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

Okay. I think it's now 9'o clock. Good morning, ladies and gentlemen, fellow shareholders, colleagues and visitors. Welcome to our 2024 Annual General Meeting, and thank you for taking the time to join us in person at our Sydney office and online. I begin by acknowledging the Gadigal people of the Eora nation, traditional custodians of the land on which this AGM is being held and pay my respects to elders past, present and emerging. My name is Alan Watson, and I'm the Chair of Pinnacle Investment Management Group Limited. Before we begin with today's agenda, I would like to introduce my fellow Board members. First, on my right, we have Ian Macoun, our Managing Director. Next to Ian, we have Ms. Deborah Beale and Mr. Andrew Chambers, Ms. Lorraine Berends and Ms. Christa Lenard. Also here today is our company Secretary and Chief Legal and Commercial officer, Mr. Calvin Kwok; Mr. Kyle Mcintyre, our Head of Wholesale and Retail Distribution, Ms. Kaitlin Priestly our Sustainability Manager and Mr. Dan Longan, who is our Chief Financial Officer. I would also like to welcome the company's auditor, Rob Boulding, and Director, Rebecca Otto from PricewaterhouseCoopers, who are here to answer any questions that shareholders may have in relation to the 2024 financial statements. The next slide contains important information and disclaimers in relation to the presentation, which I encourage shareholders to read. I now turn to the agenda for today's meeting as shown on the screen. The meeting will commence with formal business. After that, Ian will provide an update from the Managing Director. I've been informed by the Company Secretary that we have a quorum, and I now declare the meeting open. I'm also advised that there are no apologies recorded prior to the commencement of this meeting and that the notice of the meeting was sent to all registered members within the notice period required. I now table the Notice of Meeting. And unless there are any objections, I'll take the notice convening this meeting as read. I will now proceed with the formal business of the meeting in the order that it appears in the notice of meetings. There are 5 items of business to attend to being the tabling of the 2024 financial statements, the adoption of the remuneration report, election and reelection of directors, renewal of the Omnibus Incentive Plan and issue of shares to Andrew Chambers as part of that Omnibus Incentive Plan. Shareholders may ask questions prior to each resolution being put to the vote, particularly in relation to that resolution. We will also have some question time at the end after Ian's presentation for more general questions about business. Shareholders attending in person, please raise your blue or yellow card, if you would like to ask question. Shareholders joining online, please click the Q&A icon. Select the topic your question relates to from the drop-down list, type your question in the text box. Once you finish typing, please hit the send button. Shareholders joining online, who would like to ask verbal questions, please follow the instructions below the broadcast window. You'll be placed into a queue to ask your question. When it is your turn to ask a question, the moderator will advise you to introduce yourself and ask your question. I request shareholders to limit themselves to 2 questions and only ask questions at this time in respect of matters relevant to the item of business being considered. Questions may be moderated or amalgamated if there are multiple questions on the same topic. As I mentioned before, Ian will be providing a full update after the formal business, and there will be opportunity for shareholders to ask general questions after that. Persons who are entitled to vote are shareholders, representatives and attorneys of the shareholders and proxy holders, all of whom should be holding blue admission cards, if you are attending in person. On the reverse of your blue emission card is your voting card and instructions. Please also ensure you print your name where indicated and sign the voting card. When you have completed your voting card, please lodge it in a ballot box to ensure your votes are counted. If you require any assistance, please raise your hand. If you're voting online, please click on the vote icon to access your voting card. Please select for, against or abstain on each resolution. Please note, there is no enter or send button as votes are automatically recorded. You may change your vote up until the time I declare voting closed. As noted in the notice of meetings, resolutions will be decided by a poll, which I now declare open. I will put 4 resolutions to the meeting shortly. All valid proxies received have been recorded, and these will be reported to the ASX after the meeting. For shareholders' information, we will display on the screen prior to the consideration of each resolution, the proxy voting for each resolution. The first item of formal business on the notice of meeting is to consider the financial statements of the company for the year-end June 30, 2024. Together with the director's report and the auditor's report as set out in the 2024 annual report, which have been made available to shareholders. I formally table the financial statements of the company for the year-end 30 June 2024 and the related directors' report, directors' declaration and auditor's report. I will take all of these reports as read. If anyone has any questions in relation to the financial statements, the content of PwC's audit report for the year-end June 20 -- sorry, for the year-end June 30, 2024. The accounting policies adopted by the company in relation to the preparation of financial statements or the independence of the auditor in the conduct of the audit, please submit them now or raise your hand. There are no questions. Thank you. The next item of business is to consider the adoption of the remuneration report for the 2024 financial year. The remuneration report is contained within the 2024 annual report and forms part of the Director's report. The remuneration report incorporates information required by Section 300A of the Corporations Act and sets out the remuneration policy for the company and reports the remuneration arrangements in place for key management personnel, including the directors. Section 250 are open brackets 2 closed brackets of the Corporations Act requires companies to put a resolution to their members that the remuneration report contained in the Director's report be adopted. If anyone has questions in relation to this resolution, please submit them now or raise your hand. There are no questions. I now put the resolution to the meeting. The number of proxies received by the company as at 48 hours prior to the meeting for the resolution are now shown on the screen. Please cast your vote on the voting card. Thank you. Election and reelection of directors. The meeting now needs to consider the election and reelection of directors in accordance with the constitution. Under the constitution, any director appointed by the director holds office only until the end of the next following general meeting, and is eligible for election at that meeting. Christa Lenard was appointed as a director by the directors effective from the 2nd of August 2024. Accordingly, she is required to stand for election at this year's AGM. The explanatory statement attached to the notice of meeting provides information in relation to Christa. In summary, Christa has 20 years' experience in advising representing clients on a wide range of contentious and noncontentious employment law and HR matters, including discrimination law, industrial disputation, enterprise bargaining and day-to-day employment law advisory, managing psychosocial welfare and organizational change, workplace investigations and alternative dispute resolutions. If anyone has questions in relation to this resolution, please submit them now or raise your hand.

Alan, we do have a question submitted by Mr. Stephen Mayne in relation to this resolution. The question asks questions around what's the reason for the little change in [indiscernible] and composition and whether you and Christa could comment on the recruitment process on her becoming a director and just host share ownership levels.

Okay. Well, let me take the -- so the first question was on the stability of the Board over the past few years since we -- and we've got Steve here, but Steve will obviously be able to tell us some of the history. But when we started as Wilsons, we then changed and rolled up into Pinnacle in 2016. So that was when a new board really came together, and it's been pretty stable from that period on. Gerard Bradley, excuse me -- Gerard Bradley retired from the Board last year, and we've been -- since then, we undertook a wide process to find someone to join the Board. This process took us about a year. Everyone in the board was involved. So everyone in the Board met with Christa at various times. We set out various criteria that we were searching for. And perhaps it might be helpful for me to share them with you. First thing that we all agreed upon is that the person that would join the Board had to be someone we could all trust and/or the way we would decide it was that would be someone has probably worked with them in the past. And Christa has been known to the firm both as a professional lawyer in the past. And Ian, in particular, has worked with us for quite some years. Secondly, we determined that we would most likely want a female director. And that's as we see the ASX continuing to move to board representations of up to 40% in due course, we wanted to have that in place as quickly as possible. Thirdly, the person must bring skills that are relevant to our growth agenda. If you think about what we're trying to grow, it's all about affiliates and more affiliates, both here and internationally, and that's about people. And having someone on our Board, who is perhaps one of the most skilled people in Australia on managing people issues, which run from legal to HR to psychological in a business that's all around people, is critically important to us and is a skill that basically we didn't have on the Board previously. So it's hugely additive. And I think I can speak on behalf of my other nonexecutives to say Christa made a strong contribution in that area as a nonexecutive. And finally, and again, with respect to our existing nets it was important that the demographic of the new people or new person was significantly younger than us. And we're building this company for the next 10 years. Next 20 years. So we want to put in place a demographic of people who are -- I'm not going to use the exact number, but I think it's transparently obvious younger than the rest of us. And I think -- but I think that's important that shareholders understand that, that we're building this demographically for the future as well. The final thing that attracted us to trying to persuade Christa to join us is she's built her own firm. So one of the things you may not know is that she was a very successful partner at K&L Gates and then she was a founding partner of Kingston Reid. And what that meant is similar to what our affiliates do quite often when they leave a big institution and set up their own firm. Christa has actually done that, and she's undertaken many of the challenges and stresses that our affiliates face in that process of building her own firm. And in that way, she's very uniquely skilled on our Board as a nonexecutive who has built that business. So I think that's -- it's a great question. I hope that answered it. Any further questions before I put the motion to the -- are you ready for us to go to the -- Mr. Secretary, can I proceed?

Yes. Okay.

So I now put the resolution to the meeting. The number of proxies received by the company as at 48 hours prior to the meeting is now shown on the screen. Please cast your vote on the voting card. The constitution also requires that 1/3 of the company's Directors eligible for rotation, stand for reelection every 3 years. The directors to retire by rotation at each HGM are those that have been longest in office since their election or last reelection. Deborah Beale and Andrew Chambers are retiring from office and offer themselves for reelection. The explanatory statement attached to the notice of meeting provides information in relation to Deb. In summary, Deb has had a distinguished career in the finance industry, having worked for Merrill Lynch and Ernst & Young and his broad experience in corporate governance, risk management, government and public relations. If anyone has questions in relation to this resolution, please raise your hand. Okay. There are no questions. I will now put the resolution shown on the screen to the meeting. Deborah Beale, who retires from the office director by rotation being eligible, offers herself for reelection, be reelected as a director. The number of proxies received by the company as at -- sorry, as at 48 hours prior to this meeting for the resolution are now shown on the screen. Please cast your vote on the voting card. Thank you. Turning to Andrew. The explanatory statement attached to the notice of meeting provides further information to Andrew. In summary, Andrew is currently responsible for leading the company's institutional and international distribution divisions and has been a senior executive with the company since 2008. If anyone has questions in relation to this resolution, please submit them now or raise your hand. I will now put the resolution to the meeting that Andrew Chambers, who retires from office of director by rotation being eligible, offers himself for reelection and be reelected as a director. The number of proxies received by the company as at 48 hours prior to this meeting for the resolution are now shown on screen. Please cast your vote on the voting card. Okay. The next item of business is to consider the approval of the renewal of the Omnibus incentive plan. The Board remains determined to sustain an environment that promotes the continuation of the success of the business and believes that this is inextricably linked to its ability to attract and retain a consistently high-quality management team, operating in a flexible and entrepreneurial environment within which individual behaviors and interest of the leadership of the executive group are directly aligned with external shareholders through common long-term equity ownership. The plan constitutes a set of long-term incentive arrangements that provides the ability to offer options, performance rights and loan-funded shares to employees. And this was first approved by shareholders at the company's 2018 Annual General Meeting. If anyone has questions in relation to this resolution, please submit them now or raise your hand. Thank you. There are no questions in relation to this resolution. I will now put the resolution as shown on the screen to the meeting. The number of proxies received by the company as at 48 hours prior to the meeting for the resolution are now shown on screen. Please cast your vote. Sorry, it's there now on the screen. Please cast your votes. Thank you. The next item of business is to consider the issue of shares to Andrew Chambers under the Omnibus incentive plan. Shareholder approval is being sought to grant 100,000 loan shares to Mr. Chambers. These loan shares form part of the company's FY '24 remuneration program and are proposed to be issued on the same terms as the long-term incentive grants issued to other staff, except that the issue price will be determined after receipt of shareholder approval, noting that the price of grants are based on volume weighted average price, VWAP, for the 5 trading days immediately prior to issue. If anyone has questions in relation to this resolution, please submit them now or raise your hand. There are no questions. Thank you. I will now put the resolution shown on the screen to the meeting. The number of proxies received by the company as at 48 hours prior to the meeting for the resolution now shown on screen. Please cast your vote on the voting card. Please ensure that you have cast your votes on each of the resolutions. Shareholders in the room attending in person, please lodge your completed voting cards in the ballot box, which is coming around and either raise your hand or type a message in the Q&A box if you require more time to complete your card. Anybody else? Okay. So everyone in the room and Mr. Secretary online, may I declare the -- okay, I now declare the poll closed. The results of the poll will be announced to the ASX as soon as they're available. Thank you for your attendance. That concludes the formal part of this meeting. I'll now hand over to Ian for an update from the Managing Director.

Thanks, Alan, and good morning all. Just have next slide, please. So this slide shows the main topics that I plan to address today. Firstly, I'll review the key themes and outcomes for our company for the 2024 financial year. I'll briefly review the financial results for the 2024 financial year, then provide an update on developments during the first quarter of the new 2025 financial year. I'll elaborate on our growth agenda and why we are confident we can continue to execute on our strategy of increasing the diversity and robustness of the business whilst delivering strong average annual rate of growth. I'll explain how we've created an excellent platform from which we can continue to grow, both in Australia and internationally in a variety of ways with 3 mutually reinforcing horizons of growth, whilst being robust to the kinds of external adversity experienced in the 2020, 2022 and 2023 financial years. I'll provide a brief update on our most recent affiliates, and I'll share some detail on the strong progress we've made in the vitally important area of corporate sustainability and the great work of the PNI Foundation. The slide now showing on the screen has been extracted from our annual results presentation of the 1st of August. It sets out how we summarize the key themes and outcomes for the company for the 2024 financial year. For quite some time now, we have been emphasizing our strategy of further increasing the diversity of our business. Our momentum in both private markets, asset classes and internationally, has underpinned a year in which we have achieved robust growth in funds under management, in revenue and in earnings. We delivered record opening funds under management of $110.1 billion as we moved into the new 2025 financial year. That was up 20% on 1 year earlier and up 10% over the 6 months since 31st of December. We delivered net profit after tax for the 2024 financial year of $90.4 million up 18% on the previous year. Earnings per share of $0.455, up 17% and dividends of $0.42 per share up 17% on FY '23. As I mentioned, we achieved continuing growth in private markets and other alternative strategies during the year. International distribution momentum is building. Our overall retail net inflows were strong despite weakness in investor appetite in public equities over the first 3 quarters. Our net horizon 2 spend reduced as expected as revenues grew demonstrating operating leverage across the platform in the second half of the financial year. And many of our affiliates produce continuing strong investment performance resulting in performance fee contributions from a diverse set of strategies. I'll provide further detail on our profit FUM and fund flows shortly. Slides 24 and 25 elaborate these themes. In point one, net inflows into private markets, assets represented 57% of total net inflows for the year. This is the first year that private markets inflows exceeded public markets inflows. And private markets FUM represented $22.8 billion or 21% of total FUM at 30th of June. That's up from $1.5 billion 8 years ago. Looking at point 2, more than $18 billion of our FUM now comes from more than 40 countries outside of Australia approximately $7 billion or 70% of total net inflows for FY '24 was from international investors. This is a very strong platform for future growth in FUM from investors outside of Australia. To point 3 retail inflows despite challenging conditions for the first 3 quarters of the financial year for public equities, our diverse product set enable strong retail inflows of $3.9 billion, including $2.3 billion into private markets asset classes and $1.3 billion into listed credit. Slide 25, please. In Theme 4, our net horizon 2 spend reduced from a net cost of $7 million in the first half to $4.5 million in the second half of the FY '24 financial year. We'll get to 5 investment performance 85% of affiliate strategies with a track record of 5 years or longer, have outperformed over the 5-year period to 30th of June 2024. More than 25 strategies, representing 35% of our total FUM have the ability to deliver performance fees. With such a diverse and largely uncorrelated set of strategies, we have the ability to deliver meaningful performance fees in each financial year across differing market cycles. Slide 26 sets out the financial highlights for the 2024 financial year. As I mentioned, we reported net profit after tax of $90.4 million for the year, 18% up on FY '23, NPAT of $76.5 million. Our diluted EPS was $0.455 per share, up 17% and on the FY '23 EPS of $0.39 per share. And we delivered a final dividend of $0.264 per share, taking total dividends for the year to $0.42 per share up 17% on FY '23. To the top left-hand side of the table, our aggregate affiliate FUM at 100% at 30th of June 24 was $110.1 billion. This was up $18.2 billion or 20% on $91.9 billion at 30th of June 2023 and up $10 billion or 10% on 31st of December 23. Aggregate retail FUM was $28.8 billion at 30th of June up $6.1 billion or 27% on a year earlier. The ASX 300 index was up 7.7% over the year and the Miski World Index up 17.5%. The NASDAQ, which is relevant to Hyperion Global, was up 28.6% and the global REIT index relevant to Resolution Capital's global REITs was up 2.9%. Total affiliate revenue at 100% was up 30% at $663.4 million, of which $553 million was base fees, up 22% and $109.8 million was performance fees up 89%. Pinnacle's net share of performance fees after tax were $31.2 million, up 112%. So a little over double the $14.7 million in FY '23. Total net inflows for the year were $9.9 billion, of which $3.9 billion was retail, $7 billion was from international investors, and we had $900 million of net outflows from Australian institutions. During the second half of the '24 financial year, total net inflows for the half were $5.4 billion, of which $2.1 billion was retail, $3.9 billion was from international investors, and we had $600 million of net outflows from Australian institutions. Slide 27 shows our record of earnings growth over the 8 years that we have been listed Pinnacle. Slide 28 elaborates our track record of strong earnings growth through the periods, which incorporate some less favorable stages of the market cycle. Earnings per share have grown at a compound annual rate of 21.7% over the 5-year period to the 30th of June '24. Slide 29 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 our strategies with larger performance fee FUM delivering in future years. Slide 30 shows in graphs our 18-year FUM growth and net flow history. FUM has grown at a compound annual growth rate of 23.2% per annum over the past 10 years. Our FUM sourced from international clients have grown strongly over the past few years and particularly in FY '24. Aggregate retail and international FUM, which tend to have higher fee rates than domestic international -- sorry, domestic institutional now represent 43% of total FUM. The bottom graph shows the strong growth in retail and overseas-based FUM. We have continued to win business into private markets asset classes, and from offshore. Slide 31 provides detail on the growth of our private markets businesses and of our international asset classes. Slide 32. Turning now to the September quarter, the first quarter of the new financial year. The aggregate of the affiliates' funds under management stood at $128.1 billion at 30th of September '24. This was up $18 billion or 16% on the $110.1 billion at 30th of June 2024, up $8.2 billion or 7%, excluding FUM acquired by Pinnacle affiliate during the first quarter of FY '25. Total net inflows for the 3 months to 30th of September '24 were $1.8 billion. $1.6 billion of which was retail net inflows with $100 million of net inflows into each of the international and domestic institutional markets. Equity markets had a positive impact on aggregate fund levels from the beginning to the end of the quarter. The S&P ASX 300 Index was up 6.5% and over the 3 months ending 30 September, the Miski World Index was up 6.2%. The NASDAQ relevant to Hyperion Global was up 2.6% and the NAREIT -- global REIT index relevant to Res Cap Global was up 10.9%. Good to see some improvement in REITs. Slide 33. Headline net inflows were positive for the quarter, led by a strong retail result. Retail net inflows were strong with resilient demand for private credit, fixed income and other private market assets as well as improving retail investor sentiment in equities. We achieved modest institutional net inflows, both domestic and internationally. As we have said previously, these flows are lumpy and can vary significantly over shorter time periods. We remain confident in our institutional pipeline. Equities markets ended the quarter at higher levels than at the start of the financial year, which had a positive impact on revenue. Conversely, exit conditions in private equity are less favorable. And again, most of the affiliate strategies have continued to deliver performance to expectations or better. Slides 34 and 35 provide the specifics of the 5-year performance track records of the 39 affiliate funds or strategies. Slides 36, 37 and 38 provide further performance detail. Slide 39 updates on our more recent major industry awards. We were delighted at the Zenith Awards last week to win the Distributor of the Year Award. This is a tremendous endorsement and recognition of the quality and success of our retail distribution team led by Kyle Mcintyre, Mark Cormack, [ Jed Williston ] and Andrew Reidy, and the marketing team led by Jarrad Brevi and Simon Kawaguchi. Metrics won the Private Markets Fund Manager Award. Hyperion, Resolution Capital and Solaris were finalists in 5 other investment management categories. In Slide 41, we remind shareholders that we think in terms of 3 horizons of growth. Horizon 1 is the main game. It is continuing to pursue net inflows into existing strategies of existing affiliates. We remain very confident of our ability to continue to do that and particularly to continue to grow affiliate revenues. We conservatively estimate the capacity of the affiliates existing strategies at approximately $500 billion. So there is plenty of Horizon 1 runway left with the attendant strong gains in operating leverage that will be accompanied by such growth. Horizon 2 is the subject of an enormous amount of activity, both within Pinnacle itself and within all of the affiliates. We've stated that we estimate the cost to Pinnacle's bottom line NPAT in FY '24 was in the order of $11.5 million. Slide 43. This is a slow -- we're still talking about Horizon 2 here, a slow patient process where we invest now for medium-term gain, but we've been doing this for a long time. and have a strong record of very high returns on our past horizon 2 investments, not even including unrealized capital gains on the value of the businesses and strategies we have built. We are confident that we will continue to do this, and that will continue to be the case in the future. We have mentioned specific Horizon 2 initiatives in Slides 44 and 45. Slide 46 relation to horizon 3, which, of course, is where we use capital to buy into existing businesses. Slide 46 explains that our most recent transaction was the acquisition of a 25% interest in private equity and venture capital manager Five V in December '21. This slide explains that we have continued to explore further Horizon 3 opportunities but have remained disciplined in relation to the quality and valuations of candidate investments. We've explored many Horizon 3 opportunities, seeking the characteristics that we've explained previously. We seek investments that are strategically attractive and diversifying relative to the current affiliate composition. We are seeking internationally based opportunities but have also looked at select opportunities in Australia, and we seek asset classes that are in high demand, including private credit infrastructure, real estate and hedge funds. Slide 47 provides in time line format and update on Five V progress since then. Slide 48 provides a time line format and update on as well as a reflection on the history of our partnership with Metrics, which has already spanned 11 years including initially a distribution partnership. Our partnership with Metrics has been tremendously rewarding. Slides 50 to 52 provide updates on our most recent affiliates life cycle Metrics and Five V, I don't have time to go through these now, but we can elaborate on them if shareholders wish during question time. Slide 53 commences the section of the presentation on corporate responsibility. Over the course of the year, we continue to progress our sustainability agenda which is structured around 3 principal focus areas: purpose, people and planet. Pinnacle Affiliates approach responsible investment in ways that are most relevant to their investment strategies with all affiliates integrating ESG considerations into investment decision-making. Our role in this regard is to support and advise. We do not take part in their investment activities. This year marked a significant milestone in our company's history as we formally committed to advancing reconciliation through the publication of Pinnacles reflect reconciliation action plan. Through this plan, we aspire to deepen our understanding of Aboriginal and Torres Strait Islander peoples, cultures and histories, strengthening existing relationships and forge new relationships with Aboriginal and Torres Strait Islander stakeholders. Over the year, we continued to promote a work environment of inclusion. We introduced 40, 40, 20 gender targets for the Board, senior executives and all employees. These targets seek to achieve balanced gender representation of 40% male, 40% female and 20% either gender across our organization. Most notably, we awarded 12 women in finance scholarships to students across 5 universities. This is the sixth year of the program, which commenced in 2019. Since the program commenced, 87 scholarships have been awarded and 16 scholarship recipients have been actively employed across Pinnacle and affiliates. We continue to disclose our progress in addressing modern slavery risk and our operations -- sorry, in our operations and supply chain through the submission of an annual modern slavery statement. The statement details our commitment to partnering with suppliers, communities and affiliates who respect and protect fundamental human rights. During 2022, we formed the Pinnacle ESG Working Group, which is attended by key executives from Pinnacle and all of our affiliates and is underpinned by a charter that Pinnacle and all affiliates were invited to adopt, setting out our combined commitment to corporate responsibility. Working together, we can be much more effective -- a much more effective force for good than operating alone. This group has identified 2 key focus areas: supplier engagement and workforce diversity with focus groups formed to work on each initiative. The Pinnacle Group supplier engagement group is a collective initiative aiming to maximize leverage in supplier engagements and promote key sustainable themes within our corporate supply chain. We remain committed to reducing the environmental impact of our operations. Pinnacle is proud to have received climate active carbon neutral certification for our FY '23 emissions, and we remain committed to maintaining our carbon-neutral status each year. Our commitment to carbon neutrality enables us to accelerate climate action in the near term as an interim solution and support organizations like the Aboriginal Carbon Foundation to implement their fire management program. However, our primary focus remains on reducing our environmental impact. More detail is set out in our corporate sustainability report on our website, which we would encourage you to read. Slide 56 explains that total donations by the PNI Foundation in FY '24 exceeded $677,000 with a further $445,000 donated by affiliates. Slides 62 to 91 in the additional information section provide an update on the institutional and international markets and flows. Slide 72 to 74 provide an update on the wholesale and retail market and retail flows. We will likely discuss these further during question time. In conclusion, I'd like to remind shareholders of the basis on which we remain so confident of our company's ability to grow and prosper which is the strong funds management platform that we have built and our highly regarded distinctive business model. These slides provide some further detail in this regard. Shareholders can be assured that nothing has fundamentally changed in your company's ambitions, strategies and growth plans. We've simply had to show some patience in the face of market turbulence and it is not the first time we've had to do that during our 18-year history. That concludes the commentary I wanted to provide on the slides and on the performance of the business during the last financial year and the September quarter Q1 of the current 2025 financial year. Thank you, everyone, for listening.

We turn to the general Q&A of the meeting and invite shareholders to ask any general questions they have.

Yes. Brian Nelson, shareholder. Just a question about metrics and the area that they deal in. They're launching new funds, which is obviously good for us and why should be pleased about that. But -- and there's quite a lot of competition happening in that area now. And the other funds are also expanding as well. And there's been some commentary that possibly the proliferation of this sort of investing would necessary move down the curve of quality. Just wondering if you might have some comments to make.

Yes. Thank you for that question. It's an extremely important one because Metrics is a very important part of our business and even more broadly part of our future as it grows, it's early days for Metrics. They have roughly $20 billion of assets under management, which is growing from -- there's only 2-point something billion when we bought our equity. So we're delighted with the way they're growing. Of course, we always worry about the environment of our affiliates, the risks, the possible things out there that might damage future growth, would damage our affiliates. So we think a lot and talk a lot about Metrics. And the very things you've talked about, absolutely. So there are a lot of players coming into the space. That's not surprising. It's very attractive. The demand from investors is enormous. And it's going to grow enormous. And that's a global thing, but it's also very much in Australia. Now a lot of these players are smaller and they differ widely. As Andrew Lockhart would say if he was here, it's not a homogenous group -- private credit fund managers. There is a massive range of quality, skills, sort of assets there into, et cetera. We would expect that at some point, there will be some issues, some problems. Metrics, we think stands out from the field. They have the largest by far, that was deliberate. Andrew and his team said more than 10 years ago this is going to be a large space, we need to get out there. We need to be a leader, and we need to own that space. So outside of the banks, Metrics is the largest in Australia. That gives them some major advantages. The skills and experience of the partners and their teams is tremendous. They have very seasoned bankers. They've been through -- we talked to them, they've been through everything. They've been through the early '90s real estate and banking crash. They've been through the GFC, et cetera, et cetera. They are always very focused on risks. They believe, and it's true that their positioning enables them to pick and choose credits. They are in a good position in that regard. They don't have to play in that riskier space that some of the players are in, which I agree, there are likely to be some problems at some stage. But look, it is a huge market. The banks are shrinking from the space forced by regulators that makes way for a very large amount of assets for the nonbank players. They look ahead and they think they can grow enormously without prejudicing the quality of their lending. So not complacent, not for a minute, ignoring the sort of things you're talking about. In fact, they're incredibly focused on them, and it's talked about all the time. So we are very confident. Pinnacle is delighted with our partnership with Metrics.

Just reading the balance sheet [indiscernible] banks were 20x levered. Today, I mean, 15 to 16x levered so someone has to fulfill that gap. So it's not lower credit. It's just -- lower grade credit is just simply your fulfilling a vacuum left behind by the banks shrinking their balance sheet. The demand on risk-weighted assets is actually going up next year, I think for most of the major banks as well. So again, that greater pressure you're seeing in the hybrid market as well. So you're going to make them really very strong and safe banks, but ultimately, that leaves an opportunity for private credit price to fill that void.

So globally, regulators are just pressuring the banks more and more and more to reduce their exposure. And remember, banks are regarded systemic risk because they're deposit takers and very highly leveraged. Private credit doesn't have that sort of leverage, they're not deposit takers, the investors in their funds are be enough and ugly enough to worry about themselves. They're big sovereign wealth funds and so on they know exactly what they are investing in. But banks are shrinking, someone has to fill that. This is trillions of dollars. These are enormous amounts. So it's a wonderful opportunity, and it's relatively early days.

And there's a lot of regulatory reporting for all the private credit plays about $50 million of assets to APRA on a monthly, quarterly and half yearly basis anyway. So there's a lot of disclosure happening, which people don't see on the surface. Not about Metrics in particular, but there seems to be a gold rush happening at the moment. And as Ian has confirmed, there's likely to be some underperformance that will maybe affect the reputation of the whole system.

Absolutely. And again, we've spoken about that at Metrics. By the way, Andrew and I are the 2 Pinnacle reps on the Metrics Board so you'd like to think that we know a lot about this. But what I'm trying to...

We actually think that Metrics as the premier quality player. I mean, yes, there'll be a time, but actually, that will be a great opportunity for when it materializes.

It will make it obvious the differences amongst various private credit managers.

And it's not dissimilar to some of our equity investments if you go back, when you've seen big shakeouts in the market, fortunately, our affiliates have outperformed. And that's actually positioned them well for subsequent time.

It's not surprising there'll be a rush into it. Everyone can see. Blind Freddy can see the size of the opportunity.

Yes. Well, thanks for that. It's very good. It's just that when problems occur, whether it's with Metrics or other people that's going to affect the reputation of the asset class.

Yes, absolutely. But as Alan said, it's a double-edged sword. There will be negative for Metrics, as you say, that there will be lots of chatter in the press and all private credits, bad, bad, bad. Our investors understand and their advisers and their gatekeepers understand this. And as Alan said, pretty quickly, we think it will be a benefit for Metrics because it will just put up there in light quality differences.

Okay. I think that segues nicely to a couple of questions we received online in relation to Metrics. One on the regulatory change that will possibly come to private credit. And given Metrics of size how they will be managing the risks of that growing sector and also the exposure to the Pacific Hunter restaurant businesses that Metrics now owns 100% of and how that exposure might impact on Pinnacle's?

Yes. So in terms of the regulatory question, so I guess this is asking whether the nonbank lenders. So the private credit groups will become subject to greater regulation. So Andrew might well be more on top of the detail of this, but my quick answer to that is, first of all, there's already a lot of reporting and regulation of these. Metrics is subject to enormous scrutiny. Some of its funds are listed funds. So they're subject to all of the governance that applies to that. They've got any amount of external valuations and like there's extensive governance. It's speculation as to whether or not the regulators will want to increase the scope of their regulation. Personally, I don't think there's a justification for that. It's all about systemic risk. I don't think the systemic risk in private credit fund managers that there is in banks, as I mentioned before, that have the leverage that I have deposit takers. But there is an argument that actually as they get -- become so big, the banks are actually lending to the private credit groups. And anyway, it remains to be seen -- as I say, I don't think the justification is there, but who knows what under the pressure of lots of public chatter what the regulators might do. They will adapt, okay? These loans have to be made. Someone has to make them. I don't think the regulator wants to destroy the economy by having no lending. So they will adapt and if they have to provide more reporting, whatever more provisioning, whatever, they adapt. They will be in a better position than most to adapt because of how professional and sort of well resourced and capable Metrics is.

But they are actually a registered financial corporation, so an RFC. And anyone, again, who has $50 million or more of lending in the market in Australia has to report that to APRA. And there's penalties if you don't and that turns on a monthly, quarterly and half year and annual basis today. So there's a lot of belts and braces applied by APRA today. Then there's obviously ASIC as a regulator if you have a responsible entity involved in your funds under the DDA regime. So there's substantial requirements under that. So Perpetual and EQT, which provide responsible entity obligations to ASIC for our Metrics, have to report on those funds all of the time under that particular regime. All of the various funds are rated by Standard & Poor's. All the major banks lend to the funds they do their own credit assessment. All of the major vehicles are in an ASX-listed format, which requires continuous disclosure obligations in terms of the valuations of those assets, which are impairment tested by Ernst & Young on an ongoing basis and then they're ordered by KPMG so there's lots of belts and braces around the valuation work and obviously, the quality of that lending that's happening, which is unlike the majority of participants in the local market by other private credit players. Most of them have a related party responsible entity, structure a trustee. And so they actually own that. So there's a conflict of interest potentially in that rather than the independents, which Metrics specifically have around their RE relationship. So that is a concern potentially for some of the smaller players in terms of their governance. But obviously, we're held at the highest governor because of the ASX listed vehicles that we run for every single strategy the Metrics has today. So that gives us a lot of confidence around that. We also lend to the large corporate institutional lending market. So all the major lending borrowers such as Woolworths, Eastern Distributor, these are types of assets we're lending to in the corporate institutional book in addition to leverage finance, project finance and infrastructure debt, but there's really large scale lines in their book today. We do lot of sort of stress testing with the portfolio with insurers who are investors in the funds as well. So they're under a stress testing environment that apply. So in a GFC style event -- sorry, '87 stock market crash all applied at the same time, what would be the impact on the NAV of the portfolio. So they have to report that through at all their insurance clients. There's very little impact because of the mass diversification of the underlying book so we're quite comfortable about the quality of the book, but also how would it perform under a stressed environment as well.

And you'll remember when we took our equity interest in Metrics a few years ago that we actively made the decision not to bring the RE into Pinnacle. So we've kept it independent, external and at arm's length, which I think serves us hold as well. As to the Rockpool Group, this is obviously high profile -- salacious, great for the press to write lots of speculative stuff about so Metrics have hundreds of loans out there. So they are very careful not to have high concentration to any particular lender -- borrower or exposure. So they're very careful about all of that. So you are always going to get a tiny proportion, we hope, of problem credits. One of the big advantages of many -- some private credit managers definitely Metrics is they have much more flexibility and a greater ability to work out problems that banks do. A lot of lenders will just are this is not going well, we'll put a receiver in, take a loss, move on. Metrics don't do that. They are very happy to step in, convert the debt to equity and take time to work for their investors to get a much better outcome. They are confident, we're not going to speculate about the outcome of that group. They are confident of producing a good return for their investors on what is now equity in that group. So they were able to convert the debt to equity. Equity is gone, lost everything. The Korean banks that were in there with some...

Some original equities gone not their equity.

Original equity is gone. So I won't speak too much about who they are, et cetera, but there was private equity in there. The original equity is gone. There were definitely subordinated Korean banks have lost all their money. Metrics as senior secured lender have been able to convert their debt to equity. They have flexibility in their funds that, that was in. It was in the higher risk area of funds. So listed is not MXT or the wholesale -- it's in MOT is the only listed one that has that there. And by the way, independent expert valuations of that group are within those funds. So there are any losses mark-to-market. They're in there already. So it doesn't seem to have affected MOT very much, et cetera. But bottom line, I'm not going to speculate about it, but I think it demonstrates the advantage that Metrics has over the banks in mid and the other private credit groups who just do not have the capacity to work out problem loans.

Experience in particular area of brand -- industrial. So it's an interesting one where they needed to convert debt to equity. They ultimately did that and delivered a 15% IRR to investors in the fund, but had they cut that position and walked away from it would have been a loss. But they ended up working really hard against all the hedge funds and then sold out at a profit. So it's having those skills to be able to take equity when you need to and get full recovery and even a profit on it, which is very unlike a banking institution, which is regulated, is too punitive to hold it on your balance sheet.

The capital cost of them holding an equity position on the bank's balance sheet is punitive.

Steve Wilson, shareholder. Just on Metrics that we're talking about that. I'm just wondering -- I want to ask a question about margins. So I noticed the margins that are in the annual accounts show that whilst Metrics is growing well, its margins only, in fact, went down slightly so it sort of circa 15%, 14%. Can we take from that, it's a kind of perennially lower margin, high growth but lower margin? Or is there -- or can we see it getting up towards the sort of 50s and 60s impact margins that we're seeing out of say a Hyperion.

Yes. Thanks, Steve. So absolutely, we can't take the current margins as represented all of the longer term or steady state margins. This is a very attractive business if you're good at it. So their longer-term margins will be far higher than we've reported so far. Metrics, we talked a little about Horizon 2. Metrics are the principal group engaging in Horizon 2. So they have been spending very large amounts, adding resourcing because they're creating additional origination. They're doing a lot of marketing. They're building a lot of things. So their P&L is affected by that, including consolidating pay ride and other things. So no, their P&L in the year just gone, the previous year, those margins will end up being much higher. It's a very attractive business, ultimately, but they are growing a big business and we are delighted with that. Many of our affiliates, people ask me, including you, Steve, I think, why our operating margins aren't higher? And it's because our affiliates are all doing a lot of Horizon 2, building new strategies. Hyperion had a huge margin, then they added all these resources to do global. Fantastic, happy days. We're delighted with that because eventually, the operating leverage when they're at $30 billion in global instead of $3 billion will be very attractive. Same thing with Metrics. I mean they're not the same as Hyperion, but the same general sort of style that they're investing off their P&L for future growth.

Just mentioning in the evolution of that product set as well so Metrics started out with its diversified senior loan fund, which is a much lower margin, lower risk product and then as they've matured and added on secured private debt real estate. And then in time, they'll go into consumer lending, they're much, much higher margin products.

Yes. And our 35% of Metrics is worth a lot more than we paid for it. Any other questions?