Morning, everyone, and welcome to today's briefing by Regal Partners Limited. Today's session will be presented by Chief Executive Officer, Brendan O’Connor, and the briefing is being conducted by webinar and phone. The agenda for our session is that Brendan will provide an overview of today's announcement regarding Regal's acquisition of PM Capital. He will also provide a summary of an announcement that Regal made earlier this week in relationship to a partnership with Taurus Funds Management. We'll then have a short question- and- answer session. For questions today, if you are online, please submit your question through the Ask a Question box. For those on the phone, please press star one to register your question and star two to cancel your question in the queue. Please note, we may have media in attendance today as well. I'd now like to hand over to Brendan.
Thanks very much, Ingrid. Brendan O'Connor, CEO of Regal Partners. Thank you for your time this morning. We really wanted to use this time to provide an overview of our announcements this week, in particular, the announcement this morning of the acquisition of 100% of PM Capital Limited. I'm referring to a slide that we put up in the ASX this morning. So currently I'm on slide three, the overview. So we've acquired 100% of PM Capital, the multi-award-winning boutique, long-short equity manager, set up by Paul Moore in 1998. Paul manages over AUD 2.7 billion in global and Australian long-short equities, as well as AUD 800 million in an enhanced yield strategy. Paul has established a wonderful track record since 1998, without peer, in terms of its longevity and its performance over that period.
It's been well recognized by many industry awards. If you look at the acquisition of that AUD 2.7 billion, together with the acquisition of 50% of Taurus Funds Management, a specialist provider of finance and royalty solutions to global small and mid-tier mining companies, it takes Regal Partners' FUM to just under AUD 11 billion as at 30 September 2023. I remind you that Regal Partners put out its FUM to 30 September. Earlier this week, we had AUD 5.8 billion, so the addition of Taurus Funds Management and PM Capital adds another AUD 5 billion, taking us to AUD 10.8 billion. I'd just like to highlight a few points in respect of the PM Capital acquisition. As I mentioned, Paul has established a wonderful team with a wonderful track record of performance across long-short equities and fixed income.
We're delighted that he's chosen Regal Partners to partner with, to take his business into the next phase of its growth. I think it's got a highly complementary and well-diversified investor base in the fact that the majority of PM Capital's clients are retail clients. That's an exciting synergy from a Regal Partners perspective, that those that follow us will know that the vast majority of our funds are wholesale and high net worth managed investment schemes, whereas the PM Capital business brings a very broad-based retail following. There are scale benefits and operating efficiencies as well. Clearly, we'll look to engage and integrate the teams as best as possible from a back- office perspective.
But importantly, the investment management will continue to be led by Paul Moore in the same manner, in the same discipline, that he has applied to generate that track record in both the global and Australian long-short equities, and by Jarod Dawson on the enhanced yield side. I've highlighted that it's accretive to Regal's earnings, and you'll see more about that in 2024 as we announce our earnings. I would like to highlight that 87% of the consideration, or the total potential consideration, that we'll be paying to acquire PM Capital, is delivered through scrip, scrip, and RPL. I think, I think it's a great endorsement that PM Capital, and Paul Moore in particular, wants to partner with Regal and participate in the upside.
Whereas the addition of the PM Capital business and Regal really is a powerful combination, and that should be reflected in the share price through time. I've touched upon this last piece briefly, that there will be a small amount of cash required up front. There's AUD 20 million of cash required. We're going to fund that from existing on-balance sheet cash investments. So that's AUD 20 million, plus a small amount of additional capital to service capital business. If I turn now to slide four, you can see a visual presentation of the growth in Regal Partners funds, starting with AUD 4.7 billion in June 2022, when we had just merged with VGI.
By September 2023, we're at AUD 5.8 billion, and obviously, the addition of AUD 2.3 billion from Taurus and a further AUD 2.7 billion PM Capital, takes us to AUD 10.8 billion on a pro forma basis. Slide five will highlight that the business continues to diversify, which is great. And so whilst the PM Capital money or assets under management builds out our long-short equities, I guess there is further diversification in the basis that, one, it includes largely retail money, which is an additional and complementary segment to the largely wholesale and high net worth client base that Regal Partners has.
Slide seven shows the pro forma financials. What we've done here is really taken Regal Partners e arnings for the 12 months to 30 June 2023, and put alongside that the same period, so the year to 30 June 2023, for Taurus and PM Capital. You can see that both businesses contribute in a meaningful manner to increase the management fees right across the business, take us to over AUD 100 million in management fees on a pro forma basis to 2023, and on a normalized NPAT basis, would have taken our profits to just under AUD 50 million. I'll pause there because the presentation is fairly self-explanatory, and see if there are questions people would like to ask.
Great. So we've got a few people in the phone queue. Operator, could you please go to the first person in the queue, Nick McGarrigle?
Thank you. Nick McGarrigle from Barrenjoey, please go ahead.
Thank you. Good to see a couple of transactions this week. I wanted to confirm, the shares, the deferred shares, are they at current share price for Regal? Are they in dollar terms to be issued at, are they in share price when they[audio distortion] incident, when those conditions are met?
Yeah, thanks, Nick. It was a little bit muddled, but I think your question was in respect to whether the shares are being issued at current share price, and they are thereabout. So the share price is effectively, just under AUD 1.90, I think AUD 1.89, roughly, they're being issued at. And that will be approved, at a shareholder meeting in mid-December, and we expect to complete the transaction shortly thereafter.
Can you talk through synergy potential across both acquisitions? I think it was more revenue synergies potentially on distribution with Taurus, and just maybe, what you'd expect with PM Capital in terms of just, in terms of style of synergy, but not necessarily quantum.
Yeah. Undoubtedly, there's opportunities for us to be able to integrate the back office, and we'll look to do that, at the right time, for the right opportunity. I mean, it's a key part of the acquisition, as we've put out here. Paul and his team want to focus on investing, and they recognize that the business of investing is different to the business of running a business that is an investment business, and so that separation is clear. We've been able to demonstrate, I think, to ourselves and others through the VGI acquisition, that our platform, from a equities long-short perspective, is highly scalable and highly capable of bringing on more funds.
What I would say, though, is that today we don't have strength within retail distribution, and so we're going to be working closely with the PM Capital team to observe how their retail distribution activity is, has occurred. And where we can, we'll look to add weight to that and look to accelerate the growth in their funds under management. That it's very much a case of working with them to develop and drive further flows across their, that retail network.
Can you just talk through their credit fund, how that differs to yours?
Yeah, it's a good question. So Jarod Dawson runs the enhanced yield strategy that PM Capital has. It's a highly successful strategy. It's what I call a short- duration strategy, generating a yield above the RBA cash rate through investing in global corporate fixed income securities. I think it's a very attractive strategy, attractive return in the current environment, and I see that current environment sort of being here to stay for the years ahead. So it may be generating a return to investors of around sort of the 6%-7%, something like that, in the current environment. Whereas, the private credit strategy that we set up, are non-tradable instruments, bilaterally negotiated contracts, providing capital typically to private businesses, but not exclusively, seeking to generate returns of between 10%-12% per annum.
Complementary, but different strategies in their own right.
Great. Thank you. I might let someone else ask a question.
Great. So just as a reminder, it's star one to register a question and star two to cancel on the phones. Operator, could we go to the next person in the queue, Lafitani?
Thank you. Lafitani Sotiriou from MST. Please go ahead.
Just one question from me. Brendan, you mentioned that you are very excited about PM Capital's next phase of growth. Could you talk to what the ambition is, or some specifics as to are there any new funds that you intend to launch? Or, you know, if we look two, three years out, would it be the existing offering that we would expect to see?
Yeah. G'day, Laf, thanks for the question. I think it's very much prosecuting the thesis that we made when we first looked at the PM Capital business. And we looked at Paul and his team's track record, which, as I said, there's no one else that comes close in terms of that track record back to 1998 in generating strong returns through many different market cycles that have occurred in that time. I mean, pre-GFC, post-GFC, the big bull run in tech stocks, et cetera. Paul and the team have continued to perform through that. And that total sum is about AUD 2 billion if you back out the enhanced yield strategy. So if you have a look at the amount of capital that other global long-short managers in Australia, or even global long-only managers in Australia, have collected--
Paul, I think, deserves to be running far more capital. So I don't think the opportunity here is about new strategies so much, but really just looking to increase the scale of that track record. And given that it's global, long, short, it's very significant. He could be running much more capital than they are for now at the moment.
Got it. Makes sense.
Great. Got no more questions on the phone at the moment. There's just one online, just not quite relating to the acquisition, but just, Brendan, can you just comment on the fund flows in the last quarter and, any comments you want to make on outflows and launches coming up?
Yeah, certainly. So for those who don't have it in front of them, earlier this week, Regal announced its fund flows for the quarter end of September 2023. Effectively, there were flat flows, notwithstanding the fact that we had flows across each of the asset categories, it was our net flows were held back by two redemptions from two individually managed accounts managed by VGI Partners. And that showed up as -AUD 105 million in net flows in long-short equities. So just to remind you, in the years to 30 June 2023, Regal brought in AUD 1.1 billion of net flows.
We haven't announced the target for the year to 30 June 2024, but we've absolutely got confidence based upon client inquiries and operational due diligence going on, that we suspect that the December quarter will be better than that, and there's no reason to believe that the momentum that we've had historically within fundraising won't exist going forward.
I think, sorry, there was some funds mentioned in the presentation earlier this week.
AUD 5.8 billion is our, was our fund prior to the acquisition of Taurus. Further AUD 2.3 billion through Taurus, and then another AUD 2.7 billion in PM.
Yeah, sorry, the two new funds we were referring to in the announcement. The Partners Fund and the Resources High Conviction Fund.
Yeah, that's exactly right. So we made a comment in there that we expect that flows in the December quarter will be further assisted by the launch of two new strategies, a Regal Partners fund, and also a high conviction resources fund, which we run as an Active Extension product for those clients looking to get broader exposure to the resources market sector.
Great. I think we've got a couple of more questions on the phone. Operator, could we please go to Marcus from Bell Potter?
Thanks, Marcus. Please go ahead.
Yeah, morning, gents, and ladies. Congratulations on two deals this week. I've got a few questions. Firstly, the convertible note you're issuing this morning. I'm just looking at the announcement. Presumably, that's just being issued to the vendors of PM Capital. Is that correct, or is it being issued more widely? And is it tradable? Can they sell it in the market, or presumably, it's just for the vendors? And secondly, on the funds you announced, the Resources High Conviction Fund and the Partners Private Fund, do you have any idea how big those 2 funds will be? What sort of size we'll see when you issue them in Q4? Thank you.
Yeah, thanks, Marcus. The redeemable preference shares is simply an efficient mechanism to deliver the shares to the shareholders of PM Capital. Those shares will only be issued. Well, firstly, if the shareholder vote in mid-December is approved, but as I said before, more than 50% of shareholders have already approved that, so that will go through. And then those shares will be issued if the conditions related to that are met. They're not tradable. They'll be converting into RPL ordinary shares once the relevant vesting conditions are met. In respect to the two new funds that you highlight, the Active Extension Resources Fund , I think that's a strategy that will be warmly received by the market. I think we've generated a lot of expertise in resources off the back of our market-neutral resources strategy.
We're managing about AUD 500 million in that market-neutral strategy today. I guess I've got reason to believe that a long buyer strategy, we could be running more than that in time in the high conviction resource strategy. The private partners strategy or the partner strategy is really a fund or a strategy that came about through reverse inquiry from a number of our family office clients. And they looked at the success we'd had in generating returns through RF1. Remember, RF1 is the ASX-listed multi-strategy fund, listed on the ASX back in 2009. It's generated over 18% returns per annum since inception.
I think the broader lot of strategies that Regal has, there's appetite from a family office perspective to be able to invest in a unlisted version of that, which we seek to bring to market. So in terms of capacity, in terms of capacity to be determined, but I think it could be significant given the breadth of the strategies making it up.
That's great. As a follow-on question, you've done two large acquisitions this week. What can we expect going forward? I think I know what you're gonna say. But I mean, are you still open for acquisitions? Are you still looking for acquisitions, if the right thing came along? Or is it much more, sort of, more bolt-on small teams that we'll expect to see in the next six months to a year?
Yeah, we're absolutely still looking to do acquisitions, if they make sense. Remember, as I said before, I think we're looking to grow our business organically, first and foremost. That's what we're focused on, but we continue to keep on the lookout for attractively priced, accretive, culturally aligned transactions, and I think Taurus and PM Capital are good examples of that. We've got over AUD 200 million of surplus capital on balance sheet. As we enter these transactions, the cash required for these transactions is taking less than a quarter of that. So I think we've still got significant firepower to continue to look at other accretive acquisitions, if culturally, they make sense to bring into the business.
May I ask one last thing? I think you put a facility in place, a credit facility. Are you going to need to draw on that for cash over the period?
You're right. We announced in June a facility with HSBC, AUD 50 million, 2-year, 11-month term. We think it's really attractively priced, and attractive flexibility to have there. It's going to be used principally for working capital purposes. And, and no, we won't need to draw upon that to fund these acquisitions.
Great. Thank you very much. Well done.
Thanks, Marcus. Operator, could we now please go to Nick Burgess?
Thank you. Please go ahead, Nick.
Yeah, good morning, guys. A couple of questions. So you've called out, Brendan, the strength, PM Capital's strength in retail distribution. Just wondering if you'd frame that for us in terms of total BDM or, or distribution force, headcount in the PM business?
Yeah, thanks. Thanks very much. There's a team of about, call it, six people in there within the sort of retail distribution team at the moment. As I said, it's not a segment that we specialize in today. We're looking forward to partnering with them to look for opportunities to accelerate that growth. But we'll be seeing the activity levels and the strategies that they undertake to sort of raise capital within that retail segment. And then, I think we'll look for opportunities to partner with them, to take some of that product into our wholesale and high-net-worth channels, but also to broaden the base of that retail activity.
Yeah. Okay. And secondly, related to that, obviously, the retail market broadly is a pretty big one in Australia. Are there any segments off the market or perhaps key relationships with advisor groups or particular platforms that would help us understand where PM Capital's strength in that market has been?
Yeah, absolutely. And, there's not a slide in this deck that does that, but a key part of, our due diligence was that, that footprint, as I like to call it, in retail distribution. The PM Capital products are on each of the major platforms right across Australia. They've got good support from the research ratings. In particular, I'd note that their global long-short strategy is one of only two strategies that are highly recommended by Zenith. And so, you know, that's a key part of the work that we'll be looking as we collaborate with their team, is making sure that we're prosecuting every opportunity to take advantage of that broad platform footprint.
Okay. Thank you very much.
We can show you m aybe Ingrid could send you a slide of the visual representation of that platform coverage they have.
Yeah, that'd be helpful. Thank you.
Thanks, Nick. Operator, I think we've got some follow-up questions from Nick McGarrigle. Could we now please go to Nick?
Thank you. Nick, please go ahead.
Thanks. Just a sense of performance fees over time. I think there's a fairly large performance fee in the in kind of pro forma numbers, and then what you're assuming the performance fees when you talk about accretion?
Sorry, you were very quiet there, Nick. So what was the last part of your question?
I was just--s orry, I was asking about performance fees over time, and then what the performance fee assumption is in the accretion comment.
So the three strategies, each of them have the ability to generate performance fees. Their performance fees, like all, vary depending on performance. But given their long track record of generating alpha across each of the strategies, they've had a strong, cadence of producing performance fees. I'd say the rule of thumb that PM Capital has today is probably as high as it's been for a period of time, and therefore, the performance fees are higher than, than it has been in years earlier. And as obviously we'd expect, as we grow that fund base, the level of performance fees, in an absolute sense, would increase as well.
But just in terms of the accretion, are you assuming a level of sort of normal, you know, baseline performance fees in that assumption, in terms of what the forward profitability will be in FY 2024?
Yeah, that's right. So we've assumed a lower level of performance fees than was delivered in the year to June 2023, and more of a normalized basis, which is probably understating where it was, but allowing for some variability in performance fees. But there is a level of performance fees we've assumed in coming up with our forecast.
All right, thank you.
Thanks, Nick. We've just got another online question. Brendan, can you please talk about PGF and how that fits within the broader listed vehicles at Regal?
Yeah, good question. So part of the AUD 2.7 billion and roughly AUD 2 billion that PM Capital have within long-short equities is the number one performing LIC in Australia over the last five years, PGF. That listed vehicle is basically an exact replica of the unlisted strategy that Paul has been running for many years now. It's performing extremely well. I think it will sit alongside our other listed vehicles. You'll recall VG1 being a global strategy from VGI. What was VG8, which is an Asian strategy, was relabeled RG8 and managed by Phil King and the Asian team earlier this year, or actually mid- last year. And obviously, we've got RF1. So it brings into the Regal Partners stable another LIC.
We'll have four listed investment vehicles, one listed investment trust and three LICs. I think we'll ensure that, like we've done with the others, that performance continues to be the key thing over the longer term, but make sure that they achieve the same level of support from a communication perspective, but also from a capital management perspective, which has been a key part of the work that Regal has been putting around the support for VG1, RG8, and RF1.
Great. Thanks, Brendan, and, I think we've just got one last question in the phone queue. Operator, could we please go to Marcus again at Bell Potter?
Thank you. Please go ahead, Marcus.
Thank you. I just had a look at appendix A on the terms of the redeemable shares. It talks about conversion of the remaining AUD 40 million at certain revenue levels of 100%, will convert at revenue realized at 150 or more. Presumably, that 150 includes performance fees, and is that over a certain period of time, that over the five-year period?
You're exactly right, Marcus. So it's a cumulative figure of a revenue threshold of between AUD 120 million- AUD 150 million, and that revenue figure can include management fees and performance fees.
Brilliant. Thank you. Yeah, that's great. Thanks for, thanks for answering that question.
I think we've just run out of time there. I think we'll wrap up the call now. Thanks, Brendan. Did you want to make any closing remarks?
No, I'd like to just thank the big effort from the team to actually sort of execute these transactions, but we've been delighted that both Taurus and in particular, Paul Moore and his team, have chosen to partner with Regal to take their businesses forward. We're very excited about the future of both businesses partnering with Regal, and we look forward to providing further updates over the period ahead. Thanks for your interest.