Pinnacle Investment Management Group Limited (PNI.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to PNI's half year FY 2026 financial results and the purchase of additional equity in Pacific Asset Management teleconference. [Operator Instructions] I would now like to hand over to the Managing Director, Mr. Ian Macoun. Please go ahead.

Thanks, Ashley, and welcome to all of you who've joined us on the call this morning. Thanks for your time. Thanks for your interest in PNI. As you've heard, this call is to discuss our half year results for the first half of the 2026 financial year and the purchase of additional equity in Pacific Asset Management. We posted, with the ASX last night, our formal results announcement, our interim financial report, including the audit reviewed financial statements for the half year, the Appendix 4D and our investor presentation. We will be speaking to key parts of the presentation this morning. The colleagues on the call with me are Alan Watson, our Chair; Andrew Chambers, Executive Director with particular responsibility for institutional distribution, including international; Kyle Macintyre, who leads our amazing wholesale and retail distribution team; and Dan Longan, our CFO. I'll discuss the highlights of our results and also provide some context and elaborate some aspects that we feel are particularly important for analysts and shareholders to understand. And I will also explain the terms of and the rationale for the Pacific Asset Management transaction. I will explain how we have continued to execute on our growth agenda, including our excitement and anticipation and expanding on our already successful partnership with the remarkable Matt Lamb and his terrific team at Pacific Asset Management in the latest step along our growth path. Besides the key outcomes and results for FY '26, we will outline the strong growth achieved to date, including during the half year period we are reporting on and the strong growth outlook looking ahead. As we delve into more detail, I hope our shareholders will be able to see and appreciate how our already successful partnership with Pacific Asset Management, the tremendous commercial success already achieved by Life Cycle Investment Partners, the ongoing strong success of our various distribution teams, including overseas and several other important initiatives that we will mention are proof of the tremendous progress we have made in demonstrating the power of our platform to sustain high rates of growth and in showing the success and attractiveness of our business model in an ever-growing range of asset classes, subclasses and geographies around the world. Pacific Asset Management is in an important sense, a second Pinnacle, another high-quality, fast-growing multi-affiliate funds management platform in a world extremely short on and crying out for people proven to have executed successfully on the model of supported independence for highly talented investment professionals, delivering an environment conducive to investment excellence. We'll leave plenty of time for questions, which you are welcome to direct to any of the Pinnacle representatives on the call. The footnote to Slide 2 refers to the disclaimer on Slide 60 that is important, and we would ask you to please read this. Slide 2 is an agenda. Slide 4 is an overview slide, provided particularly for people who are newly interested in our company and who don't yet know Pinnacle very well, particularly investors located in countries outside Australia. It seeks to simply summarize the essence of Pinnacle and what we believe makes us special and a highly compelling investment. We are a high-quality, scalable multi-affiliate platform and business model, which has proved itself over 20 years to be able to compound the growth of earnings and dividends at very high average rates through market cycles. Diversified and resilient, again, we are a proven compounder of earnings, dividends and FUM. We have multiple growth drivers with no chokepoints to restrict ongoing growth and a business model specifically designed for investment excellence at its core, delivering sustained investment outperformance for 20 years. Slide 5 is a summary of the highlights for the first half of the 2026 financial year. Before we launch into these and the financial highlights on Slide 6, some context is needed. In the first half of the 2025 financial year, the prior comparable period to the results we are now reporting on, net profit after tax was $75.7 million, which was up $45.5 million or 151% from $30.2 million in that half's prior corresponding period -- prior comparable period, which was the first half of the 2024 financial year. An important factor in the exceptionally large profit increase was the extremely large performance fees earned by Hyperion in that first half of the 2025 financial year. Pinnacle's share of Affiliates performance fees in that half was an unusually high $36.4 million. Whereas in the current reporting half, the first half of FY '26, our share of Affiliates performance fees was a more normal $13.4 million, a difference of $23 million. This is the reason our profit numbers in the first half of FY '26 are lower than in the PCP, though on any measure, our core or underlying earnings have grown strongly again. Our net profit after tax in H1 FY '26 was $67.3 million, $8.4 million or 11% lower than in H1 FY '25. Diluted earnings per share in H1 FY '25 was $0.367, up $0.214 or 140% from $0.153 in H1 FY '24. And our EPS was $0.301 in H1 FY '26, down $0.066 or 18% on H1 FY '25, the PCP. There is a second unusual factor in our results for H1 FY '26, which is that the overall return we received on Principal Investments invested as seed capital for certain new funds of affiliates was very low. We believe this is a one-off outcome, extremely unlikely to be repeated. In fact, we would think the history of our earnings on Principal Investments would demonstrate that there is an argument it is likely to be reversed in coming periods. Now we won't debate the likely future earnings on seed investments, but we do certainly believe this is an unusual factor and think many analysts would exclude the impact of this when assessing our core or underlying earnings. Slides 5 and 19, we have suggested a couple of ways one might adjust for either or both of these 2 unusual factors when making the PCP comparisons. Excluding performance fees or excluding returns on Principal Investments or both, every analyst will have their own approach. The way my colleagues at Pinnacle and I think of performance fees is more nuanced and more complicated than this. As we've explained many times, we at Pinnacle and many of our affiliates love performance fee business. We are confident of our performance ability and are happy to back ourselves accepting and sometimes demanding performance fee potential in exchange for lower base fees whenever we can. We recognize this adds volatility to our period-by-period earnings, but we do have a majority of base fee-only business in any event, and we believe it is worth tolerating the additional volatility in order to achieve the higher average fee outcomes we are confident of achieving. Given that $55.6 billion or 27.5% of our FUM has material performance fee potential, and this comprises 31 different strategies, which are largely uncorrelated with each other and with market indices being based on alpha generated, we believe it would be a massive mistake to ignore or underestimate the likely performance fee impact on our earnings. We, therefore, conservatively budget for a certain minimum level of performance fees each and every year. This amount is growing year-by-year and is very material to our earnings. In some periods, such as in the first half of FY '25, much larger amounts than our conservatively estimated minimum are achieved, we gratefully accept that extra level of fees as bonus profit but do not expect it every year. H1 FY '26 performance fees are more consistent with our anticipated minimum level. So with that context, let's go to the highlights on Slide 5. We achieved strong core earnings growth during the half. Our share of Affiliates profits was 52% higher in the PCP, excluding performance fees. Pinnacle net profit after tax before performance fees was 37% higher than in the PCP and 11% higher than in the second half of FY '25. Affiliate margins on fund management activities before performance fees were 14% higher than in the first half of FY '25 and 14% higher than the second half of FY '25. Excluding returns on PI, but including the exceptional performance fees in the PCP, Pinnacle NPAT was flat on the PCP and 35% higher than in the second half of FY '25. We achieved record net inflows during the half. Closing FUM of $202.5 billion is up 13% on the opening FUM for the half. Approximately 1/3 of our FUM is now in internationally domiciled affiliates. Net inflows of $17.2 billion were a record, the highest of any half year period in our history. This comprised $7 billion in Australian institutional net inflows, a terrific $6.8 billion in Australian wholesale and retail net inflows, and this gain in wholesale and retail was 17% of the opening wholesale and retail FUM and $3.4 billion in international net inflows. Third point there, we continued sustained investment excellence. 86% of Affiliates strategies with a track record of 5 years or longer have outperformed over the 5-year period to the 31st of December 2025. We now have 31 strategies with the ability to deliver material performance fees in the full financial year on $56 billion of FUM compared with $50 billion at the 30th of June. 8 affiliates contributed performance fees in this half versus 9 in the PCP. And then our final highlight, there was a powerful contribution from our international platform. We now have $57.8 billion of funds under management, 28.5% of total FUM from more than 50 countries outside of Australia. Pinnacle's unique supported independence and value-add platform is resonating strongly across the globe. We have achieved rapid growth of international Horizon 2 and Horizon 3 initiatives. From Horizon 2, we have more than 50 -- sorry, $40 billion of FUM across Aikya, $9.4 billion, Aikya was commenced in 2019; Palisade Real Assets, $363 million, PRA, commenced in 2021; Langdon, $937 million, Langdon commenced in 2022 and Life Cycle, $29.9 billion, Life Cycle commenced in 2024. From Horizon 3, PAM is now $26 billion. Our equity relationship commenced in 2024 and VSS, $1 billion, we bought into VSS in 2024. Life Cycle is Pinnacle's fastest start-up on record in terms of funds under management growth and speed to profitability. And during the half, we made a Horizon 3 investment in Japan's largest homegrown private markets platform, Advantage Partners. The initial 5% investment worth AUD 92 million was completed in January 2026. So there are a lot of highlights to draw from the half. I'd like to make a brief -- a few brief comments on the standout highlights. Firstly, 86% of strategies outperforming is very impressive. For style and other reasons, not all, even very high-quality managers, will outperform in all periods. The testament to the consistently high quality of Pinnacle Affiliates that we have maintained a very high proportion of outperformance throughout our history. This also reflects the diversity of our stable, including style diversity. And we see that the composition of which affiliates have recently outperformed most strongly changes through time. I'd like to acknowledge, for example, the recent strong outperformance of 7 managers. Antipodes, whose style previously endured difficult times, the Antipodes Value Fund, the Antipodes Global Value Fund have produced exceptionally strong performance. See Slide 50. Plato, particularly the Global Alpha Fund, the Australian Alpha Fund and the Global Income Fund. See Slide 49. Solaris, all of their strategies, also on Slide 49. Firetrail, all strategies, but particularly the Absolute Return Fund, Alpha Plus, the Small Companies Fund and the High Conviction Fund, Slide 50. Resolution Capital, particularly the global listed infrastructure strategy, the Real Assets Fund and the Core Plus Property Securities Fund, Slide 49. Metrics, the whole range of strategies across the board, which have delivered well above benchmarks for clients month in, month out for well over 10 years, Slide 51. And Coolabah, really much across the board, also Slide 51. This would not have been the same list, say, a couple of years, even a year ago. A second standout highlight is the rapid commercial success of Life Cycle Investment Partners. At the time of our FY '25 results in August last year, I called out that Life Cycle's FUM at 30th of June '25 stood at $15.4 billion, just under a year from the effective commencement of the business, an extraordinary start to what will most certainly be an exceptional global investment management business. I said that whilst these numbers will no doubt be the subject of a great deal of comment, what I wish to focus on and express Pinnacle's gratitude for is the character and sincerity as well as, of course, the investment talent and experience of the Life Cycle partners, all of which are utterly beyond doubt. Apart from the Life Cycle Partners getting carried away with this extraordinary early commercial success, all of our discussions with those Life Cycle Partners reflect humility and have been around their focus on investment performance and their determination and commitment to delivering strong results for their clients from a strong and very high-quality business over many years into the future. We saw quickly that these people are the real deal and everything that has transpired subsequently has reinforced that conclusion. Now 6 months later, their FUM was the equivalent of $29.94 billion at 31st of December 2025, just under 18 months from the effective start of the business, a truly stunning result. And yet absolutely everything I said about the Life Cycle team back in August remains 100% true. I think it's stating the obvious that clients have seen in the team the same character qualities that we see and have rushed to become clients of Life Cycle, noting that many of these new clients were not clients in the team's past life. My thanks also to the many Pinnacle people, including our amazing teams of distribution professionals in the different markets, wholesale, retail and institutional in various parts of the world who have worked tirelessly in support of Life Cycle and contributed to this success. Again, our partnership with Life Cycle is a source of absolute joy and satisfaction to all of us at Pinnacle. Third standout highlight is that the careful, deliberate expansion of our international platform has continued during the half with $57.8 billion of FUM now from overseas investors. $67 billion of FUM now under investment from Affiliates located outside of Australia, our new partnership with Advantage Partners in Japan and now the deepening partnership with Matt Lamb and his PAM team based in the U.K. Turning to Slide 6, the financial highlights. Net profit after tax was $67.3 million, down 11% from $75.7 million in the PCP. Diluted earnings per share was $0.301, down 18% from 36.7% in the PCP. The dividend is $0.29, down 12% from 33% in the PCP. The payout ratio is 96%, franking is 80%. Aggregate Affiliate FUM at 100% was $202.5 billion at 31st of December '25, up 13% from $179.4 billion at 30th of June '25. Aggregate retail FUM was $46.7 billion at 31st of December '25, up 18% from $39.7 billion at 30th of June. Aggregate Affiliate performance fee FUM was $55.6 billion, up 10% from $50.4 billion at 30th of June. Aggregate Affiliate base fees were $487.3 million for the half, up 47% on $330.5 million in the PCP. Aggregate Affiliate performance fees were $59.3 million at 100% for the half. This was down 47% on $111.9 million in the PCP. So Aggregate Affiliate funds management revenue at 100% of $546.6 million was up 24% from $442.4 million in the PCP, noting again that Pinnacle's share of performance fees after tax was $13.4 million, down 63% on $36.4 million in the PCP. In terms of fund flows, retail flows were $6.8 billion in the half compared with $3.7 billion in the PCP. International flows were $3.4 billion in the half compared with $800 million in the PCP. Domestic international flows were $7 billion in the half compared with $2.2 billion in the PCP. So total net inflows were $17.2 billion compared with $6.7 billion in the PCP. 86% of strategies outperformed over the 5 years to 31st of December '25 compared with 82% in the PCP. We had cash of $55.4 million at 31st of December and Principal Investments of $384.2 million for a total cash and PI of $439.6 million. Slide 7 shows our record of earnings growth over the 9.5 years that we have been listed Pinnacle. Over the 5 financial years to 30th of June '25, we have grown EPS by 28.3% per annum compound on average, 31.8% per annum over the 9 years. And just note that the pink bar is only half a year. The black bars are full years. Slide 8 provides the specifics of the 5-year performance track records of the Affiliate funds or strategies that have been in existence for more than 5 years. Slides 11 -- and 46 to 51 provide further performance detail. Slide 9 shows the detail of the Affiliates platform and highlights of the first half of the '26 financial year. Slide 10 explains how Horizon 2 and 3 diversification is enabling our platform to deliver earnings growth through market cycles. The outcomes delivered over the past 5 years are detailed in this slide. Slide 11 shows some detail on our performance fee record and opportunity. As mentioned, we are growing the size and diversity of our performance fee potential and look forward to further performance fee revenues each year in future years. Noting that the far right bar in the bottom chart is for half a year, whereas all other bars are full years. Slide 12 shows our 19.5-year FUM and net flows history. Our institutional, retail and wholesale pipelines each remain strong, and our client base is increasingly diversified, including overseas as we grow and evolve, recognizing changing market circumstances. Slide 13 elaborates the evolution of our FUM by client type, showing how our Horizon 2 build-out of wholesale and retail and international distribution functions has led to a greatly expanded and diversified client base. Slide 14 focuses on our evolution and growth in private markets, asset classes and in internationally domiciled FUM. Private markets and international are 2 major Blue Ocean expansion strategies we have been pursuing. Slide 15 shows the evolution of our international platform and the growth in FUM from clients located outside Australia. And again, Slide 16 provides some detail on the increasing diversification of our business, diversification by affiliates, by asset class and by strategies with the potential to earn performance fees. The result is greater resilience of our earnings. To the financial performance section now. Slide 18 has detail on our revenue and margin performance and key drivers of that performance. Slide 19 has further detail on our financial results. Note that we believe the unrealized principal investment losses are one-off and may well be reversed, and we have deliberately increased resourcing, and headcount to cater for ongoing growth. Revenues, of course, also continue to grow. Slide 20 provides some balance sheet commentaries. Now to Section 3, the purchase of additional equity in PAM. Shareholders would recall that PAM acquired -- sorry, that Pinnacle acquired a 25% equity interest in PAM in November 2024. During the 14 months since then, PAM EBITDA has grown 91%, and we are now purchasing the remainder of the company. I mentioned earlier our excitement at expanding on our already very successful partnership with Matt Lamb and his terrific team at PAM. And that PAM is in an important sense, a second Pinnacle, another high-quality, fast-growing multi-affiliates funds management platform in a world extremely short on and crying out for people who have proven to have executed successfully on the model of supported independence. Slide 22 sets out an overview of this transaction. In terms of the investment structure, we have entered into an agreement to acquire the remaining 79.2%, which was 75% pre-dilution from staff long-term incentive plan of PAM with total consideration GBP 212.4 million, about AUD 419 million. This consideration represents 15x the run rate EBITDA of GBP 17.9 million as at 31st of December. The selling shareholders in PAM will receive GBP 120.6 million, about AUD 238 million in cash and the equivalent value of GBP 91.8 million, AUD 181 million in Pinnacle shares, issued at the price of $17.16 per share based on the VWAP for the 5-trading day period ending on the trading date immediately before the date of the agreement. So 10.5 million shares, representing 4.6% of outstanding capital. Management that will own 26.4% of PAM immediately prior to the deal will receive 50% scrip and 50% cash. Other shareholders that will own 52.8% of PAM immediately prior to the deal will receive 40% scrip, 60% cash. The transaction is subject to regulatory approvals and is expected to complete in the first half of calendar '26. Scrip consideration is subject to the following escrow arrangements, management 50% escrowed for 5 years, a further 15% escrowed for 4 years, further 15% for 3 years, a further 10% for 2 years and a further 10% for 1 year. Other shareholders escrowed 50% for 2 years and 50% for 1 year. Matthew Lamb, will, of course, remain in the role of PAM CEO with the existing PAM management team continuing to drive the business with even stronger strategic support from Pinnacle. That is very important. Matt and the team continue on as they are with greater growth prospects even. On Slide 23, we explain the strategic rationale for the additional investment. Firstly, it will accelerate our global growth with complementary distribution platforms. The transaction delivers a larger and more flexible global distribution platform to enhance geographic reach, affiliate origination and product innovation and expansion. It creates a compelling opportunity to increase distribution collaboration, should promote growth of both businesses. And it is consistent with Pinnacle's strategy of expanding its unique value-add platform in larger addressable international markets. Point two, PAM is a growth-oriented founder owner-led investment distribution and technology platform. This is very strong alignment -- sorry, there is very strong alignment of the philosophy, culture and growth ambition of both companies built on a supported independence mindset of scaling affiliates and the distribution of third-party critiques. The existing management team led by Matt Lamb will remain actively involved, independent with support from Pinnacle enhancing opportunities to act on both existing and new initiatives. PAM has an aligned management team with a strong historical relationship with Pinnacle given the existing ownership and commercial collaborations dating back prior to any ownership relationship. Thirdly, PAM has a history of developing innovative technology solutions, including advanced managed account solutions. PAM has developed a proprietary technology platform and proprietary technology solutions. Its Adviserlab technology provides asset management in a box and modern portfolio as a service solutions. This enables turnkey investment management solutions for private wealth clients, and there is the potential to utilize PAM's technology to enhance the services provided to Pinnacle's existing retail client base. Now the fourth point here is extremely important. This transaction brings the major strategic benefits outlined in points 1, 2 and 3 above, but in its own right, even apart from the strategic benefits, it is a very attractive deal purely on the financials relating to the existing stand-alone PAM business continue to operate and grow rapidly, doing all that it is currently doing and more. Slide 24 provides an overview of PAM. I'm running out of time. It is a highly diversified asset management platform with an innovative approach and an extensive U.K. distribution footprint. There are really 2 distinct businesses in PAM. Firstly, it's a provider of technology-enabled adviser solutions; and secondly, a smaller version of Pinnacle with a lot of room to grow. There are the photos of the leadership team, and you can see the 2 businesses described and the operational highlights, including the GBP 17.9 million run rate EBITDA. Finally, Slide 24 elaborates PAM's attractive financial profile and very strong growth to date in AUM and earnings. So elaborates point 4 on Slide 23, an attractive deal financially in addition to the strategic benefits. PAM has been a great investment for us already, and we fully expect very strong growth to continue. You can see the historic rates of growth in AUM and earnings and in margins in the charts. 14 months that we've been an equity owner, EBITDA grew GBP 8.5 million to GBP 17.9 million run rate from November '24 to now. Section 4 of the presentation provides an institutional and international market update. Andrew Chambers will explain the factors that work in these markets during question time and one-on-ones. Section 5 will be Kyle. Section 6, titled the Growth Agenda, refers to Slides 32 to 35. Slide 32, we remind shareholders that we think in 3 horizons of growth. Horizon 1, the main game, we have capacity of $450 billion and a long runway conservatively estimated. We added $23.1 billion from Horizon 1 in the year -- in the half just completed. Horizon 2, new affiliates incubated outside of Australia include Aikya, Life Cycle in the U.K. and Langdon in Canada. Horizon 3 is where we invest Pinnacle Capital invested to acquire interest in existing profitable managers. I mentioned that from time to time, this has included a purchasing additional equity in existing affiliates, which we like, then we help accelerate their growth. Pacific Asset Management in the U.K., VSS in the U.S.A. and Advantage Partners in Japan are recent examples domiciled overseas. I had planned to talk quite a bit of us being acutely aware of the risks of Australian companies making ill-advised investments overseas, where they are unaware of local conditions and requirements for success or equipped to manage. Now we have been working on this overseas opportunity for a very long time, and we have extensive capabilities already in place in the large addressable markets and we're continuing to add infrastructure and distribution capabilities overseas. We're staying very clearly within our core capabilities. So I haven't got time to go through. I would have liked to have said that. But I'm sure that in one-on-ones, we will talk about the risks of expanding overseas and why we are confident we are doing this in a low-risk manner. Corporate responsibility, I would like to call out. Please read our slides on that. And in conclusion, referring to Slides 42 and 43, I'd like to remind shareholders, once again, of the basis on which we remain so confident of our company's ability to grow and prosper, which is our distinctive business model that was designed specifically to ensure sustained investment excellence. Our fundamental beliefs, which are the basis on which our business was built, and we will continue to build. These basic principles are applicable to a broad range of asset class, geographies and markets. I'd just like to point out the developments during the half year under review have further demonstrated how these principles guide our expansion decisions and initiatives. We would not have been invited to purchase either the initial stake in PAM in 2024 or the remaining equity now were it not for the fact that Matt Lamb and his team at PAM, share with Pinnacle, an unusually high commonality of business philosophy, culture and growth ambition. We see the world in similar ways, which was obvious when we first met and has been still further enhanced by PAM and Pinnacle working together since then. Can we please now invite questions? Please note, the appendix has additional information people are often interested in, such as the FUM by affiliates half yearly history table at Slide 52. Questions, please.

[Operator Instructions] Your first question comes from Cameron Halkett with Canaccord Genuity.

Congrats on the full acquisition of PAM. That's particularly exciting. Ian, if I could start with you around the strategic merits also within the acquisition. Obviously, there's talk of it being EPS accretive. But with PAM coming in at 100%, will that see you accelerate some offshore plans for PAM previously considered?

Yes. So absolutely. So Cam, I sort of ran out of time a little bit. And in any case, I'm kind of been a bit reluctant to go into too much detail on the strategic benefits because I'm acutely aware of people justifying sort of acquisitions on strategic grounds, which is kind of code for it's not a great financial investment. We are in a happy position that it is a great financial investment. But yes, you are correct. We are very excited about the strategic advantages as well. State the obvious, it is a big step in us expanding overseas, not just in EMEA, but around the world given PAM's capabilities. But we also have extremely strong capabilities in Pinnacle and big plans, including a lot of expansion. So what we said, both companies have tremendous momentum. Let's have both of us keep getting on doing what we've been doing because there's a lot of growth ahead. But yes, of course, we will collaborate wherever it makes sense, and we believe there are several ways in which that will happen. So you'll see over time, strategically, this has been great. It's been great already. We've collaborated together in a variety of ways. This will accelerate that collaboration. And as I mentioned, the cultural fit is so strong. We think similarly, Matt Lamb is just like a Pinnacle person in his thinking. So we're extremely excited about this. But I don't want to -- we say, get over our skis. I like to underpromise and overdeliver and let people see the benefits come through in a bit of time.

It's probably worth adding, Cam, that it obviously improves access to capital for PAM and its initiatives. It will increase the reputational weight of that business and their ability to prosecute their own new partnerships, whether they be minority acquisitions, JVs, and any form of structure. It creates also a much more muscular, modular and flexible and scalable distribution platform in larger addressable markets. So the teams in distribution we buy autonomous but collaborative in the same way that an Army operates with multiple [indiscernible] in a single company. So I think that's very much about coordination being autonomous. And finally, it also captures, I think, what is very much a global regulatory-driven trend of outsourcing in private wealth. It happens in the institutional market continues to do so. But that is a global trend in the U.K., in Australia and in other parts of the developed OECD world.

A helpful follow-up then would be, I suppose, given I sort of don't have the staff numbers between Pinnacle and PAM to have. But like a loose approximation, like just to understand the scale benefit here of fully absorbing PAM, what does it do to your global distribution capability, whether that be by headcount across like U.K., EMEA, Europe? Does it double Pinnacle's reach? Is it a bit less than that, a bit more than that? Just anything you can provide there would be good.

So that's for Dan and Chambers to answer really. But big picture, Pinnacle, we call Pinnacle parent is about 150 people and about half of those distribution, marketing, et cetera, Australia and overseas. PAM is about 70 people. And what I'm guessing a reasonable number of those are distribution as well. We don't think of distribution in terms of large numbers of people. We like to have moderate numbers of extremely high-quality people. And both of these teams are very powerful, extremely high-quality teams. But Dan, do you want to talk about numbers? Chambers, in particular, should talk about what it does. We're not talking about merging these teams in the short term. It just means we will have 2 big high-quality distribution outlets. They will talk, they'll collaborate wherever it makes sense. But yes, it drastically increases size of our offshore distribution capabilities.

And this raise the chance of bottlenecks as well in distribution which is also an important factor as we continue to add more and more independent affiliates, both on the PAM's platform and Pinnacle's.

Yes. Importantly, Cam, this is not a cost synergies transaction. Everybody is currently fully employed, if not more than, and we think that the opportunities for growth, both at a platform and an individual level will be even greater as a result of this. There will be things that we can do sensibly, contracts across service providers potentially where it makes sense for us to look at that as a combined group, and we'll do that, of course. But as Ian said, the intent is very much that these 2 businesses continue to operate independently led as they currently are.

Yes. So in terms of what you might think of as sort of distribution growth synergies, I think both teams are going to continue to expand, maybe a benefit of doing this is that they may not need to add quite as many people quite as rapidly as each of us had planned. But we're both going to add more people. We are going to grow because the opportunities are just opening up for us. Chambers keeps saying we're pushing against an open door. We just keep finding more and more opportunities overseas.

Yes. Wonderful. If I can slip one last one very quickly, just conscious of time. Just any comment further around Metrics given that cropped a lot of heat in the press and in the market over the last 6 months. Anything you're able to provide there around its performance through the first half in terms of flow and activity? And should we be on the lookout as well for the coming half in terms of receipt of certain monies, whether that's from your friends at the Korean Pension Fund or the launch of the ABL Trust later this half?

Yes. So again, I'll ask Dan to answer that. It's essentially a financials question. What I would say broadly is, it was a tough year for Metrics. They had to deal with a lot of generally uninformed, ignorant and stupid comment, might I say. They've just gotten on and kept performing. It set back their plans somewhat because their LITs went below NTA for a while and so on. Their retail flows were down compared with where they were. But nothing has fundamentally changed and Metrics are getting on with it. So Dan, in terms of the numbers, though.

Yes. I mean, as Ian mentioned, a couple of things that they have probably planned have been delayed slightly. So there may have been a LIT raise, for example, in the first half that they've not been able to do. There's the asset-backed lending trust, which we still expect to come to market reasonably soon, but maybe that's been pushed back a little bit. But in terms of the work they're doing to bring the various platforms that they've either built or bought together and in terms of the outcomes they've delivered to their client base through the last 6 to 12 months, it's been outstanding, and we're delighted with the progress they've made there. And then on the retail side, Kyle, thanks for the efforts of your guys and their team. I think they did a pretty good job there in retaining what we had.

Yes, that's right. Given the sentiment that was out there surrounding private debt and the regulatory review, which Metrics came out of with flying colors. I think we're on a really strong foundation coming out of that in retail. And to be honest, the retail flows, we managed to contain that better than I previously expected we were going to. So we feel really good. That's a huge credit to Andrew Lockhart and the whole team because they've continued to deliver exactly what investors have asked of them through that period. And I think that's really helped the sales effort in terms of defense and being able to shift that now going back into offense into this quarter.

It feels like the business has settled since the ASIC review and the elevated media retention earlier last year. It's feeling the client inquiries have quieted. Across the board is how I describe it. If you looked at the flows coming in offshore, New Zealand, Japan continue to be pretty strong. We haven't drawn the MTS money yet, the $200 million. So we're just getting the structure of that finalized. We've got new commitments coming in from Japan, Australian institutions, New Zealand, significant opportunities in the Middle East and Southeast Asia. And all portfolios are meeting their target returns. And that watch list that we had has been shortening year-on-year, particularly as the challenges in the real estate market, which happened during the COVID period around inflation, higher interest rate costs and the like, have started to eviscerate.

Your next question comes from Tim Lawson with Macquarie.

Just in terms of sort of product demand and sort of the flow pipeline, like throughout the pack, you've sort of called out interest in sort of core global [indiscernible] of mergers and then the Antipodes [indiscernible] product being listed. So it's a bit in the pack, but maybe just an overall comment on how you sort of see the pipeline of product demand.

Tim, it's Kyle here. So in wholesale and retail, you've called out a couple of the key themes. We see a material market share opportunity in active equities with significant demand for core equities, style-neutral equities, quant and emerging demand for long/short coming through to deal with some of the concentration risks that are coming across both Australian and global indices. Still significant demand and tailwinds for retirement income products. You're seeing that demand flow through into both alternative credit. But I'd also highlight that in private credit, those flows have been robust given the underlying sentiment that you saw over the past 12 months. And the underlying features of the asset class, capital stability, monthly cash income and delivering yields above the cash rate. These are all things that are very, very important as you have an additional 2.5 million to 3 million Australians moving into decumulation or pension phase in the Australian market over the next 10 years. So that's a huge theme of retirement income products when you talk to financial advisers. We're also seeing that in equity income. The final one I'd call out is in the advised market, you definitely see sophistication of adviser portfolios, and that's seeing new asset classes and demand for new assets that are diversifying from a risk and return perspective, a huge tailwind for private markets there as well. So they'd be the 3 big ones I'd call out.

And as you're adding...

Sorry, you go. I'm just saying where you're adding people? Like is that to increase the coverage across advisers like global distribution? Where is the headcount being added in distribution?

Yes. So in global distribution, we're looking to add additional headcount in the United Kingdom, particularly in the private wealth channels. If you looked at the $3.4 billion of inflows in the first half of FY '26, $2.3 billion of that came from wholesale, retail and family office investors. Obviously, some of that was PAM, but a huge number was also Life Cycle of those flows into Langdon as well and their UCITS fund, which has now cracked AUD 150 million this month, $250 million of pie flows net from New Zealand. So the U.K., additional headcount in Canada as well, which we have a pretty good footprint today, approaching $7-odd billion, getting a very strong connectivity. So we obviously added a Head of Canada in recent times. We'll add more people potentially in private wealth in time also. In the United States, we're looking to add additional people on the ground and also in the Middle East as well, where we're looking at headcount today. In terms of flows and demand on the institutional side because you did ask that question before, I've highlighted it several times in the past that this demand for core global Australian equities and U.S. equities across the board in all 3, I haven't seen it so high in more than a decade, both in high and low active risk strategies, both fundamental and systematic, long only and long/short. The last time you saw so much demand for active extension quant, you would have to go back to the mid-2000s to have actually identified the trend so strong. So it bodes very well for managers that sit in that camp. Across the board, we have Plato, Life Cycle, Firetrail, Solaris, all that obviously meet that particular portfolio construction demand side. Alternative fixed income remains a particularly attractive space also. So Coolabah fits very much in that [indiscernible] whether it's long-only, long/short absolute return on traditional fixed income replacements. And then on the alternative side, it's important to remember that we're in market right now raising closed-end funds for Advantage Partners, VSS, which hitting first closes in the first half. So expect private markets to be a bigger feature of the second half as we look forward. Lots of demand for mid-market private equity managers around the world relative to large buyer as a function, you don't need obviously, the financial engineering to drive the returns. It's about operating performance of those businesses. So that will be some of the key things I had just highlight.

Your next question comes from Nick McGarrigle with Barrenjoey.

I'll just ask a quick one. In terms of the distribution, maybe just an update there from Chambers on the institutional side. My understanding is there was some larger hopefully one-off related outflows in the Insto business. So maybe the sustainable rate of Insto flow is better than it might have looked in that December quarter?

Yes. So what I would say is there's money coming into core style equities, money was moving out of stylized managers. So Antipodes is probably a good example of that. We had some money come out. They retained a mandate, but it was reduced as a function of money going into core-style global equities. So as part of that trend to rightsize your stylized managers and put money into core. So that was a feature of the returns. Also in the case of global real estate securities, we've seen investors take money out of core real estate. So that's both private and public and put it into private equity style real estate. And that's been a trend among sovereign wealth funds around the world and major pension plans also. It's interesting if you note today that the return you get on real estate debt in senior debt, probably around about 11% to 12% of total returns is higher and more competitive relative to core style real estate equity, yet you're more secure in the capital stack. So that's the relative value that people are looking at right now and what's driving some of that behavior. But that's a point in time thing. It's not an issue relating to the quality of the manager or their style necessarily.

Great. And then maybe just one last one. The principal mark-to-market was obviously quite negative. Can you give us a sense on where that was invested or what style or what's driven that outcome and how that's continued to track into January? And then also, do you have to liquidate some of those positions in order to fund the cash component of PAM plus Advantage, obviously just settled in recent weeks?

Yes. So this is what I call Murphy's Law in operation, Nick. Overall, we do fine out of PI, but we just had a little bit of a perfect storm. There were 3 -- I don't know you were talking about -- there were 3 particular sort of new vehicles that were being seeded. And one was Hyperion, one was a Pacific -- a Pacific asset manager and the other one was Langdon, and they just had a particular period. Yes, I don't think we'll need to liquidate things at the wrong time.

No. And probably it's worth just pointing out 2 things. So we think of our seed or our PI portfolio rather in 2 buckets. There's a kind of part of it that's parked, if you like, is dry powder. Mostly that's with Coolabah and Metrics, and that did exactly what it was intended to do during the period, which is deliver a yield. And then there's a portion that we use for seeding new strategies, and that's really a strategic thing that we're doing rather than seeking short-term returns. Obviously, we expect and hope that we'll get those. But from a commercial perspective, notwithstanding we had unrealized losses on those in the 6 months, as Chambers mentioned, the land in uses funds now for USD 150 -- USD 140, my apologies. The Hyperion fund has now secured its first external clients, and that's been facilitated by the fact we have that money in the fund. So yes, it's a negative in the 6 months. We don't need to liquidate them in the short term. And strategically, that money achieved what it needed to.

Just when you think about funding future transactions, do you kind of go to debt initially? Obviously, the share price, we think is do a recovery, but probably not attractive to be raising equity at these levels, but future acquisitions, is debt funding on the table?

I don't think we should speculate about that at the moment, Nick. We -- no, we don't have to do any particular acquisitions by particular dates and so on. Let's just take on board the things we've done and see what the future holds. I just -- I don't think it's helpful to start speculating on what acquisitions we might make and how we might fund them, et cetera. We've got a good record. We've always said that we don't want to build up capital to burn a hole in our pocket. So we've continued to pay out like 90% of our earnings. A lot of people argue we should not pay out dividends. We should retain it. So we said, look, we're not going to build up capital burn a hole in our pocket. If we have a need for capital, we'll figure that out. I think you -- I would hope you would agree that we over raised. We raised $400 million back in November, a bit over a year ago. We didn't have $400 million worth of opportunities then, but we could see them coming. And so we took that opportunity. And that's worked out. I hope everyone would think it's worked out exactly the way we said it would, that we funded the first 25% of PAM and VSS. We acquired a bit more of 1 or 2 of our Affiliates equity. And we had the other that we parked and we've used it now with the rest of PAM. So I think we just have to ask you to trust us to manage as we go forward if and when we need extra capital.

That is all the time we have for questions today. I'll now hand back to Mr. Ian Macoun for closing remarks.

Great. Thanks. So apologies. I went a little bit over time. Just remains to say thank you to everybody for joining us. We are very excited about PAM, what we're doing overseas, how the business is going generally. We think the business is going extremely well. But we look forward to talking in one-on-ones about, for example, our further plans overseas and so on. So thanks very much, everyone, for joining.

That concludes our teleconference today. Thank you for participating. You may now disconnect.