Helios Fairfax Partners Corporation (FFXXF) Earnings Call Transcript & Summary

Okay. I think we can get started. Good afternoon to all of you, and a very warm welcome and good day to those who are joining us online, depending on what time of day that is, wherever you are. It's good to see so many familiar faces and also really happy to see some new ones as well. Thank you very much for joining us today, and thanks also to those who are joining us online. I'm Tope Lawani, for those who I might not have met. I'm co-CEO of Helios Fairfax Partners and also Co-Founder and Managing Partner of our Investment Manager, Helios Investment Partners. It's a real pleasure to be here with you all today. But I'm not alone. It's by no means a one-man-gang. I'm joined by 4 of my fellow HFP officers whom I'd like to introduce now. First is my Co-CEO and Co-Founder of Helios, Babatunde Soyoye, who's over there. Second, Luciana Germinario, who is the Chief Operating Officer of HFP and also of Helios. Third, Belinda Blades, who is our Chief Financial Officer. And last but by no means least, the one who keeps us on the straight and narrow, Julia Gray, who is our General Counsel. I'd also like to introduce our Non-Executive Board of Directors -- Non-Executive members of our Board, 3 of whom are with us here today, I believe. I think you already know Chris Hodgson, who is our Lead Director and chairs the Audit Committee as well as the Governance Committee. And also, Chris is sitting right there. Thank you, Chris. And also Quinn McLean, who is represented from our partner, Fairfax Financial. I think most of you know Quinn, and there he is. But we do also have 1 very important new joiner, whom I think many of you have not met, Kathy Cunningham. So, Kathy is CFO of The Globe and Mail, which needs no introduction. It's Canada's national newspaper. And prior to that, she was SVP at Sun Life Financial, and she has a background as an auditor. So she brings extensive and highly relevant experience to our Board and has joined the Audit Committee. So, please join us in giving her a very warm welcome. Thank you. And if we ever get any unflattering coverage from The Globe and Mail, you know who to hold responsible.

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Well, we'll see. All right. So, our agenda today will be very similar to last year's. First, we'll start with a quick refresher on Helios Investment Partners, our investment manager, and then we'll review our strategy for value creation. We'll then get into depth, probably more depth than in prior years in evaluating our performance in 2023. And we'll give you an opportunity to ask questions along the way. By the way, on the questions point; for those of you who are online, to the extent that any questions occur to you as we go through the day, please feel free to send them in. And when we have the Q&A sessions, we'll just -- we'll be able to run through the questions that you would have posted by then. So there's one global message that I would like to convey today. And in some of our chats during the -- in the lead up to the meeting, I think we've talked a bit about this. But really, the one global message I'd like to convey is that we're now at a positive inflection point. We've turned the page, as you'll see later on, on the legacy issues of the past, both portfolio-wise and otherwise. And we're very confident now that HFP is on track for a very bright and exciting future. So that's the overall global message I would love to leave you with today. But beneath that message, there are 3 specific points. The first is that we've made huge strides in liquidating the legacy investment portfolio. And we've done that actually at a very high, I guess, what we call recovery rate. So this was not some fire sale, just get rid of it kind of thing. We've actually done -- been able to exit this portfolio at pretty high recovery rates, if you will. So that's the first point. The second point is that then, of course, the new Helios managed investments into which we've deployed that capital that we realize, are performing very well. And we think, again, that the track of those should be -- continue to be attractive. We expect to see even improving performance from that portfolio. And then the third is that with the various new funds that Helios is in the market to raise right now, the prospect of us growing our share of the fee and carry income streams and therefore, achieving operating profitability, i.e., having fee income that exceeds the cost of running the overall HFP business, are better than they've ever been. So, these are the key messages that I hope you'll take away from our conversation today. So, first on Helios Investment Partners and just a quick reintroduction. Helios recently celebrated the 20th anniversary of its founding in 2004, and their journey so far has been marked by several milestones. Helios raised its first institutional private equity fund in 2006; its second one in 2010; the third one in 2014; and the fourth one in the pandemic year of 2020. 2020, obviously, also marked the year of the strategic transaction that created the HFP that we know now. And from 2020 to 2022, Helios began the work of really transitioning from a single product, i.e., private equity, a single product investment firm, to a multi-strategy investment firm. And the manifestations of that transition have followed. So, the Helios Seven Rivers Fund, which is the hedge fund, and we'll describe that in a bit more detail later on, and Helios Sports and Entertainment Group, were both launched in -- last year, actually in 2023, and they're both off to a pretty good start, as we'll see later on. And this year sees the launch of Helios' fifth PE fund, fifth Private Equity Fund; its venture fund, Helios Digital Ventures, the first Helios Digital Ventures; and its climate fund, which is called CLEAR. All of these are currently in progress. And along the way, the firm has received numerous awards in recognition of their work on the continent. Private Equity International, for those of you who may not be aware, is the leading global publication for the private equity industry, and their awards are the industry's most prestigious. I don't remember when PEI actually started awarding an Africa Firm of the Year award, it was probably maybe 10 years ago. And in those perhaps 10 years, Helios, I think, has won the award probably 7 times, including each of the last 5 years. So that's relatively -- well, it is unprecedented and that's something I can tell you that the Helios team are quite proud of. Now, PEI's awards are mostly about performance, reputation and so on. But for those of you who know, those of us on the Helios Investment Partner side in here as well, driving sustainable, positive socioeconomic impact on the continent is pretty core to Helios' mission, just as it is to HFP's. And on that score, we're pleased to share that Helios recently received the GPCA Social Impact Award for their investments in Solevo. Solevo is an agricultural inputs and industrial chemicals distribution business that Helios bought in around 2016 or so and sold a couple of years ago. GPCA award recipients are selected from across all emerging markets, not just Africa. So, it's Asia, Latin America, Eastern Europe as well as Africa. So winning that award is a pretty big deal, I think, for those who care about socioeconomic impact, which we do, and I can tell you that, again, the team at Helios is extremely proud of that. And at HFP, we are equally proud to be associated with it. So that's a little bit of context on our investment manager. So now, let's recap our strategy for value creation. I hope that much of the slide that follows will be not new news. If it is, then we clearly didn't communicate properly last year, but I think it will all be familiar. So we'll recap our strategy for value creation. It comprises 3 simple steps. The first, which I've alluded to already, is to liquidate the legacy investments. That's point #1. And then next, points 2 and 3, is to deploy that capital that we freed up into 2 activities. The first one, that's Point 2 on this page, is to invest in new high potential investments alongside Helios' funds; and the second, that's Point 3 on the page, is to stimulate the growth of our fee and carry streams by seeding new fund strategies that are synergistic to Helios' existing businesses, Helios' existing strategies and that align with the interest of the LP community, and therefore, are able to attract fee-paying third-party capital. So, again, I hope none of that's new. This is the framework we set for you last year. Hopefully, by next year, the first bullet point would have gone away. It will be replaced by something else. So, but that's the framework. But what is new is this actually. This is not something that we've covered before. As I mentioned at the outset, given the significant progress that we have made addressing the issues of the past, we feel that now is the time to set out for you our financial objectives, the targets that we expect that you will hold us accountable to deliver. So how do we define success? We define success by, one, driving growth in net asset value per share, yes. By generating operating profits, by which, again, to repeat, we mean that our share of excess management fees that we receive from Helios' funds should, at a minimum, more than cover the cost of running HFP so that managing the balance sheet, all the other investment activities essentially are a 0 cost activity or ideally, a negative cost activity. So, we should be making profits separate from the profits that we're generating on the investment portfolio. And so, what should all of that up to -- add up for you? I think the first is, we aim to compound book value per share at 15% per annum and to return capital to you by paying a regular dividend. So it's fairly simple. And these are the standards, these are the metrics that we would expect to be reporting back to you on as time goes by. It's how we define success and this is how we'll measure performance. So how are we doing so far? In the next section, we'll assess our performance over the last year and the key drivers of that performance. I recognize that there might actually be a lot to take in as we go through the next little period, so what we'll do is after we report on the overall performance, we'll then look individually at the 3 legs of the stool. So the first being the value and performance of our balance sheet investments. So what's the actual portfolio doing? And then -- and when we're done with that, we'll take a pause, take some questions before we then pick up on the sort of the other 2 legs of the stool; one being net fee-related earnings, right, this notion of operating profitability, and then thirdly, carried interest. So we'll take a break in the middle to give you a chance to ask your questions. So, as I said just now, book value per share is the primary metric against which we measure ourselves and by which we would like you to measure our performance. And we look at that against a couple of the most relevant -- of the indices that we believe are the most relevant and certainly are the most accessible. The 3 of them being the MSCI Africa Index, the MSCI Africa ex-South Africa Index and the MSCI Frontier Markets Index. On an absolute basis, despite all of the -- despite the good news that we think is embedded in what we're doing, but on an absolute basis and on a relative basis, we underperformed in 2023. So book value was down 13% relative to the end of 2022 book value per share. And that underperformed the MSCI Africa by about 15 points, quite significant; MSCI Africa ex-South Africa by about 20%; and the MSCI Frontier Markets Index by about 25%. So not a great year on an absolute performance basis, nor indeed on a relative basis. But let's take a slightly longer historical perspective. And I think when you look at that, you start to see there's some important points to note, which I think support the message that we are indeed at a positive inflection point. So, between the Fairfax Africa Holdings IPO and the strategic transaction in 2020, FAH's -- Fairfax Africa Holdings' book value decline -- per share declined at a compounded annual rate of about 14%, and the share price declined more or less at the same rate, about 15%. Since the strategic transaction, the negative book value trend has significantly stabilized, and we've successfully liquidated almost all of these troubled assets and replaced them with Helios managed investments that are performing well. So, average book value per share underperformance versus benchmark has narrowed from about 17 points prior to 2020 to about 6 points post transaction. But the negative share price trend has actually accelerated since the strategic transaction, and we think, of course, while disappointing, it's not altogether surprising. I think that the -- there's still a lot of complexity that masks underlying performance. And so one of the objectives, one of the key objectives that we have going forward, in addition, of course, to generate -- to creating value substantively in the investments that we make, is looking for ways to clarify, simplify, clarify, simplify the reporting of our performance. So time will tell. We're not -- we're long-term investors, as are all of you in this room. And so we're quite confident that once the dust has sort of been cleared and we've sort of cleared the underbrush, I think, and the story is -- and we deliver continually, and the story is told, I think the share price will reflect that. So now, let's decompose the decline in book value per share into its key components. We ended 2023 with book value per share of $4.39, and that's a decline of 13%, as I noted a couple of slides ago. Of that, fair value declines, so like-for-like diminution in value, represented about $0.4, that's about 65% of the decline, while overheads and other non-investment-related expenses represented $0.19, about 30% of the decline. Again, just on this overheads point, again, to remind you, the objective of getting to break-even NFRE, i.e., earning enough third-party fee income to cover all of the costs of running it, is that effectively that will cease to be a negative number and ideally in future, will become a positive number, contributor to value as opposed to a detractor from value. So that was the -- that's the decomposition of the decline in book value per share in 2023. So this chart shows -- make sure we're on the same page here. This chart shows the contributors to the NAV change grouped into the buckets that you are now -- by now getting more and more familiar with. So the asset management side, that's Topco LP, which being the vehicle through which we receive the fee and carry streams, that's one; and then secondly, the investments buckets, which we've split on this page into Helios managed investments and legacy ones. There are basically 3 points to make on this page. The first is that 100% of the reduction in NAV can be attributed to reductions in the value of Topco. I'll come back to that later. Remember, Topco is essentially the present value of -- the discounted value of anticipated fee streams, et cetera, from carry. So it's all about the fundraising environment, the liquidity environment and so on. So -- but we'll come back to that. So 100% of the decline is attributable to that. Now -- so, that's the first point. The second point is that on the investment side, the Helios managed investments showed a total increase of $83 million. That's $0.77 per share. But of that, not all of that is a like-for-like increase. The like-for-like increase is the $18 million that you see in that sort of reddish color. So $18 million in like-for-like appreciation in value, while the remaining $65 million was essentially new dollars invested. So that's point number 2. And the third point is that while the legacy investments show a $31 million reduction in value, virtually all of that was from actual liquidations and only a very small portion, I'm not sure you can make it out, but the really small reddish sliver at the bottom of that box was a like-for-like reduction in fair value. So the takeaway from that last point is that, even as we're liquidating the legacy portfolio, we continue to preserve value on them. This is the point I made earlier about this not having been some kind of a fire sale, just get it all out the window. So that's the overall -- the decomposition of 2023 performance on an NAV basis. So, summarizing, investments and cash grew. The value of Topco, the asset management side, fell materially, and the net other assets essentially made up the balance. So the next question is, how does this performance translate to our view on the fair value of HFP, right? So we've seen what happened on the -- to the book value, what does that actually mean for fair value overall of HFP? So you'll recall -- sorry, I'm just out of sync here. So you'll recall this framework from last year. We measure value using a relatively market standard, at least for firms of this sort, market standard sum of the parts approach. The first part being the value of our balance sheet investments and cash. I think that's straightforward enough. The second is the value of the profit-generating potential of the asset management business. Again, profits generated in excess of all of the cost of running HFP valued on a PE or a DCF basis. That's part 2. And the third is the value of our share of carried interest in Helios funds that already exist. So I'll just remind you that in the valuation of Topco LP, the component that carries -- that measures the value of carried interest is really only relevant for funds that already exist. There's no value given to them for funds that Helios may raise in the future in the running -- the going concern of its asset management business, of which we'd receive a share. That last part, we put in a different bucket, which is what we call franchise value. The fact that the Helios funds exist and if all goes as expected, will continue to exist and therefore forevermore, HFP will be entitled to a share of the carry. So we'll go through the first part, just the balance sheet investment, and then we'll take a short Q&A break to enable you to ask and those online to ask the questions that you may have. And then we'll go on to cover the other 3 parts of this. So let's talk about -- thinking issues. Great. So, here's a very good news story. At the time of the strategic transaction, the investment portfolio of $218 million comprised, obviously by definition, 100% legacy assets. We've been making lots -- really good progress along the way, divesting those assets and replacing them with assets that we do believe in, the Helios managed investments. And so when you fast forward to the end of 2023 and those legacy assets are now down to 14% of the portfolio having been replaced, the remaining 86% being Helios managed investments. What is also very good news is that we've executed, as I mentioned just a couple of minutes ago, on that liquidation process at a pretty good pace, while preserving aggregate value for HFP. Some of the value that we preserved/created came from realizing value from the individual holdings at or close to the carrying values at the time of the strategic transaction. And a good portion of it came from the portfolio insurance deal that we did with Fairfax in early 2021, the value of which is reflected in the gain that -- on what we refer to as the HFP derivative. I mean, just to cast your mind back, at the time we were -- when we got really into the detail of the existing portfolio, we had a view that there was probably more risk in that portfolio than met the eye. And so we negotiated an agreement with Fairfax Financial under which they issued a debenture, we issued some warrants -- issued them some warrants, and of course, paid interest on the debenture in return for essentially locking in the valuation of a portfolio of those assets. I think that's proven to have been a good thing for us to have done, because that's created a fair bit of value for HFP. So, overall, we've achieved a recovery rate of more than 90%. If you sort of take that $218 million that we started with, how much have you sort of been able to hold on to? More than 90% on that legacy portfolio. And now we're down to 1 single asset, which is Nova Pioneer, the education business, which I think is no secret, we're also in the process of trying to divest. That asset, Nova Pioneer, is valued at $17 million, as you see on the slide in front of you, the darker, the gray portion of the 2023 column. And the remaining $15 million of value simply being payments that are due to HFP from deals that have already been struck for the sale of our residual interests in AFGRI and Philafrica and related assets. So this is quite good news, we believe. We see more good news in the Helios managed investments, which are performing well. So, in total, there are $198 million spread across 5 discrete investments. First is Helios IV. This is Helios Fund IV into which HFP has made a $50 million commitment, much of which has been drawn down, some of which is yet to be drawn. That fund is focused on the conversions of demographics and technological innovation across the continent, focuses on consumer, non-discretionary, digital infrastructure, financial services and fintech and tech-enabled business services. On a like-for-like, year-on-year basis, the fund was up 28%. And of course, our share in that fund is what we're referring to. So, up 28%. Trone is a co-investment with Helios IV, in what is the largest medical equipment distributor in Morocco. Again, that was also up about 7% year-on-year. That's Trone. The third is HSEG, Helios Sports and Entertainment Group, which is a permanent capital vehicle dedicated to the sports and entertainment industry. That's in that vehicle -- included in that, we have investments like the partnership with the NBA and NBA Africa; Event Horizon, which has now been reconstituted and renamed The Malachite Group. So if that -- if you see that in the financial statements, that's what that is; and Zaria Group, our investment partnership with Masai Ujiri in the entertainment zone space across the continent. That was also up 3% during the year. But again, we believe that there's actually a lot more value creation that's been -- that's happened in that portfolio than the 3% reflects. And we hope that during the course of this year, we'll be able to have some of that reflected. Fourth is Helios Digital Ventures, which is the seeding of a venture fund ahead of raising third-party capital. They've made 4 investments, if memory serves. And in totality, that's up about 6%. It was up about 6% last year. And last but by no means least, is Helios Seven Rivers Fund, which is the hedge fund I made reference to. If you recall, at the time of the strategic transaction, FAH had a portfolio of listed equities on its books. We actually felt that, by and large, they were -- it was a decent portfolio. We felt it needed a bit more active management, being a public portfolio of liquid stocks. It needed more active management, perhaps, than it was -- than the portfolio was getting, and certainly than we, as private equity professionals, could dedicate to it. And so what we did was in the seeding of HSRF, which is run by 2 gentlemen, I think you would have met last year, you certainly met one of them last year, Ahmad Zuaiter, we contributed those public assets and some cash as well into HSRF, which is managed on a dedicated basis by that team. I think the -- and I think they started running that in around March of last year. And just in those 9 or so months of 2023, they were up 16%. So they're doing quite well. We have -- we're pretty optimistic about the performance there. So, good news on the Helios managed investment side. So, just again, to rewind to the prior page, you'll recall, we think we've made really good progress liquidating the existing portfolio. We're down to 2 investment -- well, 1 investment and essentially, some receivables. And the Helios managed investments all seem to be on a pretty good track. As for cash, that's relatively straightforward. Our balances are driven, really, by investing activity, investing or divesting and by overhead. So, overall, the cash balance was down about $30 million year-on-year. So, summing it all up, we ended the year with tangible investments and cash of $319 million, comprising: $32 million in legacy assets, Nova Pioneer and the receivable that's associated with the divestiture of AFGRI; $196 million in Helios managed investments; and then $96 million in cash, minus $7 million of net other assets. So if we go back to this framework or sum of the parts framework, again, that's Part A, as you can see, the value of the balance sheet investments and cash, $319 million, and then we can -- we can sort of take the other building blocks as we go. But again, having sort of thrown a lot at you, we thought maybe it would be good to just take a couple of minute break on -- for Q&A. And maybe I'll have Luciana, Baba and Belinda join me, and we'll take any questions that you have and we'll also be able to read some off the -- read some off the screen for those who've put some questions in online.

So we have a couple of online questions, but we have some questions in the room. So please?

Just a couple of quick questions. Your 15% goal on growth of book value, is that levered or unlevered returns?

Well, I think -- so we -- if you recall -- you may not recall this, but we have a line of credit with RMB, Rand Merchant Bank, that has remained undrawn for the last couple of years. It's a $70 million line of credit. It is our intention to actually use that line of credit to make -- towards making investments. Now in relation to our -- to the book value, the rest of the book value, that's not going to be a lot of leverage, right? So if you assume that that's fully drawn, so just use round numbers, $100 million of debt, if you add sort of roughly $500 million of assets, it's that kind of leverage level. So the answer to your question is, there'll be some leverage in there, but it's not going to be some turbocharged sort of leverage, if you will.

You're not going 3-to-1, 11-to-1?

Not today and not tomorrow.

The other question, and I -- forgive me, I haven't had a chance to look through your financial statements. But with the repositioning of the portfolio, there's fees in and out, there's true-ups in and out. Where do you stand in asset protection, meaning NOLs were obviously generated. And I was wondering, could you give us some insight on the size of those NOLs? And are they captive or restricted? Or can you use them for total general purposes?

I think that's an excellent question. So, Belinda, this might be one for you. I don't know if the question was heard, but if I understand it correctly, the point is that we have divested assets over time, typically or generally at a loss. So we've incurred some capital losses on the assets that we have sold. And also, we have operating losses in addition to that. So I think the question is, do we have tax assets that might be usable in the context of future investing? If I understand the question correctly.

The one thing, that is, can it be sold [indiscernible]. And obviously, you have operating losses as well as capital losses. And if you can just walk us through the construct of what that asset might be?

Okay, I can take that. Is my mic on? So, with respect to the capital losses that you were thinking of that have already been incurred, they have already been taken back to prior years where we actually paid income tax because the accounting gain or loss that you see is significantly different from the tax gain or loss. So in the past, we have paid income taxes. And as we have incurred these losses, we have converted them to taxable losses. We have taken them back to prior years, and we have received refunds from CRA for that money. So that has been covered. With respect to operating losses, operating losses do not go forward or backward in our type of entity. They are just things that are incurred at this time. We do not recognize the asset from that because it is uncertain, and so in the future, when we do have operating profits, we will be able to use those operating losses against those profits, but we do not recognize the asset at this time.

Can you scope the number? Is it $10 million, $50 million, $5 million?

I would say it's -- if we're thinking operating losses, it's probably maybe in the $10 million to $20 million. And so as we then earn taxable profits, we will be able to offset it.

So who's your tax jurisdiction? Is it individual countries?

Yes. So when we look at our tax provision, when we look at paying income taxes, we do have subsidiaries in South Africa, Mauritius and in the U.S. We pay individual taxes in those locations, and we pay individual taxes in Canada.

Belinda, do you mind if I just add one more? By and large, though, if you look at the bulk of -- increasingly, as we're investing in the Helios managed investments, most of them are structured through -- well either we're investing directly through a Helios Fund, obviously, for no incremental fee or carry or a structure that's parallel to it. And they're usually in sort of a look-through jurisdictions. So you might be in Guernsey, you might be in Cayman. So we're not -- there's not too much tax leakage occurring all the way up until you get to the level -- until you get to levels that Belinda has described.

Yes. You will pay the tax -- though they are in tax neutral or free jurisdictions, in Canada, we will be required to pay those taxes, but only when they leak up to us.

Okay. We have a question from the online community about new investments, new Helios investments. And the question is, can you talk about the pipeline and how it has evolved in the past year? Baba, would you like to take that question?

Thank you. Can you hear me?

Yes.

Yes. Good afternoon, everyone. So, let's step back, I think. So what we do is we -- as Tope alluded to earlier, is we look at investments that take advantage of the just -- probably the most powerful demographic on the world, of the African demographic. But where you have technology actually making a big difference of actually creating huge commercial opportunity and bringing in huge productivity growth across the continent. So it's just the forefront of those 2 things that actually is sort of behind everything we do in our investments across the continent. And those 2 forces are just, I think, accelerating because the urbanization of the population, the use of technology by the young population on the continent is just increasing and rapidly increasing. I think Canada has actually benefited from a lot of young Africans coming to work in technology in this country. So also the big overarching just background of just a very young, tech-enabled demographic with technology actually converting that into opportunity to make investments, and also at the same time, driving productivity on the continent and productivity globally through the continent. If we look, actually, the question specifically talks about how it's evolved in the past year, which I think is probably the specific thing. I think actually, it's a very, very exciting time for us because, I mean those of you that know Africa and know the big economies of the continent, Egypt, Nigeria, South Africa, Kenya, I've had -- last few years have not been the most -- want to have to be a bit more cautious on those big economies in the last few years, we've actually been very good in finding places and spots where we can invest. But because we've got a benefit, actually, as a firm that can invest across the entire continent, we're not forced to invest in any particular geography on the continent. We've actually been able to put money to work in economies that actually did not have the characteristics that those last -- those are comments I mentioned of Egypt, Kenya, Nigeria have suffered. But you fast forward to the last 6 months, I think Kenya is now -- BlackRock talks about Kenya being one of their most attractive emerging market economies. Egypt has had a, I don't know, $35 billion flow into Egypt. Nigeria is transformed. So we actually see now, actually the whole continent actually open in term of geography, a massive opportunity for us across all of our strategies, from the HSRF to the main funds to our climate fund, to our venture fund. But I can go specific, I can talk about some of the opportunities, but just maybe to talk more about the characteristics that we look for when we find things, which is, I think, across the board in everything we're seeing. We like things like that tend to be sort of, I think, market leading in what they do. We don't like to have bid players, companies that actually really matter and make a difference in our market in what they do. FX protection is a very -- FX protection or growth or/and growth, 2 big drivers. And you've got to have, ideally both. But if you can find one or the other, we'll take one or the other. And last but not the least, I would say, ideally, things are actually CapEx -- not so CapEx heavy. So capital intensity in sort of -- in the environment where currency is devalued against the dollar is something you'd like to try to avoid. And the things we find in our portfolio right now, the actually internal pipeline, all fit exactly those same characteristics. And I think this is across the board, across our various strategies: the Sports and Entertainment; the main fund; the climate fund; the venture fund, the things we find actually all have those characteristics in them.

So maybe if I can just add to that. Absolutely, what Baba said. The only exception maybe we do to the capital intensity side is when we have a streamline of revenue that is contracted, and we have visibility onto it, like in the digital infrastructure space. So these are perhaps opportunity that we like to invest into, even though they might be capital intensive in nature. Please.

I had a couple of questions. My first question is on NBA Africa since that was one off, like the bigger investments, one of the first investments that we did, and it had some management upheaval. So I was wondering if you could provide like an update on how that investment specifically is doing. Is it living up to the expectations? And secondly, my question is more broad around like the ability to raise funding like in venture funds in this kind of environment? Like I'm not sure, but historically, has the money that is invested in the Fund I, II, III, like how much of it comes from Africa versus rest of the world? And now that yields have spiked, so people are not really chasing returns, so has it made it harder to attract outside capital into Africa as compared to like a decade or so ago?

Thank you for the 2 questions. Maybe you can.

Yes, let me -- I think those are 2 really good questions. Can I take the second one first, the fundraising one? Well what's -- in the rest of the presentation to come, we'll talk a bit more about the fundraising environment, but I think this is as good a time as any to address the point. So what's actually interesting is slightly the opposite of what you -- so fundraising for emerging markets, private equity or alternative asset classes generally has actually been very difficult for the last 12, 13, 14 years, right, which is in contrast to what it's been like in developed markets, U.S., Canada, Western Europe. And the reason for that, and I'll now say some pretty obvious things, is that when you had interest rates declining for so long and to such low levels as they did until a couple of years ago, you have inflation in financial assets, and so anyone investing in any financial assets in these kinds of markets made money. And so when you're in that environment, for an institutional capital allocator, the old reasons, right, to look elsewhere, diversification, et cetera, et cetera, just become less relevant, right? So it's not just Africa, but of course, Africa was an important -- you felt it as well, but true of Asia, et cetera. In fact, just a slight digression. I mean people talk a lot about Asia and how much money has gone into Asia, but I saw a statistic recently that over the last 10 years, first of all, 80% of all private equity flows into emerging markets went to Asia, and 80% of Asia was China. So, when you look at all of these other markets, it's actually been quite challenging. So everything that the funds have raised has been against a very stiff headwind. And then you had COVID, which was also even more difficult for emerging markets fundraising. But now rates have started to go up. And as you said, normally, you would expect while rates going up, no one's going to be chasing yield in faraway places. But what's actually happened is that a lot of asset allocators have now realized that maybe the music has stopped in the old game, right, which is that you just invest lots of leverage, you could pay a high price, but it doesn't matter because you'll sell it at a higher price because rates have fallen between when you bought and when you're selling, and you can -- lots of leverage and the leverage is cheap. So that way of making money can't be done anymore. And so a lot of private equity funds in developed markets have not yet demonstrated to their LPs that they've got a plan for the new world. And those same LPs are worried about all of the capital that -- the mark-to-market. So, you were doing well, but it wasn't cash money in your pocket. So even the portfolio that you have, you're not so sure about the value. So we say it's early, and I don't want to over-egg the point, but what we are actually seeing now is the opposite, which is now institutional asset allocators are starting to ask themselves like, "Okay, I do need to keep investing in this asset class. I can't keep doing the same thing I've been doing for the last 7, 8, 10, 12 years. I've got to be thinking about something different." And so, now we're getting these calls of like, "Oh, remind me again, what -- you tell me what you guys have been up to" are the calls that you were not really getting maybe 3 or 4 years ago. So we're actually -- paradoxically, it actually feels like emerging markets private equity and certainly, at least our visibility into it, seems to be heading in the right direction. But we'll see. The other thing that's -- so that's kind of one. The other thing that's happened, which is not -- I don't think it's an emerging markets thing. I think it's a global private equity phenomenon, is that over the last 2 decades, you've had much greater specialization amongst the asset allocators themselves. So once upon a time, if you went to even Ontario Teachers, one of the most sophisticated investors out there, 20 years ago, they had -- there's a pool of capital. This is the private equity person, right? And then this is a public one. And this -- but now you've got every variety, sort of real assets, private equity, venture growth, everything is sort of slice and dice. And so there's specialization at that level. And that specialization is driving the need for specialization at the GP level, the fund level, right? So, thematic funds, narrower in scope, sort of more kind of targeted in terms of what they're trying to do. So thematic funds are much more aligned with LP interests now, I think, than sort of broad, all things to all people, generalist kinds of funds. So, I think those are 2 things that are at work, and we'll touch on them during the rest of the presentation as well. Can I answer the first question? So NBA Africa. So, here you mentioned management upheaval and then I'll try and describe what's actually happened. So, at the end of the day, it's -- NBA Africa is a young business, right? So it has -- it's well backed and well branded, but it's still a new business, right? So it requires a great deal of entrepreneurialism and kind of a growth mindset. Now, the launch stage, but also by the same token, the NBA as a brand, is a very powerful brand, and it's actually -- and powerful brands tend to be very conservative. So, the important thing in getting the NBA Africa business off the ground was to have a leader who was -- who could get the thing standing up with no drama, no mistakes, no nothing. And Victor, who was in place, was absolutely the right person for that job, right? Got the business started. Got it going. Built a team and got the engine moving. But I think you do get to the point a couple of years in where, okay, now you need a little bit more of a growth kind of capability. So -- and Victor, I should say, his background was, he was a banker by training, a good banker and a great executive, but he was a banker by training, and now you needed a bit more, I think now just more of a growth mindset. So it wasn't a disorderly kind of change of management or anything like that. It was very much sort of a planned kind of evolution of it. And in terms of the investment itself, it's still going well. I think we're still quite optimistic about it. One of the things that -- for those of you who are familiar with it, it comprises 2 parts. There's the NBA Africa -- sorry, there's the NBA Africa part, which we call core NBA. And then there's the BAL, the Basketball Africa League, which is actually an independent league run by the NBA. Of course, it's underneath NBA Africa. And trying to figure out how the -- one relates to the other, et cetera, is sort of an ongoing kind of journey of discovery. But we're very optimistic about it. I think it's proving to have done for us what we hoped it would do. And I think you'll see the value reflected in HSEG, Helios Sports and Entertainment Group as a whole.

I'm just trying to get a bit more clarification from the panel up there with regards to the multi, I guess, the asset strategy that you're moving in, that it was developed in 2022, especially considering recent comments that you've made as well as the recent investments that you've made within the real asset space, considering the investments in the data center space and the investments within the Live Nation deal and the Zaria sports deal as well. So was there any consideration towards real estate and infrastructure in the continent? Or is that -- again, considering the fact that you're looking at deals that are not too CapEx incentive, was that also something that was at play? Just trying to get a bit more clarification from the team if that's a strategy.

On real estate?

Yes, within the real estate and infrastructure space.

So, next section actually, you're going to hear what we're focusing on, yes. I think what's not obviously there is we don't have -- real estate is not one of the sectors that we're actually looking to invest in directly. We actually have, over the years, spent a lot of time thinking about that space because it's a very big space globally. We've made a small investment in the space. We have an asset in Kenya, which is student and young professionals housing. And Africa is a place, if you think about the industry there, the West is -- development is very complex. It's very hard. Regulation is complex. Debt is not readily available and if it's available, it's in slow call terms and it's actually very expensive. And those are the things you need to make real estate investments actually really work. You need to have easy regulation, lots of debt, low-cost debt, and also, I think a fast-growing amount of customers and tenants who actually are good credits for your assets, yes. The last thing you do in the west that happens a lot slower and actually is sort of for the west and developed world is actually people acquiring existing assets, and there's very little of that around, apart from South Africa. South Africa, I think we'll like put it in a slightly different category where there's lots of developed real estate, shopping malls and tall Class A and Class B office buildings. Rest of the continent does not have any of those. So I'll all say at this stage, the real estate sector is not one we are forward leaning on as sort of operating real estate. Like data centers, I think we are quite excited about. For just real estates, as a broad sector, I think, is one that we actually currently think is not the time for now. Does that answer your question?

Yes, definitely you were thinking about in data centers, which is another alternative asset class in real estate. So, you're in it already.

Yes.

And also within the Live Nation deals, the stadiums and the sport complex, that's also another sleeve of real estate. So that's why I'm trying to get some clarification whether is that -- maybe there's an indirect entry? Or is that just a sleeve of the business where the business doesn't really own the real estate itself? It's just a fraction of the business that you're owning? That's why I'm trying to get some clarification on.

Yes. So, let me -- maybe on the data center side, there's one thing that's actually quite important is there's a big distinction. So interesting that you think of that as a real estate investment, because we don't. And I think the reason is, it just reflects the difference in a developed markets approach and the approach that we take. So many, many investment firms have made investments in data centers in the U.S., in Canada and in Western Europe. Those look much more like real estate investments in the sense that you basically you have a building, you own the building, you've got some tenants, you make a yield. That's the -- you know they're not operating companies. Whereas what -- with the investments that we're making, whether it's IXAfrica, when I say we, I mean Helios Investment Partners, IXAfrica in Kenya or MDC in Morocco, these are operating businesses. So we have businesses with a management team, a sales organization and finance team. So you're building what looks more like, if you're familiar, more like an Equinix of Africa than an investment in a building or in a facility that a Microsoft or the hyperscaler might rent. So I think you're spot on in terms of how those investments happen here, but our approach is a little bit different. But, yes, I mean in the end, those are -- the fact that you own the real estate is just an ancillary feature of the investment. It's not the primary reason that you're making them on there. And I think that's probably the distinction.

Great. I think we have -- Oh, one more question. Yes, please.

What are the discount rates that you're using against your marks in general? Is it mid-teens, low 20s? And then I have a follow-up question.

Yes. Do you want to take the discount rate on the Topco parts of it? Yes.

Yes, I would say the discount rate generally is maybe in the mid-to-high teens, factoring in sort of all of the country risk premiums and that type of thing, so mid-to-high. I think the other place where you were thinking higher level is, if you were looking more closely at the Topco valuation, you might have seen a discount rate that was maybe more in the 20s to 30s. I think that might have been where you were thinking. And that is really related to more along the exit. It's a different type of profile. The discount rate that we look at does factor in more factors. I think where the difference is, when you look at the other piece that's in the mid-teens, the pieces that keep it lower in the mid to higher teens are factored against the actual cash flow and not in the discount rate. And because we don't want to penalize a cash flow that is very positive and lucrative and timely and expected by applying that high discount rate, so we apply something else and keep the discount rate in a lower factor. Does that make a bit more sense?

Yes. And is it FX adjusted or is it just country currency?

For the most part, we are operating in U.S. dollars, so there's not a lot of FX required in the discount rate. So we're really looking at country risk premium, size premium, what is the long term or the 10-year yield? Those are the factors within the discount rate.

And the second question is more of a global question to help us model out your future. Where do you think the fees are heading in your industry? Is the 1-in-20 gone? Does it still exist?

Well, we're not at 1-in-20 yet. We're still at -- we're still higher than that. But no, I think there's fee pressure, candidly, across all asset managers everywhere. But I think what determines the rate of that pressure is how -- if there are alternative ways of people accessing the same product, then there's going to be a lot of fee pressure. I think one of the things that we have found, for better and for worse by the way, hasn't always helped us, is that there are -- for people who are interested in investing in Africa and doing it in an institutional way, there are extremely few ways to do it to a high degree of comfort. And so we tend to find that fee pressure is just not -- it's not really yet, inevitably it will happen, but it's not yet a feature of the Helios landscape. We feel, for example, we'll touch on it in a few minutes now on some of the new funds that Helios is raising, and in all cases, we feel reasonably sure that if it's a private equity style fund, for example, the PE fund itself, the venture fund, I think fees will be as they have been historically. But, of course, there's a tide that's sweeping the world, and perhaps one day that will all start to change.

Great.

Can I just add one little thing to that, which is, I think, obviously, the bigger you are, the more pressure you've got. Our funds are not $3 billion, $4 billion, $5 billion funds. We hope they will get there one day soon. But I think at this scale, we got a $1-billion-ish and smaller funds, I would not expect that we'll see any fee pressure for a while to come.

All right. This is our first Q&A, For the people online and also for the people in the room that have more questions, we'll have another chance at the end of the presentation. So we go back and resume.

All right. Thank you. So just to take us back, I hope you haven't lost the train of thought that we were trying to set up. So we've covered now the first part of the sum of the parts. That's the value of our balance sheet, investments and cash, which we said was $319 million. So now we'd like to talk about the second part of it, which is net fee-related earnings. And again, just to jog your memory, that's the excess of management fees that accrue to Topco over the HFP operating expenses. And then, of course, to the extent that that's positive, that you apply a DCF or some sort of a market-based PE multiple to assess what might that be worth. So let's look at that next. So this you would have seen as a slide last year. I mean the concept of NFRE does not exist explicitly in the financial statements. And so how do we relate that back to the financial statements? The first thing that we have to do is to isolate the share of excess fees from Helios funds, just isolate that as a distinct number, and then isolate the recurring operating costs that you need to offset against that and see what the net of those 2 things are, and that's your NFRE. So as you'll see in the second -- actually, if you go to the far right column on the page, in 2022, we registered an NFRE loss of $11.9 million, right? You can see that at the very far right of the page at the bottom, $11.9 million loss and that loss expanded in 2023 to $13.1 million, right, as a loss. So as you know, our objective is to make that a sustainably and increasingly positive number. So how do we plan to do that? First, let's diagnose the problem. We had, I think, a really good exchange on the question that was asked during the last Q&A session about sort of the fundraising environment. So first, let's diagnose the problem. At the time of the strategic transaction, we did not anticipate NFRE to be negative, certainly, not to the extent that we have seen. So what happened? Well, very simply, the size of Helios' fourth private equity fund, the one that was raised in 2020 or those being raised in 2020 at the time of the transaction, at the time of the pandemic, fell significantly short of its target as the COVID pandemic made it virtually impossible to market the fund as normal, in addition to COVID upending financial markets more generally. So the chart that you see here shows the path of gross fee income from PE funds at Helios, and the one point to note for those who might not be familiar with PE funds is it's quite normal for fee income to decline over time once the funds become fully invested. So you start with sort of 2% or whatever the applicable percentage might be applied to the size of the fund, and that's more or less flat through the investment period of the fund, which could be 4 or 5 years, in some cases, a bit longer. And then once you get past that period, it starts to sort of taper off until the maturity of the fund. So the track that you see in the blue, the gray, et cetera, is quite normal. Now so the top of the orange segment shows what total gross fee revenue has actually been, right? So in 2023, that was about $25 million. That's the top of the orange segment. That's the actual, about $25 million. The top of the light gray segment shows what it would have been had the Fund IV target been achieved, right? So the difference there is $14 million, which completely offsets that NFRE loss that you would have seen. So had that fund been raised at the target that was set, in the leading years, we would have actually had an NFRE profit most likely, and we would now be tapering down to sort of NFR towards NFRE breakeven until Helios went out to the market to raise new funds this year, which will then layer on the fee. So this is the root of the problem. So COVID was obviously a shock as we mentioned. But again, as we were discussing a few minutes ago, the fundraising environment for emerging markets has actually been challenging for a long time before that. Declining rates and inflation in financial assets in developed markets meant that institutional investors just didn't really feel the need to look elsewhere. But again, that seems to be changing with the realization dawning that relying on an investment strategy that's predicated on access to large amounts of cheap leverage, it's just no longer the no-brainer that maybe it once was. So we're now seeing a subtle but positive shift in sentiment that we think could support next, the ongoing round of cycle of fundraising. But we know from Helios, Helios is not leaving this just the market conditions to improve. They've taken a number of actions that we believe will actually prove to be very beneficial. The first is Helios has invested quite significantly in increasing its fundraising capabilities. So if you go back to 2020, those one full-time member of the team focused on capital formation or marketing, as you might call it. Now that number is 5. And I know that they're probably seeking to expand that further. So just increasing just the capacity for fundraising. The second is also expanding the geographic fundraising outreach to include certain markets that we have seen actually to contain real strategic interest in learning more about Africa and actually investing in it. These are sort of longer -- it's a slow burn, and it sort of takes longer to kind of turn into actual dollars, but we see a lot of potential in these markets, specifically Japan and the Middle East. So Helios is making a concerted effort. There have been several trips from many of us, from a couple of us here in this room to Japan and to the Middle East over the last few years, and that's really gaining some traction. And then lastly, launching these new synergistic and thematic investment vehicles that the climate fund, which is called CLEAR, Helios Sports and Entertainment Group, HSRF, the hedge fund in HETI, that are really more aligned to the increasingly specialized needs and appetites of institutional investors. So we think that these actions that Helios is taking will prove to be beneficial in terms of addressing that gap in fundraising that has led to this NFRE loss that we've experienced. So now I'll run through in the next 3 slides, just a quick summary of the different funds that Helios has underway. The first on the left side of this page is the fifth private equity fund that has a target of $750 million. The fundraising for that is underway. And the Helios team is looking forward to achieving a first close of that in the coming couple of quarters or so. The second is the climate fund, CLEAR, which is focused on decarbonization, resilience and adaptation. That's a $400 million target. Again, fundraising is well underway for that one, and we hope to be able to report any good news on that again in the coming months. On the venture side, Helios Digital Ventures, this is backing technology entrepreneurs disrupting key sectors of the African economy. It's a $125 million target, I should say. Fundraising for that is also underway. And HSRF, it's not a private equity fund structure. It's a hedge fund structure. So it's open, although they have not gone out yet to raise third-party capital. They've been investing the capital that HFP seeded. I mentioned the 16% performance last year, which was very good. And if performance continues to be strong, they will then open up to third-party capital sometime during the middle of this year. And the final 2, Helios Sports and Entertainment Group, we touched on that a couple of minutes ago. They're in the process of raising a new round of funding with a target of at least $75 million of additional capital from third parties. That's a permanent capital vehicle. So the way that new money will come in will be at some hoped-for uplift to the existing carrying value of the investments that HFP has made in the assets like -- that we touched on. And then lastly, Helios Energy Transition, also a permanent capital vehicle. The closest comp, I think, that we can think of for this is probably New Fortress Energy, something which is a U.S.-listed energy infrastructure business. And the capital raising for that is underway. The team that's in charge of that doesn't have a clear sense yet for what the quantum of the capital that will be raised will be, but I think that will become clear in the next couple of months. So 6 different vehicles in the market. It's a lot, but the capacity to raise the capital within Helios has grown meaningfully since 2020. So what's the upshot of all of this, right? So on the left side is just the chart that we went through just a few minutes ago that shows again the $14 million gap being essentially more than 100% of the NFRE losses. These are the fees that are attached to the different strategies that are in the market right now. So on the private equity side, it's a 2% fee. That is what the fourth fund was. That's what all the prior funds have been. The climate fund is also 2% fee again on the $400 million target capital raising. The same on the venture side. In fact, in venture, you do see in some cases, especially for smaller-sized venture funds, you do see fee structures that are actually above the 2%. But I think the target here is the 2%. And then for Sports and Entertainment, for HSRF and for HETI for energy transition, these are a different kind of animal. And so we'll see where those come out. Sports and Entertainment will be more of a cost-plus kind of management fee structure. Helios Energy Transition will be a fee that's based on the asset value or the market cap of the assets that are being developed in that portfolio. So this is the intended path to get to positive NFRE. So if Helios is able to achieve these fundraising objectives, what effect might that have just numerically on NFRE? As you saw in the previous page, most of the funds that are being raised attract a 2% fee. And typically, the marginal profitability on incremental fees is in the 40% to 60% range. For the more mature private equity strategies, it could actually be higher than that. Whereas for some of the newer strategies, it will probably fall at the lower end of that range. So if you take a range of sort of new incremental AUM from $1 billion or so to $2 billion, the targets that are underway right now will fall more or less into the middle of that range. So $1 billion to $2 billion. You apply that fee level and an incremental margin of 55%, being that the PE side is a higher margin and it's kind of the largest of it, the additional fees generated would more than cover the $13 million NFRE loss and generate profits of about $2 million to $7 million. So if you see the highlighted numbers in the middle, that's how much is the incremental fee, subtract the $13 million loss that we incurred last year and what is the net of that? So you can see that, again, all predicated on the success of the ongoing fundraisings, but the notion of positive NFRE is not miles away. So if Helios is actually able to achieve this kind of positive NFRE, well, how might that be valued, right? So this, again, it's not a long-term objective. This is a relatively near-term ambition. So how might that be valued? Well, fortunately, now there are increasing numbers of comps, still not very many, but there are a few that are listed primarily in the U.S., but a couple in Europe as well. And this is sort of how, on the top of this page, you sort of see how they trade anywhere from about 10x earnings to sort of high teens. What's a really important point to make, though, is that these numbers are actually quite conservative because these are the trading multiples of the companies overall. In reality, they trade themselves on a sum of parts basis and analyst coverage will typically assign a multiple to the fee streams, their NFRE, that is different to the multiple that they assign to their carry streams. And the fee stream multiples, they're often twice the trading multiple, literally twice the trading multiple of the whole company. So if you focus on NFRE, really the multiples that we ought to be applying should be quite a bit higher than these. But be that as it may, take these numbers. And of course, there are many advantages that these companies have, advantages of scale, of diversification, et cetera, et cetera, that HFP does not have. And so you've got to, I think, take some haircut to those multiples. But however you sort of cut it, we think that in the near term, if these fundraises are successful, conservatively, you could be adding $20 million to $80 million, probably more if you play the real multiples of present value to just on the NFRE side. And if you achieve that, remember, that now means that there's no leakage, if you will. In fact, the NAV, the balance sheet is hopefully growing, and you're actually supporting that with additional income coming from third-party sources, which we think is a very interesting equation.

These are big fundraising targets. What might be a base case by the end of the year and how much you might raise?

Well, look, I think as I said, these are the targets. And typically, the way the fundraising cycles work is that they are -- from when you achieve a -- I think you're quite familiar with this, but from when you achieve a first close, typically in all of the funds, the venture fund, et cetera, you can keep the fund open for another 12 months to possibly 18 months, right? And by the way, whenever you achieve a subsequent closing, the fees that accrue to the GP are backdated for all the subsequent closures. So while, for example, on the climate fund, which has a $400 million target, it may not be the case that they raise all $400 million this year. But so long as they have a first closing this year and ultimately raise $400 million, they'll effectively have fees that are 2% on $400 million dated from the date of the first closing.

So what would be a possible goal to have raised by the end of this year or a year or a year from now or 18 months from now?

Well, we'd say 18 months from now, I think we would believe that all of those targets would be matched. That's the objective. By the balance of the year, I think quite hard to say. But I think as I said, the objective is to get to the target within the fundraising period of the respective funds.

And when would shareholders start to see progress on that, whether it's this quarter, next quarter, a year from now?

I think you should certainly expect to see progress within the next couple of quarters, definitely.

And you'll report that you raised x amount or how would we know how you're doing?

I think, look, you will definitely see the progress, there'll be markets. And I believe we can report that as and when, Julia, correct me if I'm wrong. I think to the extent that, yes, these are funds that are disclosed to be in marketing. So I think -- I don't see why we would not be able to inform shareholders as to where they are, or please tell me, Julia, if you feel differently.

No, I mean, we've been [ willingly ] updated in our MD&A for Q4, so we can look at moving that forward. A number of investors [indiscernible]...

Okay -- so that's A and B. Now, let's talk about carried interest and carried interest is -- there's a lot more volatility to this, obviously. Again, you would have seen this last year, but there are 2 ways that we can assess the value of carried interest that HFP is entitled to. One is a simpler way, right, which is simply to take the value of Topco Class A, right? That's the discounted present value of the expected carried interest that will accrue when the existing funds are fully invested, fully liquidated, et cetera, right? So that's a number that one can read off the financial statements. The other way to think about it, which is a much more conservative way, which is to look at just what we call embedded carry. So if you just sold all of the assets in the funds right now, this very minute, what would happen, right? So those are just 2 different metrics. There's no magic, but those are the bookends, if you will, and then we'll come to sort of D, which is a different thing entirely. So over the course of 2023, embedded carry, i.e., if you just liquidate all of the funds right away, what you get was down significantly. Now remember, that is down significantly, 82% to $8 million, right, on a year-over-year basis. The driver of that is declines in the carrying values of those fund portfolio assets and probably most importantly, the catch-up effect of the hurdle rate embedded in those funds. And so forgive me, I think because this is familiar to most people in the room, but for those who might not be familiar with it, the way that the private equity funds work is that there's an annual hurdle of 8% in almost all, in fact, in all of them. It is a compounding 8% hurdle. And so when you're earning a share of the profit above the capital and that return, there's a lot of volatility when the returns are within -- the closer you get to sort of an 8% compounded return on the investment itself, the greater the volatility in the carry that you might expect. So if the fund is expected to return a, let's say, 10% IRR and you've got an 8% hurdle, then you do the math and you can figure out what our share would be. If that 10% goes to, let's say, 9%, there's a really big shift in terms of the value. So there's a lot of volatility in that number. And just as it went down, it might go up, right? So I think -- but it's a volatile number, but that's sort of what happened. If you take down the carrying values, right, of the existing investments and the reason the carrying values get taken down is because of the comps, for example, comparable companies, the valuation metrics, whatever it may be, you apply them, you take down the value, there's a huge levered effect on the value of embedded carry. So that's the one bookend. And alternatively, you look at the value of Topco A, which is down $55 million on a year-on-year basis, and that's due to increases in the discount rates that are applied and revisions to the exit forecast of some of the underlying funds. So these are the 2 sort of bookends. But again, these are only for deals that have been done, funds that exist and deals that have been done. There's no value for the going concern or, for example, the funds that we went through just on a couple of pages ago, the carry that might arise from those is not on this page. It's not included here. There's no value given to those. So that's Part C. The book end's $8 million to about $55 million on the carry. And then we go to the final part, which is the franchise value. As I mentioned a minute ago, on the funds that we went through, there is no values being ascribed to the carried interest. But hopefully, as I mentioned, we will come back to at some point soon, and give you evidence that Helios has actually made progress in raising these funds. And when those funds get raised, I think it's safe to assume, it's an assumption, but safe to assume that they will generate carry it at some point. And these are the carry structures that these funds will attract. So 20% for the venture fund, 20% for the climate fund, 20% for the PE fund, the fifth private equity fund. In the case of Helios Sports and Entertainment Group, it will be essentially think of it as you might sort of a management stock option program. So Helios Fairfax Partners will have a share of the gains above the valuation at which the new money comes in, which again could yield some significant value in time. And in the case of the energy transition vehicle, that will also be in a similar format. So we think of these kinds of things and things that might not be on this page that Helios might pursue as being sort of franchise value in some respect. So just to kind of tie it all together, right, how does this assessment of sort of fair value actually relate to the market value of our shares? Well, it's clear, to us at least, and I hope to you, that our shares are actually quite meaningfully undervalued. And to the extent that Helios is able to achieve the things that they've set out to achieve, that we itemize on these pages will become increasingly undervalued unless the share price actually starts to recognize it. So on a sum of parts basis, we believe that the current fair value today conservatively is in the $350 million to $450 million range, and that excludes any attribution of value to what we call franchise value, right, versus our current market cap of about $300 million. Now that the legacy issues are behind us, right, and the momentum of the new investments, the Helios managed investments are going to start to come through and then if we can simplify the reporting and enable greater clarity into what's actually happening, which I think we'll be able to do during the course of this year and certainly into the next fiscal year, we think some of the good news that's embedded in this business will start becoming manifest. And we're pretty confident at that point that the share price will increasingly start to reflect value. But in nutshell, I mean, I hope that you've gotten the message now that we're extremely excited about where we are. It does really feel like with this positive inflection point, we're not really I think burdened by a lot of the challenges of the past. And we think that the opportunity, that the future is looking extremely bright for HFP now. So I think with that, thank you very much, I should say thanks, first. We will be happy to take more questions. I think there might have been a few things that some of you might have thought about in the second part of the conversation, and the same goes for our guests online as well. So maybe we'll just reconvene and take some more questions before we wrap.

We have a few questions online. And maybe we'll start with one that closely linked with what Tope was just talking about. The questions ask about when looking at the driver of value creation for HFP being balance sheet investments, value of the net fee income and value of carry, which one has the greater potential for upside in the medium and long term? Maybe I can start and then I think Tope was very clear that the NFRE, so the value of the net fee income is meant at the very minimum to cover the cost, so breakeven. And then if we can, there will be positive from that. So that probably won't be the biggest contributor to the value creation. The other 2 will be more significant. On one side, the increase on the value of the balance sheet investments and on the other side, the value of carry. Now the 2 are very different in nature. And just talk about some of the characteristics of that, you can expect perhaps the increase in balance sheet investment to be more gradual and to be continuous over time versus the value of carry will be more lumpy, more than quantum and in time of currencies. So I think that's how we look at the business. I don't know if you guys want to add anything on that.

No, I think that's exactly right. I mean I think that's right.

Yes. All right. One question, one more question in the room.

I have a question regarding, and I asked this like a couple of years ago as well. If you could like sort of bring to light that for you and Baba, is majority of your liquid network tied to the performance of HFP shares? Do you have that much skin in the game, just like it will go a long win reassuring all the shareholders that your personal success is tied? Because I don't think we get much color regarding the compensation and how the top management team is tied into the success of share price of HFP. And secondly, I was wondering if you could sort of shed some light on, you have this very unique listing in Canadian markets where majority is in Africa. What are some of the benefits of having this source of permanent capital listed in a country like Canada and what are some of the drawbacks that you foresee in the long run? Is this a viable structure for next 10, 20 years to come?

Great. I mean, do you want...

Okay. I'll take the first. Yes? The answer to the first I think is definitely. I mean Tope and I, we own 46% collectively. And the vast majority of our wealth is all tied into, I believe, to actually compound growth, the balance sheet to grow at the 15% type and above and also start paying dividends. So I think we're actually, you couldn't have better alignment between us and other shareholders. We do not get compensation from any other thing within the Helios system. Actually, no, we don't get carry from elsewhere. We don't get bonuses from elsewhere. Everything we do and get is just purely 100% only from the performance of HFP. Anything on that one?

No. The only thing I would add is, I mean, certainly, I've been a pretty regular buyer of shares in the company. So on top of that, I've been doing my best to buy more because I have a massive amount of belief in the business, and I think it is significantly undervalued, both in terms of on a snapshot basis we went through, but certainly, in terms of its long-term potential. I think that your other question had really 2 parts, right, which is, A, what is the benefit of having this vehicle? And I think secondly, this vehicle in Canada, I think, or as I understood it. The first one is, I think, quite clear. We couldn't have done the things that we have done in terms of being able to seed some of these Helios funds without the capital that HFP provided. In fact, from the Helios perspective, that really was the objective. That was the strategic objective of the strategic transaction. And so it's not a coincidence that it's all now more or less that HSEG, HSRF, clear to a lesser extent, but HDV, for sure, are really getting going now because they've had the benefit of being able to be built and developed with seeding investments from HFP. So the existence of this vehicle is a huge strategic advantage at least certainly for Helios and, therefore, for HFP because HFP derives a lot of its value that way. So that's very clear. And vis-à-vis Canada, well, look, Canada is, I mean, you guys are here. Canada has a very large pool of long-term investors, whether it's because of Fairfax, whether it's because of Berkshire Hathaway, I don't know, but there's a very large population of long-term value-oriented investors in this market. Canada is a large exporter of capital. There's a huge amount of capital that's generated in this country of extremely large pension pools, et cetera. And it's an OECD world-class, highly well-regulated transparent market. And so we think that it's as good a place to be as any. I think that our focus right now, appropriately in these last few years, has been just get it to work, and then you can worry about all these other things later on, just get it to work, legacy assets, get the new investments going, really show and demonstrate and then everything else will take care of itself.

I think a follow-up question online from the structure, the permanent capital, the vehicle, the listing is, do we have to put more seed capital into HFP to grow it? And I think it goes back to the point that Tope just mentioned, get it to work first. Our focus is to get it to a point in which we can deliver on the commitment that we are making to you. And then opportunity are plenty. You heard Baba about the pipeline and about the wealth of different sectors that are interesting in Africa. And when the timing is right, we'll come back if we need to look for additional capital.

Yes, I think that's right.

One more question online. Could you please speak to the material weakness in reporting for your Level 3 assumptions? Belinda, do you want to answer that one?

Sure. I will take that one. And so really where this question is coming from, and I'm sure if you've taken a look at our financial statement and in our MD&A, you will see reference to a material weakness, really a material weakness stems from sort of gaps in your control. So when we think about this particular situation, so where does that stem from? And what are we going to do about it? At HFP and as you know, we've talked about Helios being our investment manager, we rely on the controls at Helios to ensure that the data that we're using in our valuations is accurate and the assumptions are reasonable. Unfortunately, some of those controls were not executed as effectively as we would have liked. And that led to an audit adjustment of the Topco valuation. And I think what is important to understand is if you discover that yourself, there's no material weakness. But if the auditor discovers it while they're looking at it, then it gets reported to the public as such. In conversation and in working very closely with Helios, they're taking this very seriously. They are committed to remediating, putting something in place. Currently together, we're all looking at the control framework, what are the processes, what needs to change, what needs to put in place and are looking at developing a plan. Unfortunately, the plan is not yet solidified. We will be talking about that in our quarterly financial statements. And so each quarter, as HFP reports, we will report on the status of the plan, its execution, the remediation and how we're progressing.

Balkar Sivia from White Falcon Capital. On venture investing, this is not something you've done before from my understanding. What do you think on venture, how do you approach venture? Why do you think you'll be successful in it?

Yes. That's an excellent question. So the first thing to mention is that -- is you're correct that we are private equity people, we're not venture people. And so to run the Helios Digital Ventures, we've actually brought in leadership from [indiscernible], they're co-leads but in both cases, extensive experience investing in technology, venture-stage businesses and in Africa and doing so successfully. So the leadership of that team is a venture team. It's not a private equity team, masquerading as a venture team. So that's the first observation. The second in terms of the why is actually a really interesting one. So the idea that we needed to start a venture business actually stemmed out of the private equity business and the direction of travel of the private equity strategy. So I mentioned, although during the presentation, there are really 4 sectors where the private equity funds are active. And 2 of those 4 are financial services and fintech, that's one, and then the other is tech-enabled business services, so IT services, software businesses, et cetera. And as Baba also mentioned, underlying pretty much everything that we do is the notion that technology and innovation is coupling with demographics to drive value-creation opportunities in Africa. So tech is starting to kind of basically infiltrate everything that we're doing on the private equity side. So if that's what you're doing on the private equity side, it means that there's more technology opportunity in what you're doing, but there's also more technology risk in what you're doing. So it's really important to understand what might be coming around the corner when you're making investments that again contain more of a technology exposure to them. So purely from the lens of, if you were just an investor in the private equity fund, you would probably want this venture fund to exist sitting beside you sharing information, sharing knowledge and sharing intel. And we have been on the private equity side -- or when I say we, I mean, Helios has been very, very active for a long time in fintech, probably longer than many people in this country or in America, right. So that capability was always there, but from a private equity kind of lens. So really in terms of determining the strategy for the venture fund that's being determined by the leadership of the venture fund. But what is really important to the whole organization is the knowledge sharing between them. So I mentioned the co-leads. One of the co-leads was a gentleman who was co-head, was actually head for a time of what they call disruptive technologies globally at the IFC, but was for a longer time, the head of venture investing in Africa. So he's a co-head. The other co-head is Fope, who's been with us for a decade or so, and she has been involved in a lot of the investments that we've made since she joined us in the fintech space. So she will be spending 50% or is spending 50% of her time on the venture side and 50% of her time on the private equity side to make sure that, that connectivity persists. So I hope that answers the question.

I just have a different question. Just from a portfolio perspective, with what happened in Nigeria, what happened in Egypt, it seems like things can go to 0 very, very quickly in Africa or frontier markets, and you wouldn't see it coming. So from a portfolio perspective, out of 10 investments you made, say you have a couple, not your fault, but just because of what's happening in the country, not work out. I mean do you think about it like that? Or do you think everything can have a 15% IRR? Or do you have a few that you think can [ become batters ] in 5 years?

So yes. So the first thing I would say is that when you look at those sorts of macro things, and Baba actually discussed this in response to an earlier question, these things don't happen out of the blue. So Egypt, Nigeria, South Africa have had macro challenges. If you were paying attention for a long time, Kenya maybe more recently. And so if you look at the Helios Investment Partners' private equity portfolio and investing activity, it's been, I think, 7 years since Helios Investment Partners made an investment in Nigeria, a new one in Nigeria. It's been probably, Baba correct me, in Egypt, probably 5 years or 6 years. So I think you can sort of -- a lot of the work that the Helios team does is understanding sort of what the general sort of direction of travel is in a lot of these countries. And when you have the real capability across the whole continent, you don't have to be doggedly investing in a market that you're not very sure about. Now it doesn't mean that there are not challenges in every single market. There are macro challenges everywhere. But there's some kinds of challenges that just make the whole country difficult to get your head around, right? And it's usually around FX and the track of FX. So if you look at Nigeria, where for some period of time, it's ending now after lots of tiers, but you had many, many, sort of official FX rates that was widely divergent from the real market rates. So that's a very different problem from having a currency that you don't believe in or you believe in. You can underwrite that risk. The latter risk, you can underwrite. The former, you can't because you don't know where convergence is going to happen. So when you see those kinds of situations, you can just opt out of the market so long as you have another market to invest in. So we've done a lot. Helios has done a lot in Morocco, for example. Morocco has been a pretty good market for Helios over the last 4 or so years. But then to Baba's point, now when we look at what's happening in Nigeria and in Egypt, we feel like if you have a 5-, 6-, 7-year horizon, now is exactly the time to be really getting stuck in. So now the pipeline that Helios has now is much more heavily weighted towards places like Nigeria, Kenya, Ghana, I think, et cetera, then which you never would have seen in the last few years. So maybe that's the macro point. But I think, generally speaking, we don't take a venture approach to PE investing. Every single investment has to be underwritten to be able to return capital at a minimum, right? And then you sort of look for the skew of outcomes, right? Is it sort of a normal bell curve, in the middle of the bell curve? Is it 15% or 20%? Or is it a skew to the right? We obviously like the latter and so on and so forth. But it's not a case of let's make 12. We know the 2 will go to 0, and we hope the remaining 10 will make up the money. That's not the approach.

Any further questions, please?

Excuse me for my ignorance on these questions. So I'm not an expert with your financials. In the financial report you provided, the book value at the end of the year was $4.39 with $474,000 of shareholders' equity. In your presentation, you talked about $319 million of assets...

Yes, of investments and cash. Yes.

This financial statement says $95 million in cash and $386 million in portfolio investments.

Okay. I think portfolio investments probably includes Topco?

Yes.

Yes. So yes, so I think there's a slight definitional difference. So Topco LP, which is the entity that receives the share fees and the share of carry, that entity, for the purpose of this presentation, is shown as the asset management side of the business. So if you exclude that from the number you gave, I think you should get to what we think of as real investments, tangible investments, Trone, Fund IV, et cetera, plus cash.

Topco would not be an investment that has any value for liquidation?

It does. But remember, Topco is the right to receive -- Topco is an entitlement to a set of future cash flows.

So have you marked up Topco for future cash flow?

No, so -- Sorry.

I could try. I think I know where they're going. So when you look at the financial statement, it does include Topco, and it includes it at normal fair value. What Tope presented was he took Topco, he deconstructed it and asked us to look at it in a different view, not in the view that is in the financial statement. But if you were to look at it this way, it would be worth $8 million for this piece, $8 million to $55 million or something else. The $319 million is valid. It is in the financial statement. And if you were to take the $474,000 and you deducted Topco from $474,000, you would get $319 million.

Okay. So if I'm an investor, let me be very basic. If I look at Fairfax, they're going to report 950 or 934 last quarter and 939. That's real numbers. We can go sell the company for that, probably get that. The $4.39 is really not a liquidable number.

Well, I think it is. I think it is. So let's go maybe component by component. So you have what we call a tangible investment, meaning there's a -- that's probably the wrong word. But if you look at just the investments, so the 5 or so, I think the Helios managed ones, the investment in Helios IV, the investment in Trone, the investment in HSEG, the investment...

The $319 million.

Plus cash. That's $319 million.

Okay. Wait. Plus cash, so it's at $319 million plus $95 million?

No.

$319 million total, including the $95 million.

Total. Total, exactly right. Exactly right. So that's $319 million, yes? And then separately, Topco, which is essentially the right to receive any excess fees and carry from any of these Helios funds, at least the ones that currently exist, the way that's valued is basically on a -- you take the forecast provided by Helios, of okay, what are the companies that you have, what is their value? When are you going to exit them? At what price, et cetera, et cetera? What carry will that yield if all of these things happen? And then you discount that back. So that's the reason why, as an example, the embedded carry as a measure, that $8 million, the reason that came down so significantly is that on the Helios side, they said, look, our view of the value of the companies that we hold and what they're worth today, right, based on the comps and so on has come down. And so that's why that came down meaningfully on a year-on-year basis.

So that would have been marked, the Topco piece on my math is about $150 million, which is $474 million minus $319 million. Roughly.

Yes. That should be right.

And then the presentation you gave us today came up with a $50 million to $100 million value or some ballpark of that. $150 million you've discounted. You've taken a discount on the $150 million, given current conditions. Is that...

I think -- I'm trying to add up the numbers real time. So the numbers that we showed you with Topco LP, the $55 million, that should be exactly the number that you have in the financial statements. The $55 million. So the 2 classes of Topco, Topco A and Topco B, so $55 million, right, is Topco A, and that should be the number that's in front of you. And then Topco B, which is the fee entitlement, the fee portion of it is a number --

$90-something.

$90-something-million exactly. But we have not taken that $90 million. We sort of treat -- we've taken the $55 million, that's what it is. The $90-something million, we said, look, you can either discount fees back and try and get your -- or you can say, look, even if we took the -- let me say it slightly differently. If we took the $90-something million, you still have to capitalize and you're trying to get to fair value. What about the $13 million of losses? You get my point. So how do you make sense of those 2 things? So we think a way of looking at it, which is, again, more standard in the industry is to say, look, yes, instead of looking at the present value of fees and then just saying, well, separately, you have these costs. Look at the actual fees that you're getting every year, the net fee that's coming in every year against the actual cost that you're incurring every year and just try to make that a positive number.

Gotcha.

You can see what I mean.

Yes.

All right. There are no more question online. If there are no more question in the room, thank you all very much for being here with us today.

Thank you.

Thank you.

Thank you.