Magellan Financial Group Limited (MFG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to MFG's 2025 Half Year Results Briefing. My name is Emma Pringle, and I've joined MFG this year as Head of Investor Relations and Sustainability. I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal people of the Eora Nation and pay my respects to elders past and present. Turning to today's agenda. Presenting first will be our Executive Chairman, Andrew Formica, who will provide an overview of MFG's first half performance. You will then hear from our CEO-elect, Sophia Rahmani, who will present an update on MFG's Investment Management business before handing back to Andrew for an update on our strategic partners. Michelle Mutchnik, Interim CFO, will go through our financials for the half in more detail before Sophie provides a strategy and capital management update. We will then open to Q&A from the floor and online. Today's presentation is being recorded, and a replay will be available on our website. I'll now hand over to Andrew.

Thank you, Emma, and welcome everyone to MFG's 2025 interim results briefing. Today, we announced our results for the first half of 2025. Before we go into further detail on the business and financial drivers behind the results, I'll provide an update on the progress we've made in several areas that position MFG well for future growth. First and most importantly, this morning, we've announced that the Board has appointed Sophie as Chief Executive Officer and Managing Director of MFG effective the 3rd of March 2025. Sophie was appointed to the role of Managing Director of MFG's main operating subsidiary, Magellan Asset Management Limited in May 2024. Since that time, Sophie has been instrumental in the increased stability of the business and has very quickly built trust with our clients and people. Sophie also took the lead on our strategic partnership with Vinva Investment Management, which we announced in August last year, a significant part of our next phase of growth. Sophie's appointment today brings to an end the transitional leadership arrangements. From next month, I'll be stepping back into the role of Non-Executive Chairman. I feel we are a stronger business today than we were 18 months ago when I stepped up to Executive Chairman, and the recent key executive appointment we announced on the 30th of January [Technical Difficulty] solidifies my view. We welcome Jen Driscoll as Chief Operating Officer and also announced that Sam Mosse will join in April as Chief Risk Officer. We have also announced today that Dean McGuire has been appointed as Chief Financial Officer effective from the 3rd of March. Dean joins us from GPT, where he's been since 2011, most recently as the Interim CFO. The Board is extremely pleased to have attracted professionals of such high caliber, and we're looking forward to working with Sophie and her executive team. Other highlights from the half include the strong contribution to our results from performance fees, which amounted to $6.1 million for the period and are a reflection of the strong absolute investment performance of some of our global equity funds in this period. Our strategic partnerships continue to contribute to our group profit with MFG's share of after-tax profit at $12.3 million for the half compared to $2.8 million for the same time last year. Our focus on building diversity in MFG's earnings is also reflected in the momentum we have seen since announcing the strategic partnership with Vinva. Of course, none of this would be achievable without our dedicated people. And having been through a period of instability, we are focused on delivering a positive employee experience. In December, we undertook our annual employee survey, which showed an improvement in employee engagement to 64%, up 12 points from the same time last year. Of particular note was the large increase of 17 points up to 73% in the employees who rate MFG as a great place to work. Whilst it is pleasing to see overall engagement continue to climb, we know we have some further way to go, and this remains a key metric of our LTI scorecard. Before I hand over to Sophie, it is time to revisit where MFG stands today. From our beginning nearly 20 years ago as a manager of listed equities, we evolved to become a focused financial group, a business which today spans global infrastructure, Australian and systematic equities to investment banking and markets infrastructure. Our global distribution footprint stretches across Asia Pacific, North America and EMEA with a presence on the ground in the U.S. and now the U.K. We have a strong balance sheet and no debt, all of which provides a stable foundation from which to continue to grow a diversified business. Today, we are also pleased to advise an interim dividend for the half of $0.264 per share, continue our strong history of delivering returns to our shareholders. I would like to now hand over to Sophie to present an overview of MFG's Investment Management business.

Thank you, Andrew. Good morning, everyone. It's a privilege to be here today as CEO-elect, and I'd like to thank our team, strategic partners and clients for their support over the last 9 months. I'm very excited about what's ahead for us at MFG and look forward to discussing how we capitalize on the foundations for growth to address the clear opportunity in front of us later in this presentation. Turning to our Investment Management result. The last 6 months have seen us continue to foster strong client relationships and expand our client offering. As Andrew touched upon, our distribution platform remains a competitive strength, and we have bolstered our global capacity with our North America and now U.K. and EMEA presence. During the half, we entered into a strategic partnership with Vinva and subsequently launched 3 new systematic equity funds for the Australian market. Transition of a fourth fund, the Vinva Global Alpha Extension Fund is expected to be completed in the second half of FY '25. This work enables us to bring 4 highly rated institutional solutions to the retail and wholesale channels in Australia with long-only and long-short Australian and global equity options. I was also extremely pleased to see Vinva be shortlisted for Morningstar's undiscovered Fund Manager of the Year Award, the winner of which will be announced this evening. Good luck to [ Morry ] and the Vinva team. This half, we advised the market of changes to our investment teams. Gerald Stack will step down from Head of Investments in July after 18 years with the firm. With Gerald's departure, we have appointed 2 of our long-standing infrastructure portfolio managers, Ben McVicar and Ofer Karliner as co-heads of infrastructure. This appointment continues the approach we have embedded in our largest investment strategies in recent years, whereby each has a portfolio management team approach to provide enhanced decision-making and a reduction of key person risk. This has been a long-planned transition. And thus far, clients have supported this. As of today, we have not seen any downgrades in our existing ratings from consultants and no institutional clients have announced their intention to redeem on the back of this news. Preparing for planning and delivering well-thought-out succession planning is critical in Investment Management today, and we will always be as open and transparent with our clients as possible. Coupling that with a team-based approach to managing our clients' funds will mean we continue to receive support through these inevitable periods. I'd like to thank Gerald for his leadership over the last 18 years and in particular, for setting up such a smooth transition of leadership for the infrastructure business. Across our investment teams in the broader business, we are confident that we have the right talent in place to deliver our growth agenda. Alongside our focus on building a positive and engaged culture, we are continuing a review of incentive structures to ensure that the right levers are in place to retain talent and incentivize performance. And as we look ahead, we remain steadfastly focused on our people. We've been pleased to report AUM of $38.6 billion at 31 December, up 5% over the year. Since then, we've also reported our January 2025 AUM of $39.1 billion. These numbers remain a key driver in our underlying profitability and reflect the continued stability we have achieved in our business and for our clients, which brings me back to our clients. In October, we were delighted to be on the road again with the Airlie team presenting to over 600 clients across the country during our Adviser Roadshow. These events offer a fantastic chance for our clients to interact directly with our portfolio managers and gain valuable insights. Next month, we will kick off a global equity themed Adviser Roadshow, which has already received an overwhelmingly positive response. Additionally, we will host an exclusive launch event for the Magellan Global Opportunities Fund, specifically designed for researchers and consultants and are hosting a national series of boardroom lunches for our infrastructure team. Turning to our assets under management. During the 6 months, we were pleased to record increases of total AUM in each of the Listed Infrastructure and Australian equity strategies, with the latter experiencing inflows of $1.7 billion. Airlie's inflows were sourced from both retail and institutional channels, demonstrating positive client recognition of the team's exceptional investment approach and strong performance. Our infrastructure equity strategy experienced $1 billion in outflows over the period, offset by $2.2 billion in investment returns to deliver a net increase in AUM. Global Equities AUM declined over the half with a significant impact of $1.2 billion from the conversion of the closed class to the open class Magellan Global Fund that occurred in the October quarter. At the end of the period, the retail channel represented 42% of MFG's AUM. Given the strong client relationships we maintain and the breadth and depth of our distribution platform, we remain focused on this channel as a source of new AUM. We've been pleased that outflows have slowed on a normalized basis. Included in the retail flows are inflows of $0.2 billion in Australian equity funds and outflows of [ $2.4 ] billion and $0.3 billion in each of the Global Equities and infrastructure strategies, respectively. Airlie also experienced net inflows in the institutional channel for the half, totaling $1.5 billion from mandate wins, offset by $0.4 billion outflows from Global Equities and $0.7 billion outflows from infrastructure. Investment performance remains a key focus of our business. All flagship strategies continue to outperform their benchmarks since inception, and our teams remain well resourced and supported to stay true to their investment philosophies and improve investment returns. Performance in the global equity strategy has been strong on an absolute basis, and the Global Fund has continued to beat its stated objective of delivering absolute returns of 9% net of fees over the economic cycle. The Global Opportunity Strategy launched in January 2022 has performed strongly since inception and now has a 3-year track record that sets us up well for future distribution of our retail fund, which we launched during the half. The Listed Infrastructure team has likewise experienced soft medium-term performance relative to infrastructure benchmarks. That said, the team continues to invest on a benchmark unaware basis, and the strategy has significantly lower correlations to Global Equities, and therefore, we can offer a true diversified portfolios. We were reminded of this most recently when the market was spooked by DeepSeek. Notwithstanding the team's disciplined investment approach and depth of experience, the underperformance of the strategy and the asset class more generally against infrastructure and global benchmarks does impact our ability to win and retain AUM. As mentioned earlier, whilst the client response to Gerald's departure has not indicated any immediate loss of AUM, we recognize that the risks associated with client retention in Listed Infrastructure remains heightened. The Airlie Australian Share Fund has performed strongly over the long term, outperforming its benchmark over 5 years and since inception. We're also pleased to see the Airlie Small Companies Fund launched in April 2023, delivering strong relative returns over the time it has been in market. What isn't shown on the screen is the performance of our newest fund offering from Vinva. While our Vinva funds have only been in the market for a very short time, the track record of each of the underlying equity funds has been excellent with strong alpha generation over all time periods since inception. Their current performance is one of the best in all the years the team have been together and it's no wonder their clients, consultants and even the industry awards are taking note. I will now hand back to Andrew for more insight on our strategic partners.

Thank you, Sophie. MFG currently holds investments in 3 strategic partners, which include a 36% economic interest in Barrenjoey Capital Partners, a 29% interest in Vinva and a 16% interest in FinClear. Turning first to Barrenjoey, which delivered a significantly increased profit in the first half of full year '25 with revenues up 20% on the same period last year. Barrenjoey saw revenue growth across all key business lines with fixed income being a particular standout. Revenue increases, coupled with cost control, delivered a 138% increase in net profit after tax over the period corresponding -- the prior corresponding period. Barrenjoey continues to grow its footprint and capabilities, having expanded its offshore reach and deepening investment in sectors, including biotech, structured credit, financing and technology. Barrenjoey has earned its reputation as a dominant force in the investment banking arena, and we look forward to a continued and productive partnership. During the period, MFG received a maiden unfranked dividend of $4 million from Barrenjoey in respect of the financial year-ended 30th of June 2024. Since the strategic partnership was established, Vinva's investment performance, financial results and client growth have all been strong. We've been encouraged by the positive client interest in their capabilities, and our partnership is already delivering benefits. Vinva already has significant momentum for their existing relationships and efforts, and we expect to expand upon that through our core client relationships in Australia and New Zealand and as we begin to build out Vinva's global brand presence and client network. Finally, turning to FinClear. FinClear saw strong growth across a number of key metrics over the half. New products in FX and cash are on track to launch in coming months and have the potential to generate meaningful revenue for the business. FinClear's private market business, FCX, is in the final stages of satisfying regulatory license requirements and will soon offer a unique and innovative solution to corporates and private equity and fund administration partners. Michelle will now provide a review of our group financials.

Thank you, Andrew, and good morning, everyone. I will be taking you through MFG's interim financial highlights before going through the group and Investment Management business results in more detail. And finally, I will touch on our investments in both funds and strategic partners. So diving right in. The group's adjusted net profit after tax for the half year was $84.1 million, representing a 10% decrease half-on-half. While management fees were down for the year, this was largely offset by the contribution from performance fees of $6.1 million, up from $0.1 million in the prior half. We also saw a strong contribution from strategic partners with our share of after-tax profits reaching $11.4 million, a meaningful increase on the $3.1 million in the prior half. The contribution from strategic partners this current half has already surpassed the previous full year contribution. In line with the decrease in adjusted net profit, our adjusted diluted earnings per share was also down 9% half-on-half to $0.468 per share. The business maintained substantial financial strength in the form of our robust balance sheet, which comprises $927 million in net tangible assets, and we have no debt. Turning now to the group's reported earnings. Adjusted revenue and other income for the period was $159.9 million, down 12% half-on-half, driven primarily by lower non-fee revenue. The bulk of our other revenue comes from the dividends and distributions we earn on investments in our funds, realized gains or losses on those investments and interest income. In the prior period, the largest contributor to other revenue was a $37.8 million gain from the sale of investments in our proprietary fund investments portfolio. Because we actively manage our investments with a view to maximizing shareholder value, sales of these investments can vary from period to period. In the current half, realized gains were much smaller at $2.2 million, primarily reflecting the closure of 3 funds that were not operating at the necessary scale. Dividends and distributions can also vary from period to period. And in the current half, we earned distribution income of $23.2 million, up from $6 million in the prior half. As I mentioned, adjusted net profit after tax is down 10%, and this reflects the reductions in management fees and other revenue, offset by the increases in performance fees and our share of after-tax profits from strategic partners. We continue to view adjusted net profit as providing more meaningful performance information and comparability of results period to period. By way of a reminder, adjusted net profit is the group's statutory net profit, excluding certain items. These items are listed in detail in our interim report for those wanting more information. Including adjusted items, the group's statutory net profit after tax for the half year-ended 31 December 2024 was $94 million. Diluted earnings per share was $0.523, which is in line with the decrease in statutory net profit. And as mentioned by Andrew, the directors have today declared an interim dividend of $0.264 per share franked at 85%. Now let's turn to the financial results of our core business, our Investment Management business and the driver of the group's profitability and dividends. Management fees were down 7% for the half, primarily due to the decrease in the average base management fee. This decrease reflects a change in the mix of assets under management towards lower-margin institutional AUM following retail outflows of $1.2 billion in July 2024. As I noted earlier, offsetting the decrease in management fees are performance fees of $6.1 million earned primarily by the group's global equity strategies. As we always mentioned, performance fees are lumpy and have the potential to fluctuate significantly period to period. Consistent with prior years, our main operating expense aside from tax is employee expenses, reflecting the fact that our people are fundamental to delivering value for our clients. We remain focused on prudent cost discipline and ensure expenditure has a view to supporting client-focused outcomes. Employee expenses were $34.5 million for the half, largely flat on the prior half. Our cost-to-income ratio, excluding performance fees, was 41.7% compared with 39.1% in the prior half. The increase is mainly a function of the lower management fee revenue during the period. Despite the reduction in management fees, profit and generally challenging business conditions, our Investment Management business remains highly profitable and resilient. And finally, turning to our investments in funds and strategic partners. Our net fund investments portfolio is a subset of the group's balance sheet and an important aspect of the group's liquidity. The portfolio includes seed and co-investments in both our listed and unlisted funds. At 31 December 2024, the portfolio was valued at $393 million, up 6% on 30 June 2024. The increase in value reflects positive investment performance and additional investments into the Airlie Small Companies Fund, offset by withdrawals from fund closures. Consistent with prior years, our aim is to earn satisfactory returns for our shareholders, and MFG has set a pretax return hurdle of 10% per annum over the business cycle for the portfolio's performance. Investment returns for the 12 months to 31 December 2024 were a very solid 25.1%. And as at 31 December, the portfolio's performance since inception was 11.1% per annum. As noted earlier, we saw a strong net contribution from our investments in strategic partners during the half. This result reflects a growing contribution from Barrenjoey as well as Vinva's contribution from August 2024. And with that, I will now hand over to Sophie for an update on MFG's strategy capital management.

Thank you, Michelle. I'm going to walk through how we will seek to capitalize on our foundations to address the clear opportunities in front of us. We've identified 4 key industry trends reshaping the investment management landscape, both in Australia and worldwide, which are set out on the left of the page. First, we're witnessing a fundamental transformation from a product-centric to a service-oriented industry. Today, clients are seeking investment solutions clearly tailored to their specific objectives rather than off-the-shelf products. A product-based view focused on delivering alpha alone is simply not enough. Next, there's the widely recognized trend of industry consolidation with investment managers continuing to pursue scale and efficiencies in response to persistent fee pressure, regulatory burden and shrinking margins. The third trend is less publicized. Despite recent headwinds, we and others in the industry expect active equities to remain compelling, with Oliver Wyman forecasting global AUM to stabilize after recent declines. There is significant opportunity for active managers with the rotation of allocations from one manager to another estimated to generate 3x more asset management than flows from active managers to passive. Finally, we're seeing a structural shift towards alternatives and private markets, which now generate nearly half of all industry revenue. This evolution is fundamentally changing both the opportunity landscape and client expectations. While these structural changes have created headwinds for traditional managers, they've also opened doors for forward-thinking firms to stand out. At MFG, we've carefully considered these dynamics and how to position our business accordingly. First and foremost, it starts with putting clients at the center of everything that we do, something we have done since day 1 at MFG. We are focused on building deeper client relationships through solutions-oriented engagement and expanding our capabilities beyond pure alpha generation by delivering differentiated high-caliber investment capabilities across asset classes. While a lot of this is embedded in our DNA, we recognize there is more to be done, and this is a key focus for us. Turning now to the full picture of the MFG business today, the diversification within MFG and the growing significance of our strategic partners to our overall story. Something less well recognized in some parts of the market is the breadth and scale of our business. Today, MFG combines businesses across multiple parts of the financial services industry from global infrastructure, Australia and systematic equities to investment banking and markets infrastructure. This diversity isn't just about having different independent business lines. It's about creating a robust, focused and interconnected ecosystem that delivers more value to our clients. Looking at the numbers, our strategic partnerships have become increasingly important to our growth trajectory. They contributed 14% of our earnings in the first half of 2025, more than doubling from 6% in the full year FY '24. We expect this trend to continue with strategic investments making an increasingly substantial contribution to our earnings in the years ahead. Even more telling is the revenue story. On an ownership-adjusted basis, with the addition of Vinva, these partnerships generated 35% of our revenue in FY '24 and 42% of revenue in the first half of FY '25. What's particularly exciting is that these partnerships are still in their early stages. We see multiple pathways for growth and numerous opportunities to leverage these relationships to benefit our clients. The synergies between our various business lines, combined with our diverse earnings drivers place MFG in a unique position to navigate and perform amid the evolving investment management landscape. I want to emphasize that this diversification isn't just about risk management. It's about creating a more resilient business that can better serve our clients across market cycles and investment needs. MFG was founded and remains firmly anchored in investment management. And through the years, we've established ourselves as an innovator and pioneer in Australia's dynamic financial services landscape. Throughout our history, we've consistently delivered differentiated high-quality solutions for our clients. We were an early mover in making Global Equities accessible to Australian investors, opening up new horizons for portfolio diversification. We're also a global leader in the creation and evolution of Active ETFs, revolutionizing how investors access sophisticated active investment strategy. We remain committed to innovation, which is a valuable attribute as we respond to industry trends. Equally important is how we've built and nurtured deep client relationships through our engagement over many years. We take time to understand our clients' needs and challenges, which allows us to deliver more targeted and effective solutions. As I outlined earlier, we're seeing a shift from a product to a service mindset, which will see us change how we deliver outcomes to clients. Some of these new capabilities will be developed internally, and some we will seek to obtain through our partners, drawing them closer to us and our clients. Let me now outline our approach to strategic partnerships and explain how we're putting this into practice. We're strategically deploying our capital to build or buy into high-quality businesses that complement our core capabilities. We have a focused and targeted approach, seeking partners in adjacent areas that are connected to our existing clients that can support and enhance our future growth while generating attractive returns to our shareholders. Our partnership with Vinva exemplifies this approach and is a blueprint for future strategic investments. Walking through the key attributes that led to our partnership. First, Vinva are a high-quality global investment manager with complementary systematic equity capabilities. They're a founder-led business with deep intellectual property and a strong record of delivering investment performance. Vinva has substantial untapped capacity across both existing and new investment strategies, which we believe can be fully realized in partnership with MFG. We have also found a strategic and cultural alignment, making sure our partnership is built upon a foundation of trust and integrity. Finally, the economics needed to make sense, and we expect to realize attractive returns from our equity investment while also benefiting our broader business. As mentioned earlier, in just 6 months of partnership, we've already achieved several key milestones. We've established meaningful knowledge transfer and collaboration between our teams. We've started introducing MFG clients to Vinva's capabilities, and we've launched 3 new funds with a fourth on the way. This early success reinforces our conviction in our partnership approach and our ability to execute on our strategic vision. This is a fundamental aspect of our group philosophy. We view every business unit whether wholly owned or a strategic investment as a partnership. Our experience has shown that there are critical factors that distinguish successful partnerships from unsuccessful ones, and I believe that MFG's approach and capabilities align with these success factors. We've built an experienced team recently strengthened by the strategic appointments to senior leadership positions. This expertise is crucial because we take a highly selective approach to partnerships. We focus on fewer, deeper partnerships with high-quality businesses and teams and avoid having multiple overlapping relationships. This approach not only minimizes internal competition, but also allows us to dedicate more resources to each relationship. Our flexible approach to ownership structure is crucial. Whether it's full ownership, a majority stake or a meaningful minority position, we can adapt our approach to ensure our partners who are usually the founders of the business, maintain their unique culture and value proposition for clients while ensuring we remain aligned. This flexibility is vital for preserving what makes each business market-leading. Another key differentiator is our long-term perspective. As a partner, we can provide various capital solutions, whether for growth strategies, operations, succession planning or seed funding without imposing forced exit time lines. This long-term commitment distinguishes us from many other capital providers in the market. And finally, we're not just offering capital. We bring proven distribution and operating capabilities to the table, which can be utilized to varying degrees. We have and continue to demonstrate this with Airlie, and we've now started our journey with Vinva. These are examples of our partnership model and show how we look to accelerate growth for our partners while preserving their distinctive strengths. I would like now to provide an update on our capital management approach following a review undertaken by the Board of MFG. First, it's clear we have an ongoing capital requirement to support our growth initiatives, which will be met through the continued recycling of both cash and fund investments we hold on our balance sheet. Given this, MFG will pause the authorized on-market share buyback, having acquired 6.9 million MFG shares for $70.6 million since its inception. In addition, and importantly for our shareholders, our previous capital deployments have consistently exceeded the Board's return requirements. Looking ahead to the second half of the year, with the appointment of Dean McGuire as our CFO, we'll be conducting 2 important reviews. The first focus is on the management of MFG's balance sheet, particularly the framework we use to manage our fund investments portfolio. This review will ensure our approach remains aligned with both our strategic objectives and our risk return appetite. We will also complete our review of capital management, which will look at the increasing contribution to our results from our investments in our strategic partners, a factor that is not reflected in our current approach. These reviews demonstrate our commitment to dynamic capital management while maintaining strong corporate governance. We're focused on striking the right balance between reinvesting in growth opportunities and providing sustainable returns for our shareholders. Turning to our strategic capital position, which underscores our strong balance sheet and will continue to support our business going forward. As at 31 December 2024, our liquid assets totaled $582 million. We think about these liquid assets in 3 distinct categories. Our corporate capital requirements, which fluctuate through the year, amount to approximately $100 million. This covers our regulatory capital needs, staff remuneration and payment of dividends to shareholders. For seed capital, we maintain around $75 million. This capital is essential for developing and supporting new investment capabilities and strategically deploying funds to enhance distribution opportunities with the objective of attracting new asset flows. As an example, during the half, we deployed $20 million to the Airlie Small Companies Fund and $1.5 million across 3 new Vinva funds. After accounting for these seed and corporate capital requirements, we have approximately $407 million in strategic capital remaining. This capital is necessary in realizing our strategic objectives, whether to deploy to new partnerships or existing partners as well as to be used to help us develop our global distribution capabilities. I want to emphasize that we'll remain highly selective and patient in deploying this capital and any investments must pass through our rigorous investment framework. This disciplined approach provides our shareholders with confidence that we won't be driven by short-term thinking, and we will maintain our focus on creating long-term shareholder value. As we look to the second half, we have a number of key priorities that we are focused on delivering across 3 core areas. For our clients, our primary focus remains delivering strong investment performance across all strategies. We're positioned to capitalize on our expanded platform capabilities, including the Vinva products, Global Opportunities, Airlie Small Companies and our new managed account share classes. We'll also continue embedding our global distribution capabilities and maintain particular attention on serving our infrastructure clients. On the people front, we have several important initiatives. We're focusing on successfully integrating our new executive hires. We're progressing our investment team remuneration framework and recruitment efforts. Employee engagement remains a priority, and we're continuing our efforts to enhance this across the organization. Additionally, we're completing our Board skills review, and we'll begin the search for an additional MFG Nonexecutive Director. Strategically, we have 4 key objectives. First, we're evolving the MFG brand positioning to better reflect our expanded capabilities and refreshed strategy. Second, we're focused on maintaining strong discipline across all areas of the business. Third, we're completing our capital management review. And finally, we continue to evaluate strategic growth opportunities across investment management and specialist financial services. These priorities demonstrate our balanced approach to growth, focusing equally on our clients, our people and our strategic advancement. We believe executing on these initiatives will strengthen our position as a trusted partner and drive long-term value for all stakeholders.

Thank you, Sophie, Michelle and Andrew. We will now open the floor to questions. For webcast participants, if you wish to ask a question, please do so by selecting the live Q&A tab located on the right hand side of your webcast screen. So turning now to the web questions that have come in. The first one, would you please elaborate on how you intend to capitalize on offering customized client solutions?

There's a number of ways we're looking to approach that. Thank you for the question. Our sales team are always in active discussions with our clients about how we can do things better, how -- the challenges they're facing. So we're looking at a range of things, including the nuances we can put around our strategies to meet client needs. We're looking at different ways of delivering our products through different share classes. And we're also looking at it from a marketing perspective and how we can get more bespoke with clients. I think technology is going to be a big addition for us there as we look for more bespoke reporting and meeting our client needs on that front.

The next question relates to the change in base management fees and the drop from 70 bps to 63 bps over the half. Can you give a little bit more color around what's driving the change?

Yes, happy to. Look, as we said, it is mostly to do with the composition of assets under management. So we saw $1.2 billion of MGF redemptions in July '24. That is the highest margin fee that we earned. And a lot of that has been replaced with institutional assets, particularly in the Airlie Australian Equities. Look, we do have the ability to offer rebates to institutional clients. That's not new. We do have historically and we continue to. Generally speaking, our focus is on delivering strong investment performance. And like I said, the rebate is not the driver of that fee basis change.

Thank you, Michelle. The next question relates to fund management fees and how do we see current fee levels impacting fund flows?

I'm happy to take that one. I think our funds management fees in the market, if we take the example of our Magellan Global Fund, the objective of that fund is to exceed 9% -- an absolute return benchmark of 9% after fees over the long term. We have continued to exceed that objective. So I would say our ability to attract AUM flows is not necessarily about our fees, but it's about our objectives and making sure that we are providing value to our clients. Again, as we've talked about this morning, we are absolutely focused on that. What we can do about that, the things we control is ensuring that our teams are absolutely focused on that. They're remunerated accordingly. They're resourced accordingly. That's been our focus, and that's going to continue to be the case.

Thank you. We now have a question on dividends and what the outlook is for dividends, whether or not we see it increasing at all.

I think over the time -- over time, what we're looking to do with completing our capital management review is actually thinking about all of the areas that we derive profit from our business. So currently, our dividend policy is based on our Investment Management business. What we will be looking at is whether our dividend policy reflects the entirety of our business. So we'll come back on that in a while.

Thank you. There's been a question on the changes around the executive team and some of the flow on impacts of that. Can you talk us through whether or not you see further changes coming in the short term and what the outlook is for the executive team?

Sure. I mean, as Andrew started with, we are really, really excited about the additions we've made to our executive team. And I think it shows it supports my view of the bright future we have here at Magellan and to see such top caliber people joining us, again, I think is really exciting and reinforces that view of the opportunity we've got ahead of us. Obviously, with Gerald's departure in July, we are thinking about the Head of Investments role. So that could be the next and let's hope, final addition to our executive team for now. But as I said, from here, we go from strength to strength. It's about embedding the team, and it's about capitalizing on the opportunity that we have.

Thank you. The next question relates to the strategic relationships and what benefits you are seeing from these?

I'll take that. The strategic partnerships that we've entered into, I think, are demonstrating the real strength of the flexibility that our model provides. Barrenjoey is -- has gone from a start-up in the investment banking world here in Australia from a few years ago to being a real powerhouse in everything they do. You just look at their results in, say, equity research, where they're not just ranked #1. I think the combination of every other investment bank out there in research sort of doesn't capture where they get to their position in fixed income from really starting from nothing where they've now provided issuance for the federal government, but also for all the states and now moving into New Zealand as well. They built a really high-quality business, which we're really proud to be a partner with and to support them. With Vinva as well, we're seeing a business that has such phenomenal potential on its own right. This is a great business doing very, very well. Notwithstanding us, what we can bring to them, there's a business that had and was growing significantly. And then we believe we can just further enhance that. Sophie talked about it in her comments on this about how -- it's not just about the businesses, it's also about the mentality of those businesses, the culture of those businesses. These are all founder-led owner-operated businesses, and we feel that also drives long-term shareholder value. So when we look at these opportunities for us, we are agnostic to the ownership structure. We're really after the best outcome that delivers both for the end client and also for our shareholders. And sometimes having a minority interest will actually deliver a better outcome. In other cases, it may be a majority interest or even all our control, and we're quite flexible on that regard.

Next question relates to the share price and if there's any reaction to the share market drop today.

In terms of short-term share price moves, I don't really comment on that, and I don't -- it's not really what drives our business. I actually think if you look through the results today, there's a lot of real positives about what the business is doing about moving forward. The executive team, the transitional leadership, which we'd announced a while back, having been able to conclude that, being able to draw a line a lot of the historical issues that Magellan had faced and showing the real strength of the broader MFG Group in terms of the partnerships and what they're delivering, I think will show the strength in not just in the quarters and sort of year ahead, but in the years ahead as well. So that's really what we're focused on. Short-term movement in the share price don't drive our decisions. And we do feel that they will recover and recognize as we deliver on the results and the potential the business has.

Next question relates to where you will look to deploy capital. Is the U.S. market still a priority? And can you offer a time frame for any potential investment?

Thank you for that question. We're actually seeing lots and lots of different opportunities on where we could look to deploy capital. And again, as we've talked about today, we're absolutely looking to continue to invest in our asset management business, which this business is firmly anchored in as well as more broadly our specialist financial services. In terms of the U.S., that absolutely does remain a priority for us. It's just about seeing the right investments that meet our filters. So we're not putting time constraints around that because I think one thing we have said and we will continue to say is that we are going to be patient and disciplined about what we do. That said, if we get to a point over the medium to long term where we're not seeing sufficient opportunities, we will always look at that capital management approach.

We have a question on what impact we expect from the strategic relationship with Barrenjoey and what we might expect to receive from them in terms of dividend in the future?

I think the question was more around the AFR comment around receiving further payment from Barrenjoey, which related to the GYG sale structure we put in place. You'll see continued in our accounts that as part of the sale to a Barrenjoey setup fund structure, there was an ongoing performance fee to -- payable to Magellan based on the outcome of once realized returns around that. If you go look in the notes of our accounts, that goes up to a maximum of $6.1 million. It's not anything that is in our accounts or at the moment because it only happens on the crystallization or realization of the holding in that fund. At today's share price of GYG, should that crystallization have happened, then we would actually be entitled that full amount. But as you know, with any of these things, they are dependent on the market movements and there's uncertainty around when or what that amount will be, but we do disclose that in the accounts. So I think the question was looking at that, and that is why you'll see that. Happy to pick that up further through the Investor Relations department if anyone has a particular question on that.

We have a question regarding the previous announcement of Gerald Stack's departure and what the response from clients [ and fund ] has been?

Thank you. Look, Gerald's departure, I would think Gerald has done the best he can with the firm overall actually to put together a textbook succession plan and the reaction that we've seen from our clients and institutional consultants has supported that. So as an example, we've had 5 portfolio managers for the infrastructure business since 2017. Our clients know each of our portfolio managers. All of the meetings that we've had is at least 2 of those portfolio managers in any of those meetings. So to our clients, this wasn't a big surprise and shock. They're certainly disappointed to see Gerald go. But on the flip side, they're also happy to see the elevation of Ben and Ofer to lead that team. So at this point in time, we've not -- no client has indicated immediate loss of AUM. We obviously can't say what will happen in the future, and we recognize the risks associated with Listed Infrastructure generally as an asset class. But that said, I would say the client reaction and consultant reaction we saw was what we expected, which was this had been a long planned transition and our clients were unnoticed of it.

Thank you. We might now take some calls from the teleconference. Operator, are there any calls, questions coming through on the teleconference?

[Operator Instructions] Your first question is from Julian Braganza from Goldman Sachs.

Just the first one on the revenue margin pressure that you flagged, which is predominantly mix is what you mentioned there. Can I just ask one, has there been any changes to pricing, because you did call that out as an industry thematic, just competitive pressures in the industry on pricing? And then secondly, just these rebates, just a second question to the margin point. Is just these rebates, how material are that in terms of basis points and just the strategies are they coming from predominantly? That's the first question. Sorry.

Thanks, Julian. I'm happy to take that one from you. It is absolutely like every asset manager that I know of is facing margin pressure, and that's been going on for many years. That said, beating the benchmarks, as I said, and providing good performance and good service is really critical to be able to price your products accordingly. What we have seen, yes, is more clients asking for rebates, and we have seen with the advent of managed accounts and things like that, we have seen some reduction in overall AUM. I don't have the exact number for you, I'm sorry, on the impact of rebates to our overall average margin. But it's -- I would say I don't think we're out of line. We are seeing it across all of our asset classes because it's more of a trend across the industry.

Okay. Got it. So no change to headline pricing, just more rebates is what you say is coming to the system. Is that a fair assessment?

Yes. Correct. Yes.

Yes. That's correct.

Yes. Okay. And just a second question then. In terms of strategic capital, just in terms of what you flagged there, I just want to be super clear, existing partnerships, new strategic partnerships, global distribution. I'm not sure if I missed something there, but a lot of that sounds like expenses, expense, maybe more investment in distribution, people. I just want to understand $407 million of capital, that's a lot. And I just want to understand, yes, how are you thinking about that given those 3 categories that you mentioned there?

So I think there was -- part of the question was around what will this impact be on our cost and cost guidance. I think was part of the other question of where might that capital as such be deployed. First thing I'd say, Julian, is that obviously, we do have a very healthy return of capital through our dividend policy. We will be looking to -- as the strategic partners, you saw that Barrenjoey paid a maiden dividend just recently, and we clearly expect distributions from Vinva given the profitability of that business as well. So part of the work that Dean will do will be looking at how does our dividend policy incorporate the growth and the strength of the strategic partnerships at the moment. It's obviously only focused on the fund management business here. But that's an important part around how we will look to continue to reward and return capital to shareholders through our ongoing profitability and results. In terms of the capital itself, there's no immediate needs in terms of opportunities that we're looking at that you should expect that we use. I think Sophie has been very clear with -- we'll be very patient and very disciplined. However, it has also given a strategic ability to have the conversations that we'd like knowing that we have that ability to move fast. So for example, the Vinva transaction was something that we spoke about at the time and when we announced it, that came about actually a very short period between our detailed conversations and the execution of that. And part of the benefit was that they could see that we had the ability to be able to execute on that timetable, and that gave them confidence to be able to engage and discuss with us on that. So I see that as just part of our ongoing sort of ability to sit there and deliver to the potential this business has and the connections and clients that we have and relationships we have through our ongoing sort of distribution partnerships.

Your next question is from Elizabeth Miliatis from Jarden.

Are you able to hear me?

Yes.

Yes, we can.

Sorry, I'm having tech issues. Just a quick question just around the infrastructure strategy, and I thank you for your prior questions. You mentioned that on the [ insto ] side, you haven't had any money taken or any notifications or anything like that. Just on the retail side, is there any weakness on the flows that's been noted in the last couple of weeks? Or has it been pretty stable?

It's been -- thanks for the question, Elizabeth. It's been pretty consistent with what we've been seeing. So again, we flagged this for the last 2 sets of results, and you can see it in our numbers. We have had outflows from our infrastructure business over the last half. We haven't seen that tick up at all as a result of Gerald's departure. It has given us the opportunity to actually engage more and more with our clients and the distribution team and particularly Ben and Ofer, our new co-heads of that business are out there seeing everyone they can with Gerald in many cases. So that the renewed engagement is really good. The other thing, and I mentioned this before, but what happened on January 27 with DeepSeek. So to see how infrastructure performed, as you know, infrastructure is in portfolios because it's a great diversifier against Global Equities. So on the 27th of Jan, our infrastructure portfolio outperformed the Global Equities benchmark by 2.5%, outperformed the S&P infrastructure benchmark by 3.1%. That's just 1 day, but it's a great reminder for clients about why you own Listed Infrastructure. So yes, to answer your question, we're not seeing a particular tick up, but we know that the asset class is challenged, but we're also seeing some reasons and reminders of why people go into the asset class.

And I would just add that we weren't trying to be cute by saying institutional and ignoring other parts of markets. It's just that sometimes on the institutional side is the money hasn't left, but you're under notice, and we wanted to be clear that both no money is left institutionally and no money is under notice as of today at that point. So we're not expecting any change, the retail side, as Sophie said, has seen no change in the previous trend before or after the announcement.

I thought I'd just double check on the retail side. And just if we could circle back on just the fee margins that you'd experienced, just specifically sort of breaking out retail and institutional fees. In the first half, I'm recalculating on the retail side, a drop of about 3 basis points, which converts that to about a 3% margin compression. But on the insto side, it's much more significant. It's around 7.5% margin compression in first half versus the second half last year. Just wondering if there's been any sort of revisions to any of the insto mandates as a result of what's happened in infrastructure or just more broadly? And then maybe going forward, how should we think about fees going forward? Like where are we at if we took a spot number today?

I mean, I think, first off, we're probably not going to provide guidance on fees as we've traditionally not. What I would say is there's been rotation as well. So I wouldn't say it's all fee compression. It's rotation of where we've been winning money versus where we haven't. So our big institutional wins during the half have been in Airlie Australian Equities is lower priced than, say, Global Equities. That's been a big contributor as well as well as, as Michelle said, the loss of the $1.2 billion in the Global Fund out of the retail channel has been replaced again by either Airlie Aussie or Airlie Institutional. So that's really impacting our fee -- average fee margins through the period as well.

That's right. I'm going to...

Your next question...

Yes.

The next question is from Siddharth Parameswaran from JPMorgan.

Just a couple of questions, if I can. Firstly, just carrying on the discussion on fees. I know you're not going to provide exact guidance, but I was keen to maybe just touch on a couple of features of what you've called out. The rebates that you had in this period, are they likely to be an ongoing feature? I'm just not completely aware exactly whether that's a reset or whether that's a one-off.

Maybe I'll just clarify. So we have always had the ability to -- and we do negotiate rebates. The rebates have not changed. They're stable period-on-period. So we [ haven't had ] an increase in the level of rebating, and it is not a significant component.

Okay. Okay. That's helpful. Just maybe just the mix shift that's occurred and your expectations going forward. Are we expecting to see that same mix shift continue to be a feature then going into next period?

I think the biggest driver is the closed-end fund, which we knew on the conversion, there was a lot of money in there that would look to realize at NAV. That was at sort of $1.2 billion at over 100 basis point cost. We actually offset that by institutional wins in Airlie, where we got sort of $1.5 billion of inflows in the Airlie business, but we know that, that was at a much lower rate. If you just simply do the calculation of the AUM staying the same on those 2 fee mixes, you pretty much get to where we were at 63 basis points. And then -- and that feels as Michelle just said, we're not seeing increased level of rebates. So we're not seeing a material shift. So you shouldn't expect the drop you saw, I would have thought was understandable given the announcements we put out about the asset classes we're winning and the assets we were losing through that conversion. I don't see a material move from here on a forward basis. There is fee pressure in our industry. But equally, we're winning business above that average rate in a number of products. So 63 basis points feels -- as I think the question earlier was about, is that a reasonable spot rate? That feels reasonable at this point.

Thank you. There are no further questions from the phone at this stage.

All right. Well, if there are no further questions, I think that convenes -- concludes rather today's interim results briefing. Thank you all for your time.

Thank you.

Thank you.