Regal Partners Limited (RPL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regal Partners 1H '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Brendan O'Connor, Chief Executive Officer and Managing Director. Please go ahead.

Good morning. My name is Brendan O'Connor, CEO and Managing Director of Regal Partners Limited. I'm going to provide an update on Regal Partners' performance for the 6 months ended 30 June 2026. I'm joined today by our Group CFO and Head of Strategy, Ilana Stringer; and our Head of Corporate Affairs, Ingrid Groer. I will talk to the results highlights and provide a business update. Ilana will then present the financials, and I will then discuss our key areas of strategic focus for second half '26 before hosting Q&A. At Regal Partners, we seek to be recognized as a leading provider of alternative investment strategies. We believe that we have a persistent edge in alpha generation as a result of our investment skills and direct deal origination, originating and structuring investments across the capital structure in equity, credit, royalties in both public and private markets. We are highly diversified, as you can see here, with key capabilities across all asset classes of hedge funds, credit and royalties, growth equity and real and natural assets and in total, managing $21.4 billion. And finally, we're uniquely placed to unite this diverse set of investment capabilities in our market-leading multi-strategy offerings. I will now cover the key highlights from the 6 months to 30 June 2026. In a 6-month period that was punctuated by the Iran war, a continuation in the AI-fueled capital expenditure boom, 20-year highs in long-term interest rates and domestically, a significant disruption to consumer and business confidence as a result of the federal government's budget, we delivered management and loan fee revenue of over $113 million and steady growth in management and loan fee pretax profit to over $44 million. Our normalized net profit after tax was $93 million, similar to our statutory profit. It was also pleasing to have achieved a record half of net flows of $1.4 billion, which together with our strong investment performance of our FUM to $21.4 billion. Earnings per share was $0.214, and the Board has approved a $0.12 fully franked dividend. We finished the half with approximately $290 million in capital, excluding the $0.12 dividend I just mentioned, excess franking credits equivalent to a further $0.21 fully franked dividend and no drawn debt. I think I have 5 key themes that we observed during these first half results, and let me turn to each of them now. Turning to our clients first. Our client base and reach is expanding as evidenced by the $1.4 billion in net flows with $900 million achieved in the June quarter alone from North American investors supporting the first close of the third Taurus Mining Finance Fund. Secondly, investments made in previous periods have delivered business growth and business diversification and as a result, have demonstrated earnings resilience and a recurring profit growth. Three, we continue to observe and execute on exciting new opportunities for growth. And the best example of this will be the income multi-strat product that we will officially launch next month. Our One RPL approach is creating a scalable platform to better service clients and our people by uniting our high-performing and differentiated investment capabilities. And finally, our robust balance sheet is underpinned by our strong organic cash generation, a disciplined approach to recycling capital and a focus on growing our fully franked dividend. In summary, our resilient business model is delivering for shareholders. And over the past 3 years, we have achieved normalized management and loan fee revenue up over 2.2x, normalized performance fee revenue up over 3x, normalized NPAT up 2.7x, strong gross inflows up over 3x, strong growth in normalized EPS, which has been up 2x, and we've been able to deliver for shareholders as well with an increase in fully franked dividend per share up 2.1x over that period. I'll turn now to a business update. As you've heard me say before, our strategy is built upon 3 pillars: the growth and diversification of our investment capabilities, the growth and diversification of our client base, and we seek to evolve our centralized and scalable platform. And I'm pleased to highlight that over the last 4 years since listing on the ASX, our fundraising momentum remains strong with 11 consecutive quarters of net flows, diversified across a diverse range of asset classes, client segments and geographies. I note that the $1.4 billion in net flows achieved in the first half of '26 includes an outflow of $500 million as a result of 2 institutional clients participating in the Commonwealth government's water buyback program at a material premium to their book value. The strong net flows from a diverse range of asset classes has contributed to significant growth and diversification in FUM on several measures. Firstly, overall in absolute terms, as you can see on the left-hand side of this chart. Secondly, within our hedge fund asset class, now highly diversified by strategy and lead portfolio manager. Thirdly, by client channel with a particular callout of the domestic retail channel and offshore institutional growth. The majority of our institutional FUM is from offshore clients with long-duration mandates. And as you recall, the push to raise further money from offshore clients has been a strategic focus of the group for the last 3 years. And finally, by liquidity, we have a material amount of FUM from clients who are invested in term and closed-end investment strategies, providing certainty of recurring earnings for the group and better structuring the portfolio for the clients. Strong investment performance is a good leading indicator of future performance fees and net flows. And despite a number of things thrown at the group during the half, our performance remains strong and diverse. At 30 June 2026, I'm pleased to say that 85% of our FUM has a performance fee attached to it and 60% of our FUM is subject to a fixed hurdle or high watermark only. As we have diversified our business, our performance fees are also more diversified and therefore, more persistent. I'll reflect now the last 2 slides on a couple of evolutions within the business. Firstly, I'll highlight that a changing investment landscape certainly requires an alternative investment strategy. We believe that 4 key themes will dominate markets in the years ahead, creating significant headwinds for traditional investment portfolios. Firstly, sticky inflation and high prolonged interest rates; two, record fiscal spending and growing public debt is eroding confidence in government debt and promises. An AI-fueled capital expenditure boom is reverberating through many sectors of the global economy and an increasingly fractured geopolitical landscape is creating trade barriers, disrupting supply chains and driving increased spending on security and defense. Against this backdrop, we are finding that our clients are increasingly seeking uncorrelated investment returns, inflation-protected strategies and reliable income. Regal possesses a range of investment products that are at the intersection of these contemporary client needs and our unique and diverse investment capabilities. The best example of our unique offering, meeting client demand is our leading multi-strategy capabilities, including our soon-to-be launched multi-strat income product. We believe this product will play an important role in meeting Australian investors' growing needs for monthly income, and this product will launch next month. Our distribution and marketing capabilities has expanded and diversified into every major segment in the Australian market. And with 4 key staff dedicated in offshore markets, our client base offshore is expanding. Offshore distribution is a key priority for us, as I've highlighted. Offshore allocators typically allocate in larger size. They are typically less constrained by the fee disclosure rules, which dominate Australian superannuation capital allocators. And we have an investment capability that's increasing demand as the world seeks diversification. Australia is increasingly sought after as a destination for global capital allocators due to our stable democracy, low sovereign risk and large pool of diversifying investment products and talent. And finally, as we begin to harvest the dividends of creating a unified brand for direct client engagement, we have started to achieve some early gains in supporting direct client engagement, which we expect to be able to talk more about in future periods. We recognize that clients don't want just great product. They want communication and insights on a regular basis that can be directly affected them by a variety of medium. I will now hand over to Ilana Stringer, who will take you through the financials.

Thanks, Brendan, and good morning, everyone. My name is Ilana Stringer, and I am Regal Partners Group CFO and Head of Strategy. I'm going to spend the next few minutes on 4 things. First, the changes we've made to how we present our profit and loss and what this half delivered; second, the growth in our recurring management and loan fee earnings; third, the diversification that sits behind our performance fees; and fourth, our approach to capital management, including the interim dividend announced today. The first thing I want to call out is the changes to the way we present our normalized profit and loss statement. We've separated management and loan fee pretax profit from performance fee pretax profit to more clearly show the drivers of Regal's profitability. In particular, the recurring earnings the business generates from its management fee base are separate from the performance fees we earn on top of this base. Normalized NPAT for the half is $93.3 million, up 108% on the first half of 2025. That translates into fully diluted earnings per share of $0.214, up 104% on the first half of 2025. All 3 drivers of profit grew, management and loan fee pretax profit, performance fee pretax profit and other income. Management and loan fee revenue of $113.9 million is up 14% on the first half of 2025 a very strong 20% growth in average FUM and 23% growth in fund management fees. This reflects a period of continued investment performance and continued positive net flow momentum for the business over the last 12 months. Loan management fees were lower in the first half of '26 off the back of lower activity at the back end of '25, which is now rebounding. The growth versus the prior comparable half in employee and other expenses reflects investment in growth and efficiency, in particular, offshore distribution, our technology platform and brand and rent on our new premises from May 2025. I'd also note that other expenses are down 14% on the second half of '25, which carried the larger investment costs we flagged for the full year. Together, that gives us management and loan fee pretax profit of $44.3 million, up 6% on the first half of 2025 and up 37% on the second half of 2025. Turning to performance fees. We've had another very strong half with performance fee revenue of $119 million, reflecting strong investment outcomes across a diverse range of strategies. After performance-related variable remuneration, both the cash expense and the deferred amortization related to prior year's performance, performance fee pretax profit was $82 million. As you know, some of the variable remuneration generated from fees is also deferred into future periods. Other income of $10.8 million is up 83% on the prior comparable half. That includes net fair value gains and dividend and distribution income from our seed investments. I'd like to spend a moment on management fee revenue and profit as a key driver of growth and profitability. On the left, we've separated loan management fees in blue from fund management fees in black. Loan management fees include loan establishment fees, which are activity-based and drive the variability of our all-in management and loan fee yield. This was 108% in the first half of '26, up very slightly versus the second half of 2025. Management fee yield, excluding loan fees, is stable across the last 4 halves, reflecting very consistent fee margins. On the right, you can see what that means to profit. Management and loan fee pretax profit of $44.3 million is our strongest half since merger. We delivered another impressive half of performance fees of $119 million, following $133 million in the second half of 2025. On a rolling 12-month basis, that represents a performance fee yield of 1.2% of average funds under management. Importantly, this reflects the diversification of potential sources of performance fees within the business. Each band in these columns represents a different underlying strategy and the key contributors to the $119 million in the first half of '26, a difference to the key contributors to the $133 million in the second half of '25. This diversification gives us confidence in our ability to deliver a recurring level of performance fees through the cycle and underpins the resilience of this stream of earnings in addition to our growing management fees. In light of the growth and maturity of our business, we've implemented a more structured capital allocation framework as set out on this slide. The strong fundamentals of our business that Brendan has talked to today deliver strong operating cash flow and a robust low leverage balance sheet. We pay a fully franked ordinary dividend out of our recurring profits, management fee profits plus the recurring portion of performance fee profits. We intend to continue to deliver a fully franked dividend aligned with earnings growth. We reinvest excess capital to drive growth where return hurdles are exceeded or return excess capital to shareholders. This slide is what that framework delivers in practice. On the left, we're showing what normalized NPAT would be if compensation was not deferred or at risk, which provides a look through the effects of deferred compensation amortization related to previous year's performance. This measure has doubled from $42.7 million in the first half of 2025 to $85.1 million in this half. Our dividend history demonstrates Regal's ability to support sustainable growth in dividends as earnings grow. The Board has approved a fully franked interim 2026 dividend of $0.12 per share, double the $0.06 paid for the first half of 2025. This implies a dividend payout ratio of approximately 56%. And our balance sheet remains strong. We have capital of $289 million at 30th of June, adjusted for the first half dividend. Of that, $128 million is free cash and $133 million is invested seed capital. The $130 million debt facility remains undrawn. We continue to invest in the growth of the business, growing our existing strategies through our investments in our platform, distribution and capital raisings. New product innovation, as Brendan has talked to earlier, continues to be a focus, supported by deployment of recycling and seed capital. And we continue to take a disciplined approach to assessing M&A opportunities. In light of the value of franking credits in shareholders' hands and the changing tax landscape, I'd note that we are currently focused on growing our ordinary fully franked dividend while retaining flexibility, including for future growth. So to recap the half, we've delivered growth in FUM, growth in management fees and growth in recurring management and loan fee profit, which, combined with strong performance fees from a range of strategies delivered normalized NPAT more than double the first half of 2025. And we have a balance sheet that provides Regal with financial flexibility. With that, I'll hand back to Brendan.

Thank you, Ilana. I'll just focus on some of the strategic priorities for the second half '26 before we move to Q&A. Just to remind you, we've had a strong capital raising start to the second half of '26, most notably, $500 million in inflows in July and August so far. When I add together the $300 million in net flows in July, a further $200 billion in the capital raise of PGF, $200 million, I should say. And that's excluding a further capital commitment from a sovereign fund in credit, which has been achieved in August 2026. That's most notable because in the last 2 months, we have now won over AUD 1.1 billion in directly originated bilaterally negotiated commitments to private credit in -- originated by the Regal Partners and broader team. New products and strategies, we've highlighted the multi-strat income product that will launch next month. We believe there's a very large addressable market out there. There are some products that are performing really well. We think our product is well positioned to sit alongside that and to capture a growing share of Australia's desire for monthly income. We're capitalizing on our expanded distribution footprint. And as you can see during the half, the strong flows that we've achieved, particularly from offshore clients, and we see that pipeline building. Our RPL approach is achieving greater resiliency and scale for the business. And finally, our disciplined approach to capital management, as Ilana has mentioned, balancing strong organic growth and efficient returns to shareholders while also exploring accretive M&A. Regal Partners has never been in a strong position to achieve its strategic ambitions. Now before I turn to Q&A, I'd like to acknowledge Phil King, who has signaled his intention to transition to retirement effective 30 June 2027, effectively 10 months away. There'll be plenty of time to celebrate the significant contribution Phil has made to building Regal. And I can assure you that in the interim, it's business as usual here. We remain focused on continuing to deliver great outcomes for our clients and shareholders, and we've never been in a better position to achieve this. Thank you.

Thanks, Brandon. So we'd now like to go to questions. Operator, could you please go to the first person in the queue who is Cameron from Canaccord.

Team, can you hear me okay?

Hey, Cameron.

If I could start with perhaps a couple. Perhaps just on fundraisings looking into the balance of the year. Brandon, you mentioned the seeding of the multi-strat income fund launching next month. Two-part question. Will that be closed end or open ended? And the second part of the question, any flavor you guys can provide us on additional fundraisings in the balance of the half, whether that's Regal Resources, royalties offshore or any others?

Yes, certainly. So the income -- the multi-strategy income product will be an open-ended product. So taking applications and redemptions on a monthly basis. The fund pipeline continues to grow. We have achieved a great growth in fundraising for our global Long Short strategy. As of today, we're probably about $800 million calendar year-to-date. That's up materially from the same time last year. And that's before we include the benefits of the SPP from the PGF capital raise. That momentum would probably put us on track to be over $1 billion for the calendar year as I sit here today. When you supplement that with other more campaign like raises for things associated with multi-state income product and some product offshore, we're well on track to achieve a $2 billion net flow target for calendar '26.

Great. And perhaps one just around the management fee rate looking into the second half. Obviously, we've got our first half run rate to start with. But I think as mentioned, Taurus Fund III sort of got itself away through the half just gone. Can you help us, I suppose, just think about that incremental contribution starting the second half as that sort of flows through?

Yes. We expect that, that total management fee and loan fee yield will actually be pretty stable on the first half of '26, if not very, very slightly up, and that will include the Taurus -- the impact of the Taurus fundraising.

Okay. And Ilana, maybe just the last one. You sort of mentioned there that within the loan management fee comments that establishment fees again been a bit soft, but I think your comment was that things have started to rebound. Just zooming in on that, is that sort of a comment on Q4 versus Q3 or just early start to this financial year, please?

Start to this financial year. So I think what we see is that activity-based fees, particularly in the second half of '25 were a fair bit lower than the first half of '25 and that, that activity has increased in this half and that, that is beginning to flow through again to the ongoing management -- loan management fees as well going forward.

We might now go to the next person in the phone queue who is Lafitani from MST.

Can I just get a reminder of Phil's current portfolio responsibilities and the broad plan to who it's going to be handed over to? Are you thinking internal? Are you going external? Just talk of the possible investment community. Can you just give us a bit more color, please?