Platinum Investment Management Limited (PTM) Earnings Call Transcript & Summary

Good morning, and welcome to today's investor and research briefing for the merger of Platinum Asset Management and L1 Capital. My name is Dean McLelland from Platinum, and with me today, I have Jeff Peters, Platinum's Chief Executive Officer. I have L1 Capital's cofounders and Co-Chief Investment Officer, Mark Landau and Raphael Lamm. And I have Andrew Stannard, Platinum's Chief Financial Officer. We'll begin the presentation today, we have approximately 40 minutes of prepared remarks, and then we'll open the webinar up to your questions. [Operator Instructions] If there are any questions that we are unable to answer today or we don't get time to answer today, we will follow up with you after today's webinar. I would note that the slides are currently available from the ASX or the Platinum websites, and a recording of this briefing will be made available on both the Platinum and L1 Capital websites later today. With that, I'll hand over to Jeff Peters, Platinum's Chief Executive Officer.

Thank you, Dean. And let me add my welcome, and thanks for joining us. We'll dive right in to the next page and talk about what we're here to discuss, which is earlier this morning, we announced the strategic merger between Platinum Asset Management and First Maven or L1, and you can read the salient points as we go down. This merger is going to create a market-leading investment platform, both of listed equities and alternative investment strategies with fund that exceeds $16 billion. We are going to be a growing, scalable and very well diversified asset management business coming out of it, with a client base that spans all of the channels with strength across those channels. We are going to be benefiting from L1's very strong track record of performance through market cycles and also participating in a portion of the performance fees from the flagship, long/short funds and other strategies. L1 has a great track record for launching innovative new products and seeing them succeed. And we think that will be a major benefit to the merged entity. And I think people are aware but just to review the ASX ticker will be renamed. And once this is closed, we don't have the name yet, but we will have that and get back to you on that. But once this is closed, platinum will -- shareholders will have roughly of the equity to 74% for L1 Capital. We're also committing to a pro forma estimate of $20 million in pretax cost synergies in this merger. And we believe this transaction will be materially EPS accretive to the tune of 30-plus percent as well as providing an excellent growth platform. The Platinum Board is unanimously recommending that platinum shareholders vote in favor of the merger at the general meeting. And with that, let me go through a bit more of the strategic rationale behind the combination. The primary benefit of this merger is to create a real market-leading investment platform in the asset management business in Australia. I think people here are quite familiar with Platinum. I won't go through it much, and Mark and Raph are going to be talking about L1, providing more of an overview for that. But the combination of the 2 really leverage the strengths you see to create ad-scale platform with a diversified set of investment teams and products and importantly, a strong performance culture, standout brands and a strong set of distribution capabilities. And that will really allow us to leverage a broad diversified position, if we can go to the next page. You can see that the pro forma FUM by asset class is a great mix of Aussie equities, international equities, Asia ex Japan and then some other alternative categories. It's a great mix of listed and alternative strategies, and it's around the world. And if you go to the right side and look at client type, strong retail presence, combined with a strong presence in the LIC market, along with institutional and wholesale, high net worth, et cetera. So we span together the channels, and that's a pretty compelling mixture as we move across and look to grow. Moving on to the next page. There are 4 elements of the combination that we think are going to drive our growth platform and deliver efficiencies and shareholder value. The first is, and I mentioned it, scale. We've got an expanded range in the new company of investment strategies and product and clients, and we're very much looking forward to exposing our respective client bases to those great products. And we've got institutional wholesale and high net worth leadership really with marketing-leading positions there as well as in retail. We've got a great growth platform. And the drivers of growth are always great investment performance and distribution capability and the merged entity has both. The new set of products at L1 strong performance and strong performance culture will really benefit the combined unitholder sets. And we've got a great set of distribution professionals that will allow us to grow both in Australia and outside of Australia over time. There are operations streamlining efficiency opportunities. and we will capture those. We'll start with the fact that we will have a new name, but I want to communicate that Platinum funds will remain titled Platinum Funds and L1 as well at the fund level. I've mentioned before the $20 million pretax cost synergy and Andrew Stannard, our CFO, will go through that. Finally, and very importantly, actually, is our balance sheet strength. The strong balance sheet of Platinum and the cash position and the liquidity and access to capital that the new company will have will really offer unparalleled opportunity for us to grow both in terms of organic growth through seeding and also inorganic growth when the time and the opportunities are right. So we think that this set of attributes really positions us incredibly well to serve clients add value and grow over time. And if you think about how that arrays on the next page in terms of the time frames, immediately, we're going to focus on capturing the immediate benefits of the merger. That is prioritizing investment performance across the group for better client outcomes, strengthening our share of clients by exposing each of the client bases to new products and capturing immediate cost synergies as we go forward. As we shift into the shorter term, we'll be able to combine more of the middle and back-office capabilities and explore international distribution as well as considering new products in this market and outside of it. And then longer term, as I mentioned, we're excited about potential new strategies and also through leveraging our balance sheet to expand. In terms of the management team and the Board, let me review that briefly. On the left-hand side, you see the Board of Directors as currently arrayed. Guy Strapp, the current Chairman, will be the independent Chairman as well coming from Platinum, Rachel Grimes, another Platinum Director, will retain her role. I will be the CEO and the Managing Director on the Board. Joel Arbor from L1 will be the COO and join the Board. And then James Stewart also from L1 will join the Board. In addition, there will be 2 nonexecutive directors nominated by L1, who will join the Board as well, details on who they are to come. The management team will be myself, Joel and Andrew Stannard to my right, and we look forward to working together to drive this company forward and capture shareholder value. It's very important to note on the bottom that Mark and Rafi and they can speak to this, are going to be primarily focused or solely focused, as it says, on their investing responsibilities. It's absolutely vital to the continued success of MergeCo and as we design this team, a key design component. With that, let me actually stop and turn it over to Mark to give you more of an overview of L1.

Great. Thanks, Jeff, and thank you, everyone, for your time. As Jeff mentioned, I'm the Co-Founder and Co-CIO of L1 Capital, Long Graphy. We started L1 Capital back in 2007. We're a global investment manager. We own 95% of the business together with Joel Arbor, our Chief Operating Officer. Over time, what we've done is basically been obsessed with being hopefully one of the best investment houses in Australia, and we've built a reputation for investment excellence. If you look at any presentation or any sign issue with L1, it always says dedicated to investment excellence, and we live it and we work incredibly hard to achieve that. We offer our clients best-of-breed strategies, and I'll go through that in detail on the following slide. We've delivered a track record -- If you skip back, sorry, just to that slide. We've delivered a really strong performance track record for our clients. We've also got a very diverse client base, which I'll touch on soon, but we've got a very even spread across institutional asset consultants, particularly strong area in private wealth, high net worth, ultra-high net worth family office, financial planners and retail. And I think that diversity brings a lot of stability to the client base and also brings a lot of opportunity because certain products will be attractive to certain types of clients. The track record is that we've been able to not only launch the flagship strategy, which is a long/short fund, but been able to attract other people into the business and other teams that have been able to launch and succeed in their own strategies over time, and I'll touch on that on the next slide. Over the last few years, we've generated around $3 billion of net inflows. Funds under management today is just shy of $8.5 billion. We're a truly global business. We've got team members in Melbourne, which is head office, Sydney, Miami, New York and London, and we see further growth globally, not just in Australia. So turning to the next slide. You can see the funds across the L1 platform. The long-short fund is what people probably know us best for. The long-short fund is an absolute return strategy. It's returned just over 18% per annum after fees, and that's roughly 10% per annum better than the index. We provide the index there just to give a sense of what the market has done, but essentially, it's an absolute return strategy that's objective is to deliver at least a 10% return per annum. It's been the best-performing long-short fund in Australia since inception and something that we're incredibly proud of. Everything we do at L1 is about clients getting great outcomes. If clients get great outcomes, everything flows nicely from that. And effectively, the success of the long/short fund has enabled us to launch other strategies, which have delivered other opportunities for our client base. The Global Opportunities Fund, which is run by David Feldman out of the U.S., that's been one of the best hedge funds globally. It's returned close to 28% per annum since inception, and that goes back 10 years. David actually and his team just ticked over 1,000% return for their investors since inception, which is an incredible achievement in only 10 years. The international fund, which is headed up by David Steinfeld, who used to be a senior portfolio manager for the Lowy family for their very large global equities portfolio. That strategy has delivered top quartile returns over all time periods, 1 year, 3 years, 5 years and since inception. The Catalyst Fund, which is a high conviction TEN stock portfolio that's headed up by James Hawkins and works very closely with our long/short team. That's also been a really exciting new product for us. We're seeing a lot of interest in that strategy going forward, both from institutional and wholesale clients. And lastly, the U.K. residential property fund, which is more of a yield-focused strategy run out of the U.K. It's important to note that there's been a lot of headwinds for the U.K. property market in general. The index has actually returned to negative number since inception. And we're really pleased that the outperformance that our team has been able to deliver roughly a 7% return per annum in an incredibly difficult market. So we think the outlook for that fund is particularly positive going forward as conditions improve. So turning to the next slide, you can see the diversity of our business. On the top left, you can see the growth that we've been able to deliver over the past decade. Both in terms of assets under management and management fees, we've compounded around 30% per annum over the last decade and more than 20% per annum over the last 5 years. So very strong growth and very consistent over time. On the top right, you can see that the net inflows have been very strong and very broad-based. What we show here is the percentage of flows versus the opening assets under management. And what you can see is that we've had strong inflows across the longshore fund, the international fund and the Catalyst strategy. On the bottom left, you can see the diversification of our funds. So obviously, the longshore fund being our flagship fund being the largest, but also very significant contribution from Catalyst, international and global opportunities in particular. And we think there's further opportunities for very large funds over time that we have in mind that we expect to launch over the next 1 to 2 years. And then on the bottom right, I think this is really the key chart on the slide from my perspective. It's nice to talk about the growth and it's nice to talk about the flows. But I think what creates a resilient funds management business is the diversification of your clients and having lots and lots of decision makers so you're not beholden to one person or one organization that can make or break the whole firm. What you see here is a very small proportion of our funds under management is institutional, only 15% of assets under management and a far lower percentage of revenue and earnings comes from institutional clients. A much bigger component comes from the LICs, retail clients, high net worth and wholesale. And you can see a very even spread across all of those channels but I think it provides a huge opportunity for us going forward now that we've built deep relationships across all of these different channels that we can provide these different clients with products that are perfectly suited to their needs. Turning to the next page, you can see that -- the Longshore fund, I provide a bit of detail here just to give you a sense of, I guess, why the longshore fund has been so successful and why it's genuinely unique in the Australian market. So as I said at the outset, it's an absolute return strategy. It's been running for close to 11 years now. The objective of the fund is to deliver at least a 10% return per annum over a rolling 5- to 7-year period with better downside protection versus market. And from our perspective, when we speak to high net worth or family offices, priority #1 is obviously make me money, but close to priority #1 is don't lose my money. And what we've been able to deliver is more than an 18% return per annum after fees to our investors, and that's roughly 10% better than market per annum after fees. We've also been able to protect 85% of investor's capital in down markets, and that's been tested on 49 separate occasions when the markets had a selloff. And the reason that's so important is that by being able to protect capital in down markets, we're able to make a lot more money coming out of those periods. And we've just demonstrated that once again with the Trump tariff scare where the market had a big sell-off and then we've bounced back very strongly over the last couple of months. It's been a feature of the strategy that we've performed very strongly coming out of periods of volatility. And we've been also able to protect capital when that volatility does occur. And lastly, the returns have primarily come from stock-based alpha. So it's a credit to not -- it's obviously not just Raph and I in the investment segment, there's a much bigger team of 10 people in our long/short team that have been able to deliver positive returns across almost every sector, which I think is a unique aspect. And also that we've got a lot more flexibility in this fund than a traditional long, where we're able to short stocks, we're able to invest overseas for up to 30% of our portfolio, and we're also able to adjust the market exposure depending on how we see the risk reward of the market. On the right-hand side, you can see that the fund has outperformed the market in 39 out of 49 down months. So roughly 80% of the time that the market has a sell-off, we've outperformed. And we've also protected 85% of capital, as you can see on the chart on the bottom right. So really unique attributes, both in terms of the performance and also the capital protection. And I think the last point that often gets lost in the discussion on the longshore fund is that it's a value strategy. So we have a quality value focus. I don't think you could have picked the worst decade to have a value focus in the last 100 years, despite that headwind and despite the challenges for managers that have a value focus like Platinum and like L1, we've been able to deliver these returns. And I think it bodes really well because the starting point today is that dispersion between IP and low PE stocks is extremely broad. It's basically equal to the dot-com boom. It's equal to the COVID winter period. We've only seen it twice in the last 50 years, and we're at the same point today. So we think the starting point is very exciting going forward. And then lastly, if we turn to the next slide. You can see the capabilities of L1 more broadly. And I was saying to Raph earlier today that 10 years ago, we had none of this stuff that you see on this page. Effectively, 10 years ago, it was a very small investment team, almost nothing in the way of client service, almost nothing in the way of almost nothing in the way of operational, I guess, industrial capability. If you look at our business today, we've invested massively in the noninvestment functions as well as the investment functions. So what you can see today is a really full platform of distribution across every channel. We've got 13 people in client service. We have invested massively in our CRM systems to be able to give clients the best experience. We have built really deep relationships with asset consultants and research houses. We've also invested in proprietary systems for trading. So we have very automated compliance-focused tools across our business that give us a lot of reliability and minimize the risk of errors. And then the investor base is incredibly loyal and supportive. So when we launch new strategies like our gold fund that we launched earlier this year, we didn't make it very user-friendly for our clients. It was a very narrow time frame to get invested. It's a 3-year closed-end fund, and we were still able to raise around $200 million because we have a lot of clients that we've made money for over a long period of time, and they're prepared to back us knowing that Rafi and I will be putting in a lot of our own money into these strategies as we always do. That's the ultimate test for an L1 fund is that Raph and I have to be confident enough that we want to put a lot of our own money into that strategy given that we don't do any personal share trading at L1. And then lastly, we've got a well-resourced and high-performing team. The secret to success in funds management is being able to attract and retain the best possible people. I'm really proud of the fact that we've got people in our business who could work at any funds management firm in Australia. They are people who have worked at Goldman Sachs, Macquarie, BGH, a number of really high-quality businesses and they've elected to choose to build their career in L1. And we don't take that lightly, and we -- that's the thing that we're most protective of in the business, and it's one of the things that we think this deal is really exciting is that it enables us to give those loyal, high-performing people a really good opportunity to benefit from the success of our business and the growth in our business over time. And that's one of the things that I think will prove to be a really positive inflection for the future of the L1 business and the combined business with Platinum. And with that, I'll hand over to Andrew.

Thank you, Mark, and good morning, everyone. Starting with the slide with a quick summary of the key transaction terms. As was previously mentioned, Platinum will issue shares to L1, sufficient for L1 shareholders to own around 74% of the merged entity. We'll also participate as a MergeCo in the first 3.5% of investment performance fee revenues generated by L1's flagship long/short service strategies. In addition, shareholders will participate in an anticipated $20 million of pro forma pretax cost synergies, resulting in a highly attractive and strongly earnings accretive transaction. The merged entity will remain on the ASX and will be rebranded in a way that better reflects the merged strengths of the group. Importantly, though, 2 distinctive and valuable brands will be retained at the product level. The L1 founders will retain a significant ownership stake in the merged entity, subject to escrow arrangements that progressively release over a 4-year period. So Platinum shareholders should expect to receive an explanatory memorandum accompanied by an independent expert report in the coming weeks. The next slide goes into more detail on some of the key transaction elements. The long/short performance fee sharing mechanism has been carefully designed in such a way as to enhance certainty for shareholders. For example, if L1's long/short funds deliver less than a 3.5% -- $ 0.035 annualized absolute return in any financial half year, the performance shortfall will be carried forward to be paid in the next period. If, on the other hand, the full year performance threshold is achieved in the first half, then the entire year's performance fee will be taken in that half, giving much more certainty to that revenue stream. This arrangement provides everyone with a significantly enhanced degree of certainty of realization while still incentivizing the L1 team who generated the performance itself. Also, and it's important to note that performance fees arising from other existing funds or any new strategies will be fully captured by the merged company. Turning to costs. The merged business is fortunate to have 2 operating models that have been carefully calibrated to provide efficient and effective support to their respective client bases. So the opportunity here is to bring the best of both models together in a manner that still delivers institutional-grade marketing, client service, operations and technology in a way that recognizes both the scale and the ambition of our new operating model. That said, there are clearly overlaps between the 2 businesses, and the transaction anticipates $20 million in run rate pretax synergies being realized over a 12- to 18-month period. These savings are in addition to existing platinum savings plans, taking overall run rate synergies between -- between 25% and 30% of combined day 1 merged cost base, which is around $134 million. Lastly, the combination of the 2 businesses is expected to generate significant diversification and growth opportunities over both the short and the medium term. In particular, strong balance sheet and access to further capital should provide momentum to both seeding of new funds and perhaps the funding of entirely new investment strategies. And my last slide illustrates the significant opportunity to boost investor returns that this merged company will offer. The combination of higher prospective performance fee revenues when coupled with an appropriately sized expense base will combine to meaningfully increase profit potential. As can be seen in the table, illustrated run rate revenues for the merged group are nearly double Platinum's current run rate and pro forma earnings offer the potential to increase by up to sixfold due to the highly attractive margins embedded in the current L1 business. And it's important to note that these run rate numbers that are presented in this table are stated before the impact of realized forecast cost synergies. I'll now hand you back to Jeff to sum up.

Thanks, Andrew. And if we go to the next slide. For us, this is a very exciting day across all of MergeCo. And I think in many ways, it represents the culmination of the work that was started about 18 months ago to return Platinum to where it was and create an asset management leader in the marketplace. As you all will recall, we had articulated 6 different aspects that we wanted to capture in that effort. And this merger advances or completes all of them. In terms of investment -- performance and investment capability for our shareholders, the combination of L1 and Platinum and the great performance ethic and talent will help there a lot. Launching new capabilities and expanding distribution, we will be able to do that quickly and with great distribution resources. Andrew has talked about the synergy capture, which allows us to reset the cost base -- and also, we will be able to develop the new middle and back-office business model optimally as we merge. Our culture and our team will deepen and we'll have an outstanding performance ethic and the balance sheet we've spoken up in terms of the public capital as well as the platinum cash and the power of that. So this really is an opportunity that we think will drive amazing shareholder value, excellent shareholder value to the tune of 30% north EBITDA EPS accretion and also great growth prospects as we go forward. Turning to the next page. Let me just talk about some next steps and time lines. Today, obviously, the announcement in this coming month, we'll be preparing a documentation, which Andrew mentioned already, notice of meeting, explanatory memorandum, the independent expert report. In August, we plan to actually submit the notice of meeting and hopefully, toward the end of the month or into September, convene a general meeting for the Platinum shareholders to vote. Assuming that, that vote goes well, we would begin operating in September as a new entity and complete the transaction. So that is what our focus is going to be between now and that time frame, and we look forward to keeping you updated as progress unfolds. With that, let me stop our prepared remarks, and we can turn it over to Q&A.

Thanks very much, Jeff. Absolutely. Now is the time to answer your questions. Just by way of reminder, if you are listening to the webinar live, you can ask your questions by the q&a function on the bottom of your screen and any questions we don't get to answer today, we'll certainly come back to you where possible after today's webinar. I'll start with a question that I think is probably directed at Andrew Stannard. It talks about, can you provide an estimate what pro forma NTA looks like or what NTA and L1 are you acquiring?

I think it's fair to say that as you would expect, acquiring a founder-led business such as Mark and Rafi and Joel have created that there's a significant amount of value that they've created over a number of years. So we're not anticipating that as part of the transaction, we would be bringing on some large balance sheet from the L1 side. So really, the balance sheet that is being referenced by Jeff is Platinum's balance sheet.

Okay. Thank you. Another question, there's a question about the likelihood of a special dividend before the merger to give current shareholders benefits of the franking credit balance. Perhaps that's for you as well, Andrew.

Okay. So just to quickly recap for everybody, we paid out a special dividend already in January, a very large one, $0.20 and basically took care of pretty much all the retained earnings that were available at that time. So the scope for a further dividend is very limited, and we don't actually intend to do a dividend prior to this transaction.

And one on the -- some of the cost numbers that were in the announcement this morning. The recent announcement noted a sharp increase in turnaround costs from $30 million to $40 million. Given this escalation, it raises some questions around the expected outcomes. So is the Board or management able to clarify how this turnaround program with now slightly higher costs will effectively address and seek to reverse the company's sort of challenging performance?

Yes. So obviously, the turnaround strategy that we've been following for the last couple of years, 18 months or so, had a number of elements and rebasing the business was a critical part of that. The bulk of -- vast majority, actually, very significant majority of the numbers that we quoted in terms of the turnaround costs relate to noncash acceleration of amortization on long-term incentive plans. And from my perspective, frankly, we're cleaning up P&L prior to the transaction really here in that the amortization related to long-term incentive plans that had a TSR hurdle and that failed the TSR hurdle. So therefore, you have this completely apart from accountants, Australia included, uninteresting noncash charge that would be flowing through into future periods and confusing things, frankly. So we've taken the opportunity to clear that out at the current financial year-end prior to the transaction close.

Question that I know has been coming up a little bit and has been asked today, perhaps Jeff and Mark, we can direct this at you. Can we assume that the L1 Capital investment team will have some influence over portfolio construction in the various Platinum funds at some point in time?

I think it is safe to assume that we're going to be leveraging the best capabilities of both firms. And so there will be opportunities for the L1 investment teams to add value into the Platinum products. And so more detail to come on that as we get further into the planning of coming out together after completion.

And maybe just to tap into that as well, there's a question, will the investment teams potentially be merged? Or what will be the process from here?

I think the way people should think about it is essentially from an L1 point of view, we only launch funds that we consider best-in-class, and we resource them well, and we basically don't have any limitations in terms of what we'll spend to make sure that the team is absolutely A grade. It will be exactly the same ethos in terms of the Platinum funds. So to the extent that we think there's more people required or maybe some new external people that should be brought in, we're open to anything to make it an absolutely A+ product. And we've got some major positive announcements to come over the next month or 2, but sort of bear with us for the next 8 weeks or so until we have merger completion, and then we can give you some specific details. But from our perspective, we're viewing this as a major positive inflection point for the Platinum funds. And please bear with us and sort of judge us on our actions in a couple of months time.

A question here, potentially Mark, Andrew, Jeff. Regarding L1 Capital operating OpEx, operating expenses, is there any linkages between variable compensation and performance fees in any 1 year? Or will the majority of variable compensation be satisfied by the out-of-perimeter fee structure?

Essentially, the merger was agreed based on the fully weighted cost base of L1, which is what's disclosed in the presentation and what we've provided to the Platinum team. So people should assume that effectively, the current expense base of L1 is -- pays for the salaries and bonuses of the staff, and that's the expectation going forward.

A question for you potentially, Jeff. It's an assumption that one of the viewers is making, and of just testing it. I'm assuming the Platinum Partner funds are not going ahead? Or are they on hold for now?

I don't think that's a correct assumption. The -- for example, we have our small cap fund, which will continue to move forward. There are other things in the hopper in development, and I look forward to working with Mark and Rafi and Joel to figure out the best way forward on those.

Good question about clients, which is interesting, perhaps for Jeff. Any concerns around retention of existing clients from either side? What conversations have you had with larger institutional clients or adviser groups or consultants?

I'll answer that from our side, and then we can talk about that from the L1 side. But the prevailing discussions that we've had with clients over the last couple of months since the merger was initially discussed has been optimism and looking forward to seeing where we come out post completion. So I remain optimistic about our client base. I think that they're going to find a set of very good solutions. And as a result, hopefully, we'll get back to growth in that client base and continue to serve them well.

From an L1 point of view, I think the key focus from research houses and asset consultants has been essentially curiosity as to L1 has been a private company for 18 years and why are you guys doing this? And I guess, having concerns initially that Ralph and I would be distracted being hands-on with the merger integration as we were able to explain to clients that Ralph and I won't be managing any platinum funds. We're not planning to be involved day-to-day on the merger integration. Joel Arbor, our COO, will be managing that. We're not planning to be on the Board of the listed company. We just want to focus on stocks. And at the moment, roughly 10% to 15% of Ralph and my day is spent on managing the business. At the moment, we're the joint Managing Directors of L1 Capital. And as part of this deal, we'll be stepping back from that management responsibility. So if anything, there'll be an even greater focus on investments. And like from a personal point of view, and I know I can speak for Ralph as well, like our passion and what we love doing is investing. And I think that's the best thing for clients, and it's the best thing for us in terms of personal satisfaction as well.

Thank you. Could you please elaborate further on how the combined entity can gain an edge over other listed multi-boutiques who have larger distribution teams and more funds like P&I, which is Pinnacle, Fidante, Grant Samuel, et cetera.

As a business -- L1 -- excuse the cold guys. As a business, L1 never had the objective to be the biggest player in the market. We like to be the best player in the market. And so the idea is not to compete to have the biggest distribution team to have the most products. It's to have key products that are attractive to our investor base that bring something different that really are best of breed. We think we have a lot of those in the stable. We think we can add some more over time. And in practice, I can tell you that since we've announced discussions with Platinum, we've been inundated with inbound inquiries. From leading investors, teams of investors and rival fund managers, not just in Australia, but even overseas. And so there's a huge amount of interest partnering with us. I think we're perceived to be investor-led. I think that that's a big difference. I think we can build something really special. I think there's room for more than one player for a few high-quality players in the Australian market, but we have our sights set on being the leading listed asset management player in the Aussie market, and we're very confident we can achieve that.

It might be an adjacent question, not necessarily the best forum for it. But obviously, there's announcements and articles around the -- one of the platinum LICs. Just in terms of if there's a view on the retention of the LIC as a closed-ended fund versus changing to an ETF open-ended structure. Is there something that the group might like to sort of offer in terms of the LICs at this time?

Sure. So I guess -- well, I can't give the full answer, but I can give a partial answer. As people may know, Ralph, myself and Joel have acquired a 17% stake in PMC. We believe that there's a very compelling opportunity for long-term shareholders to benefit from what we can potentially offer to the group. We're not at the point where we're prepared to go into detail on that just yet. The Board has put that out publicly that they're awaiting an L1 proposal. So that's on public record. But I guess what I'd say is please judge us on the history of how we've behaved previously as in terms of how we've dealt with shareholders. If you look at LSF, I think it's struggled to find a LIC that has done more for shareholders since inception. If you look at aggressive buybacks, buying a huge amount of stock personally, putting in place a 10-year escrow, growing fully franked dividends at every interim result, dividends have grown and been fully franked. We've never sold a share, and we've been buying on market since then, and we've invested considerably in the investment team to ensure that our performance continues to stay at sort of double-digit type levels. I think that's what you should expect from L1. And please sort of don't prejudge anything, just bear with us until we're able to give you a bit more detail relatively soon.

And just for clarity's sake, there are 2 LICs in question. The Asia LIC, which is PAI has a scheme that's moving forward to be merged into the active ETF, PAXX -- PAX. So that is unaffected.

Thank you. There's a question in relation to one of the other ASX announcements that came out this morning and in relation to Platinum's flows. Obviously, we have been experiencing fund outflows in recent years. There's a question on how do we plan on arresting these under the merged entity and in sort of correlation, the justification of the remuneration announcement that was provided this morning as well given the performance.

Well, let me take the arresting of the flow. So you arrest flows by delivering great performance. And we believe that this merger will deliver great performance. And clients will see that, and that will ripple through in terms of their experience and staying with us. That's a major benefit of the merger. I think clients are excited to see what happens in this merger and are willing to give a chance. So I'll leave it at that.

Okay. There's a question for you, Jeff. Can you comment further on the optimal business model...

Well, I think the optimal business model is something that really combines the best of middle office and back office in terms of the most efficiency and most client friendliness, frankly, in service. We have built a very robust system at Platinum to perform that. L1 also has a very robust system. I think when we merge them and pick the best of the breed, you're going to wind up getting the optimal business model out of that, that will be very cost effective and also great for clients.

A question perhaps for Andrew. How will you address illiquidity in the shares? Do you anticipate further acquisitions to increase the share count and increase the free float?

I think it's something that we're going to address over time. The L1 team are committed long-term shareholders and we will not be the source of short or medium-term liquidity, but there's lots of opportunities to increase liquidity over time. In the near term, I think people are going to find a very attractive listed vehicle with strong earnings growth and quite a sticky shareholder base. And so I think it will be a very attractive vehicle until we achieve a high level of liquidity over the medium term.

Thank you. A couple of detailed questions perhaps for Andrew, but please delegate as you see fit. Do you expect most of the mid- and back-office cost savings to come from the platinum side of the merged business?

Look, it is day 1 in terms of the integration effort. So I think obviously, we need to work through that in the coming 3, 4 weeks to -- not least of which make sure that our people are fully informed and aware of what we're going to do. But I'd reiterate kind of the comments that I had at the start. I think both platforms have been designed for the client bases of the 2 businesses, which are different. So we have a high net worth business predominantly, but not exclusively in L1. We have a significant retail client base in Platinum. So they are quite different. And the trick here is to actually find a solution that retains the ability to service both groups really well.

I might stick with you. A question on -- it seems that PTM is contributing $190 million in cash, but seems L1 is not contributing cash. So how do you -- how is that thought about?

Yes. So I guess we tried to highlight that on Slide 20 when we talked about the run rate financials. And I think the incredible leverage compared to clients and Platinum's current run rate profitability by bringing the 2 firms together meaningfully step change the profile of the business before we even get into synergies and growth opportunities, which I think are significantly enhanced by bringing the 2 firms together.

There's a question on the -- why did the cost of management fee ratio step down materially from FY '23 to FY '24 for L1? Question or Rafi.

There's just very good leverage in the business. As revenues grow, costs don't grow at the same rate. And so we've had expanding margins over time, and we expect that to persist medium and long term. We see that as an area of further upside.

Andrew, is it fair to say that it might be -- for the group, is it fair to say that the dividend policy going forward, it might be a bit early for clarity on that?

I think it's safe to say that.

We don't have the Board members. It's probably a little tough to predict.

Just as I said, the business is highly cash flow generating. It's a very high cash flow conversion rate. And it's a fully -- it's going to be a fully taxpaying company. And so it would be our expectation along with the Board to make sure that those franking credits go back to investors over time.

This is the last question I've got in my system. So we might switch to a market outlook just after this, if there's no other questions come through. I might just be checking a detail. What amount of L1 assets under management are sourced from international clients?

L1 FUM? I would have to come back on that. It would be -- it's around 20%. Right?

There is nothing more yet. So I don't think there's any other questions for us to ask. If there were any questions submitted that were very specifically relating to other topics aside from the merger, we'll address those after the webinar. But perhaps to wrap up the webinar. I've got a quick 2 more coming. We might just see we can make time for these questions. Okay. L1's financials are quite dependent on performance fees, which is in contrast with the other more stable listed asset managers. Is the group's future continue to be dependent on the principal Midas touch? Or are there views of introducing funds with more base fees?

I think the thing that I'd say is that the structure of the merger is very focused on that. And the reason that the perimeter is at such a low level of 3.5% compared to a historical track record over the last decade of more than 20% is to give investors certainty that you can effectively treat those performance fees almost like their management fees because essentially, the track record of funds suggests that you'd have to do 80% worse going forward to miss out on any of that performance fee. And in addition to that, the performance fees that are generated from the L1 part of the business are prioritized for Platinum shareholders where they're paid out in full for the full year if they're earned in the first half and equally, if they're missed in a certain period, there's a catch-up so that shareholders don't miss out to the extent that the fund performs in the subsequent period.

I think that maybe just one thing to add in terms of comparing to the peer group, not only will we be derisking the performance fee volatility versus a lot of the peer group. But if you look at the historical assets under management, cumulative average growth rate and also the revenue CAGR over the last 5 and 10 years, it's far superior to the peer group. And I think the market is going to appreciate that in terms of the growth platform going forward.

Great. Thank you. So to wrap up today's briefing, just like Mark to provide us with a market outlook, and then we'll draw the [indiscernible].

I think our perspective is that Aussie market [due] back in April with tariff risk and Trump, I guess, macro risk. What we've seen since then is markets rally back to all-time highs, and we think that the Aussie market at an aggregate level looks fully priced, and there's quite a few large cap stocks that we think are extremely expensive versus history and versus global peers. But having said that, within the market, where stock pickers and there's heaps of opportunities at the moment. So this is one of the periods where we've been buying LSF shares on market as people have hopefully seen because we believe that there's a better-than-usual opportunity set. The average stock in our portfolio is on less than 11x earnings. It's growing earnings at 15% per annum. Free cash flow is almost 10% for the average stock in our portfolio. So versus history, those metrics look incredibly compelling. And I think if you're looking in a global context, most of the opportunities we're seeing are offshore. And if you look at our net long for the long/short fund, we've got a very low net long to Australia, and we've got almost all of our long exposure overseas. And that plays into, I guess, the opportunity with Platinum as well that we think Platinum as a global equities house has an enormous opportunity, both because value has underperformed dramatically over the last 10 years, but also because we think that global is a much more prospective opportunity for Australian investors who are looking to diversify away from Australia, which in a global context might be 1% or 2% of listed companies and MSCI World. But by being able to tap into the other 98%, you're opening up literally a wealth of opportunities. So we think it's an incredibly attractive time for us and particularly for [indiscernible].

Great. Thank you very much. There's nothing else for prepared remarks or questions for today. So I would like to close by just extending my gratitude to each of the presenters. Thank you to everybody that tuned in for the briefing this morning. Thanks very much for joining us, and thank you for your questions. If you do have any further questions, certainly, the Investor Services team at Platinum and at L1 Capital are there to help. So please do reach out if there's any further questions. But for now, thank you, and goodbye.