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

Good afternoon, and welcome to the Future Generation Global Q&A webinar. Before we begin, I'd like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land and acknowledge their elders past and present. So welcome. The next slide I'm going to show is our disclaimer. I'm not going to read it out loud to you, but please note that this is really not advice for your investment. This is just general going through what our results are and for your information as well. But we're always happy to take questions. So if you have any questions, and thanks so much to everybody, we're getting quite a few in at the moment. Please do fill them in the Q&A box, and then we will answer them. So online, we have today, we have Geoff Wilson AO, who is Future Generation's Founder and Chairman of Wilson Asset Management. And we also have Lee Hopperton, who I'm delighted to have here today because he is an inaugural CIO. So it's great they're both here. And the other person that I'm delighted to have is Will Low. Will is one of Yarra senior fund manager at Yarra Capital, and they are one of Future Generation Global's pro bono fund managers and they've had a really strong investment performance, especially over the last year, which is actually what we're going to be talking about. All of our fund managers, besides Yarra, 15 others, they all work pro bono. So thanks very much to them. Will is actually joining us from Edinburgh. They are 9 hours behind. So it's just about -- it's just after 5:00 a.m. So really, thank you so much, Will.

Delighted.

Excellent. You're all there. Everything is working. We love that. So first of all, we're actually just going to discuss yesterday's dividend announcement and give an update on the portfolio investment performance. And then we're going to talk to Will about global markets, and then we're going to go to Q&A. So you know what the sequence is that we're going to go through. The next slide, I think that's just a great summary of what we put out yesterday and what we're going to talk about briefly now. So as you can see, our investment portfolio increased 20.8% in the past 12 months and that was to the end of June and we outperformed the MSCI by 2.8%. And I think this outperformance is really encouraging, especially given the volatility and uncertainty in the global markets, which we're going to come to later. With this investment outperformance, the Board decided to increase the fully franked interim dividend to $0.04 per share. And so this increased dividend represents an annualized fully franked interim dividend yield of 5.3%. And it's grossed up, that 7.6%, which is based on the 15th of July. But you can see all that there in the slide. I think what I always like to say here, I'm going to say it again, is these yields are significantly higher than both the average global equity market yield of 1.6% and the average U.S. equity market yield of 1.2%. So as [Technical Difficulty] as you can see, [Technical Difficulty]. I'm not sure what's happening with the sound there. [Technical Difficulty]. Oh, it's gone. Perfect. So as I was just saying, in terms of the chart to the right on that slide, we can actually see that for the past 6 years, we've increased our dividend every year and moved to twice a year. And I think this really demonstrates the strength, reliability and the sustainability of our model, our ability to deliver a growing stream of fully franked dividends in varying market conditions to you, our shareholders, the owners of these companies. So since inception, 10 years ago now, the company has paid $0.487 per share in fully franked dividends. That also includes the value of the franking credits. So our total shareholder return is very strong. For the past 12 months, it has been 22% or 24.7% if you include the value of franking credits. And this has been driven by the investment portfolio performance. So I'm now actually going to bring Lee in here to really sort of talk more about our investment portfolio performance. Lee joined at the beginning of February and he sort of works with a very talented 8-person investment committee that we have. The people on that committee advise super funds, and they really oversee our strategy and portfolio allocation. So with the investment portfolio performing so strongly and we brought in 3 new fund managers in January and everything that's going on in the world, Lee, perhaps you can give us a synopsis of what's driving that performance, please.

Yes. Well, firstly, it's wonderful to be part of the Future Generation family. And I've been very fortunate in joining at an excellent time because, as you said, the portfolio has got great momentum at the moment, delivering over 20% over the last 12 months and that's nearly 3% ahead of the index or what you might achieve in a passive ETF investment. So I can't take the credit for that, but I've joined at a fantastic time.

Take the credit. Take the credit. I will or Caroline will. I think...

We do anyway. You're now evolved.

Actually, Will, he'll be taking and he deserves it.

Will does -- I mean, there's probably 2 groups of people who really deserve the credit here. One is we've got a pro bono investment committee that Caroline mentioned, which is it's got 8 members who are highly experienced. They're CIOs, they're asset consultants, they're other fund managers, highly experienced. And their role is to make the decisions about which managers we invest with and how much we have with each. So portfolio construction has been a key driver of that over the last 12 months or so and really into the last 6 months because 6 months ago, there were some portfolio management changes, which were made. And among those, 3 new managers were introduced, and they're pretty exciting managers. In the big cap space, we introduced GCQ Global Concentrated quality. That's run by [ Jeff Tynan ]. He's ex-VGI. And it kind of does

Doug. Doug.

Sorry. Doug Tynan. Doug Tynan. That's what it does in the -- does exactly what it says.

Even though I like the name. The first name.

Yes, sorry, Jeff. It does exactly what it says on the tin. It's got a lot of quality -- large quality names in it, such as Airbnb, Mastercard, Visa, even WD-40, if you're on our roadshow, you probably would have heard about that. So they're in the portfolio. They add a lot to the blend that we've got. And we also introduced 2 small cap managers. Small caps on the global scale are slightly different from on the Aussie scale in that they are quite substantial businesses often. In that space, we introduced Fairlight, which is an Aussie-based manager with a great track record, fantastic process. I met them a couple of months ago. And we also introduced Langdon, which is based in Toronto, Canada, another company with a fantastic track record. And over the last 12 months, I think they've delivered over 20% as well. So the portfolio adjustments have really started to bear fruit in the last few months, which is great to see. It's probably worth also just quickly reflecting on what the investment committee is trying to do and that is to do better than the market, do better than passive ETFs, better than the MSCI, but to take less risk. And we do that with 2 key levers. One is diversification and we do that with having some -- a diverse group of fund managers, different strategies, different styles, different ways of approaching the market and then a broad number of stocks that each of those fund managers own. And the second important thing that we do is we're active. We're active at the portfolio level and all of our fund managers are active. And that helps them to adapt to the changing market because it's been a very difficult and volatile time. So that's how it's achieved and that's why we feel very comfortable that the performance that we've had recently is sustainable and we hope to keep delivering strong performance.

Excellent. Thank you very much, Lee. I mean, I think diversification is incredibly important in our portfolio and the fact that fund managers have shown that active management really works. So Geoff, obviously, you're on the investment committee and you discuss the fund managers at length and in terms of who we invest with and also the volatility in the market. How are you and the IC thinking about navigating that current market and sort of geopolitical volatility at the moment?

Yes. And probably just picking up on what you mentioned and also what Lee has mentioned, what we're trying to deliver for investors is less volatility than the market and better returns than the market. And you'll see all the fund managers that we've got our money with, the founders or if the founders aren't managing the money, they're very close to the money. They tend to be the boutique fund managers, so we're backing them because, a), they have performed and we want them to continue to perform. In terms of how do we deal with the volatility, in terms of how the investment committee puts the portfolio together, as Lee has mentioned, we've got a really experienced investment committee and you've mentioned as well. They're doing this pro bono, but they live or die by their decisions in terms of allocating money to the various fund managers. That's their day job. And for us, they do exactly the same. And really, what [Technical Difficulty] -- there we go. But yes, what they've successfully done is put together a portfolio of fund managers that will give you less volatility than the market. And that's -- some fund managers will short the market. We've got [ John Temberland's ] right-hand man, [ Mark Hallowescu ] based over in the Bahamas. And yes, and how does he manage his pool of capital that he's managing on all shareholders' behalf is he'll be long undervalued stocks, but he'll be short other stocks that he might think are risky. And it's the combination of the various managers that really gives us less volatility in the market and will give us a better performance in the market. And in terms of the volatility more recently, like volatility from an investor's perspective, when markets are falling, fund managers get excited. And so probably the thing -- when it was sort of the Trump tariff tantrums the market was having, that was a great investing opportunity. Probably one of the concerning things is more recently, the markets have been quite subdued and tend to be hitting new all-time highs. So as a fund manager, you probably -- you get a little bit nervous that things are too good. But in terms of the various managers we've got, it's to give us the growth when there's growth there and to protect the portfolio when it needs to be protected.

Thank you, Geoff. And now one of the things, obviously, that we've just announced is we brought forward our announcement for our interim dividend of $0.04 per share. You obviously are on the Board. Why did you decide to increase the FGG interim dividend and announce it early? And what does that show in terms of your confidence?

Yes. Well, a couple of things from the Board's perspective is the -- like what is Future Gen Global worth? What are the shares worth? They're worth their assets, the value of their assets. And the most recent NTA that's been announced is $1.71. So that's what they're worth. So you'd expect them to be trading at $1.71 or potentially a premium. And why would you expect them potentially at a premium is because you're actually having your money managed by these really good managers on a pro bono basis and you're not paying management fees or performance fees. And most of these fund managers have performance fees. So you're really getting a great deal as an investor. So you could actually argue that this structure should be trading above NTA. What is the share price currently? I bought a few yesterday, I bought a few more today after the announcement was made, obviously, waiting for that to occur because they're trading around that $1.52, $1.53 mark. And the Board is aware of that discount and really wants it to be -- particularly for anyone buying, they're getting -- they're pretty excited because they're getting $1.71 of assets cheaply and a good fully franked yield. But for anyone selling, they're selling 10% plus below what the company is worth. So it's from a Board's perspective, it's a lot -- the Board would prefer the share price to reflect the value of the assets, which is around that $1 -- a little over that $1.70 mark. And also, I think the Board wanted to clearly articulate the fact that what the dividend is, highlight the performance, which everyone might have focused on and to help that gap decline. And one of the reasons, Caroline, under your guidance, bringing Lee on, I know you guys have got a really detailed shareholder engagement communication strategy to help drive that share price to trade at NTA, if not a premium. And just putting my Wilson Asset Management hat on for a minute, go back 1.5 years, we had a similar situation with WAM Global. It was trading at an 18% plus discount and really committed significant resources in terms of communication, marketing, shareholder engagement. Now that's trading at a 2% or 3% discount now. So to me, we all know it's supply-demand. FGG, the performance is there. The dividend is there. The ability to keep growing that dividend is there. So it's just getting that supply-demand equation to work for you.

Thank you very much, Geoff. So now I'm going to turn to Will. Will, thank you so much. I'm really delighted you're here this morning. I mean, you are one of our top-performing pro bono fund managers, as Geoff said, and you've delivered exceptional returns for a number of years. You have a lot of experience in global equities. And I've spoken to you before. We did a podcast last April, which was really interesting and I know a lot of shareholders really enjoyed listening to you. So I'm just going to ask you about your performance. And can you tell us what's driven your outperformance?

Well, first of all, delighted to be joining the call this morning or this afternoon for you. First of all, in the last year or so, we've lived in a world where clearly the goalposts get moved more regularly than we'd all like from geopolitics or from tariffs or other related stuff, which is a little bit frustrating. But actually, if you've got a longer-term time horizon, you always remind yourself where do the returns come from. They don't always come from the price you pay for stuff. It's around about the delivery of growth and profitability. And really, what we're really focused on is searching with a very clear philosophy, which I'm sure we'll talk about in a minute, knowing what we're looking for within sectors or within countries and finding, as is always the case, there are some winners and some losers. And getting the right side of those companies that are flourishing versus those that are not is really where the added value comes from. So really, it's down to be stock picking within sectors and across geographies. And thankfully, we've done a pretty good job of that in the last 12 months or so.

So you -- let's talk about your investment strategy. I mean, I know we spoke about it on the podcast, but what are you actually looking for when you invest in a company?

Well, I think, as I mentioned earlier, the last 12 months have been a good reminder why as an investment manager, one of the key ingredients of being successful is really making sure what is your radar, what is your guiding light, your religion, whatever you follow in the path you're looking for, for your source of investment returns because the market is going to push and pull you day-to-day, month-to-month, but you need to always fall back on exactly where your excess returns are going to come from. And we're pretty clear. There's 2 things that we look for in every company in the portfolio. The first one is the path of returns on capital. So we want companies to grow, but more importantly, have the ability to attain and sustain very high returns on capital over a long period. And by that, we mean 5 years or longer. And we combine that with a quality test where each company has got to meet 4 key pillars: the quality of the franchise, the quality of the management, the strength of the balance sheet and probably quite importantly in the last several years, also the price you pay for that future growth and returns, i.e., the valuation. So really by sticking to that very clear philosophy and almost falling back on what we call our future quality approach, is it on the right path? Does it have the 4 quality pillars in place and making sure your portfolio is very disciplined way is made up of nothing but companies that meet that criteria.

So what -- maybe you could give us a few examples in terms of what companies you currently hold that really capture what you're looking for in that long-term investment?

Well, hopefully, every one of the 42 companies will [indiscernible]...

Yes, I've seen that.

Okay. But let me give you a good example. Like Compass Holdings, which is a company we bought actually just prior to COVID and had a bit of a testing period where is an outside contract catering company and suddenly in sports stadiums, in schools and in offices, suddenly, there was a shortage of demand for a while. Thankfully, obviously, when you've got a great business and franchise with a strong balance sheet, we decided they would like to come out of that better and stronger. So even we bought a position before, we added more and it's delivered exactly the type of things that we look for. It's been able to be post-COVID deliver consistent growth, driven predominantly by growing market share versus competitors who have a poorer franchise and poorer balance sheet and deliver those consistent growth and high return on capital over a long period. It's the power of compounding and the companies are on that path of delivering that sustained returns on capital. And I think Compass Holdings will be a very good example for many years and remains one of the top 10 positions today.

Excellent. Thank you. So now I'm going to turn to what's happening globally. We've got a lot of market uncertainty. We've obviously got Trump. We've got tariffs. We've got war in the Middle East. We've got a lot of questions in terms of the U.S. dollar and bond markets. And I mean, there is always something happening. So how do you personally tune out all of that noise and really stay focused on the long-term returns, but also think about what's going on in the outside world that might impact your portfolio?

Well, I think at the end of the day, it's not about the headlines because headlines are what they are, particularly in the news media, it's all about controversy, the more exaggerated the better. So really, I think one has to stand back and look at some of the more of the longer-term implications. But really, the best way of doing is always falling back and asking that same question. For us, we asked that question, I mentioned the future quality one, path of returns, 4 pillars, and it is what's happening in the world. And things do evolve and change, not always quite as much and as quickly as you expect. But when they do evolve and change, you ask that question, the companies you own, the reasons why you own them, are they being questioned or changed because of what's taking place. More than probably not changed at all, but sometimes it does. And if you went back 2 years ago, for example, the emergence of AI and the growth of that as a serious wave of innovation was a big change. Some of the changes taking place in Trump undoubtedly will have long-lasting effects, but there's also quite a lot of bluster and noise. So I guess really, that's down to the effect of the skill of the manager to try and make that judgment call to the individual company level and, of course, at the aggregate portfolio level.

So let's turn to sort of big picture themes. Obviously, interest rates globally have stayed higher for longer than expected. What do you think -- how do you think about interest rates in the context of how you invest?

What we certainly don't do is try and predict what the 10-year bond yield is going to be next month or next quarter. I believe others here are much more expert than that. But undoubtedly, the cost of money has a significant bearing on the range of companies and more broadly, the economic cycle. I think the broad conclusion we take from the current environment, particularly given the ongoing fiscal profligacy that exists in the world, combined with probably the money creation and later inflation has been there ever since the kind of post-COVID period. I think you've got to continue to believe that high real interest rates relative to the long period when money was free to anybody at a remarkably cheap price and people could easily consume their future earnings today by borrowing. It looks like we still live in a world where central banks and combined with some of the other geopolitical factors means we're unlikely to ever return to that in short order. So we're going to have higher real interest rates been used for a long time, which is effectively discouraging consumption, encouraging more savings in most of the major economies of the world. So what does that mean? That means to us, there's no big economic cycle that's likely to emerge in any short-term time horizon to make an average company look great for a while. So really, what you want to be really focused on as a company has got the ability to grow, deliver returns through things such as industry focus, growing market share, unique franchise, et cetera. That is much more likely where you're going to get superior returns and hoping to have it -- for some reason, the economic cycle and the monetary policy settings is going to make it easy for everyone, it doesn't look like it's going to happen anytime soon.

So you've talked about AI, and we talked about it quite a lot on our podcast, but it's reshaping so many different industries at the moment. I mean, are you looking at any particular companies where you see really great investment opportunities because of AI?

Well, I think that's an area we're focusing and trying to find. But to be clear, just like major innovation waves of the past, undoubtedly, there's going to be some emerging new winners we don't know about yet. And they could be in the listed space, they could be in the private space where there's clearly a huge amount of capital going as well. So in terms of the adopters and implementers of the rapidly emerging AI technology, to be clear, it's not really obvious who those clear winners are yet. I think what we do know about AI so far is that the scale of the CapEx going in from the main players continues to surpass those looking for the cycle, trying to call it a bubble, to be honest, way too prematurely. The pace of the innovation, the need for inference type commute versus just training, combined with sovereign and dare I say, obviously, defense and other related AI, the needs of AI and the willingness of CapEx to make sure that the participants will be participating in this race towards artificial general intelligence from the big spenders and the hyperscalers is happening for longer and to a greater degree than many expected. And there are some companies clearly hugely benefiting from that profitability and cash flow and a huge amount of economic profit and betting it's going to end tomorrow has been quite an expensive thing to do. So we still very much got some of those positions in the portfolio. But we do recognize that there will be at some stage, a pass on the baton for those who are spending the CapEx to enable the innovation to those who are actually utilizing the technology to do different things. And who those winners have been in terms of the application, to be honest, that's still developing.

So let's turn to China. I remember last time you used the term subdued growth, which I actually quite liked. I mean, are you looking at China still? And are you seeing sort of compelling investment opportunities there? Or are there any other sort of emerging markets that you find attractive?

I think we always look for companies, we don't look for markets. We look for companies. So -- but first of all, I think that's where the challenge for China has been is 2 things. One is the broader economic growth. Let's be honest, been going through a deflationary bust that most other or many other developed economies have gone through, living the consequence of a debt-driven asset-intensive growth period that can no longer be continued and we've now got asset deflation and they're doing the best to try and shift towards household savings spending to offset the lack of growth elsewhere. But really, they're also doing extend and pretend. And we shouldn't criticize China for that because every other Western democracy has done the same thing by extending, allowing people to borrow from the future and maintain consumption and/or spending for longer. So we believe the general economic backdrop in China is not particularly conducive and you have that ongoing geopolitical uncertainty is what is the right risk premium to apply to owning a Chinese business, particularly as a foreigner and going through an entity that's listed in Hong Kong, U.S. or elsewhere. So those 2 elements means we're very circumspect and really want to be confident that the company we do own has really got the metrics and the quality that we're looking for. At this point in time, we've only got one Chinese holding, which is Trip.com, which we bought in the last 12 months or so.

So I'm just going to ask you a couple more questions. There is growing concern at the moment about rising government debt across the Western world. But in the U.S., it's particularly an issue. Do you factor that into your thinking in terms of opportunities or a risk?

Not so much in terms of it really relates to what I talked about earlier in terms of the yield curve and the cost of money and the implications that will have for the ability for economies to grow. Many businesses on both the governments are effectively obviously borrow throughout the yield curve. Many corporates try and borrow long to higher cost at the long end of money because of politics, tariffs, inflation and so on are all quite relevant to that cost of money, which really probably means to us is the cycle is going to be and overall growth is more challenging while the government spends more money than they should do. Longer-term borrowing costs will stay high, which means probably less growth because we're still gradually adjusting in many economies and taking a look at the U.S. where it really matters, where people have borrowed long as households in terms of mortgage market or borrowed long in terms of corporate borrowing, that's still gradually being repriced at higher rates and that has really continued to dampen down the longer-term growth prospects. So it doesn't mean significant difficulty. It just means subdued growth is what we would look for. Last thing I think we would observe and watch for what do governments do next because clearly, governments cannot afford to lose control of the long end of the yield curve given the existing amount of long-term debt. The optimistic slot there would be that I'll make sure that Trump doesn't get too carried away because really the markets will control what you can and cannot do because even he knows that you cannot lose control of the yield curve. But also means at some stage, potentially in the future, governments will probably move towards financial repression in some form because they just cannot afford the long-term cost of government blow-out when debt burden is as high as they are. So these are things to ponder and watch in the coming years. But really, it still comes back to you, are you in the right companies delivering profitability today at significant high returns on capital. That's what we're focused on.

Can I just ask you because obviously, in the podcast we did last year, you had Netflix as one of your long term. Is that still in your portfolio?

Yes, it is actually. And again, it's a good example of really what we're always trying to find. You won't find companies that are growing and do something a bit different. But when the drivers of that path that we mentioned is so important to us of improving returns on capital and better growth, it's driven by what the company is doing and unique to that business, that's a lot more interesting to us. That's really where you get that diversified alpha in a portfolio. And Netflix being an excellent example of that. It's a market share gainer. It's got a much better franchise than its competitors. I know in the U.K., I don't turn on -- the BBC is the first thing to turn on anymore. It would be Netflix. But many other households are exactly the same. It's become the dominant and leading platform for streaming services. Combine that with a change in the business model for charging for some users when they didn't before, combined with the greater source of advertising within that, which is higher margin, you've got that better growth and rising returns that we look for. So yes, very much Netflix is historically believe in numbers out after close tonight. Hopefully, I don't get any real surprises on that journey, but very much still in the portfolio.

Well, Will, thank you. Thank you so much. Thank you very much for the work you do, but also for working pro bono for Future Generation Global as well.

I'm now opening to questions. We're actually getting quite a lot of questions in. So I'm just going to go to one that came in earlier and that's for Lee, Geoff and Will, and that's from [ Paul Kalmar ]. We've had actually a lot of questions from Paul. So I'm going to be using the surnames. So from Paul, the economic and social decline of the USA and the U.S. dollar, the rise of China and the drag of Southeast Asia and potentially a more economically focused EU, all with the background of Middle East tensions and Russia, Ukraine, it would be really good to hear from Future Generation Global on how we approach the investment decisions with that broad background. And then to you, Will, should investors expect an enhanced review -- enhanced return in view of the volatility of the global landscape?

And just take -- or do you want to -- like take us to...

Maybe you go first, Will, and then in terms of that enhanced view.

I don't think I would call it enhanced return because of volatility because the volatility tends to be short term. It tends to be around about the -- obviously, the price you pay month-to-month to quarter-to-quarter relates to headlines. And if your strategy is around about trying to get returns and guessing those short-term fluctuations in the market, all is just good luck. My 37-odd year history suggests that's a pretty hard kind of seem to mind but as a source of consistent added value. Being in the right businesses over 5 years or longer doesn't tend to change the short-term volatility. So no, I wouldn't suggest the volatility particularly changes the alpha that we're looking for, not if you've got a longer duration time horizon.

Thank you. Maybe now to you, Geoff.

Yes, what was the first part of the question?

Is everything happening globally -- how do we approach investment decisions?

Yes. Yes. And the -- I mean, what we've done is the investment committee has put together a portfolio of managers, which we think will perform in all types of environments. And if those managers aren't performing, then for a reason that they have changed how they manage the money or that they have -- they've lost key personnel or they are consistently not performing for a reason, then we will change those managers. Currently, we've got 16 managers. They all do pro bono, but we have in and out, I don't know the exact number, Caroline, but it would be 20-plus.

30, I think.

30, is it. Yes, so...

Both the vehicles, yes.

Yes. So yes, so the portfolio is positioned. We all know with equities, there's volatility. Actually, I'd be interested to know -- I haven't looked at the numbers recently, but I know the volatility, even though it feels as though it's been very volatile, I think the volatility over the last year compared to a number of years ago isn't as extreme. So yes, the portfolio is set. We rely on the individual managers to make the right decisions. And that's -- you see by the performance of the group of managers, that's what they've done.

If I might just add just a couple of things to that. One is that the -- whilst we rely on the managers who are all very high quality to make a lot of those decisions for us, there's a couple of levers the investment committee can pull as well. So we invest in quantitative managers, long/short absolute return managers. We can also hold cash and long managers as well. So we can play with those levers a little bit at the company level to make sure that we're correctly positioned for the view of the investment committee. And then, of course, beneath that, all the managers themselves will form a view, which we back to navigate that correctly. So for example, the company can hold up to 20% cash in the portfolio if it needs to at any point in time. And we also have a bench of managers that we always have on standby if we need to make an adjustment.

That's actually been true, hasn't it, for the last few years? We're actually getting fund managers who actually want to manage the money for fee generation, which is a great position to be in, which was really solid. Will, I think I've got one question for you, and then maybe I'll let you get back to your day. It was just more in terms of your portfolio and whether or not you're more in the U.S. or in Europe.

At the moment, we're relatively balanced, to be honest. And again, it's really driven by the kind of bottom-up stock picking. I think there's a lot of been headlines in the last 12 months, particularly after when there was a period of the -- I don't know where it came from U.S. exceptionalism came to come out of the woodwork and be talked about everywhere. But in reality, it was just a bit of love in from investors to the U.S. relative to other markets for a period. But really, that's been unwound, particularly in the first quarter of this year when people were just buying stuff because of Trump and other related. We got past some of that nonsense and much healthy. And we need to remind of why does the U.S. make up a large part of the world? Because actually, it has been a kind of a [indiscernible] kind of growing place for a significant number of great companies much more than we see elsewhere in the world. The number of very large high-quality franchises with remarkable growth trajectories and more importantly, very high returns on capital, which, to be honest, are much harder to find anything like the same degree of number listed elsewhere in the world, particularly global businesses. So the U.S. over-indexes because it also over-indexes in both the scale of profitability and the degree to which remarkably high return on capital businesses can be found there more so than elsewhere. So we're generally relatively neutral in the U.S., but really driven by bottom-up stock picking. And last thing I would add though, I know -- conscious of time here will be on Europe. It is worth to remind yourself, there has been a sea change in Europe and that does relate to the actions of Trump have been certainly a prod and a catalyst for politics in Europe and particularly in Germany to change quite dramatically how they expect to grow their economy with effectively reduction savings and greater spending by the government on the fiscal side is a bit of a game changer. It won't change the growth trajectory overnight, but certainly it will be different from what we've seen in recent years.

I'm very sorry, Will, but [ George ] has just pit me to the post and he's got a question for you. Do you think the AI theme is at the start, middle or end of its structural shift?

Well, in terms of the CapEx, it's probably in the middle. In terms of the full run where we can go in terms of development of AI in terms of how far the technology can go, who the winners and losers be, we're still relatively early. I think that's a 10-year story. I think it depends on which aspect you're looking at.

Excellent. Thank you so much, Will. Thank you so much for your time, and we really appreciate all your support. So I'll let you get on with your day at, gosh, 5:40 in the morning. Thank you.

Thank you very much, and thank you all for listening.

Thank you. So Geoff, the end of that question is what percent of the FGG portfolio is investing companies supplying AI's hardware and software?

Yes. Well, Lee, I mean, you were drilling down on -- do you want to just update the people on how they find all that?

Yes. I mean, it's a really difficult question to answer that because defining AI is also quite hard because you've got extreme upstream, which is like power generation and transmission through to the software development, the chip development and then the companies that use it. And the other reason it's hard to give a precise answer to this is that we're relying on our managers who are being active to tell us exactly what they're doing at points in time. We do that periodically to make sure that we know where we're overweight, where we're underweight, what kind of biases the portfolio have. The last time we did one of those, we were somewhat underweight the mega cap companies, the largest companies, the MAG 7, which are now [ scarcely ] about 1/3 of the S&P and that would include some of those large companies. But there are lots of our managers looking at the impact that AI will have and where they can really add value. So on our roadshow, one of our managers was talking about specifically power supply, data centers and those kind of things where we do have significant exposure.

Yes. And in terms of the -- like we put in the annual report each year, just we try to give you as much detail as we can in terms of the portfolio, the weightings, the stocks, et cetera.

And if anybody wants that e-mail to them, please let us know and we can do that. So the next question is from Paul Duncan, another Paul. And he's got 2 actually. So I'm just going to try and shorten them. He wants to know about the ability to protect shareholders' capital if markets go into a deep multiyear bear market. And can we do more to diversify into more absolute return-focused funds rather than funds that aim to outperform share market index. And the next one that he asks, which I think it does dovetail into that is, can we relax the self-imposed investment constraints so that we've got more discretion to hold cash and other defensive investments?

The last one is yes. That's to me, the logic of -- and I think as Lee said and Caroline has mentioned as well, is we're looking at the company level. And I think at the moment, at the company level, we're holding about 6% cash.

Yes, we are.

And then you've got -- you're looking at the individual managers levels. Now with the absolute managers, I think they make a little bit under 20% of the portfolio. Some of those are short stocks and some of them could be holding levels of cash. Where the -- and then you've got the [ QAM ] managers, some of them will be short the portfolio. And the QAM guys, they tend not to hold much cash, do they?

No, tend to be not.

Yes. And the other long managers tend to be -- hold -- they don't hold much cash at all. So the investment committee could easily change the asset allocations and even for the company from the company, the fact that we try not to have more than 20% in cash. I mean, what we've all found is that if we thought we were going to go into a very -- we believe that there was enormous risk in the market and we wanted to increase our cash levels. That is a possibility. And we could dial them up further than 20% if we wanted to. So to me, what I found with investing, it's all about having maximum flexibility. What we do know is that over time, equities perform and then also, if you can find managers that outperform, then you're going to get the double whammy as an investor. So that's all possible. That's not our view at the moment. And on a monthly basis, you see where our portfolio is positioned.

[ Andrew Galbert ] has just added one to that. So given the current levels of uncertainty, can you give an example of how we're adjusting our preferred investment sectors and regions due to this sort of increase in risk?

Yes, that's -- we leave that to the managers. Back in the -- when FGG was set up, we had a bit more of a skew in terms of the managers rather than just picking global managers. We had like a couple of Asian managers. And what we've decided is it's -- we removed those managers. I think there were 3 or 4 of them and we decided we're better off letting the individual manager to make those decisions about if he doesn't believe the opportunities to make money is in the U.S., he believes they're in Asia or he believes they're in Europe, then he can make the decision in terms of waiting up or down in those areas.

So I know the answer to this, but before my time perhaps, Geoff, have we ever looked at any fund managers that have Bitcoin?

Yes, I can't think of whether we have. Can you...

I don't -- not that I've...

Not in my 4 years, but -- yes.

And it wouldn't have been before you to [indiscernible].

I know. But I was just thinking maybe you did, maybe that was an emerging trend.

Yes, it could have been. It could have been -- it would have been nice if we made that decision. But pretty much what we -- with FGG, if you want -- you've got to remember, FGG, you're buying a global -- you're buying a global -- exposure to global equities. You're not actually buying exposure to crypto or exposure to global property or exposure to global fixed interest. They're all asset allocations you can make yourself. So for your global equities, I actually was speaking to a shareholder yesterday, and he was saying he's got 30% of his money in the global equities and he splits it between Berkshire Hathaway, Warren Buffett's and Future Gen Global.

Brilliant choices.

Exactly.

All of us wish to do that. So I'm just going to go to the next one is we've had a few questions on this. I'm just going to condense them if that's okay. This is from -- there's a considerable amount in the profit reserve of FGG. What are the options as this increases?

Yes. And look, first of all, you'll notice in the announcement, we actually haven't put -- I don't think in any -- in a box or we haven't sort of put the profit reserve front and center. And the reason we haven't done that is people, unfortunately, I don't think fully understand what the profit reserve is. What the profit reserve is, is over any 12-month period, starting from the 1st of July, it's the amount by which the assets have increased to the highest point over that 12-month period. And it doesn't include the amount by which the assets may have fallen after they reach their peak. It is an accounting function. And what it does -- and the reason we do it is because a number of years ago, the [ Corps ] Act decided to try to define what a profit is. Before that profit wasn't defined. And so what we do is we put the money in the profit reserve to really give us the ability to pay out dividends. And one of the great things about a company structure is you can create these profit reserves. And so it really gives you enormous confidence and yes, enormous confidence in you as an investor understanding that you will be getting dividends over a period of time. So just if you want to look at the balance sheet, I think there's -- is it $0.68 in the profit reserve or something like that?

$0.695.

$0.69. But then also, if you look at the balance sheet, so before you get to June 30 -- and the profit reserve, it resets again on the 1st of July each year. So before you get to June 30 each year, if the portfolio has fallen in, say, March, April, May, then those losses are netted off against the profit reserve. They're in retained losses. So at the moment, we've got, I think, in the balance sheet, $104 million in retained losses, and I just -- and that's $0.26 a share. So you think there's enormous profit reserve. In terms of the NTA, you've got to net one against -- up against the other. Now in terms of the -- first of all, so the profit reserve is the amount by which the portfolio has gone up. If you net it off, then it's the amount by which the NTA has increased over a period of time. So that allows you -- then -- well, that's the growth in the NTA. But what you haven't done is you haven't necessarily -- we haven't redeemed from those managers. So we actually haven't sold the stock, hypothetically, if you're looking at a portfolio to crystallize the gain, which you then pay tax on and gives you franking to pay a fully franked dividend. So at the moment, there's a little over $0.08 a share in franking in the balance sheet. So it really wouldn't make sense for us to pay out -- well, first of all, it wouldn't make sense for us to pay out the $0.69 because you're actually -- and it wouldn't make sense to pay out even the net amount of that, the $0.26 off the $0.69, which is the net change in NTA. And also, you've got to remember, this is global equities. If you invest in global equities, then you're getting a yield of a little over 1% and that's not franked. But if you invest in Future Gen, then you're getting a yield grossed up, what's the...

$0.076 or something.

Yes, $0.076. Yes. That's the grossed up a little over 5% fully franked. Yes. And we've got the profit reserve there, so you've got confidence that you'll get profit over time. And also, there's some franking there. Now we could easily run out of franking, like if we didn't -- if we decided all the managers are doing a great job and we didn't redeem from any of the managers over the next period of time, then we don't naturally get franking unless we redeem from a manager. So because the global managers, they have very little exposure to Australia. So we're not getting an easy flow-through of fully franked dividends. So I know that's quite a long explanation. But I know, Caroline, you said -- we've had a lot of the questions being sent through. So I tried to sort of cover all the aspects. And if you have any more questions about it, please -- and we're not going to -- you won't see us highlighting profit reserves again. Like does BHP announce their profit reserve on a monthly basis? No, they don't. Does NAB announce their profit reserve on a monthly basis? No, they don't. They all have retained earnings, so they all have profit reserves. Yes. So people unfortunately, don't fully understand it, are getting -- think that it's a big profit that we've held -- that's not invested that's held there and is waited to be paid out.

I think that's really important. Like if anybody actually wants to talk to us about it, please do ring and we'll go through it or whatever because I think when the rules changed, there was a lot of education around it and it's something we need to continue to do.

Correct. 100%, Caroline.

So one -- I mean, I think we do have a couple of questions on that. So -- but it's roughly the same when you've answered all of them. But if the -- if anybody does, please give me a call. So [ Rod ] has asked, what are the major differences, Geoff, between FGG and WAM Global?

Well, first of all, FGG is a fund of funds. So there's those 16 fund managers. And I think, Lee, we're just trying to work it out. We think over 1,000 stocks, you're getting exposure to where WAM Global is effectively one of those fund managers. So you're getting exposure to -- and I think the WAM Global guys have 40 or 50 stocks. So it's -- yes, it's just -- it's -- one is a diversified portfolio and one is not. They've all got different profit reserves, different levels of franking. Because of the structures, they're both in company structures, listed investment company structures. So you can work through that. So it just depends what you want as an investor, what you're looking for.

Exactly. So [ Trevor ] has asked a question. Given the significant amount of portfolios are in U.S. dollars, how does FGG plan to mitigate the effect of a falling U.S. dollar? Which ones are hedged? I know Lee just did this work, so.

Yes. I mean, basically, it's unhedged. Many of our managers retain the ability to hedge if they need to. So they can take a view on currency if they feel circumstances are extreme enough for them to do that. It seems -- it's relatively unusual from what I can see for them to do that. As a company, we don't take a view on currency. We leave that to the managers to make a call.

Thank you. And another question from [ Jim ]. The profits reserve is higher than the total dividends paid to date. Have we considered a special dividend to bring this back to normal times?

Jim, if you -- well, I'd be interested to know if you'd still ask that question because we could pay a special dividend. All we're doing is paying out capital that hasn't been fully franked. And so it would be very tax ineffective for the investor if we paid a special dividend.

So the next question, which I think is quite a good question from [ Agnal ]. Can Future Generation open a new listed investment company similar to WAM Income Maximizer or Whitefield Income? It will be perfect for retirees and income-seeking investors.

Yes, that's always an option. Future -- we've got Future Gen Australia, if you want exposure to Australian equities. We've got Future Generation Global, if you want exposure to global equities. There's Future Generation Women, which is -- gives you exposure to female fund managers or women fund managers on -- you can specifically go Australian equities or global equities. Could we do -- could Future Gen do a product that is -- provides investors a combination of equity and debt or even equities and provides dividends on a monthly basis? Definitely, they're all options. The first thing from an FGX and an FGG perspective is we want them to be trading at what they're worth and that's trading at NTA, if not a premium. So that's the first goal before we do anything else. That's the goal. And that's -- Caroline is focused on that and boosted the team by bringing Lee on board and there's other various people she brought on board. So that's the immediate plan.

We're still a lean team.

That's right. That's right.

I think that's pretty much all of the questions that we have. We did have one about a restaurant, funding a restaurant [indiscernible].

Yes. Why don't I -- that was a good question. In terms of -- I think the question was something along the lines of they need $0.5 million to $1 million to fund a restaurant. Look, thank you for that question. Probably the answer to that is that's not what Future Gen does. It's not -- we invest in managers that invest in listed equities. Even though personally, I did own 1/10 of a restaurant once and it's a very efficient way of losing money.

I was going to ask you to [indiscernible].

That was my experience. But to me, I was just 1 of 10.

So I think that's it actually. I've been surprised that we haven't had any questions on the proposed changes to superannuation. Is that something you just want to mention now, Geoff? Because it's probably something everybody will then write and going, well, we thought Geoff was going to talk about it.

Okay. Thanks, Caroline. And let's be clear that there's 2 points here. The first question -- and I think the public debate is getting mixed up. The first question is, is this -- are the super laws potentially too generous for people that have large money, like tens of millions of dollars in their superannuation fund? And the answer to that is yes. And should they -- should there be a more equitable way they are taxed? And the answer to that is yes. Meaning, sorry, should they be paying higher taxes or should they be getting the benefits that the people have got the smaller amounts of money in there? And the answer is no. So to me, that's the first part. And people are getting caught up with that. And unfortunately, the government has been sort of feeding that by saying, look, only 0.5% of people get impacted by these changes. But actually, every Australian will be impacted by these Australian -- if you're a 25-year-old nurse or social worker, by the time you retired, you'll be paying tax on unrealized gains. The $1.1 trillion that's in the self-managed super sector, which has been a big pool of capital for venture capital companies, the gentleman who wanted someone to invest in his restaurant, he's better off going to find someone who has a reasonable amount of money in their self-managed super fund and they're more likely to take the risk capital. And so that's going to evaporate $1.1 trillion of risk capital. So the second part is, is taxing unrealized gains, is that good policy? Or is it bad policy? And the fact is it's bad policy. And so yes, the negative impact that will have on investments, long-term patient capital is, unfortunately, for Australia is going to be significant. And the unintended consequences or the -- maybe the consequences from this will be very negative. And if anyone is passionate about it, please go to the Wilson Asset Management website, sign a petition. Also, there's an opportunity to put a submission into the roundtable, which Wilson Asset Management, we sent out to our 130,000-odd shareholders the other day. We'll be putting a submission in. This is the one that they're going to have is sort of the latter part of August, the 3-day roundtable that Albanese and Jim Chalmers is going to run. And so to me, please put something in there. Bizarrely, the Productivity Commission asked for submissions a few months ago and only 73 submissions were received. So I know you might think that your thoughts don't get heard, but like to me, put it in, put the submission in. So let's hope that they come up with something that will encourage investment, encourage long-term patient capital, encourage increased productivity. There was a great speech by Ken Henry yesterday in Canberra, the press club and a beautiful highlight. He said that Australian workers are worse off by -- is it $0.5 million over the last 25 years because of no increase in productivity. And that's -- if people working want to get paid more, then you've got to increase productivity. And unfortunately, we're sort of going the wrong way. But let's -- sorry, Caroline, you're warming me up on that. I'll let you...

I know we could do another hour on that, but I've just had a couple more questions in about -- sorry, I can't quite understand the question. It's actually about our not-for-profit partners and how long we're going to be supporting them because you announced that you would only be doing it for 3 years. But I'm delighted to let you know that the Board actually approved that we'd be supporting our existing not-for-profit partners for another 2 years. And their collective work has basically touched more than 5.3 million young people and what they're doing. And we continue to track that and we'll announce that again next year. So we can really see not only are we having a really positive performance, but we're also having a really positive impact on young people in Australia. And another question that's come in is congratulations on the performance. This is from Sarah Bee. It's been really strong in the past year. What are you expecting for the next 18 months in terms of our performance? And that's a high note to end on, I reckon.

I'll pass that to Lee.

Yes, we love making...

He might have a clearer crystal ball than I do.

No one is going to...

It's going to be good. It's going to be good.

We're going to try and continue to do better than the market is the answer there. But there's a few uncertainties out there as there always is, so it's difficult to predict anything.

Well, thank you. Well, thank you very much, everyone, for listening. We really appreciate your time. I want to thank, obviously, Will from Yarra in Edinburgh. He's gone now, but we'll send our thanks to him and also to Lee and to Geoff and the team that actually make this possible. But you're our shareholders, you actually own this company. So this is really for you. So if you have any more questions, we'd really like to hear. And we're actually phoning a lot of our shareholders at the moment to get more feedback. We want to know what you like about what we do. We also want to know what you don't like. And that's really important because we want to address those needs. So thank you very much. We've now got a little survey that will pop up, and I'd be very grateful if you could answer it. Thank you very much for listening.