Good morning, and welcome to Pollen Street full year results presentation for 2024. I'm Lindsey McMurray, and I'm delighted to introduce Crispin Goldsmith, our CFO, to present with me today. 2024 has been a phenomenal and a pivotal year for the firm, with outstanding performance, and critically, that the fund management business now represents two-thirds of the revenue of the group and the key driver of performance and growth. We have seen 29% growth in total AUM, Private Equity Fund V is exceeding its billion euro target, and credit AUM rose by 25%, with GBP 500 million of available capital ready to deploy. The strong fundraising momentum continues into 2025. Fund management revenue is up 36% and now forms 68% of total revenue, with strong EBITDA margin expansion to 39%, up from 30% last year.
The investment company continues to deliver strong and reliable returns, with a net investment return at 9.6% and GBP 31.8 million of net investment income. Together with this growth, we have also delivered strong cash generation, returning almost GBP 48 million through dividends and buybacks. We are delivering both growth and capital. Throughout 2024, total AUM grew by 29%, reaching GBP 5.4 billion by the year-end, and this is now forecast to be GBP 5.8 billion in Q1. Fee-paying AUM, which represents 75%-80% of total AUM, has grown at a similar pace, reaching GBP 4 billion in 2024 and forecast to be GBP 4.3 billion already in Q1 this year. We are now increasingly confident of achieving our medium-term guidance of GBP 10 billion in AUM. Across our strategies, we had strong performance. In Private Equity Fund V is surpassing its GBP 1 billion target, with fundraising continuing into 2025.
We also raised GBP 400 million in co-investment vehicles, strengthening our strategic investor relationships. We deployed GBP 1.1 billion across three new platform deals and 22 bolt-on acquisitions. We're maintaining a robust deal pipeline for 2025 and signed two successful exits during the year. In private credit, we raised over GBP 500 million in Credit Fund IV and a separately managed account. This strategy and the team are increasingly recognized as a leader in our field on a global basis. Fund IV remains on track to reach its billion-pound target for 2025 and a strong transaction pipeline for deployment throughout the year. Credit Fund III is fully deployed across 21 investments. There's been a significant step up in revenue in 2024, with fund management business firmly dominating our performance. Total revenue was up 24% to GBP 98.6 million, driven by a 62% increase in management fees.
The asset manager now accounts for 68% of total revenue. The fee rate was at the top end of the range of 1.5% due to catch-up fees. FRE, fee-related earnings, are scaling well at GBP 21.7 million, and PRE, performance-related earnings, adding a further GBP 4 million. The investment company continues to deliver a strong foundation of reliable income. This revenue growth translated into step change in profitability, with fund management EBITDA growing by 72% to GBP 25.7 million and margins expanding from 30% to 39%. In the investment company, we saw allocation to our funds committing GBP 196 million to our funds, with GBP 130 million drawn at the year-end. As a reminder, we invest to take advantage of the structural change taking place across the financial services industry. We currently have two strategies: mid-market private equity with controlled buyouts, aiming to deliver three-times money multiple during an investment.
In credit, we provide senior asset-backed capital to high-quality operators in their selected fields. By being dedicated to the sector, we aim to deliver top-tier returns with a narrow distribution of outcomes, and across the platform, we have a zero-loss track record, effectively cutting off the left-tail distribution of returns through our specialism. The private equity market continues to evolve, and despite some challenges in the broader fundraising environment, middle-market funds have demonstrated resilience and stability. As this chart demonstrates, funds between $1 billion and $5 billion stand out as the only segment to show growth over the last year, as returns have proven more attractive and the exit market more reliable. The financial services sector is a key sector for transactions, being recognized as a critical and dynamic sector by many of the global strategic investors.
In private credit, the credit AUM is forecast to grow by 50% from GBP 2 trillion to GBP 3 trillion by 2028. Specialist areas like asset-backed lending are playing an important role in this growth, offering strong returns while addressing investor needs for diversification from direct lending. Our asset-backed strategy is a clear complement to private credit programs, and that's now well recognized, with Pollen Street internationally recognized in this space. We are well positioned in the right segments of the market. Our client base remains a cornerstone of our success, enabling us to grow across region and deepen strategic relationships globally. Our LP base is well balanced, with broadly 30% in Europe, 30% North America, and the balance split across the U.K., Middle East, and Asia, with different elements of that growing as the global market develops. I'll now hand over to Crispin to cover the financial performance.
Thank you, Lindsey. I'm delighted to be presenting my first set of results for Pollen Street. Before getting into the numbers, for those less familiar with the business model, I'd like briefly to recap on how the group generates revenue and earnings. The group consists of the investment company and the asset manager. The investment company generates net income from the group's own balance sheet, which is deployed both in direct investments and increasingly through our funds. We have a strong through-the-cycle track record of delivering consistent and attractive returns from this capital. The asset manager manages third-party capital on behalf of our limited partner investors through a range of private equity and private credit funds. We charge quarterly management fees, either on committed or invested capital, depending on the fund strategy and maturity, which gives us a stable, long-term contracted revenue stream.
We also charge performance fees, typically a share of investment gains over a predefined hurdle. We have a long and consistent track record of generating performance fees through investment performance, though timing, in particular in the early years of a fund, can be uncertain. Fund management costs, predominantly people and property, are deducted from fees to give fund management EBITDA, which, together with net investment income, gives the group EBITDA. Fund management EBITDA can be subdivided into PRE, performance-related earnings, which are performance fees less certain performance-related costs, and FRE, fee-related earnings, which are management fees less the balance of fund management costs. 2024 marked a significant shift in our revenue mix. Fund management income, which consists of both management fees and performance fees derived from our managed funds, grew 36% in the year to GBP 66.8 million, and now accounts for 68% of total revenue, up from 62% in 2023.
Through cost management and the inherent benefits of our scalable operating model, administrative cost growth was held at 20%, allowing fund management EBITDA to grow by 72% to GBP 25.7 million and delivering an increase in the fund management EBITDA margin to 39%. The investment company sustained its track record of delivering consistent returns, with the return on net investment assets increasing from 8.8% in 2023 to 9.6% in 2024. This allowed income on net investment assets to increase 5% to GBP 31.8 million, despite a 4% reduction in average net investment assets during the year as a result of share buybacks and dividend payments. EBITDA of GBP 57.5 million was up 27% from GBP 45.1 million in 2023, with the ongoing transition towards fund management EBITDA evident. The top chart on this slide shows in more detail how the income mix has evolved in recent years.
High-growth fund management income, now 68% of the total, is having an increasing impact on driving overall group performance, with income on net investment assets being a stable foundation to support cash generation. This has been led by growth in recurring management fees, which have driven rapid growth in fee-related earnings to GBP 21.7 million in 2024, an annualized growth rate of 89%. The group's performance fee portfolio is still relatively early stage. Income from performance fees is therefore towards the lower end of medium-term expectations, and consequently, performance-related earnings accounted for a modest 15% share of fund management EBITDA for 2024. Given that profile, there is significant embedded value in performance fees which have not yet been recognized in earnings.
Based on target lifetime returns of two and a half to three times money on invested capital for our existing private equity assets under management, we'd expect to earn between GBP 162 million-GBP 227 million of performance fees over the coming cycle, which have not yet been recognized. Turning to the asset manager in more detail, which is scaling well, 2024 was a year of significant growth driven by successful fundraising efforts in both private equity and private credit. This delivered 29% AUM growth to GBP 5.4 billion at December 2024, with a corresponding 17% increase in fee-paying AUM to GBP 4 billion. This is a continuation of steady AUM growth over a number of years and feeds straight into growing fund management income, which at GBP 66.8 million has grown by an annualized 78% since 2022.
The blended management fee rate for the year of 1.5% was at the top end of the range, noting that this was boosted by GBP 5.9 million of catch-up management fees in the year. As already outlined, the asset manager benefits from an inherently scalable business model, with additional funds raised being largely managed by the existing team. The growth in revenues therefore fed through into an expanded EBITDA margin of 39%, on track to meet our medium-term target of 50%. We see this all come together on this slide as a summary of the asset manager progression over recent years. Successful fundraising has generated consistent growth in AUM, delivering 25% compound annual growth in revenues. With the benefits of our scalable operating model, this has in turn delivered a 54% annualized growth in fund management EBITDA to GBP 25.7 million in 2024. The investment company's balance sheet fulfills a dual function.
It's both a strategic resource, for example, to give alignment of interest with our limited partner investors through investments in our managed funds, and it's a generator of stable and attractive investment returns. During 2024, it has excelled in both these roles, delivering growing returns in both percentage and absolute terms while executing a transition from direct investments to our funds, which accounted for 26% of invested assets at the end of the year, up from 11% at the end of 2023. A further GBP 66 million of commitments to our funds will be drawn down as investments are made. The investment performance delivered was particularly impressive alongside the GBP 48 million of cash returned to shareholders during the year through dividends and share buybacks. This had the effect of reducing average net investment assets by 4% to GBP 330 million.
Nevertheless, our investment strategy delivered a 5% increase in net investment return to GBP 31.8 million from GBP 30.2 million in 2023, equating to an 80 basis point increase in the yield to 9.6%. Our portfolio is well diversified, with 93% allocated to credit assets and 7% to private equity assets, delivering robust cash flow and stability. During the year, we put in place a new GBP 240 million senior debt facility, refinancing the previous facility at a lower margin. GBP 191 million of this was drawn at the year-end. Our net debt to tangible equity ratio improved to 50%, down from 54% in 2023, giving a strong financial position to support future growth. We continue to optimize the use of excess capital to support growth and deliver value to shareholders. We invest in our private equity and private credit funds to support organic growth and accelerate the expansion of our asset management platform.
This ensures alignment with our strategic priorities while driving future scalability. We declared GBP 33 million of dividends in 2024, in line with guidance. Dividends paid in cash during 2024 were GBP 25 million, reflecting a one-off reduction due to rephased payment timing. In addition, GBP 23 million of capital was returned to shareholders during 2024 through share buybacks. We are committed to maintaining our progressive dividend policy. Going forward, dividend growth will be below the rate of earnings growth to allow us to reinvest earnings in value creation opportunities in line with the capital allocation framework. Our balanced approach ensures we remain agile in deploying capital effectively while delivering sustainable returns for shareholders.
Thank you, Crispin. Now turning to the outlook, we have clear priorities for 2025 to complete the fundraising for Private Equity Fund V and Credit Fund IV. Additionally, we are continuing to build and expand towards the GBP 10 billion target. We expect returns on the net investment assets to rise to low double digits within two to three years, as we previously outlined. Management fees are projected to remain between 1.25% and 1.5% of fee-paying AUM, and again, with performance fees expected to contribute 15%-25% of total fund management income. We're targeting a long-term fund management adjusted EBITDA margin of 50%, and we'll continue with a disciplined approach to the capital allocation using share buybacks to align with strategy and overall enhanced shareholder value.
We'll declare a dividend of no less than GBP 0.55 in respect of 2025, reflecting our commitment to a progressive dividend policy. With that, I'd like to open to Q&A.
Yes, thank you. It's Robert Sage from Peel Hunt. I was wondering whether I could just ask a little bit more in terms of the management fee rate. I think you just said you expect it to be 1.25%- 1.50%, i.e., in line with existing guidance. A couple of points in it. Number one, could you just comment on the outlook for our catch-up fees? Presumably, you would expect them to be slightly lower, 20 25 versus 20 24, but I'd appreciate any comments you might have. The other question, I guess, is that sort of even excluding the catch-up fees last year, I think you said 1.34% for the full year, which would imply you're running at about, well, certainly quite an excess of 1.40% for the second half.
Within that 1.25% - 1.50% , which I think is actually quite a wide range and gives you very different outcomes in terms of profit expectations, would you encourage us to be thinking towards the top end of that range, given where you are at the beginning of 2025?
Where we fall in the range, two different questions. Catch-up fees, we will have catch-up fees in 2024 and also following through into 2025 because we continue to fundraise. We clearly only have predominantly catch-up fees in private equity, but while we are continuing to raise private equity into 2025, there will therefore be the consequence of having catch-up fees also in 2025. Where we fall in the range is in the balance of fundraising between private equity and credit. We are consistently delivering 2% in private equity, but where this year we are going to be focusing, we are going to be completing the private equity fundraise probably in the first half, and we will continue fundraising credit throughout the year. As the fundraising for credit continues, that will bring the blend down. It ebbs and flows by credit being 1%, private equity being 2%.
It's the timing and the balance of the as opposed to any change in one single strategy. It will ebb and flow depending on the fundraising cycles.
Just one thing to add on 2025 catch-up fees. The catch-up fees are the out-of-period element of it. For Fund V in 2024, that's only the sort of July 2023 to December 2023 element. For funds raised in 2025, that's an 18-month period instead of a six-month period. Although it's a lower quantum, potentially, the period over which it's calculated is longer. It will still be a kind of similar level, I think, for 2025.
Thank you.
Morning, guys. Thanks for the presentation. Jens Ehrenberg from Investec. Three questions from my side, if that's all right. First one, it's good to see good progress on fundraising in the core strategies, and I appreciate, I think, given what you've raised so far, looking forward, you're probably well positioned to reach the GBP 10 billion with the core strategies alone. You talked about sort of potentially new strategies in the past, like credit opportunities, etc. Just interested to know if there's any color, what to expect over the coming years. Secondly, we've seen the step-up in net interest returns, sorry, net investment returns, and I appreciate your guidance, I think, is for low double digits over time.
I think if we think about where the balance sheet stands at the moment with sort of the big flagship fundraising coming to an end, how should we think about that net investment return in the near term? Do you think we'll sort of stay flat until the next big fundraise, or do you think there's a further step up? Last one, just on the capital allocation policy, I think you've mentioned the potential for an inorganic strategy. Just keen to know if there's any color you could give us around that. Thank you.
We have very much in 2024 focused on making sure the business was achieving and exceeding the core strategy. That has been very much our focus. We do see the opportunities in the credit opportunity space and still do. I think we now have the ability to kind of turn our mind to that. I would expect us to look at that over, starting to do that from here. It is still part of our strategy. With getting the core strategies in such good position, we see that we have now got the ability to do that. That will probably be something. On the investment returns, we allocate, as you outlined, to the vintages as they come through. We have allocated to private equity, we have allocated EUR 50 million, GBP 42 million to Fund V.
We expect the returns of those strategies to be in line with the performance of those funds. We are allocating GBP 70 million-GBP 100 million to Credit Fund IV. The next cycle of allocating to private equity will, by the time we get to Fund VI, so there will be a continual drawdown of the Fund V position, but we want increased allocations and commitments to private equity. I would see it being a steady graduation towards that double digits as we do not kind of make further steps in our allocation to equity, I would say. Your final question on inorganic, we have outlined that we are open to it. We are, as you would imagine, highly, highly selective in that. There is nothing that we see imminently, but we are open-minded to it as a strategic move over time.
Morning, Alex Bowers from Berenberg. Just a couple of questions. Firstly, just on the credit side of the business, can you talk a bit about the sort of pace of deployment you're seeing there at the moment and how that kind of compares to last year? Are you finding enough high-quality opportunities in the market to deploy into? Second question is on cost growth. Can you give any guidance around sort of expected net new hires or cost growth for 2025? And then just lastly, on the kind of GBP 400 million raised in co-investment vehicles, could you just talk a bit about the fee model that you have on the co-investment vehicles? Thanks.
Credit pace, good pipeline. As much as in some ways there are discussions about more competition, there's more competition in credit and direct lending for sure. In our area, as I outlined, I think we are increasingly recognized as being a clear leader in the space that we're in, so in some cases. In many ways, the opportunity set is widening. We're seeing it develop out across Europe specifically. There's a widening opportunity set. We've got a good brand in the space. Doesn't mean to say there aren't some elements of competition, but we're able to keep a very strong pipeline so that the pace of deployment is keeping pace with our fundraising. It's.
Do you want to answer on the cost?
The cost, yeah, that's fine. Yeah, I think as we've talked about, we've got a well-invested platform within that, obviously. Yeah, we are kind of continuing to recruit into the team to generate sort of the next layer of talent and making promotions within the team. I think, yeah, cost growth is sort of low double digit percentage, sort of a long way below the revenue growth, but still some cost growth coming through.
It's more about maturity of the team that we have as opposed to significant big numbers of increase. On the co-invest, we tend to charge very little, if any, fees. It is the partnership relationship that we provide to our LPs in return for their commitment to the flagship funds.
Thank you.
Morning.
Morning.
Mike Sanderson, Barclays here. Just a couple of ones, please. Private Equity Fund V continues to fundraise through this year. Just interested what the limiting factors are for when you call time on it. Is it time? Is it how much you are versus your target, hard caps, etc., what's permitted? The second one was just looking back at your sort of changing in your client base. Clear development in North America, it looks. Just intrigued if you could give a bit more color as to what's changed there, what's the progress, and given the scale of the market, the opportunity for, I guess, all sides of the business, both sides.
Yeah, so private equity, we have had they're actually linked both of those questions. We've had very strong engagement with some of the top-tier pension plans in North America in this fundraise. We have allowed some of those investors to take a little bit more time to complete their work because it's first time working with us. We are now engaging with investors, our LP base, as to what the appropriate hard cap will be for the fund. We're kind of line of sight of setting that. It will be somewhere between 20%-40% above the target. We're in the process of setting where that will be. That will determine how we bring it to an end of setting the hard cap with our investors. The client base, yeah, you're right.
We have, to identify, we've had good progress in developing relationships with some of the top-tier U.S. pension plan names, and that's kind of what's changed that. That's what's also allowed the time for those investors to do their work as a new investment, new commitment. Where does that take us? It gives us a good basis. Those relationships are where are the pools of capital? Those relationships are developing North America. They're also developing Middle East and Asia. There's been a good development across the board.
Looks about.
Does that answer your question, Mike?
Yeah.
Any more? No? Wonderful. Thank you for attending today. Thank you to our investors, to our shareholders for their support, and of course, to the entire team who delivered these results over the years. Thank you very much for joining today.