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

Thank you for standing by, and welcome to the Navigator Global Investments Limited FY 2023 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Sean McGould, CEO. Please go ahead.

Thank you very much, and thanks, everyone, for joining this morning or this evening, wherever you are located around the globe, for the 2023 annual results update for Navigator Global Investments. We have had another busy year. A lot going on, very positive in terms of both transactions and just the AUM flows. So we're excited to present tonight, and I'm going to start on -- just by going to Page 2 here and just talk about the agenda and what we're going to go through this evening. First is, I will give just a brief introduction on the overall business and what we've accomplished at NGI over the past year. Then I will talk specifically about Lighthouse and give a business update on what we're seeing there. I will turn the meeting over to Ross to talk about the NGI strategic investments update and also the strategic portfolio transaction. We'll then turn it over to Amber for some financial results, and then we'll have some closing Q&A. So if we [ turn ] to Page 4 in the presentation, I just want to go over some highlights. So you can see on this page, we believe that NGI is uniquely positioned to deliver earnings growth now through all types of market environments. And I think we proved that in calendar year 2022, when the markets were quite choppy, both equities and bonds were down. The portfolios held up very well. This year in 2023, we've seen a rebound in equity markets in a number of places, but we still think that markets are going to be quite difficult. And we think that some of the low interest rate environment that we saw over the previous decade is now reversing. We think that interest rates have normalized, will stay a little bit higher for longer, and that the impact of that has not quite been felt across the globe yet. So we think that the firms that we own and that we've partnered with approved in 2022, they can thrive through more difficult environments, thrive through better environments like we saw in '21 and '23, but we do think that the financial markets are changing. And again, we're uniquely positioned to drive results for our clients. When we look at what we've accomplished, we now have a partnership with 11 alternative asset management firms. Again, globally based, we'll show in a few slides just how broadly based we are. The AUM -- total AUM of these firms is now at $71 billion. So that's up 16% over the prior year. And then our ownership adjusted AUM, which is obviously what drives the economics of NGI, is at $26 billion and is up over 11%. So, we're very happy with that growth. We have a nice growing base of diversified assets and earnings, very well diversified across strategies, across the firms, across geographies. So, that's very important to us. But driving that AUM growth and succeeding for our clients is very important. Our adjusted EBITDA of $48.9 million was about a 5% increase over the prior period. So we're happy with the growth in EBITDA, and again, expect a very stable earnings growth from here, a very stable base of earnings with some nice upside potential. So, we're very happy -- when you go back a few years ago to NGI when it was really just Lighthouse, you can see how much we've brought in the firm from where we started. Again, going from one firm now to 11 firms from a few years ago, about $11 billion in ownership adjusted AUM to $26 billion today and EBITDA now about $48 million -- [ USD 49 million ]. So, very happy with the progress that we've made. If we turn to Page 5, this is something that's critical to the success of our firm. So again, $26 billion of AUM. You can see that we are operating across the globe. One of the things that's been most important to me in the asset management business has been to have not only research across the globe, but also to have clients across the globe, and to have offices across the globe. We want to operate in the markets that we're investing in. We also want to be present in the markets where our clients are, so we know those markets well. I think I'm very proud to say we are covering all the global financial markets that we think are important right now. There's still room for growth. I'm sure we'll be able to fill out this chart over the years in places like India, Latin America. So there's still opportunities for us to grow and expand. But when you look at this page, we've really covered the globe from both a client perspective, a product perspective and a research perspective. So we've got nice scale in terms of that, and I think that is critical to the success of any asset management firm going forward. You need to have, in my opinion, a global presence, and you need to have research on the ground and be able to service those clients on the ground, and I think we have all 3 of those things going for us. Talking about diversification, you can see at the bottom of this page. So, we have 173 different products. We have 37 different strategies. So, our growth and our earnings across NGI are coming from all of those strategies. They have a fairly low correlation to each other, and we believe that we can operate in all different types of environments. So, if we contrast that to a traditional asset management firm that might be focused on equities or just bonds, if you're focused on equities and you're just a long only firm, then certainly the market is going to have a fairly significant impact on your results from year-to-year. Same thing with bonds, the yield that you're earning, and how bonds do are obviously going to impact the results. We think that the returns that we'll generate off of our asset base are a little bit more consistent, a little bit more stable. And again, we think we are positioned in the fastest-growing part of the asset management marketplace. So if we can turn to Page 6, just looking at some of the trends that we've seen across the business. So when we go back to 2021, we've seen a nice progress from there. Again, that includes the addition of the portfolio from Dyal, now Blue Owl, and then adding on our add-on acquisitions that we've done Marble and Invictus, Longreach Alternatives as well, and we've seen some nice growth since we've done that. As I said previously, we've really transformed the firm. When you look at it from June 30 of 2020, really just being Lighthouse and the Lighthouse business, we've more than doubled the AUM that we have. And certainly, we've massively diversified the products. We've diversified the strategies and the strength of the firm. And when we look at these specific attributes of the firm -- the 11 firms, they are all very mature in their experience and in their growth and the respect that they have across the marketplace. So we've really taken what was originally Lighthouse and added onto that even more experience, even more products. And again, the products themselves have a low correlation to each other, and we really feel that the total portfolio can produce results across a wide range of market conditions. I think that's going to become much more important going forward. As I said, one of the keys to I think the next decade of investing is a normalization of interest rates. I don't think that it's taken hold yet fully in the financial markets. I think it'll be felt for years to come, and I think that the NGI portfolio and the 11 firms can really benefit from that type of environment. So we look at Page 7, just talking more specifically of how we're going to position ourselves and support growth. One of the biggest things that we did and that we announced back in June -- and we were down in Australia. Speaking about it, was basically the unlocking shareholder value and settling the 2026 redemption payment. So kind of the 4 keys here, which are pointed out on this page. We're going to accelerate the 2026 redemption payment. We will have the acquisition of the remaining profit distributions over that portfolio. So, we think that accelerates basically our earnings. It cleans up the balance sheet. That second point you'll see, it removes any uncertainty around that 2026 redemption payment. We had certainly heard in the marketplace that there was some concern around the 2026 redemption. That is now removed as well. It's going to provide us the meaningful increase in cash earnings from fiscal year '24 on, which is important. And it's going to result in a strengthened balance sheet and position as well for future growth initiatives, as well as the pipeline of opportunities that we're looking at right now. So this has really been a vision of NGI and certainly a vision that I've wanted to pursue really since back in 2009, I would say, pushing this forward. And now it's really becoming a reality. We have found the right partner in Dyal and Blue Owl, which is great. The firms that NGI owns now, again, are leaders in their field. They're mature. We're finding new opportunities, and we're going to have a strong balance sheet to go ahead and do this. And in order to do this properly, as we said, we do want to bring on some resources. So, as we mentioned at the bottom of this page, we'll certainly have a new senior executive to help with Ross, who's done a great job in helping to build out this portfolio and working with Dyal, Blue Owl on these transactions, as well as Amber. But we definitely need someone more full-time. I certainly have my hands full with Lighthouse. I am not going anywhere from the NGI front and will remain on the Board and help with that going forward. But I certainly have my hands full running one firm, and now we have 11 firms to help support and grow, and we want to do that properly. So I'm excited to bring in another resource to help us do that, and again, to continue to further push the expansion of NGI. So I think it's very exciting times. I think we are well positioned to continue to grow here going forward. I think the -- speeding up the redemption payment is a good idea. Certainly, fully supportive of that. And we're going to kind of have a clean slate here to move forward with. So, I think all those things are very important. Just summing up the introductory piece of the presentation here. NGI -- what do we think is the value proposition for NGI, and something that I think about as a significant shareholder of the firm. So, what is our value proposition? What are we trying to achieve? So, certainly we want exposure to leading global alternative asset managers. Why do we want that? Because we think that alternative asset managers and that industry are going to continue to grow, and we want to be part of that growth. It's an industry that NGI has known, has been involved in since its inception. Lighthouse now is over 25 years old. I've been doing this now in my career for 29 years as well. This is a space we believe in, and we believe there's growth there. And most importantly, we believe that these products drive value for clients and that's why they're going to be attractive. Second, we have established managers with proven track records. So while some of the managers, they'd be launching new products within their specialties, these firms are all proven. They're built out. They're scale. They have the human capital that they need, which is a critical component to the success of these firms going forward. They have the embedded human capital. So we think they're well positioned again to execute on growth and to enjoy some of the growth that we believe is going to happen within the alternative asset management space. We have diversified and have a growing earnings mix. So just going away from Lighthouse, which was one business and a good business, something I'm very proud of, to having 10 other engines to fuel NGI. And not all the firms are going to have a great year in 1 year. Some may have more mixed results. Others are going to have fantastic years. But the portfolio, we believe, will produce consistent results and, again, has a highly diversified mix of earnings. We have, again, one of the best value added strategic shareholders that we could hope for in Dyal, Blue Owl. They are the leader, $55 billion in AUM in terms of buying interests and minority interests in alternative asset management firms. It has been a great partnership and a pleasure to work with them. I would say we continue to strengthen our relationship together. I think their willingness to look at the 2026 payment creatively as well, and come to a conclusion on that just shows how strong the partnership is. But their pipeline and their reputation that they have certainly helps us with NGI, them being a major shareholder, I think is fantastic. And obviously, they've agreed to continue to lock up their shares because they believe in this business. Fifth, I think we've got proven and experienced management teams across the board. I'm really proud of the team that we have at NGI. It's not easy pulling all these things together. The transactions that we've done over the past 3 years have taken a massive amount of time and effort across the whole team to get this done and have a lot of vision and conviction to go do that. The amount of work that Amber and her team has to go through to put together the financials, the presentations, all of those things. There's a tremendous amount of work that goes in, and we're very experienced in doing this. Amber and I were just commenting before we got on here. She and I have been doing this now for about 14 years. We're always excited to do it. But I would say we're both really excited for how the firm is positioned today and what we believe we can achieve going forward. And last but certainly not least, we have an active pipeline of new opportunities and we're excited about that. We're excited to continue to diversify our product base, diversify the earnings mix that we have and position ourselves for success going forward. So I'm super excited about the future. I'm very proud of what we've accomplished here over the last 3 years. And again, I'm equally as excited to see what we can do over the next 3 years. So with that, I am going to switch to a little bit more of a Lighthouse update, and I'll keep this fairly brief as we discussed this in June in some detail, and it's really only been about 1.5 months since we discuss this again. But I'll keep this brief so I can turn it over to Ross. So if we flip to page 10, right now Lighthouse is at about $15.4 billion in AUM. I would consider this a new peak in assets for Lighthouse. As some of you may recall, we acquired the business of Mesirow. Actually, we did not end up paying anything for that acquisition, but technically our assets at one point were slightly higher than probably $16 billion. We knew that there would be some redemptions from the Mesirow assets. And when I adjust that, the way I really think of it, we're really at a new peak in assets at Lighthouse. I'm very proud of that. Again, I'm proud of how we have diversified our business over time. And if you look at this central part of the page, kind of the wheel, when you look at what we're doing, really the top part of it is our hedge fund business. Then we have our managed account services, which is Luminae. We have our customized solutions, but that hedge fund business has really fueled the growth over the past 5 years or 6 years. And I know we have another chart in the deck that'll point that out more, but that's something that we decided to do strategically about [ 9 ], 10 years ago. And we've certainly built it up. It's become a significant part of the business, and that's very important for us going forward. And that's, again, something where our clients really perceive a lot of value in there. Again our commingled funds and our customized solutions, our clients really appreciate that. We're able to mix things better for our clients within those businesses and present some more unique opportunities for them. And that's one of the things that we're really pushing for in the customized solutions and commingled funds is blending what we do internally in the hedge funds with what we see are the best opportunities and the best-in-class that we know we can't do it internally or that may be more opportunistic in nature. And then finally, with managed account services, we've taken what we have built as far as the pipes and plumbing of what we do in the hedge fund business, and the customized solution and commingled funds, and offered that as a solution to external clients to help them with their alternative asset needs, to help set up the accounts, to help manage them, to produce any of these, to finance the vehicles appropriately. And again, I think the financing of these strategies is going to become even more important. It was less important when interest rates were 0. It's more important now that you're properly funding these strategies and getting credit for your short sales, making sure you're optimizing your cash and getting the optimal yields off of that. All of those things become more important now that interest rates are more normalized around the globe. So happy with how we're positioned right now as a firm. And what we've done again, global footprint, that's always been important to me. And we continue to fill out offices where we need them. The change here would be Dubai and Singapore, again, continuing to attract talent in those [ reasons ], investment talent, as well as new client investments and servicing those clients. We turn to page 11, just a quick update on how we've grown over the last year. So about 7% growth. The AUM composition, we remain nicely diversified. Still the Americas, U.S., and Canada are still a very important geography for us. About 2/3 of the assets come from U.S., Canada and Latin America. But you can see a nice presence here in the Middle East and Europe, and then in Asia Pacific, which includes Japan and Australia primarily. So we're making strides across the investor geography and we have a nice mix across the investor types. So we can see some of the growth over 2023 and the movement within there. So hedge funds saw some nice net flows within the business, which is good. Commingled funds and the solutions were a little bit more flattish in terms of flows, but performance was nice and strong. And then managed account services, again, it fluctuates. So, I want to see this grow over time, but as I remind everyone, sometimes some of these outflows that we see are due to clients leveraging some of their portfolios a little bit more, which is actually a good thing. They're using efficient funding, which as I pointed out on the last page, efficient funding of these strategies is now more critical than it has been over the last 8 years because of where interest rates are. So again, I'm happy with managed account services and how we're growing there and some of the recent wins that we've had there also. So on page 12, this is kind of a little bit of a repeat of what I just said on page 11, so I won't spend much time here. I'll let people look at that, but just tells the story of where we're at from a flows perspective and some of the trends that we're seeing. Finally, on the investment performance page. This year on the calendar year has certainly actually been a little bit more challenging for us. I would say the market, some of it going straight up in the equity space, we're a little bit more positioned for some choppy, more challenging markets. So I'm not really surprised by the performance. I would say we've definitely seen a change, and I've noticed a change here over the past 3 weeks in the markets, and the performance has certainly become much more normalized and seeing alpha production kind of across the globe. So I think we're back on track here, but just kind of straight up markets and some of the things that we've seen, particularly in the tech space and some of the more speculative names that we've seen and whether that's related to artificial intelligence or [ name ] stocks or other smaller speculative stocks that have driven some of the returns in the market this year, hasn't been as conducive for some of the strategies. But again, I think that is changing. And I would point out that the vast majority of our products, with the exception of our global macro fund, are at or near high water. So I think we're in good shape to compound from here. And again, overall, I'm happy with how the Lighthouse business is positioned today, how we're growing, what we're focusing on, some of the new strategies that we're bringing to the table, the pipeline of investments that we have and the pipeline of potential investors that we have as well is very, very strong. So with that, I'm going to turn it over to Ross to speak about the NGI strategic investments and give an update there. So with that, Ross, over to you.

Great. Thanks so much, Sean. I'm going to begin on Slide 15. We're going to touch on some key objectives when it comes to NGI Strategic Investments. As Sean really highlighted in the intro, what we've done with NGI strategic investments. As Sean really highlighted in the intro what we've done with NGI strategic investments, we believe provides unique opportunity to access the high quality and growing earnings across the alternative asset management sector. In establishing the business line in 2020, which had 3 main objectives which remain our focus today. First, to expand our addressable market. The alternative sector continues to grow and develop across unique sub-asset classes and strategies. By gaining exposure to leading firms across the sector, we best position our business to benefit from both the industry's growth as well as a degree of downside protection and diversification benefit, which we believe is hard to replicate. Second, we sought to broaden our exposure to alpha-generating and high earnings yield characteristics of the direct investing strategies across the sector. Throughout the alternative sector, there remains high margin and scalable businesses with pretty limited fee pressure due to the high value they provide their clients. By partnering with a group of established firms who themselves each focus on maintaining stable and well-diversified platforms, we have not only gained access to high-quality earnings of those businesses, but done so while mitigating several risks, should we own or operate just one in itself. Lastly, we sought to use our financial resources, industry expertise and relationships to establish a growth engine for the company. The company will continue to benefit from the growth of our existing partner firms, as well as new complementary investments over time. To date, we have added meaningful exposure to more direct hedge funds, both liquid and liquid credit, commodities-based absolute return strategies, as well as real estate capital solutions. We flip to slide 16. We can spend a couple minutes on the key attributes of our partner firms and why we believe they offer an attractive opportunity to build value for NGI shareholders. We partner with proven firms who, through their deep expertise and proven track records, are best positioned to attract clients and the crucial human capital required to build lasting investment firms. The strategy is designed to mitigate the risks inherent in the asset management business by aligning ourselves with established and already successful and growing independent businesses. Our shareholders are not overexposed to key main risk or underscaled businesses that may be vulnerable to short-term investment or financial performance. In addition, our capital has invested to bolster these firms' resources and support their growth. We see that investors value firms with the same attractive attributes and expect that they will focus on this criteria even more going forward. This is a trend that we have seen play out for the last 10 years in alternatives. And it will only continue as more established firms can take advantage of new opportunities within their specialty and quickly devote the resources needed to launch new capabilities and products that allow their clients to capitalize on opportunities over time. Leading institutional investors want to partner with those investment firms they can grow with, and the broader investor base often takes notice. Manager selection is even more important across the alternative sector than it is in traditional asset management. This is evidenced by just how wide the dispersion of returns are. As an example, when looking at 10 years of returns, JP Morgan shows that roughly 200 basis point dispersion between the top and bottom of quartile managers in traditional equities and roughly 100 basis points in the fixed income space. Whereas they see over 1,400 basis points or 14% across hedge funds and 2,000 basis points or 20% across the first and last quartile across private equity. Firms who have outperformed their peers and are operating at scale with all of the investment and non-investment resources required to grow will capture market share over time. In addition to who we partner with, how we partner with them, enhances the value proposition of NGI shareholders. If you can flip to Slide 17, we'll touch on this approach. When we've been evaluating firms who meet our criteria, we generally see that owning less than 25% of the business or a minority stake is the best approach. Over 200 of these passive minority stake transactions in the alternative sector have been executed over the past 10 years. And in large part, due to the leadership position in the market of our strategic partners at Blue Owl, independent founder or team owned alternative managers are now well educated on the benefits of a minority partner and the role one can play in helping them achieve their objectives. After a period of success, many alternative managers face several key decisions to continue to grow their business and capitalize on their success. For those groups who prioritize long-term lasting success, they may explore raising growth capital while ensuring they preserve their alignment of interest with clients and they do not disrupt the attractive internal culture and incentive structures in place to retain their high-quality talent. Selling a minority stake to a long-term strategic partner like Navigator is a unique way for them to achieve these objectives while providing us and our shareholders attractive returns as a partner of theirs going forward. Given where today's industry and financial markets are, the growth opportunity for strong performing firms in the alternative sector remains intact, and our capital is in demand to help them achieve their objectives. We're very excited about the opportunities set going forward to add new partner firms to our portfolio. If you flip to Slide 18, we can take a look at how the current portfolio is performing and how these attributes have translated into portfolio-level success. Slide 18 provides an overview of AUM for NGI Strategic Investments. As a reminder, the reporting for this business line includes the 6 firms within the NGI Strategic portfolio, our 2 most recent investments in Marble Capital and Invictus Capital Partners, as well as our strategic investment in Sydney-based Longreach Alternatives. The AUM of this diversified set of partner firms has grown from $39 billion to almost $56 billion over the past 2 years. On an ownership adjusted basis, we have seen AUM grow from $7 billion to over $10 billion today. We have been pleased to see this growth driven by both investment performance as well as capital raising activity. In the NGI Strategic portfolio, the businesses have seen inflows into flagship products, as well as successful new product initiatives. In addition, Marble and Invictus have raised over $1 billion of new capital commitments into long-term locked-up structures since our investments, and this has been done in one of the most challenging market environments for private market capital raising we've seen since 2008. The increase in this AUM base leads to higher profits given the scaled nature of the firms we partner with and the strong alignment with senior teams. If you can flip to Slide 19, we'll show the profit distributions to NGI over the same time period. As you'll see on Slide 19, this portfolio has produced a stable yet growing set of profit distributions to date through a period of challenging performance for the broader asset management sector. The distributions on this slide exclude our share of earnings from Longreach Alternatives, which is recognized on an equity-accounted basis in which our share of these earnings come in as they are earned. We earn roughly $1 million in fiscal '23 through that partnership. The $31.8 million of distributions in fiscal 2023 from our 8 minority stakes were driven by strong performance of the NGI Strategic portfolio, which contributed $26.8 million, and $5 million from our 2 most recent investments. The recent investments in Marble and Invictus are expected to continue to contribute meaningfully as recent AUM growth is converted into revenues and the existing portfolios are monetized over time. These 2 businesses have raised meaningful capital and are well positioned as their differentiated investment strategies of providing private capital into 2 of the most attractive areas into the U.S. real estate market, is even more in demand as compared to when we first made the investments. If you could please flip to Slide 20, we'll dig further into the contribution of the NGI Strategic portfolio. This slide shows the profit distributions over time since acquisition. The NGI Strategic portfolio [ has ] delivered its second year in a row of very strong profit distributions to NGI. Through the existing profit sharing arrangement, NGI was entitled to a $18 million minimum annual distribution in fiscal '23, and we then shared 20% over that level. This resulted in us receiving $26.8 million of the total $61.9 million of distributions generated by the portfolio, while Blue Owl or GP Strategic Capital, received $35 million. On average, over the past 3 years, we have earned roughly $25 million of profit distributions a year of the total $54 million average of the portfolio over that time. As we have previously highlighted, there is a lot of seasonality in terms of when NGI receives its profit distributions. Over the past 3 years, 10% to 20% of the full year distributions have been received in the first half of our fiscal year, with the remaining 80% to 90% coming in during the second half. This portfolio remains well positioned to attract investor capital and generate strong investment results and we're excited about taking full ownership 2 years before the profit sharing period was originally scheduled to end. If you could please flip to Slide 22. We wanted to review -- we'll start to review some of the specific details and rationale behind the transaction that we announced in June, which will assume this full ownership of the portfolio. Earlier this month, we entered into definitive transaction documents to settle the 2026 redemption payment and acquire the remaining distributions from the NGI Strategic portfolio. This transaction has compelling strategic and financial rationale, which repositions NGI to unlock shareholder value. On the strategic side, we are deepening our already successful partnership with GP Strategic Capital, the global leader in investing in the management companies and of market leading alternative asset managers. Their increased conviction in the company, in addition to the continuation of their support by engaging with our underlying partner firms, is a key differentiator and a competitive advantage for us as we focus on executing our growth initiatives. In addition, this transaction provides the opportunity to broaden the shareholder base through an entitlement offer as we focus on making progress towards our goal of index inclusion over time. Key outcomes of the transaction include that most immediately we will generate increased cash flow due to the full ownership of the NGI Strategic Portfolios' profit distributions starting on July 1 of this year. If you looked at the fiscal '23 distributions, this would have resulted in $35 million of new incremental profit distributions or cash flow to NGI. As -- if you consider the average of the last 3 years, which we just reviewed on Slide 20, NGI would have received $29 million of additional cash flow with little incremental expense associated with that. This step up in cash flow next year will result in greater flexibility to meet our obligations to provide our 2 most recent partners the growth capital they're putting to work and position us to explore growth opportunities in the near term. Slide 23 provides an overview of our current and pro forma shareholder base. The funding structure of the transaction is one of its most exciting features. To recap, we are fully settling this redemption payment due to GP Strategic Capital for total consideration of $200 million. GP Strategic Capital will receive $120 million in NGI shares at $1.40 a share or a 40% premium to where we were trading when the agreement was struck. And our existing shareholders will have the opportunity to participate in an $80 million equity offering to be executed closer to that trading level when we struck the agreement. This transaction structure was designed to present a compelling opportunity for our shareholders to invest alongside GP Strategic Capital as they increase their own investment in the company. As a result of the transaction, GP Strategic Capital will be increasing their ownership in Navigator. Their existing 36% fully diluted ownership, which is split between ordinary shares and mandatory convertible notes, will increase to an estimated 51% still split between shares and notes. Assuming a 100% take-up rate of the entitlement offer, they will have a roughly 45% ordinary share voting interest as compared to 19.9% today. As a result of the transaction, Navigator's current fully diluted shares will increase from $304 million to roughly $555 million outstanding. If we go to Slide 24, we can provide a bit more background and an update on the equity raising itself. The $80 million equity raising will launch after completion of the required regulatory approvals and other closing conditions related to the deal, which we estimate will be in late October or November. Navigator's CEO, its Board of Directors, and GP's Strategic Capital have all committed to participate in their full allocation of the equity raising. It is currently expected that our equity raising will be run on a pro rata fully diluted basis or based on that $304 million share account that I just mentioned earlier. To facilitate this pro rata issuance, the equity raising will comprise of a non-underwritten, non-renounceable rights issue of ordinary shares alongside a placement of ordinary shares to GP Strategic Capital on a pro rata basis for their existing mandatory convertible notes. Please look to 25, and we could talk about some of the financial benefits of this transaction. We've touched on much of this already, but the impact is clear. We will have increased financial resources for Navigator going forward. You will see here that using fiscal '23 as a pro rata basis, we would have had $84 million of EBITDA as compared to the $48.9 million we just reported. In addition, our overall margin is expected to increase substantially, as the acquisition only comes with limited increase in expenses to manage and account for the portfolio going forward. Importantly, our leverage profile is also greatly improved. Our current net debt ratio shown here of 1.8x includes deferred consideration for Marble and Invictus, as well as drawn debt are in our existing credit facility, but excludes the redemption liability. We will emerge from the transaction at roughly one-time's debt to EBITDA with resources in place to fund our near-term obligations and pivot our focus to growth going forward. This step up in cash flow next year will result in greater flexibility to meet our obligations and position us to capitalize on the pipeline that we've continued to foster over time. Lastly, we remain on track to close the transaction in the fourth quarter of this year. Please turn to Slide 26 and we can quickly touch on this full indicative timetable. As you can see here, we aim to send a notice of meeting and an explanatory memorandum in early September in advance of holding the AGM in late October. Then, following required shareholder and regulatory approvals, we currently expect to launch the entitlement offer with a target close of the transaction by the end of November. Amber, I'll turn it over to you now to talk about the fiscal '23 results.

Thanks Ross. So, Sean and Ross have already discussed the operations of Lighthouse and NGI Strategic Investment in detail. I'd now like to take you through how this is reflected in this year's financial results. As previously noted, ownership adjusted AUM as at 30 June, 2023 is $25.5 billion, an increase of 11% on the prior year. This growth over the year is translated into a 5% increase in revenue and other income. And that came in at $119.1 million and a 5% increase in adjusted EBITDA at $48.9 million. Pleasingly, the adjusted EBITDA result of $48.9 million has come in a little above the most recent [ guiding ] range of $47 million to $48 million, which is 3% above the midpoint of that range. Turning to Slide 29. This sets out the key revenue and expense line items that brings us to our adjusted EBITDA total. I'll discuss each of these in more detail the next few slides, and just note that the operating margin is consistent with the prior year at 41%. So flipping to Slide 30. This sets out a reconciliation of how we get from our statutory EBITDA of $54.7 million to our adjusted EBITDA of $48.9 million. Our adjusted EBITDA looks to adjust for non-cash and unrealized items to reflect a more cash-based result, which we think represents the true results of the business. So in particular, to get there, we offset fund reimbursement and sundry revenues against relevant expense items, as their direct reimbursements of costs incur with no additional markups. We reduced EBITDA for the cash rent paid in relation to our office premise leases. So under the leasing accounting standard, this amount is not recognized in operating expenses, however, we consider that it's better added back to be a true representation of the costs of running the business. We also adjust for unrealized gains and losses on the assets and liabilities that are held at fair value through the P&L, as these are unrealized amounts and we want to focus more on the cash earnings of the business. And consistent with prior periods, we adjust our transaction costs. So for FY '23, these amounts were incurred in relation to the proposed transaction to early settle the redemption liability. And lastly, we adjust out our share-based payment expense, and this is the non-cash expense that relates to the issue of the performance rights during the year to particular executives. Turning to Slide 31. I'll just run through our key revenue items. So management fees are the fees earned by the Lighthouse business, and they pleasingly showed a 4% increase on the prior year. As the average management fee rate has remained steady at 52 basis points over the past 2 years, this increase has been driven by a 5% increase on the average AUM, which reflects the $14.8 billion average for the full year and brings us up to the $15.4 billion at year end. So those flows obviously increased the average over the full year. Our performance fees also relate to fees that are earned by the Lighthouse business. They crystallize at the end of each calendar year, so in December, and so we recognize $6.1 million of that revenue in the first half and some additional revenue in the second half. This level represents some of the challenging conditions that Sean discussed in more detail earlier, and so, come in a little bit lower than the previous 2 years on that basis. And as Ross had previously highlighted, the NGI Strategic distribution income for the year was $31.8 million. So the NGI Strategic portfolio itself had another excellent year, and although not quite as high as the FY '22, our share of distributions was $2 million lower than in the prior year. However, with the additional income from Marble and Invictus, we did see an overall 10% increase in those strategic distribution income. So moving to the next slide. This sets out our key operating expense items for the business. So employee expenses are our largest expense driver, and these came in at $54.8 million for the year. So it's excluding the share based payment expenses, and the increase is largely due to increases in variable compensation. The competition for talent in our industry remains high and the increase in variable compensation recognizes the higher cost of attracting or retaining talented staff. The data protection and cybersecurity remain a key focus across the business and the 800,000 increase in costs in relation to professional and IT expenses compared to the prior year is largely due to a number of projects undertaken in these areas. Other expenses were 300,000 higher, and the main reason for this was an increase in travel as we get back to pre-COVID levels of doing business and being able to meet people face to face around the globe. So turning to our next slide. We just wanted to set out a couple of the other key items that are impacting the profit and loss this year. So the increase in the fund reimbursement expenses to $94.5 million. It's obviously a significant amount compared to the $42.6 million, and this is reflecting the growth of the North Rock and Mission Crest businesses, as they continue to bring in-house dedicated portfolio managers and staff. So as noted previously, these expenses are recovered from the funds. There's an offsetting revenue item and that means that despite the growth, there's minimal overall impact on NGI's financial result. In addition, financing and income costs are higher this year. So the slide separates out those items that are cash and realised items versus those items that are non-cash and unrealised. So of keynote, the increase in the bank charges and interest paid on loans reflects the $70 million credit facility that we entered into at 30 June last year, and it reflects an increase in commitment fees due to the higher facility capacity as well as interest paid on drawn amounts throughout the year. The other key difference on the prior year is the $3.6 million expensed in relation to the unwind of the discount on deferred consideration, and these amounts are recognized in the balance sheet. So we still have $103.6 million of deferred consideration to be paid over the next 2 years, and this is recognized at a discounted amount on the balance sheet of $97.9 million. So we still have an additional $5.7 million that will be unwound through the P&L as we pay that out over the next 2 years. So I'll turn to the next slide. So this shows a breakdown of the results across the 2 business lines, being Lighthouse and NGI Strategic Investments. So the Lighthouse operating result is $21.9 million. It's down $1.5 million on the prior year, and that's largely reflecting the lower performance fee revenue as compared to the prior period. The NGI Strategic Investments business delivered an operating result of $28.3 million, so that's up $2.1 million on the prior year. The higher distribution income has been somewhat offset by some additional expenses that relate to getting some external valuations on the investments, as well as building out 2 new staff members over the last couple of years. The other group income costs represent head office expenses as well as financial and income expenses such as FX gains and losses, which can vary between years. I'll turn to the next slide which just sets out the balance sheet. So it shows that as at 30 June 2023, Navigator Group has net assets of $421.5 million. Of the $67.8 million cash balance, $35 million is owed to Blue Owl for their profit share for 2023, and that is included in the $40.6 million of trade payables on the balance sheet in the liability section. As mentioned, the deferred consideration balance is $97.9 million, and that'll be paid out over the next 2 years. And excluding the 2026 redemption payment, which will be extinguished under the proposed transaction, our net debt as at 30 June is [ $86.6 million ], or 1.8x adjusted EBITDA. So this ratio has been tracking down since the acquisition of Invictus in August, 2022, as we continue to generate cash flows and pay down deferred consideration. And then finally, I'll just move to the last slide in my section with the dividend and confirm that the Board declared a USD 0.03 per share dividend, which will be paid in early October, 2023. So this is in line with the dividend policy announced last August and represents an implied yield on yesterday's closing price of 3.3%. So with that, that's the end of my part, and I will hand back to Sean.

Thanks, Amber. Just in closing, before we open it up for any questions or comments, we really do -- We think that the business is very well positioned to deliver results across a wide range of market environments. The business is exclusively focused on what we believe is the fastest growing segment and most profitable segment of the asset management industry, which is the alternative investment management space. As I said, I believe that the next decade within the financial markets will be different than the previous decade and most notably just because of the normalization of interest rates, and I think that alternative investments will perform quite well in that environment. 4 things just to close with. One is the acceleration of the strategic portfolio transaction. We spoke about that, simplifies the balance sheet, increases our financial resources, increases cash earnings and really positions us to continue to execute in our pipeline of growth. We had strong financial investment results across a challenging environment, and I think that demonstrates just across the products and strategies that the underlying firms employ that there's resiliency there across a wide range of market conditions. So we're happy about that. We continue to add high quality earning streams, additional incentive fees and carry -- which we believe will accrue and generate shareholder value over time. And then last, certainly not least, Lighthouse. Again, we've got a proven track record, high demand for multi-PM hedge funds, and we continue to evolve the firm from where it was at its beginnings over 20 years ago. So when you add up all those things, again, we think we're positioned for growth and to deliver earnings. And it's been quite a transformation of the business now over the past 3 years, and again, I think there's even more to come in the future. So appreciate your time this morning, this evening. And with that we can open it up for any questions or comments.

[Operator Instructions] The first question we have is from Nicholas McGarrigle of Barrenjoey.

Maybe just an initial one on the outlook for a cost [ allocator ] based on feedback that you've had around the way [ hedge funds ] work for -- particularly tend to perform in a [ rate ] environment, more for kind of [ 2% or 3% ]?

And I'm sorry, I didn't quite hear the question. I'm sorry it's a little bit jumbled.

Can you hear me better now?

I'm still having trouble -- if -- Ross or Amber, if you heard it just if you could let me -- if you could translate it for me or -- I'm sorry, I just can't hear it.

Nick, I think just -- maybe Nick, let us know. I think what you said was some feedback or some color in the market on how allocators are viewing hedge funds in the higher interest rate environment. Is that right?

Yes. That's right.

I can hear you better now, Nick. I'm sorry. How they're viewing it, I think that when you look across the alternative asset kind of spectrum, there's a couple of different focuses. So one is on hedge funds and driving results there, and the second is more on private assets and opportunities that are coming up because of regulatory changes. So one example of the benefits of regulatory changes for alternative investments would be in some of the [ mezz ] lending space, some of the credit space, the mortgage space. So as banks in the U.S. have to exit these businesses or are forced out because they need higher capital, they can't do certain lending that they've done. That has left room and opportunities for firms like Marble and Invictus to go in. And when you look at the growth within the private debt space globally, it's really been quite significant. And it's just taking over from vacating of banks due to regulatory pressures across the globe. We don't think that's going to abate. I think that, that trend leads to a more stable financial system because these private vehicles aren't using the leverage that banks use. And I don't think we'll have to de-lever at inopportune time. So I think allocators are looking at what hedge funds were able to do in 2022. I think they're looking at private markets as well and saying there's an opportunity there because of regulatory changes, and continuing regulatory changes. And I think that they're still very optimistic about that part of their portfolio and looking for strategies that can deliver results across all different market conditions. It certainly doesn't mean they're getting out of traditional equities and having a bond portfolio for liquidity and cash and those sorts of things, which -- all of those investing styles and why they're important, I certainly believe in. But there is strong interest in high quality alternatives to continue to diversify their portfolios and create more stable earning streams for their pension plans, for high net worth individuals, for endowments, foundations, for hospitals within the healthcare space. So really with -- across our client base, there is a need for more stable earning streams.

And maybe just, while you're talking about Marble and Invictus, can you just comment on the returns generated in those 2 managers in the year? I guess, it's not quite -- versus where the capital that you've deployed, how does that compare to where they are on their trajectory towards your expected return from that investment?

Sean, I can take that if…

Go ahead, Ross.

So I do think, as we mentioned, they've been operating in the most difficult capital raising environment for private markets that we've seen, as Sean said, not because allocators have lowered their level of interest or have less conviction in the return streams for their long-term liabilities related to those strategies, but just rather that things are taking longer. And so, when you think about the premise of both those transactions in April and August of last year, it was to provide them capital to go GP -- their next fund as well as other products. All of those efforts are -- have been successful. And as we said, they've raised over $1 billion since our investments cumulatively, but things are taking slightly longer. So I would say, just being very straightforward, which I think Amber can attest we always are. They're slightly behind schedule, but we feel really good about how those firms are being managed. They are generating meaningful income to us, and the portfolios and the strategy they deploy are still really well positioned, in fact, perhaps even more well positioned. So we feel good about the component of income that was going to be coming out of the carried interest out of, especially, Marble. That was the focus when we first announced that transaction. And as Sean said, longer term the strategies are both even better positioned than when we did invest in them. The regional bank pullback in the U.S. has created even a bigger opportunity set for Marble. So their 13% to 15% price capital is even more in demand for even higher quality partners and borrowers, which is great. And for Invictus, there's a wider financing gap in higher coupon, higher return yielding non-QM mortgages, of which they're really the leader, and the most -- have the strongest presence in the space. So the thesis for both we feel great about, but from an asset raising, and therefore kind of year 1 income perspective, they were slightly behind.

And Nick, I would just add there, these are really experienced long-term operators that now have locked up capital to go take advantage of opportunities in the marketplace. They have regulatory tailwinds for what they're doing behind them. And these are going to be very good businesses. They're good businesses today. They're going to be even better businesses over time. So I'm excited for the investments that we have in them and how they're positioned. As we've talked about, across the portfolio, we're going have some things that do fantastic in certain environments and other things that aren't going to do as well. But the portfolio itself, I think, is what's really important. But these 2 businesses -- no, I like it for all the features and all the things that we look in for these businesses. I think the attributes are there, and I think the results will come over time.

[Technical Difficulty] the total capital invested in those 2, it's about [ USD 185 million ] is that right?

Yes. So it's $85 million on Marble and $100 million on Invictus.

But not in the…

And that's contributed by…

No. Not day one, but that's the total amount to be paid over the 2 to 3 years.

No, Ross, [ look ], what we have invested, yes, if we could clarify.

Yes. I mean, Amber, you can give the exact number. I think it was on the balance sheet slide related to as of June. But… yes.

Yes. so there's -- as at 30 June, there was $103 million of that $185 million still to be paid. So working backwards, yes, roughly about $80 million has been paid.

And then just a question, maybe just to clarify on the entitlement issue, is, Dyal participate in that entitlement, is that right? It's just entitlement across the shares outside the Dyal ownership?

No, it actually does include Dyal. So they're going to be participating on a pro-rata basis for their diluted 36% of that $80 million as well.

And maybe just a question around the sort of new organizational stuff, but does that sort of facilitate anything particularly in your view, Sean, in terms of the way you manage the Lighthouse, being solely focused on that?

I think that -- no, I mean, there's certain plans that I have for Lighthouse again that I can devote full attention to, and it's not that I've been distracted from the Lighthouse business. It's just when you look at how NGI has transformed itself, when NGI was just Lighthouse, it was one and the same. Now with what we're doing and what we're trying to achieve, it's important that we have another full-time resource on sourcing, looking at transactions, all those things to help Ross from a day-to-day perspective to communicate effectively with our shareholders and in a more timely manner. So it really feels like for the past kind of 2 years I've had 2 jobs. And again, both Ross and Amber have done an incredible job, but we need another resource to do this. So again, I'm not going anywhere. Ross and I speak about these investments and what we're doing on a daily basis. I don't think that's going to change, but we do need some more resources. This NGI deserves to have someone wake up every day and think about these 11 businesses and how we grow them. And again, if I can focus on Lighthouse and keep driving things there and still participate at the Board level and helping source things, helping with my knowledge across there. That's just what we think is the best thing now. So it's really just a choice of, we need another resource. So it's a choice of where to spend time. And I would rather bring someone in new that's experienced, that can do this and work on that NGI portfolio and move forward from there. So, no, it's not a negative in my mind at all. It was a suggestion of mine. So -- which is probably quite unusual in a lot of companies' circumstances. But again, I want NGI to be successful. And it's not really about the role I play. It's about the team that we've got, the human capital that we've got, and we need some more human capital to take NGI where I think it can go.

Maybe just another question on the kind of business post [ Dyal ] in terms of the deal flow that they're saying. How do you think you'll go about funding that post once a deal is complete? Do you feel better positioned to take on more debt given you're [ on ] 100% of the earning stream or do you think you'd continue to potentially look at equity funding?

I think that it's going to be -- I think there's going to be a combination of things that happen. One, we'll have a greater earning stream. So the commitments that we have out right now to Marble and Invictus, clear path towards funding that. We'll have additional cash earnings over time to fund new investments that we make. Certainly, we will look at debt, and as we've said, part of our business strategy is to have an EBITDA -- debt-to-EBITDA ratio of 1 to 1.5x. So we'll prudently use that debt to basically structure the business model appropriately. And then we'll selectively use equity. Some of the equity usage depends on what we are buying, and the deal that we've constructed to buy that. But I envision a time certainly in NGI's future where these transactions are accretive on day 1, and we can use a combination of cash, debt and equity to go do that. But we have 11 strong firms right now. We've got a pipeline. There's some other creative things that we can do with transactions going forward. So, again, I feel like we've got a good base of business, a good earning stream and now it's up to us to use that earning stream and debt levels effectively to grow the business. And Ross, I don't know if there's anything you want to add there.

No. I completely agree.

Obviously given the pro forma $84 million EBITDA for the 2 businesses -- for all the businesses, everything combined, but I guess just to circle back to Marble and Invictus, if you put $185 million to work there, let's say it's over a 3 year view, and your cost of funding that's close to 10%, I mean, do you expect to be making kind of close to a [ USD 20 million ] contribution from those investments on a medium term view?

Yes.

Yes. I think Ross you might want to comment, but certainly we're expecting part of the investment thesis is that these businesses generate the base earnings as well as potential carry. So as they actually pick up in the medium term, as Ross outlined, I think that, that's not an unreasonable expectation.

The next question we have is from Lafitani Sotiriou of MST Financial.

Just one follow-up question. Is it still anticipated that the entitlement offer issue price will be around $1 a share?

Yes. We haven't had any change in terms of what we discussed at June on that one. So, we did caveat that obviously we have to wait till we actually launch the offer to set the price, but that was the indication we gave in June.

There are no further questions at this time. I'll now hand back to Mr. McGould for closing remarks.

Okay. Thank you for everyone listening in and watching this evening. Appreciate the interest in the company. As always, if there are questions, anything you want to follow up in more detail, please let us know. Happy to talk about anything in more detail. But very grateful for the attention this evening. And again, we're very happy with how the business is positioned right now, again, what we've achieved over the last 3 years. So appreciate your time and thank you very much.