Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pinnacle Investment Management Group Ltd (ASX:PNI, Financial) achieved record opening funds under management (FUM) of $110.1 billion, up 20% year-over-year.
- Net profit after tax for FY 2024 was $90.4 million, an 18% increase from the previous year.
- Earnings per share rose by 17% to $0.455, and dividends per share also increased by 17% to $0.42.
- International distribution momentum continued to build, with $7 billion, or 70% of total net inflows, coming from international investors.
- The company has a strong platform for future growth, with robust overall retail net inflows despite market challenges.
Negative Points
- Fundraising conditions remained challenging for public equities managers despite rises in headline indices.
- Net outflows from Australian institutions amounted to $900 million for the year.
- The Horizon 2 initiatives, while reducing in cost, still represented a significant expense, impacting short-term profits.
- Performance fees, although up, are variable and can fluctuate year by year, adding an element of unpredictability to earnings.
- The domestic institutional market faced well-known challenges, impacting overall inflows.
Q & A Highlights
Q: Can you give us a sense of the operating leverage in the underlying affiliates and whether margins will continue to expand with fund growth into FY25?
A: (Ian Macoun, Managing Director) We don't target specific margins but focus on good business opportunities. Increasing retail and international investors is beneficial for our revenue. As our affiliates mature and invest less in Horizon 2, margins should expand. (Dan Longan, CFO) Margin improvement was about 5 percentage points in the second half, and with FUM at $110 million, we expect continued improvement into FY25.
Q: Can you comment on the recent fund growth and origination revenues for Metrics?
A: (Ian Macoun, Managing Director) Metrics is focused on growing their business and origination capabilities, which has been expensive but necessary. They have seen strong inflows in both retail and institutional channels. (Andrew Chambers, Executive Director) Metrics had net inflows exceeding $4 billion for the year, with substantial contributions from institutional, international, and retail channels. Their strong origination capabilities provide a competitive advantage.
Q: How should we think about the ramp-up profile of the new manager, Life Cycle Investment Partners, over its first year?
A: (Andrew Chambers, Executive Director) It's early days for Life Cycle. The investment professionals have post-employment restraints to honor, so significant activity is not expected this calendar year. We build new boutiques carefully and deliberately, aiming for long-term success.
Q: Is there a natural level of base revenue to base expense ratio that makes sense for the group over the cycle?
A: (Andrew Chambers, Executive Director) Profit margins vary by affiliate. As Horizon 2 investments unwind, margins should improve. Equity affiliates can run large FUM with smaller human capital investment, while private markets businesses require more resources but have higher fees. (Ian Macoun, Managing Director) Quality funds management businesses have high margins once mature. Affiliates are encouraged to invest in new strategies when it makes sense.
Q: Can you explain the increase in base fees over the year, particularly in the second half?
A: (Ian Macoun, Managing Director) Private markets asset classes and international growth are driving higher fee rates. (Dan Longan, CFO) Specific drivers include the closing of Five V's Fund V and a GBP 100 million mandate for real assets in the UK, both contributing to higher fees in the second half.
Q: What impact will Antipodes' acquisition of Maple-Brown Abbott have on profitability?
A: (Andrew Chambers, Executive Director) The acquisition is accretive to Antipodes and provides avenues for future growth in complementary asset classes. It will take time to integrate the businesses before significant earnings growth is realized.
Q: What are the plans for investment in international distribution capability?
A: (Andrew Chambers, Executive Director) We plan to expand in Europe, the Middle East, Africa, Canada, and New Zealand. This includes adding distribution and marketing staff in key markets to increase sales velocity and support local teams.
Q: Can you expand on the improved conditions for traditional equity strategies in the fourth quarter and July?
A: (Kyle Macintyre, Head of Wholesale and Retail Distribution) We've seen a shift in sentiment towards public equities, benefiting managers like Hyperion and Plato. There's also positive momentum in REITs and small-cap strategies. (Andrew Chambers, Executive Director) Institutional investors are neutralizing their underweight positions in global equities, which is a positive trend.
Q: How do you prevent revenue cannibalization with new boutiques like Life Cycle?
A: (Ian Macoun, Managing Director) We ensure new boutiques have different styles and processes to avoid direct competition. For example, Life Cycle is style-neutral, unlike Hyperion (growth) or Antipodes (value). We adjust distribution strategies to minimize overlap.
Q: Can you provide more details on the inflows from international distribution?
A: (Andrew Chambers, Executive Director) Of the $7 billion in international inflows, $575 million came from wholesale retail channels, with the majority from the UK, followed by the US, Europe, and Asia Pacific. UK-based investors are comfortable with Australian managers, and having local teams on the ground has been beneficial.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
