Pollen Street Group Limited ($POLN)

Good afternoon, and thank you for joining the Pollen Street Capital Full Year Results Presentation for 2025. I'm Lindsey McMurray, and I'm joined with our CFO, Crispin Goldsmith, today. Now Pollen Street is a private capital manager focused on the mid-market across Europe. Our strategies have been in place for over 20 years with a focus on financial and business services and with through-the-cycle experience and track record. We continue to see strong structural growth and opportunities for specialist investors. At the year-end, we managed GBP 7.1 billion of assets with GBP 5.2 billion of fee-paying AUM. Fee-related earnings are at GBP 30.7 million, and we're positioned to scale from here. So we invest with a focus in the mid-market, which is rich with opportunities and resilient for capital formation. We focus on sectors where we have deep expertise and strong origination capability and combine this with a disciplined investment approach, which underpins our ability to generate consistent alpha for investors. Our business enjoys high visibility recurring revenues with management fees forming the largest and ever-increasing proportion of revenue and earnings as the platform scales. Our investment company has delivered long-term consistent returns to support dividends. And as profits grow in the asset manager, we have further options for capital allocation. Now 2025 has been a very strong year. We have seen momentum in AUM growth in both strategies with total AUM increasing to GBP 7.1 billion, which is a 30% increase year-on-year. A successful fundraising has translated into growth in fee-paying AUM, which has increased to GBP 5.2 billion, which is up GBP 1.3 billion year-on-year, and we currently have GBP 800 million of uninvested capital. This provides strong visibility of continued growth in management fee income. Revenue has increased to GBP 114 million, with growth driven by the scale-up in the asset manager, but paired with that consistent return generated by the investment company, which has demonstrated stability for lasting 10 years. Overall, the combination of strong fundraising, disciplined deployment and recurring fee growth underpin earnings and shareholder returns. So to provide more detail on the composition of revenue and earnings, the investment company provides stable, consistent income as it has done since inception, contributing GBP 32.9 million in the year. But now 71% of revenues are generated by the asset manager, which is up from 62% only 2 years ago. And with that, group EBITDA has increased to GBP 64.6 million. This combination underpins growth in earnings and our ability to deliver consistent cash returns for shareholders. So on the fundraising front, both strategies have been performed strongly. We previously reported that we had completed the fundraising of Private Equity Fund V at EUR 1.5 billion ahead of our EUR 1 billion target. Private credit is well positioned to significantly outperform its initial EUR 1 billion target too. As of today, Credit IV stands at GBP 1.8 billion of commitments, and we'll finalize that fundraise in the coming weeks. We have broadened and diversified our investor base with strong support from existing and new limited partners together with their global consultants. At the start of the year, we set out clear priorities across fundraising, growth and capital allocation. We have delivered strongly against each of these. We exceeded fundraising targets, grew AUM and earnings and maintained our capital return framework. So I'll now take a bit of time to look to our investment strategies and how they're positioned in the current market. So across the group, we operate 2 complementary strategies in private equity and credit. In private equity, we invest in controlled positions in mid-market businesses, working closely with management teams to deliver value through operational improvement, product development, international expansion and M&A. In private credit, we focus on senior asset-backed lending to mid-market companies. These investments are secured on diversified cash-generative asset pools and structured to provide strong downside protection to withstand significant macroeconomic stress. Capital preservation is central to the strategy with risk managed through both asset security and transaction structuring. Across both strategies, we focus on areas where we have deep sector expertise and long-standing relationships. A high proportion of our opportunities are sourced directly supporting pricing discipline and selectivity. So with the market disruption, how do we have confidence that our strategies will be resilient? So in private equity, we invest in mid-market, which provides a rich and deep opportunity set without concentrated risk across the portfolio. Within the target market, we maintain a disciplined approach to pricing, and we compose our portfolios with a forensic bottom-up analysis, deploying relatively low leverage and active management to drive growth. Fund V is deploying well with 9 investments already made with 55% of the capital committed, so that pacing is in line with expectation and with an exciting pipeline to provide confidence that we will deploy the balance of capital to create a first-class portfolio. Exits from Fund III are healthy, and we are turning our mind to Fund IV too. And in relation to private credit, given the current market backdrop, why do we remain positive? Firstly, we benefit from strong structural tailwinds in asset-backed credit with investors seeking -- increasingly seeking noncorrelated returns and stable income streams. Secondly, our relationships with borrowers are typically bilateral, and we conduct our diligence ourselves together with trusted advisers. Our fund structures do not have liquidity mismatch. And lastly, the nature of the investment means that we have low exposure to AI disruption as we're lending against tangible assets with predictable cash flows. We also operate in a market with strong barriers to entry where specialist expertise, structuring capability and relationships are key, supporting both margins and creditor protections. Again, the deployment in Fund IV is in step with fundraising with a well-diversified portfolio of assets of about 50% of the capital raised already deployed. So I'll now hand over to Crispin, who will take us through the financial performance, and I'll come back to wrap up as our priorities for 2026.

Thank you, Lindsey. It's good to see you all again, and I'm delighted to be presenting another strong set of results for Pollen Street. So as Lindsey has already outlined, the key message for 2025 was one of strong fundraising. Not only did we raise GBP 1.2 billion across both private equity and private credit, but we also developed a strong pipeline of investor interest, which is now being converted. This AUM increase feeds into growing management fee income, which is our highest quality revenue stream and in turn into increased profits. We aim to balance growth both in the near and long term. Fundraising has a long cycle, and the fundraising success we are delivering today is in part down to investments made in the team a number of years ago. So as we grow earnings, our primary focus remains on making the disciplined investments, which will support the growth of the platform into the future. And we do this whilst delivering strong cash return to investors through our progressive dividend policy and through our ongoing share buyback program. Now I wanted to spend a few minutes recapping on our revenue model. Whilst there may be a level of complexity in our investment activities, the way we generate revenue is actually very simple. Our LP investors commit to our funds typically for 8 to 10 years, and there's no opportunity for them to redeem early. Our management fees are a fixed percentage of fee-paying AUM. So what this means is that our management fee income is highly predictable and repeats over multiple years. For example, PE V has EUR 1.5 billion, as Lindsey said, of commitments with a management fee of 2%. So we earn EUR 30 million a year in management fee revenue from this fund, and we'll continue to until the first close of Fund VI. And at that point, fees will move to being calculated on invested cost until the end of the fund. And our other funds are similarly predictable. So this is what makes up the GBP 69.9 million of management fee income in 2025, which included GBP 8.4 million of catch-up fees. That's up 28% on 2024. And excluding catch-up fees, management fee growth was 24%. Our performance fees are broadly balanced across credit strategies and private equity. In credit, the consistent month-on-month and quarter-on-quarter performance of those funds generates similarly consistent performance fees. In PE, we currently only recognize carry for those funds accounted for at fair value. So it's calculated on a look-through basis to the fund valuation without it being impacted by the timing of exits. Now as I guided at the half year results, performance fees for H2 were significantly higher than for H1, reflecting growing deployments in the credit strategies and the expected seasonality of returns in the private equity funds. So performance fees for the year were GBP 11.2 million, in line with last year. The third contributor to income is the investment company, which generates returns from our balance sheet investments. That's shown here as net investment income after deducting the cost of debt. The commitments we've made to our private equity funds have continued to draw down over time, and this has increased the percentage of the balance sheet invested in equity, which is one of the contributors to increasing underlying returns. At the year-end, we had GBP 188 million of GP commitments to our funds, of which GBP 136 million was drawn. Private equity was GBP 40 million and private credit was GBP 96 million of that. Reported net investment income was GBP 32.9 million, up 4% on 2024, a return on net investment assets of 9.9%. That was after GBP 2.4 million of dilution from equalization effects where gains are reallocated between investors as if they'd all come in at first close. So adjusting for those effects, the underlying return was 10.6%. That continues a long track record of delivering consistent, attractive returns on the balance sheet. So turning now to costs, which are largely people-related. Fund management costs of GBP 49.4 million for the year were up 25% compared to 2024. And there are a couple of points I wanted to focus on here. First, there's a natural lag for credit funds in particular, between recognizing fundraising costs in the P&L and seeing the benefit of that fundraising in our revenue line. Team incentives and placement agent costs align with closing committed capital into the fund, whereas management fees are generated once the capital is deployed. As Lindsey mentioned earlier, we had GBP 800 million of uninvested capital in credit at the year-end, which will become fee-paying once deployed, and this has increased further with the closes in Q1. Second, and as we already touched on, we aim to balance near-term profitability targets with investing for long-term platform growth. We continue to build out our Investor Relations team and develop our investment teams as we continue to expand and develop our platform to support growth through the next generation of funds and beyond. So taking all this into account, Fund Management EBITDA was up an impressive 17% to GBP 31.7 million for the year. So we're delivering steady growth in the asset manager led by management fees. We've grown fund management EBITDA to more than double the level of 2 years ago, and we've consolidated the step-up in margin achieved in 2024. As a result, Fund Management EBITDA has grown to GBP 31.7 million and now accounts for almost half of group profits. We've already touched on performance fees we're currently recognizing Fund IV and Accelerator I for private equity, Fund III and IV and our SMAs for credit. But the nature of how IFRS 15 is applied to PE carried interest means we're not yet recognizing carry on Fund V or Accelerator II. Now we actually expect these 2 funds to be comfortably the largest contributors to performance fees out of the current generation, but we expect recognition in the P&L still to be some years off. In part related to this, the Board has carefully considered how performance fees are allocated between the group and its employees. We believe it's important that group shareholders should share in the performance of the funds through the carried interest. At the same time, it gives a useful mechanism for optimizing the mix between cash compensation, long-term incentives and retention of the team. And team alignment is naturally a key focus for our LP investors as well. As a result, the Board has concluded that there should be more flexibility on the share of carried interest, which will be allocated to the group for future funds rather than simply fixing this at 25% for all funds. For Private Credit IV, in particular, reflecting the significant outperformance of fundraising, the Board has decided to make an additional allocation to certain team members, which will have the effect of reducing the house share to 17%. Given the significant outperformance in fund size, there's no change in the group's financial guidance as a result of this. As I've already mentioned, the investment company delivered another strong period of stable and growing returns on our balance sheet. At the year-end, GBP 188 million was committed to Pollen Street managed funds and 72% of that was drawn. We maintain a conservative gearing position on our balance sheet with net debt 35% of gross investment assets at the end of December. The debt facility is a tool for managing liquidity as well as for optimizing returns, and we had GBP 40 million undrawn at the period end. So turning to the future. I'm pleased to confirm that the group is on track to be in line or ahead of expectations for the current year, and there's no change to guidance. We have increasing visibility on reaching our target of GBP 10 billion AUM, which we expect to achieve with the next generation of flagship private equity and private credit funds. I've talked today about the clear and predictable linkage between fee-paying AUM and management fees, and this will continue to be the case going forward. I've also discussed the inherent operational gearing in our business model, which will allow Fund Management EBITDA margins to scale over time, whilst we continue to prioritize investments to support long-term platform growth. Performance fees will remain towards the lower end of the guided long-term average range until we start to recognize that carried interest on the more recent PE funds. And we expect to maintain low double-digit underlying returns in the investment company. So in summary, we have a high-quality recurring earnings model and a clear pathway to scaling AUM margins and earnings. Thank you. That wraps up my section, and I'll now hand back to Lindsey.

Thank you. So just taking a few minutes to turn to the outlook. The priorities for 2026 are focused on 3 areas: scaling the platform, investing for growth and continuing to deliver returns. From here, our focus is on completing the fundraising of Credit Fund IV, which we'll do in the next few weeks and then considering additional credit vehicles as demand for the strategy remains strong. We also already began preparing for the next Private Equity Fund VI. Alongside this, we continue to grow fee-paying AUM through the deployment of around GBP 800 million of capital already raised. We are continuing to invest in the platform to support future growth, and this includes continuing to invest in the team and further developing our tech and data capabilities internally. We're improving profitability, and that will develop over time. As ever, the income from the investment company supports the dividend. But as profits grow in the asset manager, we have greater optionality for capital allocation. These priorities are focused on scaling the platform in a disciplined way while continuing to deliver returns and investing for long-term growth. So all in all, 2025 has been a transformational year resulting from strong execution. We are positioned to scale and remain focused on delivering long-term results and value for our investors and shareholders. Thank you for taking the time this afternoon, and we'll now open for questions. Thank you.

Sorry, Mike Sanderson, Barclays here. I don't think you need the pen. I don't think it will be too complicated that should be [indiscernible] . Yes. I guess a couple of things be interested to pick up. First one, the change in the carry structure that you set out as part of the piece. I mean, obviously, it wasn't that long ago that the whole combination was come together. And I just wanted to understand a bit more why 15% is the right minimum versus 25% previously, how you think about the range? And what are going to be the variables? Because there's clearly when these funds get bigger, they start to contribute, that's quite a meaningful difference that's not passing through to shareholders, passing to employees and there'll be different pieces there. The second piece that I'd be interested to know about and I guess, comes with the same thing is the timing for PE VI. If we're already 55% invested, good pipeline, when should we be thinking about that starting to come through into the numbers because obviously, committed capital would be highly valuable.

Yes. So I think as you rightly said, there's no magic number on between 15% and 25%. I think it's a balanced discussion that the Board had about making sure that we get the right balance of shareholder alignment in terms of having exposure to the carry, but also making sure that we have the flexibility to incentivize the wider contributing pool that we have as we build out the business, particularly the business development team. So it's a balanced call. We think at 15% as you say, in this particular case, it looks like this fund will end up something like double than its original expectation. And therefore, there is the alignment is still absolutely there on an absolute basis. So it's a balanced call, and I think we'll make that decision in relation to each fund from here. And then on PE VI. So we have a very strong pipeline in private equity. The pacing is very strong. So 55% actually committed -- 5% actually committed in Fund VI, but with a view that there's probably another 10% that will go into those assets that are already invested. So you're right that we have started turning our mind to the preparation for Fund VI and sometime in probably H1 2027 is where we'll end. We'll be focusing.

It's James Allen from Berenberg. Three quick ones. Firstly, just on the topic of the carried interest allocation again. Was the change in allocation in response to team departures previously, changes of the competition? Or am I just reading too much into that? And did you just felt it was the right thing to do given the outperformance in the most recent credit fund raise? Secondly, how big is the Accelerator 1 fund? And what's the expected increase in size for the second vintage of that? And then finally, the junior credit strategy, which is possibly being rolled out in the next year or 2, could we get a bit more info on that and how that strategy will differ versus the existing credit funds?

Definitely not a response to departures. It was as we built the team at the back end of the fundraise. So there's an element of just timing that has gone with that. So as we already had a very strong investment team in place, we've been building out as we've clearly trailed the business development team. So it is incentivizing people that we've brought on, not in any kind of back-footed sort of response to anything negative, I would say. Accelerator 1...

Yes, I wasn't quite sure. So I mentioned we've got an Accelerator 1 and Accelerator 2. Those are what we call the continuation funds. So the Accelerator 1 was acquired as part of the combination, which means it's accounted for, for performance fees as fair value. Accelerator 2 was a later fund and therefore, is accounted for under IFRS 15 in the same way as Fund V. But yes, the sort of focus is on the flagship vintages.

And Accelerator 1 is about GBP 200 million, Accelerator 2 is about GBP 1 billion in terms of size. When we've guided also though on Accelerator 2 at the time that we raised that, the fees on that particular vehicle are on a fixed fee basis. So we guided to that before. Those are in the numbers. And the last question...

Credit fund.

Junior credit fund is not an area that we are proposing. And there are -- as I did mention, though, there is very strong demand for our credit -- senior credit strategy. And as we close out Fund IV, we still have continued demand for that. So we're looking at potential further vehicles for that same strategy. And the other strategy we have mentioned over the years is something that we call an opportunistic strategy, which isn't entirely junior in nature, but is wider than the perimeter that would fit into a senior strategy for investors. And it's something -- our very clear focus has been getting a very strong foundation for the business based on the 2 strategies we have. I think we're confident that, that is now firmly in place. And therefore, we have the opportunity to look at some others, but there's nothing that we are ready to kind of publish now.

I want to ask first of all about the fundraising that you've done this year and particularly on credit. So new versus old LPs, how much repeat business has come through? What's the competitive landscape like in fundraising? And to the extent you're performing better than alternatives out there, what's driving that? Is there a sort of regional focus potentially there out of the U.S. into your geographies? Or -- well, any commentary you can give on that? I wondered also in in credit, how much dry powder there is? If you could just remind us where that is, what you can say about the deployment pipeline and how potentially that might be affected by changes in the interest rate environment? And then finally, in terms of exits, if you could just give a little bit more color on the pipeline there for the next 12 to 24 months.

So fundraising, so we've had very, very, very strong re-up rate. Occasionally, you get an investor that has a change of strategy, and it's more sort of individual than industry-wide. So it's probably short of 100%, but not much short of 100% in terms of re-up rate. The big transition through these funds as they have gotten through to the scale that they have is bringing through in different -- on both strategies, it's been a little bit different in Private Equity, bringing on a strong range of the U.S. pension plans and also with their advisory consultants, which is critically important. In Credit, similarly, we've built out a very strong reputation as being the leader in asset-backed -- senior asset-backed in Europe. And if you map the market, there are others that are entering it, but it's been the strategy that we've anchored our credit strategy with for the last 15 years. And therefore, that's been recognized. And as much as there's a lot of headline in the sector, the investors doing their work and their advisory consultants do deep forensic work into our strategies, and that's kind of -- we've been rewarded for coming out well on that, I would say.

Dry powder, yes.

Dry powder in Credit was at GBP 800 million at the end of the year. We have been very successful in fundraising and deployment. So it will be in excess of GBP 1 billion at this point in time. But again, with a very strong pipeline, are we changing? We did the Credit deep dive a few months ago that outlined how we approach our credit strategies. And they are always -- the Credit -- the process of underwriting in Credit specifically subjects the collateral pools that we are lending against a very significant macroeconomic stress. And therefore, we are -- we expect with no complacency that our pools and our lending facilities will withstand significant macroeconomic shocks to them, and they have self-correcting mechanisms to the extent that it doesn't go according to our underwriting. So we continue to apply that very clear methodology and consistent methodology. So yes, we are ever vigilant to the market and to the individual and idiosyncratic situations. We do, do our own diligence. As I outlined, we're not relying on someone else's diligence to do it. We do our own diligence with our own advisers to make sure that we're maintaining our standards. So we're not changing. We're ever vigilant and we are taking the learnings from the errors that are made in some of these examples, but we're not fundamentally changing what we do.

So I think there was a final question, but I didn't catch it.

So we have had 3 exits in Fund III, and we are considering more for Fund III in 2026. And as I said, we're turning our mind to Fund IV. Again, we focus in the mid-market. We are focused on buying businesses that may sound from the bottom up at good prices. That enables us as long as we execute our value creation plan that enables us to build businesses. And in this -- even with the lower M&A appetite, there's still greater resilience in the mid-market sector. And therefore, we've got good optimism that we'll continue to deliver those.

One in Credit, one in Equity, if I may. With all the nervousness on Private Credit at the minute, are there any opportunistic plays coming forward for you such as buying portfolios at an attractive discount? Or is that a distraction, something you wouldn't look at? Then on the Equity side, so you're deploying 5, starting to thinking about marketing 6. Could you talk us through how the investment opportunities have changed the last sort of year or 2, particularly through the AI lens? Have sectors changed a little bit in terms of opportunity? Or is it more operations?

So I think the opportunity in Credit, so there's less of a secondary market in our asset-backed world. It may develop, but there's been less of a secondary market. Where we have optimism for the strategy is where there I say some players may have come on a kind of part-time amateur basis, may then retrench from the market, and that gives us -- so where something -- a facility may have had a risk of being refinanced somewhere, people will come back to what they know and the player that's persistent. So we get, we believe, a strong pricing mechanic vis-a-vis our counterparties because we are seen as being a persistent player. Remember, we're the raw material for these businesses to enable them. So our longevity and persistency in the market means we become a bit of a go-to player. Sometimes people can get their head turns as it looks a little bit easy and people come back to make sure that they've got the persistency. So I think that's where I see the optimism in our sector. On Private Equity, again, we have, as you can imagine, re-underwritten our entire portfolio as you go through the different -- the risk lens that you read on the headlines. We believe the portfolio that we have is very resilient. And now we don't have any direct exposure to events of -- from the war environment. We do, of course, have to understand the second order effect of inflation -- higher inflation, higher interest rates but they tend to be second order or tertiary. And then when you actually -- we've been through this as we came through in 2022, we actually had quite a lot of positive impact from inflation-related contracts that come through on the other side. So on balance, our portfolio overall is on a positive with opportunities in AI, but we definitely look through the lens to say where is there a skilled person moat, where is the regulatory moat and making sure that we are -- a lot of the things that we invest in have protection because it's a regulatory system that requires the system to be -- the service to be done in a certain way. So yes, we are, again, never complacent, always vigilant, but I think we are well positioned in the current portfolio and can see actually quite a lot of interesting opportunities as people run for headlines, and we do our forensic bottom-up. So you asked a question about do we -- what percentage of our deals, and I presume it's talking to private credit where we take syndicated positions where we are a junior partner. The answer is none. We lead the diligence. We do our own diligence. We set the -- we engage the advisers to our standards and so none. Good. Well, as ever, if there are any other questions, Crispin, Shweta and I are available to have one-on-ones, but we thank you for your time, and thank you.