Navigator Global Investments Limited (NGI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Navigator Global Investments Limited 2022 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Amber Stoney, Chief Financial Officer. Please go ahead, ma'am.

Thank you. Good morning, everyone, and thank you for joining us for the FY '22 interim results briefing. My name is Amber Stoney, and I'm the CFO of Navigator. And with me today is our CEO, Sean McGould; as well as Ross Zachary, MD of Strategic Corporate Development. The agenda for the call today is to Sean to make some opening remarks about the Navigator Group and then to provide a review of the Lighthouse Investment Partners business. Ross will then discuss the NGI Strategic Portfolio business, and I'll finish with a walk-through of the financial results for the half. Following that, we'll open the call for questions. So with that, I will hand over to Sean.

Thank you, Amber, and thanks, everyone, for joining today and this evening. As we go over the results, I will be referring to the presentation that we filed earlier, and I'll start on Page 4, just looking at the interim results. So the group AUM, we're happy to announce increase and it's up to $21.6 billion. That's on an ownership adjusted basis. We'll also talk about the total assets that each of our affiliates manage as well in a few slides, but very happy with the group AUM. Adjusted EBITDA for the 6 months is USD 20 million. So that was an increase of about 1/3 over same period last year. Revenue also increased, to $53.4 million, and that was a 12% increase. And then the dividend also was normalized this year to $0.055, and we have some information in the back as to when that will be declared and paid. So interim results, very happy with what we are seeing so far this fiscal year. Turning to Page 5. I'd like to talk about the group now. And when we look at this page, we can see that from a year ago, 18 months ago, this page has expanded. And this is certainly part of our vision as we continue to grow the firm. So we'll see that there are really 3 operating areas of the business. Now one is Lighthouse, which has been the historical business. And I'll go through some more detail on that over the next few pages. We have our strategic investments that we hold, so 6 of them. You can see the aggregate AUM there is about $40 billion. So that's increased since the time of the purchase as well. And then our strategic partners, both Longreach and Grow. Ross will walk through some of the details related to the strategic investments and the strategic partners, but wanted to show everyone just how much the group has changed over the past 12 to 18 months here. Very happy with how this looks and how it's going, and I'll talk about some of the growth drivers on the next page, but very happy with the progress that we've made to date. On Page 6, just some of the highlights. So here, showing USD 56 billion asset management firm now. So we are focused exclusively on institutional quality alternative investment strategies and we've made great strides expanding beyond Lighthouse. We continue to see increasing market demand for alternative investments, both liquid and private investments, which we're focused on in the areas that we own now. So we do continue to see a trend where investors seem to have strong allocations to liquid equities and bonds, but are increasing their allocations to alternatives. And whether that's hedge funds, private equity, real estate, venture capital, and we want to position the firm for those growth opportunities. Second, we are seeing a change in the investment environment. And we're seeing inflation pick up. We're seeing interest rates start to normalize. And that's presenting a strong opportunity set for hedge funds and also for our other affiliates and partners. So we think some of the volatility in the markets and some of the changes we're seeing in the regimes are very healthy, and I'll go through some of that performance, or what we're seeing in terms of performance in more detail when I talk about Lighthouse. The equity-focused strategies that we've seen have performed quite well in recent months versus our peer. And we've certainly seen some volatility in the global equity markets. We've also seen very strong investment in financial performance across the NGI strategic portfolio. Ross will cover that in more detail, but we're very happy with the results there. And also, a very good alignment and a very good working relationship with our partner, Dyal Capital. They remain a global leader in the alternative investment management space, and with all of their affiliates as well. We have made a lot of progress over the last 6 months as far as working together developing a very strong pipeline, which has been fantastic. So it has been great to work with Dyal as a shareholder and as a strategic partner in NGI, and we continue to find new ways to work together and add value, but the pipeline that we've generated of new opportunities is particularly strong. Turning to Page 7 now, just looking at the value proposition for NGI. So we now have a highly diversified earnings stream, and we have chances to grow that organically and inorganically as well. Before the transaction with Dyal, the earnings stream really just came from Lighthouse. And Lighthouse has been around for 25 years, has been a stable business and a stable profit generator, but it's certainly nice to have more highly diversified earnings stream from the equivalent of 7 Lighthouses now producing high-quality earnings. In addition, the earnings across the 8 established businesses that we have each have very different products, and that creates stability, we think, across NGI. So we think not only the earnings are more diversified, but now there's a higher quality of earnings as well because we have more diversification across the product sets. And each of these firms, as we've pointed out, has been a business for well over 10 years, 20 years, in some cases, very well-established businesses, good earning streams, good products, and that helps NGI as well. The stability of earnings is also stronger than what it was in the past. And that's due to the preferred earnings stream we have off of the strategic portfolio. And Ross will go into more detail on that. But again, the earnings are more stable for a portion of the business, and we're very happy about that. The fourth point is an active pipeline of investment opportunities. It is very strong. We can talk about that. We have more opportunities now than we can certainly act on or pursue. So it's great when we have many things to select from, and that is the case right now. So very, very happy with that. There's really 3 ways that we can win and grow in this business. The first way is through investment performance. All of the firms have some portion of their earnings from incentive fees. There is strong alignment with clients to generate returns and grow AUM through performance. So we're all aligned there. And certainly, that can be a driver of growth going forward. We also have organic growth and new product development. So each of the firms that we own an interest in, including Lighthouse and Longreach and Grow, they all have business development teams that are actively trying to increase AUM and fill up the product. In addition, each of the firms has new product development mandates. So I am confident we will see growth in the coming years through both asset raising efforts and through new products. And when we look at the business prior, when it was just Lighthouse, there's only a certain amount of new products that we can launch into the market in any given year. In addition, just the marketing opportunities, think of this now magnified eightfold across the holding company. And we think there will be new product cycles much more regularly across all of these firms than certainly one firm could have generated on their own. The third piece, just new investment acquisition -- new investment and acquisition opportunities. That is working well, as I mentioned, with Dyal. The pipeline remains strong, and we're very confident that there's going to be some good opportunities here this year going forward. So we really have 3 ways to grow this business going forward. I would say this is a much more scalable approach than it was just Lighthouse as a stand-alone basis. So I see lots of opportunities for -- to grow over the next decade and beyond, and we're committed to doing that. Amber, if we could switch now to Page 9. I want to talk specifically about Lighthouse and where we are with this business. So about $14 billion in AUM. We now have 25 years in the business. We have 163 employees, for those of you that have known us for a long time, have been following us. And that would be a fairly substantial jump from the previous year. One of the changes that we made on that Lighthouse in our operating model is we now have employees that are portfolio managers. So when we started investing through managed accounts, even if a portfolio manager was going to be exclusive to us, we typically set them up in their own LLC, and they would not be considered employees. The expenses of that LLC and the portfolio managers' compensation would run through the fund. Over the past several years, we've had more requests from portfolio managers where they just want to be employed by Lighthouse. So we're happy to provide that opportunity to them. You will see our head count steadily grow as we bring on portfolio managers and as portfolio managers transition from their own corporate entities to become employees of Lighthouse. So we think that's a trend that will continue in the future. What I should point out is that doesn't necessarily mean our operating expenses increase, and Amber will go through this in more detail. But basically, those costs of the portfolio managers, just as in the past when they were their own entities, are still passed on through the funds in a pass-through structure. So there's really no increase in operating costs from this change of model from more of having their own independent corporate entities to being employees. So you'll notice that jump in employees but not associated costs. Continue to grow our investment professionals here at Lighthouse as well. So very happy with the investment team, with the research that we have globally. It's as strong as ever. I expect it to continue to improve each year and to continue to uncover opportunities around the globe, but I'm happy to report that we're well positioned in North America for our research, Europe and Asia as well, and continue to make more investments over the Asian region to improve our research there. Investors broadly diversified, and I will go through some more comments on a few pages just on the investment pipeline that we have. Core values remain the same. So we want to generate alpha through idiosyncratic stock selection. We want to continue to innovate and provide new products and services to our clients. So we offered our hedge fund solutions group to our clients years ago, and that business continues to grow. We also have more specialized hedge fund products now in both North Rock and Mission Crest. So we are committed to continuing to innovate and change with this industry. We want to continue to manage the risks. There have been some very unique risks over the past 6 months that I'll touch on when I get to the investments. But I think we've done a very good job of navigating these recent market conditions and are dedicated to continuing to having the tools to improve our risk management. And partnership goes without saying. We treat our investors as partners and we want to meet their needs. And we do that through transparency as well. So we are an open book, have tons of data, I think have a lot of unique insights we can share with our clients, and we take that attitude towards not only our clients, but to our service providers, to really everyone that we work with within the ecosystem. So the core values remain the same, but that's a quick snapshot on Lighthouse. Page 10, just looking at the product mix that we have now. So hedge fund solutions, so it's $6.6 billion in. That continues to be our co-mingled and customized funds business. We think we have certainly seen a stabilization in that business and can see growth going forward. The returns in our multi-strategy product on a calendar year basis were very strong last year, and we want to continue to build off of that. Our 2 hedge fund offerings that we have now are both North Rock and Mission Crest. I expect the majority of the growth in the short term over the next 6 months in the Lighthouse business, and we have very good traction. Both of those areas, a lot of inbound calls, which is unique. Typically, we're out there looking for new investors, and we have received a number of inbound inquiries for both of these funds over the past several months. So that's a good sign as well. And then the managed account solutions business. So we've certainly put more resources into it. And the sales effort has picked up. And the pipeline there again remains robust, and having a number of new conversations there as well. So very happy with how the business is shaping up and think we can see growth in each of these areas. More specifically, on Page 11, just looking at some of the breakdown of the investor type and the AUM. I'll break this up really into 2 sections. One is just on the investments themselves. So the equity markets over the last 6 months through today, if you look at the MSCI World or ACWI Equity Index, it's actually down about 60 basis points. So the last 6 months have not been very good for the equity markets on a global basis. We have made money in both of our equity products, so in Global Long/Short and in our North Rock fund. And we're very happy with that. The environment has been very tricky, and equity markets have rotated from more of a growth stance to a value stance, and also just different geographies have moved differently over the past 6 months. So it's been a tricky environment from a factor perspective. There's been lots of factor volatility as we've moved from COVID closures to reopenings to different parts of the globe having different responses to COVID and different reactions to seeing the movements in China over last summer and some of the regulatory changes that we had there. It's been a lot to absorb, but the funds have performed well. They performed consistently. And that goes back again to an increased research effort into some of the risk parameters. So right now, the funds are very balanced towards growth and value and towards the different sectors. And that has been paying off well in terms of returns. So in a month like January, I was happy with the results. Month like February, I'm very pleased with the results so far that we've seen since -- through mid-month. We're making money on both up and down days and in the long and short sides of our portfolio. So I think that, again, the effort that we've put into looking at these various factors and how to neutralize them, again, get more focused on idiosyncratic risk has paid off. Also, underneath the surface of the equity markets, there have been -- the average stock has corrected massively. So when we look at something like the NASDAQ, which is more tech dominated in the U.S., over 45% of that market -- or of those stocks have had a 40% correction. So it's been a tricky environment to work through. And I think we've done a good job. February is a really, really good month. So I'm happy with that. But we want to keep on delivering results to our clients. So happy with that. On the pipeline, the pipeline continues to actually grow, which is great. Continue to see growth there. We're seeing good geographic dispersion as well. So all areas we have pipeline growth in. And we're also seeing clients and prospective clients start to travel, which we have not seen since the beginning of COVID. So those are all encouraging signs. As I mentioned, probably the greatest areas of growth over the next 6 months will come from both North Rock and Mission Crest in addition to the hedge fund solutions business, but very pleased with the progress on the pipeline and how the team is performing coming out of COVID, being able to see clients again and then also clients being able to visit from overseas locations. So we had our first visitors from Europe this past month. We have a Middle East visit at the end of this month, and we have our first Japanese visits the first week of March. So things are starting to open up, which is great from a marketing perspective and a pipeline perspective. So all in all, I'm very happy with how the Lighthouse business is positioned right now for growth going forward. I'm happy with the investments and the investment results. I'm happy at the end of the call to answer any more specific questions on the markets or ask what's going on, but feel we're well positioned coming into the second half of the fiscal year here. And with that, I'm going to turn it over to Ross to talk about the strategic investments. So over to you, Ross.

Thanks, Sean. So yes, I'll start on Slide 13 here with a quick update on the NGI Strategic Portfolio. Start by saying we've been very pleased with the performance of the portfolio this year. You'll see on the top part of the slide here that portfolio firm-level AUM of $40 billion is at its 5-year high, and we've seen a 10% increase in ownership adjusted AUM since we closed the transaction on February 1. So good growth and good momentum, and we're happy that we're seeing that across the portfolio. The managers have generated strong investment performance across their products, but especially in their key products for calendar year 2021. And this includes a number of strategies that did see material drawdown in the beginning of 2020. So we feel like all of those managers have not only recouped their gains, but have gained momentum to improve their expertise in their respective strategies. As Sean highlighted earlier, each one of these 6 businesses remains active in bringing both existing and new products to market, so there's good momentum there. This performance in asset growth has resulted in $20.1 million of profit distributions to Navigator through February 14 of this year. This represents our $17.5 million preferred share for the full fiscal year of '22, plus 20% of the $13.1 million above that received year-to-date, or an additional $2.6 million. So to summarize there, we've already received our pref of $17.5 million for the full fiscal year, plus $2.6 million through February 14, which we're excited about. You'll see on the bottom left hand of the slide that only $7.2 million of these distributions were received through December 31. So that's all that you'll see reported in interim results here from an accounting perspective that Amber will walk through. This does represent some seasonality in the distributions that we've highlighted in prior discussions about the portfolio. It may be a bit more amplified this year than others in a strong performing -- an outstandingly strong performing year. But we do expect that the first half of our fiscal year should see a seasonally lower number. So that's why we wanted to make sure to provide you guys the year-to-date number that we have. We remain very excited about the outlook of these 6 firms and we do expect the recent performance only strengthens their leadership position in the industry. And in the context of some of the attractive dynamics we see now in the hedge fund industry that Sean hit on, we're very excited about how these 6 firms will perform going forward. I'll flip to Slide 14 quickly. We wanted to spend a few more minutes again reviewing the structure of our ownership in this portfolio because we realized the 2-stage transaction with Dyal can at times in a snapshot in time be a bit complex. So we'll walk through this a little bit. So on the left-hand side of the slide, the first stage of the transaction. We are halfway through year 2 of a 5-year profit sharing arrangement that we have with Dyal. In this period, we were highly focused on getting a high-quality earnings stream that was well covered by the portfolio to provide a ballast to the company and help us execute on our growth opportunities. So as I highlighted on the last slide, we've received year 2's prep already. We do have some limited upside in the structure, but we think that the high quality of this earnings stream is tremendously valuable to us as we look to grow. The sensitivity analysis on the bottom left will show you that in almost any scenario, in these scenarios, if you think of rolling up by 6 firms, there are a pretty wide set of outcomes. Navigator should earn somewhere between $20 million to $25 million or so for the next -- this year plus 3 more fiscal years. So that's -- and there's 3% index in there as well. So there's some embedded growth. On the right-hand side of the slide is the second stage of the transaction or the settlement. To use this fiscal '22 year-to-date example, at this stage, we would have been acquiring the $10.5 million of distributions that Dyal has already shared in of the $21 million year-to-date -- excuse me, the $30 million year-to-date. Amber will walk you through a bit more about how the accounting for the settlement impacts earnings until it happens, but I would highlight that this structure uses [ a fixed ] formula. It's based on the actual financial performance of the portfolio and will, in almost any scenario, result in an increase in Navigator's earnings in the following year. Due to the formula that we agreed upon with Dyal, we also have very good visibility into the quantum of the 2026 payment well in advance of it being due. We view this redemption payment as a known scheduled acquisition of incremental earnings in businesses we already know and we already like that will be accretive in almost any scenario that we can think of. So you can see on the bottom right, we have some scenario analysis to review. We can come back with questions, but it has some implied outcomes there, which all show a material increase in our earnings as well as the implied kind of multiple once it's run through the agreed calc. The last thing I'd highlight here on Slide 14 is upon this redemption payment in 2026, the strategic partnership with Dyal does not cease. That partnership is longer term in nature than just this profit sharing and redemption of the profit-sharing interest. It's related to the services agreement and shareholders' agreement that we executed with Dyal at the time of the transaction last year, and those were predicated on Dyal's overall ownership in Navigator. Dyal's ownership will be material, if not at similar levels to what it is today at the time of the redemption payment, given both what we know about the existing escrow agreements agreed as well as our understanding of their own long-term time horizon. So hopefully, that's helpful as you think about the portfolio in the context of our next few years' earnings. Amber, if we'll flip to Slide 15 quickly. We wanted to highlight 2 very exciting investments that we did make in the first half of the year here. These 2 investments illustrate the key criteria for new partners that we're really focused on. Both groups are led by experienced cohesive management teams with deep industry relationships in their specific markets, proven investment improvement operating track records, and a specific focus on deploying strategies that target current client demand. These specific opportunities here provide Navigator exposure to the growth we do -- we expect to continue in both the alternative asset management industry in Australia through Longreach, as well as the rapidly growing but highly competitive and specifically relationship-driven onshore Chinese asset management market through our partnership with Grow. As Sean mentioned earlier, the acquisition pipeline remains remarkably robust. The current pipeline shares certain characteristics with Longreach and Grow. But I would note that generally speaking, it's focused on U.S. and European private markets alternative managers who, if we're successful in partnering with, are at a size that would contribute significantly to our earnings closely after completion. Whereas these 2 investments, which we are super excited about, are a bit smaller in nature and will take some time to contribute in a material fashion. Amber, I think at this point, I'll turn it back to you to cover the financial results.

Great. Thank you, Ross. So as Sean stated earlier, we've come in with an adjusted EBITDA for the first half of 2022 right on USD 20 million. This is up 33% from the equivalent prior period, and we're really happy with the result. It reflects both the earnings that we've gotten from the NGI Strategic Portfolio as well as some reductions in operating expenses. So in terms of our FY '22 guidance, we reiterate that guidance at $40 million to $42 million. We're pretty comfortable with coming halfway there already. And we think that the second half should mirror the first, even if there's a slight difference in the underlying components of the income between the 2 halves. In terms of the Navigator results, so like most companies, whilst we have our statutory results, we also have a measure that we think more fully reflects the performance of the group, and that's our adjusted EBITDA. So this slide steps through how we go from our statutory numbers through to the adjusted EBITDA number of $20 million. So within revenue, we're required to book under the accounting standards where we in fact pay for expenses on behalf of the funds and then are reimbursed after that. So that represents the $14.4 million in this half under the reinvestment and fund operating expense line. So because there's an equivalent expense, it's actually EBITDA neutral, and we consider that in our adjusted EBITDA, this should be backed out of both revenue and expenses. Similarly, for the revenue from the provision of service offers, this is a straight reimbursements that we get through occupancy expenses we pay. There's no markup on it and so there's an equivalent offsetting expense. So again, we think the right thing to do for our adjusted EBITDA is to back that out. So as you can see, the sum of those reduced the revenue side and our adjusted EBITDA by 15.3, and there's also a corresponding reduction in the expense line. The second adjustment we're doing to get to our adjusted EBITDA relates to the cash payments that we make under the accounting standards that commenced on July 19. There were some changes where the actual rent component is considered to be a liability, and payment now [ to propose for ] as an operating expense. We still think that it needs to be put back into our EBITDA. So we added that from that perspective. There is an equivalent lease depreciation expense, but obviously, that doesn't go into the EBITDA line. And lastly, our third adjustment relates to the NGI Strategic Portfolio, so both the investments that relate to that portfolio as well as that future redemption payment that we made in 2026 that Ross just talked through. So each of those need to be fair value each balance date. So each of those may move up and down. They're unrealized and they're generally offsetting. In this case, because we had a really excellent first half, the [ future redemption ] came in higher than the increase in the assets, but I'll talk to you a little bit more about that in a later slide. Just on to the next slide, and this is just showing how we've actually compared on the prior year adjusted EBITDA. So last year was equivalent period $15.1 million. If you can see from there, and I'll go through in more detail the particular items, but largely, the management fee and performance fee revenue can stay fairly consistent between the periods. And the key new items that is in our revenue is the distribution coming through from the NGI strategic portfolio. On the expense side, you can see that our expenses have stayed pretty much the same on our employee cost. So despite that change in operating model that Sean referred to earlier, and our operating expenses have actually come down 22% compared to the prior period. So all of that leads down to that $20 million adjusted EBITDA result for the half. The next slide, we actually set out the statutory. So like it or not, the accounting status must be followed. So this one actually shows you how we get to the statutory EBITDA of 14.4%, including those items that I mentioned before. So we still focus on either at this point. We have a tax expense but no actual tax payment given the significant losses that we're still using up in the Lighthouse side of business. And our depreciation and amortization still remain relatively small, so hence our focus on EBITDA. In terms of the key revenue items. Management fees, as I mentioned, actually came in pretty much the same as last year's results. So this reflects both an increase in the average AUM compared to the prior period, but there was also an offsetting reduction in the management fee -- average management fee rate. So the two of those are actually offsetting, to put us in a similar position. That reduction in management fee rate you can see didn't actually move too much from the second half of '21, only down 2 basis points. We're really seeing the full impact of what happened back in March 2020 when we had some of the significant impacts in our AUM coming through from the beginning of the pandemic. And so they're actually settling out, as you can see, from that trend in the average management fee rate. The performance fees, we actually had $8.8 million in performance fees for the half. So another good year. Only slightly down on the equivalent period last year, which was historically a very good period. The split of that sort of pie chart, so about just under 50% still comes from our comingled fund, we earned 1/3 from a customized and the hedge fund portfolio produced 18% of those fees. We do see the hedge fund portfolio and products likely to be a bigger contributor to performance fees potentially going forward. So they're in a pretty good growth phase, and they do have performance fee option that we would think will be attractive to new investors. So we might see that ratio shift in future. So in terms of the NGI Strategic Portfolio, as Ross said, it can be a little bit complicated. So just to reiterate, we put that box on the slide just to step through the key accounting policies. Certainly a lot simpler this year, which I'm very happy about. So in terms of the actual distribution income in the P&L, we only recognize that the income that we get is on a cash basis. So we book revenue as and when we receive the cash from that portfolio. We only recognize Dyal's share of that cash once we exceed the minimum distribution amount. And as Ross mentioned, we physically have to take the cash up to $7.2 million as at 31 December. But following the challenging year closed, we received more cash in the 3rd of January, which was an excellent result. So in terms of the actual assets and liabilities, so the holdings that we have in the investment managers are held at fair value and appraised as of each balance date. So we look at what's happened in the portfolio, we look at our underlying assumptions, and we actually measure those fair values in accounted cash flow model. So once we actually took into account rate performance and those impacts, we wrote up the fair value of those investments by $28.7 million for the half. On the flip side, we also have to look forward and estimate what the redemption liability we're going to pay in 2026 will be, and we need to fair value that. So we estimate it what it is, and we discount it back to a current fair value. So when we look at that, we need to unwind the discount that we've acquired as each year passes, and we also just need to [ focus ] if there's any changes to the estimated end payment amount. The portfolio had an exceptionally good calendar year '21, and that's fixed at first year of the calculation in terms of the redemption payment. That meant that our redemption liability at fair value increased a bit above the actual investment. And so the net result was a decrease in fair value of $7.2 million. So in June, we actually had an increase of 8.4%. So overall, we've had some acquisitions, the assets have actually increased marginally more than the liability. In terms of operating expenses, as I mentioned, the employee expenses have actually stayed flat compared to the prior comparative period. And so -- but obviously, that increase in the actual number of employees that we have, that reflects the fact that we have the pass-through model in operations so that their employment costs are largely passed on to the funds. You can also see this dynamic reflected in the reduction in the information technology and the professional consulting fees. And that kind of ties in, I guess, when you see the increase in our fund reimbursement go from 4.4 up to 14.4. That reflects that [ pass model through ] as well. So overall, really happy with the expenses. They're down slightly, obviously, and we should see it from that perspective. And so lastly, I'll just add, determined a $0.055 interim dividend. It -- the record date, that will be the 24th of Feb and payment the 11th of March. That represents a 74% payout ratio on the adjusted EBITDA, which we're very happy to be able to deliver. So that's the end of my section of the presentation. So happy to pass it over for questions.

[Operator Instructions] Today's first question comes from Phillip Chippindale of Ord Minnett.

First question, I just wanted to touch on the employee costs, which are obviously flat versus PCP. The headcount though, now that you're including all the PMs, it sort of muddies the waters. So I guess where I'm going with this, I'd just like to know, can you give us a sense of the change in employee costs on maybe a percentage basis versus the prior period? What sort of wage growth are you seeing? And then maybe a comment as to what that's looking like at the moment. Are you experiencing any wage pressures, et cetera, in your business?

I would say, Phil, not anything significant as far as that. As far as the percentages, I would probably want to come back to you on that. I think we've done a very good job of managing total headcount that we have here and directing resources where we need them. We continue to get a little bit more specialized in our operational activity. But no, most hedge fund businesses like Lighthouse, a lot of the total compensation is going to come from bonus as opposed to fixed remuneration, and a lot of that's going to be determined on the performance as well. So I think in that respect, we're not seeing massive pressure on that. I think everyone here knows we want to perform, and perform for our clients. And if we do that, fees -- AUM goes up, fees go up, clients are happy and we can pay more. So I think the pay in this industry is a little bit more variable than in other industries, but not seeing tremendous cost pressure at this point.

Okay. You mentioned earlier that you're seeing a lot of opportunities come across your desk. Can you give us a sense of the types of opportunities that you're seeing? Is this really a comment that's linked to your relationship with Dyal? Is that where these opportunities come from? And then I suppose we have a follow-on there. Is it sort of single manager opportunities? Is it portfolios? Again, just sort of a sense of the type of fees that you're getting [indiscernible].

Yes, I'll answer that and then I'll let Ross jump in as well. So I would say that the opportunities are a combination of both our sourcing and Dyal, and more importantly, working together. I think that, Phil, it took a little bit of time to get the story out there, and for groups to understand what we're doing and how this could be advantageous to them. And the types of groups range from hedge funds to real estate firms to private equity firms, venture capital firms. And as Ross mentioned, really on a global basis, I would say they are not really portfolios of companies or portfolios of firms that we're looking at. They're more one-off. And right now, yes, the pipeline is very strong. So we expected it to take a little while to -- for the opportunity set to kick in. We needed to go explain ourselves to this market and for people to realize what we're doing in the space. But I think it's in full gear right now, and the pipeline remains very strong. So Ross, I don't know if you want to comment anything else?

No, I think you covered it, Sean. I think that is the range of kind of underlying asset classes. And I would just reiterate that we're seeing well-established, kind of proven teams and existing scale businesses who are looking to partner, which is really attractive for us because we have something that we can look to. They can contribute to our earnings almost immediately after entering the partnership. And often, when we do partner with them, they have a good use of proceeds to kind of fuel growth. So I would say those are common characteristics across those asset classes, which is, again, as Sean said, it's a function of the pipeline we build with Dyal, getting the word out and just kind of where some of these businesses sit in their own evolution. So it's a busy and exciting time, Phil.

Final question for me before I jump back in the queue. Just your EBITDA for the year of $40 million to $42 million, you've done $20 million in the first half, and obviously, you haven't changed your guidance. What does the guidance assume in terms of receipt of distributions from the Dyal portfolio going forward? Obviously, it's been a lumpy one. And obviously, January saw the bulk of that come through. But just wondering, does that sort of guidance not assume any more? Is it sort of a relatively small contribution? I'd just love a comment on that, please.

Yes. I mean I think we certainly will be -- we're reflecting the extra $12.9 million that we know of to date. So taking that into account, just keep in mind, we only get 20% of any additional distributions on top of that. So for every extra $1 million that comes in, it's only $200,000 additional revenue for us. So we do expect that there will be some more, but I think we're still comfortable within that guidance range, just because you can't count it until it's actually received.

And so one thing I would point out as well, as Ross and I are commenting, that the pipeline is strong. There are some associated costs with purchasing interest in these firms that are not insignificant. So we've got to factor everything in going forward here from that. I feel very good with how Lighthouse is doing now, how these strategic investments are doing as well. But hopefully, if we can continue to add to our portfolio of companies, there are some transaction costs related to that as well. And that's something to keep in mind that they're one-off costs, they're not recurring, but we do need to spend money to make these transactions happen.

[Operator Instructions] Our next question today comes from Nick McGarrigle with Barrenjoey.

And following on from some of the good questions. Just another one on the strategic portfolio. I think the original guidance for the contribution from that portfolio was 20 to 22, and given the bulk of returns have been received in everything from here is, as you said, 20%, Does it imply that the underlying business, excluding the strategic portfolio, is going better than expected given you've maintained guidance?

So in terms of the Lighthouse business, I think that's tracking along as we expect. So certainly, we're happy with the way that we've modeled out the cost on that and how that's reflected. Certainly, we have an amount of growth on the AUM side reflected in the second half. So we're feeling pretty comfortable with that in the pipeline.

And can you just talk through that growth and where that's currently coming from in terms of just the pipeline of flow? I'm assuming you're talking about flowing more than January and February's investment performance.

Yes. So a little bit of both. So obviously, we're pretty happy with the pipeline and the way that that's actually tracking through, but with everything in the asset management space, until you actually get the investments made, [ you can't ] count on them as well. But we usually also factor in a small amount of growth just from investment performance based on long-term averages as well.

Can you just comment on performance in Jan and Feb thus far? I mean as markets have been fairly volatile, has that been good for the managers within Lighthouse?

Yes, it has, and particularly here in February. So there was a big growth sell-off, obviously, in January, and some of it continued here into February with certainly, the U.S. markets down. Volatility has pick back up as evidenced by the VIX Index in the U.S. And no, the alpha production has been quite strong. So we're seeing companies, particularly in this earnings season and particularly in February that if they're missing numbers, it's weaker. They're going down and we're making money on that on the short side. And those that are beating, earning or guiding higher have performed well. So in the -- from August through December, we saw some, I would say, less rational behavior, and you were seeing a lot of factor movements, again, between growth/value. Earnings didn't play as big a role in how some of the stocks were moving. And now that's really caught up. But one of the things that we concentrated on in the second half of the calendar year was making sure that we weren't going to be overexposed to any one type of factor because we thought there would be a violent reversal in some of these factors. And if you look at a factor like unprofitable tech companies, that's rolled over. If you look at biotech. it's rolled over. If you look at some value things, they've perform well, like financials, industrials, materials, energy, which we don't have a lot of exposure to. But it was really important to be balanced here. So you're seeing very different results within the hedge fund industry this year, and those that were tilted more towards growth have had a really rough year. Those that were tilted more to value have certainly made more than we have. But at the same time, we've produced very consistent results. Our clients were very happy with their results in January. They're very happy with the estimated results here in February. And I'm very happy that we made some changes to the portfolio in the middle part of last year and really tightened things up. But no, so far, so good in this calendar year.

And can you just talk to -- we saw a lot of rebalancing in Australia from institutional investors in those 6 months to December. Can you talk through how allocators are thinking about markets at the moment and how that impacts potential flows into hedge funds?

I think that investors absolutely love private markets and would continue probably to put more capital in there. The public equity markets have done quite well. And I would say there are a lot of institutional investors that are overweight the riskier assets in their portfolio, be that public equities or private equity or venture capital, given it's performed. No, we haven't seen any of the recent marks on that. So with growth rolling over and tech rolling over, you have to assume some of those investments come down. But the combination of -- and also fixed income investments in the U.S. have not worked well this year and are down as well. So a standard 60-40 portfolio through this point in the year is down. So we are seeing more interest from institutional investors who need to get the risk balance right, who can't put any more money into private in that scenario. So it has picked up. Fixed income with rising interest rates, there's a concern to put more capital there. So I think that's why we're seeing a pickup in interest as well as our own performance. Our multi-strat performance was strong last year. North Rock did well, Mission Crest did well. So we just continue to build on that. And again, these visits by investors, potential investors from foreign countries is also very encouraging to us.

I might ask just one last one and open the line back up. Just in terms of the strategic portfolio, can you give us a sense of the contribution that you've received up until mid-February? How much of that came from the proportion from performance fees as opposed to management fees, just so we can get a sense of the stability of that return going forward? I know the performance fees have been consistent, but it's just useful to get some sense of the performance fee split in that distribution this year.

I can start with that. I don't know if Amber and Sean, you want to add in. It's hard to say, Nick. So because these are profit distributions, they do come out post-expenses, obviously. And so we really want to look to the underlying revenue split of these because of each of the 6 businesses. They are run quite differently. They have different kind of operating footprint size, investment teams, performance fees, et cetera. So the comp structures can be different as well. So in terms of -- I wouldn't want put up to management fee and performance fee earnings specifically. But I would say that in kind of an average year, what we see across the portfolio is kind of -- and these are rough numbers, and they're in line with historical numbers we previously disclosed. In an average year, you would see probably 70-30 split in terms of management fee, performance fee revenue for these scaled multi-product businesses that we're invested in. I would say as performance picks up in those years, again, you can't translate this exactly to earnings depending on various cost structures, but it typically can shift all the way to 50-50 for these scale businesses. So still a very large component from management fee profits, but a more meaningful component from performance fees. So if you think of the $20 million we received to-date or more specifically the $30.6 million of gross distributions that came out of the portfolio, I would say we're probably closer -- when this whole full year trues up to somewhere between that 70 to 50, because it's -- again, there's diversification across the 6, but it's a strong year. So we still feel really good that our [indiscernible] through kind of management fee-related earnings plus some upside from there. How do we think of it right now with regards to performance and performance fees and especially in the context of the answer Sean just gave you is that strong performance in today's market, especially for these established firms that have been out there and they're known, is just a really good momentum builder to continue to raise assets and be leaders longer term because there is a trend towards established groups. There is a trend towards groups who are shifting and launching new products like Lighthouse and the 6 groups that we are invested in. So if they're having a good year as well and strong performance, it's good momentum. So even though we don't share in as much upside in the first 5 years here from that, it's a really kind of value-accretive trend that we're seeing.

Thank you. There are no further questions at this time. I'd like to turn the conference back over to Mr. McGould for closing remarks.

Well, thank you, everyone, for listening this morning and this evening. And as always, if there's questions or follow-up after this, please let us know. We are excited about what we're building here and the changes that we've made over the past 1.5 years. We think they're starting to work and that's showing in the results that we have, and again, very optimistic here for the future. But thank you for your time today. I appreciate it.

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