Thank you for standing by. Welcome to PNI's Full Year FY 2024 financial results teleconference. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand over to Managing Director, Mr. Ian Macoun. Please go ahead.
Thanks, Rachel, and welcome, and thanks to everyone who's joined us on the call this morning. As you've heard, this call is to discuss our results for the 2024 financial year. We posted with the ASX last night our formal results announcement, our annual report, including the audited financial statements for the year, our corporate governance statement, and importantly, our corporate sustainability report, and also importantly, our investor presentation. We'll be speaking to various parts of the presentation this morning. The colleagues with me on the call are Alan Watson, our chair; Andrew Chambers, Executive Director, with particular responsibility for institutional distribution and international; Kyle Macintyre , who leads our wholesale and retail distribution function; and Dan Long, our CFO.
I'll call out the main themes and highlights of our results, and also briefly provide some further context and elaborate a few aspects that we feel are particularly important for analysts and shareholders to understand. We'll leave plenty of time for questions, which you are welcome to direct to any of the Pinnacle representatives on the call. As you can see on the agenda, slide three, there are sections where the relevant executive will be Andrew or Kyle or Dan, rather than me. Slide two is a disclaimer that is important, and we would ask you to read this at your convenience. Slide three is an agenda. Slide five is a summary of our themes for the 2024 financial year. For quite some time now, we've been emphasizing our strategy of further increasing the diversity of our business.
Our momentum in both private markets, asset classes, and internationally, has underpinned a year in which we achieved robust growth in funds under management, in revenue, and in earnings. We've delivered record opening funds under management of AUD 110.1 billion as we moved into the new 2025 financial year. That is up 20% on a year earlier and up 10% over the six months from 31 December. We delivered a net profit after tax for the 2024 financial year of AUD 90.4 million, up 18% on last year. Earnings per share of AUD 0.455, up 17%, and dividends of AUD 0.42 per share, also up 17% on FY 2023. To elaborate these themes, looking at slides five, six, and seven.
We've achieved continuing growth in private markets, assets under management, and in other alternative strategies. The momentum has continued to build in international distribution. We have achieved robust overall retail net inflows, despite weakness in the appetite of retail investors for public equities over the first three quarters. Our net Horizon 2 spend reduced, as expected, as revenues grew, demonstrating operating leverage across the platform in the second half of the financial year. Many affiliates have continued to deliver strong investment performance, resulting in performance fee contribution from a diverse set of strategies. To elaborate these themes, looking at slides, slides six and seven, continuing growth in private markets, assets under management, and in alternative strategies. Fundraising conditions remained challenging for public equities managers during the year, despite rises in headline indices. Net inflows into private markets assets represented 57% of our total net inflows for the year.
Private markets, funds under management, represented AUD 22.8 billion or 21% of total FUM at 30 of June 2024, up from AUD 1.5 billion or 6% of total FUM at 30 of June 2016, and up from AUD 16.5 billion or 18% at 30 of June 2023. Affiliate revenues from public equity strategies were 54% in FY 2024, on 70% of total FUM, compared with 81% on 89% of total FUM five years ago. International distribution momentum has continued to build. International investors now account for more than AUD 18 billion of FUM from more than 40 countries outside of Australia. The challenges in the domestic institutional market are well known. We will discuss these later. We've been deliberately investing in our international distribution capability and in internationally relevant product development over the past 10 years.
This is now delivering meaningful flow success. AUD 7 billion or 70% of our total net inflows in FY 2024 was from international investors. We have a very strong platform for future growth. We have achieved robust overall retail net inflows, despite weakness in the appetite of retail investors for public equities over the first three quarters. Our diverse product set has driven a solid overall outcome. AUD 23 billion of retail net inflows into private markets asset classes, plus AUD 1.3 billion of retail net flows into listed credit, and we delivered strong distribution performance in REITs and in equity income in retail. Our product innovation has broadened the access to private markets asset classes for wholesale and retail investors.
Noting that conditions for raising assets into traditional equity strategies were challenging for much of the financial year, but there were early signs of improvement in the fourth quarter and in July. Our net Horizon 2 spend has reduced as expected, as revenues grew, demonstrating operating leverage across the platform in the second half of FY 2024. Pinnacle affiliates have continued to invest in Horizon 2 initiatives, driving strategic growth over the medium term. Spending on current Horizon 2 initiatives peaked in the second half of FY 2023 and the first half of FY 2024. Revenues from these initiatives have continued to build during the second half of FY 2024.
The net cost to Pinnacle after tax in the second half of FY 2024 was AUD 4.5 million, down from AUD 7 million in the first half, which represented a significant reduction in both the absolute cost and the relative cost to Pinnacle. We actively seek and prosecute additional initiatives of compelling quality. These initiatives create additional capacity, providing medium-term growth opportunities, and have historically delivered high returns on investment. Co-investment from affiliates reinforces the focus from our affiliate partners on growing their businesses and delivering superior growth through the cycles. Many affiliates have continued to deliver strong investment performance, resulting in performance fee contribution from a diverse set of strategies. 85% of affiliate strategies with a track record of five years or longer have outperformed over the five-year period to the end of June.
More than 25 strategies now have the ability to deliver performance fees, and these represent 35% of affiliates' total FUM. In the 2024 financial year, 13 affiliates contributed performance fees. The strategy set is diverse and largely uncorrelated with the ability to deliver meaningful fees in each financial year across market cycles. Turning to slide eight, the financial highlights. As I've mentioned, we've reported NPAT of AUD 90.4 million for the year, 18% up on the FY 2023 NPAT of AUD 76.5 million. Our diluted EPS was AUD 0.455 per share, up 17% on FY 2023 EPS of AUD 0.39 per share, and we've declared a final dividend of AUD 0.264 per share, taking total dividends for the year to AUD 0.42 per share, also up 17% on FY 2023.
To the top left-hand side of the table, our aggregate affiliate FUM at 100% at 30th of June 2024 was AUD 110.1 billion. This was up AUD 18.2 billion, or 20%, on AUD 91.9 billion at 30th of June 2023, and up AUD 10 billion, or 10%, on the 31st of December 2023. Aggregate retail FUM was AUD 28.8 billion at 30th of June 2024, up AUD 6.1 billion, or 27%, on a year earlier. The ASX300 Index was up 7.7% over the year, and the MSCI World Index up 17.5%. The Nasdaq was up 28.6% and the Global REIT Index, relevant to Res Cap, was up just 2.9%.
Total affiliate revenue at 100% was up 30% at AUD 663.4 million, of which AUD 553.6 million was base fees, up 22%, and AUD 109.8 million was performance fees, up 89%. Pinnacle's share of performance fees after tax was AUD 31.2 million, up 112%, so a little over double on AUD 14.7 million in FY 2023. Total net inflows for the year were AUD 9.9 billion, of which AUD 3.9 billion was retail, AUD 7 billion was from international investors, and we had AUD 900 million of net outflows from Australian institutions.
During the second half of the 2024 financial year, total net inflows for the half were AUD 5.4 billion, of which AUD 2.1 billion was retail, AUD 3.9 billion was from international investors, and we had AUD 600 million of net outflows from Australian institutions. Slide nine shows our record of earnings growth over the 8 years that we have been listed Pinnacle. Slide 10 shows the alpha performance of our 40 affiliate funds or strategies in bar chart format over the past 5 years. Slide 11 shows the detail of the affiliate platform and some of the highlights within affiliates of the 2024 financial year. Slides 13 and 52-56 provide further performance detail. Slide 12 elaborates our track record of strong earnings growth through periods which incorporate some less favorable stages of the market cycle.
Slide 13 shows some detail on our performance fee record and opportunity. As mentioned, we are growing the size and diversity of our performance fee potential, and look forward to our strategies with larger performance fee FUM delivering in future years. Slide 14 shows our 18-year FUM and net flow history. FUM has grown at a compound annual growth rate of 23.2% per annum over the past 10 years. Our FUM source from international clients has grown very strongly over the past few years, and particularly in FY 2024. Aggregate retail and international FUM, which tend to have higher fees than domestic institutional, now represent 43% of total FUM. Slide 15 provides detail on the growth of our private markets, businesses, and of our international asset classes. And again, slide 16 provides some detail on the increasing diversification of our business.
Slide 17, updates on our more recent major industry awards. A huge one was Hyperion winning the overall Fund Manager of the Year award from Morningstar. Slide 19 has detail on our revenue and margin performance, and Slide 20 has further detail on our financial results. The main additional item I would point out there is the change in NPAT, excluding the return on our principal investments and offsetting interest cost and the OpenInvest revaluation. As I have stated, every year, I think of that as an important measure of our core earnings. At AUD 83.3 million, that was up 23% on last year. Slide 21 shows balance sheet items. I will skip over sections 3 and 4, leaving that detail to questions and one-on-ones. I think I have referred to key conclusion points from those sections.
So if we had more time, I would love for you to hear directly from Andrew Chambers and Kyle, Kyle Macintyre, on these topics. So I move to section five, titled Growth Agenda, slides 26 to 41. In slide 27, we remind shareholders that we think in terms of three horizons of growth. Horizon 1 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. We conservatively estimate the unutilized capacity of the affiliates' existing strategies at in excess of AUD 300 billion. So there is plenty of Horizon 1 runway left, with the attendant strong gains in operating leverage that will be accompanied by such growth. Slide 28 explains that we have an excellent platform in place to move ahead with sustained growth.
Horizon 2 is the subject of a lot of activity, both within Pinnacle itself and within all of the affiliates. We have stated that we estimate this cost was in the order of AUD 11.5 million to Pinnacle's bottom line NPAT in FY 2024, compared with AUD 14 million in FY 2023. 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 have a very strong record of very high returns on the past Horizon 2 investments, not even including unrealized capital gains on the value of the businesses and strategies that we have built, and we are confident that will continue to be the case in the future. We've mentioned specific Horizon 2 initiatives in slides 29 and 30.
Slide 31 explains that Horizon 2 has been a highly valuable accelerator for new affiliates and strategies. The aggregate net cost to Pinnacle of these initiatives, within Pinnacle and affiliates, has reduced significantly from an estimated AUD 7 million in the first half to AUD 4.5 million in the second half of FY 2024. Slide 32 has some detail on a new Pinnacle Horizon 2 affiliate, Lifecycle Investment Partners, which has only just begun. These early days and this high-quality global equities affiliate, based in London, will build carefully and deliberately over the coming year. We will update on progress in this regard in due course. Slides 35-39 provide some detail on Metrics, which has been undertaking extensive Horizon 2 initiatives. Now to slide 33, Horizon 3, which of course, is where we use capital to buy into existing businesses.
Our most recent Horizon 3 transaction was the acquisition of 25% of private equity and venture capital manager, Five V, in December 2021. As planned, Five V has expanded substantially since then, and we are delighted with this partnership. In terms of potential new Horizon 3 opportunities, slide 33 explains, in summary, that we have done a lot of work on a large range of attractive opportunities. Though in the final analysis, we haven't so far progressed with any to completion since Five V. We have remained disciplined and patient, but have made substantial progress on several fronts, and look forward to reporting new initiatives to you when they eventuate. Slide 34 shows some milestones in the growth of Five V since we acquired our 25% interest. Again, slides 35- 39 provide some detail on Metrics, which is another successful Horizon 3 acquisition made in 2018.
Slide 40 shows some milestones in the growth of Horizon 3 investment, Coolabah, since we acquired our initial 25% interest in December 2019. Slide 41 provides some further detail on Coolabah, which has performed very well. I really want to spend some time on section 6, corporate responsibility. We are proud of the progress we have made on so many fronts. I refer shareholders to slides 43- 46 of the presentation and to the corporate sustainability report that we tabled last night and is on our website. In summary, we are committed to building a sustainable, inclusive, and resilient firm. You can see some of the actions we have taken under the headings: Purpose, People, and Planet on slide 43. Slides 44- 46 summarize the work of the PNI Foundation, of which we are very proud.
Total donations made by the foundation during FY 2024, primarily to the 17 long-term charity partners, were AUD 677 thousand, with affiliates providing a further AUD 445 thousand to 12 of these charity partners. Total support provided to charities across the group, including also workplace giving by employees, totaled AUD 1.387 million. Now, in conclusion, referring to slides 48 and 49, I would like to remind shareholders once again of the basis on which we remain so confident of our company's ability to grow and prosper, which is our distinctive business model that was designed specifically to ensure sustained investment excellence. This is embodied in our DNA.
Call it our core ideology or fundamental beliefs, which are the basis on which our business was built and which will endure and guide us for many years, hopefully decades into the future. This is the source of our competitive advantage. The most talented and experienced investment professionals love it. Importantly, their clients love it. It delivers stability and sustainability and longevity, which traditional investment institutions are less able to facilitate. We are experts at the multi-affiliate model, which we have been successfully executing on for two decades. We execute on it better than others. We understand talented investment people and their needs, the subtle forces that sustain enduring excellence, and those that, that are inimical to it. We ensure succession when others don't seem willing or able to. Importantly, these basic principles are applicable to a very broad range of asset classes, geographies, and markets.
They will sustain our growth as we evolve and adapt and as the world changes. The need for investment excellence is massive, greater than ever, and more so as investing becomes more and more difficult and as market circumstances change. Can we please now invite questions? Please note, the appendix has additional information people are often interested in. I would particularly call out slide 57, which shows historical FUM by affiliate every six months over the past 12 years. We can go to questions, please.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Nicholas McGarrigle with Barrenjoey.
Hey, guys. Thanks for taking questions. I thought I had a question around operating leverage in the underlying affiliates. Obviously, the Horizon 2 costs have come down materially on a run rate, but can you give us a sense of any other things to think about with the operating leverage? I think it was a current, a percentage point or two, that the margins picked up, but should we think that that continues to expand with some growth into FY 2025?
We'll ask Dan to answer that. But sort of big picture, Nick, you know, we've said we don't target particular, you know, margins, et cetera. We address every piece of potential business, and if it's good business, we take it, and there's a big range of, you know, fee rates and so on. But broadly speaking, increasing retail, increasing international investors, that is very helpful for our revenue, for our fee rates. As you know, Horizon 1, as we continue to grow the farm of existing affiliates, that is very helpful. Nick, you and others keep pointing out to me that our margins are not as high as many fund managers, and I'd say to you, there's no reason why they won't be when our affiliates are not investing so much in Horizon 2, and as they become more mature. I love to talk about-...
Hyperion Global, which is at AUD 3 billion and has capacity of AUD 30 billion, and won't need any more cost to get there. But yes, there is a lot of operating margin expansion inherent in our business. In terms of what you're really looking for, the shorter term, it is expanding somewhat, our existing Horizon 2 affiliates are maturing, and that brings us more revenue and lower net cost. Open question, how much more Horizon 2 we do in the future, but we had a big peak, which has come off somewhat. But Dan, do you want to talk about, answer Nick's question more short- term?
I mean, you hit the main points in, in terms of the actual data points, Nick. So the margin improvement was about 5 percentage points second half on first, and three after performance fees. And the FUM at the end of the year at AUD 110 million, about 10% higher than the average. So we feel that we're in reasonable shape heading into 2025 for that to continue to improve.
And I guess as a--
Perform-
It was good to see. Sorry, go ahead.
No, I was just gonna say, performance fees, of course, will vary year by year, but you know, I've been banging on for a very long time that I believe there is a certain minimum level that you ought to be baking in year- after- year because it is such a diverse range. So we ought to get a certain minimum level. We have numbers in mind here, you can all make up your own mind, but of course, some years it'll be higher again. That's a variable, but I think people understand that. The underlying margin should grow over time.
Then, I guess one of the investment areas in Horizon 2 has been Metrics, but it seems like profit obviously grew there 40%, as you disclosed in the annual report. So that was good to see. It looked like second half, obviously, there was an even more material growth rate. Do you wanna make some comments on Metrics? And I guess add some color on recent FUM growth, and have we seen the origination revenues come out of that pretty significant FUM growth over the second half yet?
So Metrics have been, still are, on a mission, on a mission to grow their business, very grateful, greatly. They're growing origination capability big time. That's been quite expensive. They are marketing like crazy to get FUM in, because they know they can cope with much larger FUM than currently. So that's the mission they've been on. We've been very happy about that, although it has not been helpful for our short-term profits and margins and so on. But look, Andrew Chambers has been responsible for selling Metrics. He's very close to it. He's on the board of it. But you'll notice their FUM inflows have been strong in both retail, and institutional, and offshore. You wanna just talk a little bit about Metrics and the flows?
Yeah. So, I mean, overall, the net inflows into Metrics exceeded AUD 4 billion for the year. I think on the institutional and international side, or international, about AUD 0.5 billion, locally, we're in excess of, sort of 1.7-odd billion AUD, and then the balance in retail. The retail number is very substantial in the context of the wholesale retail markets participating in private markets through open-ended structures and permanent capital vehicles. I think we have about AUD 7.8 billion today in the wholesale retail markets, in private market strategies, through that particular channel, which makes us, you know, leaps ahead of any nearest competitor in the market in that space. That's private markets overall, as opposed to Metrics in terms of total AUM.
But Metrics continues to invest very heavily in origination, where they're really trying to bring the investor close to that point of origination, where the full benefit of those risk-adjusted returns flow through to the investors, and they have better control of setting the terms and conditions with borrowers, in terms of credit terms and conditions, so they have better risk management as a result of that origination. But also a much higher cadence of deployment relative to most of the peers in the market, which might raise a closed-end fund, but take them maybe 3-5 years to fully deploy it. So that reduces any J Curve and any, cash drag for investors being deployed so quickly.
Origination is particularly strong, with over 70 people in origination in the business today, and is a real competitive advantage for the business in terms of both risk management as well as deployment and total returns relative to peers.
I mean, have we seen. They had obviously significant flows in the second half. Have we seen the origination revenues that come from deploying those proceeds into writing loans?
So that's certainly happening, but obviously, they need to, step up and step back pace at which they originate new loans. With deals, sometimes they have sort of finalized terms and conditions with borrowers, but they don't draw capital for maybe six months, later, to 12 months later. So obviously, there's a real art form to closing out deals and actually getting that money deployed. But the reality is they speed up and slow down the rate of origination in response to, obviously, the inflows coming into the business.
And then, I'd be remiss of me not to ask a final question, maybe on Life cycle. Obviously, it's a new manager starting up. I think the main principals there have come off their gardening period only a couple of weeks ago. How should we think about the ramp-up profile of that business over its first year?
So it's very early days, Nick. Those investment professionals, but there are seven of them, initially have post-employment restraints, which they need to honor and which they will honor. I would say you won't see much activity this calendar year, probably. It takes time to build a new boutique. We build carefully and deliberately. This should be a very big and very successful business over time. We will do it at the pace that makes most sense, for building quality. So, as I said, we'll update in due course, but, you know, we tend to go slowly and carefully at the beginning. Take Aikya, for example. Yeah, Aikya, you didn't see much activity for, you know, a couple of years or...
And then it was like, "Oh, my goodness, where did that AUD 8 billion come from?" Well, it was from the work you do early.
Thanks.
Your next question comes from Tim Lawson with Macquarie.
Hi, thanks for taking my questions. Just, can you, I appreciate there's gonna be a few questions around the Horizon 2 investment, Ian, and, and obviously, you don't wanna be stuck in a sort of a specific number, but is there a natural level of sort of base revenue to base expense fee that you think sort of makes sense for the group over the cycle?
Sorry, as in, are you talking about profit margins or fee rates, Tim?
Profit margin.
Look, it's different affiliate by affiliate, but as Ian said before, all of the affiliates, well, nearly all of the affiliates, have had a significant Horizon 2 program ongoing for some time, and as that unwinds, as we've begun to see in the second half, you should see those profit margins improve quite markedly. Now, there's a difference between an equity affiliate, which can run large amounts of FUM with relatively small human capital investment, and then a private markets business like Metrics or Palisade, where there's a greater need for human capital and will naturally therefore run at a lower margin. But I think it's fair to say there's room for material growth pretty much across the board.
Yeah, and those ones that need extra resourcing as they grow, they tend to have higher fees, including performance fees and so on, which reflect the economics of those businesses. You talk about Metrics. Private markets business that have strong origination, and they don't all, those are the ones that will have the major competitive advantage and be much stronger, over time. Yeah, Tim, so I think what you're getting at, I mean, fund quality funds, funds management businesses have high margins. That's the nature of them once they mature. But it's something we've always done. We've always encouraged our affiliates. In fact, we talk about this even before we start them. Will they have a long trajectory? Will they be able to do new strategies as their earliest strategies run out of capacity?
We always encourage them to not exceed capacity. So it's not surprising that, you know, most of our affiliates are spending some money on new strategies. Of course, the point will come where they don't need to do that anywhere near so much, or the new strategies they are investing in, the cost is smaller relative to their base, you know? So that will happen over time. It all came in a bit of a rush over the last couple of years, and that really heightened the sort of Horizon 2 drag, and I think that has probably sort of worried some people. Will that be permanently the situation? It shouldn't be. But we love affiliates doing new strategies when it makes sense, and they only do them if, you know, they are very compelling.
Remember, affiliates are spending their own money in the sense that they could otherwise be getting dividends. We'll do Horizon 2 when it makes sense. You'll see we've been. You know, we haven't done too many. We've done fairly big ones. We're very, very careful. We talk a lot about, sadly, how many we say no to because they just aren't big enough, they aren't good enough. But we will keep doing more Horizon 2, but they'll tend to be sort of big.
Tim, it's Kyle here. I think one of the pleasing things is when you look at some of the Horizon 2 strategies and what's going to drive growth over the medium term, have a look at what we've done in wholesale and retail with groups like Plato, with Plato Global Alpha, with that fund now over AUD 100 million in retail funds, 5 big Horizons, over AUD 100 million in retail funds, Langdon, Firetrail Small Caps, Longwave, all over AUD 100 million in retail funds. So you're definitely seeing the momentum coming through, and then we've got a really solid pipeline of things that have good ratings, that should come through and deliver similar momentum in the coming years.
Thank you. And just one quick question on base fee. Obviously moved up over the year and particularly in the second half. Could you just talk through any sort of specific call-outs there, please? It's against our sort of simple average calculations, obviously, versus an average fund, more accurate over the year.
Again, as a generalization, private markets asset classes tend to be higher fee than traditional, especially traditional asset classes in the domestic institutional. So that should be a tailwind for average fees as we do more and more private markets.
I think there are two main drivers. That's certainly one, and then the other is the growth of international, where for similar types of business, you'll generally get a higher fee rate. So that's really been the main driver. In terms of specifics, we called out at the half year release that Five V closed its Fund V at AUD 770 million. That's in the flows in the second half. And our real assets arm in the U.K. funded a GBP 100 million mandate. That also funded in the second half, so they were both helpful.
It's probably worth also adding to Dan's, Dan's comment on international. It's not just institutional in these days, so of the AUD 7 billion, AUD 575 million came from wholesale retail channels internationally. So Canada, Continental Europe, U.K. wholesale, and also New Zealand. And so those are more analogous to what we earn in the domestic wholesale retail market as well. So it's not just offshore institutional earning higher rates, but it's obviously the wholesale retail channels offshore, too.
Yeah, the U.K., we think will have good potential for us. We plan to expand our capability there, in the wholesale retail market there.
Okay. Thanks, guys.
Your next question comes from Nick Burgess with Ord Minnett.
Yeah, morning, Ian, and team. A couple of questions from me, just on profit, profitability of affiliates. So Antipodes is acquiring Maple-Brown Abbott. Any impact on or the impact of that on Antipodes themselves, and then, impact on the overall profitability of affiliates, please?
So certainly, Maple-Brown Abbott is accretive to Antipodes. They have put capital into that, and Pinnacle put just its pro rata share of the capital required for that. That will be very nicely accretive. Other than that, Dan, do you wanna--
Yeah, I mean, we, we think it is a deal that makes a lot of sense for Antipodes. We absolutely understand the rationale. It gives them further avenues for future growth in asset classes that are pretty nicely complementary, but it'll take them a little bit of time to do the things that they need to, to bring those two businesses together before we see real significant earnings growth on top of that modest accretion that Ian's mentioned.
Okay, thank you. Second question, just around international distribution. So you mentioned, Ian, in the presentation that that's building momentum, that's obvious to see in terms of the numbers. Just in terms of the plans for investment in distribution capability internationally, given Life Cycle and other opportunities, how are you thinking about that potential?
We're definitely gonna expand substantially, so maybe Andrew is responsible for that. He can talk to it.
Yeah, so without a doubt, further investment in Europe, Middle East, and Africa, so particularly, U.K. wholesale and global financial institutions within the European market as well. So because we have sufficient product densification around locally based asset managers in the U.K., we can really increase the velocity of sales that we generate in that region with local staff on the ground available in the time zone to interact with investors face to face. And so that's gonna require additional investment in additional wholesale retail people and marketing people on the ground, so that might be another three heads that we look at on the ground in the U.K., co-located with our existing team, to bolster that further and give additional firepower to all of our activities on the ground there.
And then embed all of the distribution smart that we have from Australian wholesale retail, and embed those into the daily habits and behaviors of the team on the ground in the U.K. as well. And that obviously extends into continental Europe, 'cause many of the major, you know, European private banks have substantial U.K. headquarters, as does South Africa and other markets like that. Outside of the United Kingdom, we'll be looking at markets like the Middle East. We are exploring potential candidates in places like Dubai, where most of the talent tends to center itself. There's quite a growing substantial, you know, private wealth market in the Middle East, family offices, as well as obviously the major sovereign funds, which people are relatively familiar with. We see that as an attractive growth market.
Then in Canada, to be co-located alongside the Langdon team. We already have operational people on the ground, based in Toronto, but obviously the second largest financial center in North America. And a market which is very analogous to what Australia was 15 years ago, with your vertically integrated banks and wealth managers over there, but a market which is larger than the size of the Australian wholesale retail market. But obviously, substantial inroads already made by Langdon itself. Again, a local starred manager where we can co-locate, staff to help, and embed sort of distribution, support to his local team. And then obviously the incubation of potentially other partners on the ground in a market like that, which has historically had more institutionally owned funds management. Then obviously markets like, New Zealand, where we're having great success.
We have over AUD 2 billion raised out of New Zealand, and we have good strong flows every year from that particular market. I think additional firepower on the ground of the wholesale retail markets in New Zealand as well will additionally be accretive to the business. So that'd be the really key markets I'd point out. They're all sort of key OECD, Anglo-Saxon based markets, but ones with substantial upside and growth, and obviously can benefit from our locally incubated boutiques internationally in particular.
Okay. Thanks, Andrew. That's really helpful. Hey, last question from me, just you mentioned in the presentation, and conditions for traditional equity strategies improved in the fourth quarter and July, in terms of capital raising opportunities. Can you expand on that a little bit, perhaps, you know, which affiliates specifically are seeing that interest, or which particular channels you're seeing that interest through?
Yeah, that, that's one for Kyle.
Yeah.
I think I'd say we're, you know, we're cautious. Four months doesn't make a confirmed trend necessarily. But conditions seem to have gotten better. Markets have stayed up. I think, retail investors and their advisors are trying to figure out what's gonna happen with interest rates. My own view is that as long as interest rates are not gonna go up further, that should be good conditions for-
Yeah. So what we've observed is that those structural tailwinds that you've seen towards private credit and fixed income, they've remained over that last quarter. But you have seen shift in sentiment that we've observed probably more so over the last two months towards public equities, and that's benefiting managers like Hyperion. It's benefiting managers like Plato, not only on their Aussie income side, but also on their global alpha product, which is a global equities product. We've seen positive momentum in Resolution Capital, and people looking at global REITs and the attractive opportunity that we've got there as well. And we've also seen positive momentum in Aussie and global small companies strategies, too. So it's definitely early days.
You know, these are always subject to market conditions, but you've definitely seen some positive momentum in the last couple of months.
And similarly, actually, interestingly, similarly from the institutional market, people had significant underweights to both global and Australian equities for the last sort of 2.5, let's call it 3 years. About six months ago, we started seeing people neutralize their underweight to global equities. Not to an overweight, but just to neutralize what was an underweight, which was obviously hurting them from an asset allocation perspective. The view that a recession was gonna play out in the US has sort of eviscerated that view, and then obviously people take a more positive view on market returns for global equity. So that's also been a change as well in the last six months, institutionally.
I suppose the key thing is, you know, we're very well-resourced, very, very happy with where the team is. We've been constantly engaged with clients, so we're gonna continue to focus on taking share, but any positive momentum that comes through from the retail investor would obviously be welcomed.
Thanks very much. Good luck for the year ahead. Cheers.
Thank you. Your next question comes from Tom Camilleri with Wilsons Advisory.
Morning, team.
Hi, Tom.
Morning, team. Congrats on another solid result. I think what, I guess, we need to get sort of a bit more color on is the, I guess, Aikya now. It's 5x the amount of over the course of the year. How big of an earnings contributor can this be in FY 2025? Is there a good affiliate to use as a benchmark, sort of, impact margin that we can think about in terms of how much this can contribute? And then also, I guess, the momentum in Longwave and Langdon, clearly very positive. Can you just remind us on the capacity that both those affiliates have the upside for, that we can think about in the medium term as well, guys?
So we own 32.5% of Aikya. So it's average fees are higher than, you know, normal global equities or Aussie equities as a general statement.
Yeah, and importantly, they're at capacity in terms of their cost base now, so there's no additional cost that they need to add.
Yeah.
There is both room for fund growth on top of what they had at the end of the year, but also for them, as most affiliates do, to start then to rotate out potentially some of those lower-fee clients over the coming months or years, and replace it with particularly U.K. wholesale, as Andrew was talking about before. They've had some very good flows from that channel, which are much higher rates.
Yeah.
In terms of a proxy, well, 32.5%, so it's a lower holding than Hyperion, and there are no performance fees. But if you were to look at Hyperion without performance fees, that's probably a s imilar.
So it's a modest cost base, modest number of people for, given their process, and they're at a stage now where they won't accept business that's not at, you know, very attractive fees.
PE ratio is in global emerging markets, well below their 21 st century averages. So if you think about the market itself growing and providing an uplift to the asset class, there's substantial upside there. In fact, that's one of the areas where certain institutions are starting to go overweight now is into emerging market equities based on valuation.
Yeah, I think investors are starting to get the idea. Global REITs are extremely cheap. Small caps are extremely cheap, and emerging markets are extremely cheap, and I think people are starting to figure that out. And as Chambers said, given that they're at low levels, there's the opportunity just for the market to lift some. The capacity of Longwave and Langdon. Longwave is quite substantial capacity for a small- cap manager because of their particular process. They have lots of. I think it's about AUD 4 billion.
Yeah.
In the first instance, Longwave. And they've also incubated a big cap strategy as well. Yes.
And they've got the cost base at the moment set up to reach that AUD 4 billion, Ian?
Yes. You know, you never know, they might take on one extra person, but yes, basically, that's right. Yeah, that's it. And, Langdon, I mean, they have more people because he has a lot of ambition to add more strategies.
They're running both domestic smalls and a global smalls product as well now, so.
What's the capacity for global smalls initially?
3 billion US billion number. Work with $3 billion. Yeah, so it's called a 4, bit over 4 billion Aussie.
They have performance fees as well. So yeah, the global small caps, Canadian small caps, that can be very lucrative. They don't need a lot of people, but their fees are quite high. I mean, Langdon is all retail.
It's all retail.
At this stage, at least. So the margins would be very high.
Yeah, that's great. Thanks, guys. And then maybe just a final one from me. It feels like a bit of the elephant in the room at the moment. So you've got AUD 154 million of dry powder at the moment. Like, what's the-- I guess, like, what's the preference now? So should we look to see or look forward to see more deals in the format that you've kind of drawn up the Royal London arrangement, in that it's very capital light, or are you sort of, you're still looking at those Horizon 3 investments and a deal in sort of a big way in the near term?
Well, to sort of generalize, Tom, and maybe oversimplify, those Horizon 2 deals like Royal London, they only come along from time to time of a size and attractiveness that we will want to do them, but of course, that's been our, you know-
Bread and butter.
Yeah, that's been our bread and butter. That's been the major way that we've built Pinnacle to date. There will be more of those over time. But we have been signaling very strongly, I don't know, maybe, maybe my credibility's low on this, but signal we've been working hard on a lot of Horizon 3 opportunities in private markets. So it feels like relatively easy to do public markets as Horizon 2, and more likely Horizon 3 for private markets, where we buy into something that's already built, but on the basis that we can help it to grow a lot. We're only interested in Horizon 3 if we can be a value- add investor. We're not a financial investor. But yes, the dry powder is there. We, we've said the direction of travel is more private markets and more, you know, overseas.
I mean, overseas distribution is Horizon 2, but I said in my opening statements that we've made progress, we're getting closer, and we look forward to being able to say that we've done some Horizon 3 in private markets.
But we have calls every week with prospective teams. We spent two weeks on the road in the U.K., in the U.S., back in March, seeing people face- to- face. We think that's absolutely critical for making these decisions about, you know, in terms of our underwriting judgments. So that activity is very live, but we'll only underwrite and back a team when we've got the highest level of confidence as to whether the right cultural fit, and then obviously it's a sensible price as well, ultimately.
Yeah. So we said we've done a lot of work, as Chambo says, a huge amount of work. We have candidates, we've made progress, but we don't rush into things. We need to get to know the people very well. We regard that as an incredibly important risk mitigator, to get to know the people and their character, their vision and ambition, and so on. So we're hard at work, and we'll know when we've got something to announce.
Sounds good. Thanks, team. Congrats.
Your next question comes from Shaun Ler with Morningstar.
Hi, good morning, everyone. Look, I've just got two questions. My first question is, look, no doubt flows have been quite strong in FY 2024, but can we realistically expect the same run rate in the next two to three years? Because, you know, how much of it simply reflects pent-up demand from FY 2022 and FY 2023, when flows are relatively weak? My second question is. With you guys adding boutiques, you know, how do you prevent any revenue dyssynergies? You know, for example, could Life Cycle cannibalize other global equity funds? And even within Antipodes, I think Premium Asia Funds have brought in Asian equities and Asian equity income funds, but Maple-Brown Abbott also have the same products.
So I guess, can you please detail very clearly, how would you structure your sales strategy so that these products ultimately complement each other with zero cannibalization, please? Thank you.
Yeah. Thanks, Sean. To address the cannibalization thing, I mean, we are very careful. It doesn't matter if a little bit around the edges, there's a little bit of overlap, but we don't do things that compete head-on. So for example, Life Cycle, it has a particular style and process, which on the growth value spectrum is style neutral. They have a particular process, so it is not the same by any means as Hyperion, which is growth, or Antipodes, which is value. Now remember, we've been doing Aussie equities for years with multiple Aussie equities managers, but they're different styles, and that works just fine. In fact, it can be very helpful. We can find opportunities for one while we're out working for them all.
Look, the ones you called out with Maple-Brown Abbott is a little bit around the edges, but basically and we've, we've adjusted our, our distribution strategies for each of those. So, Maple-Brown Abbott's Global Listed Infrastructure will continue to be distributed by Ironbark in the retail markets, for example. Yeah, so, but Andrew Chambers might address the, is it only pent-up demand that's giving us good flows?
Yeah. So the answer is, haven't seen any diminution of our institutional pipeline, sure pipeline as a result of this, but obviously the timing of when business actually converts is something which you can't always control. You do your best to bring those to bear. But there hasn't been a change in the magnitude of the pipeline as a result of this, the conversion of business in this particular year. Obviously, managers like Aikya are coming closer to the end of their capacity runway, so they're likely to be firmer on fees, so less likely to convert business at the same rate, given that runway. But we have groups like Lifecycle coming through, which will start up and then become, you know, that's a change in leadership in terms of net new flows in.
They don't have a backbook per se, that will churn, like we have in the domestic institutional market, so it's likely to be relatively well-sustained. Even domestically in the institutional market, we had -AUD 900 million out during the full year. The reality is we actually feel quietly optimistic about the domestic market as the consolidation phase comes to a close, and the largest funds looking to partner with particular asset managers, and those mandates are pretty substantial in size. I'm not pessimistic necessarily on the local institutional market. I guess that should give you a little bit of color, that I'm not pessimistic about the outlook, but obviously can never control the timing of when things convert.
And Sean, the fact that we've outlined we're going to increase our distribution resources overseas, you've seen our style with that. We do that as revenue is growing, so we wouldn't be doing that if we weren't optimistic about strong ongoing inflows from offshore investors.
All right, that's clear, Ian. Thank you, and congrats on the results.
Thank you.
Thank you.
So-
You're welcome. Next question comes from Greg Hoffman with Hoffman Capital.
Hi, Steve. Can you drill down a little further into the inflows from the international distribution? What kind of clients are they? Are there particular types of clients where you're getting good traction or others where you've struggled? Just be interested in that. And you mentioned potential in the U.K. around wholesale and retail. If that's not part of the first answer, I'd like to hear a bit more on that, if possible.
Sure. So why don't, in answering that, give you the geographic breakdown broadly of the flows in responding to that? So as I mentioned before, of the AUD 7 billion, AUD 575 million came from wholesale retail channels, the balance from institutional investors. The majority of those investors on the institutional side are a combination of pension funds, insurance companies, sub-advised funds, where we sub-advise somebody else's wealth management fund, and family offices. In terms of the geographic breakdown, AUD 3.5 billion of that came from the United Kingdom, AUD 2 billion came from the U.S., AUD 1 billion from Europe, and the balance from Asia Pacific, to give you a bit of a feel for that.
So obviously, the U.K. being the, have, they've been the real leadership in terms of flows in the past 12 months. Do you want me to expand any further on those?
No, that's. Well, maybe just that U.K. market then. Can you just talk about why do you think you've hit that so well, or what are the factors behind that? And is that sustainable and something you can confidently build on?
Yeah. So, it's a function obviously of where we have affiliates based on the ground. So obviously, Aikya, the team are based on the ground in the United Kingdom, but we also have teams from Antipodes on the ground. Coolabah have around 10 people, traders on the ground in London. And Metrics have several people on the ground as well with the launch of their European vehicles. So having the availability of people on the ground to front investors is obviously very powerful in the time zone, co-located alongside our distribution executives. Obviously, U.K.-based investors have been investing with Australian-based firms for a long period of time, so they're very comfortable with the domicile of Australia and Australian-based managers, but also the fit as well.
You know, managers such as Aikya historically had a larger presence in U.K. wholesale retail when they were working at First Sentier, or Stewart Investors, as it was, back in those days. And then obviously, so we're be able to leverage the reputation amongst private wealth channels, both in Europe and the U.K., and obviously, a lot of South African businesses which are based in the U.K. as well.
Also, that wholesale retail market, we like it. It tends to have higher fees than institutional. You know, as we put the foot down on U.K. wholesale retail, remember, we are a leading distributor in wholesale retail in Australia, so some of the technology and the know-how that we have in Australia can be added into the U.K. For example, you know, Carl CRM, we can install that over there and so on, keep growing it.
That's great. Thanks, guys.
So we're probably out of time, are we? Just about. I don't know if there are any more questions.
There are no further questions. It's time, I'll hand back for closing remarks.
Okay, thanks. Well, look, I'd just say thank you to everyone who's joined the call. Thanks for all the questions and so on. We've run a little bit over time, so I probably shouldn't rabbit on any further. Thank you very much to everybody.
That does conclude our conference for today. Thank you for participating. You may now disconnect.