Future Generation Global Limited (FGG) Earnings Call Transcript & Summary

This is very much your company. So we really want you to ask as many questions as possible, and we will answer them. If we don't get to them today, hopefully, we will, we'll actually come back to you afterwards. Before we begin, I'd like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land, pay my respects to elders, past and present and on the lands that we are meeting. So I am joined today by 3 people who really are key to the success of Future Generation Global. Firstly, we have Nick Griffin, CIO and Founder of Munro Partners. They are one of the country's top-performing fund managers, great boutique, and he's going to be sharing his market insights. And of course, he's going to give us some stock dips. So Nick is one of our 16 fund managers who all waive their management and their performance fees so that we can actually maximize our social impact. Thank you very much, Nick. Thank you for being here today. We also have Suzanne Dick, CEO of Prevention United, one of our amazing not-for-profits that we support in youth mental health. And we have our Founder and Director of Future Generation Companies and CIO and Founder of Wilson Asset Management, who is going to answer any questions that you have and also give his views a little on the market. So thank you very much, all 3 of you for being here today. I'm just going to remind you, please submit your questions. It's quite easy. Just you can go into the Q&A function, and then we're going to answer them afterwards. So before we actually hear from Nick and Geoff, and I really just want to run you through very quickly FGG's full year results, which we released a couple of weeks ago. And I know that we've spoken to a number of you, and you're pleased with the results, but I think it's really important to say that it was a strong year last year for Future Generation Global. We saw an increase in the investment portfolio of 26.7%, and this is now 2 consecutive years of strong performance. This is really a testament to the investment committee. We have this fantastic investment committee who work pro bono and they manage the construction of the investment portfolio. And obviously, we have to thank our leading pro bono fund managers such as Nick. So the portfolio performance allowed the Board to increase the fully franked full year dividend to $0.074 per share. And this represents 5.2% fully franked dividend yield -- sorry, fully franked yield and a 7.4% gross up dividend yield. So hopefully, you're all aware because I know I talk about it a fair bit, but this is significantly higher than both the average yield for the global equity market, which is 1.7% and the average yield for the U.S. equity market, which is 1.3%. So as you can see from this slide, hopefully, that's there, our total shareholder return last year was 26%. And we're going to go through all of these measurements that we think are really important to measuring LICs a little later. So besides giving you that really strong investment return, we've also invested $5.9 million in our nonprofit partners. And they are doing an amazing job preventing ill health in young Australians. It's so -- mental health, we all know is just so critical in this current environment. And it now takes our total social investment since inception to 43.9 million. And that shows you, I think, how we can deliver those strong investment returns and create meaningful social impact. We have a really, really developed sort of groundbreaking in many ways, impact measurement tool that measures the impact of our 14 not-for-profit partners. And last year, we reached 5.3 million young Australians. It's something we're actually really proud of, but it's a really important metric to measure. And it shows you -- so now we can actually show you the investment returns you're getting, but also the impact you are having on youth mental health in the community. And that was something you, our shareholders, really wanted us to show. So we're delighted that we now can. So with Geoff, okay, he is the master of Listed Investment Companies or LICs as we call them. And Geoff, among other things, I might add, has been called the undisputed king of the Australian LIC market. Future Generation Global is LIC. So Geoff, what I thought would be really good is if you can actually explain the key metrics that we actually use to explain listed investment companies performance so we can look how Future Generation Global measures up. So Geoff, maybe if you could go through the 3 metrics that we talk about.

Yes. And probably just to start off, I just eradicate a few of those things at the start. We're one of the players in the listed investment company market. We -- Wilson Asset Management, WAM have 8 and there's the 2 FutureGen entities that we're involved in. And there is a little under 90 listed investment companies. So it's only about 10% to 12% of the market. There's a lot of bigger players and players that have been there a lot longer than we have. In terms of listed investment companies, the first thing when you're looking at a listed investment company, you look at the value of the assets, the NTA and you look at the share price. Now if we look at Future Gen Global, it's trading at about a 13-odd percent -- 13% to 14% discount to the value of the assets. So if you're a shareholder, you'd say, "Oh, well, actually, I know my assets are worth more. And I know that it has traded at a premium historically. So I'm pretty -- I'm relaxed about that. And I'm confident that it will trade at NTA, if not a premium again", if you're a shareholder. If you need to sell, you're probably not that keen because it's trading at a discount. But what you are doing is you're providing an incredible -- if you're selling, you're providing an incredible opportunity for the buyers. So for the buyer, you're buying $1 of assets and at the moment, you're paying say, you're paying $0.86, which is a great buying opportunity. Also, you're all aware that the running yield is a little over 5%. That's fully franked and grossed up in the mid-7s. So to me that -- that's when you look at a listed investment company. In terms of what do we look at, how do you assess a listed investment company's performance is, obviously, at the top level, what I'm looking at doing is the gross performance, the performance excluding fees. Now when you look at Future Gen's gross performance, you might say, oh, actually, it's a little bit lower and it's only 1% or 2% lower than the market. Then you've got to look at, well, why is that the case? And you talked about the investment committee before. And really, the guys that are all doing the heavy lifting are the fund managers. And again, we can't thank the fund managers enough because they're the ones that are managing the money for free. But when you look at the performance and when you look at the managers the investment committee have put together, and there are various managers like John Templeton, who was probably one of the greatest investors of my time out of the U.S., his right-hand man, Marculescu, he's more of an absolute manager. So what we've got is the investment committee has put a portfolio together that has managers that can give you the growth, but also managers that will be able to -- when – when like now, when markets are tough, they can give you some protection. So -- and how we measure that is the volatility. Like the volatility of the Future Gen Global portfolio is less than the overall market. But in terms of getting back to the question, what do we look at is total shareholder return. Now if we're in a situation where, as you talked about the last 12 months, the total shareholder return has been incredibly good for investors, 20 -- nearly mid-20s. The fact that if you're buying now and it's trading at a discount and the portfolio performs well -- as well and the discount can be narrowed to trade at NTA if not a premium, then that super -- really sort of supersizes your portfolio return. And the third thing we look at is really is the NTA performance and that's looking at how the assets after the cost, that's the 1% that goes to the charity and there's virtually no other -- very little cost in the business, but that's how the NTA has performed over the period. So -- and what do you need to do for the share price to trade at NTA, if not a premium? It is, again, as simple as like it is supply/demand and we've got a strategy to get it to trade at NTA, if not a premium and might come up in questions. And you'd be aware that those that are following Future Gen closely that Caroline has added a new member to the team, Lee, who is the CIO and has got great experience in the investment market came from Perpetual and he, together with Caroline and the rest of the team, have a marketing communication engagement strategy that will create more demand and really move that equilibrium that the share price is currently trading at from that discount to trade at NTA, if not at premium. So I think that's a longer answer, Caroline, but that's what came out.

That's always good. So the other things I actually just wanted to note as well is that FGG has 8.9 years of dividend coverage, and that's obviously based on the $0.659 per share and the profits reserve. And I think, as Geoff says, this actually gives investors comfort because in terms of that reliability of the dividend stream. And also the other thing I wanted to point out because, yes, everybody does work pro bono in terms of our service providers, our fund managers, our Board of Directors and investment committee members. So we have saved $11.2 million in fees that otherwise would have been paid out. So really, that actually helps our shareholders and obviously, we're giving out that 1% to our social impact partners. And that for me, I suppose, really highlights how Future Generation Global's commitment to not only giving you the return and also benefiting from everybody working pro bono, but just making sure that we really create a really good social impact. I just wanted to talk through some of the important changes that we've actually made this year, and we'll go to those as well in the Q&A, I'm sure. But we've basically added 3 new pro bono fund managers, and that's really about diversifying the portfolio from the ICs point of view. So we've added Langdon Equity Partners, Fairlight Asset Management, and they are small-cap growth fund managers and we've also added GCQ. You might be aware of them because I know that Doug Tynan, who is their founder, has been very much part of the Future Generation portfolio previously and he is sort of a concentrated quality growth manager. All of them have really good, strong long-term performance, and I'm really pleased that they've come on board, and we're going to talk about that a little bit more. The other thing that Geoff also said is, obviously, I have a CIO, which is just fantastic. So yes, he was his Perpetual, Pendal. He was also worked for Macquarie and Auscap. So he's had a really good solid career. And I really think that with his experience, we're going to be able to really make sure that we are increasing demand for our listed investment companies, which is really important. So now I'm going to go to Nick Griffin, one of our portfolio -- one of our pro bono fund managers. He is the Founder and CIO of Munro. And so please do ask some questions and please submit them. So Nick, are you there?

I'm here. I'm here, Caroline.

Excellent. So we saw further falls last night in the U.S. Officially, we're in correction territory. The market has dropped, what, 10% since mid-February. There's a lot of fears out there, stagflation. We've got tariffs. Everybody is like talking about tariffs. Is it going to be the start of a bear market? What are your thoughts on this? Give us some rational thinking.

Yes, great. So I think the first thing to say is, look, we don't think this is the start of a bear market. Obviously, we don't know, but there's definitely nowhere near enough facts there to suggest that it is today. And I think investors should sort of take a bit of a step back and just say, in the U.S. equity markets, we're a global growth manager to be clear. So we do global equities. We don't do much Australian equity. So none of my comments are going to be reflective of the Australian market. Geoff is much more of an expert there. But in the global markets, the S&P went up 25% 2 years in a row, okay? So it's had a really good recovery from the 2022 bear market and we've had a good run. So it's fairly normal to expect the correction at some point in time. And in disguise we were unfortunately set up for a correction because if you think about it with Donald Trump's election had been considered a very good thing for markets and a lot of people have pulled all the good Trump forward and they pulled all these great things he's going to do for them and they sort of forgot the battle of bad things that he does as well. And so we're hearing about the bad things and just so in exchange they sort of like get all the bad stuff out of the way and blame the old administration so that's sort of happening. And so the market was – it had a good run but it was overpriced so it was trading at like sort of 21x, 22x innings and so now you are getting what you are normally get in the bull market is you are getting a correction. The last reason why we said the correction is it looks like a correction. This is what correction do. You fall fast and quickly. You go up the stairs and go down the elevator. You sort of flush out the excesses. And ultimately, this is a good thing. Ultimately, you want what all investors want is long bull markets that go for sort of 3, 5, 10 years that's happened in the past. This one is only 2 old. You're going to need lots of corrections along the way to keep it going for a long period of time. And ultimately, there are opportunities for investors. From our point of view, I can't tell you if it's going to be a 10% or 15% or 20% correction, but I definitely don't think there's the pieces in place today to start the next bear market considering we just had one 2 years ago.

So let's just go back to Trump. Obviously there's a lot of uncertainty and volatility. How -- what are your thoughts more about this but also how you're managing your portfolio through that?

Yes. So it's a great questions. So one with Trump it's always hard because what he says today may be different 2 weeks later, okay? So if you're just going to position your fund for whatever Donald Trump says that's not really going to help you very much because he's going to change what he says at some point in the future. So from our point of view, it's a time to be running a very balance portfolio. So a year ago when we spoke to you it would have been very long like AI artificial intelligence sorry -- someone's really asked a question what's the video because of the funds. We have really big position in the video. Last year we had a really big position 2 years ago and it worked really well. We are running about half that size of position today. And so what you wanted to do is you run a more balance portfolios. So you want to be in different regions, you want to be in different areas so you don't get pushed around by the day to day noise that's going on. You maybe want to run a little bit less exposure so we are running at 10% cash at the moment so you get by on this really bad days but that's been our strategy going into the year. And the Donald hasn't disappointed. He's pushed us around all over the place. So even though this was our strategy for the year, we are getting pushed around by the Donald and that's where you don't want to be quite frankly. And so run more balance, run more equal positions size, run slightly different regions and don't get pushed around because ultimately this is all going to work out like it is. There's nothing these guys are doing that is ultimately not good for capital markets. They are allowing long term interest rates, they've lowered oil price, they've lowered the U.S. dollar, they are shrinking the size of the government, they are bringing private investment into the economy all of these stuff is good news for anybody who's taking a medium to long term view. There's just as the Donald say there's going to be a little bit of disturbance while we get there and this is the little disturbance.

So let's just continue on in terms of what you said. So can we go to some of the regions and some of the sectors you're actually in and things that you're avoiding at the moment because I'd really like that insight?

Yes. So the [ years is we're in ] service still very much in artificial intelligence. We think it through years into something that's going to go for 10 years just not as big as we were a few years ago. So we're still liking video, we still like semiconductor companies, we still like companies that are going to use AI to make their product better like Meta and like -- things like Amazon or Microsoft software companies, et cetera. Beyond those areas we definitely moved down into some more small caps through try and find areas where you're going to use AI as an application and here you're finding all sorts of really interesting companies. So here we're looking at companies that mainly function around security so companies like Axon that make police body cameras so a lot of people who would know the police body camera they say it on San Franciscan policemen, see that on Victorian policemen. That body camera can now film what's happening but through a Large Language Model it can then write a police report. It could just basically see what happen and turn it into a police report, so that's like an application of AI. So you're getting a hardware company that's turning into a software company. We see this in security camera footage as well through motor solutions. You see this in things like MRIs in healthcare. So we're going for a lot more of those applications in AI. That's all the AI stuff. Beyond the AI stuff, we're very much invested in security and defense. So we do, and have for a long time, owned European defense companies. That's worked well for us, because we are in a heightened threat environment and defense was a sort of orphan sector of the market that's now becoming a necessity. We do own infrastructure companies that are going to help in the reshoring of the U.S. And then we own a range of different health care companies that are sort of just noncorrelated to everything. They work from everything from fillers. So fillers is a growth industry, I'm afraid, because we all want to look better, to things like diabetes, patches, et cetera, companies that are building great products in those areas, which just give you that completely idiosyncratic growth that's not really going to be pushed around by some government policy the next time. Those would be some of the main areas today.

So we'll come to stock picks later. So I hope you haven't given us your stock picks. So one of the things that I'm actually quite interested in is basically the Trump presidency again, sorry to go on about this. But everybody -- and I think you've said before that he's been here before, but why does this feel so different?

Look, it feels different because last time we thought it would be bad, and it ended up being okay. This time, we thought it would be good, and we forgot about the bad. It's literally -- I can't stress this enough. The market was not positioned for this. It was overbought, it was expensive. That's why it feels bad. Secondly, I actually think the policies this time are better than last time. I think they've got a plan that ultimately is the right thing to do for America. I can see someone's asked a question about is the U.S. a sovereign risk around debt-wise? I've had that question every meeting for the last 20 years of my investment career. Well these guys are actually doing something about it. They are trying to lower the fiscal deficit. They're trying to lower U.S. debt. They're trying to lower long term interest rates. That's really good because we were on an unsustainable path. We are in, not just America, we are here in Victoria. We are in all these different parts of the world. So these are all good things as a capitalist you should be looking for. So from our point of view, I can't stress enough that just the starting point was worse. Does that make sense? So that's why you're getting a correction. Second thing I'd say is, like, because the starting point's worse, what you're doing here is you're effectively just pricing in a higher risk premium. So what you're basically what the market's saying is we don't know what's going to happen, so we'll just price in a higher risk premium. That's what the market's doing. It's being fairly indiscriminate. It's just putting in a higher risk premium i.e. the PE multiple is going down. Once it's done that, once the market's low enough, the stocks are just going to go back to following their earnings, which is what they did all last year and all the year before. That's what markets do. And so the companies will just go back to following their earnings. And the earnings growth will come from all these areas I just talked about that have actually nothing to do with Donald Trump. Donald Trump will move a few things and change a few things, but he's ultimately just trying to make the U.S. Government sustainable, which I think is a good thing. The risk premium will push markets down for a while, but then at some point the risk will be adequately priced. Stocks will go back to following the earnings and the market will just go back to climbing the wall of worry that you need it to climb to allow the bull market to go a long way. When the bull market ends is when no one's worried and everyone's invested, and I don't think we're there yet. So that's why I think this is ultimately a good thing.

So one of the other questions that we're asked quite a lot is, how difficult is it to pick winners in the AI space? I mean, obviously, you've had a lot of credibility there. We've had DeepSeek, came out of nowhere to challenge GPT --ChatGPT. What's the possibility of something coming out of that field again and challenging the likes of some of the other magnificent 7 stocks?

Yes. Look, this is what we do all day every day. So this is what, in my opinion, like I understand the risk premium and what's happening with Trump, but in my opinion, this is what really matters. As an equity manager, particularly a global equity manager, your job is not really to study the economy and not really to study politics. Like, it's helpful for day-to-day stuff, but it's not going to help you find these long-term winners, right? How you really make money is working out that smartphones are going to be big and Apple is going to win. That Google search would wipe out every yellow pages on the planet, and there was 11 search engines once. Yahoo, Ask Jeeves, all these different things, AltaVista. And you had to work out that search would be massive and Google would be the winner. And if you get those things right-- if you get what's the big structural change and what's the winner, that's ultimately what drives you to your double-digit returns. That's what the equity market is. And just in case you thought the equity market was the economy, okay, it's not. The equity market is the top 500 companies in the U.S., and they kick all the bad ones out. So all the bad ones get kicked out. The good ones come in. And so ultimately, the equity market itself is leaning towards this few winner's concept. And these few winners are all being created by the big structural changes. Okay. So now that we hopefully all agree with that, if we go forward, your question is, what's AI going to disrupt and who's going to win? And so from our point of view, it's going to disrupt a lot. And so the thing about AI is it doesn't just, like, summarize a meeting for you or summarize a note for you. It will help a full self-driving car drive. It will help you build a digital twin of what you're constructing. It will create a movie for you. It will -- it will help you in drug discovery. It will help you with threat detection and security. And so these are all some of the things we talked about. From our point of view, NVIDIA is still very much the big long-term winner, so now I can't use that as one of my stock picks.

No… I'm afraid.

I said that -- I said that at your meeting literally 2 years ago. I said it a year ago. I'm saying it again this year. NVIDIA, if you believe like, if you just think about it, it's like selling our Apple 3 years after the iPhone's invented, okay? We've invented AI. It's going to go for a decade. NVIDIA is the hardware and software player for AI. Own it, don't trade it. That's our view on NVIDIA, not stock advice. Just that's our view. And then out of that, what's AI going to disrupt? Well, then you're looking at things like traditional autos who are all in really big trouble. You're looking at, I had companies that can harness this to how they do construction and drug discovery as I talked about. And amongst the MAG 7, most of them are probably still winners, I'm afraid, because they are the people who can afford to invest in this technology and use it and they're all doing that today. The other thing I'd just quickly point out is all of this is going to cause a power shortage. So companies that build power et cetera are going to be big winners here. It doesn't all just go to semiconductors. And ultimately, it's going to challenge things like decarbonization, which is going to be hard to do. So we're going to have to reinvest in decarbonization if you're going to build all this power and do it in an environmentally friendly way. So really, really exciting time to be doing what we do. Definitely glass half full, guys, I'm afraid. Just got back -- team just got back from San Francisco. Like, things are moving fast. And, like, this is fun. This is what we do. Like, I'll just finish with one comment here. Like, 4 years ago, no one on this podcast knew -- no one on this webinar knew who NVIDIA was.

True.

It's now the biggest company in the world, right? So that shouldn't happen in that amount of time. And guess what? It trades on 20 times earnings, so it's not even overvalued. It did that all with earnings. So things are -- the deck chairs are moving fast, and that makes it a great upper time for us, and that's, where we're leaning into that and generating some good returns, which is great fun.

We should segue into your stock picks before you give them all away.

Yes…

Okay. Let's go through the 30 plus stocks in your portfolio. What are so -- would you think is a really good long-term stock pick for our shareholders to sort of look at?

Yes. So I'll give you 2 that are in the portfolio today that I haven't mentioned yet, okay? So the first one I'm going to give you is a company called Constellation Energy, and they own the largest installed fleet of nuclear power plants in the United States. Now I understand nuclear is slightly one way or the other for certain people, but these are operating nuclear power plants. They're the largest source of carbon free energy in the United States. And we think that carbon free energy is going to become more valuable over time. And the reason why is because these companies want to build these big data centers. They want to build them while still hitting their net neutral targets. And so what we're seeing with Constellation is they're selling long-term contracts for power from their plants at huge premiums to the current power price. And on top of that, they're even being funded by Microsoft to reopen nuclear power plants. Stock trades on a PE multiple of 20 times, so there's not really not a lot being priced into this. It's a utility, so it's a reasonably safe investment, but there's this asymmetric upside opportunity. That would be 1. And then the second one I'll give you – and look I can [indiscernible] when no one is investing, nuclear power or not. Probably I shouldn't have gone there but that is the one I have mentioned. And the second one is one that everyone will know and I just think it's going to really interesting time at the moment which is Netflix. We liked Netflix for a long time. Netflix is just reaching this point -- so I used the example of Google before. Remember when there was the Lemon Search engine and then it slowly came to One. Netflix is at this point right now where all of the fears are starting to die and starting to die quite quicky. So, Disney is dying. Amazon Prime, not sure how it came out when this did it. Apple, still flogging along. But you are actually getting to the point now where the reason why Google One is because of single network effects. So, everything was on Google. So, everyone had to be on Google. So, everything was on Google. So, everyone had to be on Google and it's just goes round about and about until Google becomes 96% shares in search cleverly. That doesn't happen in any industry in the world. That doesn't happen with banks, it doesn't happen with supermarkets. It only happens with digital industries, the way you get 90% share plus. Netflix is at this point. Everyone has to be on Netflix. So, everyone's watching Netflix, everyone has to be on Netflix, everyone's watching Netflix and we know this is because they starting through sports. So, the Jake Paul, Mike Tyson Fight, I don't know whether people watched that on Netflix last year, 60 million viewers that 3 Super Bowls. For a social media guide fighting has been boxer, that makes sense. Wrestling had gone on, WWA has gone onto Netflix, their audience has doubled. Netflix did a couple of NFL games over Christmas with Beyonce who was doing it, the audience doubled. Netflix is probably buy the rights to Formula One and things like this. So, Netflix is at this point now where it become a TV station for the planet and that is going to make it really, really, really valuable that would be the second tock pick. And I think I've probably told [indiscernible]. But as you've said, that's okay now.

No, great. Thank you. We actually do have another question for you, and we're getting a lot of questions in this well down the bottom. I'm just going to ask a quite top core question in terms of the U.S. because it's so critical, as you said sort of market but also Australia. What's your outlook on the American economy and what do you think is going to happen to interest rates? I know you don't invest in Australia but what you think it's going to happen in Australia as well?

Okay. So, the economy should endear grow a little bit faster, not straight away because you going to shrink government, so you go through this detailed phase that they're talking about and we're about to discover how much money government was spending, so that was really no. And so, could that cause employment to go negative? It might. So short term that's the wrinkle. Long term, these are the policies of the 80s and the 90s, so this is like Regan type policies. And for those in Australia cannot tight policies in Victoria. These are normally fairly positive for growth. You let the private sector take control and the private sector pushes things faster and better and you get this productivity uplift. So long term, I think growth will be slightly better than what it has been in the past. Short term, there might be a wrinkle. And in terms of interest rates, that's -- this is the plan. Like if you can bring the debt load down, there's 2 things pushing up interest rates. One is the Fed or the central banks; and 2 is the fact that these companies -- countries are borrowing so much money, right? So, it's increasing the cost of debt. So, these 2 things can work hand in hand. So, if you start to be fiscally responsible and get the U.S. deficit to say, 3%, then that will lower long-term interest rates. And then secondly, some of this is a little bit deflationary as well that will ultimately allow the Fed to cut rates. So, I think there's room for rates to come down, probably not as fast as people would like and probably not as much as people would like, but there's definitely clearly room for rates to come down. We are in restricted [indiscernible]. And that's ultimately long-term bullish equities. And rates coming down is actually more bullish than growth because most of the companies we're investing in are going to grow no matter what because they're leveraged to these big structural changes. That would be my short answer to that one.

Brilliant. I can let you have a bit of a rest now. I could talk to you for hours. So, thank you. So now I'm going to go to Suzanne Dick, are you there?

I am indeed. Thank you, Caroline.

That's fantastic. Thank you very much for coming on today. So, Suzanne is the CEO of Prevention United and one of our amazing social-impact partners. You became one of our impact partners really in 2022 after we did that sort of massive expressions of interest. So maybe for those that aren't as familiar with your work, how are you helping young Australians in terms of their mental health?

Thanks, Caroline. It's really exciting to be here. It's a big topic to switch from. We [indiscernible] switching now to what we have in Australia, which is a mental health crisis. So, some research that came out of the Murdoch Children's Research Institute last year said as many as 3/4 of young people are experiencing clinical levels of depression and anxiety between the ages of 10 and 18 with most being chronic at some point. This is despite significant investment in mental health treatment over the last 20 years. So, our job is really to think about what is happening with that money over the last 20 years to see such a decline and a continued decline in the mental health and well-being of young people. So, we hear countless stories on psychologists by training of individual stories of recovery, hope and resilience, many of them through our FGG partners and other grassroots organizations doing amazing work. But at the population level, we haven't seen much change. And in fact, things continue to get worse. So, what Prevention United does is work at the policy level and in a population health model to advocate for more effective and prevention-focused mental health policy with a particular focus on young people, given that 75% of mental health conditions start before the age of 25. So, when we talk about mental health conditions for young people, we're not just talking about them. We're talking about their families, their educators, their communities. We're really talking about all of us. We all have children, are related to children. And it also means that we're talking about productivity and economic costs as well when we talk about $550 million costs per day in lost productivity, presenteeism, absenteeism. And so, it's really important that we get some of these policy settings right, and we start to take a really different approach to how we're tackling this crisis.

It's really interesting. I mean we talk about the mental health crisis that's happening now, but it's been happening for a long period of time. And it's only now, I think, maybe in the last few years since COVID that we've really been focusing on it. I mean I know in terms of what we've been doing at FGG sort of measuring what we do in terms of our not-for-profits or you guys do, we just measure it with you. So I'm really interested in the fact whether or not people are actually taking this seriously. Are they taking the mental health issue seriously? And do you think that people are really pulling together now to do more?

Absolutely. So if we look at the rate of collective action on this, we've got organizations like Black Dog, Beyond Blue that we engage in joint advocacy on the need for a different approach. So if we think about, to be fair, this idea of preventing mental ill health is a relatively new one. It's only been around for around 20 years. We thought that if we ramped up our service system, that would be enough to kind of address this mental health crisis. And we've learned that, that's actually not the case. So if we think about campaigns like SunSmart, approaches to heart disease, we've got a really long tradition in Australia of great public health policy. And it's now about applying those learnings to their mental health and well-being of young people, and we absolutely can do it. So we have a group of about 14 young people, recognizing that the research around what's required is sometimes a bit behind if we think about evidence-based research. So we take their ideas, test them in evidence and then we take policy solutions to government. So that's directly the most beautiful young people you'll ever meet talking to governments about what they think will make a difference. So last year, our young people with the support of FGG, we were able to do some consultancy on the respectful relationships framework. So a $77 million government program designed to look at the relationship of gender-based violence on the health and well-being, particularly of girls and young women and how can we actually take a preventative approach to that. Without FGG funding, that doesn't happen. Those young people's voices don't get heard. Similarly, the fact that the funding isn't tied to a particular outcomes means we can be agile. So our young people were really irritated by some of the conversations happening in the media around social media and banning social media. And so we were able to quickly take their opinions, test them against the evidence, put out a brief and it led to them meeting with all the various parliamentarians, but also our report on that issue being quoted 20 times in the final report of the joint select community on social media and the Australian community. So again, we're taking the voices of the young people and taking them to the people that can actually make those decisions and ensuring the voices of this generation and future generations are captured rather than this kind of short-termism that we often hear about in our public policy and decision-making.

So you -- I mean, you are really good at advocacy in terms of advocating on behalf of young people. And your promotion work is exceptional. Tell me how is sort of Canberra and how is sort of -- how is government looking at these issues? What are they doing? I mean they can't do everything, but I was just really interested in your view there.

Look, it's slow, and it's a really tough ask. We're talking about markets and what's happening in the markets. The governments are equally worried about that. I absolutely take Nick's view that for the private markets to take over parts of the system, but they're really not good at public health policy. And so in thinking about what's good for our community in the next 10 or 15 years is really where we need to be, and that's where our advocacy kind of sits there. We need to scale up treatment systems, but we're never going to be able to treat the number of people who need it. We actually need to stop people entering in the system in the first place, and we know how to do that. So is there an appetite in Canberra? Absolutely, there people get that this is not just the right thing to do. It's good for the economy. It addresses unsustainable costs in health, justice, education that we can't continue to see these rates of investment continue at uncapped rates. The question is about where do we actually start and what will make a difference? And so if you think about Prevention United and our young people as incubators within that, we're a bit of a think tank about how do we bring research together, how do we bring practice together to help governments understand where they might start? And some of those examples are around scale up, integration of parenting programs and really focusing on childhood maltreatment. If you eliminate childhood maltreatment, you eliminate 30% of mental health conditions, boom done. Now is that a big ask? But even if we only got to 20%, that would be amazing. So there's appetite. There's a balance of the need for new money because we can't treat future generations at the cost of current generations. If I'm a young person and I need help right now, I should be able to get that. So we support advocacy of Mental Health Australia and others that say that mental health care should be -- there should be a free pathway for under 25s. But we also say we need to take a much more sophisticated long-term approach to the health and well-being of communities because that's good for young people, but it's good for families. It's good for the economy. It's good for everybody when we do that.

You've had some definite success in terms of bringing a lot of our not-for-profit partners together that we're funding, and we really believe in sort of capacity building as well. What have you seen there in terms of bringing the 14 not-for-profits because obviously, we've come together to ask government for various things. But how -- what have your takeaways been from that?

Yes. We like to think of ourselves as a bit of a system glue because there's lots of good people who are really good at delivering great programs, but not necessarily then scaling them up. So what we try and do is amplify the good work that's happening and demonstrate where there's economic return on investment in scaling up those programs. And again, [indiscernible] is a great example of that. There's lots of other programs FGG Group ReachOut are doing some amazing work that could be scaled up and would start to really turn the tide. And that's the biggest challenge in the preventative space that there's good work happening, there's great evidence, but we're not doing it at scale. And that's where we really need governments to shift from this immediate kind of return on investment to longer-term focuses. And to be fair, the states and territories are probably ahead of the federal government, and that's why our biggest focus of advocacy at the moment is at that federal level with Victoria, the ACT, really Queensland leading the way in this space. WA has a framework. So it would help them to have a national framework to hang off all of their activities. And our next big pushes are on the bilateral agreements that are coming up next year for renewal and the municipal health and well-being plans as real opportunities where you could start to have impact if you were to scale these programs.

That's what we're trying to do. But thank you so much. I mean, thank you very much for all the work you do, especially bringing our not-for-profits together as well because I think that's incredibly important because when I look at that sort of the 5.3 million young people we've reached together in terms of all of our not-for-profits in this space. It's incredible. And I think the work you do to bring that together is fantastic. So thank you. If there are any questions, please do send them in. I can see we're getting quite a few. So I think we'll just go to the Q&A now.

One of the questions that came in earlier that actually Nick did mention was from Andre, and it was, could the U.S. become a sovereign risk policy-wise and debt-wise? Nick, would you mind answering that, please?

Yes. Look, I guess it's a good question and one that you would have had pretty much in every meeting at least once a year for the last 20 years. So governments are living unsustainably. It's not just a U.S. problem, it's a global problem. At some point, that will become an issue. We saw a sneak preview of it actually a couple of years ago in the U.K. when Liz Truss came in with a new agenda and she lasted, I think, about 3 months as a U.K. Prime Minister, where the bond market right and just said, no, you can't do that and, yes, in the end, you eventually run out of other people's money as the line goes. So yes, this is an issue. This could become an issue. And this is actually, as I was flagging, something that the current administration is definitely targeting. And I think that's a good thing because that would be a very bad day for markets. If it was to become an issue, it would actually happen the same way the European bond crisis happened, i.e., the bonds would sell off, they would go up. So the U.S. 10-year would go through 5% towards 6% and 7%. And as investors basically says, we don't see it as a good credit. Right now, that's not happening. The bonds are going the other way. They're going from 5%, 4.8% down to 4.3% now. And I think that's a sign that the bond market is heartened by the steps that the administration is taking to avert that sovereign issue. And I think long term, that's going to be good -- a much better place for all of us and I think you'll find other countries in the world will start to act this way as well because if they see the benefit from lower long-term interest rates, they will adopt similar policies. And so that's a good thing.

So there's another -- we've got some questions coming in for Geoff. So I might just go through some of these with you Nick, if that's okay. This is from Greg. Does Nick consider the possibility of an enforced Ukrainian surrender and a rampant Russian army invading Poland and other countries is in his consideration of what will happen to markets.

So the short answer is no, that would be a left tail risk and that's definitely something we worry about and we would buy things like put options for. I remember I actually had put options on the market the day Russia invaded Ukraine and I thought that was lucky and the market opened down 3 and closed up 3 that day. So everyone else thought it was going to happen as well. But yes. So that would be something we would buy insurance for if that was to happen. What we do think will happen and what we have invested to benefit from is clearly Europe is going to have to rearm. We've owned a company for a long time called Rheinmetall, which is a German defense company that makes effectively tanks and artillery and surveillance equipment. We use them here in Australia. The Leopard tanks in Australia are Rheinmetall tanks. That company has been a very good performer for us because ultimately they're benefiting from the rehammers of Europe. And even if peace was announced tomorrow, Europe has got to basically spend a decade getting to 3% of GDP spending going to NATO. So we think that's a structural trend and so that's where we try to invest our clients’ money to benefit from that in the companies that benefit from it. The other company we own there is a company called BAE Systems. But to the exact question no, that would be a left tail risk and that would be something we'd have to hedge. It definitely could happen but we would put it in the low probability camp for date.

So the next question to you, Nick, and I'm really glad to see that our shareholders are following from our webinars and our various, I think probably from the Melbourne roadshow. This is from Michael. Is your fund still keen on Hut 8?

Yes, I saw that one and I actually replied to Michael while you were chatting. He's got that from -- I think he's got that from a disclosure somewhere. I definitely -- or maybe [ Qiao ] talked about it on the road show. Short answer is and -- A, well done for being so observant as to what we're up to. So that's the first point. And thank you for following or thank you for your interest. Short answer is no, not as keen. Hut 8, for those who don't know, is a bitcoin miner in the United States. The bitcoin miners, through pure luck happen to have contracted way too much power to mine bitcoin and so they actually ended up becoming these beneficiaries of the ability to then sell that power onto the hyperscalers who are now short power as they try to build all these AI data centers. This is similar to what I was talking about with Constellation Energy before. So the US is short power. People who have access to power can now sell it at a premium. And a lot of these bitcoin miners had bought a lot of renewable power as well. So they could sell that as a premium to the AI guys who now want that power. That's what we thought Hut would work in a similar way to what Constellations work. In the end, they still want to mine bitcoin, and so they haven't chosen to go down that path, and we've chosen to take our money elsewhere.

Okay. Thank you very much, Nick. Thank you to Michael for that question as well. So there's a question for Geoff in terms of how do we actually put together the portfolio because we've got a lot of fund managers in there with different types of funds. Geoff, if I can go to you for that one.

Yes. I mean first of all, the starting block, well, how is it put together? The investment committee decides the asset allocation for the various managers and the -- there's -- we have a structure in terms of how much of the percentage of the assets we want in managers that are 100% along the market and -- or then also managers that might have some defensive characteristics. And Nick just talked about his investment strategy where he's long the market, but he also has the ability to include some more defensive characteristics. He was talking about the put Option or Futures Option contracts. So to me, that's sort of the big picture. We've got our -- and then we decide the asset allocation for the individual managers. And what we're trying to do is we're trying to give you the maximum -- performance with the minimum amount of risk. In theory, the holy grail for everyone. That's what we're trying to put together. So it's not 100% equities in terms of -- sorry, 100% long portfolio. It has some defensive characteristics, which I talked about the volatility of the portfolio versus the market, which is less than the market. And in terms of the individual managers, so we start with the big picture. And then when we drill down to the individual managers that will fit in, we're looking for the best. And that's effectively the best -- and it tends to be -- they tend to be more boutique type of managers because you tend to find that someone who's working for someone else and just getting paid a salary is nowhere near as passionate as the person that's involved in running their own business. So -- and all the studies show that boutique fund managers over time tend to outperform even the active managers, the more -- the people that are just paid a salary and bonus. So that's another skew we have. And then what we do is, once we've decided the group of managers, then we give them weightings. And we'll -- with the weightings, we'll also have a band. So we've Munro, look, I think you could be 8% weighting. I just haven't got it in front of me. And then it will be, say, if 1.5 -- if the weighting in the portfolio increases by 1.5% or decreases by 1.5% around those weightings, then we'll either add to the position or trim the position. And I mean, because Nick has been doing so well, we actually -- I think we've just recently trimmed the position again, but that's because relatively to everyone else, he's doing extremely well. So thank you on behalf of all shareholders, myself being a large one. Thank you for that, Nick. The -- yes, so that's it. And in terms of managers, so how we picking them, we're trying to find the best fund managers we can find. And then in terms of how do we remove them, it's really -- we look at various signs like if the person that's managing the money leaves or there's any personnel changes, that's a big red flag for us. And that may be a reason why we take the money out of -- away from the manager. Performance and the interesting thing is performance that's either better than we expected or worse than we expected, again, is a red flag, and we do more analysis because we've picked these managers for a certain reason. Say, I mentioned about John Templeton's right-hand man, Marculescu, who's based out of the Bahamas in the U.S. He's more absolute in terms of how he manages the money. If his portfolio was up, say 50%, then that would be a red flag because hey, maybe he's not -- is he taking too much risk? Is he shorting too much? So it's not only that, it's personnel and also performance both ways. And if they change how they're managing the money because we're investing in these managers, we're backing the people, and we want them to manage the money a certain way. That's why they've been selected. And as I think you mentioned, Caroline, with the 16-odd managers that we've got. We added a couple recently, and that was just, again, it was -- and we will change, the managers will change. How many managers have we removed? Is it 20 or something like that? And so to me, it's not -- the fact that they're managing money pro-bono is brilliant, but everyone is professional in this game. So everyone who's a manager, I think there's a positive thing to being one of the managers because they get the opportunity on mass to give back to support youth mental health in Australia. And I think also being selected, it's good for the ego and from an industry perspective. But also when they leave, they accept that -- we explain clearly why we're removing the manager and they understand.

So I'm getting a few more questions in, and I'm also aware of time. So Geoff, in terms of -- you're obviously an investment committee member for FGG. And Nick, your answer would be really interesting as well for this because obviously, you're looking at small caps as well. But what is the outlook for small and mid-cap stocks globally? Maybe, Nick, I go to you because I know you talked about how you're now looking at small cap.

Let me have a [indiscernible] like the -- if you'd asked me this sort of 2 months ago, we probably would have been a little bit more upmarket -- sorry, a little bit more -- sorry, not upmarket, a little bit more positive on mids and smalls. The -- and the logic from an Australian perspective was -- and we saw that in New Zealand, when interest rates start to fall, then you get money, that tends to be positive for the domestic economies. And mids and smalls tend to have very good exposure to the domestic economies they operate in. And you saw that in New Zealand when they started cutting interest rates, the mid and small sector performed very well. And that's a sector that I think globally has lagged the large caps. And our view on it from an Australian perspective was, okay, steady state, so the market continues to perform reasonably well. And then when interest rates start falling, then that will be very positive for mids and smalls. In terms of the market adjustment we've had at the moment, you tend to find -- to me, that sort of puts that all back a bit because people tend to -- they run for the hills. They're looking for liquidity. It tends to put more pressure on mids and smalls. It's really need to wait for a bit more stability in the market, and then the good thing is for the mids and smalls you should probably, yes, from a domestic perspective, you're probably doing well. But from -- on a global basis, as Nick mentioned like 4 years ago, the video would have been probably mid and small. Now, you could have tried to market time that. But you would have let the lot on the timer. So I'll pass over to Nick if you've got something to comment globally.

Yes, we agree. We actually launched a small and mid cap fund about 18 months ago that the [ Qiao ] runs. And Qiao -- some of that it's actually in your [indiscernible] managers' fund. So we are fans of this space. We think it's very good timing to be looking at them. This is where you find that Axon company I talked about, the police body camera company. There's lots of good ideas emerging in mid and small cap land. And they're all really cheap. So small and mid-caps don't normally trade at premium to the big caps, but they actually trade at discount today. And so they're really cheap. No one's looking at them, and it's a good time to be looking there. And then that sort of makes me feel like we're not at the end of this bull because, at the end of the bull market, the small caps are at a premium to the big caps, and that's where everyone wants to be because everyone is taking risk. And right now, not many people are taking risks. So it's a good time to be looking there. So we like the space, and I think the allocations that you talked about at the start of this program sound like the right thing to do from our point of view.

Thank you. I mean we're running out of time now, but I mean, really, Nick, your performance has been outstanding. So thank you very much. Thank you for being part of our portfolio.

Thank you for having us and maybe just 2 comments. I'm just really proud of the work that you guys are doing, and you should all be very proud of the work you're doing. It's always nice to hear from the charities that you're supporting and the impact that you're having on the community and we're super proud to be a part of it. So thank you very much for having us.

Geoff, would you like to make any final comments before I wrap up?

Well, just again to thank Nick and all the other fund managers that manage their money pro bono and really to thank all the shareholders because, without you as the shareholders, none of this would be possible. And for the Future Group, the combined Group, the nearly $90 million that's gone to youth mental health and children at risk, that wouldn't be possible. Now the -- please remember that these are investment vehicles. So you've got the highest quality ICs that we can put together selecting these managers that are managing money on everyone's behalf. And the #1 focus is to perform. Both FGX and FGG are trading at discounts at the moment. We brought Lee Hopperton on board, who's got – who was very senior at Perpetual when he left and came to join us. So our plan is to get these trading back at NTA, if not premiums. And I probably -- you could argue that both these entities should have permanently implied premiums. So it really is just work that we have to do on our end in terms of communicating to the current shareholders, making them understand what they've invested in, so they're happy and then find new shareholders that want to take out the people that want to give some money away by selling them at a discount and then moving it back up to NTA. So thanks, Caroline, for all your work as CEO. We probably don't thank you enough.

A lot of shareholders do, so that's good. I like that.

And again, you said at the very start, look, this is your company, shareholders. If you've got any questions or comments or suggestions, please feed them into the team and -- so then we can assess them. Thanks.

So just to wrap up, thank you very much, Nick. Thank you very much, Suzanne. It's just so good to hear about what you do. We're going on our roadshows in April. So we hope to see as many of you as possible there. And we're going to come back some of the questions, I'll come back to you, answer them via e-mail or give you a call. I hope you found it today insightful, and I look forward to speaking or seeing you soon. Thank you.