Regal Partners Limited (RPL) Earnings Call Transcript & Summary

Good morning, everyone. My name is Michael Cole, I'm the Independent Chairman of Regal Partners Limited. Thank you for joining us today for the company's 2024 Annual General Meeting. Before we go any further, can I please ask all people in the room to turn your mobile phones to silent. Thank you. The Company Secretary has advised me that we have a quorum, so I declare the meeting open. The notice of meeting, which was sent to shareholders on the 29th of April, will be taken as read. I'm chairing today's meeting from Dexus Place in Sydney, and the company's directors are all in attendance. With me today are members of the Board, Brendan O'Connor; Sarah Dulhunty, Jaye Gardner and independent -- who are all independent nonexecutive directors; and Ian Gibson, who is an Executive Director. Also on the far side of the table, we have Candice Driver, our Joint Company Secretary. Also in attendance today are representatives of our share registry, Boardroom, and our auditor, Deloitte, represented by Jon Corbett. We're pleased to be conducting today's meeting in a hybrid format, meaning people can participate in person, online or over the phone. This will provide plenty of opportunities for shareholders to ask questions during the meeting. For detailed instructions on how to participate, please refer to the meeting materials distributed to shareholders. I will also run through the key points shortly. As reflected in the agenda, I will begin with a short introductory address. Brendan O'Connor will then provide an update on the group. We will then move to the formal resolutions, where we will take questions on each resolution. Following this, there will be an opportunity to ask general questions, and we will then collect the votes. Once we formally conclude the AGM, we will host a light refreshment for the shareholders attending in person. Please note today's meeting is about Regal Partners Limited. And we will focus primarily on key items in the notice of the meeting. Questions about equity market, individual portfolios and funds are best kept for other forums, such as webinar, client events that we host throughout the year. Questions about your personal holdings may be directed to our Investor Relations teams or the share registry after this meeting, both of whom we're always so happy to help. Now in terms of the logistics of the meeting, I would like to hand over to Rebecca Fesq to run through the process for asking questions and voting. Rebecca is Head of Client Business and Strategic Partnerships at Regal. Rebecca?

Thanks, Michael. For today's meeting, all resolutions are being voted on by poll. For those in the room, when you have registered today, you would have received 1 of 3 colored cards. Green cards were given to shareholders who have not submitted proxy forms prior to this meeting and proxy holders. Green card holders can therefore vote on the resolutions being put forward. Holders of the green card are also entitled to ask questions when prompted throughout the course of the meeting. Yellow cards were given to shareholders who have submitted proxy forms prior to this meeting and who therefore cannot cast votes again during this meeting. However, you are welcome to ask questions when we reach the relevant parts of the meeting. White cards were given to non-shareholder guests who cannot vote or ask questions during the meeting. You can complete your voting at any time during the meeting. Just make sure that you give your card to one of our boardroom representatives before we close voting at the end of the meeting. In terms of asking questions in the room, when we reach the relevant item in the meeting, we will ask people with questions who have a green or yellow card to make their way to a microphone and show their cards before asking their questions. Depending on time and the number of questions, we may need to limit each shareholder to 2 questions or comments per item of business. For those of you who have logged into the webcast with your username and password, you will have the opportunity to submit questions online as well as vote on the resolutions. If you have already prepared a question, please submit it now through the website, and we will aim to answer it at the appropriate stage of the meeting. If your question relates to a specific item of business, please state the resolution number or reference the financial report at the start of the question. All other questions will be considered during the section for general questions. If we receive multiple questions on the same topic, we may group these together. Again, depending on time and the number of questions, we may also need to limit each shareholder to 2 questions or comments per item of business. With regards to online voting, to give you ample time to vote, we are going to open the polls now. This means you can submit your online votes at any time between now and when we close the polls at the end of the meeting. If you change your mind about any vote, you can also override your original online vote between now and when the polls close. For those of you who have logged into the webcast as a guest, you will be able to view our webcast but cannot submit questions or vote. The shareholders who have joined over the phone, if you have provided your pass code to the call center and being verified, you will be able to ask questions. Please note that the process for registering your questions is very different to the webcast. For those on the phone, please do not try to register for any questions or comments yet as we will only open the phone lines when we reach each item of business. So when we arrive at the first item, we will ask if you want to register for a question on that topic. You can register at that point by pressing star 1. Once we have finished that item of business, we will move to the next item of business and repeat this process. Please do not register to ask a question for an item of business before we reach that item. So that we can give all shareholders a reasonable opportunity to ask their questions, once we have answered a shareholder's question, we will move to the next person in the phone queue. If you have an additional question or comment on that same item of business, please press star 1 to register for the queue again. For other people on the phone, that is, guests and shareholders who have not provided their pass code to the call center, please note the phones will be listen only. I should also point out that if you are listening on the phone but viewing the webcast as well, the webcast may lag the phone by 10 seconds or more. It may be simpler just to use the webcast for the sound as well. Note that you will not be able to vote over the phone. With those procedural matters handled, I would now like to hand back to Michael to make his Chairman's address.

Thank you, Rebecca. On behalf of the Board of Regal Partners, I would like to warmly welcome all shareholders today and very much thank you for your support. As most of you know, last year was another transformative period for the group with the PM Capital and Taurus transactions, coupled with strong inflows and investment performance, more than doubling fund under management to $11 billion at the end of December. Since then, funds under management has grown a further 11% to $12.2 billion at the end of April. Our financial performance in 2023 was also pleasing, with revenue up 17% to $112 million on a normalized basis and buoyed by strong rebound in performance fees in the second half of the year. Normalized net profit after tax was $32.7 million, up 32% on the prior year, and $0.10 fully franked dividend was declared and paid for the period. As Brendan will describe later, it's been encouraging to see positive fund performance continue this year. This augurs very well for future performance fees in the upcoming first half results. With regard to funds under management flows, despite a challenging capital raising environment, net flows in 2023 was solid, and 2024 has started well, including some significant mandate wins. Consequently, Regal today is a much larger and more diversified business than it was at our last AGM, and we are well positioned to continue to grow organically. Over time, Regal may also seek to further expand its capabilities inorganically. However, this will be done carefully and when we feel the opportunity makes sense for our investors and our shareholders. I'd like now to hand over to Brendan O'Connor, Chief Executive Officer, to provide his address. Brendan?

Thank you very much, Michael. As you've heard, Regal Partners has had a busy year since we last held our AGM. I'd like to thank shareholders and our clients and, of course, our great team here at Regal for their support during this time. To begin my presentation, I'd like to start with this slide, which is a quick snapshot of where we are today. As shown here, our FUM of $12.2 billion sits across 4 alternative asset classes, long-short equities, private markets, real and natural assets, and credit and royalties. The acquisition of PM Capital in late 2023 particularly boosted our global long-short offering. With PM Capital being a multi-award winning specialist in this regard, including being crowned the category winner for International Equities -- Alternative Strategies at the 2023 Zenith Fund Awards. Pleasingly, since our acquisition, PM Capital's performance track record has continued to be strong over a range of periods. For example, as at 31 March, the performance of PM Capital's global fund ranked in the top 5 of funds over each of 3, 5 and 10 years when compared to all other global funds in Morningstar's equity world large blend categories, which I believe to be over 100 different funds. PM Capital also gives Regal Partners exposure to the retail investor channel, thus further diversifying our client mix and relationship network. Overall, we are very pleased to be working with the PM Capital team and see great opportunities ahead. The other transaction at the end of last year involved the acquisition of 50% of the ordinary shares in Taurus Funds Management, a specialist provider of mining, finance and royalties. This transaction increased our credit and royalties asset class with Taurus products being highly complementary to Regal's existing product suite, along with providing opportunities for the Taurus team to collaborate with Regal's expertise in running long-short equities within the resources sector. Furthermore, the Taurus client base comprising mostly U.S. institutional pension and endowment funds, the deal provides Regal Partners with an avenue to a brand-new offshore client segment and significant potential. This next slide provides an illustration of our recent growth in the diversification I've just described. In particular, the large increase in FUM on credit and royalties over the last few years. I would also like to highlight the growth in the number of institutional investors over that period. In our experience, institutional investors, particularly those located offshore, are often great early identifiers of strong investment teams and end-products. Over the last few years, we've had significant increase in inbound institutional investor inquiries, including large international fund-to-funds, global family offices, and offshore institutional allocators across a broad range of our investment strategies. Our distribution team are doing a great job in servicing those inbound inquiries. This is a great indication of the investment talent that we are building here at Regal Partners, and we coupled that with a significant operational due diligence that each of those institutions conduct before they invest. It reinforces our confidence in the systems, the processes, the business management that we are building here at Regal. As shown on the chart, today, we have over 30,000 investors and nearly 40 institutional investors, and I expect that number of institutions to continue to grow. The following slide shows how recent FUM growth has been achieved. As Michael mentioned earlier, it's been pleasing to see a combination of net fund flows, fund performance, the PM Capital and Taurus deals all contributing, particularly when many other asset managers in Australia are seeing weak fund performance and outflows. I'd now like to speak a bit further on our investment performance and track record. As ultimately, performance is what drives client satisfaction and further inflows over time. Investment performance is our raison d'être as an asset manager. As this slide shows, the group's 3-year annualized portfolio net portfolio returns to April 2024 have been strong across a broad range of strategies. I might add that it's also diversified by not only strategies but portfolio managers within Regal. This is particularly pleasing given the period had significant volatility, material headwinds from rapidly rising rates, both in Australia and in the U.S., high inflation in a deteriorating geopolitical environment. We believe that if Regal can demonstrate strong fund returns, regardless of the broader macro climate, then we will be -- there will be high ongoing demand for our products. The other positive aspect of this chart is the strong performance in recent months. While I appreciate there's quite a bit of data on this chart. What we've tried to demonstrate here with the green dots that sit on each of those rows, is that many of our funds have had strong performance for the 4 months to April. And given the funds with green dots have semi-annual performance fee, meaning performance fees that are triggered at December and June, those above the high water mark and exceeding any relevant benchmarks are on track to deliver performance fees for Regal's upcoming June results to the first half '24 results, which will deliver to the market in August. The orange dots on those rows indicate funds that have an investment performance for the 10 months to April. We've used that period so these funds only crystallize performance fees annually each June. So once again, for those funds that are above high watermark, in particular, the PM Capital Global Opportunities Fund and the PM Capital Global Companies Fund, they're above high watermark, exceeding the relevant benchmark. And the performance fee outlook for those funds is looking very strong. Another way of trying to demonstrate this is represented in this chart. This chart shows how our various funds are tracking versus their high watermarks. It is then stratified into those percentage buckets that are above or below in the distance to high watermark. Pleasingly, as at the end of April, the proportion of our performance fee eligible FUM, which is nearly 100% of Regal's fund, we have 59% above high watermark with a further 13% of FUM within 5% of their high watermarks. Some of the funds that are currently tracking well are listed on this page and including the Australian Small companies fund, Regal Resources long short strategies, the Tactical Opportunities fund and the PM Capital Global Strategies. We hope to provide you with an update on our first half '24 performance fees in early July as we draw the ledger close on our results and we released our June quarter fund. Turning to the next slide. This page shows more details on our recent FUM growth -- flows. In 2023, we saw strong demand for our Regal Private Opportunities Fund, which was launched in late 2022 and Attunga Power & Enviro Strategy. There were also good flows in other funds launched in 2023, including the Kilter Agriculture Fund, our Resources Long Short Cayman fund, and our Resources High Conviction Fund. For this year, in the 4 months to April, we have seen around $400 million of new net inflows, and these are largely driven by interest in our long-short equity strategies, including a couple of significant institutional mandates. Stepping back and from a bigger picture perspective, this slide attempts to demonstrate Regal's ongoing focus on innovating new products to create new strategies that appeal to clients. This chart shows key funds launched in 2015 by Regal Funds Management, so excluding any funds that we have acquired via acquisition. As you can see over the years, we've continued to add our strategies and that ability to design and tailor a product to meet client demand or need with strong investment performance has been instrumental to driving their flows. I think it also provides a really unique insight into the entrepreneurial culture that we have developed here at Regal. Our new unlisted multi-strategy Partners Funds, exclusively for high net worth, ultra-high net worth in terms of investors, was launched in December 2023 is another example of that, and it's got off to a flying start. Moving to our 2023 results. Michael earlier covered the key points, which are listed again on this slide, so I won't repeat those. However, there are 2 comments I'd like to make here. Firstly, our 2023 profit, so for the 12 months ended December 2023, of $32.7 million only include the earnings from PM Capital and Taurus transactions from their time of acquisition in late 2023. In respect of Taurus, that's November last year. In respect to PM Capital, it was a day or 2 before Christmas. If we had completed these transactions at the start of 2023, we estimate the pro forma net profit after tax would have been approximately $48.6 million. Secondly, I'd like to remind you that at the start of this year, from 1 January 2024 that is, staff rebates on funds managed across the Regal Funds Management product suite were reduced from 100% rebate to 50% rebate. Said another way, staff and founders are now paying a fee equal to 50% of the management fee and performance fees. We estimate that based on the nearly $600 million of relevant FUM at that time, this would generate a further $5 million in management fees per annum, everything else constant, as well as providing Regal with the opportunity to earn an uncertain amount of performance fees on this FUM. And while not shown on this slide, the balance sheet remains very strong with over $242 million of cash and investments as of December 2023 or $200 million on a net debt basis. To conclude my presentation, would like to take a few minutes discussing our firm's strategy and outlook. As a Board, we have spent considerable time mapping out what the future looks like for Regal Partners. And I'm pleased to see that this slide shows there's a wide range of asset classes within the alternative asset space that could be complementary to Regal's existing offerings. Regal's heritage in long-short equities has formed the foundation of our company and has allowed us to expand into other private markets such as private markets, commodities such as water, power and more recently, private credit. However, as you can see, there are additional segments we currently don't have a presence in. And indeed, we're underrepresented in others. With that in mind, we continue to monitor a range of opportunities to add additional scale and expertise to the business. This may include smaller bolt-ons as well as larger acquisitions. But whatever we explore must not hinder our existing runway for growth, which is substantial. Turning now to my final slide. Our core strategic message remains the same. That is our growth focus strategy is built upon 3 key pillars: a diversified and scalable tool, attractive market tailwinds as investors are increasingly seeking alternative ways to generate absolute returns, and strong business economics, given our business is able to command higher fees relative to traditional long-only managers of equities or fixed income or passive products. In other words, we have multiple opportunities for growth organically. And if were to do anything inorganically, we'll be very disciplined to make sure it's highly accretive to our shareholders. And given our staff are significant investors in RPL stock, we are very aligned with you in that regard. So once again, thank you for your support, and I look forward to updating you all further in August this year when we release our first half '24 results. I'd now like to hand back to Michael for the next stage of our meeting.

Thank you, Brendan. We will now turn to the formal business of the meeting. I will take each item and resolution in order as set out in the notice of meeting. Our meeting today involves tabling and reviewing the accounts and 5 resolutions to be decided. In terms of logistics, when we reach a point for questions, we will start with online questions from the webcast first, then questions over the phone and then questions in the room. For those online, please remember, you can submit your questions at any time during the meeting. Just please type clearly at the top whether it relates to financial reports. We'll write the resolution number or state if it's a general question, which we'll cover at the end of the formal business. As a reminder, for those on phones, please wait until each item of business before registering for a question on that item. [Operator Instructions] As we mentioned earlier, we will conduct a poll on all resolutions today, combining votes submitted before the meeting to the votes that are cast during the meeting, both in the room and online. Since the online polls are already open, if you would like to vote now, please do so. Alternatively, it is also fine if you prefer to vote only after we have discussed each resolution. I will now allow some time at the end of the meeting for you to finalize your votes. For those voting online, if you make a mistake or change your mind, please just select your preferred voting option, and that will override the original vote. I note that Boardroom are the returning officers for today's meeting and will conduct our poll. Certain votes will be excluded in accordance with the Corporations Act and the ASX Listing Rules. The proxy votes will be shown before a discussion of each individual resolution. I advise the meeting that I will be voting all undirected proxies in favor of the resolutions as indicated in the notice of the meeting. As the result of the poll will not be available before the meeting closes, they will be released to the ASX and be available on our website later today. Turning now to the first item of formal business, which is the tabling of the financial report, the director's report and the auditor's report for the financial year ended 31st December 2023. The company is required to lay before the meeting the last audited financial statements and reports, which were released to the ASX on the 22nd of February 2024 as part of the company's annual report. No resolution is required on this matter. However, I now invite shareholders or their proxies to ask any questions on those reports. Questions may also be asked of the auditors in relation to the conduct of the audit, the content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. So let's start with the online questions. I'll ask Rebecca to read out questions as they come through on the webcast.

Thanks, Michael. There are no questions online. I might go to the operator to see if there's any questions on the call.

There are no questions via the phone lines.

Okay. We now just go to the room, if there's any questions from the floor. Yes, sir?

I just understood the annual report here that consolidated share [indiscernible] How does that reconcile with the figure that you gave earlier, which I think something like $32 million [indiscernible].

Okay. Brendan, Do you want deal with that? It's really tricky, we can't get away.

No, it's a very fair question. So the financial report that you're referring to here provides a presentation of our financial performance, the consolidated financial statements, the comprehensive income statement on behalf of Australian accounting standards. Those accounting standards involved the amortization of certain noncash items coming through the profit and loss. And so from a presentation perspective to shareholders when we present our results, we feel that normalized profit, which excludes the amortization of certain noncash items, is a better presentation of the true underlying value of the business that we're building here. So the broad difference is the profit for the 12 months ended 2023 of $2.488 million is reconciled to the $32.7 million on a normalized basis. And I believe in our presentation that we put out in February, we actually have a reconciliation of that, that we provided to the shareholders.

[indiscernible]

[indiscernible] Page 11 reconciles between the statutory profit and the normalized NPAT that management and the Board are determined to be a better presentation of the true underlying earnings of the business.

Thank you.

Any other questions from the floor? Okay. We'll now move to resolution 1, which is the adoption of the 2023 remuneration report. Under the Corporations Act, companies listed are required to include as part of the director's report a remuneration report. The remuneration report for the financial year ended 31st December 2023 is included in the company's 2023 annual report. . Corporation Act requires companies to put to shareholders a nonbinding vote to enable shareholders to voice their opinion on matters included in the remuneration report. Given the vote is only advisory, it does not bind the Board or the company. However, the Board will take the outcome of the vote into account in considering future remuneration decisions. The Board recommends that shareholders vote in favor of adopting the 2023 remuneration report, and I will now move this resolution and will show the proxy votes on the screen before asking for questions. Rebecca, any questions on the webcast?

No questions online, and I'll go to the operator. Thank you.

There are no questions via the phone lines.

Now, are there any questions from the floor? Okay. If there's no questions, we'll now move to voting. For those in the room with green cards or if you are a shareholder or proxy holder and eligible to vote online, could you now complete your vote for resolution 1? [Voting]

Alternatively, if you prefer to wait, please complete your voting at any time between now and the end of the meeting. For Resolution 2, as it relates to me, I will now invite my fellow Director, Brendan, to conduct this part of the meeting.

Thanks very much, Michael. We will now move on to Resolution 2, the reelection of Michael Cole as a Director of the company. So Resolution 2, reelection of Mr. Michael Cole as a Director of the company. With regards to this resolution clauses 60.2 and 60.3 of the company's constitution states that directors retire in accordance with Clause 60.1 must be those who have been the longest in office since their last election. And if anywhere appointed or reelected on the same date, they may agree among themselves to determine by a lot, of which must retire. With this in mind, the Board has determined that Michael Cole is required to retire from office and be eligible to stand for reelection as a Director of the company at the AGM. Mr. Cole's details are set out in the explanatory memorandum of the notice of the meeting and also shown on this slide. As it states here, Michael has over 40 years' experience in investment banking and portfolio management. He has held the following roles over his extensive career, Executive Director and Executive Vice President of Bankers Trust Australia, Chairman of Challenge Listed Investments, Chairman of IMB Bank, Director of New South Wales Treasury Corporation, Chairman of SAS Trustee Corporation, State Super Board, Chairman of ASX-Listed Investment Management company Ironbark Capital; and Chairman of Platinum Asset Management Limited. Michael has been a member of our Audit and Risk Committee since May 2023. But I might just hand back to Michael to say a few words about his reelection.

Brendan, as you can observe from my CV, broad experience in investment banking, retail banking, and investment management over nearly 5 decades. Since becoming Chairman of RPL on its listing nearly 2 years ago, it's been rewarding to work with the other directors and management to apply this experience to the RPL corporate goal to create a dynamic funds managed business, offering a broad range of investment strategies to a diversified investor base. As Chairperson, the contribution of my follow directors looking up the interest of RPL stakeholders and the shareholders, staff and investors is noted and much appreciated. The refinement of our diversified investment management strategy continues to be our central focus. I would appreciate your support to shareholders to continue to implement the corporate strategy in conjunction with the Board and the management. Thank you.