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

Ladies and gentlemen, thank you for standing by, and welcome to the Navigator Global Investments Limited 2023 interim results. [Operator Instructions] I would now like to hand the conference over to Mr. Sean McGould, CEO. Please go ahead, sir.

Thank you very much. Thank you, everyone, for joining this morning over in Asia and Australia and in the evening here in the U.S. and Europe as well. So we're going to talk about the 2023 interim results for Navigator Global Investments -- and as always, I am joined by Amber and Ross, who will be going through various parts of the presentation as well. If we could switch to Page 2, just the agenda for this morning's call. I'm going to make an introduction and just talk a little bit about the interim results. I'll go over a review of Lighthouse specifically. I will turn it over to Ross to talk about the NGI strategic portfolio. And then we will turn it over to Amber to talk about the specific financial results for the interim period, and we'll open it up for any questions or comments. So with that, let's jump right in. And if we go to Page 4 and bring that up on the screen. Just looking at the highlights for the first half year of 2023, it was a relatively strong performance in the first 6 months. And that's against the backdrop where global assets had some of their most difficult years in the last 100 years. The strategies within the Navigator Group performed very well. We retained our high watermarks. We're glad that our strategy of diversification paid off, but we are particularly happy that our major products produce profits throughout the period and for the calendar year last year, which was an incredibly difficult time period. And I think, again, sets us up very well, retaining those high watermarks and having satisfied clients. On the AUM growth, we reached a peak in AUM for Navigator $24.2 billion. So that's a 13% growth rate over the prior period of last year. So we're very happy again with the strategy of both the strategic investments in Lighthouse continuing to show growth and being positioned in area of the asset management industry, which experienced nice growth even in a difficult year like last year. When we look at the EBITDA, as we had forecast last year for this period, it remained very stable. And again, we're poised for future growth with continued good investment performance here. So we're growing. -- performance is good, and we certainly believe that's going to show up in EBITDA and earnings over time. We continue to have very strong distributions from our strategic portfolio. As we highlight here, the distributions continued through December 31 of this year and then after that. So we are at $21.9 million so far for Navigator going into 2023 or at least $21.9 million for this year. And again, very excited about those results and to see the strategy play through over the last 18 months. Last just for highlights, we've increased our financial flexibility. So we've increased our credit facility to $70 million worth of borrowings. Should we choose to use that. That offers us flexibility for the existing portfolio and also for potential investments going forward. So overall, the first half highlights, again, I think it was a strong 6 months to this fiscal year. I think that was against a very difficult backdrop. But it continues to show and the growth in the AUM that we're seeing continues to show just the strategic nature of what we did with this portfolio, how we're positioning the firm going forward, which I'll talk about on the additional slides. But very happy with the results that we've seen so far. If we turn to Page 5, just a quick company overview. I think one of the biggest things is that we are positioned in a fast growth area within the asset management industry. So to contrast this with other firms that really have either one style of investing or are maybe exposed to one type of factor like growth investment. Obviously, in years like last year, it can be a very difficult time period. Certainly, you can have good stretches within that. Our belief at Navigator is much more of a diversified approach across the alternative asset management industry. And I think we can see that in the 37 alternative investment strategies that we deploy across the firm. Again, we're above $24 billion in ownership adjusted EBITDA. You can see on the top line of this page, it's $66 billion, in total across 11 firms. So we're very happy with how that's growing and also very happy with the diversification that we're seeing across these strategies and again, across the performance, which should lead to very stable earnings growth and a very stable earnings profile for Navigator as we continue to acquire additional assets and close the dial transaction as well. If we could switch to Page 6, just our focus. I think this is really important. I think our focus is actually quite simple. So we want to partner with established firms, that are focused on investment performance. And they have products that have proven the test of time, have experienced personnel. As we've always pointed out, the average tenure of the firms in our portfolio is about 15 years or over 15 years. Lighthouse itself is now going on 26 years. So these firms have demonstrated that they have staying power across the cycles. They have the ability to grow. And I think that's very, very important that we are partnering with experienced firms that have proven products in the marketplace and have the opportunity to grow further. Second, I've touched on, we want to own a diversified set of investment strategies that are going to perform across a variety of market conditions. So we have seen a broad range of conditions now over the past 2 calendar years. So in both '21 and '22, very much a contrast to each other. We've started to see a normalization of interest rates, which tripped up a lot of strategies in the fixed income area. We saw growth equities sell off pretty heavily. We saw major changes in China that caused sell-off in equities and other asset prices around the globe. So despite this, the strategies have performed well over the last 2 years and produced very consistent profits. They are uncorrelated to each other, which should mean, again, that the business is well diversified. We aren't believers in just a star system of portfolio management at Navigator, but we do believe in the process of each of these 37 strategies, the teams that are running them. And again, the application that these strategies have across global markets. Again, hitting on the global nature. It's also very important that these products are relevant to a global audience. We believe that the potential investment universe for these strategies from an investor perspective is global in nature. We have focused on our distribution efforts at Lighthouse over a number of years. I think our distribution capabilities, specifically at Lighthouse are as good as they have ever been. I think as far as the strategic portfolio and utilizing the Dial Business Services group, I think we have excellent distribution capabilities on a global basis, as well as on the investment side, which is global research so that we can invest in opportunities in the markets as they show up across the globe. And as many of you know, from the Lighthouse perspective, we have our offices in all the major global international markets for about 20 years now, and we've been attracting investment talent globally and putting that talent in the local markets, which we think is now even more important than ever. So that's being global in nature is extremely important to our success. I already touched on the diversified nature of what we have. One thing I would point out again is just the uncorrelated nature of these strategies. So again, not relying on one market, not relying on one strategy to produce returns for our clients. And again, it produces stability at the Navigator Global level, and that's really what we're after. And finally, we want to make sure there's alignment between what we're trying to achieve at Navigator and what the teams are trying to achieve in their business. I think that we know from being operators in these businesses for over 25 years now. I think we have a good understanding of what these firms need. The firms will be at different growth cycles across different product cycles that they have across different market cycles that they have. But in aggregate, we feel very strongly that Navigator can grow. And again, there's a proper alignment of interest between the investment teams and our strategic companies that we invest in and NGI, which is very, very important. If we switch the page to Page 7 now. Just looking at some of the things I won't go through each of these bullet points, but what's it going to take to be successful here at Navigator. The first thing I would say is, again, we're positioned in an asset management segment with good long-term growth prospects. That is vitally important. We want the products to be relevant. We want them to add value in our clients' portfolio. And I think in a year like last year, where both equities and bonds were down at the same time and these strategies produce profits. That's a huge litmus test to pass and show the relevance of these products, how they can add value at different times in the market cycle and to be positioned in an area of the asset management space where there is growth. Again, we have the ability to grow globally. These products are relevant across the globe. What we are doing in the U.S., we find a lot of investors that have interest outside of the U.S. and accessing these products vice versa. So we have distribution capabilities now built up globally to help with these products, help find the right clients, help make sure we have the right fee structures, the right cost structures internally. All of these things are vital to a successful firm. And again, I think we possess these capabilities to be successful going forward. One of the last things I would say is also, as a firm, we encourage product innovation. So at Lighthouse, we've seen the transformation of the business from where it started over 20 years ago, which was in a very specific segment of the hedge fund industry, more of the fund to funds business, and really seeing the transformation of that business more into a multi-portfolio manager platform and also providing platform services to our clients. So no industry and no business can really remain static. We want to partner with entrepreneurial firms that aren't afraid to reinvest some of the capital that they're earning into new products to create the next areas of growth for the firms. And again, most importantly, to produce products that clients value and that are relevant in the current time. So vitally important to our success, you can see the points that we've laid out as far as our -- the advantages we think we have and again, how we feel we are uniquely positioned. And again, we feel these businesses are at scale. They're with good operators with a proven track record. They have good growth prospects. And certainly, in a year like last year, they proved that they have a place in the portfolio -- in the client's portfolio. So switching to Page 8, just showing the improving AUM trends that we've seen. So we saw a big jump from December of 2020 to December of 2021. We saw a 13% increase, again, in ownership adjusted assets from '21 to '22, which we think is great. When we look at all that happened last year in the global markets, and just when you look at global aggregate market caps in both equities and bonds, obviously, there were losses. So total financial assets last year would decline. And yet we still manage to exhibit growth. And I think that's very, very important. I think you can see the trends that we're trying to establish with this portfolio. And within Lighthouse and again, it's nice to see the continued growth path since the basically acquisition of these assets and also within Lighthouse. So switching over to Page 9, just talking about the recent investment performance. So you can see some of the highlights on this slide. Again, a year with negative public, both fixed income and equity, we produced positive results. I would say that our clients were happy with the results. We got very positive feedback. I would say, overall, our clients were more concerned with both their public equity exposure and some of their private equity venture capital investments as well. So we were certainly not the focus of attention last year. But last year, it was critical for us to perform. It was also critical for us to maintain our high watermarks coming into a year like this because if you are a firm that had some incentive fee components to what you're doing, and you dug yourself a whole. Obviously, you've got to dig yourself out of that before you start earning incentive fees again. And across the -- even across the hedge fund landscape, where long short equity firms are more net long than certainly we run the portfolios. They can do quite well in more bullish markets and environments. But when things turn very quickly as they did last year, can really struggle and can dig quite a deep hole. So being down 15%, you're going to have to make up over 20%. And if the markets again are not as favorable this year, that becomes even more difficult to do in subsequent years. So we have been through a cycle like this back in the dot-com area when we saw issues between 2000 and 2003, we survived. And actually, at that time period, grew extremely rapidly. -- and it was due to the performance in more difficult time periods. So we will see what this year brings for us going forward. And again, happy to talk about some of our views in the Q&A session, if anyone is interested, but want to stay focus more on the business today. But the strong investment performance really sets us up well going forward into 2023 and beyond. So with that, I'm going to switch over to a review of Lighthouse and how things are going there. So if we switch to Page 11 now, if you go to 10, let's just see introduction, so 11. So where do we stand as a firm. We stand at about $14.8 billion of total assets. So if we went back in time and looked at the assets that we had acquired from Mesirow, we were bigger when we combined those assets at that time. But we knew some of those assets would be redeemed from us. So if we look where we are today, the way that I do it internally without any acquired assets, I would really say we are already peak in assets and continue, again, on the right track. We've got a 26-year track record now. We're up to 243 total personnel at a 97 investment professionals. So one of the reasons that is expanding is because of the specific hedge fund portfolios that we run. So both Mission Crest, which is focused on global macro and trading strategies, North Rock, which is coming up on a 10-year track record here that focuses on equity relative value strategies and also our multi-strategy offerings going forward here. So the total assets within hedge funds represent now close to $5 billion. Our goal -- initial goal for asset raising for North rock, it's about $5 billion. I think we will reach that in this fiscal year. I think also with Mission Crest, we will reach our stated objective of about $1.250 billion. So we're excited about the growth we're seeing there. and we'll continue to focus on the multi-strategy funds going into fiscal '24. The other part of the business, Hedge Fund Solutions, is still at about $9.4 billion. We would break that up into the managed account services and the customized solutions. So we're running more customized mandates for our clients and helping them with the issues that they have. Again, in some of those relationships now at well over a decade, some approaching 15 years. So I believe that, that length of time shows that we've added value to these partners and continue to have very good relationships with them. And I would also point out, they've been pivotal, or they've been critical to us in helping us to grow the hedge fund business and to help with investments along the way in both North Rock and Mission Crest and other things that we're working on here. So this whole kind of ecosystem that we have developed, both between the hedge fund side and more of the customized side and the platform side. And again, on our managed account services, which we've branded as [ Alumni ], very important for certain of our clients that we provide those services and that we help them out with their issues in trying to gain access to alternative investments, and also to structure those investments in the most efficient way. So again, very happy with how we're positioned. And again, the transformation the firm has really undergone. If we turn to Page 1 -- or Page 12, excuse me, we can see we continue to have a stable and diversified AUM. So of course, we'd like to continue to see it grow. As we've spoken about for the last several years, we continue to, I would say, transition the business into the future of where we think the growth is. And again, where we think that our clients perceive the most value coming from us. And that, again, is [ warrant ] a multi-portfolio manager type of platform. Again, we've made big strides there. And I think that's why you're seeing the growth in the products that we have, both in Mission Crest and North Rock. You can see on the right hand, the right-hand pie chart just showing just where the assets come from and then the geographic diversity as well. So we've continued to expand our geographic reach. We continue to talk to new clients all the time. We continue to try and diversify the asset base, and we can also see the breakdown of the growth over the first half of 2023. Again, what was a tricky time period for that and again, continuing to see growth right now throughout the first part of this year as well. So if we turn to Page 13, just looking at the net flows, most of the net flows came into hedge funds, particularly in this time period. That's where the focus has been as well. So I would expect that in terms of where we're devoting marketing resources, what we're trying to emphasize, again, where the feedback is from clients as well, what they are evaluating the most right now. And that's where we expect to see the flows within the Hedge Fund solutions, you can see that things have certainly stabilized and particularly since 2020 when we didn't perform as well in that business. I think the performance has been very strong. And I think that we will start to see inflows in that later this year. And again, we have been asked by clients for more of a multi-strategy offering and already have the beginnings of that in place. and that was always really the plan was to build these individual hedge funds and capabilities. We have other products that we don't market externally that we've built for our internal use, and they will be components of the multi-strategy offering as well. As we've talked about in the managed account services business, the flows in there are lumpy. They change, the fees don't always correlate exactly with the flows in that business because investors may want to become more efficient and use a little bit more leverage in the in terms of what they're doing, and we get paid on the -- more on the notional assets of those businesses. So we are constantly trying to optimize the AUM of our clients, how efficient they can fund certain strategies if they need that capital for other uses. One of the biggest things that's happened for some of our clients is a need for capital to fund capital costs and some of their less liquid investments. So private equity or venture capital, real estate capital calls, all of those things as the cash distributions from those investments are coming slower. Now so the more we can help them use their capital efficiently and provide, some either margin relief or other structuring capabilities that we have, that's very valuable in a time frame like this until asset prices start to stabilize and come back to more, should say normal levels, but just to reasonable trading levels and that things start to settle down. So with that, I'll conclude my remarks on both the business and on Lighthouse. Again, happy to answer any questions at the end of the call. But again, before turning over to Ross, I'm very happy with how Lighthouse is positioned. I'm happy with the product set. The team that we have is as good as we've ever had. The distribution capabilities are there. And I think we'll continue to bring some efficiencies to the business. In this period of transition, the expense is certainly a little bit higher than we'd like to see run over time. But while we're making investments while we're creating new products, while we're changing what we're doing to more of a multi PM type of platform, it's necessary to make these investments. And we're happy that we've been making them for a period of time. And again, I think we're very well positioned going forward. So with that, I'm going to turn it over to Ross for a review of the NGI strategic portfolio, and we'll pick up here on Page 14. So over to you, Ross.

Thanks, Sean. So I'll start my remarks on Slide 15, which provides an overview of the NGI strategic business. These 9 partner firms that are shown here have been added to the company over the past 2 years, and they represent a highly diverse set of uncorrelated alternative asset managers with over $51 billion of collective assets under management. This segment provides Navigator meaningful exposure to high-quality earnings streams with significant operating leverage across liquid alternatives, public and private credit, commodity-based strategies and private real estate capital solutions. No single partner firm represents a majority of our AUM or profits in this part of the business. And as by design, since acquiring these assets, we have seen different firms contribute to our profits more than others at any given time. Given the established nature of all of these businesses and the diversification across the portfolio, we view this as highly stable yet growing AUM. Although many of these firms do operate open-end products and separately managed accounts with redemption risk, they all have unique and highly diverse client bases across multiple products. They also have strong long-term track records for current and prospective clients to rely on. Recently, we have been keenly focused on adding long-term locked up capital to the portfolio. Our most recent 2 acquisitions last year, both deploy their strategies almost exclusively through private equity style, closed-end, drawdown, fund mandates with locked-up capital and highly visible revenues. We have also been pleased recently to see several of our existing managers in the NGI strategic portfolio successfully raised closed-end funds to further diversify their product offerings and extend the duration of their capital. Please flip to Slide 16. We'll talk about the growth of this part of the business and the trends that we're seeing. Since acquiring the portfolio just over 2 years ago, we have seen the NGI strategic portfolio grow by over 20%. In addition, we have now added what looks to be growing from its current base of $1.3 billion of ownership adjusted AUM from those new acquisitions in Longreach alternatives, Marble Capital and Invictus Capital Partners, all of which primarily operate less liquid alternatives and all of which, which have demonstrated growth since the time of our initial investment last year. We are very excited about the near-term and long-term prospects for all 9 of the businesses represented in this part of the business. We can't emphasize enough that all 9 of these firms have the key ingredients of talent, resources and an alignment of interest in place to continue to increase their profits by generating strong returns for their clients and growing their business in a thoughtful manner over time. We slide -- excuse me, if we flip to Slide 17, we're providing a little bit more detail here regarding the performance of this part of the business. Our partner firms' strong performance, proven track records and deep expertise in their respective strategies position them well for further growth, especially in the current market environment, which has led to a wider dispersion across manager performance and investors continued and even likely increased preference towards investing with larger managers, these firms are well positioned. You'll see on the top part of the slide, we've disclosed performance for what we call the composite of the NGI strategic portfolio. The numbers here include the flagship investment strategies for all 6 partner firms within the portfolio we acquired from Dial. As of December 31, this represents $23 billion of the total $41 billion of non-ownership adjusted AUM. What you'll see here is that over the past 3 calendar years, this portfolio has protected capital and generated strong returns through a very challenging market across other asset classes. The composite generated roughly 6% and 10% net returns for clients in 2021 and 2022, respectively. This is exactly what high-quality alternative managers should do, and we are pleased that our partner firms demonstrated themselves again as leaders in their respective strategies. Although these performance numbers have benefited from an improved investing environment for the strategies they deploy, these are not data-oriented or automatic returns. It's important to recognize that there are many managers in the industry across the competitive landscape, who did not generate strong returns over the last 2 years. We believe performance is a strong leading indicator of future organic growth, and we're pleased with what we see across this portfolio. If you look on the bottom half of Slide 17, we've also included some performance figures for several of Marble and Invictus recent funds. The strategies here are highly specialized, credit-oriented strategies designed to generate consistent returns for their investors over the life of their closed-end fund vehicles. Marble and InVictus both deploy capital into very large, fragmented and highly complex areas of the U.S. real estate market. They actively target the best individual assets across a very diversified portfolio, which present at the time of investment, the strongest risk-adjusted return. They have both demonstrated an impressive ability to shift their focus as market conditions change. They have a repeatable edge in their investment processes as the product of their leading sourcing and underwriting capabilities that have been refined over time through expertise and resources invested. Although the significant changes we've seen to interest rate policy and the economic outlook certainly impact their respective asset classes, their capital remains as needed and as attractively priced as ever given the recent retrenchment of various lenders and other investors throughout 2022, when they were forced to cut risk or prioritize solving other issues across their multi-asset portfolios. The current more complex market environment creates an opportunity for groups such as Marble and InVictus, and we are very excited to see the returns that they can generate for their clients in the years to come. If you could please flip to Slide 18. I'll provide an initial overview of the profit distributions we received from this part of the business. We remain very pleased with the financial performance of these scaled and well-run businesses. Please note that this slide covers the 8 partner firms now excluding Longreach as that's accounted as an affiliate directly at the Navigator parent company level. You'll see on the top left of this slide that Navigator has received $10.5 million of profit distributions during the first half of the financial year 2023. This represented a 46% increase period-over-period, driven by both slightly higher distributions from the NGI strategic portfolio as well as the initial contribution from newly acquired investments. As you saw strong investment performance for calendar year '22 on the prior slide, we expect this to translate to strong profit distributions from the NGI strategic portfolio in our financial year 2023. The bottom left of Slide 18 compares to last year's per profit distributions of the NGI strategic portfolio to where we are today. Although we only received $7.5 million of distributions by the 31st of December as compared to $7.2 at this time last year, we have now received $37.4 million through the 23rd of February. As you likely recall, Navigator benefits from a preferred in minimum annual distribution from the 6 managers acquired from Dial in 2021. We are currently in year 3 of the 5-year profit sharing period, and we are entitled to $18 million of profit distributions before sharing 80% above that level with Dial. The chart on the right hand of this slide illustrates the impact of this sharing through today's distributions. Although not fully reflected in our first half financial results, of the $37.4 million total profit distributions received to date, we are entitled to $21.9 million. Therefore, -- in addition to the $7.5 million report of this period, we'll be reporting at least $14.4 million of profit distributions from that portfolio in the second half of our financial year. I know we'll revisit this concept a bit more as Amber breaks out our base earnings, but we wanted to highlight it quickly. Amber, at this time, I think I'll turn it over to you for our financial results.

Thank you, Ross. I'm conscious I'll leave some time for questions. So I'm going to try and touch on things in a speedy manner, but hopefully not too fast. So just to run through some of the key highlights of our financial results for this half year. As we mentioned, we had an adjusted EBITDA result of $21.2 million. So that's only just 1% down on the prior comparative period. And we're very pleased with that result, showing resilience in what have been some pretty difficult market conditions for the asset management sector in general. Our base earnings, which is a concept that we brought out in our August results for last year, focus is in on our management fee and preferred minimum distribution earnings that we get from the NGI strategic portfolio. And that's the earnings that are steadier and we have a greater level of comfort in being able to forecast. So we gave some guidance back in August that we thought for FY '23, we would be within 36.5% to 38.5%. We're still on track for that, albeit dropped the top end to 37.5%, so still within that range. So I think that's an excellent result. As Ross just went through, we had really good distribution coming from the NGI strategic portfolio, leading up into our results today. As he mentioned, $37.4 million has been received up until today. And of that, we get to keep $21.9 million, which is excellent. So $3.9 million above that minimum amount already as we're this far into the year. Lighthouse has had an excellent year. So its AUM is up 4% and on the previous half and our average management fee rate is holding steady at 51 basis points. And that's really great reflecting the mix in AUM even as we move into some of the more hedge fund products that are in the Lighthouse business, which focused a bit more on performance fees versus management fees. So really happy that, that 51 basis points is holding steady. We're also really happy with our cost control for the half. We're up 4% compared to the prior comparative period. But in this pretty high inflationary environment, we actually think that's an excellent result. About 80% of our net operating expenses relate to employee costs, and those employee costs are up 3% on the previous half, and that increase is really around fixed compensation. The other expenses are up about $400,000 net operating expenses. Most of this increase actually has to do with the mix spend we've made in relation to cybersecurity projects, very important in this current day and age, as I'm sure you all think. And also, we've had some extra expenses in round engaging some external valuers around the NGI strategic portfolio. And as Sean already mentioned, one of the other great things that happened during the half was increasing our borrowing capacity up to $70 million. We did draw on that in November to make a payment to Marble Capital as part of the deferred consideration, and we've repaid $20 million of that in February to bring that down to $10 million outstanding at this time. So if we actually move on to the next slide, Slide 21. So this just gives a breakdown of that $21.2 million adjusted EBITDA, just quickly running through the key revenue items on that slide. So our management fees for the half have come in at $37 million. It's just slightly down on the prior comparative period at 37.2%. Our performance fees for the half was $6.1 million. That is down on the $8.8 million that we got for the same time last year. It reflects more that whilst we've had really strong relative performance against relative benchmarks, our performance fees are actually earned above high water marks on an absolute basis. So the absolute return is what's feeding in. In the prior year, we had a couple of products that had some really strong returns that delivered some slightly higher performance fees, but still a good result from our perspective. The NGI strategic distributions were $10.5 million. So that incorporates both the NGI strategic portfolio. As we mentioned, plus we had $3 million of distributions come from our new investments in Marble and InVictus. And the share of profits from the JV relates to our investment in long reach. So we equity account for that and pick up the share of their profits. So all of those performance fees were trending in really good directions from our perspective. In terms of the main expense items, so our employee expenses, I mentioned, are up 3%, largely driven by fixed comp costs and our other operating expenses are up 6%, up $400,000. So all in all, we're pretty happy with in terms of keeping those costs contained in the current environment. So that leads to the $21.2 million of adjusted EBITDA. If we move to Slide 22, so this one is to give you a reconciliation of where we derive our adjusted EBITDA versus the statutory EBITDA that we report in accordance with the accounting standards. So a couple of the key differences that I just wanted to highlight from that perspective. On this page, we actually include in our revenue -- the reimbursement of fund operating expenses. So I just wanted to talk through that. That actually relates to expenses that we incur on behalf of funds and operating the funds that we're actually able to on charge to the funds and get reimbursed for. So that's the revenue component. There's an offsetting and equaling out expense that sits in the other operating expenses. So there's actually a 0 impact on the final results. It's actually grown from the prior year. As Sean mentioned, we've been in a process in the last couple of years of implementing a pass-through of those expenses through the hedge funds and particularly as those hedge funds have grown, and so that's really driving the growth from that perspective. The other thing I'll just mention, so in terms of the offsetting items that we adjust out of our statutory EBITDA. The fair value adjustment to the financial assets, that's the increase -- the unrealized increase in value from fair value in the NGI strategic investments. So after going through a valuation process with external valuers, we overly increased that by $11.3 million for the half. The offsetting side of that is an adjustment to the redemption liability that we carry in the balance sheet. So there's a process of unwinding the discount that we need to apply to that to get a [indiscernible] value for the balance sheet, and that's the offsetting $9.2 million. The other noncash item that's in statutory bulk is about $600,000 worth of share-based payment expenses relating to the issues and performance rights during the period. So those performance rights were voted on by the shareholders at the last AGM. The other -- other cash items that we actually add back in is the cash component that relates to the payment of leases. So under the accounting standard that came in a few years ago, we no longer include that in normal operating expenses. But since it is an important cash outflow, we added back into the adjusted EBITDA. So as much as I would love to focus on the 67% increase in the statutory EBITDA, which is an enormously good number. We do look at how adjusted EBITDA has been the true measure of the earnings in the business, and we do think that, that stability has been a great result. So I might just in the interest of time, skip over Slides 23 and 24 and go to Slide 25. So this is an outlook where we discussed the concept of our sort of base earnings base adjusted EBITDA. We really wanted to kind of drill down on how that actually played out for the first half -- so for Lighthouse, you take Lighthouse's first half results and back out the impact of the performance fees, which was $6.2 million, and we put an associated 50% bonus accrual against that. The net impact for that is $3.1. So we actually back that out. That's what we consider kind of upside earnings, which leads the base earnings. So for Lighthouse, it delivered $10.1 million for the half. NGI strategic was 8.9%, so that was the 10.5% combined distribution less its direct expenses, and there was just under $1 million of expenses of other group costs, so delivered an $18.1 million base adjusted EBITDA. And we've sort of given guidance around '18, the equivalent of '18 for the previous year. So looking ahead in the second half, we actually expect lighthouse to do about $8.5 million. And the reason why it actually is lower than the first half is that we have to spread the total comp costs, including bonus across the full year evenly. So it creates a little bit of a skew when you're backing out the performance fee component down the bottom. So just as an explanation of why that comes in a little bit lower. But all up really good in that we're expecting about $18.6 million of that base earnings to come out of the Lighthouse business for the full FY '23. On the NGI strategic half, that $12 million represents the additional $10.5 million of the amount above the preferred distribution that we're beginning in the second half. Marble and InVictus earnings and less some expenses, and so that comes in about 20.9% in terms of contribution for the full year. And then a range of expenses at the group line of $2 to $3 million, brings us to that $36.5 million to $37.5 million base, which is pretty on track, and that's up 25% from FY '22. So the other really good thing to point out is that we've already banked $7 million of our upside earnings for the year. So then there's certainly potential for additional distributions to come on the NGI strategic side. And we normally do get some performance fees in the Lighthouse business in the second half as well. So that is a very pleasing slide from our perspective. So it just move on to Slide 26. So we just wanted to set out some of the funding commitments that we have in relation to our recent acquisitions for Marble and Invictus. They contained a component of deferred consideration. So the total deal combined were worth $185 million. We've actually paid off $74.5 million of that. So there's a remaining $110.5 million of consideration to be payable over the next 2 to 3 years. So in terms of our funding strategy for that, we have some existing cash on the balance sheet. We're also looking at our operating cash flows. So if we look at those base earnings, we just ran through of $36.5 million to $37.5 million, [ back of ]some tax and interest across the range of estimates depending on how much we draw down on the facility. Then that should deliver over 2.5 years between $72 million to $87 million of operating cash flow just from base cash flows. In terms of dividends, we have a policy of saving $0.03 to $0.04 annual dividend. So over 3 years, that will come to about $27 million. And we have the remaining $60 million of capacity on our BMO debt facility. So if you add that up, comes between $115 million to $130 million over that period, and we'll meet the $110.5 million that we have. So the one thing I will highlight on that as well is it doesn't include any of the upside we talked about. So you'll remember that we had $7 million of upside already banked to date that's not included in this cash flow. And so, there's definitely additional cash flow earnings to come out of that over the next few years as well that will go towards the funding strategy. And lastly, on Slide 27, I just wanted to quickly run through the redemption liability payments. So part of the overall NGI strategic portfolio acquisition involves us buying out the remaining component that Dial owns in 2026. And it's just the amount that we pay as determined by a formula where we look at the average for the first 3 years of that 5-year earn-out or buyout period and times the average above the minimum preferred amount by 2.25%, up 2.25x, sorry. And then for the second part of the payment, it's the final 2 years in that time frame, again, average in times by 2.25. So we really wanted to set out a way to help understand the potential range of payments that may be due in 2026. So for the first 2 years, we haven't got a finalized number with Dial yet. So we're in the process of actually agreeing what those are. So we've put in a range, but definitely at the top end, the $70 million to $80 million for calendar year '21, 60 - 70 for calendar year '22. And calendar year '23 refers like we've put in a range of between 30 to 70. So from our perspective, a top and the bottom end. And if you average that out, we think that the first half of the redemption price would be somewhere between $80 million to $126 million. In the second half, we've kept that broad range, like $30 million to $70 million for 24 - 25. And again, if you average that out, apply the formula, that payment could be anywhere between $25 million to $115 million. Now you add them together, and there's actually a cap at $200 million. So from that basis, looking forward, depending on how the performance of the portfolio for the next 3 years, the estimated retention payment will be between $106 million to $200 million. So it's due in April to May 2026. Some of the things to point out is that we'll get better visibility as we go along as these earnings are actually crystallized and we can have a more certain estimate of that amount by early calendar year 2025, and the other really important thing is that we will actually earn all giving from the portfolio from 1 July 2025. So we'll have almost a full year of earnings and certainly the core part of the earnings here where we've received in cash those earnings before the retention payment is due. So we're continuing to look at the various options around fully funding that, and it's going to be largely dependent upon how that portfolio performs over the next couple of years as well. So with that, I'm pretty sure that's part mine done, and I'm going to actually hand it over for questions.

[Operator Instructions] The first question we have is from Tim Lawson from Macquarie.

Just in regard to the sort of flow and sort of pipeline commentary you're talking about, obviously, North Rock and Mission Crest performances but then you're calling out sort of the capital raising backdrop. Can you just sort of maybe expand on your expectations on sort of pipeline and flow potential?

Yes. I think, as I mentioned during the remarks, just I think we will hit the initial targets that we set out for both Mission Crest and North rock and continue to have ongoing conversations with a number of clients, pipeline look strong. There's definitely interest in the alternative space, not only in the Lighthouse portfolio, but across the affiliate portfolios as well. So I would describe it as a very good pipeline. And again, I think we will hit the objectives that we initially targeted for both Mission Crest and North Rock...

[Operator Instructions] The next question we have comes from Phillip Chippindale from Ord Minnett.

Got a couple of questions. Firstly, maybe a question for Ross. He was on Slide 18. Just referring to the charts on the profit distributions that have come through from the strategic portfolio. Obviously, this is -- it's very lumpy. And so, you've had a big cash sort of realization period in the first 7 months of this -- sorry, 7 weeks of this calendar year. But can you just sort of give us a sense of what our expectations should be over the balance of the year? I know clearly, you're referring to what happened last year, which is a really strong outcome. But I just know that we shouldn't be sort of straight lining just realized in the last month or 2. So just -- can you just walk us through some of the timing nuances here.

Yes. No problem, Phil. So I think that's a key point, and we could spend more time on that during the prepared remarks. But the bullet really says it all, which is that underneath that chart on the bottom left of Slide 18, I don't think you can extrapolate in a linear fashion when you look at those 2 years. It really depends on 2 things. Number one, which firms themselves have performed better than others within the portfolio and therefore, distributing profits and also how they did really the prior year to that. So what expense needs, how much free cash flow there is, et cetera, and then how much more quickly they're paying the profit distributions out. Because 2021 was a good year, we have seen profit distributions coming out slightly quicker this year in 2022 and our fiscal '23 than you would have seen over a very long data set, which tends to happen. So I think that's kind of the one thing, I would say. It's kind of hard to predict exactly what we see between now and June 30. I will say we know of one strong performing manager that has not distributed the majority of their profits for the year. So we know that's coming, but it really is dependent on each of them. So I don't know, Amber, if we can give particular guidance per se, but I would say it is safe not to fully extrapolate. But still, when you look at the performance numbers for '22 versus '21, you should expect a strong year.

Yes. And I think the only thing I would add, as Ross said, is we're probably not necessarily thinking it's going to get to the 70.8% of that particularly strong calendar year '21. but we are expecting more to come in. So it's hard to give you a specific number, I apologize, Phil, but we would think that it would come in somewhere between where we're at now and the 70 top end.

Yes. And Phil, as you remember, and we talked about because of the profit sharing, depending on how wide that range is, we're getting 20%, right, of the profits that come in from now on. So it's kind of muted mute that impact a little bit.

Yes. So every 10 million additional distributions come in, $2 million goes to our revenue.

Understood. Perhaps a question for Sean. Sean, obviously, in the current environment being very inflationary wage pressure is a key concern for most businesses we're looking at. In yours, there is a high degree of variable compensation. So perhaps the pressure for wages is less. And obviously, with the backdrop of challenging markets, perhaps that changes the dynamic as well. But could you just talk to perhaps any pressure that you're experiencing and perhaps any sort of flow-on impact at the cost line for your business going forward?

Yes. I think 2 things, everyone. I think everyone around the globe has realized just it's been harder to hire people since the pandemic. So definitely, there are fewer qualified candidates around to hire. I think the team that we have is very valuable. We certainly want to make sure that compensation is in line with industry standards. However, you point out the positive point from this type of business, which is that a lot of the compensation for senior people at the firm is based on results and it is more variable. So certainly, we want that compensation to be as high as possible. But what that means is we're going to be very happy clients; we'll generate more in terms of incentive fees. So it is aligned with the objectives of the business. But certainly, you see more just cost pressure in terms of wages in terms of those things. So there's a few different ways that we can deal with that. And I think we've dealt with it effectively. I don't see it a beating over the short term, what I would say in the next 6 months through the end of this calendar year. I do think it will normalize over time. But we are fortunate that a large part of our total compensation is variable and really depends on the results that we're producing for our clients and the firm overall. So I think we can manage our way through it. But like all businesses, the keyword is that we have to manage it and pay attention to it. And certainly, we are -- and we'll continue to look at head counts and compensation levels and always trying to drive more efficiencies in terms of what we're -- in terms of what we're doing and just balancing that with the growth prospects that we want to pursue, which we think are in the interest of the long run.

[Operator Instructions] The next question we have is from Mark Hancock from Precept Investment Actuaries.

I just wanted to -- can you hear me?

Yes, Mark.

Yes. Okay. Just in terms of... Could you give us some color on the outlook for contributions from Marble and Invictus, -- you've gone into a fair bit of detail on dial in that final table or so. But just wondering, I know there's 3 or 4 different types of earning streams that you're expecting to come from each of those businesses. And they are sort of back ended as you get close towards the full payment period and beyond. But it'd be helpful if you just run us through, I know you're going to earn some potential performance fees on funds that have already started and then funds that are growing and then there could be new funds coming in. So if you could give color on that, but also perhaps -- if you can just make, I don't know if it's possible for you to quantify exactly what earnings outcomes would be associated with those remaining payments to date. -- when you quantify those acquisition payments. But the color is kind of more of what I was looking at.

Mark, it's Ross. Maybe I'll start, and then I don't know, Sean and Amber, if you guys want to hop in or add anything. I was just -- I would make one general comment with both the businesses. And that comment is, as you probably remember, Mark, when we announced both acquisitions, one of the primary needs for our growth capital was to support the most recent vintage fund raise that they were already underway. So in the case of InVictus, they were about halfway through their fundraise for their next vintage fund, which closed above $900 million in December, which is good news. So those earnings will help the earnings growth over the next 12 to 24 months as those assets come online. With regards to Marble, they were starting their vintage Fund IV fundraise right about the time of our investment. We have seen the overall climate for private market fundraising. I wouldn't say it got or getting worse from a demand perspective, but it has slowed down slightly. So we do see that Fund IV hitting its target. And in fact, they're already 60% to the target, but taking slightly longer, which means that those revenues take longer to come on. The good thing is there's a catch-up in those fund structures. So clients that come in a year after the first close, there will be a catch-up. So over time, those profits ultimately catch up. It's a calendar issue, but it is going to take slightly longer. So that kind of addresses what we would think of as like the FRE or fee related earnings aspect of those businesses. And generally speaking, we're really happy, as I mentioned during the investment performance. Section of where they stand in their respective markets and what they're doing for clients and the incoming demand in what is a pretty dynamic environment. So we think they're on track to what we expected there. With regards to our share of carried interest, the Marble investment is the one where we really bought into more of the carried interest and more of the existing carried interest. So their vintage Fund II, so 2 funds ago, is already over 100%. In fact, it's spent 140% return to clients. That's where we expected carried interest to come in over the first, call it, 18 to 24 months or 12 to 24 months of our investment. We do not see that change. During our monitoring process. We've been through the portfolio. There are certainly changes to the realizations and their preferred equity investments coming out over time, but -- and exit prices. But the good thing is that our current view is that the overall amount of carried interest that we generated will be right around where we originally forecasted. Likewise, the timing is very hard to predict with that. And the profit distributions are hard to predict depending on it's a 40 asset portfolio. So depending on the remaining realizations when it all comes out. So that's a little bit of a color as you asked for, and it is quite dynamic, but we do think they are on target. To your last point, one of the things that we liked about the structuring of these 2 deals is that we do earn 100% of our acquired economic interest from the initial closing. So the remaining deferred consideration is structured that way more to support their growth and to align our interest with management. It doesn't mean that our 16% and 18% interest in those businesses ratchet up over time. So we're earning the full -- our full ownership profits already. So the $3-odd million that we saw in a partial year to date came from our 16% of Marble and 18% of InVictus.

So if we look at the table on Page 25, the 43.5% at the bottom right. Are you saying that it's about $3 million that's coming from InVictus and Marble out of that?

It's actually $3 million in the first half that's already been banked, and we're estimating an equivalent $3 million in the second half. So it's actually a similar half 1, half 2 contribution from those 2 assets. That is slightly down. We had sort of predicted that we would get a little bit more out of those for FY '23. But as Ross referred to, some of the capital raisings have been slightly deferred when we'll actually start picking that up. So that -- the change in the guidance from 36.5% to 38 from to drop it from 36.5% to 37% is really the reduction that's coming through from those investments.

Thank you. Ladies and gentlemen, at this stage, there are no further questions. I'll now hand the call back over to Mr. McGould for any closing comments.

Okay. Thank you, everyone, again for joining the Zoom presentation tonight. As always, if there's any questions or anything we can clarify after the call, please let us know, but we really appreciate you taking time this morning and this evening to learn more about the first half results. Thank you very much.