Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Navigator Global Investments Ltd (ASX:NGI, Financial) reported a 46% increase in revenues to $172 million for FY24.
- Adjusted EBITDA rose by 85% to $90.5 million, exceeding the upgraded guidance range.
- The company successfully raised equity and closed transactions to solidify its balance sheet, resulting in a material increase in free cash flow.
- NGI's ownership-adjusted AUM increased by 3% to $26.2 billion, driven by strong investment performance.
- Lighthouse management fees and performance fees increased by 10% and 72%, respectively, contributing to an 18% increase in Lighthouse adjusted EBITDA.
Negative Points
- Net operating expenses increased by 14%, primarily due to higher compensation in a competitive market for top talent.
- The second half of FY24 faced a challenging fundraising climate, impacting net inflows.
- There were minor outflows in NGI Strategic and Lighthouse segments during the second half of the year.
- Employee compensation costs increased by $7.2 million, driven by higher variable compensation.
- The company noted that the return of capital in private equity and private credit strategies has been slower than in prior periods, affecting fundraising conditions.
Q & A Highlights
Q: Hi, good morning, guys. Just wanted to better understand and follow up your comment around second half '24 being a challenging fundraising environment. What are your expectations for FY25? And also, if you can add some color around some of the underlying funds and potential raisings they may be planning for the year ahead. Thank you.
A: (Stephen Darke, CEO) Thanks, Laf. Thanks for joining. I think probably the best way to address that is perhaps for Sean to talk a little bit about that in the context of the Lighthouse business. And then Ross can talk about those factors in the context of the NGI strategic business. So, Sean, do you want to take it away?
A: (Sean McGould, Executive Director) Sure. Typically, there are different cycles of fundraising within the liquid hedge fund space. So it's not surprising that conditions get a little bit more challenging, particularly when traditional equity markets are doing fairly well. And then I would also say you have a little bit of backup within all, within particularly private equity and private credit strategies that have not returned capital at a pace that has been as fast as it has been in the past. So in the case of Lighthouse specifically, if you look at better asset raising environments for us, it's typically when things are not going as well for traditional equity markets. So that could be back in 2022, parts of '23. Things just slow down a little bit. It doesn't mean that the pipeline dries up. It just means that it takes a little bit longer to get some of those allocations there. And I think it's been noted across the alt industry also that some of the return of capital and other strategies has not been as strong as in prior periods. So we continue to raise assets across the board for the vast majority of our products and they're more open-ended funds as far as what we're trying to do. So I'm optimistic that the fundraising conditions will improve here over the course of the fiscal '24, '25 year. But again, we've seen lots of times in our 25-year history where again, asset raising has some easier times and some tougher times, but the pipeline again remains robust and I'm confident of what we can do going forward. Thank you.
A: (Ross Zachary, Managing Director - Strategic Corporate Development of NGI Strategic Holdings) Hey, it's Ross. So to Stephen's point, just following up, the key things to the question, the key points that Sean mentioned are consistent with the NGI strategic partner firms. We are seeing that as the backlog in private capital realizations continues, it just causes allocators to make decisions more slowly. It's not that they're not engaging with our partner firms and it's not that asset raising, as Sean mentioned, it's not going to happen, it just takes longer. And so I'm also really optimistic about, especially the nine partner firms across the NGI strategic portfolio, Marvel, Invictus, and then everything Longreach has going on over the next 12 to 24 months. I think the most important thing to remember, at least from my perspective, is that when you think about everything Sean just talked about and the breadth of the nine groups that I just mentioned, there's a lot of products in market at any given time. And generally speaking, hitting different parts of the institutional investor base. And if they are talking to the same LPs, it's for different parts of their portfolio allocation. So NGI is really unique in that way where we have so many growth drivers. In the case of the NGI strategic business, you'll see groups that are launching, closed end fund drawdown structures for specific real estate opportunity. And then you'll see other groups that on the back of good performance are seeing inflows in their flagship hedge fund strategies that have been in the business for 15, 20 years. So because of that diversification and how many hours we have out there, I'm also really optimistic for the next 12 to 24 months.
A: (Stephen Darke, CEO) Yeah, just to add my final point on that, obviously agree with both Ross and Sean, but I think one of the challenges in a hedge fund strategy in the past four years has been a high risk-free rate. So investors have been chasing yield and higher risk in a one-way market. When you've got private credit at SOFR plus 8%, perhaps investors haven't been valuing the diversification value or the returns or the lack of correlation. Clearly, we're seeing more recently in a climate of elevated uncertainty and likely lowering of the risk-free rate with the Fed. So you could see investor appetite coming back for strategies that are truly performed differently than equities.
Q: Hi, team. Thanks for taking my question. I was just wondering the compensation drove up OpEx in Lighthouse. Are these performance-linked bonuses or are they just general salary and wage increases and not any one-off costs embedded in the FY24 cost base here?
A: (Stephen Darke, CEO) Yeah, I'll just introduce it. I mean, typically in the alternative asset management industry and also the businesses that we have, a high percentage of compensation is linked to performance, both investment and business and incentive. In terms of the actual numbers, Amber, do you want to respond to Max?
A: (Amber Stoney, CFO) Yeah, so the majority of the increase actually relates to variable comps, so more the bonus-related and performance-related. Part of that pool is driven by performance fees, which were obviously really good at Lighthouse this year as well, and also just a recalibration to make sure that compensation, particularly on that variable component, is at market.
A: (Stephen Darke, CEO) Yeah, I think fixed compensation was only up 3%, but variable compensation was up 23%.
A: (Amber Stoney, CFO) Yeah, key driver was the variable comp.
A: (Stephen Darke, CEO) Yeah.
Q: Thanks for that. And then also, with the strategic portfolio performance, how has it tracked FY24 to date? Is it approaching the three or five-year average return at all?
A: (Stephen Darke, CEO) Ross, do you want to take that? We have a slide in the appendix there, Max, that could be helpful, but Ross can talk you through that.
A: (Ross Zachary, Managing Director - Strategic Corporate Development of NGI Strategic Holdings) Sure. And, Max, just to clarify, are you talking about investment performance? You're talking about profit distributions this year to date.
Q: Investment performance.
A: (Ross Zachary, Managing Director - Strategic Corporate Development of NGI Strategic Holdings) Yeah, so as Stephen mentioned, we have a highlighted, we have the investment performance highlighted on page, let me just get back there, page 43. So the best we can do from a transparency perspective is
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
