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

Welcome, and good afternoon. Thank you for joining us today for the VGI Partners Global Investment Company, VG1 Investor Update. We very much appreciate your time and interest in VG1. My name is Rebecca Fesq, and I am the Head of Client Business for Regal Partners Limited, the group formed following the merger of Regal Funds Management and VGI Partners in June of this year. On behalf of the VG1 team and the broader group, we thank you for your support, and we're delighted you can join us today. Before we get underway, a quick reminder that this afternoon's call is general in nature and does not constitute advice. Rob and the team will be sharing their views on a variety of stocks, sectors and markets today. We just remind investors that markets are obviously very dynamic currently and they are very much subject to change. As always, we encourage all investors to seek out the advice of a financial adviser with regard to their own specific circumstances. I'm very pleased to be joined today by Brendan O'Connor, Chief Executive and Managing Director of Regal Partners; Robert Luciano, Chief Investment Officer and Founder of VGI Partners; and Marco Anselmi, VGI Senior Analyst and Portfolio Manager. Thank you to everyone who's provided questions ahead of the webinar. It's very much appreciated. We will endeavor to get to as many of these as we can. However, if your question isn't answered, one of the team will follow up following the call. Before we turn to Rob for some initial thoughts on markets, I'd like to first hand to Brendan O'Connor, who will provide an introduction and update on the Regal Partners' business and the progress of the merger, specifically as it relates to VG1. Thanks, Brendan.

Thanks very much, Rebecca. As Rebecca said, Regal Partners Limited, ASX Code: RPL, was formed through the merger of the publicly listed VGI Partners Limited and the previously privately owned Regal Funds Management. Now renamed, rebranded Regal Partners Limited, we're managing over $5 billion of FUM, with 4 offices globally and circa 100 employees, including 48 investment professionals. Our investment capability spans across a range of alternative asset classes, including long/short equities, private markets, real and natural assets and, more recently, capital solutions. And the brand names behind them being Regal Funds, VGI Partners, Kilter Rural and Attunga, all have a long heritage in providing attractive absolute returns for investors in a alignment with our investors that goes to the core of how we think about investing. So without further ado, why don't I pass to Chief Investment Officer of VGI -- VGI Global Investments, Rob Luciano, to provide an update on the portfolio and Rob's thoughts on the market.

Thanks very much, Brendan. As you know, we are fundamental investors and we build our portfolio from a bottom-up basis. We're stock pickers and we tend to not focus on macro. However, in recent years, macro has driven equity markets substantially. Some of the things we're watching very closely at the moment the warning signs coming out of the bond market with bond liquidity falling; sharp FX moves, which are showing large key country currencies trading like stocks; the Australian dollar falls into that category. And we're seeing credit spreads widen, whether that be in corporate yields, the high-yield market and in some cases, CDSs for key financial groups are expanding at rates which are a worthy of attention. Moving to our longs, which is where we have focused the vast majority of our portfolio over time. We are seeing some substantial opportunities arise and, in many cases, opportunities that are driven by market dislocations and we think emerging signs of capitulation. Whether that be driven by force selling, whether that be driven by liquidations of funds, it is clear that in a number of instances, particularly in European equities and in technology stocks, there has been an extraordinary sell-off which is creating compelling opportunities. In terms of Europe, one anecdote, we've recently seen the Porsche IPO, which was spun-off by its parent company, Volkswagen. And as at today, the market capitalization of Porsche exceeds that of Volkswagen. What is interesting to note is that when you take out the residual holding of Porsche that Volkswagen retains as the majority owner of Porsche had only spun off a smaller percentage, the underlying PE multiple that Volkswagen trades on is 1x. Now that is, generally speaking, a low multiple business, but it gives you a sense, 1x PE for the residual of Volkswagen, Audi, Lamborghini and its other associated businesses, gives you a sense of the kind of opportunities that exist in Europe at the moment. This is, like I said, underpinned by what we think is capitulation, selling, risk aversion and has been exacerbated obviously by the conflict that's taking place in the region. In terms of shorts, we obviously have a much larger short SKU than we have had historically. Shorts dragged us in the second half of '21. Some of those shorts included a short on the semiconductor sector, which we had in the late stage of last year. That semiconductor short has obviously worked nicely this year. And so we're starting to get a meaningful contribution to our returns from the short portfolio. But what it's also doing is allowing us to build a portfolio that we believe on the long side contains some highly attractive opportunities and offset that, with short positions where we believe we can generate return and reduce the overall exposure of the portfolio in an environment that's been extremely precarious. And obviously, the portfolio has not been immune to what has been taking place in the market. However, we are confident that our long positions are extremely mispriced. And the shorts continue to have more return in them at this stage. In terms of currency, the portfolio remains fully hedged to the Australian dollar. At current levels, we think the Australian dollar is especially undervalued, and we'll retain the hedge position. Having said that, we are open to changing this if the facts change. So this slide gives you a summary of the top 10 investments that the portfolio contains, represents the vast majority of long capital. As you can see, there is some consistency, but we've made a number of changes, which I'll discuss shortly. The portfolio constitutes what we believe are companies that are high quality in nature, industry structure is sound, and in many cases, we believe the earnings power of the business has substantial prospects over the medium to longer term. A number of the positions, however, may not be viewed as, today, the highest of quality. We believe that they are camouflaged quality and our analysis and our work suggests that the business models are misappreciated by the market. And hence, we believe our variant perception will play out in the share price in the years to come. One example which we'll touch on in the future slides is Twitter, which has grown in its size earlier in the year, has become subject to a takeover by the world's richest man, Elon Musk. And that is an example of a situation that earlier this year was viewed as a largely broken business, and we thought otherwise. And it has emerged as a clear attractive asset for one of arguably the most capable businessmen in the world. In terms of key portfolio changes, the key points I should highlight is we've added to ones that we think are attractively priced and have solid prospects. This includes our two exchange holdings which largely have skews to derivatives. The CME is one that we've added to. Deutsche Boerse is a relatively new position and we've added more on weakness, and we've added to SAP as the stock has weakened. In terms of decreases, we've reduced MasterCard, we did so a couple of months ago when the share price was close to its highs. And we've also exited Twitter, as I've mentioned and -- which we did most recently as the bid got renewed by Elon Musk, and we sold at a modest discount to the final price. We've also exited Olympus. We've added a new position, Schlumberger, which I'll talk about shortly. Now we've had a lot of questions on Amazon. It's obviously the largest position in the portfolio and has been that way for a considerable period now. It's obviously a holding that we've had for many years. It's a stock that we bought when it was not viewed as a quality business and was deemed perpetually loss-making. It is now one of the larger companies in the world. However, we believe it is -- remains substantially mispriced, which is why it remains our biggest holding. It's our biggest holding also because it constitutes a series of businesses. It is not necessarily the single business that it was when we first purchased it, which was an American-centric e-commerce business with an emerging global platform. Today, Amazon constitutes not only the U.S. e-commerce business, international e-commerce, it's got the leading cloud computing business in the world, being AWS. It contains now what is emerging to be the largest logistics business in the world. And it has now got the third largest advertising business in the world. Other assets that it contains includes what will soon be the duopoly play out in satellite, low earth orbiting satellite broadband, and it will compete with StarLink on that basis. It also has now spawned a U.S. health care platform. So in terms of looking at the Amazon position, we don't view it as a single business. We view it as a constellation of extremely high-quality assets. It continues to, like I said, spawn new business units, which we believe have substantial hidden value. And today, we believe the share price is effectively underpinned by one business unit alone, being the Amazon Web Services business, which, like I said, is the largest cloud computing business in the world. Microsoft, who has had a 7-year late start to the business is #2 and Google is a distant third. In terms of the metrics, we think Amazon is attractively priced. For those who think it's still trading on stratospheric multiples, it's not. It's trading on 15x next year's EBITDA and 3.5% free cash flow yield. So in terms of our position, we think it's extremely attractively priced, it's sized based on the risk reward and the quality of the business and we continue to think it is a highly attractive long-term investment for the portfolio. The next investment we'd like to talk about is Pinterest. This is an investment that we built up coming out of COVID, in the teens and the low 20 range. The stock has obviously performed very well. It has since come back largely to our average purchase price, which has been disappointing. However, we believe the substantial long-term investment merit in Pinterest, and I'll hand over now to Marco Anselmi to take you through our current thoughts on the business.

Thanks, Rob. I'll just quickly touch on Pinterest. It's a position we've talked about at length previously, but I'll just update our thinking -- others thinking on it. Pinterest is a leading digital advertising platform. It's very unique in the fact that it's at the intersection of search and social media. People visit the platform and showcase purchase intent, because they go on there and search what they would like without necessarily knowing what brand they're interested in. And so that's a very valuable signal to advertisers. Now what we've seen recently is a stabilization in the user base. For a period of time, Pinterest experienced a decline in the user base as a result of the boost in users they received during COVID. But encouragingly, we've seen that user base stabilized, which is a big positive for our investment thesis. In addition, we've seen a couple of key near-term catalysts that have also supported the thesis. In particular, they have appointed a new CEO who has joined from Google. He was the #3 -- #2, #3 at Google running the e-commerce and payments business. And we think that's a material positive development given the previous CEO, Ben Silbermann, was viewed as slow-moving and making decisions by consensus, whereas our channel checks already indicate that the new CEO is making much quicker decisions and moving -- taking the right steps to monetize a platform that has traditionally been highly undermonetized. The second catalyst has been the fact that Elliott, the activist -- Elliott Management Activist Investors has taken a large stake in the business, which, again, we think will add urgency to the monetization of the platform. So we think the combination of these two are a material positive catalyst that will help support and drive the execution over the next 6 to 12 months. And perhaps just touching on the second chart there that we have on the slide. The reason we really like Pinterest is that when you put it in context of the global advertising -- digital advertising market, it's still a tiny fraction and we think that can increase by multiples, and so that's where we're excited about the opportunity. We think Pinterest has a long runway to continue to capture advertising budgets in the years ahead. I hand it back to Rob now to discuss one of our new positions, Schlumberger.

All right. Thanks, Marco. As I mentioned previously, Schlumberger is a new position. It's a position that we built up when the stock saw some surprisingly -- surprising weakness despite all the key factors for the business tracking well. It's a stock that we have monitored for a period of time. And it's an industry we've monitored from afar because it's been going through a period of consolidation. And getting back to some of the core of our investment focuses, we like consolidated industry structure -- or industry structures that are consolidating. And so the oil services sector globally has consolidated over the last 5 to 10 years. And as a consequence, it's represented by only a handful of players, of which Schlumberger is, by far, the #1. In terms of the key drivers behind our investment thesis, where we think the company is substantially under earning, and it's under earning in an industry that looks like it's going through a multiyear growth cycle. And this is driven by energy scarcity, underinvestment in energy and, in particular, an ongoing secular shift by national oil companies towards utilizing outsourced service providers. One of the key additional drivers of our view is in the underlying business mechanics. We see an extremely attractive return on capital profile emerging out of the company. As you can see from that bottom chart, this is a business that's seen returns on capital depressed due to a combination of factors, some questionable M&A, some poor capital allocation decisions on top of the poor M&A, and then, obviously, some cyclical earnings weakness. We believe that's behind the company. And as a consequence, we see an extremely attractive return on capital profile emerging. Another aspect of the business that we find attractive and we believe enhances the moat around the business is its digital business, it's digital platform, which is now heavily utilized by a very large percentage of energy companies globally. Not only does that assist with lock-in, customer lock-in, and build a close relationship with customers over time, it's a highly profitable business stream with margins approaching 50%. And this is a part of the Schlumberger business, which we see growing over time, and as a result, has very substantial accretion to group profitability. And then finally, we believe Schlumberger provides an attractive way to gain exposure to energy via consolidated industry structure and an industrial business with, like I said, a digital -- a growing digital component. Now in terms of this slide, it just touches on key exited positions. I know we mentioned that we've cut Olympus and Twitter. Just quickly touching on the rationale behind exiting Olympus. The share price has performed very strongly. It reached our valuation. The valuation was underpinned by a turnaround in the business, which has effectively played out. Margins are approaching what management and others, including ourselves, thought the company could reach. And upside from here really has to be underpinned by some additional improvement in these margins and overall profitability. So we've decided to exit the position and reallocate capital elsewhere. We're in the midst of building another med tech position, although we've only got a small weighting at this stage because of valuation, but that is where we are going to recycle the capital, and we will keep you posted in due course. In terms of Twitter, we obviously held on to our position as per our last update. We believe that the deal that was signed was largely not breakable, and the due diligence that we conducted and the discussions we had with legal experts gave us confidence to hold on to the position. And as it's turned out, that has played out. Elon Musk has come back to the table. And as a result, we exited the stock at a small discount to the final bid price. Look, in terms of new opportunities, we are increasingly focused on European industrials. We're seeing some very substantial opportunities as I mentioned in the introduction. In Europe, signs of capitulation, extreme valuation, and it is something where we are spending time. We've actually built two positions, smaller positions recently, and we're continuing to do work. Marco and I will be traveling to Europe shortly to visit a number of these companies and the management teams in person. Other areas where we're seeing substantial opportunity and we've initiated positions has been in the software space. This is both consumer-facing and enterprise, but particularly enterprise software. And the reality of the valuation landscape at the moment and the magnitude of capitulation is that we're just seeing an acceleration of M&A activity, particularly in enterprise software and/or surging levels of activism with a number of private equity firms appearing on registers of listed companies. And it's worth focusing on this point, we are seeing more and more private equity activity and M&A activity in this space because the private markets are offering far more attractive valuations than markets, which are yet to really have a reset. We would point out Avalara, which was a position that we were building in the portfolio. Avalara, for reference, is the world's leading player in sales tax software. As the company that became subject to an M&A bid by Vista Equity at 8x revenue we sold into the share price move on the back of that. It was disappointing -- the valuation that it's being acquired for was extremely disappointing. And -- but the reality is, this management -- it's a de facto management buyout with management and Vista private equity at a valuation that is going to be highly lucrative, we think, to the Vista and the management team. Other examples are listed there. We've seen some -- these are quite large transactions, Zendesk, Anaplan, and then, obviously, the record-breaking transaction by Adobe for Figma at 50x revenue, which has driven the share price decline in Adobe for a variety of reasons. But nonetheless, these transactions have been done at 10x, 6x revenue. And at the moment, we are looking at opportunities in enterprise software where the multiples have contracted to less than half those levels, in some cases, substantially below. And there are some situations where we're seeing the companies starting to trade close to the cash-backing, which gives you a sense of the degree of capitulation in the sector. This just touches on our short portfolio, how it's increased over time. We've got a substantial amount of short on in different categories. I mentioned we've had a semiconductor short on for most of the year. That's been adjusted over time, but that is a position we still have on. It's been rather lucrative for us. Another area that we've talked on and we had a substantial short on was U.S. housing, that is still a short we have on, although it's smaller than what it was. This slide touches on two areas that we have shorts on at the moment, one is in U.S. auto dealers and the other one is in container shipping. In terms of the U.S. auto dealers, I might pass that on to Marco to talk about as he's driven this idea. And Marco, if you could touch on a few key points, that would be great.

Sure, happy to, Rob. So the U.S. auto environment, we think, is heading into a highly unfavorable position, meaning what we've seen over the last 2 to 3 years has been a bit of a lollapalooza for some of these new and used U.S. auto dealers. There has been tight supply, which has held up auto pricing, and there has been strong demand. We think, however, that is going to reverse -- or has started to reverse and will continue to reverse as more supply -- auto supply comes online. But more importantly, as consumer budgets get squeezed by inflationary pressures. And autos are arguably the second largest ticket item for most households, and we think -- and not only that, but in the U.S., they tend to be financed. And with financing rates and interest rates increasing rapidly, you can see on the chart there in the bottom left that the loan payments have skyrocketed. And we think that's going to collapse the demand for autos and, therefore, we'll have very negative implications for auto dealers. And as you can see in the chart on the top right, U.S. auto dealers have been -- their profitability for these businesses has more than doubled over the last few years, and we think that's completely unsustainable. At the same time, we're seeing -- we're already starting to slowly see an uptick in the delinquencies in auto loans, which is a negative lead indicators -- lead indicator for the demand and the ability for consumers to repay auto loans. So we think -- we already saw CarMax a couple of weeks ago issue a pretty sharp downgrade. Now that's because the used car market gets hit before new cars, and we think that is -- and CarMax was included in our shorts, reasonably recently positioned short in CarMax, but we think the same is going to happen to the new auto dealers in the U.S.

All right. Thanks, Marco. And then what I should say is autos -- the auto dealers is, I guess, a second derivative of our U.S. housing short. We're seeing more and more pressure come through on to the consumer with the U.S. 30-year mortgage rate over 7%, that is substantial ramifications through a series of industries and put substantial pressure on the consumer, particularly the average household and certainly lower income households. And that creates a variety of potential opportunities for us that we've been reviewing and looking at. In terms of another position, this is container shipping. We've expressed this through the Asian markets, where the majority of these companies are listed. This is something we've talked about previously. It's been a short that we've had on and off for a period of time. And the reality is summed up in that chart earlier in the year, shipping companies were extrapolating very high container freight rates. We didn't think that, that was sustainable. And as it's turned out, it wasn't and it's seen a substantial reduction in shipping rates over the year. That's seen the number of these share prices come back quite substantially. We continue to believe that there is attractive opportunity on the short side in select shipping names, and we continue to be positioned accordingly. Having said that, this also feeds through into other areas of logistics, which we are looking at, which includes U.S. trucking companies and other types of logistics players, where we've had positions over the course of this year. Some have been closed out, some have not. All right. Well, thank you very much, and I'll hand over to Rebecca for questions.

Thanks, Rob. Thanks so much, and thanks, everyone, for joining us again this afternoon. We've had plenty of questions submitted, and we really appreciate everyone's interest in VG1. And I'm conscious of time. So we likely won't get to everything this afternoon. However, should we not get to your question, we will definitely reach out following the call. Rob, I'm going to start with you, really going to start initially on sector positioning. The portfolio holds a number of investments in technology and e-commerce sectors. Given the rising interest rate environment, how do you think about this positioning currently? Are there other sectors -- sector exposures that are being considered?

Okay. Thanks, Rebecca. Well, look, the portfolio holds a number of concentrated positions in a variety of sectors. That does include technology. A big skew of that does come from Amazon and SAP. And then we have other positions that can be constituted into technology, which include Pinterest and, obviously, Twitter, which has been sold. But just as a reminder of the investment philosophy that we have is that we are focused on businesses that we believe have high-quality attributes, building substantial moats around their business and have the capacity to generate substantial amounts of free cash flow over time. Sometimes that leads us to businesses that we think are camouflaged in many regards. And I use that term camouflaged because they not purposely are hidden, but sometimes the accounting or sometimes the prima facie attributes can camouflage what are underlying very high-quality characteristics. And we think the way to outperform over time is to own high-quality businesses, but you can't own consensus high-quality businesses. If you don't have a variant perception, it's very hard to outperform. And so yes, we own Amazon and it's a substantial weight for the reasons that I've gone through in the presentation. We think it's a highly attractive business. But not only that, we think it's a highly attractive valuation. And the weighting is driven by the risk reward, but also driven by the quality attributes. And we find it very hard to locate a business of that quality and that growth profile, but also has the capacity to keep reinvesting in its business at a very substantial rate. Very few businesses have that attribute. The other large mega-cap technology companies do not have the capacity to reinvest in their businesses like Amazon does. In terms of the current interest rate environment, that's obviously pressured. All sectors, technology as we've mentioned, has been substantially under pressure. We've actually taken advantage of weakness in equity prices in the technology sector over the course of this year to build positions. What we have done though is built positions slowly. We can't pick the bottom. I don't really know anyone who can. But what we've done is selectively add to positions in what we believe are very high-quality companies in either enterprise software or consumer-facing technology, particularly in marketplaces or platform businesses. And we think that the valuations on offer will generate very attractive returns over time. But like I said, we can't pick the bottom. And I would round out the answer by saying, we have a portfolio that includes a whole variety of sectors. And whether that be financials, which the CME and Deutsche Boerse fall into. We've obviously built a new position in Schlumberger, but interestingly, an attractive component of that business is its digital business. And you go through the list of companies in our portfolio, you can see that there is a variety of sectors. But the reality is, is the most attractive opportunities -- or some of the most attractive opportunities continue to be in the technology space. But we're going through a cycle or whether that includes a redemption cycle or capitulation cycle that is exacerbating the valuations in that sector. And we just view it as a real opportunity. And the key is not to get bluffed out of your positions, which you have high conviction in. If you get bluffed out, that's when a mark-to-market loss turns into a permanent loss.

All right. Thanks, Rob. I might actually just ask a follow-on question to that. You spoke a little bit about Amazon as part of that question. Could you just talk to position sizing. It's currently 15% of the portfolio. Can you talk a little bit around how large you're comfortable with that portfolio, that position to get within the portfolio, and what your maximum weighting would be?

Yes. We've received a number of questions on this over time. I think during '21 or maybe it was in '20 -- late '20 after a sharp move in the Amazon price, it got up to about 18% or 19%, and we reduced it down. We have -- in VG1, we have a mandate limit of 20%. So that will reflect the limit for VG1. And that typically for our other accounts is also where we would put the limit in place by some exceptional circumstance. But that's where we see the limit for Amazon or for any position. And that's more at market than at cost. We wouldn't take anything at cost to that kind of way, I don't think.

Rob, I might now talk to your net exposure. The low net you have at the moment. Can you just talk through, is it a reflection of your overall concern on markets? Or is it the increasing opportunities you're seeing on the short side to deliver alpha?

I'd say it's a little bit of both. The reality is, over time, we've had -- since inception, we've had a low gross exposure and a low net. We typically have averaged a net in the 70s and a gross barely above 100s. So we don't utilize -- on average, we have not utilized leverage to generate return. As the market has come under pressure, and we saw the threat of rising rates and also valuation excess in some areas, we built up shorts. Admittedly, a little bit too early over the later stage of last year. But our shorts have grown as we've seen more opportunity. In terms of longs, we've liked what we've owned, but we're also cautious on the environment. And we've been slow to add, as I mentioned in the previous question -- particularly in the technology space, yes, we've started buying some positions, but we've kept them relatively small. They've been modest sized. And that's something that we've been mindful of. So it's a combination of the two. We see opportunity on the short side. We saw excess -- real accesses go into the semiconductor sector, and we thought it was not only massively earning, we thought there were risks from the broader macro, nowhere near what we thought -- no one knew what has played out, but it's been a lot worse than what we thought. And other areas where we've seen opportunity on the short side, like U.S. homebuilders, we've had a basket on for most of the year, loss-making technology. We had a Fed basket on early in the year that Marco put together, which was a substantial contributor. But we've also needed to manage our short exposure because we've had very substantial share market rallies. And as a consequence, we've had to manage our short exposure over the course of the year. Because, yes, the market's been trending down, but there have been some very substantial rallies which can impact your portfolio if you have -- if your short too much of the wrong thing. So I hope that answers the question, Rebecca.

Yes. Thanks, Rob. That was great. I'm going to stick with you for a few more questions before I hand across and ask some questions to Brendan. Just speaking to the team, can you give us an update on the VGI team that's contributing to the VG1 portfolio and how that's evolved?

Thanks, Rebecca. Well, look, we have a team of 8 in the global research team, 6 here based in Sydney, 2 in New York. And look, the beauty of the combination between VGI and Regal is that we also get to leverage the sector specialists within Regal, which particularly in the health care team, Craig Cole, we've spoken to numerous times on med tech and pharma-related situations. I've spoken to James Hood on Schlumberger and energy-related situations. Tim Elliott on the broader resources sector, where we've had to look at some situations. So we get to leverage the capability of our existing team coupled with that of Regal, and it gives us very substantial capability to execute. But I might also just pass it on to Marco to get his comments.

Yes. Thanks, Rob. Happy to pitch in. Look, I think the team is working well together, and it's nice to finally get back on the road again. Over the last 12 months, have managed to get back into some travel. Gone to the U.S. and Europe to meet some corporates, have managed to go there with some of the team members from Regal and from our side. And so I think, like I said, the team is working well. In the next couple weeks, Rob and I will be traveling over to Europe to, again, meet more corporates. And so yes, I think it's always working well and there isn't too much more to add.

Thanks, Rob. That's great. I'm going to turn a little bit to performance now, Rob. We've had a number of questions on the performance, particularly the performance over the last 12 months and the listed vehicle versus the strong long-term performance track record of the master fund, also touching on the frustrations around the discount to the NTA. I'm hoping you can provide a couple of comments around the performance and the trading share price of VG1.

Yes. Okay. In terms of the performance, well, it's obviously been disappointing. The portfolio has not been immune to the broader global market indices. The concentrated nature of the portfolio on the long side has certainly impacted performance. We've had a number of positions that have had substantial mark-to-market hits. Having said that, we remain extremely confident in these positions. We've offset some of this impact by the short positioning. And as I highlighted on the FX commentary, we've been fully hedged to the Aussie dollar, and therefore, we haven't had that more recent buffer from the currency weakness. In terms of discount to the share price, the reality is the buybacks are in place. Our performance will over time drive whether that discount narrows coupled with buybacks and obviously other activities. But we're focused on the portfolio and the longer-term return profile. But yes, we, as a team, are obviously not pleased with the recent return profile. However, we're focused on what we can deliver in the years ahead. And we've all got substantial personal investments in VG1 and our other associated funds, and we're very focused on it.

Thanks, Rob. One final question before I hand over to the question to Brendan. I appreciate it's early days. How are you finding the merger with Regal? And how do you expect it to assist VGI team and VG1?

Well, look, I think I touched on it in the previous question. We we have our investment team here at VGI, but we're working closely with the Regal team, and particularly the specialists, and can leverage that capability and also leverage access to corporates through Regal. In terms of other positives, well, all of my time now is spent just on the global fund. I'm not doing the Asian fund anymore. I'm not involved in other peripheral activities. And as a result, 100% of my time is now allocated to the investment process, which I don't think where many portfolio managers can say they have the luxury of. So that's a huge positive I would have to say.

Brendan, any comments you might want to add to the end of that?

No, from my perspective, I think it's going really well. Our thesis as we looked at the business was to take advantage of the opportunities by having Rob and his team focused on the portfolio. It's early days, but I think it's working to good effect. And I think the broader platform that Regal has provided by tap into both on technology and distribution, marketing and operational support is coming together pleasingly.

Maybe as a follow-on question to that. Could you just talk through a little bit of the initiatives that we, as a group, have been working on alongside the Board of VG1 with regard to the day-to-day management of VG1 and the share price?

Yes, certainly. And Regal's experience, principally through the management of the listed vehicle RF 1, the Regal investment fund, we think there are two or three things that you need to do really well to actually make sure that, that investment experience goes well for clients. And Rob touched upon this. Without a doubt, the first one is investment performance. And the initiative to use those terms that were put in place there, is freeing Rob and the team up from the day-to-day management of the business so they can focus on what they do best, which is stop picking. And as I said, early days, but we're starting to see some positive impact on that in addition to the collaboration with the broader Regal team from fundamental research. I think the second thing is actually doing things like today is this afternoon's presentation. The fact that actually you're out there engaging with clients, giving them an update on the portfolio, letting them know how you're seeing the ball, so to speak, how you see the macroeconomic environment and how that's playing into stock selection in the portfolio at the moment, that's all key part of it. And then finally, capital management, being able to be clear with your expectations in the market about what a dividend could look like. And you've all have seen that we walked back from that dividend yield concept to maintaining a constant dividend of $0.045 for the half, we think that speaks for a lot of conviction that we have as a team in the future performance. As well as a proactive buyback, both providing liquidity to those investors that want to exit, but certainly a very accretive way of adding value to continuing shareholders. I would add finally that one thing that VG1 and Regal have always had in common is that strong alignment with investing alongside their clients.

Maybe just as a final question, I'm very conscious of time. Can I just ask you to make a couple of additional comments with regard to the buyback. It was switched back on a number of months ago. Can you talk a little bit more to the buyback and the value that it's bringing to investors?

Yes, it's a good question. I think the buyback, whilst ever the shares are trading below the net asset value, we'll be there with the buyback. The Board of VG1 has approved a buyback that's generally around 1/3 of the daily volume whilst it's below the net asset value. As I said, that's very accretive to continuing shareholders, but obviously it helps with liquidity for those who choose to exit. And we'll continue to do so. I think the buyback has been very successful across RF1, VG8 and certainly in the case with VG1 as well.

Great. Well, thank you so much. And look, thank you, Rob, Marco, Brendan. We really appreciate your time and everyone's time for joining us here today. Appreciate your interest in VG1. On behalf of the Regal Partners' team, we wish you all the very best for the remainder of the year, and look forward to hopefully seeing you all in person soon. Thanks very much.