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

Good afternoon, everyone. Thank you for joining us. This is the Future Generation Global full year results webinar. I'd like to start by acknowledging the traditional owners of the land where we are, which is the Gadigal people of the Eora Nation and pay my respects to elders past and present. I'd also like to introduce the gentleman here with me. To my right, I've got Geoff Wilson. Geoff, as you probably know, is the Founder of Future Generation. He's also the Director of Future Generation Global. And we've also got Dr. David Allen, who is Head of Long/Short Strategies at Plato. David is going to talk to us about his strategy. He's one of the top-performing fund managers -- Let me correct myself, he is the top-performing fund manager for Future Generation Global over 2025, and we're going to hear...

Probably '24.

So today...

We don't -- no [indiscernible].

Children...

That's right. So the agenda today is Geoff is going to make a few comments about the dividends that we announced a couple of weeks ago now and explain the theory behind those and why the Board decided to do that. I'll give a quick update on the portfolio, how we're positioned, and then we'll spend a bit of time talking to David about his strategy. There'll be plenty of time for questions and answers. I can see that some people have already asked some questions online. So thank you for that. Please keep them coming. Before we move on to the main game, we might just show you the disclaimer, which essentially says that anything the 3 of us say today is general in nature. There's no personal financial advice being given here. Geoff, I hand over to you for dividends.

Great. Okay. And look, thanks, everyone. Thanks for all the shareholders that have dialed in and the people are going to watch this or listen to this or read it later on. The Future Generation Global only exists because of the shareholders, and we like to do this each 6 months. So you've got an opportunity to hold management, Lee, and now Bonnie, who's joined us as GM recently, to account, and myself probably sitting. The hat I'm wearing is as someone sitting on the Board and a reasonable size investor, like everyone else here, and also, probably being on the investment committee. In terms of Future Generation Global, in terms of its performance and particularly over the last 3 years, but also more recently, it's continued to perform very well in terms of the risk adjusted returns, and from -- to sort of take you into the boardroom for a minute, the discussion -- when we're looking at the results for this 6-month period, the discussion was there's been a little bit of frustration that the Future Global was still trading at a discount. I think Lee, what was it 6 months ago, what -- it was about, what, 11%, 12% discount?

Yes, it's about 18% roughly this time last year.

Yes.

It closed progressively through the year and has been narrow now.

Yes. And the Board was aware of that. And I'll come back a little later to what I think the share price should be relative to the NTA. But the Board was aware of that. Yes, it was still -- I think when we had the Board meeting, to make the decision on dividends, we had a really good profit reserve, was 8 or 9 years of profit reserve. And our franking levels were a little bit higher. There's usually a lag between paying tax and the profit reserve. So the profit reserve will be higher and the tax gets paid later. And so therefore, the ability to pay the dividend is -- there's a lag on that. But we're in a position where we thought, okay, we actually want the share price to fully reflect the NTA. And that's been -- and we're as equilibrium, that -- that's trading at NTA, for the share price to be at NTA. So that's about $1.69 at the moment. And you can actually argue, like, there's a fair argument that says that both Future Gen Global and Future Gen Australia should actually be trading at a premium to NTA. I remember when I started in the listed investment market when we -- [ player ] WAM Capital probably 25, 26 years ago, a lot of theorists said the -- your discount to NTA should be the NPV of your forward management fees. So there should be a better discount. You've got to remember, when you're investing with one of the Future Gen entities, if you accept that 1% of that money is going to go to support youth mental health for FGG. If you put that to one side, then David and all the other fund managers, they're not taking their management fee or their performance fee. And -- so what the shareholder gets, it really is a win-win-win. And a lot of that winning is by the shareholders. So they get about -- on average, it's been for the last decade, about -- what is it, about a 40% reduction-ish in fees. So net present value that, that comes up at about 6.5%, 7% if you -- over that period of time. So therefore, what should -- what you could argue is a fair valuation. It's in that $1.70 -- mid to high $1.70, which is an embedded premium to NTA. And the whole idea of the special dividend was just to reward shareholders. The performance has been excellent over the last 3 years, particularly risk adjusted and to close that discount to NTA gap, which it's pleasing that, that's occurring. In terms of anyone, they're still both trading cum dividend, the $0.04, which is the -- for the half year and the $0.03 special. So on the 11th of May, they go ex for the $0.04 and the 11th of June, it goes ex for the $0.03 special. And some people say, why is the dividend so far away? And what you tend to find is with -- one of the great things about listed investment companies is they've got an ability to smooth their earnings over time. So it give shareholders a consistent growing stream of fully franked dividends. And so from my perspective, I'd like them -- if I had a choice, if I was the only person on the Board, then I'd have the various listed investment companies trading cum dividend all the time. But you can't pay dividends some time. Yes, so to me, that's sort of the dividend. And the Board is very happy with the performance of the portfolio, the profit reserve and the position we're in.

And dividends have been going up every year for the last 7 or so. So I think the Board is very committed to keeping a steady...

Yes, growing stream, fully franked dividend. Yes.

Yes. Thanks, Geoff. So maybe we'll just give you a bit of a look at the portfolio and maybe I'll explain a little bit about what's going on there. As you probably know, our objective, as Geoff alluded to, is to try and deliver the strongest returns we can, but manage volatility, so to manage the risk in the portfolio and spread that risk through diversification. So currently, we've got 16 fund managers in the portfolio, but we think they're the best fund managers in the world that we can find. They are very diversified. So we're diversified by the manager names that we use, the people investing, the strategies that they employ. David is going to talk to us about a particular strategy that he uses, and also, the style in which they invest. So there is a great amount of diversification within the business, within the portfolio. And it's that diversification that's enabled us to deliver that 18% return over the last 3 years that Geoff mentioned. So the total shareholder return, which ties back to the dividend, has been 16.2%, I think over the last 12 months to the end of December, and that's comprised the share price appreciation, the dividends that have been paid out, the franking. And the 2 things that sit behind that driver have been the investment portfolio performance and of course, the closing of the discount, which Geoff mentioned. And that discount is now, we think, live a bit less than 5% from having been closer to 20% 12 or so months ago. So the portfolio is highly diversified. We thought it might be helpful to look through behind what these fund managers own. So we are investing in the fund managers. They're investing in stocks and take a look at why we think diversification is particularly important at the moment. The chart on the left shows the top 10 stocks in the MSCI. They make up interestingly about 1/4 of the total value of the World Index. And that's interesting because there's roughly 2,500 companies listed on that particular exchange and yet 1/4 of the total value is made up by 10 companies. It's also interesting because a lot of those companies, and we've only got the tickers there, but the first 7 are all really tech companies exposed to the same sort of theme. So you've got an enormous amount of concentration by the companies and the themes that are driving markets. You've also got concentration geographically, and the table on the right shows that nearly 70% of global markets are listed in the U.S. So a lot of concentration. And in times of heightened uncertainty, we think diversification is the best way to make sure that we're not too overly exposed to any one of those themes. So from an FGG perspective, rather than 25% in that top 10, we've got roughly 10%. And we still got a lot of North America, but we're also overweigh U.K. and Europe as well. So we think that diversification puts the portfolio in a fantastic position currently. We are, of course, a dual objective organization. So our primary objective, the first thing we're trying to do is make sure that we're achieving the types of returns that our investors want, steady stream of income, franked income in particular, and lower volatility returns. But we're also trying to do good in the community. And to-date, Future Generation's businesses have donated $100 million to not-for-profit partners that we support. And as Geoff mentioned, we've saved $175 million from the fees of our fund managers because they're all working pro bono. Our investment committees and Boards, they all work for free and so do all our -- a lot of our suppliers, third-party suppliers. So we've saved $175 million, $75 million has remained within the vehicles and $100 million has been donated to our not-for-profit partners. From an FGG perspective, that...

So effectively the shareholders have got that $75 million.

Yes, the $75 million just supports returns goes back into the company. And that's, I think, the argument you were making before, Geoff, about why there is a structural reason these companies could trade at a premium. FGG has donated a little over $50 million since it started. And last year, an amazing $6.6 million went to not-for-profits, that's had a real genuine impact on young people in Australia. So we really feel that we're meeting that objective as well. So we're happy to take any questions at any time on the portfolio, but we thought that overview maybe gives everyone a bit of a clarity about how we're positioned and how we're hoping to perform over the next little while. It might be a good time now to turn to you, David. We're in a lucky position in that we get to meet a lot of fund managers. And as a side observation, 2 of the things we really look for are the smartest of the smart and those who are resilient because being a fund manager is a hard job. And I'll just note that you've got a PhD in Quantitative Investing, and you've also played Northern Ireland -- Northern Irish rugby professionally. So you're probably fairly resilient as well. So thank you for that. But the way that you...

At which position you were?

I was a flanker 7.

Good aren't you. [indiscernible]

It is frozen grounds and some, yes, tough Ulster men.

Yes. So we won't ask you whether funds management is harder or easier than that. The way that you invest is systematic investing.

Yes.

And that's quite different from most of the other fund managers we use. Would you mind just giving an overview of what that means, how that works?

Yes, for sure. And just before I do, if you don't mind, I just want to say it's an honor to be a fund manager for Future Gen. I think it's a fantastic vehicle and definitely done an incredible job in terms of -- as the motto says, getting the investors to do well, but also do a lot of good as well. So I think it's -- I'm very proud to be part of it. So, the systematic investing...

Thank you on behalf of all shareholders for managing this money on our behalf, because you're managing it [indiscernible] and we're all getting a benefit. Thank you.

No, no. Thank you. I appreciate that 100%. So systematic investing, like the normal way of investing is the traditional fundamental approach of going out and meeting management, listening to earnings calls, pouring through financial statements, doing site visits. If you're absolutely working your guts out, your bandwidth to the amount of companies that you can actually analyze properly is maybe 20, 25 stocks. And that's about the limitation. Systematic investing, the way that it works, it utilizes virtually all the same tools as traditional fundamental investing. So for example, we have 150 red flags, fully automated, so I can see what potential risk factors any company has before we make an investment. So the same tools as a normal fund manager uses, but we really systematize it at an industrial scale. So we have our bandwidth in terms of the number of companies we can analyze and invest in is well over 10,000. Okay? And that's what really is what enables us to get outstanding results because our opportunity set is just so broad. The other great advantage in having a systematized approach is, I think in investing and probably in life as well, most of the bad decisions you make are when you're stressed, when you're emotional, when you've got certain behavioral biases at work. So by systematizing your decision-making process, I'm saying the investment setup looks like this in terms of the valuation, the earnings trends, the red flags, then every time I'm going to do this. So it's nice and repeatable and makes it a bit less stressful.

So given all of those companies and all of that information, I'm assuming the letters A and I feature in your world in some way. Do you use AI?

Slightly for both together. It is for both together.

Yes. And he's got a topic. Is it something that you -- that's involved in the process? And then if it's involved in the process, does it help you in your investment decisions, knowing how AI can be adopted if it's...

And probably then also and how does it evolve in the process?

Yes, definitely. No, really, really good and topical question. So there is -- just as there's quite a bit of greenwashing on a few years ago, there's quite a bit of AI washing. Everyone is tapping on AI and into the main name and saying, well, this is the driving force, the secret sauce. We are probably -- no more than 10%, 15% of our process is AI driven, okay. But it's absolutely additive. So I'll give you just a couple of quick examples of how we utilize that. We analyze 25,000 earnings calls a year, okay?

Just in terms of -- I know you're saying 10,000, you're talking 25,000.

Yes.

Now I know in the Australian market is about 2,500. I know companies listed. And in the U.S. market, how many...?

So there's about 4,000 over there.

Okay.

Yes. Yes.

So therefore -- and then I suppose then you've got the U.K?

Yes.

Europe?

Yes.

So like if you cover 25,000 calls...

Yes. Yes. Yes.

And there are enough -- like in theory is nearly every company. Well, I'm just trying to...

Because you've got quarterly, semi-annual...

Okay. Okay.

That's outside -- okay.

Yes.

Europe got 4,000.

Yes. Yes.

Okay. Back home, that's the 10,000 companies you look at?

Yes, yes, yes.

Like you must go a fair way down.

We do. We do. And companies like -- we go all the way from NVIDIA, biggest company in the world, larger market value than the entire U.K. stock market, just remarkable.

Okay.

All the way down to companies with $100 million free float. And you know what, generating outperformance and picking -- finding gems, the NVIDIAs of this world, that's hard.

Okay.

So many eyeballs in that mid and small cap space.

Yes.

There are a lot more opportunities. So we're very, very active in that space as well.

Got you.

In terms of those 25,000 earnings calls, we take -- I think if you listen to 25,000 earnings calls, CEOs probably want to jump out that window by the end of it, right? So fortunately, we've been doing that for over 10 years. The technology has evolved to how we do it. And we now use large language models. So just think really ChatGPT, for example, we will utilize that same technology to analyze the sentiment of those earnings calls. How is that changing versus last quarter? How is it looking relative to peers? We'll also use exactly the same...

How do you adjust for the -- like the human factor there where the CEO had a big night...

Australian CEO.

Yes. Okay, this one, I tell you. 2% of the market I would say...

Yes.

U.S. ones are probably a bit more.

Yes, yes, yes, a bit more on target. But yes, we'll normalize versus that CEO.

Okay.

We'll adjust based on that CEO over time. People have different personalities, some are always very bullish.

Yes.

And so looking at the change in sentiment is the key, the only...

Got it. Yes.

And another thing that we do that is, one of my favorite red flags that we use. And I'd always intuitively have the gut feel that the most revealing thing in when you ask someone a question is what they won't reveal, okay? And like that old politician trick, if you ask a question and they pivot to their talking points and you don't even notice. So we actually have using AI to score each question and answer in those quarterly earnings calls or did they answer the question or did they evade the question. Okay?

Yes.

Sure enough, those companies that are in the most evasive 5%, where they're just being asked about the outlook and they're just obfuscating.

Yes.

They markedly underperformed the stock price over the next 3 or 6 months.

Okay.

So we're -- it's a whole new world that's absolutely fascinating and giving us ways we can add value to possible...

And for you guys, like you're a -- I mean, people that do what you do. There's enormous amount of passive money here.

Yes.

And there's enormous amount of active money in the world.

Yes.

The way you manage money, like what percentage of -- there must be other fund managers that use similar approach?

Yes. Yes.

What percentage are you involved?

Yes.

Is it like really, really small?

In terms of this particular fund or...

No, no, no.

In terms of those systematic investors?

Yes.

Yes, yes. It's the -- It's an increasing minority.

Yes. So what would have...

So it passes huge...

But if you had to guess, would be 1% of the world?

It varies from market-to-market.

Yes.

But -- well over 10%.

It would be...

Yes. Yes. Because how our traditional active managers...

Yes.

That if you're being unkind, you'd say that it can be a little bit antiquated in the approach, have a hunch, buy a bunch, go to lunch. And we're certainly -- we are at the top quartile hit rate of a fund manager, so fund manager is doing really well. It is only 55%.

Okay.

It's not that high. We can get in the high 50s. So we're still getting 4 out of 10 wrong. But by being more systematic in our approach, we can do better over time.

Interesting, interesting.

And the red flags you mentioned before, do they just inform you about stocks to avoid? Or do they -- I know you can take short positions as well. Do they -- did you say, well, if it's got more than 10 red flags, that's one that's got a real -- we should short that one?

Yes, absolutely. So our research, and this is research that goes back to the mid-'90s, shows that if a company has 8 or more of Plato's red flags, on average it underperforms the market by 20% over the next 12 months.

And is it 8 out of...?

Out of 150, yes. Yes. So -- 8 is a lot -- And because it's the most egregious in each category. And that's a big number. It's actually the most powerful method we've ever developed over the years to really doing 2 things. One, identifying great shorts.

Okay.

So domestically, there's a big hedge fund group in Australia that was short -- that was -- sorry, long off there.

Yes.

Okay? And they lost $0.5 billion. They had 18 red flags. So it's not a company we ever would have maintained -- invested. It's a bit corny, but Buffett loves to say there's only 2 rules of investing: rule number one, don't lose money; rule number two, don't forget rule number one. So the red flags really helps us, keeps us on target there, but also identifying some fantastic names to be short. And if you actually look at the outperformance of the strategy today, since we launched the fund back in 2021, we're generating 24% return per annum after fees and about...

And what were [ ending ] currently is? And what's your management fee, is...

It is 85 basis points and 15% over the entire world.

So in theory, Future Gen...

Yes.

In that basis, they're getting closer to 30%?

Yes.

He is right.

That's right. Yes. Yes. Yes.

I'm hoping that they take advantage.

That's right. That's right.

No, we are going to highlight the fee, but...

Yes. Instead of buying a boat, I'm getting a [indiscernible]. So yes, like -- and in terms of that outperformance that we generate, about half come from shorting and for any of the people listening that don't know what shorting is, really the opposite to traditional investing. You identify companies where you think there might be fraud here, there might be manipulation, terrible governance and we'll actually bet against those companies. And the red flags is a key way we do that.

And with your portfolio...

Yes.

Let's say you've got $100 million.

Yes.

Then how much of that $100 million you long...

Yes.

And then when do you short, and how much are you short?

Yes, really good question. So for every $100 million that we have in the fund, we have $150 million invested in the most attractive ideas. So that amplifies the returns we can generate.

Got you.

But we'll have $50 million short where we're wagering against companies.

Got you. Got you.

Critically, $150 million long minus $50 million short, equals $100 million. So that's the same equity exposure as a traditional long-only.

But in theory, you can make more money on the...

Yes.

$50 million long and more money on the $50 million short, if you're right. If you are shorting the wrong one...

Exactly, yes, that will go the other way. And most managers in Australia that have tried their hand in shorting haven't had the best track record. But I think you need some sort of edge and the red flags -- like the fund managers love to think that their investment process is a unicorn? Is it snowflake? No one else is doing what we're doing. But the truth is there's a decent amount of commonality between different fund managers. The red flags is something that is very distinctive and what allows us to generate returns on the short side.

The questions are literally flooding in. So that's going to be a challenge for me in a minute. But before we move on to the call...

Just quick answers. On the point. On the point.

It's all right. It's all right. It's all right.

We've got to get the system on. We turn the system on and we'll see what you got.

Yes, we could...

That's right. That's right.

But I mean the one which we love to know is kind of outlook now, opportunities, how you're positioned? Where do you -- can you pick the market from where we are now to any particular sectors or stocks you think are interesting?

Yes, sure thing. So I guess like the big talking point is software at the moment. We've people that think AI is coming in and it's going to destroy the value chain of all these incredible software companies. So there's one company -- and we've actually done quite well out of that trade. We've been short, so wagering against some of the -- these different companies. One example is Hemnet, which is Sweden's realestate.com.

Okay.

We've been short of 80%, okay, because people are worried that they're going to be circumvented by AI. And my feeling is that the market is throwing the baby out with the bath water a little bit with this. They're just sold now on mass and asking questions later. But there is a -- the network effects and inertia that are involved in the software industry, I think can't be understated. So it's something like Salesforce, for example, where everyone is using their client relationship management software. They're so embedded, everyone is so trained up. Are you really going to shift to -- for something that's so mission-critical, for something that's a little bit cheaper. So I wouldn't be surprised if some of these software names stage a bit of a comeback. The portfolio is also like a great thematic for us has been European defense. The big Trump trade was supposed to be U.S. onshoring.

Yes.

But he has put such pressure on the Europeans, which they probably needed to really rearm and protect themselves, that they've increased their spending from 2% to almost getting towards 3%, 4%, 5% of GDP on defense. So companies like Rolls-Royce and Rheinmetall and Safran, European defense leaders have been impressive.

That is awesome. Thank you. Well, I'm going to do my best to get through these as quickly as possible. If we don't get to your question today, we will, I promise, come back to you with an answer very quickly. The first one is from Bruce, which I think I can tick off relatively quickly, which is, please provide more information on the nature of the quantitative portion of the fund? Well, this is a systematic strategy...

Yes.

And I think that's the right terminology.

Yes.

But they're often called quant funds because of the level of quantitative. And there are 2 of those in Future Generation Global: Davis Fund, and we also use [ Finfo ], which has the same sort of strategy, albeit differentiated. This one, David, I will hand to you. How risky is investing in the U.S. market at present?

Sure. It's risky. And if you look at -- we look at valuation data for the U.S. market, as an example, since 1880. This is the time of the second industrial revolution. And if you look at that, the valuation, so price earnings ratio of the market, it's actually at the second highest it's ever been over that entire period. So if anyone tells you, well, that the U.S. market is not overvalued, you probably should politely excuse yourself from the conversation. But what's really interesting is there's huge dispersion in valuations. What I mean by that, you can see Tesla trading at a price-earnings ratio of 400:1 which is quite extraordinary, versus General Motors, okay, at a price-earnings ratio of 8, okay? So there's a big dispersion between...

So [indiscernible], I'm not afraid to use. You got your money back...

So trust...

You got to -- 400 years...

400 years, Yes, exactly right. That's a very good way of thinking about it. So I think there are certain pockets of the U.S. where you need to be a bit careful and they -- suddenly, there's a blog post like there was a few days ago on the threat of AI to software companies and a lot of these software names fall -- fell 10%. That's always a risk. When valuations are extended, they're very vulnerable to just even a little bit of uncertainty perhaps.

When was the other time where you said it's the...

It's the tempo. Yes, the tempo.

That's a great question, Christine. Thanks. And that's something our investment committee talks about a lot why we try and be as diversified as possible. James has asked a question, how automated is your intraday trading considering that you're managing hundreds of global companies that trade overnight?

Yes. Great question. So it's entirely automated. So we have a model portfolio that's generated automatically twice a day, so a buy list to sell list. And for many years, this is while I was working in London in the U.K., where I was Head of Research there, we would -- we'd go through these automatically generated buy and sell list and we'd apply our judgment and subjectivity. So I don't feel right about that name. Maybe we'll do a bit more of that stock. And after 4 years, we measured how much value that we were adding with our genius comments. And the result was very, very little. And perhaps it's not surprising. You've got 150 red flags, you've got 25,000 earnings calls a year, every line of the financial statements. It's probably a bit naive to think that I can just through my gut feel, pick winners and losers better than that.

And the next one from Ashok. Is the dividend sustainable going forward by paying a special dividend? I might just give some numbers on that.

Yes. You might want to contribute...

Prior to the announcement of the special dividend, the Future Generation Global had a profit reserve of a little over $0.71. That's 9 years worth of dividend coverage. And after both these dividends, the full year and the special have been paid, that's -- goes down to $0.64. So that's 8 years -- 8.1 years, in fact, of coverage. You have to be quite careful with profit reserves because they can move around, and there are other factors the Board considers when paying.

Well, the good thing about the profit reserve, it only goes down when we pay the dividend.

Yes.

So there won't be any -- it goes up when we make money.

Yes.

And then the bigger thing for probably the Board is what franking there is, because how do we -- we're investing with Global fund managers, we're investing in their main funds. And they're not -- Australia is 2% of the world by capitalization. So they've got very little in Australia, if anything. And so therefore, the fully franked dividends we get, we -- our ability to frank them is a function of the tax the company pays in Australia. We don't get a free kick of getting fully franked dividends as well. So in terms of franking at the moment, after these 2...

It's just over 1 year's worth on the buyback.

Actually, yes, that's right. I think we try to keep broadly about 2 years up our sleeve, that's FGX and FGG broadly. So just in case there is a period where there's -- the market doesn't go up and there's no tax paid, we can keep that dividend continue growing.

Thank you for that question, Ashok. From John, what -- the ex-dividend date, I think Geoff mentioned that they're the 11th of May and the 11th...

And just quickly, like why do we do them separately is, most people when they announce a special dividend, they pay the dividend at the same time. I just like the idea you still cum dividend. Because obviously, when we pay the $0.04 and the $0.03 and we pay them together, then obviously, the value of the -- sorry, the value -- the NTA drops by the amount of the dividend we pay. So it's just to smooth a little bit. If -- by the choice would be -- it was really only my choice to pay in May and then pay in 3 or 4 months' time the $0.03. But the Board said, we've got to pay before June 30th for the franking of this year, for the investors. Yes.

Great. And from Ivan. If your strategy is to invest through primary managers, doesn't that mean that investors in FGG are paying double fees?

Well, that's the beautiful thing is you're paying nothing.

Yes.

So we charge -- there's no charge in the company and the managers are doing it. Yes. So that's sort of why I was arguing that there should be an embedded -- 1% goes to charity. But if you're happy with that 1%, then in theory, you could argue that shareholders do get a significant benefit. And that should be -- it should be reflected in the share price premium to NTA, which I'm confident we'll get to.

And there's one from Michael here, which I might paraphrase, which is essentially how we select fund managers, decide how much they get, how often we change them and whether we just take every fund manager that wants to be part of our network?

And the answer is no.

Yes.

But do you want to go through that?

Well, I was just going to say, broadly speaking, we have investment committees for both of our companies, and they're very well credentialed. They're CIOs from large super funds, they're asset consultants, just they're formulating the view as to how the portfolio should be positioned, which funds we should have and how much we should have in each of them. And for both companies, we also maintain a list of managers that we would like to include at some point when the time is right, when we feel that their strategy will be additive to the portfolio. And we're trying to be active. So we're constantly making adjustments to the weightings of the portfolio to make sure that we're hitting that objective. So it's quite an active process in doing that.

I mean like we've had -- and like we've got a simple red flag -- the IC has got a simple flag with the managers. If they perform better than we're expecting, then obviously, we look at them, and you are one of those. I mean you've performed exceptionally well for us. And again, thank you. We understand why that is the case, because you were explaining it particularly for the people here, the long/short. So you've got a bit more leverage if you can perform. But that can go both ways. And then for managers that the other red flag is if they're performing worse than we expect, because different managers perform different in different environments, and we understand that. Also any personnel changes or any change to their investment strategy. They're sort of -- they're the main red flags. And do you know the number? How many managers we've had at the moment?

We've got 16.

16. I think we've removed more than 24, I think.

Yes. I think about 26.

26. Yes. Yes. And we would have -- yes, added sort of 20 plus. So it's not a passive strategy. It's quite active in terms of the other managers.

And we're very fortunate. One of the concerns I had when I joined Future Generation is you're asking great fund managers like David to work for free, and that might limit the potential investments that you can make. And that is categorically not the case. There are a few of fund managers who are happy to come and be part of our network and to donate their services to Future Generation, which is really encouraging, I think, for the industry and it's great to see. So we're super appreciative.

And I think what David said at the start to everyone is, he thanked us. So it is really an efficient way for the fund manager to manage a pool of capital pro bono. He still gets paid on all the other money he manages and then let some of that money support, as you said, in the last -- well, since we've been going $50 million for Future Gen Global, we could help at-risk youth mental health in Australia. So, it's just an efficient way to actually give back.

One for David. Is Dr. Allen the East Rugby's coach who won the Premiership in Sydney recently?

Yes, the President. Yes, the coach won't listen to me, which is probably for the best.

Good work.

This is probably more back on finance for you, David. How do you manage the impact of FX on the performance of your portfolio, particularly given the appreciation of the Aussie dollar and the negative impact on performance in recent months? Are you adjusting your portfolio, doing hedging, or what?

Yes, yes. Very good question, and topical question. Obviously, the Aussie dollar has done really well recently, as we all know. Because this is a Global fund, virtually 98% of the fund is invested outside of Australia, and 65% is in the U.S. So when the Aussie dollar does really well, then that means that the value of the fund measured in Australian dollars will decline.

Okay.

We don't do any hedging within the fund. And the reason really is generally, when the stock market sells off aggressively, the stock market this is, then in that scenario, the Aussie dollar tends to sell off as well. Okay? And what that means is that you actually get a benefit to your portfolio. So the market might be down 20%, but because the FX moves in the same direction, in Aussie dollar terms, it means you've only lost 15%. So, paradoxically, its actually -- by being unhedged, it does help you when the market really sells off. That said, there are clients that -- certain clients that are concerned about the U.S. dollar de-dollarization and so forth. So we are launching a hedged share class where we're hedging all of the currency risk. So it's really up to the investor what they want to do.

Great. I mean, for us, I'm pretty sure the investment committee, not speaking on behalf of them, but I assume will stay -- for the investors will stay exposed as we are.

Yes.

I think that's likely.

Sorry, there's one I missed up here. It's about regional exposures. If Trump loses badly in November, what's the impact likely to be on Future Generation Global? Do you have views on this? I think from Future Generation Global's perspective, we're slightly underweight. The U.S. we're trying not to take, I think particularly large macro bets in that sense. Is the same true for you?

Yes, very much so. So we're a bit underweight in the U.S. compared to what the MSCI World or global equities are. But it's something that we monitor very quickly, very carefully. So it's interesting the academic evidence clearly shows that the best predictor of election outcomes isn't the pundits on TV, and it's not the polls, but it's actually the betting markets. So the good thing about that is that it gives us a daily probability of different outcomes, that we can measure how sensitive our portfolio's value is to that. Because it looks like they could lose control, the Republicans. We just want to make sure our portfolio is not going to be adversely affected if that was to happen.

And from an FGG perspective, we let that decision be made by the fund managers like yourself, who are the experts on that kind of thing. We're not trying to take a direct leaning. One from Catherine here. I'm new to the Future Generation company and thinking about buying some shares. Can you explain more about how it works? Yes. So, the model is essentially summarized as fund managers like David who work for us on a pro bono basis, as do a bunch of other suppliers and people who contribute to Future Generation. We're able to therefore make a donation to not-for-profits without impacting the returns that our shareholders get. The savings that we make are greater than the donation that we make. Those companies can be Future Generation Global and also Future Generation Australia. They're listed investment companies, and they can be bought on the ASX through your broker. If you buy through CommSec, they'll rebate your brokerage for that. But if you want a more detailed overview of how Future Gen works, how we contribute returns and social impact, we'd be happy to talk you through that. From Gabriel, fund managers typically handle many different portfolios. What discretion do the selected fund managers have in deciding in which of their funds to invest in on behalf of FGG and FGX?

Yes, the investment committee decides which fund that we want to go in -- they want to get -- that FGG wants to, or FGX wants to go into.

Yes.

As David said, he's got one fund -- how many funds have you got?

So, I run a Global fund and also an Australian Long/Short fund as well.

Okay. So we're -- Future Gen Global here, we're talking about the Global fund, which is unhedged. And David said he's hedging -- they're creating a hedged one because a lot of people want hedging that will be hedged. The -- So in theory, if the investment committee -- if we had the option to do both of them, we would have gone for the unhedged because practically all -- pretty much nearly all the funds, I think are broadly unhedged. Some managers do have a choice.

Yes, some can elect and turn into a choice.

Yes.

Another question for David. I think you partially answered this, but did you see any opportunity in the current recent U.S. tech sell-off?

Yes, I think so. I think many of those software names were probably a bit overdone, and people were sort of selling now and asking questions later. And as they rake over the debris, I think there are definitely some bargains to be had there. Names that have proprietary data that really embedded in companies, I think will stand the test of time. A good example of that is back in the day -- people think of Microsoft Excel and how dominant that is today. But there were many other versions that were cheaper than Excel that have come after that. But once you're using something and you're trained up in something ,for something that's maybe a little bit better, a little bit cheaper, are you really going to change? And I think the software companies will be the beneficiaries of that.

Fantastic. What's the best way to find the NTA? So we announce the net tangible assets of the company each month, and that's available on our homepage for our website. And our website is actually worth having a look at because it's got, first of all, more information about all of the managers that we use, but it also it has got case studies from the social impact partners that we support. So it's a great way of seeing where the money that's being donated to not-for-profit partners is really going, and what the impact is for that.

I think -- or also, if you look up the ASX on the 14th of each month, we announce...

Yes.

The NTAs are announced monthly. And then, people say that look, why don't you announce it more regularly? Well, we're getting the information from the fund managers at the end of the month, and then we can probably get it out a little earlier. We need to have it out by the 14th. And if anyone wants to try to work out what the difference is between the NTA when we've announced it and where we are now. But we don't know. We don't know what the individual managers have done. We can get the information and then you can just work out what the MSCI Global Index has done in Australian dollars and you can just adjust for that. It's pretty easy.

But I think Robin, you asked that question if we can help with locating any of that, please just call one of us, and we can certainly point you in the right direction there. And another one from Bill. How are you planning on closing the discount? Geoff, do you want to have a crack at it for...

Well, no...

You go on -- I feel like you're correct on the...

No, no, no, no.

Well, I mean Geoff is the expert of it but I'll have a try.

I'll give a bit of background. So, we've got -- where we have 9 listed investment companies, and 6 of them are trading at premiums. One is trading at -- a couple are trading at 30% premium, which is -- to me is a red flags, a 100 red flags, actually, trading at a premium. And one is trading -- 7 is trading at NTA, and 2 are trading at discounts.

So, the -- and Geoff, please do correct me if I'm wrong. But the thinking is that in order for people to realize the value in Future Generation, there's probably a few elements to that. One is we need to deliver the right kind of returns to our shareholders, good investment performance, good fully franked income, the types of things that people would expect from us as an investment. And we should articulate what they should expect well. So making sure that we're explaining that well. That I think the investment returns and the messaging is really important. The Board also are conscious that, that income stream is really valued by a lot of our shareholders, and I think that's been evident in the special dividend that's been paid recently, and those 7 years of constantly increasing dividends, so making sure that the dividend yield is in the right place. And as Geoff said at the start, when you roll up the fully franked dividend that we're paying for the full year and the special, we've got a fully franked yield of 10% or so for the 12 months. So...

It's pretty -- It's gross number.

Gross value including the franking. Yes, including the franking. So having the right kind of dividend and then making sure that people understand that there is a natural fee advantage in the way the Future Generation model works, which is to the benefit of our shareholders. So that's the plan and we are making sure we communicate that effectively.

And it is supply and demand. And it's really -- and it's making sure that you've got everyone aligned, and for us -- and a lot of that is communication. So, I think at Wilson Asset Management, we've got about 15 in our shareholder engagement and comms area. And then we see that as our sort of moat, the Warren Buffett moat around the business. On the Future Gen side, we've got Lee, what's it, Lee, Bonnie and...

Elly and [ Elana ].

Yes, that's right. So, a smaller team. More recently, if you're a shareholder, you may have been called. The Wilson Asset Management team and the Future Gen team have been working together to communicate with the Future Gen Global shareholders. Because, as Lee said, effectively, if everyone understands what you're doing and is happy with what you're doing, then they stay as shareholders. And it is supply and demand. If there's no selling, then it gets to equilibrium pretty quickly. And -- Then all you need is someone buying at NTA or a slight premium, and you're trading at a premium. So, to me, if you're expecting something else from Future Gen, if it's not anything we've been talking about here, I'd really encourage you to sell now. Because then you're gone as a shareholder. And we -- it was WAM Research, I think was the longest it took us to get to premium. It took us 7 years. And so we were communicating with shareholders and trying to tighten up the register for 7 years. So we got -- finally got it to a premium. And then, because we'd done such a good job with explaining to the shareholders what was there, they were all happy with what they had and they didn't want to sell, and actually as crazy as the discount, it went to a 58% premium. This is only 4 years ago. I know, ridiculous, ridiculous. So in theory, it is supply-demand and Future Gen have been at bigger discounts, and we've had a few activists in there. The Saba guys were -- they built a position, [ 1607 ] built positions in FGG, and they've both sold out because the discounts narrowed, so they've got their half and they've gone. So to me, its -- I think we're really well poised to go to a premium. Yes...

Thank you. David, there is a question from Damon. What is David's view on emerging markets? He noted concerns about the U.S., is he positive on some emerging markets? Are they -- are some looking more positive than others?

Yes, definitely. Like I think the world in many ways is pivoting right at this point in time towards commodities and a lot of the mining operations that are central to various emerging market economies, like Brazil, for example. So -- and I think a lot of U.S. money as well that's getting a little bit nervous in the U.S., can often pivot to Latin America in these times. It's in their own backyard, so to speak. And a lot of those economies have been improving as well. So yes, I think there's absolutely some excellent opportunities. This strategy is just developed markets, but yes, emerging markets. I think there are some great opportunities and a lot more mispricing out there.

I probably shouldn't have mentioned your rugby career in the introduction. There's a few of those questions. But there's one interesting one I think that's interesting, What drew you to the funds management industry from a career in rugby?

Well, did you get paid when you were playing rugby?

Yes.

You did?

Yes. We're actually...

And your payment?

Well, like -- at the time, there are only 2 -- 3 professional teams in Australia way back then. So I wasn't good enough to get a contract behind the likes of Phil Waugh and George Smith. So, I went over to Ireland, as I had an Irish passport. And then after 18 months there, I actually injured my neck. I kept losing feeling in my arms, so it was probably a blessing in disguise. I got into finance, and I was probably going to do better in finance than I was in rugby. I was a hard grafter, but probably didn't have quite the talent that I needed. So, yes, I went to London, and within 2 weeks I was at JP Morgan. I thought I'd be there for 2 years a typical Aussie rite of passage, but I was there for 15.

JPMorgan in London?

Yes.

Great. Probably on the research?

Yes. In the buy side, so I was Head of Research on the buy side.

Okay. Okay. I mean, did you -- 15 years there, then did you come straight back here or?

Yes, that's right. And then, I was originally thinking of starting a new boutique, and then in the end, I partnered up with the Plato guys and...

And I believe was that just back in '21, was it in '20?

Yes. We did a couple of years of R&D before we launched the funds.

Got you. Okay.

Yes. So -- and then the funds -- it's gone well, we're up past $3 billion, so fingers crossed, we try not to stuff things up.

Yes, that would be much appreciated. We've got a little bit more time. So Geoff, there's a general one which is probably for you, on the outlook for the LIC sector.

Yes. I mean, the LIC sector, the funny thing is, it's sort of like -- what's a good way of explaining it.

I'm not sure.

Because you've got the ETF sector, which is an open-ended trust sector. The trust -- and they're open ended. So they can raise money every day -- every minute of the day. So they're always going to grow at an exponential rate. It's sort of like the tortoise and the hare. You've got the hare running off ETFs side, new ETFs great, et cetera, et cetera and the LICs are sort of the tortoise. They're closed-end structures, which is part of the sort of holy grail for the listed investment company because you can take a long-term -- If you're managing money in a closed-end pool of capital, money never flows in, and it never flows out. You've got a fixed pool of capital, so you can take a, like a 10 or 20-year view. And the interesting thing is, like every market, it has cycles. And we did get up to -- was there a 120 LICs? I know there's 400-odd LICs in the U.K., but I think we got -- I think when I floated WAM to it mid-20s, LICs, yes, 25 or 26 LICs in Australia, that's probably 26 years ago. And then it got up to 120, which in the LIC world is big. But ETFs, sort of the everyday ETFs...

There are more ETFs than stocks.

That's right. And then, I mean, it sort of went through the rationalization period, but now it's in expansion, so there have been a few more pools of capital. And it's more on yielding, more like the Plato...

Yes. PLA income maximizer. Yes.

Income maximizer, and I take my hat off to what the Plato guys have been able to achieve. We copied them in terms of creating WAM income maximizer [indiscernible] before we became official and said, hey, look, FYI, I'm making a sector. So the income maximizers, paying monthly income.

Yes.

So, to me, it's as vibrant. There have been probably 3 or 4 new capital raisings. I think I was speaking to people in the industry, I think there are 3 or 4 coming out. So it's in the growth phase again. But it's not going to go from -- I think it was 87 or 88. It's not going to go from 88 to 2,000.

No.

I think it from 88 LICs to 100, is a big growth rate.

And I guess a lot of thematic ETFs are launched every other day. There's a really fascinating piece of research that came out of the U.S. that looked at the performance of these thematic ETFs.So it might be all about crypto or cannabis or whatever is flavor of the month, or robotics. And it said, if you bought every single one of those the day it got launched, what would your performance be for the next 12 months? And the answer is atrocious.

Yes, it would be. Because they raise the money at the wrong time, there will instability in the market.

The worst, worst, worst possible time. So these thematic ETFs are here today, gone tomorrow, and don't stand the test of time.

I suppose you can't short the thematic. No. You're just aware of the thematic when it's coming. Well, that means they can raise a lot of money, that means overvaluation, in theory.

Absolutely, if the Uber driver is asking you about it, it's probably too low.

We'll probably make this the last one, but there are several people who've asked for a stock pick. I know you talked about the software company, is there anything else you'd throw out there, people stealing your IP?

No, no, no. Not at all. Not at all. One of the names that we really like is Rolls-Royce. It almost epitomizes quality. People think car company, but it's really aerospace and defense. They're heavily involved in the U.K.'s nuclear Trident deterrent with the submarines, and their free cash flow has just gone absolutely through the roof. And their future growth is underpinned by the rearmament of Europe, so I think that's a very...

And what sort of a multiple?

They're pretty reasonable. They're in the teens, so...

Perhaps the only time.

Yes, probably Palantir or Ester.

Rolls Royce. Good name. Here we go. Even I can remember that one.

The stock -- I don't think, let alone the 10,000 stocks. David, thanks so much. This whole thing works because of people like you, the kindness, generosity, and skill. So much appreciated from all of us and our shareholders, and most importantly, the social impact partners who we support.

No, no, no. Not at all. Absolutely, it's an honor to do. In fairness, I do the easy part, setting it up and running it as you guys have done, that's the hard part.

Lee and Bonnie, they got to do the hard part.

Yes, it's not lost on me what goes on behind the scenes, so thank you.

Thanks so much, and we've mentioned Bonnie a few times. We haven't yet introduced her, she's in week 3 or 4 and has recently joined us, Bonnie from the Packer Foundation, where she's been for the last few years. And she's joined us as General Manager, and she will be featuring in these types of events coming up. And speaking of events, I think as we close, you're going to get a slide which shows the upcoming roadshow that we've got in April, where we visit all the capital cities. I'll be at all of those, as will most of the WAM team and we would love to see...

Bonnie will be presenting.

Bonnie has yet to agree to present.

Don't worry at the moment.

We're pushing her. We'll be making her present. But...

Yes, we'd love to see as many of you there as can make it. But thank you for attending. If you've got any feedback or questions, we'd love to take them at any time, and thank you for your time and attention. Thank you.

Thank you.