Thank you for standing by, and welcome to PNI's full year FY 2022 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, Ashley, and welcome to everyone who's joined us on the call this morning. Thank you for your time. Thanks for being with us. As you've heard, this call is to discuss our results for the 2022 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, importantly, our corporate sustainability report, and also importantly, our investor presentation. We'll be speaking to the presentation this morning, or rather to some parts of it. The colleagues on the call with me are Alan Watson, our Chairman, Andrew Chambers, Executive Director, with particular responsibility for institutional and international distribution, Ramsin Jajoo, who leads our retail distribution function, and Dan Longan, 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're welcome to direct to any of the Pinnacle representatives on the call. As you can see on agenda Slide 3, there are sections where the relevant executive will be Andrew or Ramsin or Dan, rather than me. Slide 2 is a disclaimer that is important and we would ask you to read this at your leisure. Slide 3 is an agenda. Slide 5 is a very simple summary of our themes for the 2022 financial year. We continued our record of increasing our profit each year, notwithstanding that our financial year 2021 profit was double that of the previous year.
that we had some annoying transitory factors lowering our profits this year. We benefited during financial year 2022, and this will increasingly be the case going forward from having further diversified our business, including increasing the proportion of funds not exposed to equity markets. Pinnacle, as well as many of our affiliates, undertook substantial further investments that will add to capacity and add to the growth in our funds under management and profits in future years. Slide 6 elaborates these themes. It starts off with the simple facts of the percentage increases during financial year 2022 in net profit after tax 14%, EPS 8%, and dividends 22% over the record results that we achieved in the 2021 financial year. Now, we're obviously disappointed with the results that we're reporting for this financial year just passed, financial year 2022.
Our profits are only modestly ahead of the previous year and well below what we were all expecting at the start of the financial year. Even late in the first half, we were still anticipating strong results. We work hard to be a high-growth company, and we don't like delivering anything less than high growth. Clearly, though there is necessarily a degree of cyclicality to our earnings pattern and the trajectory will not be a smooth upward straight line. What we have managed to date is very high growth during favorable market conditions, then holding on to that success with modest growth during market downturns, resulting in nevertheless still high average growth rates. We have the very recent example of only single-digit growth in financial year 2020, the COVID-disrupted year, followed by a doubling of profits in financial year 2021.
Still, the average rate of growth in EPS is 32% per annum over the last three years, even though this now includes two down periods in the space of just this three-year period. There are also some factors which we believe are transitory or one-off in nature, including particularly losses, mostly unrealized losses on seed funds. We totaled about AUD 5.7 million for Pinnacle's share that I will elaborate shortly, which held our financial year 2022 profits to lower levels than would otherwise have been the case. To point two on this slide, our aggregate base fees have continued to increase, notwithstanding the lower headline net inflows for this year.
This is because, and you'll hear more of this later, especially from Andrew Chambers, the net institutional flow numbers mask a picture of quite large outflows during the 2022 financial year, largely from old domestic institutional mandates, which are generally at modest fee rates and large inflows into higher fee asset classes and strategies from both local and international investors. The net effect of which has been to increase the aggregate base fees through the year. The large net inflows into retail in the first half also helped increase total revenue. The overall result is that the affiliates' run rate of aggregate revenues at 30th of June 2022 was in the order of 20% higher than the aggregate revenues through the 2022 financial year. We note that industry-wide pressures have had an impact on net inflows. Again, more on this later from Andrew and Ramsin.
Retail inflows fell to very low levels in the second half of the year. AUD 700 million net inflows compared with AUD 2.9 billion in the first half. This was quite similar to what happened from March 2020. Equity markets dropped severely and aggregate industry flows dried up. This lasted several months, during which time we recorded very low net inflows. It was followed for us at Pinnacle by record inflows in financial year 2021 and the first half of financial year 2022, as soon as market conditions improved again. We note also that the FUM with performance fee potential has continued to increase, both in absolute dollars and as a percentage of the total FUM.
In point three, we call out the fact that the diversity of our asset classes and markets have continued to increase with an increasing proportion of our FUM not being exposed to equity markets, and also that the breadth of our performance fee FUM has further increased. We now have 22 strategies with the potential to deliver material performance fees, up from 18 a year earlier. This year it was helpful that 10 affiliates delivered performance fees. We received material performance fees even though none of our large performance fee FUM strategies, except for Palisade as usual, fired this year. We look forward to those strategies firing in years ahead. In point four, we are emphasizing how much Horizon Two investment we have made throughout the group during the year.
Noting that this very substantial investment, which has been made within most of the affiliates as well as within Pinnacle itself, will drive growth over the medium term, but this investment has very significantly moderated our financial year 2022 profits. For the first time, we've sought to quantify this impact, estimating that our total NPAT in financial year 2022 was reduced by, in the order of AUD 12 million as a result of these investments. We note that these investments, though reducing current year's profits, tend to generate extremely large returns over the medium term. We can go into some detail on that in the one-on-one sessions. We make the point in five that our balance sheet has been highly valuable. We use it as an enabler of growth, employing it as an accelerator for new affiliates and new strategies within existing affiliates.
We have given a lot, we've given a number of examples there. I won't read them out. Access to capital also enables us to facilitate succession within affiliates, such as with the recycling of equities. We make the point that Pinnacle is the natural acquirer of additional equity of affiliates. As affiliates grow in value very substantially. Long-serving affiliate executives can achieve some liquidity from their equity at the appropriate time, and a lesser percentage equity is needed in order to achieve the same incentivization impact as was achieved with larger percentages in earlier years. We note that we have AUD 120 million of dry powder available for the acquisition of equity in Horizon Three initiatives, which could be strategically attractive and diversifying. We've borrowed AUD 120 million for this purpose and meanwhile use it as an enabler of Horizon Two initiatives.
Turning to Slide 7, the financial highlights. We've reported net profit after tax of AUD 76.4 million for the year, up 14% on the record financial year 2021 NPAT of AUD 67 million. A diluted EPS was AUD 0.315 per share, up 8% on the financial year 2021 record. We've declared a fully franked final dividend of AUD 0.175 per share, the same as the interim dividend, taking total dividends for the year to AUD 0.35 per share, up 22% on the financial year 2021 total dividends. I mentioned earlier that one factor which impacted our NPAT this year quite significantly was unrealized losses on what we call principal investments on seed funds. Both Pinnacle and a number of our affiliates had investments in affiliate funds for the purpose of seeding new funds.
Although Pinnacle has had its equities exposure partly hedged, some affiliates did not hedge that exposure. Also, over the months leading up to 30th of June, Hyperion has experienced quite substantial short-term negative alpha. Hyperion had invested AUD 15 million in its new U.S. fund for U.S. Investors in December. Pinnacle had invested AUD 5 million in the new Hyperion New Zealand PIE funds in March. The net effect of all this during FY 2022 on Pinnacle's P&L was an NPAT reduction of about AUD 5.7 million, not including the interest cost of AUD 2.2 million on the borrowings. For people who wish to take the view that this was a transitory factor and likely to reverse at some point, you can make your adjustments using these numbers.
The aggregate revenue of the affiliates at 100% was AUD 505 million, up 22% on financial year 2021. AUD 448 million of this revenue was base fee revenue, and that was up 36% on financial year 2021. Now, just before we get into the fund and fund flow numbers, I need to remind shareholders again of the distorting effect of a AUD 3.9 billion very low fee inflow into Plato in April 2021, and then coincidentally, an even lower fee outflow of AUD 3.9 billion from Omega in August 2021. These effectively offset each other, and we have urged shareholders to exclude them both when reviewing fund and flow numbers for FY 2021 and FY 2022.
Hence, we said, please think of our total net inflows in FY 2021 as AUD 12.8 billion, not the headline AUD 16.7 billion. For FY 2022, we think of our total net inflows as AUD 4.5 billion, not the headline AUD 0.6 billion. Happily, we won't have to bore our shareholders with these adjustments beyond FY 2022. In terms of funds, our aggregate affiliate funds at the 30th of June 2022 was AUD 83.7 billion. This was down AUD 5.7 billion or 6.4% on AUD 89.4 billion at 30th of June 2021, or down AUD 1.8 billion or 2.1%, adjusting for the Plato Omega distortion.
Aggregate retail funds was AUD 21.1 billion at 30th of June 2022, up AUD 800 million or 4% on a year earlier. The ASX 300 index was down 10.4% over the year, and the MSCI World Index down 17.1%. Total retail net inflows for the year were AUD 3.6 billion in a tale of two very different halves, compared with AUD 4.5 billion in FY 2021. Section four of the presentation provides a retail market update, and Ramsin will elaborate during questions and one-on-ones. Total institutional net inflows, including international, were AUD 0.9 billion, adjusting for the Plato Omega distortion, compared with AUD 8.4 billion in FY 2021.
Section three of the presentation provides an institutional and international market update, and Andrew Chambers will explain the subtle factors at work in these markets. During question time and in one-on-ones. It's important to note in summary that in contrast to the underwhelming headline flows and FUM change numbers, aggregate base fee revenue of the affiliates at 100% was up 36% in FY 2022 on FY 2021, and the run rate aggregate base fee revenue number at 30th June 2022 was in the order of 20% higher than the aggregate revenue through the FY 2022 year. We've entered the 2023 financial year in better shape than might be implied by the headline 30th June 2022 FUM number.
Cash and principal investments total AUD 177.2 million at 30th June, and our debt facility is fully drawn at AUD 120 million. It's also pleasing to note that 83% of affiliate strategies that have a track record of five years or more have outperformed their benchmarks over the classic five -year measurement timeframe. We've had what we know to be style related and cyclical or transitory short-term underperformance in a couple of affiliates during the year, but the crucially important longer-term records remain intact and strong. Slide 8 shows the detail of the affiliate platform and highlights of the 2022 financial year. Slides 9 and 10 show our record of earnings growth over the six years that we have been listed Pinnacle.
Slide 11 provides the specifics of the five-year performance track records of the 26 affiliated funds or strategies. Slides 56 to 58 provide further performance detail. Slide 12 shows our 16-year FUM and net flows history. Slide 59 at the back shows FUM at 30th of June by affiliate. A lot of people like to look at that together with the six-monthly history back to 2011. Slide 13 shows some detail on our performance fee record and opportunities. 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. Again, Slide 14 provides some detail on the increasing diversification of our business. Slide 15 updates on our more recent MAIJAC industry awards. I'll skip over sections two, three, and four, leaving that detail to questions and one-on-ones.
I think I've referred to the key points on those, from those sections in any event. I'll move to section five, total growth agenda. That's Slides 37 to 44. In Slide 38, we remind shareholders that we think in terms of three horizons of growth. Horizon One is the main game. It is continuing to pursue net inflows into existing strategies of existing affiliates. We remain very confident of our ability to continue to do that, and particularly to grow affiliate revenue. We conservatively estimate the capacity of the affiliates' existing strategies at AUD 300 billion, so there is plenty of Horizon One runway left. With the attendant strong gains in operating leverage that will be accompanied by such growth.
Horizon Two investments increase capacity over and above the existing AUD 300 billion+ , and remains the subject of an enormous amount of activity, both within Pinnacle itself and within the affiliates. We've stated that we estimate this is costing in the order of AUD 12 million to Pinnacle's bottom line NPAT. This is a slow, patient process where we invest now for medium-term gain, but we've been doing this for a long time and have a very strong record of very high returns on our path to Horizon Two investments, not even including the unrealized capital gains on the value of these businesses and strategies that we have built, and we are confident this will continue to be the case in the future. We've mentioned specific Horizon Two initiatives in Slides 40, 41 and 42, and the overseas Horizon Two initiative in Slide 43.
In relation to Horizon Three, which of course is where we use capital to buy into existing businesses, we were pleased to have completed our acquisition of 25% of private equity and venture capital manager Five V Capital during the year. In terms of potential further opportunities, Slide 44 explains in summary that we've done a lot of work on a large range of opportunities, but in the final analysis, we haven't progressed so far with any, and we make no apologies for remaining disciplined and patient. I'm out of time, but I really want to mention section six, corporate responsibility. We're proud of the progress we've made on so many fronts, but I will leave it to shareholders to ask questions or read Slides 46 to 50 of the presentation and the corporate sustainability report that we've lodged with the ASX last night.
In conclusion, I'd like to remind shareholders of the basis on which we remain so confident of our company's ability to continue to grow and prosper, which is all about our distinctive business model and the competitive advantages that brings to us. We should turn to questions now, 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 Scott Murdoch with Morgans. Please go ahead.
Thank you. Morning, Ian and team. Maybe just a couple. On the AUD 12 million investment that you called out there, Ian, that's been incurred at the P&L line. I'm just interested if you could give us just a little bit of detail of where that spend has been focused, and just, I guess, the timing of some expected results from that investment within the affiliates.
Yeah. I might ask Dan to help me with specifics on these numbers. I should mention, Scott, that you know with a little bit of trepidation that we start bringing forward more and more detail and estimates and so on. We do that you know in good faith in the interests of bringing our shareholders along with the journey. You know there's always a degree of we make these investments. We're very careful to do it in only very high quality people and so on. Well we're never sure exactly how long it will take for the returns to come, but we do know that they're big when they do come. Dan, would you like to take that?
Sure.
AUD 12.
Sure. On Scott, on slide 41, we call out the major initiatives within affiliates. There's eight affiliates listed there, with multiple initiatives happening in most of them. Now, the aggregate spend at an affiliate level was in the order of AUD 16 million. Our share of that's about AUD 5 million. The balance of that was spent within Pinnacle itself, furthering international distribution and our international expansion.
Okay, thanks. Maybe following on from that, Ian, Dan, and on that offshore expansion piece that was obviously had a fair bit of focus going back six months ago on sort of potential acquisition opportunities. You mentioned that in the call Ian, but there was previously a funnel shown. So just interested in an update on, I guess, what that distribution capability offshore is now, the investment made and further investment expected.
In terms of distribution offshore, we'll ask Andrew Chambers to speak to that. We've added people, and we will sort of carefully add more people. In terms of looking for Horizon Three and some Horizon Two offshore, we've done a huge amount of work. We had a fellow who we paid for probably a year, an expensive, experienced fellow on the ground over there helping us. We've had a team, and all of us have spent some time on things. We have become quite advanced with some of them. In the end, we demurred on some quality aspects. We have very high standards in terms of quality. Our preference was in private markets, asset classes, you know, very diversifying asset classes, if we could.
In the end, we found that valuations have remained very high overseas in private markets. You know, we didn't want to overpay. That's it in terms of, you know, Horizon Two and Three. In terms of offshore distribution, Andrew, do you wanna just take that?
Yes. Over the last 12 months, we've added two senior people on the ground, one in the Americas, one in the EMEA region, based out of London. In addition to that, we've added people in operational roles, both in London as well as on the ground in Canada, in particular, where we're building out a hub as well. We're also looking at distribution opportunity there.
It comes in the form of not just distribution and sales executives being incrementally added to the team, but also in terms of operations and to support fund infrastructure and, compliance and risk as well.
Okay. Thank you. Maybe while I've got Andrew there, just one last one from me, just maybe a little bit of color on the institutional pipeline. I think it's called out there to be pretty confident in the demand. Just interested where you're seeing the strongest demand in terms of affiliate and channel and also if you could just touch on maybe our plug exposure and changes in risk associated with MySuper.
Sure. Happy to take those questions. In terms of the strongest demand, notwithstanding the fact that there are really significant bear markets and poor confidence in global emerging markets right now, there's an amazing opportunity, we think, to take market share in that space amongst managers with Aikya. You would have noted that we've more than doubled the AUM in Aikya over the last 12 months in that business. Within 2.5 years, we've put on Aikya to a runway break-even through our institutional and international distribution team. We'll be one of the very few Article nine-compliant global emerging market managers under the Sustainable Finance Disclosure Regulation. Plenty of very strong demand out of places like Europe for managers like that.
Very strong consultant ratings across the board and fund infrastructure in place, both UCITS as well as CITs on the ground in the United States. We think there's a great opportunity in global emerging markets and seeing a lot of great inbound inquiries from consultants and asset owners as well there. You know, in Antipodes Partners, we think there's a lot of demand in that global value category. In the last 10 years, as value has underperformed, obviously a recent rebound in the last six or so months, we've seen a real thinning of the herd of high-quality global value managers. Your capacity to contest mandates there is really enhanced. We've underwritten by the more than AUD 1 billion of sales we made for the financial year.
In Antipodes Partners, we think there'll be more to come, not just here in Australia, where we've seen good demand, but also internationally as well, particularly out of the Americas, both Canada and the United States. Metrics Credit Partners private credit continues to have incredibly strong demand both domestically and internationally. It seems to provide an enormous amount of ballast in portfolios when duration-based fixed income portfolios had their biggest drawdowns, certainly in about 30-odd years. They've shown themselves to be incredibly stable asset classes and strongly yielding asset classes. We delivered a record net inflows for Metrics in any year-on-year to surpass last year's record number. That's across institutional and international. We think there will continue to be strong demand there. Also in areas like real assets in particular.
Most of the major asset consultants we're talking to locally and globally are strongly favorable to new allocations to both real asset infrastructure and real estate in particular, given they've been very good inflation hedges and offering still very good upside. That's probably one of the other areas we can see ongoing demand across both Palisade as well as Resolution Capital. In terms of greater headwinds, that's somewhat linked to Your Future, Your Super. You would have seen or called out in the scenes this issue around portfolio de-risking that's happened in response to Your Future, Your Super. Trustees as well as fund executives are more mindful of benchmarking than it's ever been as a result of this legislation.
It's also encouraging a lot of these underperforming funds, which have been called out by APRA in the press, to accelerate fund consolidation and merge with other funds. That creates both opportunity and risk. You know, interestingly, we're seeing both in-sourcing opportunities as well as outsourcing. Where superannuation funds, those very large funds that have been historically managing certain asset classes in-house, we're actually seeing opportunities to take those mandates externally in areas like private and public credit from those internal teams. It's not just one-way traffic in terms of internalization there, but it does impact some of the large, you know, equity asset classes, particularly Australian equity. You would have seen some outflows in Talaria during the course of the year and also Plato as well.
One of those was owing to internalization, the other was owing to de-risking of portfolios and moving them more into indexation-style portfolios. That's always been with us. Nothing new about that. Obviously Your Future, Your Super heightened simple sensitivity to basis which we're willing to take relative to market benchmarks. Is that a helpful summary?
Yep, that's great detail. Thanks, Andrew. Thanks, Ian. I'll pass it on.
Your next question comes from Tim Lawson with Macquarie. Please go ahead.
Hi, gentlemen. Thanks for taking my questions. Just two quick ones. In terms of the AUD 12 million upsides you've called out in terms of the Horizon Two investment, how does that amount compare to history? Is there any particular reason why you're calling it out now?
Yeah, we haven't sort of disclosed those numbers previously. It is larger. Dan, I'd say it's larger than any year so far. It's certainly, I know it's larger than last year. If you'd like to give a little bit of flavor on that, Dan. We did sort of put the foot down on all of this, recognizing that we were going into this year with things looking very good, you know. Dan, do you wanna mention the number from last year, roughly?
Yeah. It's in the order of 50% higher than it was last year, Tim. You'll note again from that Slide 41, the number of initiatives that are happening now and a number of those were either started or substantially accelerated during the past 12 months. As Ian said, it has been a step change in terms of that investment this year on last.
Well, I had AUD 7 million to AUD 8 million in mind for last year.
Do you anticipate that there's sort of a new run rate? Is that you keep disclosing it or do you think you're just trying to point out that there's been a step up and-
You don't keep showing it?
Well, we're certainly learning that the way disclosure works, once you disclose something, people look for you to continue to do that. I think we're probably likely to. I don't say that it's a step change that will be sort of, let's say, permanent. The way we think of it, I mean, we love Horizon Two. We've done it for a long time. I think we've done it very well, and we've had tremendous gains from it. We don't say, "Oh, well, you know, this is the amount we're gonna spend on it." We're looking continually at what the opportunities are and we resource up. You know, it has to be somewhat ahead of revenue. We don't like to overdo it. I won't sort of make a prediction there, Tim.
What you can be assured of is that everything we spend on Horizon Two is on good quality stuff that we have high confidence in. We don't just sort of, you know, blithely go on spending money on these things. We're continually asking ourselves, are they good, what we're doing? We've always done Horizon Two. People have always underestimated our profitability and overestimated our P/E as a result. I'm sure we'll keep doing Horizon Two, but I'm not gonna say it'll be AUD 12 million a year. This was a sort of a higher level than in the past. We called it out because people are sort of asking us. Thank you for that. Just a second question.
In terms of the AUD 5.7 impact from seed commitments, you've noted they're mostly unrealized. Would you comment on how much of that is now hedged, what the mark-to-market might be? Also just how that's different to what you'd normally do, and do you normally try and hedge these sort of exposures? Yeah. We sort of have in the past partially hedged them. We can't hedge alpha, obviously. It's just the market movement, and we've done that. I don't know what we'll do in the future, Tim. We'll take our views on it as we go, but we have in the past sort of substantially hedged the Pinnacle.
Our affiliates make their own decisions, and there's been quite a lot of extra seed funds, really as our affiliates have progressively built their own capital by paying out not quite 100%. That number invested by affiliates in seed has gone up quite a lot. I think that will be ongoing, and I think, I mean, some hedge, I mean, Firetrail hedge, but many of them don't, and that'll be their decision, but I would assume they will continue to leave it unhedged. I mean, over time, it ought to be positive. It just adds to volatility in the short term. But I think. Okay. Thank you. I think the amounts exposed will remain sort of at these levels more or less.
Thank you. That's all from me.
Your next question comes from Nick McGarrigle with Barrenjoey. Please go ahead.
Good day, team. Thanks for taking questions. I might just ask one around. It looks like based on my numbers that both Hyperion and Antipodes have reasonable flows in the fourth quarter. I mean, putting in context what Andrew was talking about in terms of institutional allocations to, and tracking errors and things, can you talk through just the decisioning on those clients and if that's, if those were long-awaited mandates getting fulfilled? Just a bit of context around those two particular.
Andrew?
Yeah. Very happy to take that question. Thanks for that. I actually neglected to mention Hyperion, which I should have, when I was responding to Scott's question. Hyperion on the institutional side experienced AUD 1.2 billion of inquiries for the financial year of 2022. Very strong ongoing demand. We've been selectively opening up capacity but to particular institutional investors, particularly those which we see strategically have been survivors in the consolidation rates. These investors typically barbell their portfolios. They typically like to have a low tracking error core potentially internalized or using quant and the like. Then they typically appoint higher tracking error managers for which they're prepared to pay more premium-style fees for high active risk.
We've brought on board a number of clients in that space during the course of the year, and we also had rebalancing top-ups in response to the alpha underperformance by a number of long-standing investors which recognized this is exactly the right time you want to put more money to work with Hyperion. The demand for Hyperion remains exceptionally strong among institutional asset owners. I was just on a call with a major Australian consultant yesterday who was pushing us hard about getting access to more capacity. You tend to find they're very countercyclical. If you go back to FY 20 21 with Hyperion, we had AUD 1.5 billion of outflows in response to the strength of their outperformance.
Really important, you know, demonstration and I think juxtaposition to think about FY 2022 versus FY 2021 and the performance profile of the manager and the ongoing demand. Hope that helps sort of explain Hyperion. On the side of Antipodes, these are mandates which we've been working on for longer periods of time, which have now crystallized. That happened both in Australia and also out in the U.S. We secured a U.S. West Coast insurance client, a major superannuation fund client in Australia. Again, someone who's going to be a survivor in the consolidation wave among superannuation. They're strategically targeting much harder those bigger funds, the larger end of town, because usually you can grow with them over time. Those smaller mid-sized funds will simply be rolled up into larger funds over the next few years.
Antipodes managed to obtain a very strong pipeline here locally in Australia, with consultants and cross-border, very supportive, pulling them forward for new business and also internationally for a lot of offshore and international consultants based in U.S. and also in Europe. The picture is that it's pretty good for both of those managers in their respective spaces. Nick, I would sort of make the point that, there's quite a big difference between the retail market and the institutional market in terms of reaction to recent performance numbers. As Andrew said, institutions are more professional and rational, and they will often de-allocate after good performance and increase allocations when something's been out of favor. An institution, including overseas, will say, "Okay, we need some value-style global equities in our portfolio.
Who's the best value-style global equities manager?" We'll get appointed. It doesn't matter what recent performance has been. Similarly, if they want a growth style global equities manager or an EM manager or whatever. Unfortunately, in the retail market, what we've seen is that when markets go down, investors stop inflows and, you know, it's a great tragedy that happens and money sort of pours in after markets have gone up. There's a lot more performance following in the retail market.
Maybe that's a good segue into the retail side of the business then. The first half was about AUD 500 million a month. Second half was sort of AUD 120 million a month. Can you give us a sense on the momentum and the sort of ebb and flow over the six months to June and what the momentum was like sort of towards the end of the period?
We'll ask Ramsin to answer that. It'd be helpful, Tim, if you can give us a forecast of what markets are gonna do. That would be helpful for retail, forecasting retail momentum. Ramsin?
Thanks for the question. Look, first off the year, the market was doing very well in terms of record flows in the market itself. I included a slide in the pack, slide 32, that shows basically Q4 last year, there was record inflows of about AUD 70 billion for the year, but about AUD 60 billion of that was in Q4 last year. The market was doing so well. January hit and things go down. February, things continue to be slow. Part of that we thought was because people took extended leave over the summer break for the first time in two years. March, April, all the way through to June, the market has been very soft.
In fact, there's only been AUD 200 million of net new business across the whole retail fund management industry in the first half of this calendar year. The market has slowed markedly in the last six months, and yes, our run rate has dropped to a lower rate. As Ian said, we do believe the market pauses in these situations. A lot of investment committees are trying to figure out value versus growth, how do they change their duration exposure versus credit, private debt and so forth. Our experience is that when the market starts looking to invest, the quality of our managers and the distribution team that we have, we believe part of that conversation, and we see pick up very quickly with strong flows.
In terms of your specific questions on Hyperion Antipodes, Hyperion was the largest contributor to net retail flows for the financial year. As Ian mentioned earlier, it was a case of two halves. Hyperion did excellent in the first half of the year. Second half, they finished positive, but we're only seeing the last few weeks people starting to allocate back to growth as they see it as an opportunity to reallocate towards Hyperion, but they have slowed down markedly. Antipodes on the flip side was in outflows, and in the first half they had a much larger outflow. In the second half on a month-to-month basis, it's getting very close to be turning that corner and becoming positive in retail.
Now, when managers review the portfolio, when the markets are down, they don't necessarily look for the best value manager. In retail because of indexing, because of ETFs, they look for low cost, low fee, and at times they give up on a style and simply move into more passive. That's a conversation that we need to continue to educate to show why value plays a role, especially obviously in the last six months.
That's great. I might just ask one more and then, I'll let someone else have a crack. In terms of Coolabah, looks like they had a fairly significant outflow in, it looks like the second half, but more weighted to the fourth quarter. Can you just give us a bit of context around those movements?
Yeah. Andrew might take this. I'll just say they did have one client that was involved in a merger where there was an immediate sort of closing down of all the smaller emerging funds investments, and that they were a significant investor in Coolabah. I think the new senior partner also invests with Coolabah, but in a different strategy, and they haven't done anything about that yet. Yeah, Coolabah had some outflows towards the end there.
I'll just maybe add to that. Coolabah manages mandates for both the larger funds with over AUD 100 billion of FC lending, as well as the small merger partner. They run very different strategies for the larger funds.
Coolabah runs effectively a portfolio of local issuers who trade in foreign currency or rather issuance to foreign markets and foreign currencies with Australian issuers. Also foreign issuers that issue into the Australian market. We have doubled that mandate in the last month or so with Coolabah. Obviously the other mandates they had with the smaller funds were less of a fit for their portfolio. They're effectively reducing those or terminating those particular mandates. The intention is to scale up the existing mandate, which was historically managed in-house by this fund and was externalized to Coolabah for management on their behalf. That's continuing increasing size and should grow as that fund continues to grow itself.
Okay, great. I lied. I'm gonna ask one more question. Metrics looks like it had about AUD 3 billion of net inflows, and obviously some fairly significant origination fees. I think the historic issue has been capital as opposed to the investments. Can you give us an update on, you know, how we should think about their longer-term capacity and their ability to originate loans, you know, in any given financial year?
In terms of fees and so on, we might ask Dan to speak to that. In terms of ongoing flows and capacity, maybe Andrew, but I would make the point that they have, you know, huge capacity and, they've added a lot of people, they've added extra strategies. There's a very big runway ahead. They're going very well, but there's a long way still to go. Would you agree with that, Andrew? Without a doubt, there aren't the capacity constraints in private credit that there are in, say, public equity, 'cause the sheer size of the market. In fact, you get economies of scale as you get bigger rather than diseconomies, in the area of direct lending because you can speak for more capital up until the point of origination, you get better economics.
Again, enhanced returns as they get larger. If you look at comps globally, whether it's an Oaktree, whether it's Blackstone, or others who run private credit portfolios of several hundred billion dollars, and you think about the major banks in Australia and how much they lend in terms of their corporate books, there's an enormous amount of runway to go in that business. They're obviously expanding into new verticals as well. You know, alongside into real estate equity and holding equity, warrants and options in private companies that they lend to as well. There's new adjacent areas they're moving into, including also SME lending strategies as well. More small ticket loans in addition to that as well.
In terms of the origination, as far as for the upfront, we're doing more and more business in their high yield strategies, in which they participate 50/50 in the upfront fee with the investors. Obviously the turn of that book is quite frequent. On their real estate debt funds, for example, the tenor of those loans typically less than 12 months. You're generating upfront fees every 12 months of that same magnitude to give you an example.
Thanks, Ian.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from John Hynd with Wilsons. Please go ahead.
Oh, good morning, and thanks for taking my questions, gentlemen. On the business, on the underlying business, if we could start with affiliate margins, there's a little bit more to unpack this year with performance, the affiliate investments for growth and then the new affiliates added. Can you perhaps let us know what are the key drivers of this 38%, for this year? Could the recent recovery in markets and Aikya reaching breakeven, can that offset some of the costs that are being laid on and get it closer to a 40% again, in the near term?
Look, I might ask Dan to address that, but as a general statement, yes, Aikya cost us money last year, but is now through breakeven, so that'll be a positive for next year. Having said that, we've got other new affiliates such as Langdon, who'll still be costing money and who knows whether we might add some more. We do have that continuing process that, you know, older Horizon Two investments are no longer a drag, but we've got new ones. As we said, the AUD 12 million number for this year is larger than in the past. That's partly not just new affiliates, but extra distribution and new strategies that we have to distribute. Dan, would you like to talk about the margin? We don't sort of target a margin.
We seek to get the best fees we can on our flows. That is a positive for our margin, is that our outflows tend to be at lower fees than inflows. That's a very significant factor. The Horizon Two cost in affiliates, which is large in affiliates, I think it's they spent, you know, the total was about AUD 20 million. So our share, AUD 12 million. You know, we'll see what that is. It's at a fairly high level in the year just passed. I don't know about future years except to say that we do like Horizon Two. Dan, do you have any better enlightenment on that, on the sort of revenue to expense ratios?
The only two things I'd add briefly, John, are that we do expect those Horizon Two P&L investments, if you like, to drive high margins in future years. How long that's going to take, we don't know. The other thing is the seeding losses. They sit in that expense line within the affiliates and if you take the view that they are transitory and at some point will unwind, then of course that would be additive to that bottom line margin. Again, we don't know when or if that's going to happen.
Yeah. Our affiliates as well as we have to expense through the P&L unrealized losses. Mark to market.
Yeah.
Yeah.
Now that's in line with how I was thinking about it. I mean, I guess you are, as markets recover, you will see that line improve. Just moving on, with a strong contribution from the core revenue, and you mentioned in the pack that the second half was impacted by some or didn't quite meet internal expectations. It still was quite a good result, I guess, versus our numbers. Has the strategy changed there for fees from affiliates as their margins get higher? Are you now or can we now think about the underlying, you know, Pinnacle administration business? Can that be sustainably profitable going forward? Should we think about that differently now?
I would say there's no change to strategy broadly. The higher margins are a result of different strategies being in inflows than those that are in outflows. We're always going to get the best fees we can. That's been a deliberate strategy of diversifying into, you know, higher fee affiliates or asset classes. In terms of Pinnacle Parent, we don't target a particular outcome. There's no doubt that our revenues have grown as our FUM, especially retail FUM grows. That's a good thing. We've added people ahead of further growth as existing affiliates adding strategies, we have to distribute them as well, especially in retail. We've added some costs.
The Pinnacle Parent outcome will be whatever it is, it would have been, as we said, better if we hadn't had those unrealized losses. Yep, we can be in profit, but w e're not targeting greater profitability in the parent as such.
Okay.
Great.
Thanks.
Yeah.
Thanks. Thanks very much, Ian. I'll leave it to the next panelist.
There are no further questions at this time, and that does conclude our teleconference today. Thank you for participating. You may now disconnect.