Good afternoon, and welcome to Soul's presentation for Soul Patts company performance during the half year ending 31 January 2024. I'm pleased to introduce our presenters for today. Todd Barlow, CEO and Managing Director, will first discuss the group performance highlights. David Grbin, Chief Financial Officer, will then present the group financial result, and Brendan O'Dea, Chief Investment Officer, will go into more detail on the performance by investment portfolio. Todd will close out the presentation before we turn to Q&A. On your screens, there is a question box on the right-hand side, where you can submit a question at any time during the webinar. We will respond to questions at the end. With that, hand to Todd Barlow.
Thank you, Courtney, and welcome to everybody on the call. It's an absolute pleasure to be in a position to deliver another outstanding result for shareholders. As most of you know, Soul Patts is a diversified investment house that is unique in the Australian market. Our aim is to grow shareholder wealth through a diversified range of investments that can perform throughout market cycles. Our team actively manages our portfolio of over 200 investments, and we can adjust the investment mix to extract the highest quality risk-adjusted returns. Our portfolio value as at 31 January was $ 11.5 billion. Pleasingly, we've been able to continue an excellent track record of paying dividends to shareholders, which have now increased for 24 continuous years.
We are equally focused on delivering long-term capital growth for shareholders, with total shareholder returns generating over the last twenty-year period at 12.4% per annum. This is 3.5% above the All Ords Accumulation Index . Our purpose has remained the same since listing in 1903. We aim to generate enduring success for our shareholders. We do this by making sound investment decisions, and we approach investing through our long-term commitment to building value and not being distracted by short-term events, our strength in conviction when making investment decisions, and our unconstrained opportunity to invest where we can extract the highest quality returns. We measure our success against three key objectives. Firstly, we aim to increase cash generation from our portfolio to continue our dividend track record. Secondly, we want to grow the portfolio and exceed market returns.
And thirdly, and importantly, we are guardians of our shareholders' capital, and we actively manage investment risk. During the first half, we performed very well against each of these objectives. We increased cash generation, and shareholders will be happy to hear that this has enabled the board to declare a fully franked interim dividend of $0.40 per share, up over 11% on the prior interim dividend. Net cash flows generated by our investments increased by 6.9% to $ 263.4 million. We grew the portfolio. The net asset value per share increased 10% against the prior corresponding period. On a total return basis, which includes dividends paid for that trailing 12 month period, the portfolio outperformed the market by a solid 6%. And if we just focus on the last half, the total return performance was 8.3%.
This was 2.4% better than the index over the same period. We also actively managed investment risk. We do this in a variety of ways, but primarily by investing in a diversified portfolio of high-quality, resilient and growing businesses. To demonstrate the quality, deal flow, and execution capability of the team, we invested $ 1.6 billion into public and private equities throughout the half. Brendan will talk a bit more about this activity later in the presentation. The $ 2.4 billion of total transaction activity across the portfolio was indicative of a market environment that was shifting, and you can see by the performance metrics above that we fared very well. You may recall that last year we were quite defensively positioned with higher levels of cash.
However, we saw conditions improve, triggering a market rally through most of the last period, and we were able to deploy around $ 700 million of cash during the half year, leaving available cash of $ 394.2 million at the end of the period. This graph tells the story of an incredible unbroken run of increasing dividends that no other ASX-listed company can match. As I mentioned on the previous slide, the board has declared an interim dividend of $0.40 per share, fully franked. This is 11.1% higher than the previous year. Ordinary dividends have increased, reinvested over the last 20 years. You can see that shareholders have seen their investment in our diversified portfolio of assets grow by more than double the market index. David Grbin, our Chief Financial Officer, can discuss the financial performance of the company.
Thanks, Todd, and good afternoon, everyone. Before I speak to our results, it's helpful to remember the statutory accounting earnings and balance sheets are not our primary focus when we assess the performance and financial position of Soul's. We're all about growing the value of our portfolio, as measured by net asset value and the cash income the portfolio generates, as measured by net cash flow from investments. So once again, it's a real pleasure as CFO to present a strong performances on both these metrics for the first half of the 2024 financial year.
The net asset value of the portfolio at the end of January 2024 stood at $ 11.5 billion, as compared to $ 10.5 billion at the end of January 2023, up 10%, largely due to the growth in the value of our strategic and private equity portfolios, as shown on the waterfall chart on the slide. Over the last 12 months to the end of January 2024, our portfolio grew by just over $ 1 billion. If you include dividends paid to our shareholders, the total return for the portfolio for the 12 months is 13.3%, outperforming the accumulation index by 6%. At the end of January 2024, our cash balances stood nearly, total nearly $ 400 million, and we continue to retain substantial liquidity to take advantage of investment opportunities. Turning to slide nine.
Net cash flow from investments was up nearly 7% on the previous corresponding period to $ 263 million. The waterfall chart breaks down that $ 17 million increase, with most of it coming from higher interest income and fees from our credit portfolio and an improved contribution from our Strategic Portfolio . Importantly, the growth in cash flow from investments has been consistent. On a per share basis, the first half net cash flow from investments has grown by 13.5% per annum on a compound basis over the last 5 years. This growth in cash flows has enabled an 11% increase in the interim dividend to $ 0.40 per share. This brings the last 12 months total dividends, total ordinary dividends to $ 0.91 per share, an increase of 15%. Turning to Slide 10 on group profit.
For the first half of 2024, our underlying or regular net profit after tax was $ 241 million, down $234 million or 49% on the previous corresponding period. The waterfall chart on the slide breaks down this movement. As you can see, lower profit contributions from Brickworks and New Hope were the major drivers to the reduced regular profit. This arose from lower property earnings in Brickworks and lower coal prices at New Hope. Statutory net profit after tax was $ 303 million, down $ 150 million on the prior corresponding period, due in part to that reduction in regular profit and partly offset by higher non-regular gains in this half compared to the previous corresponding period. I'll now hand over to Brendan, who will take us through each of our portfolios.
Thanks, DG, and turning now to look at the composition of our portfolio. Firstly, we believe our investments are well-positioned to not only perform strongly, but withstand volatility in markets. With a value of $ 11.5 billion at the end of the half, we actively deployed cash during the period. $ 1.1 billion was invested in our listed equity portfolios, strategic, large, and emerging companies, with net additions after adjusting for sales of certain investments of $500 million in the half. Close to $ 500 million was also invested across our private equity and credit portfolios, with net investment after adjusting for repayments of $ 280 million. I'll provide more detail on these investments shortly. Given the level of buying activity, our working capital position has declined over the half, but we are confident we have invested in great long-term opportunities.
We retain approximately $ 400 million of cash at bank and have plenty of levers to pull should we need liquidity for further investments. Turning now to the Strategic Portfolio . These are our most significant investments in terms of ownership levels, most held for a long time in largely uncorrelated listed companies. The portfolio has generated reliable cash flows for Soul Patts over a long period of time. Growth in the portfolio over the period was driven by increased market valuations for our most major investments, with Brickworks, Tuas, New Hope, and TPG driving strong performance, as illustrated on the right-hand graph. Net cash flows were up over 8%, supported by a strong contribution from New Hope.
Of note is the strength in Tuas during the period, returning 62%, with Tuas now a $ 377 million investment, and the portfolio outperformed the index by 5.4% during the six months, delivering a total return of 11.3%. Turning now to large caps. The Large Caps Portfolio is actively managed and consists of Aussie-listed equities that are expected to generate strong total returns over the long term. The size of this portfolio, at $ 2.4 billion, has been reduced during the period. This reflects a deliberate decision we've taken to sell down some of our investments while valuations are strong. It has been a very strong period for listed equities in general. This has provided capital for deployment into other investment opportunities, many of which are listed but happen to be in a different portfolio.
As we have touched on in the past, our ability to be agnostic in terms of portfolio and seeking only the best investment returns is a competitive advantage for Soul's. Net cash flows generated by the portfolio were $ 47.8 million, down 23.8% on the prior comparable period. Again, the size of the portfolio has an impact here on the amount of dividend income produced. We currently have 35 positions in the portfolio. On a total return basis, the portfolio outperformed the index by 1.9%, a very strong result in a challenging market. Turning now to private equity. Our Private Equity Portfolio comprises investments in unlisted companies that have long-term growth potential and strategic M&A opportunities. At 12% of the total portfolio, it continues to grow and is now valued at $ 1.4 billion.
Activity was slower in the first half, with only one material acquisition, but followed a very active second half of 2023. The growth of the portfolio has been supported by a range of strategic acquisitions, most recently in agriculture, which I will come to shortly. As we are presently focused on investing for growth, net cash flows produced by these assets have remained flat on the prior year, at $ 13.3 million, with cash flow expected to grow over time. The charts on the right-hand side show how Soul Patts approaches private investments in a unique way. We have a flexible mandate and a willingness to partner alongside management teams as either a majority, minority, or co-investor. We are attracted to growth stage companies, where we can build scale and sustainable growth over the long term. Turning now to the next slide.
One of the strategic acquisitions I mentioned earlier is pictured here. It is a highly complementary acquisition for the Soul Patts Agriculture Portfolio . Valued at over $ 500 million, our ag assets have become increasingly material and presently comprise 12 farms spread across Australia, but are mostly situated along the Eastern Seaboard with a focus on citrus aggregations. The recent acquisition is a large, automated fruit processing and storage facility in Shepparton. This facility will allow us to vertically integrate operations, giving us better control of processing and channel sales, both domestically and offshore. Turning now to emerging. The Emerging Companies Portfolio comprises investments in listed and unlisted formats in fast-growing companies that are often positively exposed to structural shifts or themes. The recent portfolio growth is a mix of new investments as well as gains in the portfolio.
Portfolio value grew by 82% against the prior comparable period to $ 991 million. While net cash flow from investments declined, that is reflective of the timing of realizations, for example, when assets are sold. There are currently substantial gains on assets we continue to hold. The most noteworthy investment in the period was a new investment in NexGen Energy, a Canadian uranium opportunity where we have invested greater than $ 200 million in equity and convertible bonds. This builds on other existing investments in uranium, totaling $ 345 million. The portfolio returned 7.7% in the half, beating its benchmark by 4%. Turning now to credit. Our credit or Structured Yield Portfolio remains an area of focus for Soul's, with a stated desire to grow to benefit from what we believe remains a compelling, risk-adjusted opportunity.
We have invested in our capabilities and are now well positioned to access high quality and often exclusive deal flow in the space. The portfolio was valued at $ 697 million at the end of the half, with $ 370 million of committed but undrawn facilities. As you can see from the charts, the portfolio remains well diversified by size, entity, and sector, and is predominantly senior secured. Net cash flow was up by 176% in the half to $ 52 million. It was a slower half for net growth in the portfolio, with $ 241 million of new investments, offset by $ 195 million of repayments. We have a strong pipeline of opportunities and expect to see continued growth in the portfolio. And finally, our property investments and working capital position.
Our direct property portfolio remains small, while noting that we have a material look-through exposure to high-quality industrial property through our investment in Brickworks. In terms of working capital, it has declined by $ 658 million in the period as we invested across the portfolio in the specific opportunities covered earlier. We retained $ 394 million of cash and liquids on hand. We also have access to various financing facilities to support any new investing activities if needed. Overall, the first half of 2024 was a strong period for the company in terms of absolute and relative performance, and I thank our talented and energetic portfolio teams for their contributions. I will now hand it back to Todd.
Thanks, Brendan. As I mentioned earlier, this first half has been a particularly busy period. Acquisitions and disposals throughout the period totaled $ 2.4 billion, which is equivalent to 77% of the volumes conducted in all of FY 2023. We have a further $ 500 million in committed investments, which were undrawn at the end of the period. Brendan's covered off on the various portfolio movements and some of the investing activities for the half, and I hope that that gives you a, a good flavor of how we're positioning the portfolio. We're continuing this strong activity to ensure that the portfolio continues to be well positioned to generate sustainable returns.
We were nimble enough to deploy significant capital into a rising market through the half, but remain well positioned to fund future growth opportunities with $ 400 million in cash on the balance sheet, as at 31 January, as well as plenty of liquid assets and gearing capacity. The macroeconomic environment remains challenging to read. However, we will continue to seek investments in a diverse range of asset classes in order to build a resilient portfolio capable of performing well in any part of the cycle. Thank you very much for your interest in our company. We'll now answer some of the questions that I can see are starting to come through the portal.
Thanks, Todd. First question: With such a high turnover throughout the year in investments in which we are making, do we believe in the investments which are being made? Such a high turnover personally worries me.
Perhaps I should take that one. So firstly, we have, I guess, highlighted in the past that the ability for us to be active and frictionless, effectively, across all of our portfolios is a competitive advantage for us, and we are always looking for an opportunity to move our portfolios to the place where we feel that we're gonna get the best risk-adjusted returns. Certain parts of the portfolio are more liquid than others. And obviously, we've made decisions in the period around the large cap portfolio and the valuations of those assets, which has allowed us, amongst, in addition to using our cash on hand, to invest in other parts of the portfolio, some of which may be listed.
I touched on the major investments we've made in the period earlier, but I'll, I'll touch on them again. Because really, we've only made three large material investments, in the period, and they were the NexGen investment that I talked about earlier in the emerging companies portfolio, the investment in the private equity portfolio around the packing facility in Shepparton, and our investment in Perpetual in the period. So, so what you've seen is a large amount of, of activity, certainly, but very, very focused and concentrated, new investments. All of which we feel very strongly about, and in the future periods, you'll continue to see us, you know, investing in those sort of structured yield and private equity assets, going forward.
So while we were active, it certainly was, it certainly was deliberate, and it certainly was focused.
And I should add that, you know, we don't churn the portfolio just for the sake of churning it. As Brendan rightly points out, we're investing in a lot of our private equity businesses through growth capital, and that explains a lot of the activity. And in order to fund that, we need to find that from somewhere, and so we've become increasingly active in... And where you are seeing some churn is in the public equities portfolios in both the large caps and the small caps portfolios. And I would say that that activity and the increased level of activity hasn't hurt the performance of those portfolios at all. In fact, if you look at the large cap portfolio, it did 2% better than market throughout the half.
So that increased level of activity has actually been beneficial for it. But, you know, we also see a little bit of churn in the credit portfolio, and that's a function of the asset class. You know, these are not long-term positions. You know, eventually, you get repaid, and so we have to continually add to the portfolio by making new investments because you're going to get repaid, particularly as the portfolio matures.
Thank you. We've got a couple of questions that have come through on Perpetual. The first is: What percentage of Perpetual does Soul own? And the second is: Can you talk through your plans for the investment in Perpetual, and is there intention to move higher?
In terms of our ownership, we are just under 15% in terms of combined relevant interest and economic exposure. Our relevant interest is around, sort of 11.6%. And you know, we've maintained all along, as a long-term investor in Perpetual, that, you know, we saw latent value in their portfolio of businesses over there, which we believe to be high quality, and we are pleased to see management pursuing a strategic review of those assets, and we're very interested in the outcome. So that's where we are on Perpetual right now. It hasn't really changed since we made the public announcements.
Thanks, Brendan. Todd, one for you: What is Soul doing to transition away from coal and gas?
Well, we believe that the demand for energy globally will increase significantly. That's just with population growth, increased urbanization, growing middle class, and the electrification of so many different things. I mean, you can just look at electric vehicles and artificial intelligence and the kind of drain that that will have or the demand that that will put on energy globally. We think that there's a very complex, you know, mix of energies that are going to be needed to meet the growing demand. So, you know, we don't think it's mutually exclusive to think that uranium will play a role in that, that renewables will play a role in that, and we certainly are looking to get exposure to the energy transitions through our investment in Ampcontrol.
But that also doesn't mean that we think that coal will cease being a part of the energy mix, you know, in the short term. We think that coal still has robust demand. We're certainly seeing that from our customers in Asia right now. So, you know, we are looking to play all aspects of the energy mix, and we think that as the transition occurs, there's going to be plenty of opportunities to profit.
Thanks, Todd. The next question is on the agricultural acquisition that was done in Shepparton. What type of agricultural acquisition was this? So, Brendan, do you mind just expanding on that a little further?
I mean, just quickly, and I think I, I did touch on it. It was a, It's a processing, packing, and storage facility, which we believe will service a bunch of our agricultural interests in the area. It allows us to better control you know, those activities around our portfolio, and it allows us to optimize the outcome in terms of the way we go to market. So it's, it's classic vertical integration, really, on our part, but we're very excited about the asset, and it fits very neatly in the portfolio.
Thank you. David, one for you. Is there a stated profit reserve? Could you give us a feel for reserves held to assist funding future dividends?
Thanks, Courtney. So in the balance sheet, we have, there's two reserves. So there's an asset revaluation reserve and a capital profits reserve. The asset revaluation reserve is really used for our long-term investments, where any difference in value goes through, doesn't go through the P&L, it goes through reserves and comprehensive income. And if those investments are realized, it gets then transferred into the capital profits reserve. Now, at the moment, at the end of January, that's a negative, it's a debit reserve, about $ 200 million, and that's largely because the value of particularly the TPG investment has declined since we put it to fair value back in 2020.
Now, importantly for shareholders, we've got $ 4.5 billion worth of retained earnings, so there is ample retained earnings to fund dividends. So I, I'd be guiding people to be more focused on the retained earnings number rather than the reserves number.
Thank you. I've got a question on the credit portfolio. Is it exclusively Australian businesses, and what is the average duration and yield on the credit portfolio?
So no, it's not exclusively Australian businesses, but it is predominantly Australian businesses. I would say less than $ 100 million of that portfolio would be global in nature. A certain amount of the undrawn part of that portfolio is global as well. So I would say, it's roughly $ 100 million of the undrawn and less than $ 100 million of the existing portfolio, so that's probably the right way to think about that. In terms of, the second part of the question, Courtney, that was around the duration and the yield?
Yes.
So we think the duration of the portfolio, and obviously it varies depending on what we have in the portfolio at any given point in time, is roughly two and a half years. As you saw earlier, we have a reasonable amount of activity in that portfolio, and that's reflective of the fact that these are not, as Todd pointed out earlier, long-dated assets necessarily. They come back at us reasonably quickly. The weighted yield on the portfolio is about 15%. The running yield is about 11 or 12, and we expect the IRR on the portfolio is in around the 17% range. So it's a great portfolio for us.
You can see the growth in cash flow that that portfolio has generated in the first half, and we will continue to look for ways to expand the portfolio as we go forward.
Thank you. With private equity now at $ 1.5 billion, how do you get comfort on the valuations as it becomes more risky to get the right mark to market valuation, David?
Look, well, we run. We've got a process that we run constantly, and it is every, particularly every six months, that we report to the market. We go through a process of reviewing each of our investments in our private equity, and this is broader than just the private equity, it's all unlisted investments across all of the different portfolios, where we make an assessment if there's any conditions for impairment. If there are, we will write those investments down. And then every 12 months for our material private equity investments, so I'm talking the agricultural portfolio, Ampcontrol, Aquatic Achievers, we go through a process of getting our valuations reviewed by independent professional valuers.
They, they report directly to the board, so we can get comfort that there's a, an external, reference point to, to those unlisted valuations.
Thanks, David. Todd, one for you. Could you please share any insights on potential for acquisitions from unlisted funds and/or private equity firms needing to exit investments at favorable prices?
Yeah, I certainly think that that's a theme that is developing. There are obvious requirements on a lot of private equity-held assets to exit them, and in an environment where IPOs are a lot slower than they have been in the past, that does create some opportunities for long-term capital like ours. But, yeah, generally, I would say that our preference is to buy into businesses alongside a founder or management team who's looking to grow and looking for that supportive partnership capital that we provide, rather than providing a secondary exit for private equity funds.
Thank you. I've got a question on TPG. TPG has been a disappointing investment for several years. It seems to have lost its competitive advantage since Teoh left. Do you mind sharing how you think about TPG now?
Yeah, I think that it has been a challenging market environment. I mean, if you think about the two biggest areas of telco, you've got the broadband market, which was significantly disrupted by the introduction of the NBN, which has been, you know, very frustrating in the sense that you had a market that was already providing those services to, you know, across the population, and then you had government come in and compete alongside them. You know, we only have a relatively small population across a large expanse of land here, and having multiple people competing for the same assets is obviously going to drive down profits. And you're competing with a government that has effectively zero cost of capital.
So that really impacted the broadband returns. But, you know, I would say that now that that's settled down, TPG is doing a very good job of capturing market share, you know, even on the NBN itself. And then the other aspect of telco is the mobile market. And again, you know, we have three service providers across a relatively small population and a large expanse of land. And it's been, you know, very competitive and quite capital intensive in recent years. And one of the things that we're seeing in terms of the CapEx cycle for TPG is an accelerated rollout of 5G and replacement of the Huawei equipment, which has been banned.
So that's inflating the, the CapEx that they are spending at the moment, but that will unwind in time. So I think, you know, we take a longer term view than the market here, and we think that there, you know, there's some positives coming because most of the negatives are coming to an end. It's been a cyclical, downturn for the telco industry of late, but we think there's better times ahead, and we're starting to already see that in terms of, you know, improvement in, you know, the, the average pricing and margins across the board.
Thank you. I've got a question on Brickworks, Todd. Could you comment on today's Financial Review article regarding the higher Brickworks share price, the other recent takeover activity in the construction sector, and whether that makes a merger or unwinding of the cross-shareholding worth revisiting?
Yeah, well, as was quoted in that article, you know, I was asked this question at the AGM, and if I go back to, you know, several years ago when we had shareholders asking us to look at this very issue, we, we undertook at that time to, you know, assess it regularly, and we have done that. We, you know, we're constantly assessing whether there is a way to generate, you know, a better outcome for shareholders if we were to, to unwind it. That, that is not an easy process, and, and, you know, obviously, the, you know, the fact that we haven't been able to do it indicates that we've taken the view that the businesses are performing quite well as they are. It's been a 55-year symbiotic relationship that's helped both of those companies perform.
All we can say is that it's something that we, you know, keep monitoring, and if we can come up with something, you know, we'd, we do so. But it's been under constant supervision for many years now.
Thank you. A few more questions have come through on the agriculture portfolio generally. Can you please walk us through what the investment premise is for ag going forward?
Well, the investment premise at a high level for ag is that we think that one of Australia's greatest competitive advantage industries is agriculture. We do it better than the rest of the world for a variety of reasons, but partly it's you know, the land availability, the quality of our weather and weather systems, but also our know-how. And but we also saw opportunity to further take advantage of those facts by, you know, through institutionalization of farms. So, you know, a lot of these farms that are family-owned are lacking in investment from a capital perspective, or lacking in scale, and geographic diversity.
And so what we did was allocate an appropriate amount of money to get, you know, high-quality management teams to oversee scalable operations, where we can invest in improving and de-risking the business. So that might take the form of windbreaks to stop fruit rubbing, netting to stop hail damage, but more importantly, we acquire long-term water rights to make sure that we're drought resistant, and we invest in the best quality plant breeds. And over time, you know, we'll see an efficiency pick up from that high-quality fruit. So what we're really focused on is Australia being the, you know, food basket of the world and the high-quality produce that we can grow here is in high demand in a lot of our sort of Asian neighbors.
And so this is high-quality horticultural produce for the export market, which, you know, we think is a theme that will continue on for some time. In the meantime, we'll institutionalize the, you know, the quality of the fruit and produce that we grow, as well as reducing the risk profile that often comes with agriculture.
Thank you, Todd. Just staying in the private equity portfolio, there's been a question on... or asking if you can walk us through each of the investments in the portfolio, and specifically on the swim schools, how much bigger can you go in the acquisition of other swimming schools?
... Well, if I just take the swim schools first, I, I don't have the data to hand. I'm not sure we have reliable data on it, but, you know, we are easily the biggest swim school operator in the Australian market now through recent acquisitions. But we are still a very small percent. I mean, we would, we would be less than 10% of the overall market. So it's a very fragmented cottage industry, and again, this comes back to my point about institutionalizing the quality of providing swimming education to the nation. We think that it's a recession-proof business in the sense that people are always going to teach their kids to swim, you know, no matter what the economic conditions look like.
And, you know, we think, you know, high-quality product with good systems, technology, swimming programs are something that we can take advantage of through increased scale. So how much bigger we can get, I don't know. I mean, I actually think that there's an international opportunity here. I think Australia is renowned as a nation of good swimmers. And so I think that this is something that we could potentially take to the world, but that's not on the current horizon right now, although we have looked at investments offshore. So, it's hard to say how big this thing could be, but right now, you know, we're certainly growing, and we are the natural aggregator in the market.
The other assets that we have, I just spoke about agriculture at length, so I won't talk about that again. There's Ampcontrol, which is the business, which will take advantage of the energy transition story, and particularly the electrification, and the changes that we'll see to the grid. And in particular, if you think about sort of mine site electrification, which is one way that miners can reduce their carbon consumption, the big challenge there is electrifying remote locations, and Ampcontrol has competitive advantage in that regard. And so, you know, we're trying to build its know-how and capacity to take advantage of what is a, you know, very large and growing investment that's happening in the energy transition space. We've looked at...
You know, we would be very active in M&A to grow that business. Although anyone who's exposed to the energy transition space is looking for eye-watering high multiples. So, you know, we're really focused on organic growth and how we can build out a workforce capable of tackling that market. The last thematic in our private equity portfolio of scale is wealth management. We have an investment in a business called Ironbark, which is growing and recently merged with a wealth management business called Invest Blue. And, you know, we're looking to grow an integrated wealth management business.
You know, as we see, Australia's superannuation funds increasing rapidly, you know, our view is that people are going to need more and more advice as time goes on.
Thanks, Todd. Brendan, I've got a question on the large caps portfolio and just our general house view on interest rates. So the first one is, the large caps portfolio is rotating into consumer discretionary. Is this due to a house view that we're moving into a rate cut environment? And a similar question to that is, what's your outlook on interest rates, and will we be looking to pivot back towards equities ahead of any reduction in the cash rate?
So I guess the first point I would make is, while we have a view on the macroeconomic outlook, we're not macroeconomic investors, and I think that making investment decisions on that basis is a little fraught, and we don't do that. And as we look at our portfolios, we take each of those individual investments, bottom up. So we have a point of view around each of them, and that cuts across all of our portfolios, the large cap portfolio, included. But, you know, notwithstanding that, it is our view, and I think it's the view of the market, that with the rate cycle in most developed economies, has probably peaked.
I think the general expectation is that we'll be moving into a rate cutting cycle towards the end of this calendar year, probably led by the U.S., where rates are a little higher than here in Australia. Maybe we lag that a little bit. There's no doubt we're in a more constructive investing environment macroeconomically than this time last year, where we were looking at rate rises, you know, earnings contraction, concerns around inflation and the like. A lot of those risks seems to have moderated. So we feel a little more constructive, and so it wouldn't really come as a surprise that we've been comfortable investing as ambitiously as we have in the six-month period. So do we feel better about the economy? Yes, we do. Do we think rates will be coming lower? Yes, absolutely.
I think that'd be logical at this stage of the cycle. In terms of the portfolio mix within the large cap portfolio, it's far more single stock fundamental than that. But having said that, I think it's probably logical that we are a little more confident about the discretionary parts of the economy. And you know, some of the more defensive parts of the portfolio, we're trading very, very, very expensively against the backdrop of expected recession. So you'll see that portfolio probably take on a little more risk in that sense. But it's very much case by case. But I'll leave it at that.
Thanks, Brendan. Todd, what is the company's position on AI or artificial intelligence? Is Soul positioning itself to benefit from this thematic trend now and in the future? And a similar question to that is, I guess, why are we underweight on tech?
I think it's unfair to say that we're underweight tech because, you know, one of our biggest and best investments has been TPG, which has really been a view on technology for, you know, the last couple of decades, and the growth in consumption of data. That is our view around the consumption of data has driven the value of that business. But in terms of how we think about tech more broadly, there was a time when we were more invested in technology, and that was when small caps were benefiting from a lot of those names. We saw that they were overvalued, and we exited a lot of those investments towards the back end of 2022, I think.
You know, we have been surprised, I guess, by the, you know, there was a big sell-off in early 2023 in technology, and then a significant rebound at the back end of last year, which caught us a little bit by surprise. I would say that we didn't capture much of that. But if I think about the question around AI more broadly and technology more broadly, we tend to think about... You know, it's very difficult for businesses like ours to accurately analyze and value businesses that are high growth, high multiple, low earnings. But what we can do is think about technology and the impact that it can have on more traditional businesses.
If you can get involved in a business that is on normal industrial multiples, but is a beneficiary of AI or other technology that hasn't been yet factored into the price, that's the kind of thing that gets us really interested. So we tend to look for businesses where we can apply our analytics and valuation methodologies to come to a view on the downside, being protected through a business that has a stable existing footprint. But if it can be enhanced through technology, then that's blue sky and upside that we'd love to capture.
Thanks, Todd. Brendan, maybe one for you, on the emerging companies portfolio. What sort of sub-50 million market cap companies does the emerging companies portfolio invest in? And what is the general investment criteria?
So I'll probably make a couple of points around that. Firstly, that portfolio invests up and down the capitalization stack. Many of the investments in that portfolio would ordinarily be considered large caps if they were in a different setting. So the portfolio is not necessarily limited by market capitalization. So I'd make that point first. And obviously, hopefully, we invest in things when they're small, and we hope for them to be large, so I'd make that point too. The other point I'd make is, some of the smaller investments in this portfolio have led to other opportunities for the firm over time, and I'd probably draw attention to EOS, which has been an investment that started its life in the small cap portfolio.
Has provided a credit opportunity for us, and given us, you know, multiple ways to be involved in a very interesting thematic. So, it's not really just a question of the size of the investment and its ability to add profitability to the organization. There are many other ways for smaller investments to add value to the organization. So that portfolio, and indeed any of our portfolios, even though they do tend to specialize a little bit, are happy investing up and down the capitalization stack. So I wouldn't say it's restricted at all.
Thank you. A question now on Milton: have you now completed the full integration of Milton? Are there any outstanding issues or concerns?
Yes. The answer is yes. We have completed the integration. It happened much more quickly than anybody might have expected, although we didn't expect it to be very complicated because, you know, it wasn't a large workforce that came across from Milton. And also, the investment philosophy was very consistent with ours, so it didn't... It wasn't a very complicated integration process at all. But the-- I guess the thing that remained outstanding, once we integrated the teams and all of the processes, was the reorganization of the portfolio that we talked about.
And that has taken some time because obviously overnight, you can't just, you know, switch into a lot of, you know, credit investments, and you can't just overnight switch into a whole lot of private equity investments. And we always said that that was where we were seeing opportunity, and we lacked the capital to take advantage of it. But I would say that now we're nearly, I think three years on? Two and a bit years on. I'd say that we are very happy with the status of the portfolio construction now. Taking advantage of the liquidity that Milton provided. And so it's been, you know, a fan...
Looking back strategically, it's been a fantastic move for us to be able to diversify the portfolio in the way that we have and set ourselves up with the increased activity that you're seeing, to be able to take advantage of the deal flow that we see.
Thanks, Todd. Brendan, the large caps portfolio, are you happy to share your top 10 to 20 holdings and weightings within that portfolio? Because there was a second question on that, asking why we don't publish the listed investment portfolio.
...So it's not been our practice as regular, you know, viewers would know, to reveal that over the last, I guess, few earnings announcements that we've had. And the first point I'd make is that portfolio now has 35 investments in it, so it's quite concentrated, firstly. Secondarily, as we've discussed extensively now, the portfolio turns over quite rapidly. So I wouldn't want to give people the impression that we've got static investments in this portfolio. It's very active, and does move around a lot. So, you know, I think the portfolio is no longer in an LIC setting, so we don't tend to share that information, but I'm happy to give flavor and color in that, around that. And the portfolio does present a lot like a large cap portfolio would.
You know, we have large investments in Macquarie and BHP and Wesfarmers and CSL. We have some decent sized investments in the mid-cap parts of the market as well. It is generally underweight retail banks. It's generally overweight diversified financials, probably largely because of Macquarie. As we touched on earlier, we've moved a little of our exposures around between consumer staples and discretionary. It's overweight healthcare, so it's a more active portfolio. We've recently been building our position a little larger in the real estate space, largely through Goodman as well. So it's an active portfolio.
We don't share the positions deliberately, but the good news, as Todd touched on earlier, is that it's performed very well over the six months, and we hope to keep it that way. So yes, I wouldn't expect that we share that going forward, not necessarily just due to commercial sensitivity, but more around the fact that it's quite flexible.
Yeah, we're, I mean, we sort of made this decision a number of years ago because we... You know, today, we're announcing the results as at 31 January, and a few years ago, I can't remember the stock, but, yeah, one of our positions that was a large position was reported. But, and everyone was getting excited about the fact that we owned it in size. But in fact, yeah, by the time the results came around, yeah, we were selling it, and it was a much smaller position. So because of the dynamic nature of it, we just didn't want to be misleading by reporting the portfolio positions that were, you know, a couple of months out of date by the time we report them.
Thank you. I've got a couple on the credit portfolio. The first is that every man and his dog has started to offer private credit opportunities. Are we seeing any impact in regard to the quality and pricing of opportunities that we are reviewing or executing upon? And a similar question with the credit portfolio is: Does it have high exposure to property development loans, and are the majority of loans at floating rates?
I think it is true to say that there's more people in the market looking to get involved in credit. And that, of course, over time is going to compress the margins and bring down the, you know, the borrowing costs to borrowers. But I would say that, you know, we're not deeply impacted by that because of the nature of the deals that we do tend to be crafted with the counterparty to be bespoke to their circumstances. We're a bit more creative and nimble and able to think up a solution that works for both parties. So we're, you know, we're not just meeting the market.
We're not necessarily participating in broad-based credit offerings, which you know, I think is a bit of a competitive advantage for us. So right now, we're you know, as Brendan said, that portfolio continues to perform as well as it has ever done. And we're continuing to see new opportunities to replace those opportunities that are you know, being repaid, which you know, which is normal in any mature book. In terms of development property, we have never been involved in lending to developers.
Our view from the outset was that that is a specialist market, and there are people who only do property development, lending, and so specialist skills, but also there was quite an abundance of capital that was focused on those types of opportunities. So that was just something where we didn't see value in us playing a role. Was there a third element to the question? No, that's it.
I've got a broader sort of macro one, or sort of relating to cash deployment, really. Given the performance of markets over the last six months, is there any reflection that more of the cash on hand should have been deployed to capture returns?
Do you want me to take that, Todd? I guess I'd say first and foremost, you know, we've net deployed $ 700 million of cash over the period. It's a healthy amount of investment, so I don't think it was the case that we were sitting on our hands, first and foremost, and, and the investments that we've deployed into, we feel very strongly about, and they've all performed as we would expect, which is well. The second point I would make is our performance in the period has clearly been very strong as well, outperforming the benchmark, the All Ords, by 2.4% in the six months.
So our cash position leading in didn't cost us any performance, but we did put a lot of it to work in the period into the investments that we talked about earlier. So, so yes, I wouldn't say that we were slow deploying cash, and I'd also make the point that we still retain circa $ 400 million worth of cash for any future investments we choose to do as well.
I think we did very well. I mean, the market, our portfolio tends to do better in poorer performing markets, and we saw that in the first half of 2023 calendar year. The back half of 2023, the markets were racing away, and we still did better. We, you know, we did 2.5% or so better than the market for the previous six months, so, and 6% better than the market for the last 12 months. So I think we did very well, but if the question is, you know, having known what the market did in the last six months, do we really have regrets about not deploying more cash?
If I had that kind of hindsight vision, I would have geared up the portfolio three times and taken advantage of that market. So, you know, looking back, we just weren't expecting the market to perform as well as it did, but as I said, we did extremely well despite that surprising market rally in the last six months.
There's a question on the LIC market specifically. Since the Milton acquisition, the LIC market continues to trade at a meaningful discount. Does Soul think there is consolidation in the LIC market, and, and would we consider other acquisitions in the space to add to the listed portfolio?
I think there's still demand for LIC product. There's a lot of investors who like investing in that in those companies. They provide a very good product yeah actively managed low-cost exposure to the market. So you know as I mentioned earlier around the strategic benefits that we were able to obtain through the Milton acquisition they've been achieved now. We don't need more capital. You can see that the portfolio is performing very well in the sense that we are able to generate enough liquidity out of the existing portfolio to fund our new investments. So it's not something that we need to do nor do I think that there's necessarily a need for LIC to consolidate.
Thanks, Todd. We are coming up to time, so I thought we would maybe ask one last question, and it's to do with our branding. Why the change in logo and brand for what worked for over a hundred years?
Well, what's worked for over a hundred years is the investment philosophy of the business, and it's critical for us to remain true to those values and ensure that, you know, we are continually checking ourselves, that we're not departing from the things that's made the business successful. I mean, the business name is Washington H. Soul Pattinson and Company Limited, which is a bit of a mouthful, and we found that nobody was really calling us that. And what people were calling us instead was a variety of WHSP, Soul Pattinson, Soul Patts , and various other names. So we decided that we just wanted to simplify things by being known as one name.
And with that came a branding exercise to be able to get some consistency in the market about how we are known. But the name is merely, you know, the way that people talk about us. But what we want them to talk about is our investment style, our investment success, and the way that we deliver for shareholders.
Thank you. Look, there are a lot more questions, but we won't actually get through the rest of them. I think we've covered off a really nice, broad mix. And that concludes the presentation for today. Thank you, everybody, for participating.