Regal Partners Limited (RPL) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's First Half '25 Results briefing by Regal Partners Limited. Today's results will be presented by the Chief Executive Officer, Brendan O'Connor; and Chief Financial Officer, Ian Cameron. And the briefing is being conducted by webinar and phone. The agenda for today is that Brendan will start with the results highlights. Ian will then cover the key financials and hand back to Brendan for a business update and outlook. This will be followed by a short question-and-answer session. We will provide more details on how to submit questions over the phone at that point. But for those online, please feel free to submit your questions at any time during the briefing so that we can lead with those. Please note that we may have media in attendance today. I would now like to hand over to Brendan.

Thanks very much, Ingrid. 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 2025 before hosting some Q&A. I'm joined today by our Group CFO, Ian Cameron; and our Head of Corporate Affairs, Ingrid Groer. Before I get to our results, I'll take a minute to remind you that Regal Partners Limited seeks to be recognized as a leading provider of alternative investment strategies. Since listing on the ASX 3 years ago, the business has grown substantially. We are now significantly diversified across 4 key asset classes: hedge funds, credit and royalties, real and natural assets and growth equity. Our strategy is built upon 3 key pillars: the growth and diversification of our investment capabilities, the growth and diversification of our client base and to evolve our centralized and scalable platform. I'm pleased to highlight that over the past 3 years, we have demonstrated the power of the RPL platform. For we have delivered a $13 billion increase in funds under management, including $3.8 billion from organic net inflows and $2.4 billion in investment performance for clients across a broad range of investment strategies. We have also delivered a significant increase in clients, particularly institutional clients, which I always feel is a great endorsement of the platform we're building. And finally, we've diversified our funds under management. We have reduced our portion of hedge funds and increased our exposure to private assets, leading to more resilient earnings. I will now cover the key highlights from our 6 months to 30 June 2025 before I hand to Ian. In a half of significant equity market volatility, Regal-specific noise and heightened macro and geopolitical uncertainty, we delivered a normalized net profit after tax of $44.8 million or $0.105 per share. I'm also pleased to announce that the RPL Board has approved a $0.06 per share dividend fully franked, reflecting the strong cash generation in the half, strong capital position and surplus franking position. We finished the half with $17.7 billion in FUM, although as I will highlight later, FUM today now stands at over $18.5 billion. We have experienced strong support from our clients with net inflows totaling over $700 million. I'm particularly pleased to highlight that this strong momentum and client support has continued in the September quarter with a further $300 million of net flows so far. Our income was resilient with total revenue of $148 million, supported by $42 million in performance fees across a diverse range of investment strategies. And finally, we have finished the half with a very strong balance sheet. Today, we are in an extremely strong position to continue to deliver the strong organic growth that the platform has demonstrated over the past 3 years, while also taking a disciplined approach to inorganic growth to expand our investment capabilities. I'll now hand over to Ian Cameron.

Thanks, Brendan. To those of you on the call, thank you for taking the time to join us this morning. I appreciate you're all busy with reporting season. My name is Ian Cameron, and I am Regal's Group CFO. We are going to spend the next 5 to 10 minutes discussing Regal's financials. The key thing to note here is that in the first half, we continue to execute on our growth ambitions. To show this, we will run through Regal's first half financial highlights, then our normalized or underlying P&L, then our balance sheet and finally, our approach to capital management. Turning to Page 10, which is our first half financial highlights. Average FUM for the half was $17.5 billion, up 49% on 1H '24 at an average management fee margin of 1.15%. Performance fees of $42 million, whilst lower than PCP, resulted in a strong performance towards the end of 1H '25 and multiple strategies above high watermark continuing into July '25. Normalized NPAT of $44.8 million. There's been an increase in costs from 1H '24 of 17% due to acquired businesses, up 4% from 2H '24. We have a robust balance sheet with $244.2 million in cash, receivables, fund investments at 30 June, net of our corporate credit facility. Our gearing ratio is low at 2% of net assets. And the Board has signed off an interim dividend of $0.06 per share, which reflects a 55% payout ratio, preserving balance sheet flexibility for future growth. As you can see already, we are executing on our growth ambitions. Slide 11 shows Regal's detailed normalized or underlying P&L. I'd like to draw your attention to the column in gray. Starting at the top of the page and moving down the page, spot FUM of $17.7 billion with average FUM of $17.5 billion, up 49% from 1H '24 and also up versus 2H '24. Management fees up 65% on PCP, driven by businesses acquired, as well as additional flows. Performance fees of $42.4 million, primarily driven by PM Capital's global strategy, Attunga Power strategy, a Taurus Mining Finance strategy, as well as a collection of Regal Funds management funds. Other income, just under $6 million, primarily includes mark-to-market and changes in fair value gains, as well as dividend and distribution income, with total net income of $148.4 million. Moving on down the page, Employee benefits expense of $43.9 million relates to both fixed staff costs, as well as variable remuneration. Deferred compensation grant amortization of $8.4 million, that relates to prior year variable remuneration, which gets amortized over the relevant vesting period. Other expenses of $21 million, largely in line with 2H '24, with total expenses of $74.4 million and a normalized NPAT of $44.8 million. Full year potentially diluted earnings per share of $0.105 is up versus 2H '24 by 17%. Turning to Page 12, which is our balance sheet. We had $244.2 million in cash, receivables and fund investments net of our facility. On our facility, we have $20 million drawn of our upgraded $130 million debt facility with a $0.06 per share fully franked dividend and plenty of franking credits post the payment of the 1H '25 dividend. We ended 30 June with net assets of just under $860 million with ordinary shares of just under $340 million. Turning to Page 13. Page 13 shows our disciplined approach to capital management. Starting with the left-hand side, which shows the pro forma adjustments to cash receivables and financial assets at 30 June. Since that time, we've collected the management fees and performance fees, which were receivable at 30 June. As you can see, cash goes up with an offsetting decrease in receivables. We've put some of our cash to work in seeding some of our new funds and with the interim dividend of $23.4 million. So, after those adjustments, we've got $220.9 million on a pro forma basis. The right-hand side of this slide shows how we allocate capital. We support organic growth with a focus on investment capabilities, clients and platform. We co-invest alongside our clients to seed and provide bridging finance for our funds. We provide a disciplined approach to M&A to attain new investment capabilities and expanding existing ones. And finally, we paid $0.38 per share of fully franked dividends over the last 3 years. Now back to you, Brendan.

Thanks, Ian. I'll run through a bit of a business update now before we pause the Q&A. We are very proud of the contemporary platform we are building here at Regal Partners. And whilst we are only just getting started, I'm pleased to highlight that we have got off to a flying start, a nearly fourfold increase in funds under management, leading net inflows for a platform of active investment managers, the translation of that client growth into strong management and loan fee revenue, a nearly threefold increase in the diversification of performance fee eligible FUM increase and diversification of performance fee eligible FUM, year-on-year growth in normalized net profit after tax and in particular, strong growth in net profit after tax from management fee earnings and strong growth in fully franked dividends, highlighting that we are delivering for clients and shareholders. Our leading performance in delivering net inflows for active investment management undoubtedly reflects strong risk-adjusted return investment performance and differentiated and sometimes even scarce investment product. However, it also highlights the power of the RPL platform and the capabilities within our distribution and marketing teams. Over the past 3 years, we have delivered $2.7 billion in net inflows from domestic clients. We now have a large team, 26 people, sales and marketing and Investor Relations team with an increasing focus on asset class and geographic responsibilities. We've been able to harness Regal's strong relationships with domestic equity market and have now raised over $350 million in capital for our ASX-listed vehicles. And finally, highlighting the essence of Regal's distribution and marketing capability, we have continued to innovate. We have delivered multiple new products to market out over the past 3 years, highlighting successful marrying of great client relationships and great investment product. Offshore distribution remains a strategic priority, and I'm pleased to highlight that we have now raised over $1.1 billion in organic net inflows over the past 3 years with the majority of those flows coming over the past 12 months. Further, we have started the second half strongly with a further $300 million in net inflows from offshore investors over the past 2 months. Offshore distribution is a key priority for us as, one, offshore capital allocators typically allocate in a larger size and typically are less constrained by the fee disclosure rules, which dominate Australia's superannuation capital allocators. And three, we have an investment capability that is an increasing demand as the world seeks diversification, particularly within alternative investment strategies. Australia is seen as an increasingly sought-after destination for global cap allocators due to our stable democracy, low sovereign risk and large pool of investment product and talent. To capitalize on these headwinds, I'm pleased to announce that we have appointed a Head of Distribution, who will commence next week and cover North America for the benefit of all of Regal Partners. As I highlighted earlier, the product -- a byproduct of diversification of the business is the resilience of our earnings, a lower correlation to equity markets and a longer duration to our earnings as we increase the proportion of our private assets within our funds under management. And uniting all this progress together has been the creation of the One RPL approach. We have a standard way in which our investment capabilities coexist to: one, drive performance and boost collaboration; two, to deliver and execute on comprehensive strategic distribution and marketing plans; and three, all enabled by a scalable and institutional-grade operational spine of HR, legal, compliance, risk management, IT and finance. We've also become more vocal and thoughtful in our message to the market and to our clients. Our enhanced content strategy not only supports the One RPL approach, but it drives brand recognition and awareness of Regal's unique and high-performing investment capabilities. In summary, Regal Partners seeks to partner with best-in-class individuals, teams and businesses who have a proven edge in the delivery of their alternative investment strategy. We have created a contemporary platform where the whole is greater than the sum of the parts. And to finish, perhaps the best example of the unique platform we are building at Regal Partners, the best demonstration of what separates Regal Partners from the crowd is our leading multi-strategy investment capability that unites the best of Regal Partners' investment capability. Our flagship ASX-listed multi-strat vehicle, RF1, has delivered annualized returns of over 17% post fees to investors over a period of more than 6 years. Our unlisted partners private fund that offers a similar multi-strat investment strategy has delivered similar returns and is offered to domestic wholesale investors and offshore investors. As I've highlighted a number of times through this presentation, we have had an extremely strong start to the second half of 2025. Our FUM is now over $18.5 billion. Net inflows exceed $300 million in the last 2 months alone. Investment performance has added a further $500 million and performance fee eligible FUM at or close to high watermark now stands at a record $10.8 billion. Over the past 3 years, we have clearly demonstrated that our growth-focused strategy is delivering for our clients, employees and shareholders. We have built a strong platform. We benefit from very attractive market tailwinds as global allocators increase their allocation to alternative investment strategies. The business has strong economics, and we are seeing an acceleration of opportunities to grow. Regal Partners has never been in a stronger position to achieve its strategic ambitions. I'll pause now for Q&A.

Thanks, Brendan. [Operator Instructions] Just going to take a couple of questions online to start. So Brendan, firstly, flows have been looking very good in recent months. Could you elaborate maybe particularly if PM Capital has been strong and also perhaps some of the sources of the offshore flows?

Yes, certainly, I agree, flows have been strong. The PM Capital investment team, particularly around the global onshore capabilities, doing really well from an investment performance perspective. Further, the distribution and marketing team that now supports that retail product is really prosecuting that investment performance and achieving acceleration in flows. So, we're seeing good growth through PM Capital in the retail channel domestically. We're also seeing some good flows in the enhanced yield product run by [ Jared Dawson ] under the PM Capital brand. So, the retail team, distribution team are doing a outstanding job there. From an offshore perspective, the gestation period around hunting offshore capital is longer, but as I flagged can come in larger size. So the flows that we've seen in the last 2 months are actually benefiting our long/short equity strategies, but we continue to chase down a pipeline of opportunities in our credit and royalty capabilities as well.

Thanks, Brendan. One question online. Somebody was just trying to clarify about the fund that dipped from $18 billion in December to $17.7 billion at June. Could you just explain the background for that?

Yes. So the $18.5 billion in April, we sort of provided an update to the market for the March quarter flows and performance. We highlighted in part that our business, Taurus, which is a global provider of capital to the global mining industry, had some clients move from a fee-paying basis of committed capital to invested capital. As that invested capital increased because capital commitments could be drawn down, FUM increased again. So hopefully, as you wash that through to 30 June 2025, we've actually had an increase in fee-earning FUM within Taurus from where we were back at 31 March. But obviously, the bigger driver of the overall increase in FUM has been our investment performance and flows right across the business.

The next question online might be for Ian. Can you just explain the reasoning behind using normalized NPAT and what -- how that differs to statutory NPAT?

Yes. Thanks for the question, Ingrid. The -- we think the normalized or underlying P&L is a better representation of the financial performance of the business. The bridge between statutory and normalized profit predominantly relates to noncash adjustments such as the amortization or noncash adjustment for contract assets or management rights, as well as the amortization of performance share rights, which are also noncash.

Thank you, Ian. Next question online is the RF1 [ lit ] is doing really well as is PGF the lit. Can you talk to any other product opportunities that you're exploring currently?

I think we looked at a number of opportunities over the last 6 months from an M&A perspective. I think in respect of those listed investment vehicles itself, we're driving good investment performance and provided that investment performance translates into good share price growth with everything else constant with a good sort of communication, we'll seek opportunities to raise further capital in those vehicles at the right time.

Great. And in terms of M&A opportunities, how are you seeing the outlook at the moment?

An acceleration opportunities, both that we identified and being referred to us. I think we've been very disciplined. It's been 12 months now since our last material acquisition, but we remain focused on further opportunities. I'm pleased to highlight, obviously, that in the last 6-month period, we've effectively seeded a new investment strategy being Ark Capital. We're very excited about the launch of the hotels as an investment strategy. We think that we found the ideal partner to partner within Ark Capital. They've been very active in what is a very large asset class offshore. We've purchased well with the first seed asset, the Mayfair asset in Adelaide at a significant discount to prior valuations, and we're raising money from clients for that opportunity at the moment. But we're not stopping there. We started the partnership with Ark Capital because we believe hotels could be ultimately a $1 billion-plus investment strategy for Regal Partners over time.

And just a related question. Could you please clarify whether the fund related to the hotel has been included in any flows or fund data yet?

No, it hasn't.

No, it hasn't.

Right. And we've actually got question on the phones. Operator, could you take the first question, please? Marcus, would you speak up, please? Thanks.

Can you hear me okay? Just a couple of sort of detailed questions. Firstly, your average management fee 115 basis points. That's actually what I was modeling. But I think it's a fairly sort of complex blend of various parts of the business. Can you sort of give us how you feel that will move going forward and why it might change? I think there's a lot of -- I think there might be some transaction fees in there from some of the managers. And secondly, the other income line, do you just want to highlight again what's in that other income line? I think there's some PAC shares in there.

Thanks, Marcus. Just to brag that question into 2 parts. On the average management fee percentage of 1.15%, as you say, it's come down a little since 2H '24. The key drivers there are probably threefold. One, we've had strong flows into PM Capital's global strategy, and that's an average management fee of about 1%. So, all things being equal, that will be a slight drag on the average management fee percentage. Private credit and specifically the Merricks business has got an average management fee, which is inclusive of loan origination fees of about 2%. And so it's obviously been a tougher part of the credit cycle, but that will be a key driver of average management fees, as well as our Regal Partners Fund, which is an average management fee of 1.5%. And so -- on a go-forward basis, it's part dependent on where flows come from. In terms of other income, that just shy of $6 million has predominantly come from dividend and distribution income from VG1, RG8 and our investment -- or the balance sheet investment in Taurus in one of the Taurus funds.

Okay. Brilliant. And do you have a breakdown of the other income between what is cash dividends and what is unrealized gains?

No, we haven't provided a breakdown in the slide deck. What I can note there is it will move around period from period. But on a net basis, most of that other income is from a cash perspective in this half.

Operator, could we please go to Laf on the line next?

Congratulations on a good result. Can I dig into the distribution team in a little bit more color? I've actually been a bit surprised at the level and breadth of net flows coming through. So have there been many changes within your distribution team in terms of number of headcount, both in Australia domestically and the success you're having with offshore and moving into North America. Can you just talk through which strategies are going to be a focus? Is there things that you already think that are going to resonate more? Any color you can add would be great.

Yes. Thanks, Laf. Firstly, I'm using this slide here, Slide 19 show the one RPL approach. I think probably the most tangible thing we've done over the last 12 months is really sought to upgrade the capabilities, but co-location of those capabilities domestically. So we now have one sales and marketing team that is servicing our clients across multiple channels domestically. So, the retail channel, the wholesale and institutional channel, all working together as one team. I think undoubtedly, they are capitalizing on wonderful investment performance within the underlying product, PM Capital in particular, is a great example of that and lifting their presence and visibility of that in the marketplace, and that's helping drive flows. Your specific question around offshore, as you know, we have been looking to build our offshore client base for a while now. That has historically just been out of Singapore. I'm pleased to say that, that's continuing as we drive our client engagement out of Singapore, but we're looking to accelerate that out of North America. We have a beachhead of about 25 institutional clients in North America today. We thought it was appropriate to better service those clients and to help identify growth opportunities beyond that client base by appointing a person dedicated to be based in North America in and around the New York area to help grow and take great product to that U.S. marketplace. So as I said, the offshore distribution is lumpier. The gestation period is longer that can ultimately, when it does come through, it can come through in size, which will further supplement the ongoing growth we've got domestically.

Can I just follow-up? So sometimes it's a bit hard for us to understand when you -- with all these new funds and strategies that have come online, where they were distributed previously to where that's been expanded. So some may have only been wholesale but are now being sold retail channel or some were going through the private wealth and some through the retail. Can you just give us a bit of color around how the expansion of strategies has been changing from a target of funding perspective?

Yes. I'd say there hasn't been a lot of movement between products that were previously wholesale into retail and products that were wholesale or retail into wholesale. It has really been prosecuting the existing channel with greater effect. I think it leaves the opportunity then for further cross-sell within those channels. But the sales results that we've delivered over this 6-month period are really a reflection of better execution within the existing channels.

Okay. And just finally, on the M&A, just a follow-up. Can you give us an idea on product or asset classes that are still of interest or you think the gaps in the overall offering or where you see greater opportunity?

Yes. We've been pretty consistent in highlighting that we believe asset classes like real estate, infrastructure and private equity would be natural additions to the platform we're building as a leading provider of alternative investment strategies. I've highlighted on this slide on the left-hand side as well, the opportunity to expand further into credit. I think that in the long run, we'll ultimately have more assets under management, funds under management in credit relative to our hedge fund product. And we've got an investment capability now led through Adrian Redlich as Head of our income strategies that will help drive that.

Thanks, Laf. Operator, could we now please go to Olivier Coulon from E&P.

Congrats on a strong result. Just a question on the performance fee outlook. And I guess if you go to Slide 36, there's a fair chunk of that 74% that's sitting just below high watermark. So, obviously, a bit of variability that's possible over the remaining half. But how does it look when you strip out PM Capital, which most of it in the global fund, obviously, only crystallizes performance fees in the first half of the calendar year, thinking about for the second half as a result.

Just to be clear, of that $10.8 billion, you're asking how much of that is contributed by PM Capital in the period to July?

I suppose if you look at it ex PM Capital because my understanding is the global fund pretty much only crystallizes in the June half, right?

Yes.

So, yes, how are we thinking on a kind of like-for-like basis for the parts of the business that are performance fee eligible in the second half?