Pollen Street Group Limited ($POLN)

Good afternoon, and welcome to the Pollen Street Group Limited Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll, which I kindly ask you to submit your responses to. I'd now like to hand over to CEO, Lindsey McMurray. Lindsey, good afternoon.

Thank you, Jack, and good afternoon. Thank you for joining the Pollen Street Capital Full Year Results Presentation for 2025. I'm Lindsey McMurray, and I'm joined today by Crispin Goldsmith, our CFO. Now as a recap, Pollen Street Capital is a private capital manager focused in the mid-market across Europe. Our strategies have been in place for over 20 years with a focus on financial business services with through-the-cycle experience and track record. We continue to see strong structural growth and opportunities for specialist investors in our sectors. As at year-end, we managed GBP 7.1 billion of assets with GBP 5.2 billion of fee-paying AUM. FRE sits at GBP 30.7 million, and we're positioned to scale from here. 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, strong origination capability, and we combine this with a disciplined investment approach that underpins our ability to generate consistent alpha for our 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 the profit grows in the Asset Manager, we have further options for capital allocation. 2025 has been a strong year. We've seen momentum in AUM across both strategies with total AUM increasing to GBP 7.1 billion, up 30% year-on-year. And successful fundraising has translated into fee-paying AUM, which increased to GBP 5.2 billion, up GBP 1.3 billion year-on-year. We have a level of GBP 800 million of uninvested capital as at the year-end, and this has increased further with fundraising during 2026, which gives us great visibility on continued growth in management fee income throughout the year. Revenue has increased to GBP 114 million, and the growth has been driven by the scale-up in the Asset Manager, but paired with consistent returns generated in the Investment Company. And has demonstrated stability over the last 10 years. Overall, the combination of strong fundraising, disciplined deployment and recurring fee growth underpin earnings and shareholder returns. To provide more detail on the composition of revenue and earnings, the Investment Company provides stable and consistent income as it has done since inception, contributing GBP 32.9 million of income in the year. And now 71% of revenues are generated by the Asset Manager, up from 62% only 2 years ago. And with that, Group EBITDA increased to GBP 64.6 million. The combination underpins growth in earnings and our ability to deliver consistent cash returns to shareholders. So fundraising for both strategies has been strong. As we previously reported, we completed the fundraising for Private Equity V at EUR 1.5 billion and Private Credit IV is well positioned to significantly outperform its initial target too. Credit IV has had a final close of GBP 2.5 billion against that GBP 1 billion target with commitments substantially outperforming the target. And we've broadened and diversified our investor base with strong support from both existing and new LPs together with the global consultants. At the start of the year, we set out clear priorities across fundraising, growth and capital allocation. We've delivered strongly against each of these, and we exceeded fundraising targets, grew AUM and earnings and maintained our capital return framework. Now turning to our investment strategies. Across the Group, we operate 2 complementary strategies in Private Equity and Private Credit. In Private Equity, we invest in controlled positions in mid-market businesses, working closely with management teams to drive 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. Capital preservation is central to the strategy with risk managed through both asset security and transaction structure. Across both strategies, we focus on areas where we have deep sector expertise and long-standing relationships. A high proportion of opportunities are sourced directly, supporting pricing discipline and selectivity. And with the market disruption that we have witnessed in the beginning part of end of '25 and into '26, how do we maintain our confidence that our strategy will be resilient? Firstly, the mid-market provides rich and deep opportunity set without concentrated risk across the portfolio. With this target market, we maintain a disciplined approach to pricing, and we compose diversified 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 and 55% committed capital, so pacing in line with expectation. And with an exciting pipeline to provide confidence that we will deploy the balance of capital to curate a first-class portfolio. Exits from Fund III are healthy, and we're turning in mind to Fund IV too. In relation to Private Credit, given the current market backdrop, why do we remain positive? Firstly, we're benefiting from strong structural tailwinds in asset-backed credit with investors increasingly seeking noncorrelated returns and stable income streams. Secondly, our relationships with our borrowers are typically bilateral, and we conduct our due diligence ourselves together with our trusted advisers. Thirdly, our fund structures do not have any liquidity mismatch. And lastly, the nature of our investments 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 margin and creditor protection. The deployment in Fund IV is in step with fundraising with a well-diversified portfolio of assets and already a significant percentage of capital already deployed. So I'll now turn to Crispin, who will take us through the financial highlights of the business.

Thank you, Lindsey, and thanks, everyone, for joining us again. 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 has been converted in 2026 to date. 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 in the near and long term. Fundraising has a long cycle and the fundraising success we're 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 returns to investors through our progressive dividend policy and through our ongoing share buyback program. I want 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. What this means is that our management fee income is highly predictable and repeats over multiple years. So for example, PE V has EUR 1.5 billion 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 do so until the first close of Fund VI, at which 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, up 28% on 2024. 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 fee recognition. 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. As I guided at the half year, performance fees for H2 were significantly higher than for H1, reflecting growing deployment in the credit strategy 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. And that's shown on this slide 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. 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 of that and Private Credit, GBP 96 million. 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, which is where gains are reallocated between investors as if they'd all come in at the first close. Adjusting for those effects, the underlying return was 10.6%, and that continues a long track record of delivering consistent, attractive returns on the balance sheet. 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 in on there. First, there's a natural lag for credit funds in particular, between recognizing fundraising costs in the P&L and seeing the benefits of that fundraising in our revenue line. Team incentives and placement agent costs align with closing committed capital in the fund, whereas management fees are generated once that capital is deployed. As Lindsey mentioned earlier, we had GBP 800 million of uninvested capital in credit at the year-end, and that will become fee-paying once deployed along with the additional dry powder that we've raised during Q1. Second, and as 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. 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's 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. Now we've already touched on the performance fees we're currently recognizing, Fund IV and Accelerator I for Private Equity, Funds 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. We actually expect these 2 funds to be comfortably the largest contributors to performance fees at 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 also a key focus for our LP investors. 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 fundraise, 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 37% 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. 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 the predictable linkage between fee-paying AUM and management fees, and this will continue to be the case going forward. We'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 the long-term platform growth. Performance fees will remain towards the lower end of the guided long-term average range until we start to recognize the 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 hand back to Lindsey.

So thank you, Crispin. And so our priorities for 2026 are focused in 3 areas: scaling the platform, investing for growth and continuing to deliver returns. We've completed the final close of Credit IV, and we'll now focus on considering additional Credit vehicles as demand for the strategy remains strong and also preparing for the next Private Equity. Alongside this, we'll continue to grow fee-paying AUM through the deployment of around GBP 800 million of capital already raised. We're continuing to invest in the platform to support future growth. This includes continuing to invest in our team and to further develop our technology and data capabilities. Improving profitability will develop over time. As ever, the income from the Investment Company supports the dividend. But as profit in the Asset Manager grows with greater optionality for capital allocation. These priorities are focused on scaling the platform in a disciplined way while continuing to deliver returns and invest for long term. 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 value for investors and shareholders. Thank you for your time this afternoon, and we'll now open up to questions.

That's great. Thank you both for your presentation this afternoon. [Operator Instructions] For your reference, a recording of today's presentation will be available on the Investor Meet Company platform shortly after the meeting has ended. But for now, guys, as you can see, there are a number of questions which have been submitted. Could I please ask you to read out the questions and give your responses where appropriate to do so, and I'll pick up from you at the end.

Thank you. So first question is about Crispin covered it, but just to pick it out particularly, it's a question about when we anticipate reaching the GBP 10 billion AUM target and the risk to doing that. We are ever more -- we have ever more visibility to delivering on that GBP 10 billion target. And I think with a simple answer that the next vintage of flagship funds will take us there. So that is raising Private Equity VI, which we will start doing during the course of '27 and continuing credit fundraising, which is more organic and has less start/stop even though the flagship funds come like that. So I think the next version of -- once we've raised Private Equity VI and Credit V, we will be in and around getting towards that GBP 10 billion, which importantly on that GBP 10 billion guidance is actually the 75% to 80% fee-paying AUM. So critically for the P&L, it is about raising the GBP 7.5 billion to GBP 8 billion of fee-paying AUM. So we'll be well on track for that with those 2 vintages.

So then the next question linked to that is around how Fund Management EBITDA scales, how geared Fund Management EBITDA is to AUM growth and how much more AUM can be sort of supported with the current level of admin costs. So I think we touched on this again during the presentation a little bit. I think we are investing in the platform, the investments that we've made both in the IR team and also in the investment teams to scale the platforms to be able to deploy the capital has been a key driver of the fundraising successes we've had, and we intend to continue to do that. I think from a margin perspective, we can expect that to follow sort of similar pattern that we've seen in the last few years where we had in 2023, a margin around the sort of low 30s. That stepped up in 2024 to 40% or so with kind of fund closes in Private Equity V, and we've sort of consolidated at that level in 2025 and expect to do so again for the current year. And then we'll see that next step up in margin when we start to kind of raise capital in Private Equity Fund VI. So it's those flagship Private Equity funds that drive the step-up in margins over time and then there's sort of periods of consolidation around that.

And then for transparency, there's a question about the FCA's engagement with market study, which we reported in the press. Firstly, we don't talk about the individual interactions between our portfolio companies for which we have a fiduciary, but there's an active ongoing -- we operate with many of our businesses are regulated and where they are regulated, and we have an active engagement with all regulators, whether they be in the U.K. or elsewhere. And so there's an active ongoing engagement, which is very constructive. And so I don't intend to think that.

The 2 questions around disclosure of the different investments we hold on the Investment Company balance sheet. Part of that -- linked to that is someone has highlighted that obviously, as the Honeycomb Investment Trust, the investments were sort of listed out and disclosed in the annual report. As we've moved to kind of corporate company status, that level of disclosure has been taken out. I think we do review the level of disclosure we give on an ongoing basis. But I think it's sort of normal for us or natural for us to be looking at that differently as a corporate business, which is half the profits coming from the Asset Manager, and that will be the key driver of growth going forward. Linked to that, there's a comment about the Investment Company sort of underpinning the dividend. I think that always used to be the case, again, with the Asset Manager now contributing half of the earnings of the Group. From a treasury management point of view, actually, the Asset Manager contributed the lion's share of the dividend payments last year. So actually, we're now in a position where the Asset Manager is really sort of underpinning that dividend payment as well.

But what we have outlined is the strategy of our credit -- our credit strategy has not changed. So the profile and the strategic exposure is in line with what it has always been.

Perfect. Thank you both for answering those questions. Before we ask investors to share their feedback, which I know is important to you, if I could just ask you for a few closing comments to wrap up with, that would be great.

Yes. So I think I outlined, I think this year, well, 2025 has been a transformational year in terms of fundraising, tying up Private Equity V and building very strong momentum in the credit strategy. We see that continue into 2026. We've talked about the Asset Manager representing an ever-increasing percentage of the profitability, and that's because we're maintaining the balance sheet at a stable level. We see that continue, and we are -- we've got greater visibility to our GBP 10 billion target than before. There's a question come in about concerns about the Private Credit environment. I tried to address that in our presentation. We're not going to comment on an individual commentator's view on Private Credit generally. What we will say is that our positioning in the mid-market, conducting and engaging in bilateral transactions with businesses in the mid-market based on asset-backed credit, I think, stands us well to deliver the returns for our investors. And I think the track record, which is thoroughly reviewed in absolute detail by incoming and existing LPs shows testament to the resilience of that. And so we are very optimistic as to our positioning in the market in Private Credit.

Thank you both once again. Ladies and gentlemen, could I ask that you don't close the session just yet as you'll now be automatically redirected to a page to give your feedback, which helps the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation. I wish you all a good afternoon.

Thank you.