Thank you for joining us today for our full year results presentation. It has been a strong year. We have established several records, notably in fundraising and capital deployment. In fundraising, we have raised EUR 7.8 billion, bringing total AUM to EUR 28.7 billion. That is up 20% on previous year. Fee earning AUM is also up 12% to EUR 21 billion. We fundraised across a number of strategies during the year. The single largest contributor was, of course, SDP, our senior debt strategy, but we had other meaningful successes, notably for our U.S. platform and for our European capital market strategies. I will come back to that. On the investment front, we have deployed EUR 4.9 billion. That is up 21% on the previous year. AUM up 20%, capital deployment up 20%, 21%.
To have an impact, obviously, on FMC profit for the year, because again, it is fees on committed capital, so the fee impact is immediate as soon as the funding. Financial highlights. Philip will go through these in great detail. I would just like to point to the key information there. FMC profit up 29% to GBP 95.3 million. It is an important juncture for us because this is the first time the fund management company profits overtake investment company profits. I would also like to point to dividends. You remember last year we changed our dividend policy. Final dividend of GBP 0.21 per share. This brings the total ordinary dividend for the year to GBP 0.30 per share. That is up 11% on previous year. This is above our policy target of 6%-8% increase. It is a sign of confidence.
We are ahead of our own expected timeline towards the fund management company profits fully covering dividends and driving their growth. In February, at the Capital Markets Day, we introduced a new set of strategic priorities. They include an increased fundraising target of EUR 6 billion per year. They also include an increase in operating margin target for the fund management company, 43%. By and large, during the course of this financial year, I expect that we will make good progress against all of these strategic priorities. On to financial review.
Thank you very much. Morning, everyone. Very good to see you all. I think following the Capital Markets Day and with this set of results, we can comfortably say that we are beyond any form or phase of transition to fund management as an asset manager. I think some of you will have noticed, in fact, that the LSE, the stock exchange, has now recategorized ICG as an asset manager. They have taken us out of the specialty financials category and put us into asset management. Quite clearly, there is now clear water between the fund management company profit and the investment company profit. It is in the fund management company profit that we are clearly now driving value. FMC profit is up 56% over two years. During the year under review, FMC profit is up 29% to GBP 95.3 million.
Third-party fees were up 21% and costs up 9%. Profits obviously growing more rapidly and we are getting some of that scalability effect. The IC profits are lower this year, but we expected that because if you remember last year, we had GBP 54.4 million of capital gains were released from reserves following the realizations of some of our legacy assets. That was a one-off for FY 2017. Excluding that release from last year, net investment return, which is now the measure that we are going to use to look at the revenue for the investment company, reduced from GBP 158 million to GBP 240 million. I will come back to net investment return in a moment. A number of you in the discussions so far, quick chat so far, have relied on the tax number. Let me just recap first from the half year.
If you recall, we had a very low tax rate at the half year because the underlying tax rate for ICG is low at the moment. The reason for that is that as we co-invest more and more with our funds, the underlying tax rate is driven by our investment income, which is largely generated overseas, remitted as tax-exempt dividends. This is very common for investment companies. It means one of our major revenue lines is exempt from tax. Obviously, our costs get relief against tax, which means that the underlying tax rate is very low. During the year under review, we also felt comfortable enough to release some deferred tax accruals of GBP 43 million. These are not recurring. It is a one-off release.
There are details on page eight of the RNS, obviously, happy to chat through in greater detail as we get round to talk to you about your models. Moving on to the balance sheet. The asset book now makes up 7.5% of the total AUM. It was 8.4% this time last year. The average investment book is unchanged at GBP 1.9 billion. Our gearing is at the bottom end of the range at 0.77, just around the 0.8, which is the bottom end. I expect that to increase during the current year. We are looking at four new strategies that we are looking to develop during the year. All of them will require balance sheet support. Three of them are in real estate, one in Europe, two in the U.K., and one strategy in infrastructure.
You will remember from Capital Markets Day, one of the critical functions is to incubate and nurture new ideas so that we can develop fund products that can then stretch out for many, many years beyond. Expect to see some of that activity during the new year. We also renegotiated our main bank facilities during the year, which is the first major change actually in how we structure our banking relationships for about seven or eight years. It is a GBP 500 million facility and it has split maturities, which means we have much more comfort over when the facility matures, and therefore that creates greater stability. The terms are also improved on the bank loan. Cash. I had net cash outflows during the year.
That's entirely due to the investment company participation in the very strong levels of deployment that our funds saw during the year, which Benoît will come back to. Looking more specifically at the fund management company. Obviously the leading indicator is very much gross funds raised. Fundraising during the year driven by the corporate asset class on the left side. During FY 2019 it was SDP. In the current financial year, we'd expect Fund VII to drive the fundraising in the corporate asset class. Capital markets saw a good level of activity for CLOs. We issued CLOs both in Europe and the U.S., and some good traction on the Liquid Credit funds. I expect more of the same in FY 2019. Perhaps with a little bit more of an acceleration on Liquid Credit. Real estate saw its main mezzanine fund, Fund V , as bridging the financial years.
Some of it was raised last financial year, but most of it will be raised in the new financial year. We also have those new strategies in real estate that would be nice to see some fundraising for during the year. That will clearly be at the tail end as they're all in development. In the secondary asset class, Strategic Equity Fund III will hopefully be raising that during the new financial year, saw no fundraising during FY 2018. Overall fee earning AUM was up 12% during the year. The new financial year will be off to a great start because Fund VII is charged on committed. The close on Fund VII is going to be very much imminent. There's already been a first close and there'll be further closes. It means we'll be charging fees immediately, so fee earning AUM will go up.
We saw realizations in the year, which is the red bars, of €2.3 billion. It's actually averaged over the last three years at around 10% of third-party AUM. It's very consistent and sort of a useful benchmark for your modeling. We also saw some further leakage as a result of FX because of the strength of the euro against the dollar. All of our dollar-denominated funds went down in value against the euro, which is what we measure our AUM in. That saw effectively a reduction in AUM of €0.8 billion. Very important area for us is to retain our level of fees, and this is a strategy by strategy dynamic. What we're interested in is retaining the fees for one particular product over a number of iterations, retaining or even increasing.
Although we use the weighted average fee rate for the company as a whole, which dropped from 91 to 86 basis points, as long as that is a function of mix and not a function of losing price control, that's not as interesting as looking at on this basis, where we've now given three years of track record on the fees for each asset class. The reason why there was the drop during the current year from 91 to 86 is just because we are raising more for more senior debt-like products. SDP, senior real estate credit funds, all those have lower fee rates and therefore they affect the weighted average for the company. This only includes management fees, we don't include performance fees in this.
Just one thing to note on performance fees, because of the number of closed-end funds that we are now raising, we are increasing our guidance for performance fees. For the last four years we have used GBP 15 million-GBP 20 million as guidance, and actually we have averaged GBP 18.4 million. We are uplifting that by GBP 5 million, so the new guidance is GBP 20 million-GBP 25 million. Just coming back to this point about where is fee earning AUM shifting during a year and how it affects our weighted average fee rate. This slide shows for each of our individual strategies how fee earning AUM changed during the year, and how those strategies charge against the red line, which is the weighted average for the group.
On the left-hand side, you have some of the strategies that were more successful in fundraising during the year, SDP, Liquid Credit, all of those actually are lower than the weighted average. Therefore, as they saw increases in fee earning AUM, they dragged the red bar a little to the left. In the new financial year, we will see European Mezzanine fundraise alongside Strategic Equity and also Longboat, which are all on the right-hand side. I expect to see maybe not quite a seesaw effect, but more density on the right-hand side, which will hopefully, my expectation, is move the red bar a little to the right during the current financial year. The most important thing is are individual strategies retaining or increasing their fee rates rather than looking at the weighted average for the company as a whole.
All of which gets us to our operating margin at 45.4%, we are ahead of our new target of 43%. I expect we will see some increase in costs as we incubate some of these new strategies, and that will come through in FY 2019 and FY 2020. We are seeing the benefits of scale coming through. I have added to this time around, the percent of revenue for each of the cost lines, which as you can see, the cost-to-income ratio dropping from 59%-55% over the course of the year. Going from the top, across all of the teams, we have seen salaries decrease as a percent of FMC revenue. Total staff costs, including variable incentives, are down 1% year-on-year as a percent of revenue.
We are achieving scalability even as we absorb the operational and regulatory complexity that arise out of the increase in breadth and number of our products. You will see in the incentives, the middle bar there has been more of a shift to cash from variable comp. This was in keeping with the policy that the shareholders approved at the last AGM, where we focused a bit less deferral and more cash on junior and infrastructure staff. We are still 56% deferred as a company, and executive directors are 89% deferred. The other costs at the bottom actually stay constant in GBP terms, but reduced as a percent of revenue. As I say, beginning to see real scalability. We finish off with the investment company. Moving to net investment return as our main measure of investment company income.
This looks at all of the returns of the investment company, as an investor would look at the pool of co-investments that we've made in our funds. Effectively it looks at the balance sheet as a large client investing across ICG funds. What you'll see is the 12.6% net investment return is very consistent with the last three years. We're guiding to 11.5% for the new year as a good assumption for FY 2019. This reflects the increasing investments in our mid-return strategies. In a sense, the fundraising from last year will come through in some of the returns that we'll see as that capital's invested and co-invested with the balance sheet. We're guiding a little lower in this year than last year just because we can see the mix changing a little bit.
Just to dig a little bit deeper into that mix, this looks at the real drivers of net investment return. In fact, five fund co-investments delivers 92% of the investment company returns. Take the top line, European Mezzanine Fund VI as an example. That produced GBP 104 million of returns for the balance sheet, which was 43% of its returns, which represents an NIR of 28%. Now, the investors in European Fund VI are expecting a return or targeted return of high teens. They are going to be delighted with 28%, which is where the fund is at the moment. Of course, we as a client, the investment company as a client, is also delighted. I think this level of analysis gives you much more insight into how the investment company revenues and the investment company returns are going to pan out.
The IC cost profile, as you'll know, the big change is often driven by the balance sheet carry, which are our deferred awards that are given out for successful and paid out on successful realizations of balance sheet investments, which are co-investments with the funds. This year's figure is very much driven by the realizations we saw in FY 2017, FY 2018. We've seen an increase in deferred awards there. The other non-staff costs at the bottom have also increased. These include abort costs or the costs where we've looked into new strategies, and they haven't been necessarily successful. This includes, if you remember the last few years, we've been investigating an oil and gas strategy to see if we can create a fund strategy out of oil and gas assets.
Having worked with the team for 18 months to 24 months, we concluded actually the pipeline wasn't sufficient for us to foresee a very long-term fund strategy and long-term income that we could generate for the FMC. It's very important to us that we do explore these new areas. If we're exploring enough, not all of them are going to be successes. Let me just finish off with guidance. Fundraising and FMC operating margin guidance remains the same. We discussed that at Capital Markets Day. Performance fee is uplifted by GBP 5 million to GBP 20 million-GBP 25 million per annum. Net investment return, as I mentioned, 11.5%. Expect the balance sheet portfolio to stay roughly the same size, GBP 2 billion, and that co-investment ratio to continue trending downwards.
With new strategies to invest in through the balance sheet during the year, and through OpEx, but through the balance sheet during the year, I'd expect the gearing to actually move more centrally to within the range of 0.8 to 1.2 times, because we have quite a nice roster of new ideas to look at. The underlying tax rate, still guided to low single-digit. With the slightly faster delivery against the business plan, or the plan that was delivered one year ago when we articulated our new dividend policy. In the new financial year, we move into that 80%-100% of fund management company profit as the driver of the dividend. We're now discarding the guidance that we gave you of 6%-8% growth. Actually, one other thing to mention.
Fund VII, Benoît's talked a bit about the drop-down of profits as we move from Fund VI to Fund VII. There is an immediate increase in profitability for the European Mezzanine strategy as a result. This will provide a very nice underpinning for the current year's results. As we talk to you individually, we'll make sure it's sensibly reflected in all of your forecasts. All in all, I think we believe this is a very pleasing set of results with great momentum moving into the new financial year. With that, we will go back to Benoît on the operating review.
Thank you. The strength of these results, as described by Philip, is entirely born out of our now well-established strategy and its successful implementation. Our three pillars, you'll remember. The investment, it's our investment philosophy. It's investing selectively. It's also origination capability. Portfolio management, it's maximizing value. That's ensuring we maintain the quality of our track record, possibly improve it, which in turn drives fundraising and growth of assets under management. For FY 2018, all of these aspects came together. Starting with investing. First thing to say is we remain in a generally favorable environment. Incidentally, you'll see the little picture here on the right. We're using our own data. You may remember at the Capital Markets Day I mentioned that we have a wealth of data, which is a competitive advantage. We particularly have a lot of data on European private companies.
We have more than 400 companies in our dataset. Unlike what's generally available in the market, which is deal data, we have performance data over long periods for all of these companies, which is extremely valuable. Historically, we've used this to inform our own investment decision and strategy. Recently, we've been starting to use it as added value and a differentiator with our LPs, with our fund investors. In the last months, we published our first quarterly European private company trends report, and it was extremely well-received by our investors, again, because that's not information that is readily available elsewhere. I pulled out a couple of slides from that report, which brings me to my initial comment, which is that the general environment is positive. You can see here European companies are experiencing solid growth. It's true for revenues.
It's particularly true for EBITDA, which is pointing to an increase in profitability and generally an increase in cash flow generation. If we look creditworthiness, for all the talks about the end of a credit cycle or significant increase in leverage, that's not what we're observing. Again, this is a large dataset. This is from all of our strategies, CLOs, senior debt, equity, mezzanine. This is significant dataset. Yes, we could see a slight increase or gradual increase in leverage levels, but you'll notice it's mostly the blue bar, so it's senior secured financing. Also, the total leverage is nowhere near the levels of 2008. The other important thing to note is that red line that's cutting across, that's interest coverage. It's EBITDA over net cash interest. It's a measure of companies' ability to service their debt.
You could see it's at its highest level since the financial crisis. That is pointing to companies that are financially strong. They're not overburdened by debt. I focus here on our own data, which is Europe. There is more readily available data in the U.S., and it would point to very similar conclusions. In this favorable environment, we've been extremely active. Mentioned before, we've deployed a record EUR 4.9 billion during the year. That's across all of our geographies and all of our strategies. If you look at our favorite fund deployment chart on the right-hand side, you could see that all of our strategies are on track, and some of them significantly ahead. If I just pick a few, Asia Pacific, which was lagging behind last year, has now caught up on the back of a number of transactions in Australia and Singapore, in Korea.
That strategy should be back in the market with a new fundraising towards the latter part of the year. SDP III , which we've just fundraised last year, is already 22% invested. Our U.S. Mezz fund is 80% invested, so we're going to be looking into flipping to the next vintage pretty soon. This is ongoing. This is data from end of March. If you take Strategic Secondaries, which incidentally, we've rebranded Strategic Equity, so you may see both headings. Strategic Secondary to Strategic Equity is now up to 80% invested. As I mentioned earlier, our European fund, European Fund VI, is now fully invested. Very strong pace of deployment, and that is all down to origination, because we're not about to compromise on investment quality for this reason, which is track record.
We've said it and we'll say it again, this is our most valuable asset. We have a very long track record. We've never had a failed vintage. We've never had a failed fund. All of our funds have exceeded their target hurdle. That's unusual. In our industry, it's extremely valuable. The good news is our current portfolios are very healthy. It's likely that current vintages will not only consolidate this track record, but they're likely to actually improve it. That's important not just because of the success of these individual vintages, which is, of course, meaningful for investors in those funds, but because this is a window into the future. The track record that we're establishing today is going to enable us to fundraise for years to come. That it's an important factor for us. I mentioned that all of our strategies are performing well.
You've seen some of the numbers that Philip has shown. Some of our strategies are showing exceptional returns. Our Strategic Equity or Strategic Secondaries strategy is showing returns north of 50%, that's 50 IRR. You've seen that the Europe Fund VI is at around 30% IRR. Extremely historically high returns, quite promising. Obviously, we are taking advantage of the market environment to crystallize some of this performance and anchor it for each vintage and for the track record. One of the metrics we're tracking is the percentage of transactions realized during the year that have exceeded their respective hurdle rate and were at historically very high levels at 95%. This is, again, pointing to very strong vintages, possibly some of our best vintages. Fundraising. Record year, EUR 7.8 billion raised. The biggest driver, of course, was SDP with EUR 4.2 billion.
This should not overshadow some real accomplishments during the year, and I'll mention two. One is our U.S. platform. We're finally becoming relevant in the U.S. You may remember we've increased the size of SDP because we carved out a sleeve for the U.S. of about EUR 1.2 billion. During the year, we also fundraised our second U.S. mezzanine fund, which will close in the coming weeks, if not days. We will have more than doubled third-party commitments in that strategy. The fees will follow at around GBP 1.3 billion, which is a strong success for that strategy. Last year also saw the tail end of the fundraising of our Strategic Equity strategy at GBP 1 billion, and that's in addition to the ongoing issuance of CLO. The U.S. platform is truly becoming meaningful and has been particularly true in this full year '18 financial year.
The other key accomplishment is in capital markets, particularly in the European capital markets. We've invested in that team over the past few years, and we're reaping the benefits. We're finally having a breakthrough. We've raised more than EUR 1 billion, about EUR 1.1 billion last year across these liquid strategies. That's an addition to our traditional historical CLO business, and that's quite important because this strategy is all about scale. It's very promising. You could see there's a marked difference with previous years. It's very promising looking into the future for our capital markets business. Fundraising outlook. Well, as I've mentioned, we've made a bit of a head start with our Europe Fund VII. We've already raised EUR 2.6 billion. We're on track for the EUR 4 billion. Obviously, that's giving us quite a bit of visibility on the overall fundraising this year.
Worth mentioning, that our North American Private Debt, which is our mezzanine fund in the U.S., is essentially done. We're closing it imminently. In addition to all the strategies that are constantly in the market, that's true for the capital market strategy. It's largely true for our real estate strategies as well because the investment period is shorter. I mentioned Strategic Equity. The acceleration of their deployment, they're now 80% invested, means that, again, this is another strategy where we've had to significantly bring forward the fundraising. We've actually officially launched the fundraising for this fund. Previous vintage was USD 1 billion. Obviously, we'll be looking to upsize it somewhat, and it's likely that the fundraising will entirely take place during the course of this year. This is essentially a year ahead of what we initially expected for this strategy.
All in all, the pipeline for the year and the prospects for the year fundraising-wise are looking promising. Quick spotlight on Europe Fund VII. This strategy has been extremely successful vintage after vintage, so it's no surprise that there is significant investor demand for the strategy. Hence, the new target at EUR 4 billion of third-party commitments. This is up 60% from Fund VI, and it's double Fund V. Obviously, a consequence of that is the co-investment ratio is converging towards 10%, so it's greater capital efficiency as we're growing third-party commitments. Another element worth noting, in addition to what's on the left-hand side, which shows the acceleration of the pace of deployment. What's worth noting is that the fee trend. Because the strategy is successful and in high demand, we have had to give up less discounts.
We therefore expect the average fee rate for Fund VII to be above that of Fund VI, which was itself ahead of Fund V. That's an interesting fee trend. It shows how powerful successful strategies can be in our industry. Obviously, because this is fees on committed and it's a EUR 4 billion fund, even a relatively small increase in the average fee rate has a not immaterial impact, to use a double negative. Sorry, before moving on to this, there is another key point I'd like to make here, which is taking a step back. Obviously, this is good news. Fund VII is very good news because it's a 10-year fund. We're anchoring fees on one of our key strategies for another 10 years. That's always going to be good news.
Taking a step back, I think it's worth mentioning, in the past, we focused and we insisted on the locked-in value of our fee streams and the predictability of our profit growth over the medium to long term. What we perhaps did not make clear enough is that there is no opposition between new strategies seeded by the balance sheet that provide the growth and old strategies that provide a stable fee base but that are not growing. That's just not the case. We're seeing it. This is our oldest strategy. It's a 29-year-old strategy. This is still growing significantly. It's doubled in size in the last two vintages, and it's increasing fees. Even our more mature strategies can still grow significantly. The new strategies are just adding more growth. They're steepening the growth curve, and obviously, they're giving us diversification as well.
Which brings me to the new strategies. Philip has touched on some of these. We have a number of new strategies or new products in the wings. You may have seen that we have brought in an infrastructure team. They joined us two weeks ago, so it's early days, but this was one of the asset classes that we had openly said we were interested in because we think it fits well in our portfolio of strategies. We have also a number of new products being launched in our real estate business, including a pan-European sale and leaseback strategy, which we think could have significant potential. It's early days. We are both very ambitious about these new strategies and also very cautious because we know not all of them will work.
We want to focus on those strategies that are very scalable and that are resilient, that can bring us growth for five, 10, 15 years. Not all of them will meet these criteria. Having said that, having just one new strategy taking off creates so much value that it's certainly worth the focus we dedicate to it and the investment and support from our balance sheet. In conclusion, after a strong full year 2018, the current financial year is off to a very good start. We've admittedly made our life easier by getting an early and comfortable head start, in particular thanks to Europe Fund VII. I've mentioned at the Capital Markets Day that our strategy works. It's a matter of accelerating this strategy. I think we're already experiencing some of that acceleration.
It's a matter for us now to build on that momentum, add more strategies, and consolidate our position and our ranking in our industry. On that note, Philip and I will be happy to take any of your questions.
Good morning. It's Gurjit Kambo, J.P. Morgan. Just a couple of questions. Firstly, in terms of the Mezzanine Fund VII, obviously this is a large fund versus what you've done historically. How should we think about the costs of that? Do you need to hire more people in to run it? That's the first question. The second one is, in terms of the U.S. sleeves, are there any other strategies that you may use the U.S. sleeve?
Okay. Two very different questions. On Fund VII, we don't specifically need to hire executives to deploy Fund VII. Actually, our current pipeline for Fund VII is extremely good. It's quite possible that Fund VII, in terms of deployment, will have one of the fastest early deployments that we've ever had for a fund. It's not that we need a new executive for the strategy, but we always have to be thinking at least one vintage ahead. If we believe, which is our belief, that there is more potential for growth in this strategy, then we need to be thinking about reinforcing the team. What we do for this strategy is a bit unique. It's a blend of quasi-equity and debt instruments.
It's very technical and therefore you need to bring on people early on so that they can get accustomed to our way of doing things, our way of originating transactions. Yes, we keep constantly looking at beefing up the team, but it's more thinking ahead to vintage 8 and 9. As for the U.S. sleeve, I'm afraid that in our discussions with LPs for senior debt, when we negotiated a sleeve for the U.S., we didn't go as far as asking them for a sleeve that we could use for anything. I'm afraid it will be dedicated to developing our senior debt business in the U.S. Any other question?
Yes. Thank you. I wonder if you could talk a little bit about deployment rate, because it looks like you deployed assets about in line with your net raising this year. Presumably, given you're having more AUM next year, as a percentage term, you'll need a higher rate of deployment. Is that something you think you will be seeing? Have you got the infrastructure in place to be doing that?
Several aspects to your question. One, we are adding new strategies. Adding new strategies means new teams. It takes Senior Debt, the SDP team didn't exist a few years ago. Obviously, that's a new strand and that's new deployment, which is matching their own fundraising. When we're increasing the size of a fund, then it's a combination of perhaps deploying faster, but generally, it's more of a question of deploying into larger transactions. What's happening is we're typically adapting to evolutions of the market and opportunities in the market. What we are seeing, it's true certainly for European Fund VI and VII, is we are getting access to larger transactions. It's less a question of doing more transactions. Actually, for instance, Fund VI doesn't have more transaction in the portfolio or deals than Fund V. It's just that they are larger.
That's what's happening as we essentially follow the growth of the market.
Thank you.
Sorry, just to finish off on that, Philip. An awful lot of attention over the last few years is to just make sure that beyond the investment teams, where you obviously need to make sure we're originating the best transactions for the best terms, we've also got the marketing behind that, the infrastructure, the operations, the compliance. That's a never-ending task. We always need to make sure we're ahead of where we need to be.
A flurry of questions.
Morning. David McCann from Numis. Just on the guidance, or the new guidance rather, on the net investment return for your own book going down to 11.5% from the circa 12% plus we've seen in recent years. Maybe just talk a bit more through why that might be declining a bit, given what it looks like you will have to put a bit more into, obviously, Euromezz VII , given preceding circa 10% of that possibly, and obviously some of the newer strategies coming on as well. I'd thought all of those would be in the kind of 15%-20% type bucket. Why does the overall?
The total exposure to the European Mezzanine asset class will stay roughly the same, at least for the new financial year, because we'll get assets back from the older Fund V, Fund VI, as we put money out for Fund VII. Although the amount we're putting into each of those funds has actually been the same for each fund, it's been GBP 500 million, although the percentage has come down. At the same time, during the financial year just ended, we've got investments in SDP, we've got investments. We've been putting some capital into the new strategies, all of which are a little bit lower than
The European Mezzanine strategy, they'll dilute the returns a little bit. We're also putting capital into the Liquid Credit funds, which tends to be a relatively short-term investment by our standards, say about two to two years or so. The returns are quite a bit lower, but they're liquid, it means as soon as we can attract more funds, we can take that capital out quicker. While we're looking at growth in the Liquid Credit, while we're also expanding some of the newer strategies, which will be nearer 10%-12%, I'd expect to see that come down a little bit. It's just thinking about what the actual asset mix is going to be, or the actual fund mix is going to be during the new year.
Thank you.
Just one final question on the guidance. Would you say keeping the tax rate guidance where it is quite a conservative assumption given the likely mix of income looking forward a year or two?
Well, the dynamic, if you take away.
The deferred tax
the deferred tax releases. The dynamic is we got the revenue of the IC, the returns of the IC which aren't taxed, because they're taxed ultimately in the hands of the final investor. We've got the cost of the IC, which are fully relieved, and we've got the fund management profit, which is taxed. It's a dynamic between the fund management profit growing, and eventually overwhelming the tax relief we're getting from the cost of the investment company. Low single digits is certainly where we expect to be in a year. If you look out two or three years, I think we'll go from where we are now. If you take out the one-offs, it will ease upwards slowly.
Morning. It seems a bit churlish, this question. Looking at your fee mix, and you were keen to point out the fact that it's only down a bit because of the mix change. What's going on in real estate? Is that a mix change within real estate?
You know that's what I'm going to say. Yeah, it is. What we've done is the mezzanine fund, which charges the higher fees, has stayed roughly the same size. It's grown a little bit. The fee earning AUM hasn't grown substantially. They've been growing the senior real estate credit funds. They tend to issue those in about GBP 300 million or GBP 400 million, they raise it once or twice a year, and that has a much lower fee. It's entirely mixed. I didn't break that out. I broke out the SDP from Mezz in the corporate, but just because they're larger amounts. I could have done the same in real estate. It would have got busy. It's the same dynamic. Any other questions?
Sure.
Just in terms of the new 4 strategies that you're investing in, I think the three real estate infrastructure. How do the real estate funds differ to what you currently have?
It's a mix, actually. There's a higher yielding strategy. There is what you may call a mid-range strategy, so 10%-plus type return, and there's a lower return strategy unless investors put some leverage on it, which some may do. It's a mix. For us, the key is to have the diversification. It's quite useful to have higher yielding strategies because some investors like that. They tend to be flagship strategies because they're higher return. They tend to be more or perceived as more added value, so they're quite useful to have. They may or may not be that scalable. You're going to be looking for scale in strategies that are lower yielding, that probably have a lower fee rate as a consequence of that, but where you think you have significant growth potential for the strategy.
That's the sort of balance that you're trying to achieve with these strategies, that's exactly what they are trying to do with these strategies in real estate. Believe it or not, because they're quite imaginative, that team had come up with many other potential strategies. We had to tell them we need to choose our fights. We picked these three. There is no certainty of success on any of these. At least there is a right combination and right balance when we're talking to investors, because you also don't want to have strategies that are too overlapping.
Great. If there are no other questions, you have one more, Gurjit?
Sure.
We will be around for a while. Ian and I will make sure we contact you all and have a good chat through the numbers and what they mean for your forecasts and models. Thank you all for coming along this morning.
Thank you.