Earnings Call: H1 2020

Nov 19, 2019

Guys, it's good to go? Yes. Thank you. Okay. Welcome. Good morning. Thank you. Thank you all for being here today. This is ICG's first half results presentation. It's a strong set of results and several positive developments during the half. 3 standouts, new strategies, the operating margin and fundraising. Actually, this is going to be distracting. New strategies, we had set ourselves an ambitious objective this year of raising 3 brand new strategies, the European Mid Market Fund, sale and leaseback and infrastructure equity. Three new strategies that's more than we had ever attempted in a single year. And to make things more interesting, you may remember we had aimed to price all three strategies with fees uncommitted. At the full year results presentation, I mentioned that if we could succeed with 2 out of those 3 strategies that would be a good result. I mean how difficult and uncertain it is to raise first time funds. I'm pleased to report that as of today, we have successfully launched 2 of these 3 strategies. The European Mid Market Fund had a final close in October and hit its hard cap of €1,000,000,000 fees uncommitted. And we've recently had the first close for the sale and leaseback strategy. And the first close is the that's the critical milestone. Recently initiated the fundraising effort for the Infrastructure Equity Fund. So we might yet pull off a hat trick of new strategies this year which would be a good result. I cannot stress enough how significant this is. Raising first time funds is a lot more difficult than significantly increasing the size of an established strategy. And while you do not get the immediate step up in fees and profit that we experienced last year for instance with Fund 7, the mid to long term profit growth potential and the diversification in fee stream make these new strategies incredibly important and incredibly valuable. So it's well worth the effort. Of course, it requires having a brand, having a sizable platform and of course the marketing capability to deliver on these new fundraise. 2nd positive development this half is on the operating margin. We have been experiencing a progressive increase in our fund management company operating margin. And as anticipated, we have reviewed the operating margin guidance with the Board and decided to raise it from 43% to in excess of 50%. But Vijay will cover this in greater detail in a few minutes. And the 3rd meaningful development of this half is in fundraising. We've raised 4,600,000,000 dollars I'll show you some of the numbers. We've raised $4,600,000,000 this half on the back of the new strategies that I was mentioning, but importantly on our ability to fundraise for numerous products concurrently. And this half 14 different new products. As a result, we are ahead of our own expectations. And all else being equal, we would have expected to comfortably exceed the €6,000,000,000 mark for the full year, which in itself would have been a very good result given that this was supposed to be a low year for us in our fundraising cycle with no flagship strategy in market. But things have developed and changed recently. We have deployed our direct lending fund SDP III somewhat faster than we had expected. And as a result, we've brought forward the launch of the fundraise for SDP IV. Was expected and scheduled for next year. We've actually launched it last week, a week ago exactly. To be clear, this will have no direct impact on the profit for this year because the that direct lending strategy features fees on invested. So the fees come in as we deploy, not with fundraising. But depending on when the various closes for this fund occur between this financial year and next, it could have a very meaningful impact on the total amount fundraised this year and as a result AUM, particularly since this is one of our largest strategy. You may remember SDP 3 was €5,000,000,000 We're contemplating upsizing SDP 4 somewhat. So again, depending on timing, you could see it could have a very significant impact on fundraise for this year. The other positive impact of this is that it will free up some marketing time and capacity in the second half of next year to think about other new strategies. At the half year, our AUM reached just over €41,000,000,000 And with the corresponding increase in fee earning AUM, Fund Management Company profits were up 32% on previous year at £85,000,000 Our strategic priorities, Safe to say we're well ahead of plan. It's actually hard to imagine that a number of these targets were set only 18 months ago. But obviously that's not the end game where we are ambitious. And we are focusing on further scaling up the fund management business and diversifying our product offering, all of which will increase locked in fees and further FMC profit growth. We're also very mindful of the need to carefully manage this pace of growth because we're growing very fast. And this means investing in human capital, in talent. We've actually increased our employee base by 40% over the past 3 years. It also means investing constantly in infrastructure, in systems, and very importantly, and in the broadest sense of the word in ESG. And in our industry, we were one of the early movers in ESG. And I'm very proud of what we've achieved since. Obviously, this is a it's a constant effort. Last year, we hired a dedicated, responsible investing officer. This year, we now have 100% of our AUM that is covered by our Responsible Investing policy. This notably means that ESG is embedded through every step of the investment process from selection where we have exclusion list. We have an ESG screening list and that's all the way down to individual portfolio company level. We have recently published our new Responsible Investing report. I have one here actually. It's on our website. It's a good report. So I would really encourage you to read it. We've also started rolling out specific fund ESG reports that drill down to every single portfolio company looking at KPIs, looking at targets, looking at progress for these companies on ESG characteristics. That puts us in the top performers in our industry in terms of not only reporting, but acting in portfolio companies on ESG matters. And this year is also notable, we've launched our first sustainable fund, the sale and leaseback fund. I will come back to that. We don't have a choice in this matter. Climate change considerations have to be taken into account in every single one of our investment decisions. And if we want to be and remain a leading alternative asset manager, we have to lead on ESG and mean it. On that, I'll hand over to Vijay for his first ICG results presentation, take us through the financial review. Thank you, Benoit. Good morning, everybody. This is my 6th month almost to the day since I started at ICG, and I'm very delighted to present my first set of results and we'll go through the financial overview of ICG. Just before I start, I just wanted to highlight that all the financial information that we're presenting here today is on a non IFRS basis on alternative performance measures. So going through the financial highlights. The Fund Management Company profits of £85,000,000 are up 32% compared to the first half of last year. The principal driver of that growth is from third party management fees, which are just over £135,000,000 was up 29% compared to the first half of last year. And that's in line with the increase in fee earning AUM over the same period. The operating leverage continues to improve. The operating margin of the fund management company was 51.7 percent, which was up from 48.7 percent in the prior year. The investment company profits at the bottom there at £66,000,000 are actually lower than the first half of last year. And that's predominantly due to, you may recall, we had a £41,000,000 gain in one of our legacy assets in Telsat which we've held for over 10 years. Just moving on to the balance sheet. The balance sheet remains strong and continues to enable the growth of our fund of our fund management business. The balance sheet portfolio at £2,500,000,000 which is the top two set of numbers on there, is up 6% compared to the year end. This is predominantly due to the increase in the net investment return, which I'll talk about later on. The portfolio represents 6.6% of the 3rd party AUM, and that is actually lowered compared to the year end. We expect that percentage to continue to reduce over time as our fund management business continues to grow. The net current assets, which are actually detailed further in the announcement, are lower compared to prior year, predominantly due to some debt maturities coming up in the year. We preempted that this year. As you may recall, we raised $400,000,000 in U. S. Private placements earlier this year. We have a robust headroom of £654,000,000 which has grown 14% in the first half and is more than sufficient to meet our liabilities. Gearing at 0.87x remains inconsistent with prior year. So moving on to the fund management company. I wanted to highlight before I start talking about the fund management business, our strategy is predicated on 3 key pillars: 1, growing assets under management 2, investing the capital which has been entrusted upon us by our investors in a selective and disciplined manner and 3, creating value of that portfolio. That value creation of the portfolio in turn creates more demand for our products. That's what underpins our growth of Fund Management business. Given the long term nature of our funds, which I'll show later, we have very strong growth prospects, which are anchored by high quality recurring revenue base with visibility a long time horizon. So looking at the AUM and the fundraising this year, the right hand chart shows the AUM and the left hand chart shows the fundraising and their deployment earlier this year. The key measure of our strategy is the ability to grow assets under management to generate future fee streams and sustainable profits. 3rd party AUM was €38,400,000,000 and fee earning AUM was €32,900,000,000 at the half year, which are both up 11% compared to the year end. As Benoit mentioned, we had a strong first half. In fundraising, we raised €4,600,000,000 across 14 different strategies. We've never done that before. That included the 2 new strategies that Benoit talked about, the European Mid Market Fund, which we raised €800,000,000 during the first half, which closed after the first half at €900,000,000 with 3rd party capital and €1,000,000,000 with ICG's €100,000,000 investment. We also started raising the sell and leaseback fund, which Benoit will cover later on. We've had a first close and that's important because that actually triggers earning fees on any future closes. Both of those funds attract fees on a committed capital basis, which means revenues coming in straight away and hitting the bottom line. The growth of our fee revenues is not just based on current fundraising. We've had very strong fundraising in the past and we've raised €15,000,000,000 over the last 18 months. And importantly, we've been managed to retain our fee margins at 86 basis points, which was the average rate for this first half, which is consistent with prior year. Clearly, that's based on the mix of the AUM. So what does our fee profile look like? This chart shows the annualized fee profile for the next 11 years from our existing AUM. Given the long term nature of our funds and the fact that 86% of our 3rd party AUM is closed end funds, we have very strong fee visibility. Assuming we raise no new funds, we have £1,600,000,000 locked in fee revenues for the next 11 years. The fundraise of the first half added €215,000,000 to that number. Notably, we need to raise just over €3,000,000,000 half of what our guidelines are, to maintain an annualized fee revenue of that first bar there, which is just around £240,000,000 a year. This is the strength of our business model. So what happens in a downturn? Fees earned on a committed capital basis are unaffected. For fees which are earned on funds that are in realization mode, the profile of our real estate business provides a good illustration of what happens in a market downturn. This chart shows the fee earning profile of our real estate funds Longbow Fund III and Longbow Fund IV. The dotted line represents fee earning AUM if a standard realization profile was followed. The solid line represents the fee earning AUM, which is actual given the lower realizations. The AUM is lower due to the realizations being lower due to the slowdown in the U. K. Transaction volumes, given the political uncertainty in the country. Lower realizations mean assets remain under management and continue to generate fees and therefore contribute to profits. This is the benefit of a closed end fund model. Just moving on to the operating margin. Our revenues are derived from stable, long duration third party capital commitments. We upgraded our current operating margin target to be in excess of 43% in February of 2018. Since then, our business has grown ahead of our expectations. Fundraisers of subsequent vintages are much larger than previous vintages as was evidenced from our European Fund 7, which at €4,000,000,000 closed nearly 60 percent higher than the previous vintage. Consequently, our revenue base continues to grow and our operating leverage continues to improve. The Board has therefore decided to increase our operating margin target to be in excess of 50%. Over time, we have created significant shareholder value by scaling our existing mature strategies. In recent years, we have also invested in hiring and developing talent to launch a wider range of strategies. These initiatives are beginning to bear fruit. Whilst we expect to exceed the 50% margin, in fact, we can actually achieve a much higher margin by focusing on just our existing strategies. We believe that we can actually create more value by creating more demand to meet our demands of our clients. We are therefore determined to continue to invest for growth and expand our range of strategies and offering more innovative products to our clients. This would result in the business becoming more diversified and generating more sustainable profits. We believe this will create more shareholder value over time. Moving on to the operating costs of the fund management company. As we continue to invest our business, we are maintaining our cost discipline. The costincome ratio for the first half was 48%, in line with prior year. Given the continuing strength of our brand, as Benoit touched on earlier, we are now increasingly able to hire higher profile talent in the business. This increase will result in increase in talent and therefore creating more products. The increase on staff and incentive costs from prior year, as you can see on the table from here, is primarily from prior year is primarily due to higher headcount and the growth of our fund management business. Other non staff costs are primarily occupancy, T and E and professional fees. Moving on to the investment company. Just as a reminder, the investment company is an enabler and an accelerator of the growth of our fund management business. It is therefore a very critical part of our strategy. Net investment returns in the first half, depicted by the most right hand column there, were 10.8% following 3 years of outperformance. We do not actively manage our balance sheet. The returns on the balance sheet are generated from the performance of the underlying funds, which I'll talk about later on. The balance sheet returns are expected to therefore fluctuate from one period to another. For example, the returns in the first half of last year were significantly higher than the second half of that year. However, over the long term, we expect to achieve our guideline of 11.5%. So how do our returns on the balance sheet compare to the returns of the funds? The table here shows some of the fund strategies. The 3rd column on this table shows the returns on the balance sheet. And the last column, the highlighted column, shows the returns of the underlying funds. The key drivers of the returns for this first half from the corporate and strategic secondary strategies. Whilst the returns gives a snapshot of performance in the first half, it's actually important to look at what the funds underlying funds performed overall. If you, for example, look at the 4th fund down, European Fund 6, it returned the balance sheet returned 6.7% in the first half. But over the life of the fund, it has returned over 22%. This is what our fund investors focus on. All funds are performing at historical highs and exceeding their hurdle rates. Benoit will actually cover that later on. Returns from other include returns from our capital market strategies, which have lower yields given the underlying asset profile. Other also includes NIO strategies, which in time will contribute to the growth of our fund management business. So what is the profile of our balance sheet? 75% of balance sheet investments are in high yielding strategies depicted by the right hand side of this chart. These strategies invest in over 250 companies across 34 secondtors in 20 companies. We're extremely diversified. The rest of the balance sheet portfolio is in lower yielding capital markets business, of which over 55% is due to risk retention requirements in our CLO business. The remainder in that bucket on the left hand side is in seed investments in new strategies. Separately, we stress tested the balance sheet portfolio by modeling double the rate of the default rates that we experienced during the global financial crisis. And the results proved that our balance sheet is extremely resilient, and we did not need to raise any further capital. This is where we are today compared to where we would have been 10 years ago. So moving on to the investment company costs. We've maintained the cost discipline in the investment company as our fund management business continues to become more dominant, and we expect that trend to continue. Incentive schemes on the investment company reflect compensation accruals for bonuses related to the performance of balance sheet investments. Other non staff costs represents all other PLC related costs. The increase on prior year is due to one off corporate projects. Business development costs represents costs of new teams. In the first half, these are predominantly due to our infrastructure equity team. We tend to recognize cost of new teams in the investment company until a fund is launched. As soon as a fund is launched, we start recognizing the cost of that team in the fund management company. So moving on to the target guidelines for this year. I'm very pleased to say that given our performance in the first half, we are able to upgrade our target guidelines for the financial year in the following three notable areas: fundraising, as Benoit touched on, given the strength of our fundraising pipeline, including bringing forward of the 4th vintage of our direct the European direct lending strategy, STP IV, we expect to exceed our fundraising guidelines for this year. Operating margin, as I mentioned earlier, we have updated our FMC operating margin guideline to be in excess of 50% and performance fees. We also expect our performance fees in this financial year to exceed or trend higher than our guidelines. And finally, before I pass back to Benoit, please note we have today announced an interim ordinary dividend of P15 per share, which is up 50% on prior year. Thank you. Thanks, Vijay. Looking at sorry. Looking at now familiar slide of the ICG virtuous circle or triptych. I today I thought I would provide some color on what this actually entails practically at the investment level. Starting with investing selectively. We have been holding our annual LP Investor Days in Asia, in Europe, in New York last week. And as we prepare for that, we analyze a lot of the data on our portfolios. And one of the interesting metric that's come out of this analysis this year is looking at our main strategies and looking at their investment funnel. So that's looking at all the transactions that come into the pipeline until transactions that actually close. If we look at that consistently, the percentage is less than 5% of the transactions that come into the pipeline eventually end up closing. So it's an extremely selective investment process and investment committee process, which is exactly what you would want to see particularly at this stage in the cycle. On managing portfolio to maximize value, this encompasses numerous aspects. It clearly points to actively manage the underlying portfolio companies. It'd be very hands on and ICG has a reputation for being very hands on. Even for our senior debt strategy, the direct lending strategy, we ask for Board representation, which is unusual for senior debt investments. But beyond that, this also implies taking a very clinical approach to the management of every single fund and every single vintage. It's important to know how to invest. It's even more important to know how to sell and exit, to take advantage of market opportunities to realize assets, anchor performance, reduce the risk and the downside on each fund, each vintage, which is exactly what we have been doing this half. As few examples, we had a very significant and very strong exit this summer on one of the assets in Fund V. As a result, we fully derisked European Fund V. Actually, we've returned 1.5 times the money already. So this fund will be we'll have a strong performance no matter what. If we take Fund 6 which is a very recent vintage, it's only 4 years old. We've already returned about a third of the capital. I could take another example, Strategic Equity 1, by the end of December, we will have fully realized that vintage, okay. And we could look at every single vintage that way. It's very important to have this discipline to realize asset and take advantage of windows of opportunities. This is what explains the consistency of our performance through cycles that we show in our track record. The growth in assets under management, in the current market environment, there is ever increasing appetite for the alternative asset class. And at the same time, there is a flight to quality, which clearly benefits larger managers like ICG. It also means that there's enormous appetite for well established strategies. That's what we experienced last year with Fund 7 where if you remember we had to scale back our largest investors and cap them. I'm reasonably confident that SDP4 will also experience significant success because it's a well established strategy. But by the same token, raising first time funds is incredibly difficult. And it's practically impossible if you don't have a brand and you don't have a platform like ours. But obviously today's new strategies are tomorrow's established strategy. It's a long game. It takes 2 to 3 vintages for a strategy to be deemed established. So we're talking 5 to 10 years, which means it's how it's absolutely critical to keep on innovating and bringing new strategies to the market regularly, even if it requires a disproportionate amount of marketing effort. Few words on the market environment. It will not come as a surprise that the current market environment is characterized by an extremely high degree of uncertainty. It feels like a never ending late cycle. The IMF has recently pointed to a synchronized slowdown of economies. And if it's synchronized, it's certainly not uniform. Some industries are clearly suffering, particularly in manufacturing. But other industries are doing quite well. And when we look at the buyout space, which has a natural bias towards services and towards non cyclical industries, this is what we see here. So this is ICG proprietary data. It's about we track about 1600 private companies. And what we see is both in the U. S. And Europe, EBITDA growth remains quite healthy. It's with 6%, 7%, both in the U. S. And Europe. And as our portfolios tend to do better than the average buyout market, our portfolios are in logically in extremely good shape, which should not give us a false sense of comfort because things can change quite quickly. And there are signs in some areas of the market of the market overheating. We've shown this slide before. We've clearly seen leverage in the market increasing for several years now. You could argue that it's plateauing, but at a level that is high. It's not as high as in the previous financial crisis, but it's still at quite high levels. There are mitigating factors. We've pointed to them before. The EBITDA to net cash interest cover is at a historical high. It's much, much higher than it was 10, 12 years ago. So buyout companies do not appear to be under any financial strain. They seem to be able to easily meet their debt service obligations. And it doesn't appear on this slide, but the level of capitalization in buyout deals is also historical high. It's much, much higher than it was 10, 12 years ago. So there are legitimate mitigants, but one cannot and should not ignore this level of leverage. The good news is also something we've shared before, you do not have to be hostage to the general market trend. You can manage your portfolio to maintain a reasonable and manageable level of leverage, which is what we're seeing here. The blue line represents the average leverage in ICG portfolios versus the gray line, which is the overall market. They don't fully compare because we have more subordinated debts. The whole market is more senior. So you would expect our line to be higher. But it's the trend that matters. As you can see, actually, our average leverage has been trending down, certainly not up while the market has been going up substantially. There are a number of reasons for that. I'll point to 3. One is in many of our strategies we have an ability to target more off market non sponsored transactions which inherently have lower leverage. We also have a preference for highly cash generative businesses which de gear quicker and bring down leverage, as well as companies that have a significant growth profile, either organic or through accretive acquisitions, but which gets to the same result. It lowers the overall leverage and therefore the risk profile in our portfolios. Of course, all of this requires a very strong originating platform. Origination has always been an ICG strength. We've been mentioning origination for years. The fact that we like to have origination team in every country on the ground That remains true. And actually we have taken the strategic decision of investing even more in our origination capability. As we're getting further and further into the cycle, our view is that we should be precisely reinforcing our origination. You may have seen this year we've made some prominent hires on the origination front. And that's quite key because everything flows from that. You can only be selective if you're seeing enough transactions. You can only be doing more off market transactions if you have the origination teams that have the ability to do that. And it obviously has a direct impact on our ability to deploy. We're deploying well across our strategies, but that is because we've been investing in origination. We can keep a strong deployment pace without compromising on investment quality because we have the origination capability in all of our strategies and all of our teams. So all of our strategies are on track. Actually some of them are well ahead of the expected deployment pace. We've spoken about Europe Fund 7 before. We signed recently another transaction. So that fund should be about 50 1% invested in the near future with more than 5 years to go in the investment period. So it's well ahead of plan. SDP direct lending fund we've mentioned SDP III for all intents and purposes is fully committed, which is why we brought forward SDP4. And something which does not yet appear on this chart because of cutoff time. Strategic Equity 3, so that's a strategy we're still fundraising for. We will close fundraising in December. But on the back of 2 additional transactions that were signed late September, the fund should actually be 40% invested right off the gate, which is a great result. So this is our track record slide. It doesn't change very much. It's not supposed to. The key message here is as we add more strategies and more funds to this list, we keep having an unblemished track record. We've never had in our whole history a failed fund. We've never had an underperforming fund. And that strength of performance over a long period of time through cycle is one of our most valuable assets when we pay a lot of attention to preserve. So I've spoken earlier about how important it is to be disciplined about realizing to take advantage of market conditions when they are favorable. And market conditions have been favorable for exits certainly this half and we have taken advantage. We've exited 15 transactions. And although 15 is not statistically relevant, nevertheless, it's pleasing to see that for the first time 100% of those exits have exceeded the target hurdle for their respective strategies. This is important because if you remember, Vijay showed a slide that was showing the performance of our key funds. It was slide 16, if you want to flip back to that. But in any event, the performance of our funds today in the environment is at historical highs. And for each one of them, it's certainly well above the initial target performance for these strategies, which means it's critically important to be able to anchor some of that over performance because it's providing us with downside protection. It's creating a buffer or a performance safety net if you want. Even if there is a material downturn in the near future. We're protecting all of these vintages by anchoring this performance today. Fundraising, we've mentioned it. It's been a strong first half, €4,600,000,000 raised. I think the big story here is the number of colors. And actually this is it's not broken down by product, but by category. There would be 14 different products if we were to break it down. I think we were running out of colors. But this is meaningful. Over 60% of the funds raised in this first half were for strategies that did not exist 5 years ago, which indicates that 1, we're not dependent on a few legacy strategies and 2, it shows the strength and the value of innovating and bringing constantly bringing new strategies to market. The other thing to note, put things into perspective is that we have raised we've raised more in this half than we did in full year 2017, which is not that long ago. Focus on the sale and leaseback strategy. As I've mentioned, we've had a first close for this strategy, which is the big win. We don't know yet how large the first vintage will be, but what we do know is there is going to be a first vintage, which is what matters, because we can then build on that to have subsequent vintages. And this is meaningful because we took a significant risk with this strategy. Not only is it a first time fund, but it's a new strategy in Europe. It didn't exist in the closed end space, which always makes it more difficult. Obviously, having had a success, it confers a valuable first mover advantage for us. And we believe that this strategy is very scalable in the future. This is a fund that could grow in significantly in future vintages. The strategy has a number of interesting characteristics. For one thing, it's a collaborative effort between 2 of our teams, the senior direct lending fund and the real estate fund. So it's a real life example of synergies in a diversified platform. The other aspect is it's a strategy that fits very well at this current point in the cycle because it combines exposure to corporate risk with the downside protection of real asset or real estate in this case, real estate ownership. And as the strategy only focuses on strategic, on mission critical assets for corporates, means you're a de facto super senior for a return that is generally a cash yield of 6%, 7%. So it's a very good risk return profile. And it is resonating with our LPs, which is what we had hoped. The other aspect that LPs quite like about this strategy, I've pointed this earlier, is that this strategy is it's a sustainable fund. The strategy has earmarked a portion of the funds to be dedicated to spend, to improve ESG characteristics for every single of the purchased assets. So quite a number of interesting features in the strategy. It's an interesting case study. No doubt we'll come back to it in greater detail at our Capital Markets Day, which since this is a shameless plug you may want to jot down. It's going to be on January 30. Coming to the fundraising outlook. I'll point to what has evolved since financial year end. Obviously, the direct lending fund, I won't come back to that. SDP 4 has now launched and is likely to be size wide the most significant fundraise the next 6 months or so. Worth mentioning as well at the very bottom strategic equity 3. We will have our final close this December. It's highly likely that we will end up with over $2,000,000,000 which is a very good result. We were initially targeting 1.6 €1,000,000,000 for this strategy. It's a strategy with fees uncommitted. And you may remember this is the one strategy where we'd actually increased the headline fee rate from $1.25 to $1.50 So very good result there. And worth mentioning as well in addition to sale and leaseback which is now in full swing, the infrastructure equity that we have just started. We have also recently started to raise for the our new Asia Pac Fund, Fund IV, which we're aiming to raise between this year and next year. And finally worth pointing out, making their first discrete appearance on the right hand side, Europe Fund 8 and Strategic Equity 4. And that is to take into account the strong deployment of both current vintages. In summary, strong half, clearly very strong on fundraising, €4,600,000,000 raised, with the key being our ability to raise across a large number of products and strategies simultaneously, including new strategies, which take an inordinate amount of effort from our marketing teams. The our portfolios are doing very well, but we are cautious. So we're mindful. We take advantage of the market situation to realize asset and anchor the performance on all of our funds and vintages. And as a reminder, we've uplifted the guidance for the FMC operating margin. Importantly, as Vijay pointed out, while preserving capacity to keep on investing in the future growth in the business and in new teams and new strategies. And finally, this is as per our dividend policy, but I think it's worth highlighting given the size of the uplift. The interim dividend is up 50% at 15p per share. So thank you very much for your attention this morning. And Vijay and I will be happy to take your questions now. No questions. I can see some people thinking really hard. Well done. All right. Thank you. It's Luke Mason from Exane BNP. Just a couple of questions. Firstly, on costs. I know you've seen strong operating leverage, but costs have grown quite fast half on half. Just wondering how we should think about cost growth in the FMC as you invest in new teams and what a more run rate level should look like? And then just secondly, on the liquid credit front, you're seeing strong inflows there. Is there any specific funds within there that have seen the strong inflows? Or just a bit more color around that. Yes. So on well, I'll let you to take the costing. I'll deal with the liquid fundraise. It's less a reflection of the market. The market remains favorable, but it's more the result of our own progression. The capital markets part of our business for a long time was subscale. And it takes quite a lot of time to establish scale and establish a track record that notably enables consultants to start rating you and recommending you to clients. It typically takes 3 years for every strategy. And we're starting to hit that. We're starting to hit that 3 year period where we can show a track record with a consistent performance or in this case outperformance. So that's what we're starting to experience. That's why you're seeing a pickup. I think we're likely to continue to see that pickup because we're clearly benefiting from this now. So on the cost on the FMC, our average headcount, if you compare the first half of this year compared to last year, has grown up by 20% on the FMC. So you'll undoubtedly see an increase in the absolute costs. But on a relative basis, we expect to continue to maintain the cost discipline. And hence, we are very clear that we should be able to maintain the margins that we've talked about as well as a consequence of that. Well, it's a fair question. And it's a debate. I mean, thinking about the operating margin and the profitability on the fund management company, we've pointed to this before. We could very easily milk the existing strategies. And we would still have significant growth for probably a decade. And you'd see the margin go to much higher levels. But you would be compromising the 1st of all, the pace of growth and certainly the long term growth. So obviously our option is to while preserving a strong level of margin is to keep on investing in the business. And so yes, new teams will bring down, will push down margins, but we still think that with that target of 50% plus, we still have a significant headroom to keep on bringing in new teams. And there is a point as well, I'm sure you realize is, as you grow, there are only so many new teams that you can bring. And as you grow, the cost of an individual teams becomes less and less significant compared to the whole. Any other questions, anyone? No? We would have to take any other questions afterwards. Thank you very much. Thank you. Thank you for attending. Thank you. Cheers.