Pacific Current Group Limited (PAC) Earnings Call Transcript & Summary

Good morning. I am Tony Robinson, the Chair of Pacific Current Group, I am the Chair of this meeting. I'm delighted to welcome you all to the Annual General Meeting of Shareholders of Pacific Current Group. Thank you for your attendance today. I'd appreciate if all mobile phones can be turned off or put on silent. The time is now 10 a.m. As we have a quorum of members present, I declare the Annual General Meeting open. I'll now introduce the directors. Joining me today is Paul Greenwood, our Managing Director, CEO and Chief Investment Officer. On my left is Gilles Gurin, Independent Director. Next to him is Jerry Chafkin, and Melda Donnelly, Chair of the Audit and Risk Committee. I should also say Gilles is now Chair of the Remuneration, Nomination and Governance Committee. Peter Kennedy, present role of Chair of the Remuneration, Nomination and Governance Committee, is unable to join us today as he is currently overseas. Peter is retiring at the end of this meeting, and I'll make some comments on his long and valued contributions later in my address. I'd like to thank each director for their support and contribution during the years. Others here today that make a tremendous contribution to our business is David Griswold, General Counsel and Chief Compliance Officer; Ashley Killick, Chief Financial Officer; Trent Erickson, our Chief Operating Officer, and Clare Craven, our Company Secretary. Finally, I note [indiscernible] are here from the external auditors who will provide a reasonable opportunity to answer questions you may have about the conduct of the audit [indiscernible]. The agenda for today's meeting is set out on your screen. Before commencing with the formal matters before the meeting today, I will outline the formalities and make some general comments and then hand over to Paul Greenwood, who will present an overview of activity during the financial year 2023, comment on strategy and provide an outlook for the business. Question-and-answer session about the financial statements, the audit and general questions of management will be held before the resolutions are put to the vote of shareholders. Only shareholders, proxy holders participating in person will be able to ask questions. Any shareholder or visitor who is listening to the audio webcast, will not be able, unfortunately, to ask questions. Formalities of the meeting. Today's meeting was made available to all shareholders on our website. We will also find the minutes of the 2022 AGM, our constitution and the 2023 annual report. I'll take the notice as read and deal with the business of the meeting, the audit appears in the notice. So before we do that, I'll explain how voting and questions will work for the meeting. When you registered your attendance this morning, you would have been given attendance card. Those with a blue card can ask a question and vote at the meeting. Those with the yellow card can ask a question but not vote, visitors with a white card are not entitled to vote or ask a question. The Board is determined that voting at the meeting will occur by way of a poll for all resolutions which require a vote, so that you have enough time to vote, I will shortly open voting and it will stay open until the meeting closes. As advised in the notice of meeting [indiscernible] or electronic transmission of the proxy form and any power of attorney or under which they're signed must have been received at least 48 hours prior to the date and time of this meeting, no later than 10 a.m. Australian Eastern Daylight Savings Time on Saturday, 19 of November 2023. Any proxy form received after this deadline, including [indiscernible] attending in person and by proxy may vote on the resolutions. As we formally put a resolution with the meeting of the proxies received in that resolution will be shown. Now on your screen. That number will include votes on undirected proxies cast by [indiscernible] as set out in the notice of meeting, as Chair, I will vote all directed proxies in accordance with the direction provided by shareholders and all undirected proxies both in favorable resolution. Today, we've appointed [indiscernible] Computershare, the company's share registered as the returning officer. After the votes have been counted and reviewed by the returning officer, the results of the meeting will be listed to the ASX and available on our website. And now the clear voting open on all items of business, and you could now submit your votes to the returning officer at any time. In relation to questions and comments, general business questions will be taken for item 1 and questions relevant to each other item of business will be taken following introduction of that item. We ask that you keep your question short and to the point as many shareholders as possible have a chance to ask questions. If you wish to ask a question, please hold up your registration card, and when invited to speak, please identify yourself and then ask your question. I'll either answer the question or pass it to the most appropriate person to respond. As Chair, I reserve the right to rule out questions that do not relate to the business of the meeting. Please note that we received multiple questions on item 1 and may be amalgamated together for a response. We will also not answer questions of the same or substantially similar questions that have already been answered. Otherwise, we'll endeavor to answer as many questions asked as we can. Before I hand over to Paul Greenwood, I will make some general comments. Firstly, in relation to the strategic process overseen by the independent board committee, the Co-Chair of the IBC, Jerry Chafkin will speak on this matter after the CEO's presentation. We remain committed to achieving a great outcome for all shareholders. Secondly, based on the proxy results received, which will be displayed after discussion on the remuneration report, the company will receive a first strike on the remuneration report. We believe this is a product of the uncertain strategic process, and we've made no material changes to remuneration arrangements or disclosures related to remuneration over the last 12 months. However, we will ensure that is correct by talking to our shareholders. Turning now to Peter Kennedy. I'd like to recognize the significant contribution that Peter has made to the Pacific Current Group and before that to Treasury Group prior to its merger with Northern Lights Capital Group in 2014. Peter joined the Board of Treasury Group as it was then on the June 4, 2003 and has served continuously, including for many years as Chair of Pacific Current's Remuneration, Nomination and Governance Committee as a member of the Audit and Risk Committee and as Chair of Treasury Group Investment Services Proprietary Limited. With over 40 years of experience in [indiscernible] Peter has deep industry insights, legal knowledge, commercial and strategic acumen and constructive [indiscernible] work ethic from guiding the Board and management through a number of major strategic transactions. One of Peter's pivotal achievements was overseeing the merger of Treasury Group and Northern Lights in 2014. This strategic move transformed Pacific Current from a single long-only focused boutique to a well-diversified collection of boutiques into offering unique investment propositions. Throughout Peter's tenure, Pacific Current experienced numerous successful investments and divestments. Notably among these were investments in GQG Partners, Victory Park, Banner Oak, Cordillera, Pennybacker, Investors Mutual, [indiscernible] Proterra. Just reminding people, I think with GQG, which has got to be the standout investment of that, I think we put about $3 million into it. I'm probably rounding there a bit. And on listing our holding was worth $300 million. So it really has been period of extraordinary investment decisions and outcome. Also the strategic sale of invested Mutual [indiscernible] as well as investment in and out of Aperio Group. Pacific Current share price nearly doubled, its market capitalization has increased almost 6.75x from about $75 million to approximately $500 million. And total dividends paid out through that period were approximately $400 million. Funds under management have grown from $2.4 billion to an impressive $215 billion as of our most recent announcement. On behalf of the Board, I'd like to thank Peter for his tireless efforts and valued contribution as a director, which have been greatly appreciated by his fellow directors for over 20 years. With Peter retiring, the board has commenced a Board renewal process and expects to appoint a new independent director within the coming months, who will be based in Australia with a view to that director ultimately taking over the role of Chair. I'm now going to hand over to Paul Greenwood to present the business overview. Before I do, I'd like to note that it was an outstanding year, both in its own right and as a foundation for the 2024 financial year. Paul, over to you.

Thank you, Tony, and thank you all for attending our AGM. We appreciate your interest in our company and your attendance here today. I'd also like to thank our Board that's been wonderfully supportive and engaged over these many years. And I'd like to thank the senior management team, Ashley Killick, Trent Erickson and David Griswold, who are all here today as well. It's an honor working with very experienced professionals who are working at the top of their game. I'll briefly recap FY '23 and then talk a little bit more about the outlook for the company. The succinct recap of FY '23 is that it was a good year, but the progress we made during that year really will become evident this year. And highlights include for the year: Strong FUM growth, 16% growth in U.S. dollar terms. Our ownership adjusted funds under management, which is a new metric that we've begun releasing grew 9% in U.S. dollar terms from $12.9 million to $14.1 billion. We invested $30 million in Cordillera Investment Partners, a very distinct private capital firm that is sort of -- has developed some market-leading and highly distinctive private capital strategies. We saw our interest in Proterra Asia for more than 40x the distributions we received from that stake. Our management fee revenues, which are the sort of the core of the business, grew 13% during the year in U.S. dollar terms, while performance fees, which are the smaller and more volatile component declined by 22%. Underlying NPAT declined 11%, largely due to growth in interest expense and -- we had -- when we drew on our credit line, we ended up for some idiosyncratic reasons drawing on it a little earlier than we probably should have with the benefit of hindsight. Our dividend for the year was $0.38 a share, which is flat on a year-over-year basis. That dividend was 67% franked. For the first time during the year, we released our estimates of our fair value NAV and I will elaborate a little bit more on this later. And I will touch on our outlook a little later as well. On Page 12 of our presentation, we recap a slide that we saw in the year-end results presentation. As a reminder, the accounting standards require us to use a broad variety of accounting methodologies for our different investments. The net result is that some of our investments, we can't report our estimate of their fair value but rather we can only write down the value of those assets, we can't write them up. This tends to understate the value of equity accounted boutiques. The differences are largest for our portfolio at Victory Park, Pennybacker and Roc and Page 12 sort of highlights the difference between the reported book value and our internal estimates of the fair value of those assets. When we adjust our reported NAV for estimates of fair value, we come up with a fair value adjusted NAV of approximately $11.92 a share at 30 June. If we go to Page 13. The fair value adjusted NAV has created some confusion among people just interpreting what that means. And accordingly, I want to elaborate on what this number represents. So this page here, on Page 13, please, [indiscernible] to the size of the bars in the chart. This is a purely conceptual table. And really, what we've done is, say, we take that $11.92, which is the net assets of our company per share subtract the net liabilities per share and you get that number. But since -- well there's been discussions about selling the firm, people think is that the target price? How do I interpret that number? And what we'd say here is that some buyers will adjust that $11.92 up or down based on their view of the value of the assets. So if they think those asset values are conservative, they may adjust them upward. And if they thought -- or if there might not only be just the value of the assets, they might value the track record, there's other things about the firm they may value. And that could lead to a higher than $11.92. And then the bar that you see going, the middle bar here, underlying operating, it's really important to keep in mind that if you owned all these assets today, there's still considerable expenses you need to put against those assets. Those expenses are ongoing accounting, legal and portfolio management expenses. Obviously, the size of those expenses could vary under different scenarios. So I think just conceptually, that's how we look at the value. And like I said, any party is going to ascribe different values to those at least conceptually, that $11.92, I think, should be looked at in the context of any additional upside, less the decrementing that value for the ongoing operating expenses. Page 15 just highlights, this was in our year-end presentation. It just highlights that in general, our assets continue to grow. I often tell people that when you're investing in Pacific Current, we're trying to diversify a way as much systematic risk as we can. And so what that means is we're trying to reduce our exposure to capital markets. And really, in a perfect world, the risk we're taking, this will never work precisely this way. But conceptually, we're taking a host of idiosyncratic risks and those idiosyncratic risks primarily relate to fundraising risk. Each one of these managers in order to grow their business has to grow their assets under management. And as we look at that, we want that risk to be the primary risk we're taking versus exposure to, for example, [indiscernible]. We go to Page 16, which depicts, this is a new exhibit this year, which takes our reported funds under management we give to the market, I think can -- and interpret it in a different way, it takes that and adjust it for our ownership stake. And so half year is our ownership adjusted funds under management. And really, I think the thing to take note of here is just a steady progression upward. That's what we're trying to achieve. I often tell people, we are trying to be tortoise, not the hare, and we want to steadily grow that number and I know that we're at USD 14.1 billion right now, and that number will continue to, I think, as of September 30, it's USD 14.3 billion. So the point there is it continues to slope upward, and that's what we're endeavoring to do. On Page 18 and 19, we highlight our expectations for the year ahead. And obviously, there's been a process to potentially sell the firm and Jerry Chafkin is going to speak to that in a minute. But just in terms of the performance of the company, it's a good -- we feel great. The good news is we expect a strong year. We expect strong gross inflows into our managers. We have said that we expect $2 billion to $5 billion of gross new commitments to our managers aside from GQG. I think the first quarter of the year, I believe we were close to $1 billion. So we're well on our way, and I think we'll probably approach the low end of that range by the end of this calendar year. We've also reclassified some of our investments. Our 2 new investments, Cordillera and Avante, we've classified those as Tier 1 investments while also moving Pennybacker from Tier 2 to Tier 1. Aether Investment Partners has been reclassified from Tier 2 to Tier 1. And then lastly, we are making great progress on securing outside capital advantage. And so if things quiet down on the acquisition front or in terms of us being acquired, we would hope to resume the progress. And if we can pull that off, we'll be able to add meaningful revenue to the business. Lastly, we expect record revenues this year [indiscernible] our immense operating leverage should be great for the bottom line. Thank you for your time, attention and interest, and I will hand the reins over to Tony.

Thank you, Paul. I'm now going to hand over to Jerry Chafkin, Co-Chair of the Independent Board Committee and he will make a few comments about the status of the strategic process. But before I do that, I'd just like to say a couple of words to give context to what Jerry is saying. There's always a risk with these things that using an analogy of a great race is being run, and it's been an unbelievable race and the race is coming to an end, people are forgetting about the quality of the running and the race is starting to focus on the last couple of strides as you get near the finishing line. And the reason I say that is that, it's an outstanding group, an outstanding group of executives, and in their industry that all of the shareholders that are in this business are in it because of the quality of the executives and the Board and the decisions they've made. They fought unbelievably well. I can't think of any other fund manager in Australia who in 4 years have turned $3 million into $300 million. So it's -- and that's just been one of the outstanding investments of this group. So that's the first point to see in the context as we get to a situation where we've needed to respond to, some will say, well, this is the finishing line by making an offer and then starting a process to see if there are other offers there. It's easy to forget. The only reason people are interested in this group and are interested in the price is because of the outstanding individuals in the business both at the executive level and at the Board level. The other problem is we've been trading well below what we've said a fair asset, and we've said that for a very long time. And we're absolutely delighted that there's now actually external parties voting with their money, saying the same thing that this is worth a lot more than it ever traded with, absolutely fantastic outcome. We've had 2 offers. The one shareholder, notwithstanding that it's a significant increase on our trading price, one shareholder, even worth more, which is what a great complement to the quality of the management team and the portfolio of assets that they've built that even though it's a 50% premium in the indicative offers to the trading risk and trading price, one, well-informed, thoughtful shareholder thinks it's worth even more. So we continue to explore ways to identify routes to prove them right -- to the benefit of all shareholders or to deliver the best value possible to all shareholders by any other route. And part of that has been the establishment of Independent Board Committee. And it was necessary to delegate from the whole board because there was a prospect of a couple of us having a conflict, I chair River Capital. I actually am not in any way involved in the funds' management of inside River Capital. I really chair what is effectively the license holder. But there was always the belief that there could be a perception even though I'm not involved in any of the decisions about how the money is managed or deployed or what decisions they make that it was better for all that. I wasn't involved to ensure that there was clarity of that. And Melda and Paul obviously have an association with GQG [indiscernible]. So the job of running that process to try and see how we maximize shareholder value and see whether we can find an outcome that works for all shareholders to carry to a very small group, Jerry, Gilles, Peter Kennedy, 2 of those are here already, as I said, Peter is unable to attend as he is overseas. And I'm now going to ask Jerry to give us a bit of an understanding of how that process worked.

Thank you, Tony. As has been announced to the public, the Board of PAC has long felt that the company's shares have traded at a discount relative to fair value of the company. And as such, PAC has been actively engaged in the process to enhance shareholder value that included a couple of components. One was for detailed reporting as at June 30 of the fair value of tax portfolio so that investors assess PAC's value proposition and performance. Also conducting a professionally advised process to explore strategic transactions that may help PAC shareholders and the public markets more broadly to more fully realize the true value of the PAC business. As part of this step, we retained both [indiscernible] to assist us in exploring strategic alternatives. As Tony referenced, the good news in all of this is that we have received market confirmation that the company is worth more than PAC's stock price was trading for leading into this strategic process. Because of the importance to PAC shareholders, I'd like to take this time to provide you with information about the process has undertaken to date. Following the July announcements of [Technical Difficulty] bid as well as the GQG Partners indication of intent to submit an NBIO, the PAC Board also established an Independent Board Committee, the IBC. But given the position of PAC's Chair, Tony Robinson as Chair of the River Capital Board [indiscernible] Paul Greenwood and Melda Donnelly as members of the GQG Board, the IBC was subsequently formed comprising myself, Gilles Guerin and Peter Kennedy. To pursue its objectives, the IBC instructed UBS to conduct a broad and comprehensive process aimed at maximizing value for all PAC shareholders. As part of the process, UBS conducted a wide and global process to engage with a range of parties that may be interested in a potential acquisition of PAC. 11 firms in total from Australia, North America and Europe, expressed interest in a potential strategic transaction with PAC. Each interested party signed both nondisclosure and standstill agreements in order to receive preliminary materials necessary to submit a nonbinding indicative offer, or NBIO. Of those 11 initial firms, UBS and PAC management team met with 5 firms to provide more in-depth discussions. Ultimately, 2 parties with the most compelling proposals advanced to what the IBC called Phase 2 of the process, and they were offered additional due diligence materials as well as access to the IBC and PAC affiliates, along with several additional weeks for a deeper due diligence analysis. Throughout our initial process as well as Phase 2, we worked diligently with UBS to ensure all parties were treated equally and consistently throughout the process. This means we periodically rejected requests to provide preferential treatment to any parties. Although Regal announced the withdrawal of its NBIO on 28 September, GQG continued to press through the Phase 2 due diligence process. GQG recently noted to the IBC that its due diligence efforts are effectively complete. As you may have seen in 2 recent ASX announcements, both a GQG offer and a draft River offer were presented to the IBC for consideration. Neither offer as presented was achievable. Given this outcome, the IBC is ceasing its work to find a buyer for the entire business. However, the company intends to continue to explore specific alternative ways to work constructively with interested parties to achieve an outcome for shareholders that reflect the value that has been created. Of course, there is no guarantee that we'll be able to reach a satisfactory resolution. In the absence of any sort of transaction, we will continue to be watchful of costs and additional revenue opportunities, most notably by managing outside capital. We remain confident that transaction [indiscernible] well positioned to have a very strong year. And Gilles and I will be available for questions during the Q&A portion later in this meeting. So happy to answer any questions you might have at that time.

Thanks, Jerry. We now come to the formal part of the business. The first item of business is receiving consideration for the 2023 annual report of Pacific Current Group Limited, and there's no resolutions to be considered by shareholders. The 2023 annual report contains the financial report, director's report and the independent auditor's report, a copy of the 2023 annual report was made available on the company's website, the ASX platform, and was sent to those shareholders who requested a copy. The financial statements have been approved by the directors and audited -- I'll take the 2023 annual report as read. Questions may also be asked of the auditors in relation to the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the company and the independence of the auditor. At this time, I'd like to take any general questions or comments about the 2023 annual report or for the auditors. No questions for the auditor were received during the meeting. I did, however, receive a number of questions from one shareholder, which I'll ask Paul to briefly answer for.

Sure. Thank you, Tony. I have a list of 5 questions we received from a particular shareholder. The first question was the spread between NTA and the share price is clearly becoming wider through continued FUM growth since the boutiques were originated. Surely, the time is right to commence a share buyback to narrow the gap if the takeover doesn't proceed. Our response to that is we are certainly willing to consider buying back shares at the right price. And that is one option we would consider if there's no PAC transaction. Remember, however, it is very rare for our company to be in a situation where we can do this. And this is because so often, we are in well advanced discussions to either buy a significant new asset or one of our portfolio companies is in advanced discussions to sell a significant piece or all of their business. And because that we are -- that material nonpublic information, we are frequently more often than not, precluded from transacting in our own stock. And that's -- and that's -- it's a question we received a lot, and that's -- it's unfortunate that that's just the nature of our business that it makes [indiscernible] difficult, though not impossible. Question number 2 was what boutiques will likely move from Tier 2 to Tier 1 in the next 12 months? I think I responded to that or actually addressed that in my opening remarks is that we are classifying Cordillera, Avante and Pennybacker as Tier 1, 2 of those investments, new investments while Aether is being moved from a Tier 1 to a Tier 2 because of slower-than-expected fundraising progress. The next question is, is Victory Park likely to proceed to an IPO in the short- to medium-term? The question for -- within commercial real estate, comment if there's any impact on the boutiques with redemptions or capital raisings. The capital raising market has been more difficult since interest rates started moving up. This is particularly true in real estate. That said, one of our 2 real estate investments, a firm called Pennybacker Capital has bucked the trend and raised a large fund over the last 18 months, while also getting a new product. Our other real estate, Banner Oak Capital has not been attempting to raise capital given the current market conditions, but will once things stabilize. Clime in some real estate segments has had a slight negative impact on our revenues, but not enough that we would consider it at all material. Indeed, we expect revenues at both Pennybacker and Banner Oak to grow in this fiscal year. Question number five, can we get an understanding of staff number and why the employee costs are relatively high in relation to revenue? The employee count at Pacific Current Group has been remarkably stable at 19 to 20 for at least 5 years. Keep in mind, the scope of what those 20 people do. They provide distribution services boutiques in North America and Australia. They do all the financial reporting for our company, which is far more complex than most companies. They review 150 new investments a year, execute all of those investments and dispositions and manage all of those relationships, all while providing the operational infrastructure necessary to be a public company. Investment management is a very people-centric business in terms of the cost structure. It's worth reminding people that our business is largely a fixed cost business, which means our operating leverage is immense. We can't -- [indiscernible] from where we are today without reducing capabilities. However, the incremental expenses associated with growth are exceptionally low and at times approach zero, for instance, if to the extent we expect our revenues to grow dramatically this year, and that will have no sort of direct link to any expense growth. With regard to a question on employee expenses, if you look at underlying employee expenses, which includes cost of salaries and bonuses, has been managed very well. In AUD terms, it has grown about 3% a year over the last 4 years. In U.S. dollar terms, it's -- which is more appropriate since that's where most of our cost structure is, it's actually grown at about 1.5% a year, which is far lower than inflation. That is all the questions we've received.

Thank you, Paul. I would say also just on costs [indiscernible] there's roughly $18 million worth of cost in the business, and we manage about $500 million worth of fund. If I think of this business in 4 parts, one is the pool of fund, $500 million. I think of running a fund manager and you know that we are thinking of that as a fund manager because we're now trying to raise money for that fund manager to raise -- to manage on behalf of others rather than just managing the balance sheet money. We've got a sales team out there and we run a public company. Of the $500 million, a fair fee to pay the fund manager is about 1.5%, so that's $7.5 million. The cost of running the fund, transaction fees and audit fees associated with unit pricing, et cetera, of that fund run at about $2 million. The sales team run about $4.5 million, and they run at $4.5 million on a breakeven basis through the cycle -- and the sales cycle, the way the accounting works is if you bring into account all of the revenue of sales achievement in the year you do it, notwithstanding the cash you've received over a 3-year period, and it costs about $4 million to run the public company, its expenses on audit and listing fees. So that's really the dissection of the $18 million, $18 million is really [indiscernible] the sales team run at breakeven through the cycle, which we know they do. We've looked at it [indiscernible] public company. And as I said, it is probably $2 million associated with the funding transaction fees. So the real cost of running the money is about $7.5 million, and that represents about 1.5% of the funds under management and by comparable standards that's at the low end. We're often pulling into fund managers who are charging 2%, so it's a good question. Maybe we can do better at explaining it in the way we report to shareholders, but we're very comfortable with that structure. So -- before I move on to the next item, are there any other questions anyone would like to ask?

Thank you. Chairman [indiscernible]. I'm representing the Australian Shareholders' Association. I'm holding proxies for around 17,000 shares in PAC. Just a quick question. I thought if -- tell me if I am not correct. I thought one of the items on the slide out there said that there would be no franking of the dividend next year. Is that correct? And just wondering what is...

Yes. Good question [indiscernible] but I can give you the answer why we're in that situation at our point in time. It's simply we don't really have any significant Australian contributions, all our boutiques are offshore or almost all, Roc is an exception, but the profit out of Roc versus the costs in Australia, a significant number of the public company costs for Australian expenses. So there's no Australian profit to create Australian tax liabilities that, in turn, create franking credit. So the profit that we earn is businesses offshore, there's no franking credit generated by tax paid on offshore to offshore governments. Actually, next 2025 is, the last year [indiscernible] so the interim dividend that we paid recently was 2/3 franked. So that is our franking account. For there's no franking credit and no foreseeable opportunity.

Just a follow-up. So the profits generated offshore. Could they be repatriated to Australia to generate tax here in Australia?

[indiscernible] profit that you are just transferring after tax. Thankfully, there's no additional tax payable when it arrives there, but there's no way for that for any structure to be created that would see it come in as revenue rather than transfer of profit. It was revenue maybe could be a bit -- and there's no way of doing that. But I mean there's just no way trying to say get into any arrangement that would be anywhere near close to the tax boundary. So yes, we just treat it as it is profit. And in that country, we've had tax in that country, and it's remitted back and retain an impact to the Australian business. Any other questions?

[indiscernible] proxies for Bellwether Investments. I just want to firstly thank the Board for the increased disclosure through the year. I think the transparency now on the portfolio makes it much easier for investors to understand, particularly interesting from our perspective is the fair value adjusted NAV. And again, the bridge was easy to understand. The fair value adjusted NAV, the $11.92 is conservative. Does that mean that the expectation when we go to realize those assets over time is that we will achieve a higher price than that?

Well, I'm going to have a go first, and then I'll hand it to Paul. The answer is twofold. The first, I know you know this, but we can't actively sell a shareholder. And that's because we need their permission and it's unlikely they give us permission. So if I think about this in 3 places to think about value and each of them is arbitrary. The first is what's our estimate of present value of the future cash flows associated with that investment. And that fed back into what the underlying boutique will be doing. That's always a complicated process because the auditors can't do anything that isn't complicated, no, that's fair. It's a complicated process because what discount rate you use, but also it's arbitrary because when you think is a guess, Paul Greenwood's great lines is that past performance is no indication of future performance but it's a very good indicator of future [indiscernible]. So good performance, and you don't know when an organization will have a period of bad performance and that can dramatically alter the expectations we've used in our cash flows about when FUM will arrive, though discount rates and timing of fund flow. And what drives that is obviously performance. I guess it's -- and I've talked to the auditors about we should come up with a normal distribution of all possible valuations using all possible variations on discounts within a range and also fund flow and then maybe take the mean of that or pick a value that's within plus or minus 5% of that mean. But there are just an infinite range of possibilities using that approach. There's then try and guess what our value would be if we try to sell it with the permission. And we assume that the party that we were seeking permission from, would use that opportunity to squeeze us as minority shareholders can majority shareholders can for the minority shareholders looking to transact. And the last is what we're likely to get majority shareholder decides to sell, and they've got a vested interest in getting the best price and way for us to tag along. And the answer is if you take that last one, we like to think that the numbers are conservative. We like to think in a sale, which we have no control over, and therefore, isn't relevant accounting purposes. We would like to think that we can achieve or that the owners of the majority of those will achieve that is better than our fair value. And our history says that's been the case, appears simple example. But broadly, there's a lot of views on values. Our comment on conservative is related to one view that's completely outside, but history says that on realizations when we've been dragged along that we've achieved results. Paul, do you want to add something to that?

There's a great response, Tony. Just 2 things. One is, I know there's a lot of accounts in the room that will correct me if I am wrong, but when valuing these companies, they're valued for statutory purposes, they're valued at a sort of an end use or what do we call that, right? So sort of like you hold it forever, not intending to sell it. And so I think the interesting thing is theoretically, if all our portfolio companies decided they want to sell their businesses and ran competitive processes to do that, we've undoubtedly fetch more than $11.92. If we try to get them to sell their businesses, first of all, we have no ability to compel that. But you would undoubtedly, if you could, you'd get far less than that. So I actually think I sort of like where that fair value sits because it's sort of to me a realistic estimate of probably what they're worth adjusting for the fact that most of them aren't going to engage in a process to sell in any -- maybe one a year or something like that.

Just one simple illustration of value in this business, trying to come up with a value at year-end is -- we've now got a methodology that we adopt consistently. But is it -- the only thing you know is the number that we come up with at year-end. The only thing with absolute certainty you know about that number is, it's not right. Firstly, when you come up with a number, there's a time that's passed the date you're trying to estimate, the value you're looking backwards at the 30 June moment in time. And because there's so many variabilities in that calculation, and there's therefore almost been an infinite number of others, the charts you've got the one that was right at that time. So in a way, perhaps the best example that all of these businesses are key people dependent. So you are even guessing to an extent on the long term view of the key individuals in the business. And there's no better illustration of that. I have a fabulous investment team. If you hear a half an hour beforehand, before anyone else in the world that Rajiv Jain from GQG, has died, you would sell the shares or buy a massive number of shorts, because the price of GQG will decline based on the existence of one person. So valuations are enormously arbitrary process. You're trying to do the best you can to give comfort to shareholders that you've got a good process and at a supply consistently so that the movement over time becomes as important as the absolute value. You asked another question, Josh, I'll give you an even longer.

So the other input to the valuation equation was the way that people think about the costs and the costs can generate more investment managers, more investments and contribute to growing NAV, they can be an asset in a way or they can detract from value because they are a cost of management and the issue -- not the issue, but the issue of the Pacific Current in ways, a lot of your investors run their own funds' management businesses. And they think about their revenue encompassing the cost of both the investment team and the distribution team and the finance team, and that all fits within a 1.5% management fee using your example, and they managed to earn 50% margins on that. And so I understand the breakdown of the cost is helpful. I understand that the public company adds complexity. And I understand that investors can see the total fee as the total cost, but just from the efficiency of the business that we are running in here, how should we think about that cost base?

So we invest in a lot of businesses that charge 2%. There's probably funds that you've seen that run at 2%, even 1.5% and as a general rule, the cost of establishing the fund is treated separately, including the audit fee is not borne by the fund manager. So if I say that of the $18 million of expenses, $3.5 million to $4 million are related to the public and no other fund manager has that burden, so I'm now down to [indiscernible] and I say that it costs us $4.5 million to run the sales team, and that's breakeven. So our $18 million is really $13.5 million net. But if I go back the other way and say $18 million less -- and if I start reporting the sales team net of revenue, which is something we probably should do so that people can say it's not $18 million, it's a net $13.5 million, but if I say those to 3.5 to 4 and 4.5 [indiscernible] I'm left with $10 million of cost. Two of them relate to transactions. It's an expensive business to execute. We're buying and selling in a year, and the audit of it is expensive, especially the tax accounting plus the audit process to come up with a unit price, and that's roughly 2, that leaves 8. 8 on $500 million, we're saying now $11 a share, there's 50 million shares on issue. So 5.50, 8 on 5.50 is about 1.5%. You're saying 1.5% is reasonable and we would agree with you to be able to run it at 1.5%. But the beauty, if we can get a $400 million fund up to run of external money and we can earn a 1.5% fee on that, it's $6 million. Paul said that there's almost no incremental costs associated with that. So instantly, we're probably running at about $0.50 in the dollar. We definitely have a scale issue. And we've been very upfront about that, and that's why we've been reluctant to too much out as dividends or do buybacks because it just compounds the scale of benefit. We could easily run USD 400 million I'm translating those in Aussie dollars to get to $0.50 on the dollar. But at 1.5% breakeven, yes, we'd love it to be. We know it's a scale problem. We have most of the way through obviously, the [indiscernible] process, the sale process disrupts the fundraising. I think we're reasonably confident leading up to that of $400 million. We've had expressions of interest. So the fund would have been $400 million, and that would have got us to the $0.50 on the dollar of $1.5.

I also think -- and as I mentioned earlier, it's a fixed cost business, just saying it in a different way. And this year, we should have pretax EBITDA margins grow well above 50%.

But again, remember that you've got to think of that when we talk about that, and maybe it's something we said half of that goes to the fund -- our fund manager breaks it, but it's a great return on the $500 million. So -- and again, the same thing, just a reminder of how well the executive and the Board have actually done. They've built this business from a spot where there was radically less high-performing and outstanding caliber set of assets in the business guide.

[indiscernible] from Bell with a proxy here. I appreciate the color on buybacks. That's helpful. I guess given how significant the gap between fair value and the share price is today, would it make sense to pause transactions until that gap has been closed?

Well, we know that if you pause a transaction that's way more likely all -- there's many futures at any moment in time, looking forward, there's always lots of futures. There's always lots of different possibilities of what -- one possibility is that if we pause it, it will return to a fair value at $11. It's much more likely that I think that it will return to $7, where it was [indiscernible] so we can pause it. But as I said, it's, I think, more likely that it goes down to trading value than up to realization value. We think that we've always said fair value is great. We always said that we have acknowledged and always made the point that we expect that to be a conservative number if we're dragged. So pausing it might allow us to restart, but definitely -- not definitely, it's unlikely to see the share price improve if I was betting [indiscernible] and it's like all things, trying to find consistently. The Board has always got a different agenda to any individual share, each individual shareholder has an agenda that they need to be for sharing the Board's agenda is to look after all shareholders as a whole, which is a much more average process. But seeing the share price go back to the level it was in the significantly larger half is certainly something we'd like to avoid of all shareholders, some of whom have to sell today or tomorrow or the next day, they don't necessarily have a luxury attack and some long-term view as we do and therefore, others bring a different agenda.

Sorry, to clarify, does it make sense to pause asset acquisitions until that gap has been closed given that acquisitions prevent us from doing buybacks?

Well, we have been forced to pause asset acquisitions. We completed one, it's an outstanding acquisition. If you're grading ones that are going to sort of really take off them for a significant value [indiscernible] in my lifetime, the one with the highest upside and the GQG delivered the most -- but yes, we've been forced to. Paul, do you want to add?

Yes. I would say that when we get the fund up and running, a fund or I should say, a pool of capital to manage because I think that allows us to monetize an existing capability in the business, right? And just in case, Tony mentioned sort of circa $400 million vehicle. If you were able to get that standard fees for that are probably between 1.5% and 2%. And that $400 million would be a U.S. target. So now you're talking $9 million of sort of incremental revenues that could hit the bottom line. And I think depending on where we are, that if we can get that momentum to the fund, and that even if PAC was going to invest, it would be investing in much smaller increments because it would be investing alongside so much more capital.

But the other thing to point to make on it is that firstly that we are almost fully deployed anyway and we are into the timing of the sales, we don't know when we would have more money to do it. We could draw a bit more on debt. But of course, no one wants to involve in a business -- selling to a business that they're not really selling to. Look, I'll sell some of last year holding to Pacific Current but whom am I really selling it to. So it's been stopped. The process has stopped. Maybe just the last observation gauge is the same one I've made that if you do release some funds, you've got 2 problems. One is there's a drag for a public company as an uncomfortable drag because you're sitting on cash. And the difference -- it's better now that interest rates have risen, but the P&L drag from the absence of the fully deployed capital is significant on the P&L. And to at least some extent, we're priced off the P&L. And the other is using cash to buy back increases the scale issue. So eventually, if I've got to make a choice of your on the upper business and running it off, you're finding a buyer for fall of assets where you're continuing to go forward to try and reduce the scale issue by deploy the trend earnings.

That's helpful. A business update would be great to hear if there's been any significant fundraising in the key boutiques since the result, particularly Victory Park, Pennybacker and Aether?

Victory Park and Pennybacker. So there's been -- we announced obviously at the end of October to put a fund update out there and had the latest numbers, I'd say I don't think anything has changed from that aside from, I think, Pennybacker has secured some additional commitments. But that's the only thing that's changed since our last public announcement. .

Any other questions?

There are no more questions. I'm now going to move on to the next item of business. So the remuneration report. The first resolution of the meeting is the adoption of the remuneration report. It's an advisory resolution and does not bind the directors of the company. I've already made comments on this report, it's contained in 2023 or may comment on the vote. So I won't spend a lot of time on this. It's in the 2023 annual report on the company's website and has been placed to shareholders. So I'll take it as read. And putting the resolution before the meeting, the proxies are behind me. And will advise shareholders of [indiscernible] disregard any votes as stated in the voting exclusion statement related to Resolution 1 as set out in the notice of meeting, that each director has a personal interest in their own remuneration from the company set out in the remuneration report, the directors unanimously recommend shareholders in favor of it. But as I said, we do note that this resolution is not going to reach the 75% required. We do think that's not a comment on the remuneration arrangements or disclosure simply because none of that's changed in any material over that 12-month period, but we will be talking to shareholders to ensure that's right. If there's no further discussion, I'll now put the resolution to the meeting and the proxies received in relation to this resolution, as I said, has shown before me, I'll pause for a minute to allow for voting, and then I'll move on to the next resolution. Clare is asking me something. I'm assuming there's no questions on the remuneration report. Any questions? I'll now move on to the next resolution. Resolution 2 and 3 need to be considered as ordinary resolutions and must be approved by a simple majority of the votes cast by shareholders present and entitled to vote on the resolution. Resolution 6 is the most important resolution of the whole day. And it involves my reelection. I'll hand over to Gilles Guerin as the lead independent to deal with that.

Thank you, Tony. Good morning to all. So Tony Robinson retires in accordance with the company's constitution and being eligible, offers himself for election as a Non-Executive Director of Pacific Current Group. Tony Robinson joined the board on August 28, 2015, as a Non-Executive Director. He became an Executive Director on April 20, 2016, before resuming as a Non-Executive Director on September 1, 2018. Tony was appointed as Chair of Pacific Current on October 1, 2018. Tony has significant expertise and experience across a number of industries, including banking, financial services, telecommunications and transport. He is an experienced company Director and Chief Executive Officer; is currently Managing Director of BSC Insurance Group Limited, ASX:BSI and [indiscernible]. Tony holds a Bachelor of Commerce and a Master of Business Administration from The University of Melbourne. The Board considers that Tony, if elected, will not be an independent director due to his position as Non-Executive Director and Chair of Pacific Current. Further information in relation to Tony's background and experience is in the notice of meeting. The resolution is set up on your screen as Director Tony, abstaining, recommend shareholder vote in favor of the reelection of Tony Robinson as Director of Pacific Current. Are there any questions?

I think Tony indicated earlier that with the replacement of Peter Kennedy as a new Board member that Tony would take over as chair at some point. So just interested in Tony's comments on extending the future.

Well, a lovely question. Yes, I love it. I think it's a great business. We have been involved with some wonderful people and I have been involved with some wonderful people at the Board. But it's definitely time for someone new in that role. And we've started the process, started to talk to shareholders about names, and we'll hopefully quickly find someone.

So if there is no further questions or discussion, I will now put the resolution to the meeting. The proxies received in relation to this resolution are shown on the screen. Please complete voting for resolution 3. And I'm now handing it back to you.

Well, I'll wait until the end of the poll but a very supportive proxy. So thank you, everyone who voted. The next resolution is to consider and if thought fit, to approve in accordance with ASX Listing Rule 10.17 and Article 7.3b of the company's constitution, the increase in total aggregate maximum annual remuneration to directors of the company by the way of director fees from $750,000 to a maximum of $1 million increase is proposed to take effect from the 1 July 2023. Further information about this resolution is also in the notice of meeting. Before putting resolution 3 to the meeting, I'd like to advise shareholders that the company will disregard any votes as stated in the voting exclusion statement related to Resolution 3 as set out in the notice of meeting. In the interest of good governance, the Board does not make a recommendation to shareholders in relation to this resolution. The resolution is on the screen. Are there any questions? If there are no further questions, I will now put the resolution to vote. The proxies received in relation to this resolution is shown on the screen. Please complete your voting card for resolution 3. It's important that you do complete the voting because I am about to close the poll. If anyone has a form that they're holding on to that they haven't marked, now would be the time to be doing that. Ladies and gentlemen, that concludes the discussion and voting on the resolution of the meeting. The voting system will close at the end of the meeting. Once voting is being closed, all voting will be final and cannot be changed. Can you please check would you come on all resolutions, returning officer will collect your voting forms. That concludes the business as set out in the meeting. On behalf of the Board, I'd like to thank you all for your support, attendance and participation today. Paul will take some time to capture the final results, as advised earlier. After the votes have been counted, the results of the poll will be released to the ASX as soon as possible. [indiscernible] refreshments after the meeting. I now declare the meeting closed. Thank you all.