with this?
Nope. Just realized that. That concludes the business as set out in the meeting. On behalf of the board, I'd like to thank you all for your support, attendance, and participation today. The polls take some time to count to obtain the final results. As advised earlier, after the votes have been counted, the results of the poll will be released to the ASX as soon as possible. Before joining the meeting and management for light refreshments after the meeting, I now declare the meeting closed. Thank you all.