The time is just 9:00 A.M., or just 9:01 A.M., according to my phone. Good morning, ladies and gentlemen, fellow shareholders, colleagues, and visitors. Welcome to our 2023 annual general meeting. Thank you for taking the time to join us in person at our new Sydney office, which I hope you've been impressed by, and online. I begin by acknowledging the Gadigal people of the Eora Nation, traditional custodians of the land on which this AGM is being held, and pay my respects to elders past, present, and emerging. My name is Alan Watson, and I'm the Chair of Pinnacle Investment Management Group Limited. Before we begin with today's agenda, I'd like to introduce my fellow board members. First, on my right, we have Ian Macoun, our Managing Director. Then next to Mr. Macoun, we have Ms. Lorraine Berends, Ms.
Deborah Beale, and on the far right, we have Andrew Chambers, our Executive Director. Also here today, and I'll ask them just to raise their hands so shareholders can see them, we have Mr. Calvin Kwok, our Company Secretary and Chief Legal and Commercial Officer. Mr. Kyle Macintyre, who's at the back, Head of Wholesale and Retail Distribution. Ms. Caitlin Pierce, who's our Sustainability Manager. Ms. Monique Bateman, who is around the corner, and she's our Chief Risk and Compliance Officer, and, yes, she's keeping a close eye on us all by video, I'm sure. And Mr. Dan Longan, who's our Chief Financial Officer. I'd also like to welcome the company's auditor, Mr. Ben Woodbridge, from PricewaterhouseCoopers, who's here to answer any questions that shareholders may have in relation to our 2023 financial statements.
The next slide that's on the screen contains important information and disclaimers in relation to the presentation, and I encourage shareholders to read it and take it in. Okay, turning to the agenda for today's meeting, it's as shown on the screen. The meeting will commence with the formal business. After that, Ian will provide an update from the Managing Director. I've been informed by our Company Secretary that we have a quorum, and I now declare the meeting open. I'm also advised that there are no apologies recorded prior to the commencement of this meeting, and that the notice of meeting was sent to all registered members within the notice period required. I will now table the notice of meeting, and unless there are any objections, I will take the notice convening this meeting as read.
I'll now proceed to the formal business of the meeting in the order that it appears in the notice of meeting. There are four items of business to attend to, being the formal tabling of the 2023 financial statements, the adoption of the remuneration report, the re-election of two of the company's directors, and issue of shares to Andrew Chambers as part of our Omnibus Incentive Plan. Shareholders may ask questions prior to each resolution being put to the vote. Shareholders in the room, in person, please raise your blue or yellow card if you would like to ask a question. Shareholders who are joining online, please click on the Q&A icon. Select the topic your question relates to from the dropdown list, type your question in the text box. Once you've finished typing, please hit the Send button.
Shareholders joining online who would like to ask verbal questions, please follow the instructions below the broadcast window. You'll be placed in a queue to ask your question. When it is your turn to ask a question, the moderator will advise you to introduce yourself and ask your question. I request that shareholders limit themselves to two questions, and only ask questions at this time in respect of matters relevant to the item of business being considered. Questions may be moderated or amalgamated if there are multiple questions on the same topic. Ian will be providing a full update after the formal business of the meeting has been dealt with, and there will be an opportunity for shareholders to ask general questions after that. Now, voting. Persons entitled to vote are shareholders, representatives and attorneys of shareholders, and proxy holders, all of whom should be holding blue admission cards.
If you are attending in person, on the reverse of your blue admission card is your voting card and instructions. Please also ensure you print your name where indicated and sign the voting card. When you have completed your voting card, please lodge it in a ballot box to ensure your votes are counted. If you require any assistance, please raise your hand. If you're joining online, please click on the Vote icon to access your voting card. Please select For, Against, or Abstain on each resolution. Please note there is no Enter or Send button, as votes are automatically recorded. You may also change your vote up until the time I declare voting closed. As noted in the notice of meeting, resolutions will be decided by a poll, which I now declare open. I will put four resolutions to the meeting shortly.
All valid proxies received have been recorded, and those will be reported to the ASX after the meeting. For shareholders' information, we will display on the screen prior to the consideration of each resolution, the proxy voting for each resolution. Okay, the first item of business is to consider the financial statements of the company for the year-end 30th of June 2023, together with the Directors' Report and the auditor's report, as set out in the annual report, which have been made available to shareholders. I formally table the financial statements for the year-end 30 June 2023, and the related directors' report, directors' declaration, and auditors' report. If I may, I will take all of these reports as read.
If anyone has any questions in relation to the financial statements, the content of PwC's audit report for the year, the accounting policies adopted by the company in relation to the preparation of the financial statements, or the independence of the auditor in relation to the conduct of the audit, please submit them now or raise your hand. Okay, there are no questions on that. The next item of business is to consider the adoption of the remuneration report for the 2023 financial year. The remuneration report is contained within the 2023 annual report and forms part of the directors' report. The remuneration report, excuse me, the remuneration report incorporates information required by Section 300A of the Corporations Act, and sets out the remuneration policy for the company, and reports the remuneration arrangements in place for key management personnel, including the directors.
Section 250R(2) of the Corporations Act requires companies to put a resolution to their members that the remuneration report contained in the directors' report be adopted. If anyone has questions in relation to this resolution, please submit them now or raise your hand. Okay, I'll now put the resolution shown on the screen to the meeting. The number of proxies received by the company as at 48 hours prior to this meeting are now shown on the screen. Please cast your vote on the voting card. Okay, the next meeting now needs to consider the re-election of two directors in accordance with the constitution. The constitution requires that one-third of the company's directors eligible for rotation, being all directors other than the managing director and any director appointed as a casual vacancy, stand for re-election every three years.
The directors to retire by rotation at each AGM are those that have been longest in office since their election or last re-election. Lorraine Berends and myself are retiring from office and offer ourselves for re-election. I will now hand the meeting over to Ian to chair the next item as it relates to my own re-election as a director.
Thanks, Alan. The explanatory statement attached to the notice of meeting provides information in relation to Alan. Alan has 35 years of investment banking experience within various global equity markets. During this period, he established, directed, and was responsible for the conduct of securities business both in Europe and Asia, advising many companies on capital structuring, initial public offerings, takeovers and mergers, and investment relations strategies. Alan has held positions as managing director at Barclays de Zoete Wedd Limited, BZW, Donaldson, Lufkin, and Jenrette Securities Corporation, DLJ, Lehman Brothers Holdings, and as head of Securities Europe for Macquarie Capital Europe Limited. If anyone has any questions in relation to this resolution, please submit them now or raise your hand. Okay. So we don't have any questions, so I will now put the resolution shown on the screen to the meeting.
The number of proxies received by the company as at 48 hours prior to the meeting for this resolution are now shown on the screen. Please cast your vote on the voting card. So it's, it's appropriate for Alan to now resume the chair.
Thank you, Ian. Turning to Lorraine, the explanatory statement attached to the notice of meeting provides information in relation to Lorraine. In summary, Lorraine has worked for 40 years in the financial services industry and has extensive experience as a director. In addition to the Pinnacle and the Pinnacle Charitable Foundation, Lorraine currently sits on the boards of a number of listed investment companies and also on Qantas Superannuation Fund Limited. If anyone has questions in relation to this resolution, please submit them now or raise your hand. I'll now put the resolution shown on the screen to the meeting. The number of proxies received by the company as at 48 hours prior to this meeting for the resolution are now shown on screen. Please cast your vote on the voting card.... Okay.
The next item of business is to consider the issue of shares to Andrew Chambers under the Omnibus Incentive Plan. Shareholder approval is being sought to grant 100,000 loan shares to Mr. Chambers. These loan shares form part of the company's FY 2023 remuneration program and are proposed to be issued on the same terms as the long-term incentive grants issued to all other staff, except that the issue price will be determined after receipt of shareholder approval. Noting that the price of grants are based on the VWAP, Volume-Weighted Average Price, for the five trading days immediately prior to issue date. If anyone has questions in relation to this resolution, please submit them now or raise your hand. Okay, I will now put this resolution to the meeting.
The number of proxies received by the company, as at 48 hours prior to the meeting, are now shown on the screen. Please cast your vote on the voting card. Please ensure that you've cast your vote on each of the resolutions. Okay, so shareholders attending in person, please lodge your completed voting cards in a ballot box, which is being around now. Okay, anyone else? Anyone else? Okay, I now declare the poll closed. The results of the poll will be announced to the ASX as soon as they are available. That concludes the formal business of this meeting. I will now hand over to Ian for an update from the managing director.
Thanks, Alan, and good morning, everyone. This slide shows the main topics that I plan to address today. Firstly, I'll review the key themes and outcomes for our company for the 2023 financial year. I'll briefly review the financial results for the 2023 financial year, then provide an update on developments during the first quarter of the new 2024 financial year. I will elaborate on the success that we have had during the past several years in executing on our strategy of increasing the diversity and robustness of the business, whilst delivering strong annual average rates of growth.
I'll explain how this has created an excellent platform from which we can continue to grow, both in Australia and internationally, in a variety of ways, with three mutually reinforcing horizons of growth, while being robust to the kinds of external adversity experienced in the 2020, and now the 2022 and 2023 financial years. I'll provide an update briefly on our most recent affiliates, and I'll share some detail on the strong progress that we have made in the really important area of corporate sustainability and the great work of the Pinnacle Charitable Foundation. As shareholders are aware, the 2023 financial year was a second consecutive difficult year for our company, following the deterioration in market and funds management industry conditions that began in the second half of the 2022 financial year.
The buoyant conditions in the world's share markets that prevailed throughout FY 2021 and the first part of the 2022 financial year gave way to weak conditions in the second half of FY 2022, most of FY 2023, and now the first quarter of FY 2024. The result was that our profitability for the 2023 financial year was essentially the same as for the 2022 financial year. About 14% above the record at the time, FY 2021 NPAT of AUD 67 million, when we had that big lift and doubled our profit from that of the previous year. As we stand here this morning, markets of many kinds remain extremely uncertain, and against that background, it is clearly difficult at present to predict this current financial year's outcomes.
Nevertheless, the diversified and high-quality nature of our business, which has served us well in the past, will serve to moderate the impact of negative factors in any individual asset class. The slide now showing on the screen has been extracted from our annual results presentation of the 2nd of August 2023, and sets out how we summarize the key themes and outcomes for our company for the 2023 financial year. Investment for future growth continued, particularly through our extensive Horizon Two program. Performance fees during the second half showed the benefits of our diversified platform, and new business conditions have remained challenging. We benefited during FY 2023, as we did in FY 2022, and this will increasingly be the case going forward from having further diversified our business, including increasing the proportion of FUM not exposed to listed equity markets. Our affiliates delivered strong relative investment performance.
Net inflows into private market strategies have remained resilient, with a growing product set offering these strategies to more end markets in Australia and overseas. We've achieved growing success overseas, importantly in distribution, and also in the quality of our overseas-based affiliates. Pinnacle and the affiliates all undertook substantial further investment that will add to capacity and add to the growth in our FUM and profits in future years. These investments have short-term negative profit impacts, but are well worthwhile. Certain market and style shifts significantly impacted our funds under management, and therefore revenues, during the year. Notably, Hyperion in the first half, and Resolution Capital, as REITs were marked down in the environment that prevailed throughout the year. Domestic retail market conditions have remained challenging, as have conditions in virtually all markets globally.
But we have further increased our investment in this important capability, both to maintain our strong relative positioning in the short term, but also to ensure that we are well positioned to prosper as we have in the past, as market confidence returns. I'll provide further detail on our profit, FUM, and fund flows shortly. Slides 20 and 21 elaborate these themes. The fact that we were able to hold to the FY 2022 NPAT, which itself represented some increase over the record levels of FY 2021, was a useful demonstration of the continuing benefits from the increasing diversity of our business, diversity of asset class and investment strategies of our affiliates, diversity of client type and domicile, and diversity of performance fee exposure.
Although we are planning to continue this diversification process for many more years, the outcomes we have delivered during this recent period of difficult conditions gives us confidence of the robustness of the business and our ability to continue to be resilient in the face of external adversity. I draw your attention here to point three: "Net inflows into private market strategies have remained resilient." We generated over AUD 2 billion of committed and/or drawn capital for private market affiliates during the year, more than AUD 900 million of which was from wholesale and retail investors. To point four, 30th of June, we had AUD 10.5 billion of FUM from 43 countries outside of Australia... having achieved more than AUD 5 billion of net inflows from offshore over the past 3 years. And overseas-based managers, Aikya, Langdon, and Palisade Americas, are going well already.
I've mentioned the large Horizon2 investments, the estimated impact of which on FY 2023 net profit was AUD 14 million. Our core business remains in good shape, notwithstanding the challenging FUM flow environment. The industry-wide retail market challenges have held back our results, despite the very high quality of our distribution capabilities. Slide 22 sets out the highlight numbers for the 2023 financial year. Our diversified platform demonstrated resilience in challenging market conditions, and we made very substantial short-term NPAT-retarding investments in support of future earnings growth. FUM grew 10% to AUD 91.9 billion. Retail FUM grew 8% to AUD 22.7 billion. Aggregate performance fee FUM grew 13% to AUD 34 billion during the year.
Shareholders are aware that we work hard to be a high-growth company, and we don't like to disappoint our shareholders by delivering anything less than high growth. Clearly, though, there is a significant degree of cyclicality to our earnings pattern, and the trajectory will not be a smooth, upward, straight line. What we have managed to date is very high growth during favorable market conditions, and then holding on to that success, although not sustaining such high annual rates of growth during market downturns, resulting in still high average annual growth rates. We have the very recent example of only single-digit growth in FY 2020. That was the initial seriously COVID-disrupted year. You remember markets dropped 30% all around the world that year, and this was followed by a doubling of profits in FY 2021, then low growth over the last two years.
The average growth in earnings per share is now 24.2% per annum over the last 5 years, even though this includes 2 recent down periods. We've always said that we cannot predict future market conditions, and that we would not be immune from any market downturns, but we have worked hard to make the company increasingly resilient. Market downturns are, of course, part and parcel of our industry. I'm old enough to have experienced many during my career, as have my colleagues. We can't predict precisely when we will come out of them, but we do know that recovery does inevitably come, and our job right now is to achieve the best possible outcomes in the current circumstances.
But at the same time, importantly, to keep our company strong and our high-quality capabilities intact and match fit, so we can continue rapid growth and take full advantage when conditions become more favorable. Slide 24 provides some further information related to this theme. It concludes with an expression of our confidence in our ability to deliver continuing earnings growth over the medium to long term. We note also that the FUM, with performance fee potential, has increased both in absolute dollars and as a percentage of the total FUM. We now have 24 strategies with the potential to deliver performance fees. During FY 2023, 11 affiliates earned performance fees totaling AUD 58.2 million, of which Pinnacle's post-tax share was AUD 14.7 million. Slide 26 provides details of affiliates' strong performance rebound during the second half of the financial year.
At 30th of June, 16 affiliate strategies were at their high-water marks, representing 57% of the FUM that has the potential to generate performance fees. Across the portfolio, 81% of strategies with a track record of five years or longer have outperformed their benchmarks. Slide 27 shows in graphs the growth of our FUM over the 17 years of Pinnacle's life to date. FUM has grown at a compound annual growth rate of 23.8% over the past 10 years. 22.2% if you exclude acquired FUM. The bottom slide shows the strong growth in retail and overseas-based FUM, and we've continued to win business into private market asset classes and from offshore. Turning now to the September quarter, the first quarter of this new financial year.
The aggregate of the affiliates' funds under management stood at AUD 90.4 billion at thirtieth of September, 2023. This was down AUD 1.5 billion, or 2%, from AUD 91.9 billion at thirtieth of June, 2023. This reduction was entirely due to changes in the level of asset markets as we achieved net inflows of AUD 200 million during the quarter. AUD 90.4 billion compares with AUD 80.5 billion at thirtieth of September, 2022, so it's up 12.3% on a year, and AUD 83.7 billion at thirtieth of June, 2022, so it's up 8% on the 15 months. The overall AUD 200 million of net inflows comprised AUD 700 million of retail.
Net inflows into retail, AUD 700 million, and AUD 500 million of offshore net inflows, offset by AUD 1 billion of domestic institutional net outflows. Total retail funds under management at 30th September 2023 stood at AUD 23.5 billion, which was up AUD 800 million, or 3.5%, from AUD 22.7 billion at 30th June 2023. AUD 23.5 billion compares with retail FUM of AUD 20.4 billion at 30th September 2022, so that's up 15.2% on the twelve months, and AUD 21.1 billion at 30th June 2022, up 11.4% on the fifteen months. Overall, equities markets had a negative impact on aggregate fund levels from the beginning to the end of the quarter.
The S&P/ASX 300 Index was down 2.2% over the three months ending thirtieth of September 2023. The MSCI World Index was down 3.8%. The Nasdaq, which is relevant particularly to Hyperion Global, was down 4.1%, and the FTSE EPRA Nareit Index, relevant particularly to ResCap Global, was down 3.7%. Headline net inflows were marginally positive for the quarter in markets that remained volatile and challenging. Retail net inflows were resilient, with notable inflows in private credit, private equity, and fixed income. International momentum is continuing to build, with positive net inflows, particularly in global emerging markets and global equities, and ongoing growth of our internationally based affiliates. The Australian institutional market remains challenging, with asset class rebalancing and fund consolidation, presenting both an opportunity and a risk for us.
Markets ended the quarter at lower levels than at the start of the financial year, having been broadly higher in July and August. They were down significantly in the month of September, and at this point, they are generally down a little further during October to date. And again, most of the affiliate strategies have continued to deliver performance to expectations or better. Slides 30 and 31 provide the specifics of the five-year performance track records and of the 36 affiliate funds or strategies. Slides 32 and 33 provide further performance detail. Slide 34 updates on our more recent major industry awards. In slide 36, we remind shareholders that we think in terms of three horizons of growth. Horizon One is the main game. It is continuing to pursue net inflows into existing strategies of existing affiliates.
We remain very confident of our ability to continue to do that, particularly to continue to grow affiliate revenue. We conservatively estimate the capacity of the affiliates' existing strategies at AUD 400 billion. So there is plenty of Horizon One runway left, with attendant strong gains in operating leverage that will be accompanied by such growth. Horizon Two is the subject of an enormous amount of activity, both within Pinnacle itself and within all of the affiliates. We've stated that we estimate this cost in the order of AUD 14 million in FY 2023 to Pinnacle's bottom line NPAT. This is a slow, patient process where we invest now for medium-term gain.
But we have been doing this for a long time, and we have a strong track record of very high return on our past Horizon Two investments, not even including unrealized capital gains on the value of the businesses and strategies that we have built. We are confident that this will continue to be the case in the future for Horizon Two. We've mentioned specific Horizon Two initiatives in slides 39, 40, and 41, and in addition, slides 42 and 43 specifically explain Metrics Horizon Two activities. In relation to Horizon Three, which of course is where we use capital to buy into existing businesses. Slide 34 explains that our most recent transaction was the acquisition of a 25% interest in private equity and venture capital manager, Five V, in December 2021. Slide 49 provides an update on Five V progress since then.
We've explored many Horizon Three opportunities, seeking the characteristics set out on the slide. We seek investments that are strategically attractive and diversifying relative to the current affiliate composition. We would prefer internationally based opportunities, but also have looked at select opportunities in Australia. We seek asset classes that are in high demand from clients, including infrastructure, real estate, credit, and hedge funds. In the final analysis, we haven't so far progressed with any since Five V. We have remained disciplined and patient in relation to the quality of opportunities and their valuations. Slides 46-49 provide updates on our most recent affiliates, Coolabah, Langdon, Aikya, and Five V. I don't have time to go through these now, but we can elaborate on them during questions, including in specific sessions planned for later today and on Monday. Slide 50 commences the section on corporate responsibility.
Over the course of the year, we continued to progress our sustainability agenda, which is structured around three principal focus areas: purpose, people, and planet. Pinnacle affiliates approach responsible investment in ways that are most relevant to their investment strategies, with all affiliates integrating ESG considerations into investment decision-making. Our role in this regard is to support and advise. We do not take any part in their investment activities. During 2022, we formed the Pinnacle ESG Working Group, which is attended by key executives from Pinnacle and all of our affiliates, and is underpinned by a charter that Pinnacle and all affiliates were invited to adopt, setting out our combined commitment to corporate responsibility. Working together, we can be a much more effective force for good than operating alone.
This group has identified two key focus areas: supplier engagement and workforce diversity, with focus groups formed to work on each initiative. The Pinnacle Group Supplier Engagement Group is a collaborative initiative to maximize leverage in supplier engagements and promote key sustainable themes within our corporate supply chain. In December, we voluntarily submitted our first modern slavery statement. The statement details our commitment to partnering with suppliers, communities, and affiliates who respect and protect fundamental human rights. Over the year, we continued to promote a work environment of inclusion by introducing a public holiday swap policy and introducing a Women and Allies network across Pinnacle and affiliates. Most notably, we awarded 20 Women in Finance Scholarships to students across four universities. This is the fourth year of the program, which commenced in 2019 with just eight scholarships.
We currently have 6 former scholars in employment across Pinnacle and affiliates, and are committed to providing opportunities for all current and future scholars. We remain committed to reducing the environmental impact of our operations. This year, we introduced an intensity target to reduce our tons of carbon dioxide equivalent emitted per full-time equivalent employee by 60% by FY 2030. This target aims to hold us accountable for emission reductions while accounting for future company growth. The board and executive committee look forward to reporting our progress against this commitment in the coming years. Pinnacle is proud to have received Climate Active Carbon Neutral certification for our FY 2022 emissions, and we remain committed to maintaining our carbon neutral status each year.
Our commitment to carbon neutrality enables us to accelerate climate action in the near term as an interim solution, and support organizations like the Aboriginal Carbon Foundation to implement their fire management program. However, our primary focus remains on reducing our environmental impact. More detail is set out in our corporate sustainability report on our website, which we would encourage you to read. Slide 54 explains that total donations by the Pinnacle Charitable Foundation in FY 2023 exceeded AUD 620,000, with a further AUD 290,000 donated by affiliates. Slides 69-71 in the additional information section provides an update on the institutional and international markets and flows. Slides 72-74 provide an update on the wholesale and retail market and retail flows. We will likely discuss these further during question time. Just looking at slide 56 now.
So in conclusion, I would like to remind shareholders of the basis on which we remain so confident of our company's ability to grow and prosper, which is the strong funds management platform that we have built, and our highly regarded, distinctive business model. Slides 57 and 58 provide some further detail in this regard. Shareholders can be assured that nothing has fundamentally changed in your company's ambitions, strategies, and growth plans. We have simply had to show some patience in the face of market turbulence, and it is not the first time that we've had to do that during our 17-year history. That includes the commentary that I wanted to provide on the slides and on the performance of the business during the last financial year and the September quarter, Q1 of the current 2024 financial year. Thank you, everyone, for listening.
So, Ian, if you've still got any voice left, I think, we can take some questions, if anyone has any questions for Ian at all? Yeah, please go ahead and introduce yourself.
Geoff Rogers from Team Invest. Ian, you mentioned... Thanks for your speech, by the way, and everybody else, good year, I think. You mentioned about the. It's a comment you hear a lot about uncertainty in the future, and I, and I've been investing, not as long as you, but not far off, and it's always been uncertain. I just wonder why we keep saying the same thing.
Absolutely. I'm fond of saying, I can't ever remember a time where there weren't a lot of things to worry about out there. It's a complicated world. There's always, you know, it was Brexit, and, you know, there's always something. This has been, I think, a particularly uncertain and complex period, and this remains. So what's happened is that a couple of years ago, we had really a regime change in monetary policy. We had a huge period of time, wonderful Goldilocks. I don't think we appreciated how good it was, where interest rates were continually coming down. Because inflation had been so low, below central bank targets, it gave central banks, and even fiscal policy for that matter, the scope to, whenever there was an issue, they'd pump liquidity....
Now, unfortunately, about two years ago, it became clear inflation has emerged. It's real, it has to be dealt with. We don't want to go back to the seventies and eighties, where we had runaway inflation. So central banks started tightening, and they've effectively been doing that, in that mode for two years. We're now waiting to see, they have a tough job. They need Goldilocks: not too much, not too little. Things keep changing, they keep watching. I think the world and markets are waiting to see when that will settle down. Until it does, I think it's sort of heightened uncertainty. And although there's lots of things to, you know, to worry about, I think monetary policy, the discount rate, the level of interest rates, absolutely dominates investment markets, basically all asset classes. That's why we speak of particular uncertainty.
As we stand here now, as central banks keep weighing up, I say, we don't know when that uncertainty will mitigate. It will at some point, of course, but we don't know when.
Thank you.
Thank you. Any other questions today? Yeah. Morning.
Good morning. Now, Brian Allison, shareholder. I'm quite familiar with your strategy with your partnering, but you did allude to other strategies that you're developing, and it's not something that I understand. I'm not sure about the rest of the room, but and I just wonder if you'd give a little more detail on those strategies.
strategies.
Mm-hmm. Yeah, yeah. Maybe just the most important ones or the most promising ones that you think might be working on.
Yeah. So, we say frequently at the board level and executive level, that Pinnacle's future, our future strategy, there are certain things that are absolutely fundamental and will never change, and that is our basic business model. Our model of we believe in what we call the boutique environment. We call them affiliates rather than boutiques now, because some of them become so big that boutique may not be appropriate. But that particular environment, where talented investment people are set up in the right environment to maximize and sustain investment success. We believe in that. That's fundamental to our business model. But within that, the specifics of exactly what strategies, what asset classes and subclasses and geographies and so on, we keep an open mind. We need to be opportunistic to a degree.
We know broadly where we would like to travel, which more private markets, 'cause as we've mentioned, we want to keep diversifying. So more private market asset classes, more overseas. They are our directions of travel, but that's not to say that the more traditional asset classes don't have lots of room for growth, or that Australia isn't, doesn't still have opportunities for us, but that's the direction of travel. I'm sorry I can't be too specific, because we work in this very sort of secret, confidential world, where the things we're working on have to remain strictly confidential until we're in a position to announce them. So I'm always a little bit on the back foot in that regard, because we, we just can't be too specific. We just ask you to have faith. We've got a clear strategy, a clear business model.
We know what we're doing, and we're confident there's lots more opportunity out there for us, and we'll keep growing. We talk about our three horizons of growth, which are all different. Horizon One, the main game, is existing... You know, getting inflows into our existing strategies, which we've got big runway. Horizon Two, we're spending a lot of money off our P&L to grow, to build things. And then Horizon Three is where we buy into opportunities, as we did with Coolabah and Metrics and Five V. So, sorry, I can't be more specific than-
The only thing we might add there is that it is our experience that in periods such as this, you get unexpected challenges, not just for us, but for other organizations. We tend to find that that is more prospective opportunities for us when there's unexpected challenges in the environment.
Yeah, absolutely. Without ever compromising on our quality and growth requirements.
Ian, you look pretty fit. That's great. What's, is Horizon four kind of post Ian? Or, and I just wondered if you could touch on what the, or the board might talk about the succession, future planning for that eventuality.
There are two ways that Ian's going to leave. One, which none of us would have wished for, but...
Under a bus.
Under a bus or in a box. Ian will tell you that the first thing I did when I joined the company as chair in 2016, I think it was, was I got him to write down what would be his emergency succession plan, and we have continued to revisit that. I only tell you that because I think it gives a nod to the way we think about this all the time. I said in my Chair's letter this year, very specifically, that Ian had given his commitment to stay till December 2023, three years ago. I knew that people, or I anticipated that people, would start asking me, actually, at the full year results, what was going to happen. So Ian has always said he doesn't want to stay too long....
He doesn't want to hang around and be in anyone's way, and equally, he doesn't want to go when the business needs him. We, as a board, continue to have that dialogue with him about how that's going, and we're comfortable that now is not the right time for Ian Macoun to leave the firm. More importantly, and I can't speak for her, but Mrs. Macoun is equally comfortable that now is not the right time for Ian Macoun to leave the firm. And, we will find that opportunity in a sensible way as we go forward. Ian Macoun is here for the next period. I would say that generally, not only have we thought about our own succession, but we think about succession constantly within our affiliates.
So you will have seen from time to time, our shareholdings go up and down in the affiliates as we help the affiliates recycle their own equity to the next generation. We apply that principle to our own people, so you will have seen more, allocations of equity to our next generations of people who are around here, but less to someone like Ian, which is natural. So that process is continuing, but I wouldn't expect any, subject to us all being well and healthy, I wouldn't expect to see any immediate announcement on that front, which is consistent with what we said at the, report and accounts.
Perhaps just to extend that, to answer your Horizon Four question. We haven't talked about Horizon Four in those terms, but we have absolutely talked about the business being set for much more growth in the future. That absolutely is a fundamental objective of mine, to leave the company with this platform that we've built, that lends itself to a lot more growth in a lot more areas, to keep growing. We always said we're not building a business that will deteriorate when any particular individual leaves. We put a lot of emphasis on sustainability and longevity in our affiliates. We do the same in Pinnacle. Working with our board and my colleagues, we've got a deep bench of younger, very talented executives, which was a deliberate part of my succession planning, and the business will be in shape to go.
Yeah, we haven't called it Horizon Four yet, but it will certainly be in shape to continue to grow. That's the plan.
It's more like the Matildas. He, he, he hits it over and just let the slam clear, and they hit it in.
Doesn't seem to be on. Oh, there we go. Can you talk a little more about your success to date and, and future aspirations around international distribution?
Sure. Well, I'm actually going to let Andrew answer that question, I think, but let me just summarize this. I'm thrilled with it. One of the things that Andrew has been great about is the measured pace at which he's gone along doing this, and he's not going to say that, so I can say it for him. But by doing that, he's been able to get the right culture of people in the right slots overseas. It would be really easy to go over to New York, London, wherever, hire a headhunter, who would doubtless have a list of 55 people you can hire now for $X million each, and they won't be the right culture.
The most important thing that I observe, that Andrew's done in building this, has been getting the right Pinnacle-type people into those slots because they are our ambassadors on the ground. It's wonderful now that when we go to Canada and London, the first 20 minutes, I don't have to explain who Pinnacle are. I now have to say, "Oh, yeah, you're the Aikya people," or, "You're the Langdon people." That's the big change. But, Andrew.
Yeah, so there's obviously... Can you hear me, okay? There's over $100 trillion beyond our borders, which is managed by third-party money managers like our own affiliates. That compares with the local market here of AUD 3.5 trillion. So you think about the law of addressable markets, it's so much larger, the opportunities out beyond Australia's borders. So the future for the business is to be a global business that just happens to be domiciled in Australia for historical purposes. And it won't be too long, 5-10 years, before we have more FUM outside of Australia than inside of it. And that'll happen because we're distributing our existing affiliates overseas, of which we have about AUD 11 billion from 43 countries today, AUD 5 billion on net inflow in the last 3 years. But also the incubation of startups overseas.
We've seen Aikya, Langdon, Palisade Americas, and there will be more, because our business model is utterly unique in foreign markets. So the models you do see currently overseas are what we call succession buyout models, so Affiliated Managers Group, Natixis. There's a number of them which describe themselves as multi-boutiques, but effectively acquire large existing businesses rather than doing startups. And they don't provide large-scale centralized distribution to those affiliates and let them run their own distribution. Then at the other end of the spectrum, you have what you call GP staking firms. So Blue Owl, you might have seen in the press here, and others, they effectively take minority stakes in private markets firms, provide growth capital to these businesses. Again, they don't provide large-scale distribution, and they don't do startups.
So our model of providing large-scale distribution and infrastructure to startup businesses or providing acceleration to existing businesses through our centralized distribution and infrastructure services is utterly unique on a global stage. That really appeals to a lot of people, because we're maximizing self-determination and autonomy for our talented investment people on the one hand, but also large-scale distribution and infrastructure on another, on a non-compulsion basis. Most people can't stomach that type of, you know, environment, the level of accountability involved in our model. So it really translates across international boundaries, that business model, the ability to be very independent as a talented investment person, but get maximum support. It translates no matter where you go in the world and appeals to people. The word is getting out.
You know, when we talk to investment consultants, for example, in North America, and I explain to a chief investment officer or someone like Aon, who's the world's second largest investment consultant, our business model, they go, "This is absolutely wonderful. You're out there at the beginning of a manager's life rather than the end, which most of the other models are there. So can I recommend to you particular firms that I think are particularly good, that could do with, do with your assistance?" Now, this is from somebody who's allocating over $3 trillion of capital. You know, it's a very powerful business model when people really buy into that concept and help us actually grow themselves with these startups. So it's a business model that translates anywhere around the globe.
We've made a very good start, but then we have to go about hiring the right people in those roles to be like-minded in the way Pinnacle people in Australia are. And that can be difficult because sometimes we all speak English, but culturally we're saying different things. And I find this when I go to the U.S. or to Canada, to the U.K., we think we're saying the same things, but often we're not. So really understanding that, making sure there's that entrepreneurial drive, which is a feature of everyone that works inside Pinnacle in sales, they'd otherwise be working in a small business rather than a large institution. Having someone who can think across multiple affiliates and multiple products at any one time, so you become a solutions provider. You're asking the investor what they want rather than what I want to push to you.
You know, where is the problem you're trying to solve? When you're across all different asset classes, you can be a problem solver rather than a product pusher. They're very different demeanor when you're approaching investors. So it means we can talk to the same investor multiple times every single month with something different, rather than once or twice a year, because we can only sell one asset class. Very powerful business model. But you need to get a whole lot, whole lot of mental real estate in your mind about every single asset class, have a view on every single asset class and also all the managers, and articulate those very clinically to investors.
So you need particular types of people who are entrepreneurial, can deal with that level of density in their mindset as they go and talk to investors, but also can, they can operate independently and collaboratively. So our model is one of completely discretionary bonuses. We're not tied to particular sales targets, because we want people working just as hard on startups as they are on established managers. So that only appeals to particular types of sales people. Obviously, it's the equity long term that's really the thing that's motivating everyone in our sales team to grow equity value in what they hold within Pinnacle. That's the, that's the main game.
In terms of the hotspots, where are you gaining traction in those offshore distribution markets? Rather than Pinnacle itself in terms of-
Yeah, so of those 43 countries, they are quite dominated by the major Anglo-Saxon markets of the world. So the United States, Canada, the United Kingdom, New Zealand, South Africa, in particular. But obviously Continental Europe as well, particularly in areas like emerging market equities, a lot of the sustainability-oriented strategies, we see demand for those, particularly in Europe. It varies a lot in the United States, depending on whether you're in the middle of America or on the seaboard. Talking to state pension plans and endowments and foundations there. But the reality is, most of our strategies do translate into those foreign markets, and people are buying our domestic-facing asset classes, Australian only infrastructure, for example, in the United States, in the US. Sorry, in Canada or in Europe as well.
It's not just the global products, but obviously they're the ones which have the most appeal.
There have been some prospects working in Japan as well?
Yeah, we've had great success already. We hired a dedicated Japanese salesperson who's a dual Japanese/Australian national. He flies to Japan once a month. He also has a house in Japan as well as Australia. And we've established partnerships with several of the major trust banks and asset managers. You know, we'd have around about 24 independent corporate pension plans as clients today, mainly in Metrics Credit Partners. We've had balance sheet investments into Aikya from some of the largest insurance companies in the world based out of Japan. We have Japan Post Insurance, for example, as a client, one of the biggest insurers globally. So we've made enormous progress in, let's say, a three-year period. We're in a market which is very long savings, but short investments.
Japan's about $10 trillion, $3 trillion in pension plans, $4 trillion in financial institutions, and $3 trillion in life insurers. Again, they need to outsource a lot of those investments. Any other questions? Yeah.
Just around the Horizon Three investments that you've made. When you look at them, can you just give us maybe one that hasn't worked out, maybe the most disappointing one, and then the one that's really worked out? What have you learned? It's just interesting now, I don't know, when you're making this Horizon Three deal, probably far enough to do a postmortem.
postmortem is a bad choice of word.
Yeah. Yeah.
Yes.
No, no, under-
...
I understand what you mean. So look, without wanting to appear immodest, our strike rate is extremely high. Vast majority of everything we've done has been successful, to different degrees, but pretty much all have been very successful. It's really seven years since we had more capital, but Wilsons provided some capital even earlier, as Gary would remember, for ResCap.
... So all of the substantial Horizon Three investments we've made have been hugely successful. I mean, ResCap was quite a long time ago, and even though it's had a very tough 12 months, it's just transformed from a, an A-REIT, small A-REIT manager, it's now global and regarded as one of the best G-REIT managers in the world. The more recent ones, where the amounts have been larger, Metrics, like within 2 years it looked very cheap because we helped it to grow. Coolabah has grown enormously, that there are 4 slides in there with them. We also—we, we bought into Five V. We do this on a medium-term view. We didn't buy it for short-term profits, but they are delivering beyond what we could have possibly expected at the beginning. They're raising new funds, and they're just going extremely well.
The only one. We had Omega, that we bought into for, might have been AUD 1 million, it was quite small. We ended up absorbing that into Plato, so becomes part of something bigger, but that wasn't a great success. And a few lessons for us out of that, but we've had no significant sort of failures. And look, why is that? We say no to a lot of things that maybe other people would accept. So we're very careful and very conservative. The way these things work, they look a bit scary when you do them, at the beginning, because if it's high quality, you're gonna have to pay a fairly full price. And everyone says, "Oh, my God, did you overpay for that?" And then, so we're a value-add investor, not a financial investor.
We only invest in things if we think we can help them to grow more than they would on their own, which is a win for everybody, and it ends up being very cheap because we've grown it.
I think that's, you, you asked what's the lesson and the commonality? I think it's that.
Yeah. Yeah. So that's what we'll always-
When you say you learned lessons from it, like, ones that you came to?
Yeah. So, look, there was a lot of history there. We, we knew them for a long time. It was very sad. Their, sort of, business leader passed away from cancer, and we thought we could give them a lot more, sort of, business and commercial addition.
Acquisition.
Yeah. But in the end, they needed to be part of something bigger. And probably even, there was also the way quant was going. It used to be small quant shops were fine, now the world only wants big quant shops. So that's what they're part of. But, hey, we're learning all the time from what other people do, apart from anything, other people's mistakes we learn from.
When you see something like that, you just made the mistake. Well, do you see it as a cyclical? Is there going to be a time when-
Yeah.
we want small quant shops again, or is the-
No. So certain things out there are cyclical, but, I don't think so. The world is becoming so risk-averse and, the demands in the non-investment area is so big, which is why we've got, we've got the perfect model. We've got the best of both worlds. We can retain the boutique environment, which the market does love, but they don't have the fragility. So we... In the areas where scale benefits, in distribution and all the ops, et cetera, et cetera, they get the benefits of the size. So it's, it, it's working really-
To help Plato, hasn't it? Because it's got the-
Yeah, that's right. Plato is strong and has the ability to grow a lot more. So it's working well. And, you know, the asset consultants, they all say to us, "We love your model. It's the best of both worlds." Because the big guys can become bureaucratic and detrimental to the investment success. So they want the investment success, but they don't want fragile, standalone boutiques. We have to get off to-
One more question at the back from someone.
Hi. Actually, just two things quickly. Could you touch on the retail versus institutional fund profitability flows, that kind of thing? And then also, could you talk us through how you're thinking about the risks of the offshore expansion and growth?
Yep. So just quickly, retail is definitely a lot more profitable than institutional, all else being equal. It's more expensive to gather, because you're dealing with thousands of financial advisors and so on, and it's a particular expertise that I believe we have. Kyle leads that, and we think we're very good at it. But the fees, the margin, is much higher on retail FUM, and it tends to last longer, so it's attractive. But that's not to say that institutional, especially overseas, fees, all else being equal, fees are higher overseas than in Australia, in institutional, so that's nice as well. How are we managing the risks? Andrew talked a little bit about culture. I've talked a little bit about how careful we are. There are people who think we haven't moved fast enough overseas.
I think we've moved at exactly the right pace, and it's building and accelerating. We've always said we've seen any number of good Australian companies go wandering overseas and get slaughtered.... We're careful. We're very aware of that. As Andrew said, each market is subtly different. Same language, but something with different cultures. So we're very careful. I mean, there are no absolute guarantees, but we've found ways. With the affiliates we've built overseas, they've been great successes already. We can do the same thing. It's a little more involved when you buy things, but we'll be just as careful.
I'm going to be careful with time as well-
Yes.
- because I know we're under real pressure to go. But we've got one question from the web.
We do have one question from a shareholder submitted online, and that is: You mentioned that Horizon Two costs impacted earnings by approximately AUD 14 million for FY 2023. Do you expect that to be more or less in FY 2024?
So, obviously, I don't want to make any forecasts for FY 2024. There's too many variables swirling around. What we have said is that we think this is more or less a peak. Now, we say that with some trepidation, because honestly, what we spend on Horizon Two depends on opportunities that arise, and we don't want to say no to something terrific that might come up. So I have to be very careful. We've made the statement about it more or less being a peak, because people are asking, "Is it going to just keep growing?" And we said, "No, that's- we don't think so." So I think that's about as much as we can say. FY 2024, we're not making a prediction. We don't think it's going to be, you know, significantly higher.
A follow-on on that. Clarify the nature of those costs. Are they staff costs in terms of building a new product?
Yeah.
or legal costs?
No. Yes, all of the above, but staff is a big part of it. We're-
Ongoing investment. That 14 is almost like a baseline then-
Yeah.
-instead of revenue.
No, because what happens is revenue then comes. So we don't, we don't do a Horizon Two investment if we don't think it's going to be profitable within about three years. So that cost is a net cost. So what's costing us money this year for Horizon Two? So Aikya was a Horizon Two cost a couple of years ago. It'll be a substantial profit this year and much higher again next year. So it's not Horizon Two anymore. So no... Sorry? Exactly. And-
The cost line is ongoing, but what you hope is the revenue-
Well-
-expense, right?
We're very confident. Yeah, and so then the question is: What new ones are we going to be doing that will be negative for another period?
Thinking about it in those ways makes you analyze more specifically. Spend that on this new investment this year.
But-
It focuses the mind on what you're trying to do.
It does. We're-
As opposed to it just being swirled up in a big cost.
Yeah, and we're very careful about it. Remember, when it's done within affiliates, adding new strategies there, it's their money being spent even more than ours, the executives. So they're not going to do it if they're not very, very confident that it will become highly profitable. But you're correct, it is in the nature of an investment. And our orders are here. We could have a debate whether we capitalize those things. We don't bother. We just expense them. That's the net impact on-
Pinnacle.
-Pinnacle's impact, so the gross amount is a lot larger.
Okay, I'll tell you what I'm going to do. I'm going to formally close the meeting. I know that Ian and Chambers and a couple of the others have to head to another investor thing, but why don't... If people want to stay around and chat and ask me and Deb and Lorraine questions, and I'll then catch up with you. Is that fair?
Yes, it's, it's very generous.
Yeah, I know. So, if I could do that and formally close the meeting. Thank everyone for attending, and let the executives get off to their next presentation and, you'll have to put up with Deb, Lorraine, and myself from then on. Thank you very much.
Thanks. Thanks, everybody.