Regal Partners Global Investments Limited (6L20.F) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you for joining us. My name is Robert Luciano. I'm joined this morning by Rob Poiner in New York and Tom Davies on my side here and Marco Anselmi. We're the senior investment team at VGI Partners, and we're very pleased that you can join us. Now we're just going to be doing a short presentation and taking you through our strategy for the global portfolio and the Asian portfolio. This is in advance of our AGMs for both VG1 and VG8 today. It's going to be relatively short because we did a detailed road show in October, and today is really an opportunity for us to answer a number of questions on the portfolio from our investors. So in terms of just going to the first slide, just to give everybody a bit of an update. Some of you might be aware of this, but new investors may not. We have $3 billion of funds under management, and half of this is in our unlisted funds. We have 2 unlisted funds: an Australian dollar fund and a U.S. dollar fund. And then the rest of the funds under management are in our listed investment company, VG1; and our Asian investment company, VG8. We're close to new net investment. And so if you want to access the VGI Partners Global strategy or the Asian strategy, the way to do this is to buy shares in VG1 and VG8 on the Australian Stock Exchange. And at the moment, both are trading at discounts to NTA, which, if you invested in a fund, you would buy the fund at NTA with a buy spread. So just turning to our investment philosophy. We won't spend too much time on this because I'm sure people will be familiar with the philosophy, but it touches on the key points. We're very -- we are focused on capital preservation. Our targeted return is 10% to 15% through the cycle. We refer to benchmarks or indices, but that's not our reference point. When we started in 2008, we had a targeted return of 10% to 15%, and that is what we have always focused on. Currently, our global strategy is in the vicinity of the 13% range since inception, and that's net to the investor. And we're big believers in portfolio concentration and concentrating capital in our best ideas. In terms of another key tenant, it's alignment of interest, and that was reflected in how we set up VG1 and VG8, paying fully upfronts. We also have a substantial investment by the investment team. Our families and executives in our various funds and risk investment companies, in particular, in the 2 listed investment companies, the investment by the team and their families is roughly $40 million in VG1 and roughly $40 million in VG8. In terms of next slide, these are the key attributes that we're looking for in a business. Industry structure is very important to us as is ongoing secular growth. Quality of management is important. Ideally, you could get high quality, fanatical honest management, and that's not always the case, but what we'd rather is honest management who are sometimes just -- they can't be -- they're not necessarily going to be the best, but a high-quality industry structure with decent quality management who are honest is something we'll take all the time. We can't always get all these boxes ticked, but that's ideally what we're looking for. In terms of some of the new businesses we've moved into, for example, Amazon, 7 years ago, you could tick a lot of these boxes, but for example, superior returns on capital, that weren't initially obvious. So this is a -- it's a structure, it's what we stick to, and it's really where we think the business is heading to over time is perhaps the best way to put it. You're not always going to get it straight away. In terms of next slide, we're going through a series of initiatives for our listed investment companies in terms of how we're looking to manage them over the longer term. Engagement with advisers, investors in general, the programs that we've put in place, I think we've well articulated we're focused on some capital management initiatives, which include a buyback for VG1, which has commenced. And also, the VG1 dividend policy is something that has come into effect now that VG1 has franking credits and has already paid 2 dividends. In terms of these initiatives and our road show, our modification of some policies, we have further initiatives in the pipeline, including hiring some additional investor relations people, particularly someone who can specialize in business development and more interacting with our prospective and existing investors. We've already seen a narrowing of the discount for both VG1 and VG8. We're not satisfied with the narrowing. At this stage, we'd like a further improvement. VG1 did trade at a premium [ 20 a ] for its first 18 months of listing, and we're hoping to narrow the gap dramatically in due course. What I might do now is spend some time just going through the portfolios, and then we can perhaps move on to questions. So this is the global portfolio. It is the same for VG1 and our funds, whether that be the Aussie dollar or U.S. dollar funds. The only difference is the U.S. dollar funds are U.S. dollar-denominated. In the case of VG1, it is Australian-denominated funds and has its cash now held in Australian dollars. You can see the exposures there. It's a very conservatively positioned portfolio. It has probably a little bit more number of longs than usual. It's because we are building up a couple of new positions. Some of those positions have got away from us. And as we've discussed before, our short positions have dropped, although we're in the midst of working through a program that will allow us to reenact our short portfolio. And we'll talk about that with investors in due course, possibly in the new year. In terms of the portfolio itself, on the long side, our biggest position remains Amazon. That's a position that many of you would know we've held now for close to 7 years. It's been a very successful investment for the portfolio. We have managed the weight. If we didn't sell any Amazon shares, it would represent more than half of the portfolio today. It's been maintained simply for not -- the portfolio not being largely constituted of Amazon, and the same point with Mastercard as well. We believe in concentration. We just don't believe in single stock or 2-stock portfolios. That's not something that the vast majority of our investors are looking for. What we're looking for is concentration in 10 to 15 very high-quality securities. Mastercard is a position we've held now for at least 10 years. It's been a very successful investment, and we've managed that weight accordingly. Both Amazon and Mastercard have -- continue to show very substantial growth through this period. Mastercard has some slight headwinds as a consequence of this year and lack of travel with cross-border, but we now see that sharply recovering. And we can talk about that in Q&A, but we're very happy with those 2 investments and the long-term growth profile they have. Pinterest is a new position of ours. It's grown into a much larger weight due to performance. We are up more than 200% on our initial purchases and 100% on our last purchase. It's the leader -- global leader in visual search. We talked about it during our October sessions, but very happy to talk about it more in Q&A. CME is a position we've held now for over 10 years. It's the dominant derivatives exchange in the planet. And it is the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange all wrapped up into one. And it recently bought the dominant cash bond trading platform, BrokerTec, and the dominant FX trading platform, EBS. It is a substantial beneficiary of volatility, trading activity. And if interest rates or inflation ever come back, it is a substantial beneficiary of that. Olympus is known for its cameras, but actually is the #1 player in the planet in gastrointestinal endoscopes. Long-term secular growth runway, very high-quality business, 70% global market share. We think it's a long-term structural winner. Happy to talk about that as well, but we covered that in our road show. Same with OTIS, oligopoly industry structure and recently spun out of a large U.S. conglomerate. SAP is a new addition for us, which was substantially added to in a recent sell-off, which was triggered by a change or a restructuring of the company strategy and a short-term downgrade. We owned SAP -- it was one of our biggest positions about 7 years ago. We know it very well. They are the global leader in enterprise resource planning systems, or ERP systems, very substantial market share, very high renewal rates, and we think that they're a long-term beneficiary of the digital transition that's taking place in the world today. Richemont is the Cartier brand and the Van Cleef super luxury jewelry brands, and that is a situation that we've held now over the course of this year and is a big beneficiary of the skew towards the top 1% becoming wealthier. And we think it's a substantially underappreciated luxury brand versus the well-known brands of, say, LVMH and others. Francaise des Jeux is a monopoly lottery operator of France and sports betting operator. Unlike other operators in the planet, it has a 25-year monopoly for France, which is very valuable in a zero-rate world and was IPO-ed by the French government late last year. And VGI was the largest -- got the largest allocation of any foreign investor. We've added to that investment earlier this year, and it's proven to be a successful investment for us so far. Yakult is a Japanese-listed company, the same as Olympus, and it is the global leader in probiotic beverages, very substantial global footprint. Recently just finalized its distribution footprint in the United States despite being there for nearly a few decades. Very substantial operations throughout Asia, whether that be in Indonesia, Vietnam, the Philippines. Obviously, you see their products in Australasia. So globally distributed and a relatively small market cap for what it does. It's an USD 8 billion market cap. So just moving on to our Asian portfolio. This is as at October. As at today, I think we released with the ASX the investment for the portfolio is up, I think, to about 71% or 72%, having made a substantial investment in a new position, which we haven't disclosed yet. It's a very high-quality situation and a business that we've recently done a lot of work on. I will disclose what it is in due course. I might move to the portfolio. And our largest investment is Nintendo, actually something that we pitched at the Ariston conference last week. It is one of the leading AAA gaming content companies in the world. But not only that, it's one of the oligopoly console companies -- gaming console companies. We think it's mispriced. We think it has attractive secular growth. It has 20% of its market cap in cash, and we think it's in the midst of a transition to a recurring revenue business model as opposed to having cyclical earnings. Olympus, we've talked about. Kikkoman is the leading Japanese condiments company, has been a big beneficiary of lockdown, something that we wouldn't have necessarily predicted as people moved to more home cooking, particularly a big shift to Asian cuisine. Crown Resorts is a new position. It's something that we had a modest position in earlier this year during the sell-off. We were able to buy at very attractive prices. We're also able to buy a good position in Star, which is -- it's the other duopoly player in Australia, which is in the portfolio just outside of the top 10 at attractive prices. We substantially added to Crown more recently with negative news and headlines. We can talk more about that later. Yakult, we've discussed. Richemont, we've discussed. Pernod Ricard is one of the leading spirits players in the world. But it is substantially growing in Asia, and more than half of its revenues and the increasing delta of its revenues is coming from the Asian region. And that is the same for Richemont and for Yakult, hence why they're in the Asian portfolio. You're accessing Asian growth through these companies. Hong Kong and Japan Exchanges are the monopoly exchanges of those respective countries. More importantly, the Hong Kong Exchange is the best way to play the China thematic and increasingly, the delisting of Chinese companies in Hong Kong -- Chinese companies in the United States and then relisting them in Hong Kong. And we're seeing that now with Alibaba listing on the Hong Kong Exchange and a variety of other U.S.-listed Chinese companies. Particularly, technology companies are looking to have a second listing or delist in the U.S. and then move to the Hong Kong Stock Exchange. Last position there is Kewpie. They're a dominant player in Japan with growth outside of Asia and throughout the Asian region for their branded products. So I might move now to some questions. I might ask Tom to read those out and hand over to you, if that's okay.

Yes, it looks like we had quite a lot of questions coming through online. So we'll try and get through as many as we can and keep sending them through onto the webinar. If we don't get through to the question, we will get the Investor Relations team here to get in touch with you wherever possible. So maybe if we just go to the first question, which is, what difference does a Biden win make your portfolios?

Well, we don't really -- we don't -- we didn't sit there and try and adjust our portfolio for a Biden win or a Trump win. I think the key point is that with Trump, you weren't going to have taxes go up. And with Biden, you were going to have taxes go up. And we've always adjusted for a higher tax rate in our assumptions over time because Trump wasn't going to be in power in -- potentially in 4 years' time. So you have to assume U.S. corporate tax rates went up. And I think you've got to assume corporate tax rates or tax rates in general move up at some point. I think -- we think it's a reasonable assumption. The thing with the Biden win -- and certainly, the way that this -- the politics are shaped out now is that if the Republicans have the Senate, the probability of sharp tax -- corporate tax rates increasing in the U.S. diminishes. That's a positive. We won't know until early in the New Year with these Georgia elections, I think it is? It's Georgia and somewhere else.

Yes, in January. Yes.

And assuming that the Republicans retain the Senate, then the likelihood of tax increases, big regulation on tech, a variety of other headwinds for corporates may diminish. Having said that, there are 2 things that I think both sides of U.S. politics agree on, which is China. And the current trajectory of our relationships with China, I think, is unlikely to be halted. So I think they agree on that, which remains a risk for any portfolio and for investors to think about. And I think that both sides agree on regulation of mega tech. It doesn't seem to be too much dispute between both sides on tech regulation, mega tech regulation. So they're 2 things that we think about. But apart from that, Biden -- the Biden win may actually just inject a little bit more normality into the geopolitical world. But we'll see. We'll see.

Great. I've got a next question here from the webinar. Do you think an increase in tech regulation will force the likes of Amazon to break up?

Look, we -- we've avoided some of the other major tech management -- not probably -- incorrectly because we thought that regulation was imminent, particularly for things like Facebook. Google has the threat of regulation, and that's evolving as we speak as does Apple with the way that it has quite an egregious charging policy for its store. And you're seeing that already now being disputed by a variety of companies, whether that be Spotify or Epic Games, and there are others. Amazon appears to be the one that you could argue is least affected, which is why we've always -- we've liked it. We've always viewed it really as 3 businesses, and it's evolved. It was 2 and so it evolved into 3. But the Amazon business is -- it's online or it's e-commerce business. It's AWS business, the Amazon Web Services business, which is a cloud computing business, which they're dominant in. And the second player is a very good player, it's Microsoft. And then its third business is advertising, which is morphing into a very substantial operation. So it's really got 3 legs to it. And I'd say the sleeper, which is a fourth business, is its gaming business. And that's not gambling, but gaming as in video game. And it owns Twitch, which is the #1 platform to watch other people play games. And it's increasingly evolving its game platform as is Microsoft. So it's actually one of the businesses -- mega tech businesses that we would argue that if it were to split certainly into e-commerce, now that e-commerce has started standing on its own 2 feet, not being -- doesn't need to be cross-subsidized by AWS. So if you spun off the e-commerce business and then spun off web services, which is arguably what regulation would push for, which doesn't really make any sense anyway because there's not much of an argument for that. We don't actually think that -- we actually think you could actually get more value out of that. You could have a valuation uplift. And the reason for the weighting, it also gets right the reason for the weighting, that we don't actually view it that high if you view it really as 2 positions or 3. It's 5% in each or maybe 7.5% in both. We actually think it's quite manageable. When it got up to close to 20%, we -- in a single stock, we were a bit cautious. We can let that happen, but we've been a bit cautious, perhaps overly. But that's how we look at it, and we don't think that it's -- we just don't think that the risk to Amazon is high. Is there a risk to Facebook? I'd say there's a risk to Facebook. But U.S. governments seem to be pretty reticent to split up their own technology companies in this day and age, but let's see. The ones that I think are least likely to be regulated in terms of the very large technology companies is Microsoft and in our view, Amazon. The others, I think you could argue, Facebook, Apple and Google are at risk. And then, obviously, Netflix, I don't think Netflix has regulatory risk either. So anyway, I don't know if anyone else wants to add anything, but that's what I thought.

No. Another question from the webinar. Why didn't you announce a buyback for VG8 at the same time as VG1? What are VG8's plans for dividends and buybacks?

Okay. Well, look, VG1 and VG8 are a very separate situations. VG8 only recently listed end of last year. So it's barely had the ability to invest and allocate its capital, which is why investors invested in the place. So that's the answer to that one, I would say. What's the other question? VG8's plans for dividends and buybacks? Well, it's the same as VG1's. VG1 didn't pay a dividend until it had franking credits, and you need franking credits before you can pay franked dividends. And when franking credits build up, then we believe we can pay a sustainable dividend, then that's when dividends will start to get paid.

Pinterest is now the third largest holding in VG1. Have you've been buying at this price level?

First of all, we don't talk about where we're buying and selling. But third largest holding in VG1, it's got there because of performance. And so no, we -- it's growing because the share price has accelerated. I think our average -- last purchase was at about -- was at least half these current prices, and the reason for the share price move has really been extraordinary acceleration in the business. But I don't know, Tom, do you want to touch on Pinterest a little bit?

Sure. Yes. So I think we've explained the thesis at length on prior calls. And also, we've done a segment on Livewire, which you can refer to. But just an update on the recent performance, and I think it comes down to the 3 things which is user growth. So there's been an acceleration in user growth this year as a result of lockdowns. But what we think is interesting is that despite lockdowns easing in a lot of the Northern Hemisphere countries in the third quarter, engagement stats still held with prior cohorts. So we've got confidence that those 100 million users that have joined the platform this year will stay with the platform and are behaving like prior users. In addition to that, monetization has really accelerated. So this was kind of a core of our thesis when we bought the position. And what we're seeing is as they improve their ad tech stack and move to more automated bidding for advertising slots and also build out their sales force, we're seeing more advertisers join the platform and allocate larger parts of their budgets towards Pinterest. And so that's really accelerated this year, which has also been a big delta in the earnings and the thesis. And then the last point, I would say, is around margins. So Pinterest has had a long-term margin target out there for a while, which has been 25% to 29%. That's long term, 5-plus years. In the last quarter, in 3Q, they just reported a 21% margin, which is up from breakeven last year. So that just shows the operating leverage that is in this business model, and we think that 25% to 29% margin target is too low. And we think there's more upgrades to come on the margin front, and that's been the most recent delta in the share price, which has really driven it recently. But we still think the margin forecasts and the market expectations are too low around margin. The next question we have -- you said earlier that your increased -- you increased your Crown holding to 7% of VG8. What is the thesis given there is ongoing investigation?

Well, we bought an initial position for VG8 early this year in the sell-off, where we were buying a series of positions. We put a fair bit of cash to work. In hindsight, not enough, but we did allocate capital. Built a position that was outside of the top 10 at attractive prices. Stock had a rally. It came back sharply on the back of these concerns. And we viewed it as a substantial opportunity, and it's a very high-quality asset business we've watched for a while. We did own Star many years ago as a large position in the global portfolio. As I said, we also own Star in the Asian fund, but it's outside of the top 10. Look, Marco, why don't I hand it over to you? You maybe can give a bit of background on Crown and...

Yes, sure.

Why we added to it.

Yes. No. No problem. I mean it's obviously a highly attractive asset in terms of having the monopoly casino licenses in Melbourne, Perth and now potentially a second one in Sydney. We think that the recent share price decline provided us an attractive opportunity to buy a high-quality asset with a good margin of safety. I mean we think the regulation risk is real. And there, the asset has been mismanaged in terms of compliance. But we thought that at the level that we were buying at, that was more than priced in. And ultimately, we don't think that the potential regulation is going to structurally impair the asset. So yes, they might have been the junket operators are brewing in the IPs or they might force the more compliance costs on the company, and they may even revoke the Sydney license. There is a tail risk they will do that. But we thought that when we were buying the stock recently, we actually were not paying for any earnings from the Sydney casino. So we -- that was purely upside optionality and so we thought the risk/reward was really balanced in our favor when we were buying the stock. And we think there's also a lot of things -- other aspects that we like about Crown. For instance, they have BlackRock on the share registrar, which is the large U.S. manager, alternative investments-focused. And they have a track record in casinos. They -- so they own just under 10% of Crown, and we think that could unlock quite a lot of value. For instance, they could push for a sale and lease back, which we think would unlock a lot of value. And we did see BlackRock actually push for this with some of the U.S. casinos so there is precedent there. So overall, we think we got the chance to buy a very attractive asset with a good margin of safety. And as Buffett would say, we want to be greedy when others are fearful. And we thought -- we think we've got the opportunity to do that with Crown.

Thanks. Nice Buffett quote.

A number of LICs have announced restructurings in the last few months. Is this something VGI is considering to address the discounts?

Look, the answer to that is no. We've announced our initiatives for both VG1 and VG8, what our plans and strategy is, and we're going to stick to that. And that's all I have to say on that.

What do you think of the Chinese regulators pulling the Ant IPO just a few days before listing? And what is your current view on investing in China?

Well, let me be careful about answering questions on these kinds of things. First of all, we did a lot of work on Ant. Tom, you did a lot of work on Ant.

Yes.

And it comes into the fact that we look at the payment space. Ant is an extraordinary business, extraordinary asset, as is Alibaba, as is Tencent, extraordinary assets. And what do I think about the regulator pulling it? Well, it's been well covered in the press for some of the reasons. But the reality is -- and one of the reasons for our cautiousness in investing in a number of these Chinese-listed companies is there is a degree of regulatory risk. And when share prices go up, people may dismiss the regulatory risk, but the regulatory risk is real. And the Chinese government has now shown its hand. In fact, last week, I don't think it was very well reported. The Chinese government has announced further measures that will look to potentially impact the business models of dominant Chinese technology companies, such as Alibaba, such as Meituan and even Tencent. And they're very specific announcements made by the Chinese government. And the Chinese government has allowed technology companies in China to prosper and do extraordinarily well and develop remarkable technology, and it has created some winner-take-all situations. And the consequence of Ant -- and one of the reasons that -- why it looks such a successful business, such prospectively interesting investment opportunity, which we were going to participate in and we had been allocated some shares in but we were mindful of the weight for the VG8 portfolio, was that its business model was allowing it to become increasingly dominant, self-perpetuating and would have suck the air out of the Chinese financial system and effectively, the incumbent banks. And I think part of the move by the Chinese government has been very wise because I don't think the Chinese government has wanted its banking -- incumbent banks to come under substantial pressure and see a substantial drain on its profitability. And I think the Chinese government is acting, in some ways, in a very similar fashion to what Western governments is doing, which is starting to put in check the powers of the very large technology companies, which in some cases are creating natural monopolies. And I think that's perhaps the best way to answer it. Certainly, with the development of the -- or the release of the regulatory news last week of Chinese technology, we had some position. We had a position, small, outside the top 10 in Alibaba and Tencent, the Asian fund. We sold those positions early because we think regulatory risk is now far higher than even we would have handicapped, and there is clearly something changing. That is our view for now. We can change our mind in due course, and it is something that we think needs to be monitored very closely. I do go back to the point, though, on Hong Kong Exchange. One of the best ways to play capital flows and the evolution of Chinese companies is through the Hong Kong Stock Exchange. Hong Kong is China -- Hong Kong is the gateway to China, and Hong Kong Exchange is the way that, that capital flow is traded and will continue to attract more and more listings, particularly if trade war continues and you see delistings things from the U.S. back to Hong Kong. I don't know if anyone else wants to...

Not for me.

No? We need to get a question for Rob.

The recent positive news on COVID vaccines caused a big rotation in financial markets. How is the portfolio positioned for this?

Well, again, we don't necessarily run our portfolios for these types of moves. We -- but we don't have all our portfolio in one thing. We don't have it all in technology. We don't have it all in whatever sector. We try and have a portfolio that has some -- is concentrated but has some spread, and that -- it then acts accordingly. So we've had a portfolio that has, I think, performed reasonably well in this period. Some things have worked very well. Some things have offset. The portfolios today, global portfolio pretax today is what -- we've released the NTA, which is post-tax today. But the pretax for our funds were up close to 7% for the month, and that's with a relatively low net, which many would say is too low. We feel comfortable with it at the moment given markets are all-time highs. We have been putting a fair bit of money to it. We've also sold a lot of things, which is not answering this question. So I'll get back to answering this question. So how are we positioned for this? Well, we have a concentrated yet somewhat diversified portfolio. We don't own 4 securities. We own -- the vast majority of capital is in about 10 to 15 securities. So a number of our positions have done very well as a consequence of this. One we could discuss is perhaps Diageo. And maybe, Rob, if you want to touch on Diageo.

Sure.

And even we saw improvement in Mastercard. And lately, we've seen quite a bit of a rally in the CME share price, Rob. So maybe if you want to touch on Diageo, CME and maybe get Tom to talk about Richemont's had a benefit. Pernod Ricard's had a benefit.

Yes.

Yes. So Diageo -- I mean, I'm sure many of you know Diageo, but it's the largest premium spirits portfolio globally. So they've got very strong positions in developed markets, U.S., Europe, but also in emerging markets. Their largest brand is Johnnie Walker. But what we see with Diageo is they got a very diversified portfolio across all the brown and white spirits categories. So that's one of the reasons that we've always been attracted to it. We don't have to pick brown and white spirits trends. We get to own the leader in the premium category globally. And the spirits category is really -- we've owned Diageo for many years now, and we've been attracted to it for 2 reasons. One, I think, is they've continued to have structural share gains from beer, and that's continued year in, year out now for more than 10 years. And then the second piece to it that we've been really attracted to is what they call premiumization, which is basically just in these more emerging, but also developed markets. As disposable income and GDP per capita increases, the consumer tends to trade up. And so they tend to spend more on the premium spirits, and that benefits Diageo, who kind of sits at the top of that pyramid. So that's a company we've owned for many years and that we've been very attracted to. What we've seen through COVID is, not surprisingly, is at-home consumption has been very strong in terms of spirits. And in markets in the U.S., where they call it basically the off-trade where you consume at home versus the on-trade at bars, in markets like the U.S. where that split is more relatively even, those markets have actually done quite well. But in other markets, in some of these emerging markets where consumption is done far more on-premise in the bars than at home, Diageo has definitely suffered. But the thing that we've watched the whole way through is market share in key categories hasn't slipped, and that's been very important. And so now what we've seen is as some of these economies, and as you see, perhaps the potential for a vaccine, the Diageo volumes have benefited. And the market that we've seen that obviously the earliest is in China, where the on-trade has come back and revenue and profits have recovered pretty robustly. So that's a business that we like, and that's been more exposed to the impacts of COVID.

Yes. And I'll -- look, I'll pass on, Tom. Restaurants had a benefit for, I guess, a similar reason. So as Pernod Ricard. In the Asian fund, Kikkoman has had a substantial benefit in this sort of open up trade in terms of repricing. And so it depends on the portfolio. Some -- I was sort of surprised in the recovery in, say, Mastercard, which maybe you want to touch on. But also CME, Rob. Like CME had a substantial repricing as a result.

Yes. Yes. And look, CME, I mean, as Rob discussed earlier, it's the monopoly exchange if you want to hedge or speculate in terms of the U.S. interest rate curve. And what we've seen for the CME, there's been a couple of factors that have been at play. The first one, at the beginning of the year, we actually significantly reduced the position. And that was really around concerns around 0 interest rate policy and then potential consequences of the fed-implemented yield curve control. And what that essentially means is that, that depresses interest rates, particularly at the short end of the curve, which reduces the need to hedge and also reduces the speculation. But the reason that we've maintained still a meaningful position is we still remain optimistic that this incredible significant increase in net debt issuance by the U.S. treasury, that's going to provide a tailwind to trading at the long end of the yield curve. And one thing that's really important with the CME is if you think about trading at the short end of the curve versus the long end of the curve, the rate per contract, so the fee that you pay to pay 1 unit at the long end, is actually at a 40% premium to the short end. And so that's very important. That's very important as more of this debt needs to be hedged. But CME has had a very good recovery on the speculation of a vaccine, and a lot of that is also because the risk of inflation has increased. And we think that an investment in CME, it provides a very good hedge against the risk of inflation. And any volatility in interest rates, which would be on the back of inflation, is very good for the CME. And so we have seen the price recover somewhat on the back of that.

And look, Pernod Ricard has been a beneficiary, very similar to Diageo, and Richemont is the same as well. But Richemont has also had a fantastic result. Do you want to maybe touch on?

Yes, sure. So actually, there's 2 things at Richemont recently. It's been -- the second part has been -- the second leg up was the reopening trade, and the first part was the result. So Richemont, as Rob said on prior calls, should be renamed the Cartier and Van Cleef business, which is a super luxury jewelry business. That's what it is at its core, and that's what drives the earnings of the business. Obviously, with store closures globally, the business was significantly impacted in the early stages of COVID. But what's been pretty remarkable in the most recent result is that in the latest quarter, jewelry actually grew year-on-year. So they actually achieved growth in that business despite foot traffic through Fifth Avenue or Bond Street or Champs-Élysées being down significantly year-on-year. They actually grew the business. So what we are seeing is a repatriation of spend to China and significant growth out of China. It's 83% on a group-wide basis, but we expect quite higher for jewelry. And we're seeing the business transition -- shift some of that business online as well, which have been too standout at the recent result. What's also been announced recently is a partnership with YOOX. So within Richemont, there's also the YOOX NET-A-PORTER online business, which has NET-A-PORTER and MR PORTER as its core businesses, which are the leaders in online luxury e-commerce. They struck a deal to get 25% of Farfetch's China business in the last couple of weeks, which we think is a very smart deal for Richemont. But what it's also done is it's given us kind of a peer valuation for what YOOX NET-A-PORTER could be worth if you split it out of Richemont. At the moment, we think it's being ascribed 0 value, but just that Chinese -- Farfetch was valued at $2 billion. So we think there's a lot of value in YOOX NET-A-PORTER. At the moment, it's being ascribed 0. You can make Richemont stack up just on the jewelry businesses alone. So if you can get YOOX NET-A-PORTER for free, you also get the watch divisions for free, which is IWC, Piaget, Jaeger-LeCoultre, Panerai and a bunch of other brands. And also then you get Montblanc, dunhill, Chloé, all 3. So we still see a lot of upside in Richemont at the current share price, but it is definitely a beneficiary as things at some point start to open up again. Those stores will see foot traffic improve, and they should start to see improved turnover above the plus 2% that they achieved in the most recent quarter.

Thanks, Tom. Do you have any more questions?

This one here. SAP was at attractive returns in October and is now a large position. Has the thesis changed after the recent results?

Yes. Well, SAP was a small -- much smaller weight before it sold off, a couple of percent, and we were slowly adding to it as it was coming back. So I think it's about 2.5% going into the result, maybe a little bit more, hence, the detraction. We substantially added to our position on the day of the result when it was down, I don't know, 25%, 30%. Although the stock then fell another 10% after we added a lot more. Whether that came into the October result, I'm not sure. I think it probably did. Has the thesis changed? Well, I'll hand it over to Rob. Rob and I have done a lot of work on SAP. And as I said before, we've owned it. It was one of our biggest positions. I think it was our biggest position 7, 8 years ago. Extracted a lot of return out of it, sold it, and then reengaged with it a number of months ago. Rob, do you want to talk about SAP? I don't think our thesis on China -- the thesis is the same. If anything, what's transpired and reiterates the thesis, I guess, we're just surprised how they did it.

Yes. And look, to Rob's point earlier, SAP, they provide mission-critical software to these large corporations globally. So financials, supply chain procurement, SAP does all that software for companies such as Coca-Cola, Pepsi. They even built for Amazon. And the renewal rates on this software is in the high 90% range. The 2%, maybe 3% of attrition that they see each year really comes from bankruptcies. And what they've seen is these customers, once they implement that SAP software, those technologies, they tend to be with SAP for many decades. And what's basically happening here is SAP, they're shifting their customer base to the cloud. And that's causing temporary headwinds to both revenue and earnings because the way that the traditional model works is you get the upfront license fee, and then you get a support fee, whereas they're transitioning into a cloud model where they're receiving a multiple of the total lifetime value of that contract, but it's more evenly dispersed rather than upfront. And so that's caused a near-term headwind. But look, I don't think -- the thesis hasn't changed. These guys will continue to operate mission-critical software for these corporations around the globe. And at the large end of town that these guys are dominant, for a manufacturer, anyone that's got any complexity in the supply chain of size, SAP is the place that you go. So we think for patient shareholders, for those that are willing to look at years rather than quarters, that there's a huge opportunity here. And on the other side of this transition, you're going to have a company that has a very, very high recurring revenues, should be 85% plus of the business and we believe, retain those high retention rates.

Yes. And so if anything, we would say that the way that the result was handled was disappointing. We had a small position because we anticipated some kind of reset, but nowhere in the vicinity of what transpired. We think that management are being particularly conservative. We've done a series of channel checks and gone out to a variety of the companies. In fact, a very substantial number of companies that we know and deal with, really most of them -- and these aren't people businesses. There's businesses that make things, that do things, whether it be an automotive company or a consumer goods company. The companies that we know or have contacts with have all come back, and it's been -- it's reiterated our view on SAP, to say the least. But I think as Rob pointed out, those who had a quarterly view or focused on short-term outcomes, it's very different to those who have long-term outcomes. And I think this gets back to the point we have a long-term investment through our horizon. That's our competitive advantage. It's also something that -- it's one of the reasons why we established these investment companies to have capital that we can allocate for the long term, close our funds, not worry about the short-term issues of inflow and outflow. And that's one of the benefits of investing with a group of people who are focused on long-term investment outcomes, and that's what we're focused on. Yes, we're well aware that this is not our best year. In fact, if you'd invested with us every other year, you would have seen that we've generated very high-quality risk-adjusted returns. This year is not as satisfactory. But the reality is our process, our philosophy and the capacity to allocate capital and long-term capital from not just the listed investment companies, but from our funds where our investors, many of which have been with us for nearly 10 years, that is a very powerful combination. And it allows us to take very long-term views and allows us to, in general, look through short-term volatility and look through issues. We do make mistakes. We've talked about them, but we also have had a number of recent successful transitions in the portfolio. And you can see that starting to take shape, for example, in Pinterest being a classic, OTIS earlier this year, FDJ end of last year. And we've made a number of investments recently, some of which perhaps not large enough, but have been very successful and have been additive to the portfolio. A couple of new ones that are going into the Asian fund, one that I've mentioned that has increased the level of investment. And so we're about 71%, 72% invested in the Asian funds. But again, one of the missing points to both the Asian fund and the global fund is that we continue to sell securities that -- or positions that we think have met our levels of valuation we've got close to them and we can find better opportunities to invest in. Are there any more questions or...

I think that's probably -- look, we do have a lot of questions that's still unanswered, but we will get the Investor Relations team here to try and follow up on most of those. So Rob, I guess, as timeliness, maybe I'll hand over to you for some closing remarks.

Okay. All right. Well, thank you very much for your support. We appreciate your investment with VGI Partners, whether you're invested in our funds or in VG1 and VG8. As you're all aware, we are substantial investors in both our funds and our listed investment companies. We are aligned. We are focused on growing our funds through returns, and we're focused on assembling what we believe are the highest-quality businesses that we can find and extracting growth from those assets over time and focusing on long-term compounded portfolio returns. So thank you very much for your support, and thank you for your investment with VGI Partners. Thank you.