Full Year 2022 Navigator Global Investments Ltd Earnings Call Sydney Aug 26, 2022 (Thomson StreetEvents) -- Edited Transcript of Navigator Global Investments Ltd earnings conference call or presentation Thursday, August 25, 2022 at 12:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Amber Stoney Navigator Global Investments Limited - CFO & Company Secretary * Ross Zachary Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings * Sean Gerard McGould Navigator Global Investments Limited - MD, CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Phillip Chippindale Ord Minnett Limited, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [1] -------------------------------------------------------------------------------- Good morning, and welcome to the Navigator Global Investments Limited Update and Presentation of our 2022 Annual Results. My name is Amber Stoney, and I'm the CFO and Company Secretary of Navigator. Joining me on today's webcast is our CEO, Sean McGould; and our MD of Strategic Corporate Development, Ross Zachary. Moving on to our next slide, I'll just briefly outline our agenda for today. So firstly, Sean is going to provide an overview of how the Navigator Group looks today after a very active 18 months of expanding our business. Sean will then provide a review of the Lighthouse business before handing over to Ross, who's going to take us through in more detail of the recent investments that Navigator has made. Ross and I will then discuss how Navigator's earnings with these investments and the key drivers underpinning them. And then I'll follow on with a discussion of the 2022 financial results themselves. Finally, Ross and I'll discuss in further detail our funding strategy and dividend policy from 2023 before Sean wraps up with some closing remarks, after which we'll take questions. With that, I hand it over to you, Sean. -------------------------------------------------------------------------------- Sean Gerard McGould, Navigator Global Investments Limited - MD, CEO & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Amber. And thanks, everyone, for joining us this morning over in Australia or this evening, our time. I'm going to cover, first off, just a company overview for those that may not be familiar with the company. And then I will go into a more detailed review of the Lighthouse business and where we stand before turning it over to Ross to talk about the strategic investments. And I am on Page 4 now. So when we look at NGI, as Amber said, it's been an extremely busy 18 months. And we now sit with a company that is a diversified alternative asset management company. We have exposure to well-established hedge funds, public credit strategies and real estate capital solutions. So it's been a lot of work to get to this point over the past 18 months, but we really feel like we've diversified the business into really high-quality asset management firms around the globe. A couple of key pillars of what we're doing. We're dedicated to partnering with leading management teams. We want them to be operating institutional quality asset management businesses, and we really want them to have global types of reach. We understand the alternatives business. We've been in now for 25 years. We want to leverage our own investing and operating expertise to identify the specialized partners that have a strong growth outlook that we can invest in. The capital that we're putting in these businesses is really used to support growth initiatives. And that's very important to us that we're identifying, again, and partnering with businesses that can grow. And I believe we have shown some nice growth over the past year despite very challenging market conditions. We're also partnering with proven investors and again, operators who have really strong track records. They know how to operate their business, they've grown their AUM, and we believe can generate attractive cash flows over time. So that's very important to us. And our primary focus is on scaled and developed businesses. Again, the cash flow from these businesses is important to us. But it's very, very important that we're dealing with the right partners. And again, in the right segments of the market to continue to grow NGI. With that, let's turn to Page 5 to see where we stand today. As of today, very happy to report the aggregate AUM across all of the businesses is about $61.2 billion. Our ownership adjusted AUM is $22.9 billion, so slightly below $23 billion. We have 11 partner firms. So that's increased substantially over the past 18 months. And then the investment strategies, we have over 30 investment strategies across 150 different products. You can see in the boxes just below that, where are those strategies, where those products line up. But we feel it covers a good portion of the alternative asset management industry and gives us good exposure to a stable and diversified asset base that can grow. Also, importantly is our relationship with Dyal Capital, which is part of the Blue Owl Group. And we have a lot of interaction with them. Ross will cover this in a little bit more detail. But they continue to provide ongoing support, marketing services, other business development efforts on behalf of the 11 partner firms that we have within the portfolio now. So when you look at the business, when you look NGI, going back 18 months, I think you can see the substantial changes. And again, we believe those changes lead to a more stable, again, asset base, more diversified and more growth opportunities, which are very important to us. If we turn to Page 6, just some of the highlights in each of these 3 areas. So we think going forward that we are uniquely positioned to deliver earnings growth in what has been, certainly over the past year, a volatile and challenging market environment. So on the first point, we've been able to deliver strong investment performance. Partner strategies are generating strong investment returns. Majority of the strategies remain at high watermarks, which is very, very important to our business, but also very important for our client satisfaction. Despite a really challenging market environment, AUM has continued to grow, as I mentioned, just below $23 billion at the 30th of June 2022. When Ross goes through his presentation, will talk about the specific growth that occur -- has occurred and where it's occurred. And there is an increasing demand right now for well-established and proven alternative asset managers. So I think that clients globally, the predominance of our clients tend to be more institutional in nature. They do want to put money to work, and they are looking for investment solutions that are uncorrelated to more traditional forms of investment like long-only equity investment or fixed income investments, which have proven particularly challenging so far this year. So the business, looking at the second box there, so high-quality and growing earnings. So we have a really stable and diversified earnings base, again, across 10 businesses right now that are operating at scale and strategies that have low correlation to each other. So if we can combine these businesses properly, again, the strategies will move a little bit differently, will move differently across different cycles, but we're well diversified there. And again, these businesses are growing. We continue to have embedded earnings growth in the strategic portfolio and through the recent acquisitions, we will demonstrate how some of those firms have already grown in their asset raising activities, and also in the stickiness of those assets. So the redemption guidelines for the firms we're partnering with now are very different than the traditional hedge fund segment that we've operated in at Lighthouse. So, again, we have an extension of the assets over time, which we believe will continue to grow and provide embedded earnings growth going forward. We also have, in the third box, very strong alignment and engagement with Dyal Capital, which is a division of Blue Owl, as I mentioned. They are a global leader, I think, the leader in partnering with alternative asset managers, currently managing over $45 billion of AUM and have completed over 55 partnerships with alternative asset management firms. So we have a great partner in Dyal. We've been working well together. And I think that's showing up in our own growth within the number of firms that we are working with now and the opportunities that we have ahead of us. So very happy with how we've positioned the firm over the last 18 months. Very pleased with what it looks like on a 3- to 5-year basis. And we can believe we can continue to double the earnings from this standpoint, but we believe we're well positioned to grow over the next several years. Now, I'm going to turn to Page 8 and focus a little bit more specifically on the Lighthouse business. So if we look at the Lighthouse business today, we have about $14.4 billion in firm AUM. Again, I'm happy to report that our funds that can earn and are eligible for incentive fees are predominantly all at high watermarks. I think that's a great accomplishment given what we've been through the first 8 months of the calendar year here in terms of the market. We've been in business now for 25 years. So we have a lot of longevity in the business. I think we've built up trust with our clients. I think one of the hallmarks of any of these firms in the alternative asset management space or an investment management in general, is the trust that you build and the relationship you build over time. So I think 25 years is a substantial period of time and very proud of what we've done over that time period. They have about 188 employees, including the portfolio managers that we employ to work specifically in our multi-PM hedge funds. And we continue to have a broad investor base of over 1,000 worldwide and continue to make good progress in terms of the marketing across the world. So right now, what does the business look like? And I know these 3 boxes, they do not add up to $14.4 billion, but it's because there's some overlap between the different services we provide. So right now, the multi-PM hedge funds, North Rock and Mission Crest, manage about $4.4 billion. If we looked at that 3 years ago, it would have been probably a little bit over $1 billion. So we continue to see nice growth there. I expect to see more growth in the multi-PM hedge funds before the end of the year. The pipeline remains very strong. And I think that we could see as much as $500 million of additional growth in those products over -- coming really in a short period of time before the end of the year. On the hedge fund solutions business, managing about $9.5 billion. That's our commingled multi-strategy and long/short equity funds. It's also our strategic partnerships and custom funds. We also have some regional and more specialized funds, for example, in Asia and Europe in health care. And again, we continue to, I think, improve our offering, improve the hybrid of the offering for our clients. I think that has been recognized. And when you look at the original business that Lighthouse was in, if you just broadly classified it as a pure fund of funds business, that industry has run from 2009 through today from a little bit over $800 billion in assets globally to about $250 billion today. We've managed to grow over that time period because we've changed the business. We've changed how we do our multi-strategy offerings. We have really created these multi-PM hedge funds as well, and that has helped us further growth. And I think our clients recognize that value and how we continue to innovate and change the business. The last part of the business is really our managed account services, which is the backbone of our funds, of our hedge fund solutions, and that's at about $11.1 billion. That business, as we've said, takes a little bit longer to grow the external assets in that particular business. The flows in that business do ebb and flow. So we will -- we have some -- we'll have some outflows in that business between now and the end of the year. It will be more than made up by the flows that we're seeing in the multi-PM hedge funds and the hedge fund solutions. But that does vary a little bit in terms of what we're doing. It is also the lowest fee portion of our business. But there as well, we're in active dialogue with several new clients that are large multibillion, if not, into the hundreds of billions, pension plans and sovereign wealth funds that we can believe -- we believe we can be helpful and are unique in terms of what we can provide to those clients. So that's really the backbone of the Lighthouse business and where we stand today. When we look at just the total AUM, as I mentioned, it's about $14.4 billion. The composition continues to grow and change. We have made additions to our sales team, particularly over in Europe and the Middle East, as well as continuing to refocus the sales team in North America. I'm very happy with how the pipeline is positioned. As I mentioned, I do expect some nice growth between now and the end of the calendar year. We just received new notification today of a nice new substantial client that will be coming into North Rock and Mission Crest in a combined manner. So that wasn't even something I was factoring in this morning. I thought it would take a little longer to get that client in. And we have some other projects already for 2023, that will provide further growth. So very happy with the pipeline that we have with the geographic distribution that we have and feeling confident that we can grow our assets between here and the end of December. When we look at the flows over the year, so just the net flows that we have as far as inflows and outflows, the managed account services, customized solutions, looking at the commingled funds, those were a little bit more challenging in terms of the flows, but I think that some of the issues that we had back in March of 2020 with COVID-related performance in our multi-strategy funds, which we weren't happy with. I think that that activity has really slowed down, and will continue to abate. And I think the performance of those funds has really continued to pick up. Clients are very happy with them. So we expect to see less outflows in those areas. The multi-PM hedge funds, as I mentioned, that's been the core growth over the last year. And then performance, you can see across the board, performance has been quite strong across all of these areas, and that's led to the increase in AUM over what has otherwise been a fairly difficult time period. Turning to Page 10. You can see where we are just calendar year-to-date in various products and then the benchmarks below it. It's been a tough year in all asset classes. It's been a tough year in equity. It's been a tough year in bonds. Even when you look at these hedge fund indices down 5%, down 4.7%. I am happy to report that we're having another good month here in August. So we continue to compound on these results that we're putting up here. And then you can see the North Rock results and Mission Crest results there. So in a tougher time period, I think these strategies are holding up. We did believe that the markets would become a little bit tougher as interest rates were normalized, and you needed asset prices to correct. But it's very important in these tough time periods, we protect capital and then we compound it. And what we're really focused on are the forward-looking opportunities going into 2023, when we can bring our risk levels back up to more normalized levels. And again, we're starting at high watermarks, which helps the earnings of the business as well. So I'm happy with our position from an investment perspective, from a research perspective, and where we sit today in this calendar year for our clients. So with that, I am going to turn it over to Ross to start on Page 11 or 12 and go through the NGI strategic portfolio before we turn it over to Amber to go through this year's specific results. So with that, Ross, I will turn it over to you. -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [3] -------------------------------------------------------------------------------- Thanks, Sean. As Sean said, if you could please flip to Slide 12. This provides a summary of our investment activity and the breadth of our new partnerships. We're very excited to discuss today how the company has evolved over the past 18 months and the diversification, improved quality of earnings and the growth outlook that this brings. We'll discuss the NGI Strategic Portfolio, as well as our recent investments in Marble Capital and Invictus Capital Partners in more detail, but this overview slide provides a good summary and highlights 2 important things. First, Navigator has added partners with high-quality, unique and differentiated businesses, all with identifiable investor demand, strong growth prospects and with the exception of one unique early-stage opportunity that we had, they are all operating at scale today. Number 2, these investments have all taken the form of strategic minority ownership stakes, which have been designed specifically and uniquely to preserve the alignment of interest between these partners and their current and future clients and allow them to continue to attract and retain talent and provide them the capital and other support to help them execute on growth plans, which are well underway. Although each is unique, several other key characteristics are the same across all of these partnerships. We are well aligned with management teams who built the businesses and who continue to own the majority of the firms. Each operate high-capacity alternative strategies or platforms and each have a track record of developing new products and new structures around their core expertise. Each of these businesses have already demonstrated impressive growth, and we're very excited to participate in their continued success by offering our capital and our resources as support. Our most recent investments in Marble and Invictus were sourced by Dyal Capital, who are helpful and supportive in establishing both of these partnerships. In the case of Invictus, Dyal's long-term financing fund also invested in the firm, which will further support Invictus' near-term growth, which we will benefit from. When it comes to these investments, we are thrilled that after evaluating a large pipeline of opportunities, we found 2 growing businesses in Marble and Invictus with extremely gifted teams in place and that are operating at scale and can add value to NGI strategics in a meaningful way. If you please flip to Slide 13. This provides an overview of the firms, which we acquired minority stakes in from Dyal. Since the acquisition of this portfolio, these firms have delivered on their objectives of generating strong relative returns for their clients and continuing to manage their business as well, both actively managing expenses while also investing in technology, talent and launching new products to drive long-term growth. Following a very strong 2021, we have been pleased with their performance over the recent months this year. The firms in the NGI Strategic Portfolio continue to be leaders in the industry, and we believe that proven, established and well-resourced firms with deep investment expertise have the talent and the resources to outperform their peers in market conditions such as today's and are best positioned to attract outside share of flows in the years to come. If you could please flip to Slide 14, we're going to provide an overview of the acquisition of these firms. So even though it's been 2 years since we announced the acquisition of the NGI Strategic Portfolio, which closed on February 1, 2021, we thought that given the highly structured nature of the transaction and the importance to the company, we would just run through the transaction one more time for those less familiar with the story. The acquisition of this Portfolio is a 2-stage transaction that will fully settle in the second half of fiscal year '26. In addition, as Sean highlighted, this established a long-term strategic partnership with Dyal Capital that we expect will continue on well past that 2026 settlement. Dyal is the global leader in evaluating and partnering with alternative firms. They have over $45 billion of AUM across 6 permanent capital vehicles that have executed over 55 partnerships since 2011. This partnership brings a tremendous amount of industry knowledge to Navigator and adds unquantifiable value. At the closing of the transaction, initial closing, I should say, or Stage 1, we acquired 5 years of preferred minimum annual distributions in exchange for roughly 40% economic ownership over NGI or at the time, which was valued at $166 million. This was attractive to us as it provided what we have now confirmed is a very well-covered earnings stream, with extremely high-level, if not, certain probability of being earned as we embarked on our growth strategy. This earnings stream through fiscal '25 also has some embedded growth given a 3% indexing per year, as well as some sharing above the pref. To reiterate that, Navigator receives a well-covered preferred earnings stream from 6 established and growing alternatives firms through fiscal year '25. We will dive deeper into Stage 2 of the transaction in a slide or 2. But before that, if you can please flip to Slide 15, we'll highlight and touch on the performance of the portfolio since acquisition. The portfolio has performed very well since closing of February '21. Ownership adjusted AUM is up 17% and fiscal year '22 was a very strong year of profit distributions to NGI. You will see on the portfolio firm-level AUM chart that there's almost $44 billion of aggregate AUM, so our earnings from this portfolio come from a scaled group of managers and a growing portfolio. If you reference the bottom left of the slide, you'll see that over $70 million of profit distributions came from the portfolio in fiscal '22 with $28 million to NGI after taking into account the year 2 profit sharing calculation. To dig into that a little bit further. In fiscal '22, we received our $17.5 million preferred, up from $17 million in '21, as well as $10.7 million or our 20% share of excess profit distributions in the period. Although it was an extraordinary year in which it would be difficult to forecast repeating on an annual basis, this does exhibit the great earnings power and scale of the portfolio and the high alpha-generating strategies and clear operating leverage embedded in them. Understanding the profit sharing is key to understanding just how high-quality NGI's earnings will be over the next 3 years. On the bottom right of this slide, which we show a very wide range of outcomes, which we actually have experienced for the first 2 years since ownership, NGI would receive between $20 million to $29 million of earnings from the portfolio over the next 3 years, really under almost any outcome. I'd also highlight that we do have a catch-up on a cumulative basis should for any reason, which again, we see a low probability, the pref is not meet in any given year. As we look to the next 3 years, we consider this earnings stream to be very high-quality, and we're using it as one important tool to support the future growth of the company. Please flip to Slide 16, and we'll spend some time on the second stage of this transaction. As mentioned earlier, the full transaction and the second stage will settle in fiscal year 2026. At the outset, we agreed with Dyal on a formula in which we will acquire their retained earnings share of the portfolio above the preferred minimum distribution amount. I'd like to pause there for a moment. The second stage of this transaction will settle in 2026, and we will acquire the retained earnings from Dyal. This is not an earn-out related to the earnings we've already acquired, but rather a future acquisition of incremental earnings to the company at an agreed-upon price. For example, if you were to reference Slide 15 that we just went over, we would have been acquiring $9.5 million of earnings that we would have received in fiscal '21 and $42.6 million of profits Dyal received from the portfolio in fiscal '22. The other aspect of this stage 2 is that, timing is very important. Under the terms of the formula, the first portion of the future payment will be known around March of 2024. And the second payment will be known well before the payment is due. Given this redemption amount is calculated on calendar year profits of the underlying managers, the final calculation will not be finalized until March or April of 2026. And please note, we will be earning the full profits from the portfolio starting on July 1 of fiscal -- excuse me, of calendar year '25 or the beginning of our fiscal '26. The other aspect of this is pricing. Given the nature of the formula, we will only play a high notional purchase price if the portfolio performs well over the 5-year period, which, given the nature of these 6 businesses, would imply that these assets are even better positioned for continued success after our final settlement. We currently have 1 year of this formula for calendar year '21 in the books and complete, and that's what you're seeing impacting how it's held on the balance sheet today. The estimated payment will continue to be updated in the years to come, and each year's results are considered. If you could please flip to Slide 17, we'll spend some time on the recent Marble investment, followed by the investment in Invictus Capital Partners. In May, we acquired 16.8% of all earnings streams of Marble Capital, a $1.6 billion capital solutions provider to experienced and well-regarded developers in the high-growth and attractive markets of the sunbelt for multifamily rental housing. Our $85 million investment is being made over 2 years with 75% of that capital going directly into the business in the form of primary capital. Marble focuses on $5 million to $20 million investment opportunities that are directly sourced and often from repeat partners, allowing them to price teens returns on debt-like risks. They manage these investments out of closed-end funds, which have highly visible revenues and they are happened to be in the process now of launching their fourth fund, which we expect will close later this calendar year. Since the investment closed in early May, Marble has continued to execute on the growth initiatives that we talked to them about, and we believe the existing portfolio remains well positioned to return capital to investors on our originally expected time line. As a reminder, Marble's preferred equity investments, which represent 75% of the portfolios have a large buffer priced in, where significant price declines of exit prices can be absorbed before their capital is even close to being at risk, plus the interest that they receive. We were also fortunate to acquire 16.8% of existing carried interest to be generated off their second and third vintage funds, which are already fully invested with monetization well underway for Fund II. Marble did not underwrite their equity investments in these portfolios at the very attractive recent market sales comparables seen over the past 2 years. And therefore, we expect those realizations will not only occur in the time line that we originally thought, but also at the exit prices that Marble and we originally underwrote. Despite certain economic conditions and continued inflation, the key factors to Marble's success remain in place. Demographic shifts to the sunbelt real estate markets and a severe housing shortage continue. Now, with increased mortgage rates, housing is less affordable, and therefore, the rental projects continue to be in demand. In addition, recent market volatility has caused bank lending in the space to decline. Therefore, Marble's capital is even more in demand from high-quality developers. Lastly, we do not expect the demand from other investors who purchased the projects that Marble supports to vain. Even with the increase in cap rates, high-quality multifamily assets present a much stronger return profile as compared to most other sectors in the real estate market available to institutional capital. If you flip to Slide 18, we can walk through the recent investment in Invictus. Earlier this month, we acquired 18.2% of all earnings streams of Invictus Capital Partners with the exception of carried interest where we purchased 9.1%. Our $100 million investment is being made over 3 years, again, with 75% of that capital going directly into the business in the form of primary capital. Invictus is an established business with a deep and cohesive management team, which is currently fundraising their third vintage fund alongside other separately managed accounts. They are a leader in their strategy, which has a high barrier to entry and their unique approach has resulted in deep relationships with high-quality institutional investors. Invictus' core strategy is to acquire what are known as non-qualified mortgage loans or those not eligible for U.S. government guarantees in a deliberate manner through a deep network of over 300 correspondent originators, and they generate mid- to teen IRRs by processing these loans through their captive infrastructure and retaining roughly 10% of the assets after securitizing the rest. Please note that non-qualified mortgages do not equate to lower credit quality and from our perspective, do not equate to what could have been considered subprime, low doc or any of the other truly problematic lending that was happening prior to 2008. Although Invictus is a complex business, it can be thought of like many other private credit businesses. What Invictus identified was a broad area of the U.S. mortgage market, which was underserved after banks were treated given the regulatory changes and their own GFC experience and the market opportunity, which grew after the GFC and the agency and other guaranteed mortgage markets, especially through a multiyear refinancing wave through declining interest rates. Just as Marble Capital fills the gap -- filled the gap after Basel II limited bank lending even to the highest quality of multifamily developers, Invictus fills the gap in the very large and inefficient and evolving U.S. mortgage market. Recent market conditions have created opportunities for higher coupon yielding assets for Invictus. In addition, Invictus' leadership and experience has proven very valuable as they often become the purchaser of preference for meaningful originators who are even more eager to find partners in today's volatile environment. In addition, Invictus' deep financing relationships have proven out as they continue to access securitization markets through today's market environment. If you can flip to Slide 20, Amber and I wanted to provide a little bit more color on how we think of how these new assets and these new partnerships contribute financially to the Navigator business. As the company has expanded, we now benefit from a broad set of products and earnings streams, including an additional significant amount of AUM from closed-end funds that charge fees on committed and invested capital. We recognize this is increasingly complex as compared to 2 years ago. So this slide was prepared to provide some background on what can be considered base earnings from the recent investments. In order to think about these base earnings, please note that we are referring primarily to management fee revenues plus some fees related to capital currently on hand to deploy without any future growth with no performance fees and no carried interest, and we're assuming these operate on historical margins. In summary, current AUM and capital deployed from these 8 new partners can yield roughly 115 to 116 basis points on $8.2 billion to $8.8 billion of AUM. Recent history would guide you to roughly 27 to 32 base profit margins, therefore, resulting in $25 million to $33 million of truly base earnings to Navigator from the 8 assets cover on this slide. Now, as we know from recent NGI strategic performance, as well as the nature of the Marble and Invictus businesses, performance fees and carried interest does traditionally contribute and at times, in a very meaningful manner to the business profits. I would note that the margin on those earnings streams are much higher than the base operating margins. And in the case of carried interest that we purchased 100%. We're very excited about the contribution that this diversified high-quality earnings stream will bring for the full year of fiscal '23. Amber, let me know if you want to add anything to this slide before we flip to '21, which I think you're going to put into context for the next 2 years? -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [4] -------------------------------------------------------------------------------- No, nothing further on that slide. So I'm happy to move to Slide 21. So here, we really just wanted to give you a breakdown of how that baseline or base earnings compares in 2022 for what actually happened and what we're expecting it to be in 2023. So in terms of breaking down our business into the various key divisions or sources, Lighthouse for 2022 delivered some base earnings of about $18.1 million. When you back out the performance fee revenue, net of associated bonus expense, as well as deducting the cash lease payments, which we always add back to our EBITDA to give a better cash position. So we consider that that's our baseline, and we think that that is very replicable in 2023. So in terms of looking ahead for next year, we see that that $18 million ex performance fees is easily an achievable amount for it to remain even without factoring any significant growth from that perspective. So in terms of NGI Strategic, if you look at just the base that we're looking at or the base around earnings, that was about $15 million. So that was the $17.5 million preferred amount that we discussed, less some direct costs of about $2.5 million is where that $15 million comes from. So that excludes the excess distributions over the pref, which were around $11 million this year. So we see the growth in that area for 2023 coming from the slight increase to the pref to $18 million, plus a midpoint range of the earnings that Ross just went through on the previous slide of about $7 million. So that was the $5 million to $8 million comes in about a midpoint of about $7 million. So if you also take off an equivalent amount of $2.5 million of direct cost, which we think is reasonable for next year, that gives us a baseline for the NGI Strategic business of $22.5 million, which is a 50% increase for that line item. So we also had some other group costs, so that's head office costs and some financing and FX and bank fees. So that came in at about $3.1 million this year, which leads us down to a baseline of adjusted EBITDA for 2022 of $30 million. So we think that next year, putting on a range, plus or minus $1 million, given some FX gains and losses that can go through there. That would lead us down to what we see as our baseline earnings for 2023 between $36.5 million to $38 million, so a 25% increase. So I just want to point out that is not our full guidance for next year because that does not include any amount that could relate to performance fees, the excess above the pref or the carried interest that we're also expecting to come in. So we wanted to set it out this way because it's obviously much harder to reasonably or accurately predict what we'll earn in 2023 for those other types of earnings, the performance fees, the excess above the pref and the carried interest. But we think this provides a valuable insight for shareholders in terms of what that baseline performance earning power actually is. So -- and just to put it in context, that extra upside, I guess, you call it, between the $30 million base was $16.5 million to bring us to the $46.5 million adjusted EBITDA that we delivered for 2022. So that is all I really want to say on that slide. So I'm happy to pass it back to Ross to go through Slide 22. -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [5] -------------------------------------------------------------------------------- Sure. Thanks, Amber. We just wanted to put -- take a quick step back and recap the strategic benefits that you see from all these investments before digging into the financial results. So when you look at the business today, you now see an increased exposure to new uncorrelated returns and businesses with strong demand across new areas of the alternative asset management industry. We also now have exposure to highly visible revenues with high-margin, carried interest and without as much risk of redemptions or capital coming out of those businesses. Therefore, the business is less exposed to the large institutional markets' short-term behavior related to either short-term performance or general market conditions. We are well positioned to benefit from the growth of these additional areas of alternatives, and we have partners who have growth initiatives underway, which we can support and look to contribute to our earnings growth in the years to come. Amber, I'll turn it back to you to dig into the financial results for this year. -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [6] -------------------------------------------------------------------------------- Thank you, Ross. So if we actually go to Slide 24, I just wanted to give the highlights, I guess, for what we see from the 2022 financial results. So as Sean mentioned, we closed the year at 30 June, having ownership adjusted AUM of $22.9 billion, so that was up 9% on the prior year. So that was growth not just from Lighthouse assets, but also through really good growth in the NGI Strategic Portfolio, as well as the AUM that we acquired along the way from Longreach and Marble adding as well. So that's increased, obviously, the earnings power of the business. And the really great thing is that, from the NGI Strategic Portfolio growth, that has also translated into the increase to adjusted EBITDA. So we're very excited to be able to deliver $46.5 million. So that is actually up 68% on the prior period on an adjusted EBITDA basis. It's largely -- or, I guess, the key driver to that in terms of the increase is the significant distributions that we received from the NGI Strategic Portfolio. So as Ross mentioned earlier, they actually did -- just over $70 million of gross distributions this year, which was well above expectations and very nice to receive. So that's also, I guess, the driver behind the adjusted revenue and other income of $113 million that we earned this year, and that was up 22%. So all of this distills down to a dividend. So we've actually -- the Board has determined a $0.03 final dividend that brings the total dividend to the year for $0.085. So whilst we've had some good results in terms of the earnings power, that dividend is really in context of the key acquisitions and changes that we've made during the period and we'll talk further on the funding strategy going forward. It equates to a dividend payout ratio of 52% on adjusted EBITDA for FY '22. So if we move to the next slide, Slide 25. So this is a breakdown of the Navigator Group results just showing how we've moved from the statutory EBITDA under IFRS of $51.2 million through to our reported adjusted EBITDA being the non-IFRS number of $46.5 million. So I'm going to go through the key line items in a couple of slides, but just wanted to talk through what we exclude from that statutory EBITDA to come down to what we see as the stronger earnings measure for the Group that is more grounded in our cash result from that perspective. So one of the first adjustments we make is that, we actually have a couple of line items where we have to record a gross expense and a gross revenue item. So that includes some fund reimbursement expenses where the company pays for them first and then gets reimbursed from the funds and there's a corresponding revenue and expense item that just offset. There's also some provision of office space that we do to affiliates at a non-markup. So that comes through as sundry revenue. And we think that from a commercial way to look at that is more to offset that against the direct expense given that there's no markup. So we make those adjustments. Otherwise, we tend to find that you've got some distortions in your ratios if you don't. The other thing we do is, we add back the cash lease payments that are no longer sitting in operating expenses under the AASB 16 Leases standard. But they are cash payments that go to pay down the liability in the balance sheet, but we think they are better reflected in terms of the earnings to come off EBITDA to show the true -- a better cash measure from that perspective. So the other -- next adjustment that we actually back out is some unrealized gains on the fair value of assets and liabilities. So these gains and losses go through the P&L, but they are unrealized in noncash. So we backed them out. And they netted to $2.4 million gain this year. So that comes out. And then lastly, there's just some nonrecurring transaction costs that we incurred during the year. So all of those things stepped through to deliver our $46.5 million adjusted EBITDA result. So I'll move to the next slide, on Slide 26, and this sets out that adjusted EBITDA, P&L and compares it to the prior period. So on a snapshot basis, and I'll go through each of these in more detail. You can see that overall, we had that increase in revenue and particularly that key driver that's coming through from the NGI Strategic investment distributions. We had a 6% increase in our employee costs, but a pleasing drop in professional consulting fees that have come down, and our other operating expenses are up slightly, about 14%. So with all of that coming down, there was some net finance costs that brought us to the 46.5% (sic) [$46.5 million]. But nicely, we can see the operating margin for the business on that basis has actually grown to 41%, and that is part of the power of the NGI Strategic investments delivering on that, that have a good operating margin attached to them. So I might go into more detail on the particular line items. So starting on Page 27. So the key revenue items that make up the P&L are on management fees. So we delivered $73.5 million of management fees for the year. It was down slightly 3% but stayed relatively stable about $1 million down on the second half. So that's reflected in the average fee rate. It actually dropped by 2 basis points over that half. It's a function of the increase in AUM, but going into those products that have a lower margin, particularly the managed account services is a lower-margin business, but also the multi-PM, we've got some different fee structures on those that are more attractive. So they generally have a lower management fee and are able to pass through more of the costs that we incurred through to the funds themselves and a performance fee component to them. So those drivers are actually, what, has seen the average management fee come down. But it's slightly actually been a much smaller marginal drop. We expect that that will settle around 50 basis points, maybe slightly lower, just on the back of those AUM mix drivers going forward. So in terms of performance fees, the business delivered $10.6 million of performance fees this year. It was down 20% or so to the prior year. Having said that, prior year was a particularly strong year for performance fees. So we still see this as a good result. And as Sean mentioned earlier, these multi-PM hedge funds tend to have more classes where they have performance fees. So we do think there's a definite growth potential for performance fees going forward because there will be a higher proportion of AUM that can earn them within the Lighthouse Group. And so, lastly, I'll just touch on the NGI Strategic distributions. As we mentioned, the gross distributions of $70.8 million for the year, and Ross steps through how our share of $28.2 million is derived at in the $17.5 million of that Preferred Minimum Distribution Amount, and our 20% share of the excess equated to $10.7 million. So that is a big increase. As you saw in the prior year, the total gross distributions were only just a smidge under $29 million. So our share is actually almost equivalent to what the entire portfolio ends last year. And we did get a small additional distribution from other investments about $400,000 during the year as well. So turning to the next page, Slide 28, the key operating expense items. So I just wanted to pass through because you could always pass over, I should say, the pass-through expense model. So you can see from the statutory P&L, those fund reimbursement revenue and expenses have increased significantly this year. So they're now coming in at $42.6 million compared to $17 million for the prior year and $7.1 million a year before that. And that is a function of a change in the operating model, particularly as it relates to the multi-PM hedge funds, where we're moving away from what has seen as legacy fee structures, I guess, within that space to what's now more common being a lower management fee and are passing through a direct operating costs incurred initially by the company and then charged through to those funds. So one of the process or one of the drivers behind that is that, we have been bringing a lot of staff who used to be external PMs to the business are now actually employees and their employee costs are passed through, and that's been a big driver of the increase up to $42.6 million for the year. So in that context, you can see from our employee expenses are still the largest part of the expenses for the business. They came in at $50.7 million this year. And they are those direct costs after the impact of pass-through to the funds. It was up 6%. We did have some extra headcount. So we increased our headcount of -- across the Group by 7, which is about a 6% increase compared to staff numbers the prior year. But there was also an increase in the discretionary component of compensation, in particular, just driven by the fact that there are very competitive labor market conditions in the U.S. at the moment in the alternative asset management space. So in terms of professional and IT costs, they're actually down 32% on the prior year, which is about a $3 million reduction, and that's a direct reflection of the pass-through model. So that $3 million reduction is through being able to pass-through those costs under that pass-through model. So they comprise part of the $42.6 million. And then in terms of our other expenses, they were up 14% or about $1 million increase. It was variously very small increases across a range of items and none in particular. Although we do note that some of that was travel as the world starts to get back to normal, people are getting back to normal travel from a business perspective. So we'll see that reflected in our expenses. So I just want to go through our last slide from my section, which is Slide 29. And just showing the fact that with these acquisitions, we are utilizing our balance sheet to support this acquired growth and particularly the strong growth in earnings that we're looking for in the baseline that we went through earlier. So with the pro forma column, that's taking into account our 30 June balance sheet, which reflects the Marble transaction, plus the pro forma of the Invictus transaction that we completed at the beginning of August. The change being the $100 billion increases our investments, $85 million in deferred consideration goes against that deferred consideration line. And it shows the reduction of the $15 million of cash upfront we paid in consideration. So definitely utilizing the balance sheet more. It does put us in a net debt position, about 2.4x FY '22 adjusted EBITDA. Certainly looking at growth in that EBITDA going forward. So that net debt to adjusted EBITDA ratio, we're expecting will come down. One is a result of higher earnings next year, but also as a result of paying through the deferred consideration. So that was all -- sorry, I was going to say, do you have to go through the dividend, which is important. So on Slide 30. As I mentioned earlier, the Board has declared a USD 0.03 final dividend. So based on current FX rates, that would be about AUD 0.0435. And overall, it brings it to a USD 0.085 dividend for the year or a 52% payout ratio, which is within the range that we actually advised the final dividend would be on the 4th of August. So just in terms of some key dates, the ex date will be the 31st of October (sic) [31 August], and we're expecting payment date on the -- payment date will be the 16th of September this year. So that brings us on to the next section, which is about the dividend and funding strategy. So, if you want to go to Slide 32, and I'm going to pass it back to Ross, who will walk through the deferred consideration slide. -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [7] -------------------------------------------------------------------------------- Thanks, Amber. So again, as you mentioned, if you go to Slide 32, given the amount of recent investment activity, we wanted to provide a summary of the somewhat unique format of deferred consideration across the Marble and Invictus investments. There's really 2 key points to highlight here before going into the numbers in more detail. First, to clarify, Navigator does receive our full share of earnings from the time of the first investment rather than when all of our capital is provided to the respective businesses and to the sellers. Secondly and importantly, the large majority of this deferred consideration and the timing we make it will depend on the capital needs of the business, which are generally linked to asset raising and other growth initiatives, which then in turn themselves also result in increased profits in relatively short order. So while we have the fiscal year '23, '24 and '25 here, aside from the secondary, which we'll go into, the primary timing, while this is the time line we've targeted and agreed upon does vary on growth initiatives. As previously highlighted, 75% of the proceeds are being used to fund those growth initiatives. The majority of this will go to provide investment alongside the clients of these firms in the form of what we call GP commitments. It's general market practice for the companies just as Marble and Invictus to invest around 2% alongside their clients. Therefore, as the businesses raise larger funds, which both are in the process of doing and we'll hold final closes at the end of this year, they need more capital to invest alongside those clients. Some of other primary capital we've committed will help Marble acquire seed assets for a new product and for Invictus to expand its origination capabilities, both which accrue to our benefit in relatively short order. With regards to the secondary capital, which we paid directly to the sellers or 25% of the total consideration we've made to these 2 deals, generally, they're made to existing management and those payments are scheduled. In the case of Marble, we know they will -- we will make and they will receive 2 more payments on the first and second anniversaries of the investment. In the case of Invictus, we've agreed to a one-time $25 million secondary payment. This payment is subject to revenue growth triggers. This was agreed with the company to align interest with them and to protect our investment. We expect that this payment will be made on the earlier of the first anniversary of investment or the latest the third, but we'll measure the revenue targets starting on the first anniversary and make the payment when they do hit it. To be clear, we would like that payment to happen sooner rather than later as growth is a good thing, and our deferred consideration will go in as a result of that growth. Amber, I'll kick it over to you if you want to continue the discussion on the funding strategy? -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [8] -------------------------------------------------------------------------------- Thanks, Ross. So a key part of the funding strategy is obviously the use of our cash flows from operations, and that leads into the consideration of the dividend policy for Navigator. So we did announce a reduction in the previous dividend policy that had been set prior to us undertaking this acquisition of Marble and Invictus. And that dropped it to the 50% to 60% range that applied for the final dividend for '22. However, we do consider that we would like -- or the Board has determined that it wants to reduce that even further for the next 3 years or so as part of that funding strategy around the deferred consideration payments. And so, we're putting more of the cash flows to work and supporting that growth that we've acquired. So the new dividend policy is a $0.03 to $0.04 per year dividend. So a fixed amount as opposed to being a payout ratio because it gives more certainty around the future cash flows for the company to manage. It will continue to be unfranked. As at this stage, we're unlikely to earn more taxable income in Australia and create franking credits, but it is expected to have 100% conduit for an income attached to it. It will be a single dividend payment as opposed to an interim and final, given the fact that we fixed the amount. And based on current share price, it gives an implied dividend yield of 3% to 4% and an implied payout ratio on FY '22 EBITDA of 20% to 25%. So just moving to the next slide, Slide 34 and really seeing how this fits in with our overall funding strategy across the next 3 years or so. So as Ross mentioned, our overall consideration payable over the next 3 years is $140 million. And so, looking at the various components, we estimate that we will have within the range of $120 million to $165 million, looking at our base earnings, plus our other available facility in cash. So at the moment, we have about free cash of about $15 million. So that's taking into account the cash that we have on hand per Slide 29, which is the balance sheet slide and also accounting for the fact that we still need to pay Dyal's profit share out of that amount, the dividend in September and some other regulatory capital needs. So it does not, however, take into account the $18 million of receivables that we have on the balance sheet. So we haven't factored that in, in that number. We have the debt facility. So it's currently at $50 million, with scope to go up to $75 million, and we are finalizing negotiations to increase that facility so that that's available. And then in terms of the base operating cash flow. So we stretched through on Slide 21, where we see our baseline earnings without the extra upside from performance fees and carried interest. And so, taking into account the new dividend policy and variable payments that will arise on interest from drawing down on the facility, plus some cash tax that we may start to pay in relation to the NGI Strategic. For '23, we see that as being about $18 million to $25 million that would be available in operating cash flows. And even with no growth over the next 3 years, you can apply that to come out to the $120 million to $165 million, we see as available funding over that period. So, obviously, the one thing it doesn't include is the additional upside from performance fees and from carried interest. Obviously, difficult to forecast with accuracy. But certainly, the quality of the carried leases need to be very comfortable that it will arrive, just a little bit less in terms of the actual timing of when that might actually happen. And then if you look at Lighthouse' performance fees, the average for the last 3 years have actually delivered $10 million in performance fees, and there's scope for that to increase on the back of the multi-PM platform hedge funds. So that's sort of the path to funding, I guess, Ross, if there's anything else that you wanted to add in relation to that discussion? -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [9] -------------------------------------------------------------------------------- No, I think that was great, Amber. The only thing I would add and it's a minor point is, on that base operating, as we highlighted on Slide 21, although it obviously does not include performance fees and carry, which are integral to these businesses, it also does not include asset growth. And we do believe in the core NGI Strategic Portfolio, as well as Marble and Invictus, these firms are at a stage where they will have asset growth, both through organic flows, raising new closed-end funds, as well as through performance over the next 3 years. It's just, as Amber said, when we were thinking through the base metrics to provide the market some clarity, hard to forecast. And so, that's what -- that's just another component I wanted to highlight that's not included there. -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [10] -------------------------------------------------------------------------------- Thank you, Ross. So with that, I'm going to hand it over to Sean to make some closing remarks. -------------------------------------------------------------------------------- Sean Gerard McGould, Navigator Global Investments Limited - MD, CEO & Executive Director [11] -------------------------------------------------------------------------------- Thank you. Yes, I'll just make a few remarks, and then we can open it up for questions here because we're at about an hour mark. So the current business, just #1, we think it's a really unique alternative asset management business. And we've got really good firms, as you can see throughout this presentation that our scale that have the ability to grow, and we're very happy with the current mix of businesses that we have. On the Lighthouse front, we have some nice investment returns this year, again, in difficult market conditions. We believe the demand for multi-PM hedge funds will continue to grow. I think we're positioned well there. And we will continue to evolve the firm to meet the needs of our client base. The recent investments that we've made have added high-quality earnings, which we believe will deliver substantial value over time. As we mentioned, a lot of these new assets that we have brought on through the investments, have a longer-term thresholds in them. As far as closed-end funds, we're locked up capital, and that gives good visibility into how these businesses will operate over the next 3 to 5 years. On the earnings drivers, we believe a nice stable base of management fee and consistent earnings. We also have a lot of upside, and that's from carried interest or incentive fees or growth opportunities. So we have a way to continue to expand on our earnings base, and we're very happy with that. Fiscal 2022 results, we think we're very strong in a tougher environment, and that just demonstrates the approach that we've taken, the quality and stability of the companies that we've partnered with and the earnings stream, we think we can generate over that. The funding and the dividend policy, we have the financing and the cash flow to absorb the recent transactions. As we've always said, when we have good uses for capital, we're going to use that overpaying our dividends. I hope this is indicative that we believe we have strong growth potential here and want to retain some of those earnings rather than paying them out in dividends for those growth initiatives, which we can see the growth in EBITDA this year, in assets this year. So we expect that to continue and certainly want to use some of the capital to fund that growth. So overall, we're pleased with the results. We're pleased with the strategy and where we're heading. And with that, we can open it up for any questions or comments. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question is from Phillip Chippindale from Ord Minnett. -------------------------------------------------------------------------------- Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- Ross, a question for you just on Slide 21. Amber ran us through that sort of base idea for FY '23. But it doesn't include 3 things, being the performance fees, above the preference level and the carried interest component. I want to actually ask about the last of those, on the carried interest. Can you just remind us over the next sort of 12 to 24 months, which of the vehicles you're expecting to see some realization there? -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [3] -------------------------------------------------------------------------------- Sure. Thanks, Phil. I think she's right. And again, as you said, the other component is just additional asset growth that is underway. With regards to carry, primarily coming through on the NGI Strategic line will be from Marble and Invictus. The Marble investment had more exposure to carry, given it was the same ownership percentage at 16.8% of all earnings streams. And given the 2 funds that were fully invested, we bought into are closer to realization than the case for Invictus. So it's Marble that we originally provided accretion guidance, which had a big pickup in fiscal '24. With that said, across both Marble and Invictus, there are some other smaller pockets of carried interest that can come in. And the carry on Marble is very hard to estimate. I think as we talked about at the time, that's where we would put it today if we had to provide guidance, but there are obviously things can happen, realizations can happen sooner and that could come in sooner. But I do think you're right to point out that it was a -- the biggest contribution from that carried interest initially, we expect to be in fiscal '24. -------------------------------------------------------------------------------- Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Excellent. And just turning to Slide 34. And again, it might be perhaps more of a question for Amber I'm not sure but Amber or Ross. This funding of the commitments over the next 3 years, just to be clear, does that depend on the same assumptions that you made on Slide 21, i.e., it doesn't include any of those [4 things] that Ross just referred to? -------------------------------------------------------------------------------- Amber Stoney, Navigator Global Investments Limited - CFO & Company Secretary [5] -------------------------------------------------------------------------------- Yes. So Phil, I'll confirm that. So that is the base operating cash flow than it is in reference back to 21. So looking at that sort of $36 million to $38 million range that's on 21. When you back off a dividend component and an allowance for interest and tax or cash tax paid for the next year, that's why we put it in that range of $18 million to $25 million. The reason is quite broad is, obviously, we don't know exactly when we'll draw down the debt, so there could be quite some variance from an interest perspective. And also from the cash tax is starting to flow through more on the Marble and Invictus, once we get earnings from that. We're still expecting to utilize all of the tax losses on the Lighthouse side. So the tax is more on the NGI Strategic Portfolio. -------------------------------------------------------------------------------- Ross Zachary, Navigator Global Investments Limited - MD of Strategic Corporate Development, NGI Strategic Holdings [6] -------------------------------------------------------------------------------- Yes. And I would -- and sorry, Phil, to interrupt, I would go back to the question you asked also in that regard is that, it does also include anything above the pref for NGI Strategic. So including not carry on Marble and Invictus, obviously, over the first 2 years, we've experienced some meaningful distributions there. And from what we know in 2022 and where do the businesses sit from an AUM perspective, we have no reason to think that would not continue. -------------------------------------------------------------------------------- Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [7] -------------------------------------------------------------------------------- Okay. So, I guess, on Slide 21, that FY '22 number, you actually achieved 50% more of that. So there's going to be potentially some significant upside beyond that base. But it's probably more of a comment than a question. I appreciate the extra color, especially with Slides 21 and 34. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (Operator Instructions) Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you all very much for participating. You may now disconnect.