I'll now hand over to the Managing Director, Mr. Ian Macoun. Please go ahead.
Thanks, Ashley, and welcome to everyone who's joined us on the call this morning. As you've heard, this call is to discuss our half-year results for the first half of the 2025 financial year. We posted with the ASX last night our formal results announcement, our interim financial report, including the audit-reviewed financial statements for the half-year, the Appendix 4D, and our investor presentation. We'll be speaking to key 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 Longan, our CFO. I'll call out the main themes and highlights of our results and 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're welcome to direct to any of the Pinnacle representatives on this call. Footnote to slide two refers to the disclaimer in slide 57 that is important, and we would ask you to read this. Slide three is an agenda. Slide four is a summary of our themes for the first half of the 2025 financial year. We have enjoyed continuing strong growth in our revenues, in our earnings, and in our funds under management, and multiple tailwinds are evident heading into the second half of FY2025 and into the 2026 financial year. Just a quick look at the headline numbers first. In the first half of 2025, we delivered what we think is the most impressive growth in net profit after tax, earnings per share, and interim dividend of any half-year period of Pinnacle's journey to date.
Net profit after tax was $75.7 million, up 151% on the first half of FY2024, which is the prior comparable period. Earnings per share of $0.367 were up 140% on $0.153 in the PCP, and the interim dividend of $0.33 per share is up 112% on $0.153 in the PCP. Funds under management at 31st of December 2024 was $155.4 billion, up $44.3 billion over the six-month period from the beginning of the half-year, of which $17.3 billion was from inflows, market, and investment performance. That's a 15.7% increase from these factors, and $28 billion of which was acquired. For the first point on slide four, strong growth in core earnings and funds under management delivered from a growing Pinnacle platform.
The increase in our EPS, excluding performance fees and excluding net return on principal investments, including the OpenInvest write-down in the PCP, so what some people might think of as our core earnings, our core earnings growth during this period, was 37% relative to the PCP. Excluding acquired funds, funds was up $ 17.3 billion, of which $ 6.7 billion was overall net inflows, and $1 0.6 billion was due to market increases and performance. We elaborate on what we mean by our platform growing and becoming more and more valuable later in the presentation. Market conditions have been supportive for some valuations, but not really for flows as yet. More on this later. Point two, we've delivered strong, or a strong performance fee outcome from a range of affiliates, but with Hyperion a standout .
Pinnacle's share of performance fees after tax, or if you like, the impact on Pinnacle's impact of affiliate performance fees was $ 36.4 million this half, compared with $ 12.3 million in the PCP. This was from nine affiliates, the same as in the PCP, but the majority was from Hyperion. Given the size of the impact of the Hyperion performance fees in this result, it's instructive to reflect on a few implications. Firstly, I'd like to call out and acknowledge and thank the Hyperion team led by Mark Arnold and Jason Orthman for their tremendous investment success for their clients over a long period of time.
Just to reflect for a minute on Hyperion's long-term track record, they have produced alpha of about 5% per annum on average for over 28 years in their Australian equity strategy, 11% per annum average alpha for over 21 years in their Australian small-cap strategy, and over 8% per annum alpha in global equities for over 10 years. An outstanding track record. Mark Arnold and Jason Orthman and the whole Hyperion team have a tremendous amount to be proud of, and their devotion and dedication to strong performance outcomes for clients is to be admired. Personally, I'm in awe of people like Mark and Jason. We at Pinnacle are so pleased and grateful to be partnered with them. One fact to reflect on is that the performance fees earned in the global equity strategy were on FUM of only about $ 3 billion-$ 3.5 billion.
Imagine the performance fee potential when that strategy has $20 billion or even $30 billion in it. So this is a good time to reflect on how important Hyperion has been to Pinnacle over a long period of time. In fact, Hyperion commenced 28 years ago, well before the Pinnacle business, 18 and a half years ago, and in many respects is our antecedent. Now, Hyperion won't produce performance fees over every half-year or annual period, but on average, over a long period of time, they have been a strong performer. And for Pinnacle, we have 28 largely uncorrelated strategies with the potential to produce material performance fees in any year. This is why we claim that any sensible forecast of Pinnacle earnings each year need to assume a meaningful minimum contribution from performance fees in one form or another.
We love having a diverse business with multiple sources of profit, including performance fees as an important element. Point three, we have achieved strong wholesale and retail inflows across diverse asset classes. Point four, there is growing evidence that the Pinnacle model can be exported to larger, addressable international markets. There is very promising—sorry, there is a very promising growth trajectory for our new international Horizon 2 and Horizon 3 initiatives, and we have a diverse pipeline of opportunities offering multiple sources of earnings contributions as we head into the second half of FY2025 and into FY2026. Slides five and six elaborate these themes. Strong growth in core earnings and FUM.
Now, it's for each person to form their own view of our core earnings, but to get some measure of core earnings growth, we can look at impact before the impact of performance fees and returns on investments, which was up 43% on the PCP, and that is a 37% increase in EPS. It's for each person to form their own view of our core earnings, but to get some measure of it, we look at this number. We would argue that it's possible, it's just not possible to argue that our core earnings growth on the PCP is anything less than this 37%. Depending on your view of performance fees and investment earnings, some would think it's higher than that.
As we'll show you in slide eight, we've delivered compound earnings growth just in excess of 30% per annum over the full financial years, the eight of those since we became listed Pinnacle. The Pinnacle Parent's profit was 21% higher than the PCP before net returns on investments. The share of affiliates' profit was 42% higher than the PCP, excluding performance fees. We delivered $ 3 billion of net inflows into private markets assets, which represented 46% of total net inflows for the half-year, delivering further evidence of the benefits of Pinnacle's increasingly broad and diversified range of affiliates and strategies. Fundraising conditions remain challenging for active public equities managers during the year, despite and because of rallying markets. Now, we say despite because, particularly in the retail market, strong equities inflows often follow equities market rallies as FOMO kicks in.
We say because of some of the professional allocators, especially in the insto market, have taken some profits on equities gains, causing outflows. Point two, we achieved a strong performance and performance fee outcome from a range of affiliates and strategies, but with Hyperion standing out. 82% of affiliate strategies with a track record of five years or longer have outperformed over the five-year period. We now have 28 strategies with the ability to deliver material performance fees in the full financial year on $ 44 billion of FUM. That's up from 25 strategies and $ 39 billion of performance fee FUM at 30th of June 2024. Nine affiliates contributed performance fees in the first half of 2025, the same as in the PCP.
The performance fee strategy set is diverse and largely uncorrelated, with the ability to deliver meaningful performance fees in each financial year across market cycles. There was an exceptional contribution from Hyperion this half. As I've outlined, Hyperion has a lengthy track record of alpha generation for their clients, which underpins this contribution. Point three, we achieved wholesale and retail inflows across diverse asset classes. There was $ 3.7 billion in wholesale and retail net inflows for the half. $ 1.4 billion of these net inflows were into private market strategies, including private debt, private equity, and private infrastructure. $ 1.2 billion of the net inflows were into fixed income, and $ 1.1 billion of the net inflows was into listed equities and real assets. I mentioned earlier that we haven't yet experienced the large equities inflows we got in earlier years following equity market lifts.
Nevertheless, this is our highest net retail inflow number to date. The net inflow number should increase further as equity flows strengthen. Flows into listed equities and real estate, sorry, real assets, did improve somewhat in the first half of 2025, driven by market share gains and strong affiliate performance. We enjoyed strong demand for new and innovative strategies, providing a unique opportunity for Pinnacle to bring new high-quality investment solutions to the market, supported by Pinnacle's high-quality distribution and operations platform. To point four on the next slide, we believe there is growing evidence that the Pinnacle model can be exported to larger, addressable international markets. Now, we're talking about from a distribution perspective and also in terms of investment affiliates based overseas. The Pinnacle flywheel is gathering momentum in larger international markets.
We now have $ 45 billion of our $ 155 billion of FUM from clients in more than 40 countries outside of Australia. That's 29% of FUM and growing. Pinnacle's unique supported independence model and turnkey value-added execution platform is resonating strongly with global asset owners, consultants, financial advisors, and investment and distribution talent. We've undertaken successful incubations and acquisitions of world-class internationally domiciled firms, and this creates positive feedback loops and a referral network, attracting new teams to the platform. Incubations such as Aikya and Life Cycle, both in London, and acquisitions of Pacific Asset Management in the UK, Europe, and VSS in the USA are powerful in this regard. We actively seek and prosecute additional initiatives of compelling quality. This will be ongoing. There is no shortage of high-quality opportunities. We've achieved a promising growth trajectory of each of our international Horizon 2 and Horizon 3 initiatives.
In relation to Horizon 2, we already have more than $ 10 billion of FUM across Aikya, Palisade Real Assets, Langdon, and Life Cycle. In Horizon 3, PAM, VSS, both recently commenced, and both are going well, and we believe growing strongly. The ongoing talent, product, and distribution densification in key international markets creates momentum for continuing growth for Pinnacle. Point six, going into the second half of FY2025 and looking ahead to FY2026, we have a broad and diverse pipeline of opportunities offering multiple sources of additional earnings contributions. Closing FUM of $ 155 billion is 41% higher than opening FUM. We are continuing our long-term outperformance across most affiliates and strategies, and Horizon 2 initiatives within Pinnacle and affiliates are progressing well. We'll also draw out more on this pipeline as we elaborate over the next little while.
Turning to slide seven, the financial highlights, we have a diversified platform that has demonstrated resilience in a variety of market conditions, including during volatile periods, and as mentioned earlier, we've made substantial investments and undertaken a great deal of work and built a strong pipeline of tailwinds to support ongoing earnings growth in the future. Aggregate affiliate FUM at 100% was $ 155.4 billion at 31st of December, up $ 45.3 billion, or 41%. Details of the FUM of each affiliate are provided in slide 47. Aggregate retail FUM was $ 35.4 billion at 31st of December 2024, up $ 6.6 billion, or 23%, from $ 28.8 billion at the 30th of June 2024. The aggregate affiliate FUM capable of earning performance fees was $ 44.1 billion at 31st of December, up $ 5.5 billion, or 14%, on $ 38.6 billion at 30th of June.
Total net inflows for the half were $ 6.7 billion, comprising $ 3.7 billion of retail inflows, $ 800 million of net inflows from international clients, and $ 2.2 billion of net inflows from Australian institutional clients. The increase in FUM attributable to market and investment performance combined was $ 10.6 billion, including $ 1.7 billion from retail. The ASX 300 Index was up 5.1% over the half-year, the MSCI World Index up 4.9%. The Nasdaq, which is particularly relevant to Hyperion Global, was up 10.3%, and the Nareit Index, particularly relevant to ResCap, was up 7.2%. Aggregate affiliate revenue at 100% was up $ 159.7 million, or 54%, to $ 454.5 million, of which base fee revenues were up $ 89.7 million, or 35%, to $ 342.6 million, and performance fees up 165% to $ 111.9 million at 100%, of which Pinnacle's share after tax was up from $ 12.3 million to $ 36.4 million.
The investment performance of most of our affiliates has been strong. The performance fees earned speak to this, and 82% of the affiliate strategies with a track record of five years or longer have outperformed their benchmarks over the classic representative measurement period of five years to 31st of December 2024. There's further performance detail on slides nine and 41 - 46. Slide eight shows our record of earnings growth over the eight and a half years that we have been listed Pinnacle. Over the eight full financial years to 30th of June 2024, we have grown EPS by about 31% per annum compound on average, and for people just skimming this slide quickly, please note the orange bar is for a half-year. The dark bars are for full years.
Our earnings for the half-year we are reporting for the half-year reporting on were almost the same as for the full years of FY2022 and FY2023. Slide nine provides the specifics of the five-year performance track records of the 39 affiliate funds or strategies. Slides 4- 46 provide further performance detail, and slide 14 elaborates on performance fees. Slide 10 shows the detail of the affiliate platform and affiliates for the first half of the 2025 financial year. Slide 11 elaborates our track record of strong earnings growth through periods which incorporate a range of stages of market cycles, emphasizing how Horizon 2 and 3 diversification has contributed to this. Slide 12 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 larger performance fee FUM strategies delivering in future years. Slide 13 shows our eight and a half-year FUM and net flow history. Our institutional, retail, and wholesale pipelines each remain strong, and our client base is increasingly diversified, including overseas, as we grow and evolve, recognizing changing market circumstances. Slide 14 elaborates our evolution, focusing on the growth in private markets, asset classes, the growth in FUM from clients located outside Australia, and the realized and prospective growth of affiliates domiciled internationally, and again, slide 15 provides some detail on the increasing diversification of our business, diversification by affiliate, by asset class, and by strategies with the potential to earn performance fees.
Slide 16 shows the growth in the two higher average fee market segments, wholesale retail and international, which together now represent 52% of our client FUM and two-thirds of the affiliate base fee revenue, relative to the Australian institutional market, which has shrunk proportionately from 84% of FUM in 2016 to about 48% today. Slide 17 updates on our more recent major industry awards. Pinnacle won Zenith Distributor of the Year. Metrics won the Zenith Private Markets Manager Award. Hyperion won Morningstar Overall Fund Manager of the Year, to mention a few. These are outstanding achievements, by the way. Slide 19 has detail on our revenue and margin performance, and slide 20 has further detail on our financial results.
Although headline impact on EPS and our share of affiliate profits doubled or more than doubled on the PCP, our core earnings growth, excluding performance fees, may have been considered by some to be more like 37% or so, as explained earlier. Our record of growing EPS by more than 30% per annum CAGR remains intact. Slide 21 provides some balance sheet commentary. Section three of the presentation provides an institutional and international market update, and Andrew Chambers will explain the factors at work in these markets during question time and one-on-ones. Section four provides a wholesale and retail market update, and Kyle Macintyre will elaborate during questions and one-on-ones. Moving to section five, titled Growth Agenda, slides 26 to 30. In slide 27, we remind shareholders that we think in terms of three horizons of growth. Horizon 1 is the main gain.
We are 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 remaining capacity of the affiliates' existing strategies at $ 350 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. Horizon 2 is where Pinnacle or affiliates undertake inorganic expansion and expense the cost on their P&L, expansion of distribution capabilities, including offshore, incubating new affiliates from scratch, affiliates adding new strategies, and so on. New affiliates incubated outside of Australia so far include Aikya and Life Cycle in the UK and Langdon in Canada. Horizon 3 is where Pinnacle capital is invested to acquire interests in existing profitable fund managers, then helping accelerate their growth, including by adding Pinnacle distribution services.
Pacific Asset Management in the U.K. and VSS in the USA are recent examples domiciled overseas. We plan to make more such investments. We are, of course, acutely aware of the risks of Australian companies making ill-advised investments overseas, where they are unaware of local conditions or requirements for success, or which they are ill-equipped to manage, which are somehow off-strategy or outside the core competencies and the core ideology of the company. We have been working on the overseas opportunities for a long time and have extensive capabilities already in place in large addressable markets and are continuing to carefully add infrastructure and distribution capability overseas ahead of and simultaneous with our expansion. We are staying very clearly within our core capabilities and ensuring that we understand the requirements for success and confirming target market demand, including from Australian investors, before embarking on new ventures.
We are finding that the Pinnacle model is just as effective and just as much in demand in most overseas markets as in Australia. We are further proving this progressively as we continue along the expansion path. The opportunities are enormous, but we are proceeding at a sensible pace, a pace at which we are sure we can deliver on our promises, including maintaining the highest quality standards. Slide 28 provides a summary of the drivers of our future growth, utilizing the excellent platform already in place and continually being expanded in an orderly and clearly thought-through manner based on our deep knowledge of the markets in which we operate. Slide 29 elaborates our Horizon 2 activities. We've maintained Horizon 2 investment at the same rate as in the second half of FY2024 and lower than the peak of H2 2023 and FY 2024.
Our record is that the returns on such investments have been very high. That is the outcome virtually always if they are executed well, and we only undertake initiatives of compelling quality. We can do this because we are spoiled for choice. Slide 30 provides summary updates on our November equity capital raise and the most recent Horizon 2 and 3 investments, Life Cycle, PAM, and VSS. It is early days, but they are all going very well. Now, to turn our attention to section six, corporate responsibility, looking at slide 32, as Pinnacle continues to expand, our dedication to fostering a sustainable, inclusive, and resilient firm remains fundamental. As illustrated here, our guiding pillars of purpose, people, and planet provide clear direction and ensure we uphold our commitment to actions that align with a responsible and impactful future.
As I reflect on the first half of this financial year, publishing our inaugural Reconciliation Action Plan stands as a significant milestone for our company's history as we formally commit to contributing meaningfully to reconciliation with Aboriginal and Torres Strait Islander peoples. I'm also immensely proud to highlight the remarkable work of our Pinnacle Charitable Foundation. As shown in slide 34, our group's overall support provided to charity totaled $ 1.42 million in 2024. This encompasses $ 693,000 of total donations made by the foundation to our 17 long-term charity partners and $ 436,000 made by affiliates. Further, the additional discretionary donations, sponsorships, and workplace giving by our employees embodies our deep-rooted commitment to making a positive impact in our communities.
Now, in conclusion, referring to slides 37 and 38, 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. It was designed specifically to ensure sustained investment excellence. This is embedded in our DNA, our core ideology, our fundamental beliefs, which are the basis on which our business was built and will continue to be 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, and importantly, their clients love it. These basic principles are applicable to a broad range of asset classes, geographies, and markets.
They will sustain our growth as we evolve and adapt and as the world changes, and will ensure we don't go off-strategy or outside our core competencies or seek to grow in a way that is haphazard or illogical. We have a core ideology which is clear and fundamental to everything we do. Can we please now invite questions? Please note that the appendix has additional information people are often interested in, and a reminder, please address your questions to anyone of our team.
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 Scott Murdoch with Morgans. Please go ahead.
Morning.
Thanks, Ian, for the details. Can I just start on the trajectory and composition that you're mentioning, particularly in retail where equities have lagged? Just interested in your comments that this should lift further. If you can just, I guess, provide some detail on our flows and what you're seeing in terms of that pipeline, what gives you confidence that that retail equity side will come through, and what quantum we should think about the business is capable of now?
Yeah. So we'll ask Kyle to answer that. But as I mentioned, in years past, until three years ago when central banks first started tightening, we were enjoying very large inflows from equities. More recently, the majority of our flows have been Metrics in Coolabah and private markets. We have enjoyed, we think, some green shoots in equities, although that has largely been taking market share.
So we haven't yet seen. So normally, equities flows in retail follow markets going up. This time, we've seen markets going up, but not yet FOMO causing equities investors to come in. When they do, that'll be additional to our Metrics and Coolabah, etc. But Kyle's our retail head.
Yeah. So thanks for the question. So I mean, just to address it in three key areas, what we have seen in terms of equities, particularly in the last quarter, I'd call it the last eight weeks, is you have seen an incremental uptick in the flow trajectory for net flows into equities, and we'd expect that to be a tailwind moving into the upcoming period if that continues in the wholesale and retail markets.
The second thing I'd point out is in the wholesale and retail, it continues to be a market share game, and we've actually got some outstanding, really compelling top quartile performers within our suite, whether it's Hyperion as an example, Plato with their Global Alpha Fund, Plato with their Australian Shares Income Fund, in small caps, you've got Firetrail and Spheria, and so we are seeing, while we haven't seen the flows pick up in a big way into equities, we are expecting in the coming half, if we continue to see good risk sentiment, if we continue to see advisors feeling good about equity markets and their portfolios, we'd expect to see this start to increase. The final thing is we've only just begun to roll out Life Cycle into the wholesale and retail market. So far, we're experiencing strong demand to meet with the Life Cycle team.
We've had some early success, but it's very early days in terms of rolling out Life Cycle there. So I think with those three key areas, we think we can see retail flows into equities increase, subject to market conditions as always, but we feel like we are very well set up for the upcoming quarters and over the medium term.
Okay. Thank you. Second question, just I guess on those aggregate affiliate earnings. Ian, you mentioned core earnings up to 43% when you look at that particular line, ex performance fees and investments. I guess on a half-on-half basis, really, the aggregated level's quite difficult because there's a lot of things going on. That grew circa 10% pre-tax. Just interested in anything there that is lagging a bit. The fund growth was a bit more than that.
If you can just step through any of those, I guess, lagging affiliates that you expect to come through stronger from this point.
Yeah. Our financials are reasonably complicated these days with quite a lot of moving parts. We still do have some of our affiliates doing some investing, and some of the good work that's been done ahead of growth has not yet kicked in. I might hand over to Dan Longan for that.
Sure thing. Thanks, Ian. The sort of overarching statement, Scott, is that the margin in affiliate profits was about the same this half as it was in the second half of last financial year. That was up about 3% on the PCP, excluding performance fees. There's a couple of things going on in that. There's a lot of activity in this half. Antipodes bought Maple-Brown Abbott.
There's a lot of work that needs to be done there to streamline the business, to integrate the businesses. So there's a lot of cost in this half, which we'd expect to see come off in the second half and beyond. There's Life Cycle that we started up this half. As we mentioned, the flows into that business, although they're very strong, came towards the second half of the half. And so that's loss-making in this half. We'd expect that to improve. And then there's a little bit of seasonality in some of our affiliates. We've talked before about Metrics, transaction fees. They tend to be more in the second half than the first. So that's why you're seeing the margin steady half-on-half rather than improve over the previous half as it has done.
We would expect that, absent us doing anything new, that trend to continue into the second half and into 2026.
Thank you, and I'll just take one last one. I'm just interested in some insight into the acquisition pipeline. Just, I guess, any changes you're seeing in the opportunities now that you're, as you mentioned, the flywheel in international markets is kicking in, just the quantum and the size and the quality of the opportunities you're seeing?
Yeah, so there's no question. Everything we do overseas adds to sort of our attractiveness, our reputation, and the potential to do more things. We're kind of proving up our claims, so that's definitely happening. We're definitely going to do more in distribution overseas, specifically very soon in UK, Europe, wholesale retail market, and so on.
But no, Scott, the story we've been saying for quite a long time, we're doing a lot of work. There's hardly a day goes by we don't have a VC with people overseas and so on. So we've been definitely working on new opportunities. There are definitely I think it probably is fair to say that there are probably more than ever. I don't think anyone would challenge that. It definitely feels like that there are more and more people interested in us. So the pace at which we add and the size of them is not limited really by the opportunity set. It's really limited by us going carefully and having very high standards and only doing things that we believe are very high quality.
So nothing has really changed in that we've said, I mean, for a while there, not too long ago, it felt like we were saying we were going to do things, and we hadn't done any since Five V . We've now at least done a couple, but there are definitely more in the pipeline. We don't say how many by when because that runs the risk of putting ourselves under pressure to do things. We'll pull out of doing something even at the last minute if we're not absolutely happy and everything doesn't align. So we don't make promises on specifics. But I had said there earlier that we're definitely going to do some more. And obviously, we over-raised. We raised some additional dry powder. We did that because we can see the prospect of doing more Horizon 3.
Okay. Thank you. That's all from me. Thank you very much.
Your next question comes from Tim Lawson with Macquarie. Please go ahead.
Thanks, gentlemen. Thanks for taking my questions. Just two questions for me. Just in terms of the average sort of fee margin outlook, I appreciate the comments you've been making in regard to the higher average revenues versus the higher average FUM in slide 19. But what's the sort of starting point as we head into the second half and FY2026?
Yeah. Well, the starting point is that the fee margins are a tiny bit up on the prior financial year. The spot FUM's a lot higher than the average FUM. So that should be supportive of revenue growth into the second half. The trend over the last few years has been supported by the growth in retail and international FUM that Ian talked about. They're at higher rates, generally speaking, than our average.
But as we've said many times, that fee margin is an outcome, not something that we're specifically targeting. So I think it makes sense for us to do more business in core equities domestically, for example, where the fee rates are lower. We'll continue to do that. So I would say the starting point is a tiny bit higher than the last financial year. We expect that, all things being equal, to continue to trend up. But you may see it move around a little bit half-on-half, depending on the mix of the inflows.
Yeah. So our target is higher revenues and profits rather than a particular margin rate. So each piece of business we evaluate on its merit. And some are lower fees, some are higher fees. So the actual calculated margin is whatever it is.
We do think long-term, the growth in retail and the growth in international are great supports or tailwinds for higher average fees over time.
Okay. Thank you. And just one question around, with the additional deployed fund, I'm just really interested in a bit more explanation on the recognition and composition between what's sort of in dividend, particularly the sort of timing, and then also versus the sort of fair value gain, like with those additional deployed funds, how we should think more clearly about those two buckets.
So over to Dan. We do have more deployed in Metrics and Coolabah, which is more reliable, etc., than in the past. But over to Dan.
Yeah. So just to be relatively simplistic, Tim, we've got about $ 350 million of net cash and investments. That's net of the debt line with the Commonwealth Bank.
Of that, $ 210 million is deployed in Metrics and Coolabah, as Ian mentioned. That is money that we have essentially parked in lieu of further acquisition or affiliate startup opportunities. That should, all things being equal, pick up a relatively consistent yield. So that's what I would be thinking about in terms of modeling that part of the portfolio. The rest of it is deployed in seed capital. That's across a whole range of different strategies from private markets and Palisade through to equities and Life Cycle. And we're not trying to make a particular return on that. Clearly, we would like to, and we expect to over the medium term. But really, that money is to accelerate the growth of new strategies and support the growth of new strategies. So it's very important for us strategically, less so in terms of the return that we get on it.
So we tend to think of that being broadly flat. If the markets are up and if affiliates perform well, which they have done, we'll get a return on it. But that's not something that we would bake into our own forecasts.
So simplistically, the earnings on the $ 200 sitting in the dividend line and the variation in the $ 140 balance goes through fair value gains effectively or losses?
It's a little bit more complicated than that just because some of those dividends we reinvest. So you'll see it as a capital gain. Some of the distributions won't get paid until the next half. But over the medium term, that's about right, yes.
Yeah. Okay. Thank you. That's all for me.
Thanks, Tim.
Your next question comes from Nick McGarrigle with Barrenjoey. Please go ahead.
Hi. Thanks for taking questions.
I just had a question about the offshore businesses and how you think about investment in both the U.K. and U.S. to build out the kind of essential parts of the platform that you've so successfully built in Oz. Just thinking about that over a medium term, does it have to be a kind of a big bang approach to distribution in the U.S., or will it be more focused around particular asset classes or clients?
Yeah. So the rate at which we grow distribution overseas depends on the opportunities we see. We're not afraid to add distribution resource overseas, but we don't do it sort of a long way ahead and hope for the best. We do it as we're seeing opportunity. So we will definitely be expanding, actually, in several areas, including the U.S.
But it's the UK and Europe where there's this immediate opportunity with Life Cycle where they're very well known. We're going to use that to spearhead a fairly significant increase in our distribution capability there. But we're not talking huge numbers of people, but it'll be a very material increase in distribution. They are big, addressable markets, and we want to go after them. We just want to do it at a sensible rate as we've got offerings that we know are going to be attractive there. That's when we put in the extra resource. But it will accelerate from here, for sure. Do you want to say something, Chambers?
Yes, sir. Nick, it's really a cumulative process and one that compounds around the densification of talent in terms of affiliates on the ground, which are relevant to the end market.
When you have talent on the ground inside the U.K., in the U.S., which have reputational halos with local investors, then you can accelerate the speed with which you bring on talent. The more you have a diversified portfolio of locally based strategies, which are addressable in that local market, plus your international strategies based out of Australia, which can be imported into those markets alongside that, then you have a greater justification for accelerating that. It also draws in future talent, of course, onto the platform, the more success you have, and the greatest showcase we can have around that is the success we generate for Horizon 2-based strategies in particular, where we go from a startup phase to a large-scale business over time, which we've done with Aikya, and what we intend to do with Life Cycle as well, Langdon, and Palisade Real Assets.
But it becomes very much cumulative, compounding in its nature rather than big bang, which is where you started the conversation.
Cool. And maybe given you've kind of alluded to the investment in Life Cycle given the prospectivity, can you just talk us through how their 2025 develops? Obviously, they started by observing the non-solicits up until the end of January, but what does their pipeline look like? What does the kind of 2025 look like for them?
So we're very pleased with the start that Life Cycle have had. They have meticulously observed the restraints that were on them, and that's held them back from we didn't launch the U.S. and the U.K. OEIC funds until just recently for that reason. And no one has been talking to Royal London clients whilst that non-solicit period was. Nevertheless, we've had a very nice start.
We've got $ 1 billion, half retail already, because we launched the Australian retail funds a few months ago. So we're very pleased with the start. They've done great work, worked incredibly hard rebuilding all their capabilities. So they are in very good shape. The Australian retail market, the Australian institutional market, and then there'll be institutional clients over in the UK and so on as well. I'm not going to give you numbers. Nick, you can do those numbers. You're very good at that. I'll just say they're high quality. They're well regarded, and we feel very good about it, and we're delighted to be partnering with that team. Chambers, you?
I think something also important to note is the nature of the returns we're seeing in global equities in the last decade, in particular, the stylized returns between value equities to growth and mainly dominated by growth.
The thing that most asset owners around the world and consultants are looking at is, how do I neutralize a lot of these factor bets? How do I neutralize the performance of, say, the Magnificent Seven in my portfolio and address that? So style neutral, core-based managers are what's very much in vogue right now with asset owners. And this is why we feel quite confident, not just about Life Cycle, but also about groups like Plato in their global equity strategy as well, Solaris and Core Australian Equities, because it really is meeting the market need. We were at ebbs and flows between growth and value over the last decade, delivering through the cycle alpha. So that's what the market is after and why we feel pretty confident about our capacity to generate some pretty good net inflows into Life Cycle in particular, which is where you started.
Yep. Okay.
Thanks for that. I'll ask one last question. Coolabah obviously seems to have had very significant flows in the six months. Can you just talk through, is that into new strategies and then what the runway for those new strategies is, particularly if it's around their international fixed income strategy?
Yeah, so I think you've highlighted actually something that I think is an enormous opportunity for us. If you think about where Coolabah started focusing on domestic credit, they've now expanded into global credit, where they've got effectively a 24-hour trading desk with offices in three continents around the world, so they're following the sun in terms of trading US dollar credit, euro, you name it, both in traditional credit, high investment grade quality credit, in addition to sovereign debt as well, long and short.
Their alpha stream is very much generated around excess returns from capital gains rather than yield-oriented investments or duration-based debts. That platform, if you think about the addressable size of global credit markets, we're talking over $40 trillion. So the opportunity set to significantly expand that firm and raise significant capital is enormous for a business like that. So we had two really significant wins in global credit in the second half on the institutional side from international investors both in Europe and New Zealand, in addition to in Australia as well with several multi-manager funds. So very fast adoption by consultants and asset owners into that strategy, in addition to the sovereign and sub-sovereign strategy, which they've also launched into the market. We secured our second investor into that long-short offering as well.
We're talking about much larger addressable markets and a strategy which works just as well overseas as it does locally in Australia in terms of its alpha stream. Kyle, do you want to add anything to that?
Yeah. The only thing I'd add is that growth into global credit. We're seeing that flow through to the wholesale and retail market. And so one of the category-killing products that Coolabah has brought to market recently has been the Floating-Rate High Yield Fund. That's predominantly been an Australian-based product. In the next quarter, we expect them to launch the Global Floating-Rate High Yield Strategy . That will be a listed strategy. It will be listed on the ASX. And as we know, there's a huge opportunity to target capital at the moment on the ASX, given some of the regulatory changes around hybrids, etc.
So that's going to be a big beneficiary for groups like Coolabah that can address that part of the market, groups like Metrics that can address that part of the market. And so with market-leading returns, with the profile that they've got, with the distribution capability behind them, we feel very good about Coolabah. And I'm the same as Chambers, Andrew, sorry, where I just think there's a huge opportunity for Coolabah and also for Metrics as investors become more sophisticated in the fixed income side of their portfolios and look for alternatives to traditional credit, which, to be honest, haven't delivered since the GFC. So there's a huge market opportunity for this.
Great. Thanks.
Your next question comes from Greg Hoffman with Hoffman Capital. Please go ahead.
Hi, Ian. You've used the term product densification, which is around the international opportunity set.
Could you just speak a little bit more about that and just explain what you mean by that and how it fits into the opportunity?
Yeah. Thanks, Greg. I might actually ask Andrew Chambers to address that. He's Andrew.
Yeah. So it's about having sufficient product diversity that is relevant to local investors in those global markets. So having, A, we have teams which have reputational halos, which are very well known to local investors, and then multiple asset classes which are complementary to each other, credit-based strategies, as well as global equity versus local equity. And so it's really about having sufficient product densification because what it means for a salesperson is you're more relevant to more people more often. To a degree, you represent more asset classes which are relevant to those local investors.
Obviously, to the degree we're just exporting Australian domiciled affiliates into those foreign markets, it's a much longer process of building reputational halos with those local investors. But obviously, they can ride the coattails of local talent in those markets and get the benefit of a diversified portfolio of underlying asset classes and affiliates.
Got it. Thank you. Your next question comes from Elizabeth Miliatis with Jarden. Please go ahead.
Good morning, gents. Thanks for taking my questions. And also apologies if this has already been asked. I was off the call briefly. Just around just the Pinnacle Parent profit, there was a loss adjusting for the fair value gains. There was a loss noted in the first half. In terms of the second half and then in the next few years, how should we think about that as the business evolves?
Yes. Okay.
I'll ask Dan Longan to answer that. There is one new issue this time in the Pinnacle Parent's paying tax now, and that's a little bit complicated. It looks like a high amount of tax. That's because Spheria and Coolabah, they distribute their profits pre-tax. And so the tax on the Spheria and Coolabah profits are paid at the Pinnacle Parent level, whereas our share of those profits come into the line item share of affiliate profits. But Dan will do a better job on this than me.
That's pretty much it, Ian, on the tax well explained. And in terms of what we think in the second half and beyond, we're not, and forgive me for saying this again, we're not targeting a particular outcome when it comes to Pinnacle Parent. The real purpose of that business is to be an enabler for the growth of our affiliates.
We're always investing in the Pinnacle headco to make sure that we're sufficiently staffed and we've got the right level of talent in the various areas to provide that support. Structurally, we do think that there's likely to be higher and more rapid revenue growth in the medium term than there will be cost growth because of the structure of some of the arrangements we've got in place. That will probably start to unwind in the second half, but you'll see it come through more in FY2026.
Yeah. See, Elizabeth, point is we don't actually target and aim for substantial profits in Pinnacle Parent. That will be an outcome. We do think, as Dan said, over time, Pinnacle will earn profits, and obviously, it earns profits on our PI.
But as you say, if you exclude our returns on PI, Pinnacle Parent doesn't necessarily make a profit. And we're not intending necessarily that it will, although it's probably likely to.
Yep. Okay. Got it. And then just secondly on Metrics, I mean, there's been a few negative articles on Metrics out in the press and then more broadly around the private credit market. Are you able to talk to within the funds, are there sort of any material issues? Are there material amounts of loans which are going bad or anything like that, and Metrics is having to take the keys back? And then also, if you could just sort of talk to the broader credit environment, is there any systemic issues that you guys are seeing or you're still comfortable, and how is deployment currently going? Thank you.
Yeah.
No, so I'll make a few general comments on Metrics. The first thing I'd say, we're absolutely delighted with our partnership with Metrics. It's an extremely high-quality business. I would also say that there is quite a range of quality and capability in the private credit space. It's been a reasonably hot space, and that can attract some people who aren't as experienced and skilled and high quality. So some private credit managers may have negative outcomes, but Metrics is very high quality. We are great believers in them. They are getting very strong flows. They've been investing on growing their origination a lot across a range of sort of asset subclasses. Very happy with Metrics. The press you'll see, there'll be press on private credit.
Don't really have time to go into that except to say we think it is an extremely large and will grow a lot asset class, and we want to play in that through Metrics very strongly. The few specific examples that you'll see, these will always be very high profile. They have converted from debt to equity in a few instances, which are well publicized. They have said they are very confident that their investors who invest in funds that include equity will get good returns on those what are now equity investments that were loans. But I might ask Andrew Chambers to talk a little bit more about this.
I guess one thing to point out is that one of the advantages of being a private credit lender is your capacity to convert debt to equity, unlike a bank where it's too punitive for them to hold on their balance sheet. At certain stages, they force sellers to effectively hedge funds in the market, and when you're asset-based lending, as the examples have been in the press, you have collateral to get full recovery on your money versus, say, cash flow lending, so that's probably something to point out to begin with. In terms of the management team, they've lent through the 1991 recession. I remember 12% unemployment during that period of time. It was a commercial property disaster in Australia, so they've lived through that period and were lenders throughout that period.
The team were also the major team leading National Australia Bank's leveraged finance unit during the Global Financial Crisis , $ 5 billion outstanding during that period where they're performing book of loans there, so they've been through these stress periods before and have significant workout experience as well. So I think we can rely a lot on the experience of the team and their capacity to preserve full value on all their loans, which are all performing today. Obviously, the portfolios themselves, because they have listed investment trusts, are subject to sort of stress testing by external valuation groups. We have KPMG doing audits, PwC doing impairment testing, so there's a lot of work that's happening around the performance of those underlying portfolios, and we have continuous disclosure obligations, of course, to the market.
In the real estate market specifically, in 2020, of course, we had the COVID disruptions to supply chains, which impacted the real estate market. In 2021, we had increased construction costs, particularly materials and labor, increasing by about 30% during that period of time. And then finally, the rising rates hitting funding costs in early 2022. So those things collectively have obviously impacted a lot of builders, which operate on sort of 3% type margins, EBITDA margins. And so what you're seeing in the press now is very much a backward-looking view of the real estate market rather than a forward-looking view of the market today, which is much more stabilized. But again, I'll just point out that we have the capacity to lean on that collateral if needed to get full recovery on those assets. So hopefully, that helps answer your question.
Yeah. Thank you. That's very helpful.
That is all the time we have for questions today. I'll now hand back to Mr. Ian Macoun for closing remarks.
Great. So look, I'd just like to thank everyone again for joining the call. You'll see a lot of activity over the next week as we speak to shareholders and analysts and so on in the detail of our results. But thanks again, everybody.
That concludes our teleconference today. Thank you for participating. You may now disconnect.