HMC Capital Limited (HMC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HMC Capital Limited FY '24 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. David Di Pilla, Managing Director and CEO. Thank you. Please go ahead.

Good morning, and thank you for joining today's call. With me on the call are Group CFO, Will McMicking; and Group Head of Strategy and Investor Relations, Misha Mohl. Before we commence, HMC would like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. I'll start on Slide 3 with an overview of today's presentation. Our strong financial results for the first half of financial year '24 are pleasing and demonstrates the momentum building across our increasingly diversified platform. I am particularly proud of the exceptional investment returns we are generating for our investors. This is also supporting our market-leading fundraising activity. Today is an exciting day in our journey as we build a more diversified business. We are announcing 3 major initiatives, which include our New Energy Transition platform, which will be spearheaded by Angela Karl, who joins us from QIC. The acquisition of a highly strategic digital infrastructure platform based in North America, StratCap, and the establishment of our Capital Solutions division led by Robert Vanderzeil. Importantly, we have been preparing for these strategies for some time, and they build on the key philosophy of the group to organically grow funds under management by strategies which are exposed to megatrends. I also want to reinforce that we continue to execute our strategy in a highly risk controlled and disciplined manner. We look forward to hosting an Investor Day in Q2 2024 where we will share more information on these initiatives. Before we move to the results, I would like to take a moment to recap on what we have achieved since IPO and where we are heading as a group. On Slide 4, since IPO, we have clearly demonstrated an ability to execute large complex transactions. This is a key point of difference for the HMC Group. This has underpinned our market-leading FUM growth of 70% per annum since launching our first vehicle in November 2020. Since listing, HMC has achieved over 50% per annum EPS growth and total shareholder returns of over 150%. Looking forward, we believe the growth initiatives we are announcing today provide the building blocks to maintain this trajectory and grow funds under management well beyond $20 billion over the next few years. We also believe these growth initiatives give us the base from which to continue our strong EPS and total shareholder return trajectory. Now to discuss our strategy on Slide 5. We've worked tirelessly over the past 4 years to build a more diversified, resilient and scalable business, which can thrive in all market conditions. The 20% ROE target we set ourselves, is ambitious, and highlights the operating leverage in our business model. As I highlighted 6 months ago, the companies we admire have the following common attributes: elite talent, diversified capital sources, high conviction investment strategies and global scale. The next phase of our journey will see HMC become more diversified. This will enable us to take advantage of attractive opportunities across a broader range of segments and geographies. Turning now to Slide 7 for an overview of HMC's first half financial year '24 results. HMC has delivered operating earnings of $57.8 million or $0.166 per share, up 100% on the prior corresponding period. Total revenue for the period of $90 million is up 85%. This is predominantly driven by 44% growth in management fee revenue and 125% growth in investment income. This includes the significant gain on our investment in HMC Capital Partners Fund I. However, you should note that this excludes fees which are expected in the second half of financial year '24 performance fees, I should say. Funds under management grew to $8.5 billion during the period, which is up 40% versus the prior corresponding period. You should note that funds under management are today over $10 billion, including our $1.6 billion development pipeline and the growth initiatives we are announcing today. Our balance sheet is net cash, and we have $1.2 billion of liquid tangible assets and undrawn debt capacity to fund new growth. As I highlighted earlier, the market-leading performance of our funds since inception is extremely pleasing and has been achieved despite difficult market conditions. Since inception, our Capital Partners fund has delivered a 24% IRR. Our LML fund has delivered a 23% IRR and our unlisted health care funds delivered a 15% IRR. We are focused on building on this track record, which will ultimately drive continued growth in funds under management. Now to Slide 8, I want to discuss our operating highlights in more detail. I'll start with our unlisted real estate platform, where we have raised over $2 billion in new institutional funds over the past 12 months from a standing start. In unlisted health care, in December '23, we completed the fundraising for the $1.3 billion unlisted health care funds, introducing 4 new domestic and global institutional investors. I am pleased to confirm that the $75 million underwrite from HMC into the unlisted fund has now been fully sold down to a domestic superannuation fund. This is a great example of our balance sheet being used strategically to grow funds under management. Our Last Mile Logistics strategy is also delivering strong investment returns to our institutional partner, Funds SA. We remain confident that this is a very scalable strategy, and we are currently assessing a number of acquisition opportunities. You should expect to see the second LML fund launched over the next 12 months once Fund I is fully deployed. Our private equity strategy, HMC Capital Partners Fund I is also outperforming. The fund now manages over $600 million of assets, which is up over 80% versus the first half of financial year '23, demonstrating strong investment returns and positive fund flows as a result. A key highlight for the half was the significant re-rate in our portfolio company, Sigma Healthcare, following announcement of the landmark merger with Chemist Warehouse. The proposed merger brings one of Australia's highest quality private businesses onto the ASX. We are confident our strategy with Sigma is highly repeatable. We are working actively with our other portfolio companies on strategic initiatives to unlock value. Our 2 REITs delivered very strong operational and financial results for the first half last week. Each has reaffirmed its full year financial '24 FFO and DPU guidance. Both entities are exposed to high-quality real estate portfolios in favorable subsectors, benefiting from compelling long-term structural demand drivers. Pleasingly, Healthscope was one of the only REITs that delivered positive valuation gains this half. The gains were driven predominantly by the Healthscope portfolio. HDN once again delivered market-leading NOI growth and leasing spreads in its subsector and continues to prioritize its highly accretive development pipeline. Importantly, as we move into a more favorable interest rate environment over the next 12 months, we expect our REITs will trade more in line with their strong operating fundamentals. Now to discuss our fund management strategy on Slide 10, where we provide an overview of our business. Our investment philosophy as a group is clear and built around high conviction thematic trends. We've identified 4 major themes which will create enormous investment opportunities globally over the coming decades. Our business is evolving to take advantage of these compelling long duration trends, which we believe will ultimately create long-term value for investors across the HMC Group. In healthcare, we see this as a highly attractive sector with infrastructure-like characteristics and compelling long-term demand growth. This sector will need significant capital to support growing and aging population, evolving consumer preferences and rapid technological investment in detection and treatment of illness. Importantly, we believe the private sector will continue to play a major and increasing role in funding these opportunities. We currently express our investment view in this sector through HealthCo, our unlisted health care fund and our investment in Sigma Healthcare. Moving to decarbonization. We see this as one of the most significant investment opportunities of this generation. It is one of the fastest-growing sectors in the private market's landscape. Global decarbonization is significantly behind schedule and represents a $275 trillion investment opportunity over the next 30 years. Australia is also behind schedule and represents a highly attractive market with over $900 billion of onshore decarbonization investment opportunities required. Today, we are announcing our entry into this exciting sector with the appointment of Angela Karl. Angela will lead this strategy with the support of a market-leading investment team, which is currently being established. Another major opportunity is digitization. The rapid advance of new technologies such as AI are driving exponential growth in the digital economy. The required investment in new physical infrastructure to support this demand is estimated at over $1 trillion by 2028. This means investors will need significantly greater exposure in their portfolios to digital infrastructure like data centers and towers. We are well positioned to take advantage of this opportunity with the StratCap acquisition we are announcing today. And finally, deglobalization. We are now seeing a major reversal of structural shift away from decades of global trade and economic integration between countries. The growing push by countries to achieve greater energy and supply chain security will require major investment to modernize and expand critical infrastructure. The onshoring of critical industries will also impact immigration patterns and demand for skilled labor. This will drive greater demand for residential housing and specialist infrastructure. We are currently taking advantage of this through our HDM REIT, our LML strategy, Sigma Healthcare and our listed real estate and unlisted real estate platform. Let's now move to Slide 11 to discuss HMC's new organizational structure. Our new structure reflects HMC's continued evolution into a more diversified business. It's consistent with our stated strategy to build a large scale and increasingly global fund management platform. Moving forward, HMC will operate across sector divisions with individual sector heads responsible for P&L outcomes. Sid Sharma, our current group COO, will become the Head of Australian Real Estate with responsibility for our listed and unlisted real estate platform. This structure will enhance the operational focus and intensity across all of our real estate strategies. I'm extremely proud of the growth of this business which started with the acquisition of the original Masters property portfolio back in 2017. Today, we manage over $8 billion of funds under management in real estate and each of our strategies is performing well. I'd like to congratulate Sid on his appointment and am confident he can maintain the strong growth trajectory of this business into the future. Victoria Hardie will become the Head of our Private Equity division. Victoria will continue to manage our capital partners fund with a focus on growing the fund over $1 billion. She will also lead our expansion into new growth opportunities, including corporate private equity transactions, which could be seeded by HMC's balance sheet and offer to institutional and wholesale investors through co-investment. Importantly, this builds on the strong track record of the broader HMC Group and our people in executing innovative and complex transactions. Robert Vanderzeil is now leading our Capital Solutions business. This business will take advantage of investment opportunities originated across the broader HMC platform. Importantly, this is not a new business as we demonstrated by underwriting the Healthscope transaction in early 2023 and more recently, participating in and sub-underwriting Sigma's capital raising using HMC's balance sheet in December 2023. The solutions business will target a 20% ROE and operate within strict risk parameters. Now to discuss our other growth initiatives. I'm really excited about this -- sorry. Moving now to the economic flywheel. The flywheel is about using our balance sheet efficiently and recycling our capital base to fund the growth of our business. We've demonstrated this by growing funds under management from $1 billion to $10 billion in 3 years, using our balance sheet strategically to warehouse assets for new funds. We believe our new $20 billion fund target over the medium term is readily achievable with our existing capital base and significantly more diversified platform, which now includes Energy Transition and Digital Infrastructure. Importantly, given the large addressable market opportunities, these strategies can each be scaled well beyond $5 billion. On Page 13, you can see 2 recent examples of our economic flywheel in action. The $1.2 billion Healthscope acquisition announced in March last year was a unique opportunity to secure a high-quality and large-scale portfolio for both our HCW REIT and see a new unlisted institutional funds. HMC's balance sheet played a critical funding role through underwriting support for the capital raising, which structured the transactions over 3 tranches, which gave HMC up to 6 months to raise institutional capital for the unlisted fund and to de-risk its settlement underline. As I highlighted earlier, the fundraising was ultimately a great success. And today, HMC has fully sold down the equity in the $1.3 billion unlisted fund. Our Sigma investment has been extremely successful to date. We started building the position on HMC's balance sheet in June 2022 as a seed investment for our private equity strategy, which was established in August '22. At Sigma's largest shareholder, HMC helps Sigma's Board and management team unlock value as demonstrated by the recently announced merger proposal between Sigma and Chemist Warehouse. HMC generated $7.7 million of profit from participating in sub-underwriting Sigma's recent rights issue. In addition, the Capital Partners Fund is significantly outperforming its performance fee threshold. The key takeaway from this slide is that these are unique proprietary transactions identified, structured and financed by HMC to deliver attractive returns to our investors. Now I'd like you to move to Slide 14 to discuss our fundraising strategy. In the past 12 months, we created over $2 billion of FUM with institutional capital through the creation of our first unlisted institutional vehicle. This is a huge opportunity for our business, and we will continue to invest in our fundraising capability. We recently appointed Fergal Harris from JLL, who will support Nick Harris, no, they're not brothers, in expanding our institutional fundraising capability. The chart on this slide is based on a survey of global CIOs and shows their capital allocation intentions across different alternative sectors. The 3 sectors, which are expected to attract the most capital global include private credit, infrastructure and private equity, all target areas for the HMC Group. Turning now to Slide 15 to provide more detail on our growth pipeline and our march towards $20 billion of assets under management. Energy Transition. With Angela Karl now spearheading our Energy Transition platform, we are currently establishing a highly credentialed investment team and Advisory Board to support her. We will announce further updates in due course. We're already looking at a number of attractive investment opportunities and expect to launch our inaugural energy transition fund in the second half of calendar year 2024 with a $1 billion to $2 billion target. The fund will target large-scale utility infrastructure opportunities as well as innovation investments with private equity characteristics to accelerate Australia's energy transition. Digital infrastructure. Earlier, I touched on the acquisition of StratCap. With a relatively small investment of USD 28.5 million, we believe this acquisition is highly strategic. This gives HMC a platform to build a global digital infrastructure capability. We've been particularly impressed by StratCap's origination capability in data centers and mobile towers. StratCap has over $1 billion of actionable pipeline opportunities including a major data center development opportunity in Los Angeles and over $5 billion of additional opportunities under review. This is in addition to $700 million of fee paying committed funds today. Our focus is on accelerating the growth of this platform. However, I want to reiterate that we are extremely focused on managing the risks of expanding into a new offshore market. In private equity, as I highlighted earlier, our private equity strategy is delivering exceptional returns, and we are confident about growing the fund to overview deals. We are engaging constructively with our portfolio companies on value realization strategies which could unlock meaningful value and drive future performance fees for HMC. We have also recently started to build a position in our fourth investment, and we'll look to grow the portfolio of 5 to 7 positions over the coming months. The next frontier for our private equity business is to also undertake corporate private equity transactions with institutional capital partners. Once again, HMC's balance sheet may be used to warehouse a seed investment in new fund. Let's remember the original Masters Trust's acquisition in 2016-'17 still today represents one of the best private equity transactions in Australia in recent memory. Capital Solutions. I expect our Capital Solutions business will be active as our business scales across a much more diversified platform going forward. As I mentioned earlier, Robbie Vanderzeil is now leading this business and will report directly to me on all investments. I want to reinforce the point that these activities involve a small use of our balance sheet and are largely a continuation of what HMC has been doing since we listed. Importantly, all investments will operate under tight risk parameters and control and will be around HMC Group originated proprietary transaction. This year, the HMC Group has already realized $7.8 billion of pretax profit from participating in and sub-underwriting the Sigma capital raise, of which $3.4 million was booked in the first half year results. Going forward, we think it's fair to assume this business will generate at least $10 million to $20 million of pretax earnings per annum. Now briefly to touch on initiatives which are currently under evaluation. Global Healthcare. As I mentioned earlier, the capital raise for our domestic health care fund was highly successful. The Healthscope transaction connected us with significant institutional investors domestically and in particular, offshore. We are confident about the level of demand for this asset class. We're currently evaluating a number of attractive portfolio opportunities to seed the new global fund. We will provide more details as this opportunity progresses over the coming months. In private credit, we think the fundamentals are compelling as nonbank lenders continue to capture market share from traditional lenders. Our focus remains on identifying a highly credentialed team with a proven track record, which can leverage HMC's fundraising capability and balance sheet. I want to now focus your attention on our progress with sustainability initiatives on Slide 16. Here, we highlight HMC Group's sustainability framework, which was designed around our objective to create healthy communities. I'm pleased to report on the following initiatives delivered over the half and demonstrate the progress we are driving across our entire platform. Environmental. HMC's 2 REITs are both on track with our net zero energy road map, with a 30% reduction in Scope 1 and Scope 2 carbon emissions to be achieved in financial year '24. This will be reached primarily due to our smart energy management program and ongoing investment in solar power infrastructure across our underlying portfolios. The establishment of the previously discussed energy transition platform will also provide HMC with further opportunities to advance our net zero targets. On social initiatives, we are proud to announce that HMC Capital Foundation has been formally granted past status and has been seeded with a graph from HMC Capital. The foundation is now processing applications for 4 potential grant recipients in this current round. Our reflect reconciliation action plan has also now been endorsed by Reconciliation Australia, with RAP initiatives underway across the group. These initiatives are centered around taking active steps towards advancing reconciliation through 4 core areas: raising awareness, supporting partnership, employment and education. Our governance. We always strive to implement best practice in everything we do and are proud of the progress we are making. HMC achieved its 50% gender diversity target across the entire organization as well as across independent Board of Director positions ahead of our financial year '25 target. We received a rating of AA in the MSCI ESG rating assessment, an independent HMC Capital Board evaluation has been completed, and we are currently implementing the proposed recommendation. We continue to make great strides and tangible progress on our sustainability strategy and practical initiatives. I'll now hand to William McMicking to discuss our financial year results before we wrap and take your questions.

Thanks, David. And turning now to Slide 18. HMC recorded operating earnings for the first half of $57.8 million or $0.166 per share, driven by the continued growth in funds under management. Management fee revenue increased 44% to $41 million, which was driven by the contribution from the recently established Last Mile Logistics and Healthcare and Life Sciences funds. Investment income increased by $25 million to $46 million, driven by a $22 million gain in the carrying value of the Capital Partners Fund investment. Capital Solutions income associated with the announced Sigma CW merger generated $7.8 million from sub-underwriting fees and investment gains. $3.4 million of the $7.8 million was booked as at December, with the balance being realized in the second half. Expenses of $31 million are running below fund growth, and this increase includes the variable nature of asset management expenses, which are linked to growth in the real estate funds. An interim dividend of $0.06 per share has also been announced, which is in line with guidance. Moving now to the balance sheet on Slide 19. HMC continues to leverage its balance sheet to support the growth in funds under management, with the period to December seeing this occur across 2 key events. HMC warehoused a $77 million equity investment in the Healthcare and Life Sciences fund, which was subsequently sold to a domestic institutional investor in December. And as mentioned on the prior page, HMC also provided sub-underwriting support to Sigma in the first half, which was completed in January with a total cash gain of $7.8 million and no residual underwriting exposure remaining. Turning now to Slide 20. HMC at December is in a strong position to continue to support fund management initiatives with 0 net debt and undrawn debt and net tangible assets of $1.2 billion. HMC also extended the term of its debt facility to March 2025. I'll now hand it back to David.

Thanks, Will. Now turning to our outlook and guidance for financial year 2024. Today, we have provided more detail on our strategy and road map to grow FUM beyond $20 billion over the medium term. Our existing funds are outperforming, which is driving strong fundraising momentum. We are well positioned to repeat our success with Sigma on our -- with our other private equity investments, our rates are delivering strong organic growth and will benefit from more favorable interest rate environment. The new growth initiatives announced today in Energy Transition Digital Infrastructure are both scalable, and finally, we are actively evaluating opportunities to build new platforms in global health care and private credit. Our newly established Capital Solutions business is already profitable and well positioned to take advantage of opportunities originated across the broader HMC group. Importantly, we are well capitalized to execute our strategy with $1.2 billion of liquid investments and undrawn debt capacity. HMC clearly enters the second half of financial year '24 with strong momentum, including generating additional investment gains since 31 December 2023. Assuming no adverse fair value movements over the balance of the year, HMC is well placed to deliver pretax EPS of no less than $0.33 per share in financial year '24. This includes a $12.5 million performance fee from HMC Capital Partners Fund I, which is expected to be realized in the second half of financial year '24. HMC also reaffirms financial year '24 dividend guidance of $0.12 per share. This is consistent with our strategy to maintain the dividend and reinvest retained earnings into high ROE growth business opportunities. Thank you for your time, and I will now hand the call back to the operator for Q&A.

[Operator Instructions] Your first question is from Sholto Maconochie from Jefferies.

Just on the StratCap acquisition, how much equity stake that you take in that business? How much do you own of the business?

100%.

Okay. And that pipeline of $1 billion near term, how much is the data center in that pipeline, in L.A.?

It's largely made up of the scale data center opportunity.

Okay. And that's near term. And the $5 billion for -- is that under option or sort of identified in the land bank?

Identified opportunities. I think what we're most attracted with that portfolio and that organization is just the depth of experience they have. Have we had sat here trying to organically build a digital infrastructure capability, I still be talking to you about it in 3 years' time, Sholto. What we've done for USD 28.5 million is we've accelerated 3 years of business development. And importantly, what we've got there is a very, very highly credentialed experienced team from some of the biggest players in the U.S. data center and telco space. So we're really confident around the team, the capability. What they needed was just a big brother and needed a shareholder like us to come into the picture with our balance sheet, our brand, our fundraising capability and our team. We've got a lead team of investment bank at the rate HMC. So we think combining that with the capability of StratCap, we're really excited about the outlook, what's this space.

Great. And then just on the performance fee and obviously, the guidance, thanks for providing the guidance. It looks like it's up 25% on the pcp on the base. Is that -- what -- how much impacted is that performance fee from Lendlease on about 15% in the last 15 days or so. Is that guidance impacted a bit from Lendlease performance?

It was factored into our guidance. So it's all factored in. Would have been higher.

And then it is finally up. Okay. And then just finally, on the call, I think you said you built a bought a core position in a listed company, but at the moment you haven't disclosed that. Is that correct?

Yes. Just on the Lendlease, I want to go back to that, it was a very marginal movement in performance, so at the margin. And on the fourth investment, yes, we are deploying into it, and I'm not going to go and to speculate on that on this call back to your interest, what's this space.

Your next question is from Richard Jones from JPMorgan.

Sorry, just to clarify that comment. So the performance fee, I thought, David and maybe I read this incorrectly that, that was effective as at 31st of January?

Correct.

Okay. So it's not reflective of obviously the price movement of yesterday?

It is. So obviously, what we do is we're getting an update to the movement in the portfolio for the first 15 or 16 days of [indiscernible]. We've given you a number and there was enough buffer in the guidance when we were formulating it with our Board last week that despite yesterday's movement, it was less than $0.01 in terms of impact to our guidance. So we have enough buffer in the numbers. So we're great. We remain at $0.33 and stand by it.

Just put it another way, 2 of the other positions in the fund, if you track them from the 31st of Jan to yesterday, the fall in LLC, obviously those count, so there's no change.

Okay. And can you just -- Will, can you just remind us how you realized earnings on your investment stake in HMC Capital Partners I?

You're talking about management fees or investment?

No, the investment stake.

Yes. I mean, so we just -- we account in line with AA space. So everything is fair value. Over time, investments will be realized but it's fair value accounting.

Richard, I think the other point I'd want to make is, we continue to account for our investment in HMC Capital Partners, the way we have part, full year to continue, the methodology remains the same as previously.

Yes. No, that's fine. I just wanted to clarify that. Just, can you maybe just discuss, David, just how the Digital Infrastructure development acquisition opportunity came about? And maybe touch on, is this a profitable platform at the moment? And what AUM would you need to get to before it becomes profitable, if it's not?

What we would say to you is that the way [indiscernible] shoe leather and Simon Mitchell and I have made a number of trips to the U.S., [indiscernible] been a lot of work, a lot of effort, a lot of rocks have been turned over. I think we must have looked at 50 different opportunities. This one happened to come across our desk and looked very exciting. What we would say is we believe that the StratCap acquisition will be accretive in financial year '25. So with the integration into our business, there'll be some cost efficiencies with that. And based on the revenue line that we see there today, we're confident that we'll get it to be accretive into the coming fiscal year.

Okay. And then just in terms of the global health care opportunity, it's out seeding some opportunities. Would they be on the HMC balance sheet?

No, that will be exactly the same as the way we executed the domestic health care fund. So again, what we would tell you is that Nick Harris has been with me, and he's been walking in pretty much on a weekly basis since we closed the Aussie health care fund things getting a call away from an institutional investor to say any more of that on the state health care that we could buy. And unfortunately, it's closed. So what we have done is we've stirred up a lot of interest in that space. And so we've got both domestic and global investors wanting to invest in the asset class. So we remain really, really bullish on the outlook. And so we're confident that we can unlock the right assets at the right valuation, the investor support will be there.

Your next question is from James Druce from CLSA.

Just a question on from Jone's comments. There's no other mark-to-market movements in the first half and it's just HMC private equity stake, right?

There's 2 small positions on the HMC balance sheet at fair value as well. I mean the approach that we've taken there is we're ultimately trying to reduce the adjustments to stat earnings. And given the continued consolidation of capital numbers on the balance sheet, we've accounted for it that way.

All right. What was the other mark-to-market movement over the half?

About $5 million.

Your next question is from Grant McCasker from UBS.

Sorry to just harp on the earnings. Just going forward, so well, you did mention stat earnings. How should we think about the key earnings measured up to benchmark HMC going forward? Yes, thinking generating different piece of value both cash and without cash.

I think there was reported today is exactly how you should be thinking about it, Grant. Over the investment term you're going to have unrealized and realized gains. The intent there is to reduce the adjustments to stat earnings. So over time, it will balance out, but clearly, you're going to have movements from 1 period to the next.

Okay. And then just on the energy transition space. I think you called out sort of private equity style investments. If we think of that $2 billion target, what would be sort of private equity sale investments versus actual sort of more stabilized staff investments?

Look, I think we're at this point, viewing, it is an opportunity rich landscape. What Angela and the team will be doing is playing a role across the whole HMC Group platform. So if an investment opportunity and a listed entity would have come along or would it be suitable for capital partners should be involved we'd be getting her view on that. If it was a small opportunity that maybe -- could be put on the balance sheet, we consider that. But I think the bigger objective here is really around building a diversified fund strategy. We'll be out on the road with institutional investors in the coming weeks and months. And as we build that strategy out, we'll refine the investment thesis for the fund. But as I had cleared in the presentation today, somewhere between $1 billion and $2 billion of our fundraising target.

Your next question is from David Pobucky from Macquarie Group.

Congrats on the strong results. Can I just go back to StratCap, please, and maybe ask it in a different way. Can you provide the earnings multiple that you paid based on your forecast '25 earnings?

Probably you don't want to get into that at this point, but it wasn't high. We're talking USD 28.5 million. So we're confident that the outlook for the business is very exciting. So for a very small amount of dollars with a fairly limited downside. We think the upside of that business is exponential. That's why it will be accretive in the first year.

Just second one, you've provided quantitative earnings guidance for the first time. If you could just talk to the factors that give you confidence to do that now and then maybe any key moving parts that we need to think about or risks in the second half, please.

I think, as Will touched on fair value movements of something you'll obviously need to get zero around and factor in, but what I would say to you is I see today is a pretty important moment in the journey of the group. What we're really saying is we we've got a very repeatable business now. You should expect the core earnings coming out of our core funds to continue to just march along to organically grow, continue to deliver a base level of earnings, and then what you should assume is some of those one-offs that you'll see at capital partners or some of the activities where we co-invest with the funds in opportunities to give us some of that recurring one-off. But I don't think you should treat it as a one-off anymore. You should treat that as an ongoing part of the business and an annuity part of the business as well. And as we've said today, we think that sort of solutions activity is somewhere in the order of $10 million to $20 million, just using the balance sheet in a very risk and so way to [indiscernible]. So that's where we're looking to hit. We think this year is sort of a really good baseline to sort of target that $0.33 type range. And we want to keep growing the FUM from $10 billion to $20 billion, and we want to see a corresponding level of underlying growth in earnings as well as the years to come. We think we've got a very scalable, very repeatable business. It's very high margin.

Your next question is from Ben Brayshaw from Barrenjoey.

I was wondering if you could just expand a bit on Angela's role in relation to energy transition. And just insofar as, I guess, how you're thinking about the focus for the next 1 to 2 years across, say, solar, wind transmission. Are there any areas that you would like to prioritize ahead of others?

Look, I think the investment opportunity there is significant, as we talked about, $900 billion of this very foreseeable future, seems like a fairly good investable market opportunity. How can I put this in the most adequate way possible? I should say, it's not a cut praise organization. We're not going to go and do what everyone else is out there doing. We're not going to building solar farms, wind farms and so on. That's not the game we're in. We're going to be looking for the mispriced opportunities that others can't see, so we're very excited about this, what's this space. We're going to make an impact in this area. This needs some of the best mines in the country to sell. These are very complex, very major issues. There's a lot of dislocation there for all the winning stories. You're hearing all the good stories, there is a lot bad stories in renewable energy in terms of wind farms with PPAs coming to an end. That can't be refinanced. So we just see there's opportunity rich and don't assume that we'll repeat what other people are doing out there. We'll come up with our own unique view of it. We will come up with our own unique interpretation of what that can mean and it's all going to be driven by, as you've seen today, adding value for our investors.

Yes. And how do you think about the overhead required to establish and build out that team? And do you have any expectations at this point as to when that will likely be breakeven?

What we'd say to you is just with the scalability of this business, it's all built around people. Our remuneration structures are very much incentive based. So we are very mindful of full around fixed overhead and fixed costs. I would say to you that in the second half, we're not anticipating a very significant increase in overheads across the group. It's small but not significant. And so what we would say is if the organization performs and the executives deliver, they'll get paid through variable remuneration. But we feel as though we've got a very aligned model here. Everyone is an owner in the business. Everyone is a shareholder. Everyone behaves like a shareholder. It's a great culture that we're building here, and you can only achieve what we've achieved by having that kind of organization, those high-quality people will be incentivized.

Your next question is from Lauren Berry from Morgan Stanley.

Another question on StratCap. Are you able to just talk a bit about the investors in those funds? Like is it any institutional? Is it all retail? And what the factors are like on that FUM, please?

I'm precluded under Federal regulatory rules on saying too much about how the underlying investors are. But what we said is a mix of retail and institutional capital.

Okay. And in your guidance, can you confirm if there's any establishment or underwrite fees assumed for the new health care or energy funds place?

Nothing.

Nothing. Okay. And the performance fee for HMC Capital Partners, is that intended to be received in cash?

We could elect to take any either/or, but at this point, it's a seemed to be in cash.

And last one, can you please just talk about how equity flows into Capital Partners have tracked over the half, please?

I think we talked about an 80% increase, but the number is probably about in the last quarter, but there was a very significant inflow in December. So in December, we raised $76 million around the Sigma opportunity but in mind what that was in excess of that, and we scale back to $76 million because of the NAV impact to investors just in December 1 of $76 million.

So what's HMC's percentage stake now in the fund?

It's still just under 50%.

That's. Under 50%, but you're still consolidating -- recognizing all the uplift?

Yes, and backing out the noncontrolling interest as well. $76 million that we raised in December, the majority of that was from third-parties.

Your next question is from Fiona Buchanan from Morgans.

Just wondering if you can just touch on the opportunities in Last Mile Logistics. Just obviously, there's some capacity there and what the opportunities might look like?

What we're turning over a lot of opportunity is extremely been really busy. Got a number of opportunities in diligence and institutional partner is that he is very happy with performance and very engaged. So we're confident that we'll deploy that money over the course of the next 6 to 12 months.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Di Pilla for closing remarks.

All right. Thank you, everyone, for joining the call and your ongoing interest, and we look forward to catching up with analysts, investors and other key stakeholders over the coming days. Thanks for your interest.

Thank you. That does conclude the conference for today. Thank you all for participating. You may now disconnect.