Sun Hung Kai & Co. Limited (0086.HK) Earnings Call Transcript & Summary

Welcome to Sun Hung Kai & Co 2025 Interim Results Presentation. The presentation today will be conducted in English and in a hybrid format. For off-line participants, Chinese interpretation is available through the provided devices. For online attendees, you may switch to the Chinese channel and mute the original audio if translation is needed. I'm Rene Vangasten from Christensen, handling Investor Relations support for the company. The senior executives here with me today are Mr. Tony Edwards, Executive Director and Deputy Chief Executive Officer; Mr. Brendan McGraw, Executive Director and Group Chief Financial Officer. In today's meeting, we will review the company's business performance in the first half of 2025, provide an outlook for the remainder of the year and share our future plans. Following the presentation, we will open the floor to questions. Before we start, I would like to take the opportunity to remind you that today's discussion will contain forward-looking statements which are based on assumptions and factors that are be under control of the group and are not necessarily indicative or guarantees of the group's future performance. Now I'd like to pass to Tony to start the presentation. Tony, please go ahead.

Thank you, Rene. Good morning, everyone. As an alternative investment platform, our business is built around 3 pillars: credit, investment management and funds management. The credit business mainly conducted through UAF and Sun Hung Kai Credit provides us with recurring resilient cash flow. Our investment business leverages the group's access to differentiated investment opportunities, strong expertise and institutional grade governance to seek attractive risk-adjusted returns. Our portfolio is diversified across different asset classes, investment horizons and geographies. Our Funds Management business is fully licensed to manage external capital through fund partnerships, SHK Capital Partners funds, Family Office Solutions or FOS and strategic alliances. The Funds Management business further diversifies our business lines and adds new streams of reoccurring cash flow to the group. Our core strengths and differentiators lie in a robust business model, privileged access and alignment of interests, strong corporate governance, good transparency and a solid risk culture. Our business model with complementary business lines plays a key role in supporting the group's profitability and long-term success. With privileged access to high-quality investment opportunities, we're able to deliver strong risk-adjusted returns. With our balance sheet commitments, our interest is aligned with investors and with managers. We have a well-established risk culture, which is essential to help us navigate uncertainties and preserve staying power. We operate with integrity, accountability and transparency, building trust with all our stakeholders. Next, I'd like to share how our platform synergies drive growth and enhance shareholder value. In our consumer finance business, we continue to generate steady returns that are largely uncorrelated to capital markets. We have maintained a cautious approach to loan underwriting in response to the economic slowdown both at UAF and at Sun Hung Kai Credit. At the same time, our SIM credit card business has broadened our customer base, diversifying credit profiles and also revenue streams. Our Sun Hung Kai credit remains focused on actively managing its portfolio while growing mortgage servicing business. Turning to Investment Management. Our diversified portfolio and global mandate enable us to deliver positive returns and consistent performance improvement despite market volatility. We capitalize on opportunities from market dislocations to generate privileged returns. In addition, synergies across the investment management, funds management and credit businesses have positioned us well to develop the alternative investment platform and provide the opportunity to grow our recurring income. Our Funds Management business, we continue to build out this platform, achieving robust AUM growth. Our existing funds partnerships and SHK Capital Partners funds maintained resilient performance, FOS gained momentum by expanding both the client base and the AUM, offering unique access to alternative investments with strong alignment of interest. We established new alliances with partners such as GAM, Wentworth Capital and Mobile dollar Capital, broadening our product offerings and expanding our global outreach. Finally, regarding sustained growth and long-term shareholder value, we maintain a strong balance sheet and ample liquidity to navigate market turbulence and seize opportunities arising from the market dislocations. We continue to deliver consistent dividend payouts and share buybacks. For example, since 1997, we have returned a total of $15.7 billion to shareholders through dividends and buybacks. Next, I'll pass over to Brendan to take you through our 2025 interim results.

Thank you, Tony, and good morning, everybody. Before I go through our 2025 interim results, let me briefly highlight the key changes in our financial statements and MD&A starting this year. First, for our financial statements, starting from the reporting period beginning 1st of January 2025, we have reclassified net gain or loss on financial assets and liabilities at fair value through profit and loss as well as dividends from listed and unlisted investments as net investment income. We have also discontinued the internal cost of capital charged by GMS to Investment Management. Finance costs are now allocated between investment management and GMS based on their respective average balances. This adjustment has no impact on the group's financial results and ensures consistent treatment of shareholders' equity across all business segments. Second, in our management discussion and analysis, to better reflect each segment's business model, we grouped our business segments into one, fees and interest based, which is related to our credit and fund management business; two, investment base, which is related to our investment management business; and three, corporate related to our group management and support segment. We now provide a breakdown of operating costs for each business segment and also present the cost-to-income ratio for the fees and interest-based segment to better assess operational efficiency. To better reflect our operating results, we also added adjusted pretax profit and adjusted profit attributable to the owners of the company by excluding nonrecurring items, such as DTA written-off and exchange loss from PRC subsidiary liquidation and capital repatriation. Moving on to the results at a glance. Total income for the first half of 2025 was HKD 2.8 billion, up 43.5% year-on-year. Fees and interest based business collectively contributed HKD 1.7 billion. Investment business contributed HKD 1 billion and corporate delivered HKD 39 million. Pretax contribution rebounded to HKD 1.1 billion for the first half of 2025 from HKD 307 million for the first half of '24, mainly attributed to improved performance of our investment management business. We will share more details on this later. After taxation and noncontrolling interest, the attributable profit was HKD 887 million and over 10x increase year-on-year. Excluding nonrecurring items, the adjusted profit was HKD 928.2 million. Other key metrics also showed improvement. Net gearing ratio decreased by 160 basis points to 29.6% from a year ago, reflecting our focus on capital efficiency. Interest coverage ratio rose 109% to 4.1x as a result of the improved profitability and ROE also improved to 8.2%. We remain committed to delivering value to our shareholders. The Board declared a first interim dividend of HKD 0.12 per share, consistent with prior year's payout. Now let me go through the key financials based on our new classification of business segments. Total income of the fees and interest-based segment increased by 0.7% year-on-year to HKD 1.7 billion for the first half of mainly reflecting the impact of local economic slowdown on our credit business. Total income for the Investment segment increased by 897% year-on-year to HKD 1 billion, driven by the enhanced performance across nearly all asset classes. Total income for the Corporate segment decreased by 71% year-on-year to $39 million mainly due to the decrease in interest income as a result of fewer time deposits at lower interest rates. Operating costs of the fees and interest-based segment decreased by 1.2% year-on-year to $535 billion primarily attributable to the cost optimization initiatives undertaken by our consumer finance business, particularly in Mainland China. The cost-to-income ratio of the fees and interest-based business were 31% in the first half of 2025 down by 0.6 percentage points year-on-year. Operating costs of the Investment segment were $110 million, increased by 93.5% year-on-year due to the higher performance-related expenses. We have maintained disciplined expense management in response to challenging market conditions. Finally, total pretax profit of the fees and interest-based segment and the Investment segment reached HKD 379 million and HKD 786 million, respectively, while the corporate segment recorded a mild pretax loss of $77 million. Moving on to our balance sheet. Our balance sheet remains solid, with total assets at HKD 37.7 billion as of the 30th of June 2025. Our cash position remained strong at $4.5 billion, and investment assets amounted to $15.5 billion. Total loans were $12.6 billion, primarily funded by our external borrowings. 26% of our borrowings were notes in paper at fixed rates, while 74% were bank and other borrowings at floating rates. During the first half of 2025, we repurchased our MTNs totaling USD 12.4 million. Since 2022, the MPN exposure has been reduced by USD 446.5 million. As a result, our net debt decreased to $6.5 billion at the end of 2025 from HKD 6.6 billion at the end of 2024, driving a further decline in net gearing ratio to 29.6%. Now let's take a look at the performance of each business segment, starting with Investment Management. The Investment Management's total assets increased by 4.2% year-on-year to $16.2 billion at the end of June 2025. Alternatives, real estate and public markets accounted for 75%, 14% and and 11%, respectively. The year-on-year increase in segment assets was mainly driven by investment gains across all the different asset classes. Total investment gain amounted to nearly $1 billion with contribution from nearly all asset classes. Private equity delivered the largest gain of the shares totaling HKD 583 million, mainly due to valuation increases in conjunction with successful liquidity events during the period. After deducting finance costs of HKD 103 million and operating cost of HKD 110 million, the Investment Management segment recorded a pretax contribution of HKD 786 million versus a loss of HKD 148 million for the first half of 2024. We continue to strengthen our technological backbone and integrate AI tools into improved operational efficiency. Investments were made in upgrading the investment team and further reinforcing our risk management frameworks. The overall return of the investment management improved significantly from 0.4% for the first half of 2024 to 6.4% for the first half of 2025. Nearly all subsegments contributed positively. Corporate Holdings delivered a solid gain of 22.3%, alternatives gained 6.6% and PE and hedge funds both gained 6.8%. Special Situations and structured credit recorded a gain of 4.5%. The Real estate recorded a loss of 2.9%, primarily due to revaluation adjustments on our legacy real estate holdings in Hong Kong and a net loss on partial sale of a European real estate platform. We will now look further into the performance of each asset class in the next few slides. Firstly, on Public Markets and Corporate Holdings. The Corporate Holdings portfolio recorded a gain of $22.3 million primarily driven by our strategic positioning in China-related assets, particularly in fintech, large-cap Internet platforms and new consumption companies, which benefited from improving investor sentiment. Our U.S. positions, which are mainly thematic investments in AI infrastructure build-out and energy opportunities arising from geopolitical tensions, closed the period with positive returns. We remain cautiously optimistic for the rest of 2025 and will remain focused on curating a diversified, high-quality portfolio and strengthening risk management to mitigate market fluctuations. Moving on to private equity. The private equity portfolio gained 6.8% in the period, 2 of our direct co-investments, Jefferson Capital and Saint Bella successfully listed in the U.S. and Hong Kong, respectively, enabling us to capitalize on enhanced valuations and facilitating future realizations. We also executed strategic secondary sales as part of our active portfolio management and continue to receive programmatic distributions from fund investments. In terms of capital deployment, we remain disciplined. We selectively invested in high potential new GPs across diverse sectors and strategies and re-upped commitments to top-performing GPs who consistently outperform. The PE team continued to collaborate with [indiscernible] Capital Partners to provide third-party investors with access to select alternative opportunities, enabling them to achieve superior risk-adjusted returns. Moving on to hedge funds. The hedge fund portfolio recorded a gain of 6.8% in the first half of '25, with key contributions from equity market neutral arbitrage and long equity long short and event-driven strategies. The portfolio ended the year with a conservative risk profile, which enabled the program to generate steady returns even under a highly volatile environment. Manager selection and size allocation have been essential to the success of the portfolio, with the largest allocations, each delivering solid and steady returns for the first half of 2025. Now turning to Special Situations and structured credit. The Special Situations and structured credit portfolio predominantly invested in distressed or mispriced assets and has further expanded its footprint in Western Europe, North America and Asia, aiming at yielding favorable returns with defensive characteristics. Debt investments represented the largest share of the portfolio at 49.7%, followed by direct and co-investments at 28.3% and fund investments at 22%. The Gains were primarily driven by the strong performance of our [indiscernible] investment in the travel sector, which benefited from the ongoing normalization of international travel. Robust interest income from debt investments also contributed to the gain. In the first half of '25, the group attained a rigorous underwriting approach, executing transactions only when strict downside protection requirements were met. Now finally, on real estate. In the real estate portfolio, direct and co-investments accounted for 88.5% of our holdings with debt investments and funds comprising 9.9% and 1.6%, respectively. The portfolio recorded a loss of 2.1% in the first half of '25, mainly due to revaluation adjustments on our legacy real estate holdings in Hong Kong and a net loss on the partial sale of our European real estate platform as we continue to rebalance the portfolio and recycle capital. Our other European hospitality investments delivered strong performance benefiting from robust tourism demand across key markets. In the current environment, we have maintained a disciplined approach and selectively added a bespoke debt investment secured by equity in an international hotel platform during the period. We will continue to realign away from lower-yielding stabilized equity positions towards more opportunistic downside protected structures. Next, I will hand over to Tony, who will guide you through the development of our fund management business.

SP1 Thank you, Brendan. Our fund management business model is robust, serving as a platform by creating synergies between GPs, LPs and ourselves. For emerging managers, we provide them with seed or growth capital to help launch or scale their funds. We also provide working capital loans and strategic value-added support whilst managers have full operational autonomy. For established GPs, they gain greater access to capital, expand their investment opportunity and investor base by leveraging our strong presence in Asia and deep experience in alternatives. By working with us, LPs or investors, can access our proprietary deal flow based on a strong alignment of interests. These deals are supported by SHK's balance sheet commitment. Within FLS, we work as an extension of our clients' investment team sharing our expertise, investment capabilities and governance with them. Ultimately, the SHK Capital Partners platform role is to connect LPs and GPs in a way that creates mutual benefits, driving growth for managers, driving value for investors and improving the strength of our business. As of the end of June 2025, our total AUM reached USD 2.6 billion. Fund partnerships grew their AUM to USD 1.9 billion, FOS and Sun Hung Kai Capital Partners funds contributed USD 262 million. The AUM we service for external funds was USD 248 million, while ownership adjusted AUM amounted to USD 154 million. To ensure a clear and comparable understanding, the analysis of our AUM movement and AUM composition focuses solely on our fund partnerships and FOS and Sun Hung Kai Capital Partners funds, providing a consistent base for evaluation. During the first half of 2025, we recorded net cash inflows of USD 434 million and saw favorable market performances of USD 155 million. To further look into the composition of Sun Hung Kai capital and external capital contribution from external capital increased to 85% at the end of 2025, reflecting the market's recognition of our strategy and ability to build a robust alternative investment platform. Turning to the segment's financial results. fee income decreased slightly by 0.6% year-on-year to $17 million. We are in the process of -- as we are in the process of winding down MCIP, our Australian real estate credit strategy and redeploying capital of the same strategy through partnering with Wentworth Capital. Performance fees were not reflected for the period as they are normally recognized once crystallized at year-end. Operating expenses increased by 47% year-on-year to $23 million, reflecting the expansion of our team to scale the platform. As a result, a pretax loss of HKD 5 million for the first half of '25. Our family office solutions business serves as a bespoke alternative investment perform for like-minded family offices and ultra high net worth individuals, offering them curated investment opportunities ranging from private equity, special situations, structured credit, hedge funds and co-investment opportunities. Key differentiations of our service are access, alignment, our capability and our governance. Firstly, we leverage our extensive networks to gain unique access to alternative investments and cherry pick high-quality opportunities for our clients and ourselves. Secondly, our balance sheet commitments enabled an alignment of interest between the FOS clients and our group. Thirdly, deep knowledge and experience accumulated in the alternative space positions us with strong investment capabilities -- and finally, our institutional grade investment governance and infrastructure helped to enhance performance, risk management and operational efficiency. When it comes to our strategic alliances in the first half of 2025, we established a strategic alliance with Mubadala Capital, the asset management arm of Mubadala Investment Company, the partnership combines Mubadala's private -- global private markets expertise with our deep-rooted Greater China presence, creating a powerful platform for clients to access premium sovereign wealth fund and co-investment opportunities. Our partnership with GAM went well and enables the joint development of tailored wealth solutions, combined with our strong expertise in alternatives. Additionally, we advanced the partnership to provide access to GAM's established European distribution network for our fund products, including developing synergies of our in-house GPs. Meanwhile, we partnered with Wentworth capital to redeploy capital of the real estate private credit strategy, we provided seed for vertical expansion growth capital for the business growth and working capital to activate the opportunity. Wentworth benefits from the integration of our debt vertical, creating and creating synergies therefore, with access to our flexible capital, the businesses were agile and effective. Now I'll pass to Brendan to talk about our credit business.

Thank you, Tony. Our consumer finance business is conducted through UAF. Since 2017, UAF has consistently ranked first among all money lenders and maintained a top 5 ranking amongst all lenders in Hong Kong in terms of outstanding balance of unsecured lending. In the first half of 2025, we maintained a prudent approach to loan approvals in light of local economic challenges. Our total gross loan balance grew by 3.6% year-on-year to $11.3 billion. Hong Kong and Mainland China accounted for 82% and 18%, respectively. Revenue for the period was $1.6 billion, an increase of 2% year-on-year. Return on loans remained stable at 28.4%. Through ongoing cost rationalization, operating cost decreased by 2.1% year-on-year to $489.7 million the cost-to-income ratio decreased by 130 basis points to 30.6%. Finance costs, predominantly benchmarking against HIBOR decreased by 15.6% year-on-year to $221.4 million. Net impairment losses were HKD 446.1 million, up 15.5% year-on-year. This increase was mainly due to the combined effect of provision reversals being offset by additional provisions for some new unsecured loans in Mainland China. A slight increase in net impairment ratio in Hong Kong also led to the increase. Despite these challenges, pretax contribution to the group amounted to $375 million, excluding the exchange loss of $47.7 million from subsidiary liquidation. The adjusted pretax contribution was HKD 422 million, increasing 5.5% year-on-year. Our Hong Kong business demonstrated a strong resilience in the challenging environment. Gross loan balance increased by 2.6% year-on-year to HKD 9.2 billion at the end of June '25. The amount and number of loans originated in the first half increased by 1% and 11%, respectively. Amid increasing individual bankruptcy petitions in Hong Kong, our charge-off ratio and net impairment loss ratio also increased slightly to 8.2% and 9.1%, respectively. Our SIM credit card business continued to gain momentum, generating cumulative transaction volumes of $2.4 billion. Other key operating metrics such as the outstanding balance income generation, customer acquisition also delivered solid results. On the risk management front, we have effectively managed credit risk through our proprietary scoring system, which leverages data from the credit data, smart database, and dynamically adjust to evolving macroeconomic conditions. Our real-time collection system also ensures effective monitoring of payment status across all accounts. The financial services and Treasury Bureau published a consultation paper in June this year, proposing enhancement to the regulation of licensed money lenders. The proposed measures focus on several key areas, including stricter oversight of [indiscernible] personal lending, enhanced protection for loan referees and improved borrower affordability assessments. We believe that the robust legal framework will ensure proper credit risk management for lenders and foster a more sustainable lending environment. As a market leader, we welcome these regulatory developments. In the Mainland market, UAF maintained its conservative approach strategically limiting exposures amid market uncertainty. Gross loan balance increased by 8.2% to $2.1 billion at the end of June '25. Our conservative approach and strategic focus on secured loans helped generate stable returns while maintaining a lower charge-off ratio at 0.8% for the first half of '25. These, coupled with disciplined cost management have ensured our business in this market continues to contribute positively to the first half of '25. Moving on to the mortgage business, which is operated by Sun Hung Kai Credit in Hong Kong since 2015. We remain cautious in loan underwriting amidst sustained price declines in the Hong Kong residential market but focused actively on managing the existing portfolio and developing our mortgage servicing business. Gross loan balance was $1.8 billion, representing a year-on-year decrease of 22%. First mortgage continued to account for over 90%. Total income for the year was $99 million, down by 21% as a result of the smaller loan book. Return on loans was 9.9%. Meanwhile, SHK Credit was appointed as a servicer of another residential mortgage portfolio amounting to $70 million. Servicing fee income was HKD 1.6 million for the first half of '25. Operating costs decreased by 13% year-on-year to $22 million, primarily due to the centralization of our operations and streamlined marketing expenditure. Cost-to-income ratio remained within our targeted range at 22.4% for the first half of '25. Finance costs decreased by 58% year-on-year to $17 million as a result of the decline in borrowings and the HIBOR rate easing. Net charge on impairment losses was $50 million, reflecting increased provisions for loan defaults associated with the economic slowdown and higher impairment allowances due to declining valuations in collateral properties. As a result, the pretax profit contributed to by SHK credit was $9.5 million. Now moving on to risk management and ESG updates. In the first half of 2025, we made further progress in strengthening our risk management practices. We reviewed and reinforced existing controls which improved our ability to identify, assess and manage risks. These enhancements have helped lower our overall risk exposure. Regular risk committee meetings were held to monitor emerging and critical risks allowing us to proactively address challenges and refine our mitigation strategies. The risk management system reporting process was continually enhanced, enabling more efficient information collection and reporting for better oversight. To further increase staff awareness, we conducted targeted risk trading sessions and distributed biannual enterprise risk management bulletins to keep employees informed about key developments. Next, I will pass to Tony to talk about our ESG updates as well as our business outlook and future plans.

Thank you, Brendan. In the first half of 2025, we made strong progress on ESG. Our Bloomberg ESG rating improved from 2.08 to 4.21%. Our Sustainalytics ESG risk rating also improved, dropping to 23.6% and signaling significantly reduced risk. On the environmental side, we improved our resource efficiency, expanding recycling and waste reduction efforts and supported the community through donations and sustainability initiatives. Staff engagement remains high with volunteers joining the Hong Kong Race beach cleanup and supporting our Dragon Boat Festival community outreach. These actions demonstrate our ongoing commitment to ESG and continuous improvement across our operations. Now for the business outlook and future plans. Looking into the second half of 2025, we anticipate that the operating environment will remain challenging amid global uncertainties, especially due to ongoing trade negotiations and heightened geopolitical tensions. High interest rates may continue to weigh on asset values and constrained borrowing in Hong Kong. Additionally, Mainland China's economic headwinds may spill up further over into Hong Kong, potentially moderating the recovery in retail sales. Despite these challenges, we remain cautiously optimistic. We will remain prioritizing capital efficiency, disciplined risk management and operational excellence. For our credit business, we remain focused on expanding our service and product offerings to capture untapped opportunities. We will introduce hybrid loan products on the SIM credit card platform to generate revenue through effective cross-selling. We will increase our investment in digitalization to improve efficiency, enhance credit risk evaluations and efficiently adjust our loan underwriting appetite. Sun Hung Kai Credit will continue to actively manage its existing portfolio while expanding the mortgage servicing business. In Investment Management, our priority is to increase liquidity and cautiously redeploy capital to new investments that further diversify our portfolio. We will selectively capitalize on mispriced assets globally, structuring deals with strong downside protection to pursue privileged risk-adjusted returns. Additionally, Investment Management will deepen collaboration with Sun Hung Kai Capital Partners by leveraging our investment networks and proprietary deal sourcing, which enables Sun Hung Kai Capital Partners' clients to access exclusive investment opportunities and achieve attractive risk returns. Our fund management business is committed to building out our platform to further institutionalize our infrastructure and enhance scalability and wealth management. We're also collaborating with strategic alliances, including GAM, Wandworth Capital, Mobilala Capital and others under further exploration to further diversify our products and expand our global reach. We will also grow FOS' client base and AUM by offering like-mind investors access to unique investment alternative investment opportunities, supported by a strong alignment of interest through the group's balance sheet commitments. By enhancing the synergies, our 3 key business segments, we strive to reinforce our position as a leading alternative investment platform and driving sustainable value creation for our shareholders. Thank you very much.

Thank you, Tony. We will now proceed to our Q&A session. [Operator Instructions] For all questions, please make sure to include your name and the name of your company. Go ahead.

I'm a [indiscernible]. As I see from the presentation that it shows that investment management is the key driver of the results of this year. And do you see the key driver of investment management and still keep the pace and it can grow faster. And do you see that -- is there any special reason that can support the second half results and allow more growth in going future? And also about the [indiscernible] business because we see that you would like to have some acquisition of a mortgage portfolio, I wonder if you try to time in to have such acquisitions, do you see that you can yield more returns from this acquisition? And we will try to expand this business further?

Okay. Should I answer that? -- they're both related. I think your question is is the investment management business returns sustainable? And what are the opportunities for the mortgage business. And I think they're related. I think on the -- from an investment perspective, our investment capabilities are driven by systematic processes and strong governance and transparency and accountability, having the right people in the right place looking for good risk return, notwithstanding the opportunity to crystallize results, we are very comfortable sitting on and compounding investments in good companies, are in good opportunities. And I think that's the key. And that's what's been behind our return of capital, as I mentioned, since 1997, where there's been a strong return of capital over time. I think it's very hard to second guess where you are in an investment cycle or in a business cycle. But if you are investing your money well in good opportunities, you will realize strong investments for your shareholders. And on the -- similarly, on the mortgage side of the business, what we're trying to do, with our investment capability, is to monetize it through the development of synergies and collaboration to provide solutions, not just for ourselves but for our clients, and that's great alignment, but also provide solutions for our GPs as well. So as I mentioned, that we're helping finance new GPs, new hedge funds and new private equity funds and also helping those GPs grow as well as investing with them through co-investments and taking those good co-investment opportunities to our LPs, and that's the access that many people don't have. And we've been working with these GPs for many years, 20 years of experience in the in the markets, and we've been working with some GPs for that length of time, both as an investor with them in their funds and also investing in their respective deals. So it's -- so from a balance sheet perspective, it's about improving and continuing to look at better ways of investing, using AI, for example, in our investment processes. And from a P&L perspective, it's monetizing that investment capability to provide solutions for LPs and provide solutions for GPs that create synergies and will drive further recurring income growth.

Yes. Maybe just maybe an extra couple of points you've summed up very well to Tony. We mentioned in the presentation as well for -- in terms of sustainability, we have been re-upping with GPs with good performance. So everything else being equal, that should help. And then the other question around the mortgage business. this is a positive contribution for us because you probably noticed from the presentation as well, we've not been increasing our costs, but we've been adding this new business, which is also a positive contributor to our profit, which is good.

Next question, please. Over here.

This is Howard from Kingsway. for the investment profit of almost $1 billion, how much will they be crystallized or recognized within this year? And what could be the proportion for returning to shareholders like in terms of dividend or share buyback?

Yes. Okay. So I think in terms of the crystallization, I think for a lot of it, we will see some exits towards the end of the year for these, as we mentioned, there's a couple of large IPOs, which have already happened. In terms of what that means for shareholder returns, it obviously is good. It continues to improve the shareholder returns. I don't think at this stage, it impacts dividend policy. I think we would see strong and steady dividend as we have been so far.

Yes. I mean, I'd add it's the opportunity is from an investment management perspective is the strong investment processes we have that deliver systematic returns such as we've had leveraging that -- those synergies to our third-party capital and developing synergies between the third-party capital and ourselves to continue to produce stronger returns and the opportunities between our book value and our current share price. I think, is very significant.

Would there be anything like caution like $400 a -- is that like would there be any portion of the percentage that will be under the shareholders is about 20% of the recognized profit will be distributed.

We don't have a dividend policy like that. What we try and do is smooth out our return of capital to shareholders over time through an investment cycle. So I think we have a very strong yield and a very strong return of capital currently and we did last year and the year before where our results weren't as good as they are now. And so we'll continue to maintain that as a philosophy to be more to be more consistent.

And maybe also to add, when we have had very good years like 2021, we have added special dividend as well. But obviously, we'll have to review the entire year, et cetera, to see how -- see where we end, et cetera, and that decision for the Board at that time.