MA Financial Group Limited

Thank you for standing by and welcome to the MA Financial Group first half 2022 results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the start key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr Julian Biggins, Joint CEO. Please go ahead.

Thank you and good afternoon and welcome to MA Financial's first half SY22 results conference call. My name is Julian Biggins and I'm joint CEO along with Chris Wyke who is also on the call with me. We're also joined by Graeme Lello, CFO and Michael Leonard, Head of Investor Relations. Over the last six months to June, MA Financial Group has delivered another record financial result. This is our third consecutive record result demonstrating the momentum in the business and the execution of a well-considered strategy. Today's result is especially pleasing given the volatile market conditions and supports our strategy that a diverse business can successfully navigate volatile markets. Whilst we are confident long-term about all our strategies, in any given period some of our businesses contribute to revenue more strongly than others. Turning to slide four of the presentation which provides a snapshot of MA Financial. MA Financial is a diversified financial services group that was founded in 2009. We've now entered our 14th year of business and have over 550 people in Sydney, Melbourne, Hong Kong and China. We're a growing company that looks to build long-term sustainable value for our shareholders. We recognise our people are critical to this objective. We respect and reward our employees and value our entrepreneurial culture. We are a diversified asset manager focused on alternative asset classes and private capital markets. with access to a range of distribution channels sourcing investors both domestically and internationally. Some of these channels are unique, which differentiates our business and allows us to source capital when others find it difficult. Our ability to deliver profitable growth is backed by evidence, with the group delivering 24% compound underlying earnings per share growth since listing, and a total shareholder return of almost 22% per annum over the same period. We believe strongly in alignment of interest with employees and our partner, Mollis and Company, owning approximately 45% of the company. Many of us are fellow shareholders with you. So now turning to the financial results. On slide six, we cover some high-level statistics. First half FY22 underlying earnings per share of $0.176 equates to 42% growth from the prior period. Underlying revenue growth was up 54% to $146 million. another record achievement. All three divisions achieved strong financial results underpinning the group's performance. AOM was up $1.1 billion over the last 12 months, underpinned by strong flows. The record result underpinned our confidence to increase the interim dividends by 20% to $0.06 per share, fully frank. The balance sheet remains robust with $113 million of available liquidity to support future growth. We're very pleased with the financial results and believe it demonstrates MA Financial's depth of talent and diversity and the ability for us to deliver robust financial results despite difficult market conditions. Now turning to slide seven for some more financial detail. Just to remind people on the call, we announced the refinement of our underlying earnings per share definition to include only realised gains at the June investor day. Therefore, unrealised market to market movements are now excluded. All financial metrics in this presentation, current and historical, are prepared on the updated basis unless noted otherwise. As mentioned, we generated $146 million of underlying revenue in the first half, up 54% from the prior period. Asset management revenue growth and the acquisition of mortgage aggregator Finsure and residential lender MKM contributed to this growth. Excluding the acquisitions, underlying revenue still grew by 40%. demonstrates the continued momentum in the business. The 58% increase in asset management revenue was primarily due to ongoing growth in recurring base management fees and a $22 million performance fee from Red Cape Hotel Group. Our return on equity was almost 15% over the period and up slightly on prior periods. These financial results were achieved while we continued to invest in the business. Over the first half, we invested in building our residential lending business upgrading our asset management operating platform to better manage scaling and providing improved amenities for our people with new offices in Sydney, Melbourne and Hong Kong. All of these initiatives are designed to enhance our capability to build profitable, scalable businesses, retain our people and culture and create long-term, sustainable shareholder value. During the period, we put in place a $40 million working capital facility which provides additional access to flexible capital to grow the business. In summary, the strength of the financial result is reflective of a well-executed strategy delivering results in the benefit of diversification. Our business is retaining and developing its people and fostering an entrepreneurial culture that is ambitious and excited about the future. Now turning to the next slide which shows our progress in numbers over the last five years. First half FY 2022 represents the strongest half-year financial result for the company ever. The ability for the group to grow earnings per share over time is evidenced in the chart in the bottom left-hand corner, which is also translated into high dividends for shareholders. We'll continue to focus on sustainably growing boats for shareholders in the future. Now turning to the next slide for our business unit highlights. Our asset management business had a strong first half. Growth inflows of $574 million with a continued investor bias for credit investment strategies. Base management fees were up 35% in the prior period, reflecting consistent inflows into our funds. Transaction and performance fees were $38 million in the first half, equating to 107 basis points of average AUM. The margin of 107 basis points is higher than we typically expect and was underpinned by a $22 million performance fee from Red Cape Hotel Group. Our lending division growth was accelerated in the half with the acquisition of Binshaw and MKM Completing. Lending's loan bill grew 91% over the period, underpinned by organic growth and investor flows into our credit investing strategies. Insure's managed loans increased 25% over the half to $84 billion, exceeding our initial expectations. We're extremely pleased with its performance and continue to see strong loan originations across the platform. Broken numbers are over 2,400, which compares to 2,127 in December. This is up 13% over the six-month period. The lending division contributed 20% of group EBITDA in the half. We continue to invest significantly in the residential lending opportunity, which we believe will provide meaningful growth over many years to come. Corporate advisory and equities performed well in the first half, delivering a record result. The pipeline had a significant skew to merger and acquisition activity, and it's pleasing to see more diversity in our client base as we've expanded the senior team in corporate advisory. There are significant growth opportunities within our business underpinned by our approach of identifying large addressable markets where we can build operational edge and valuable, profitable businesses. Now turning to slide 10 and a review of our strategic objectives. Over the last six months, we grew recurring base management fees from $89 million to $93 million. Over the last 12 months, it has increased 21% from $77 million. Binshaw generated $7.3 million of recurring service-based revenue, which is in addition to our base management fees and only enhances our recurring revenue-based server. We have consistently talked about diversifying our distribution channels and the result today clearly demonstrates the strategy is working. Momentum continues to be strong in domestic flows with the group raising $268 million over the period, up 61%. International high net workflows were also strong at $306 million. The result is especially pleasing considering the processing constraints for Hong Kong and mainland China migration aspects. We continue to look to scale our platform and the acquisition of Finsure and MKM are evidence of our focus to expand into the large addressable market of residential lending. The balance sheet has been used proactively over the period with the acquisition of Finsure delivering immediate accretion and longer term strategic growth opportunities. Our people are critical to the success of the company, and over the period we moved into new offices in Hong Kong, Melbourne and Sydney, which provided much improved amenity and meeting with employees' desire to return to the office for increased collaboration and development. In summary, our strategy largely remains unchanged. We're focused on the range of opportunities in front of us and delivering long-term growth for our employees and shareholders. Turning to post-balance state activity on slide 12, which has been pleasing. Asset management had a strong start to the second half with gross flows of $354 million during the seven-week period. Of note are two new institutional credit mandates from high-quality domestic investors worth $136 million. One is a structured finance investment and the other is a hospitality-related credit investment. Net flows are slightly less at $277 million, which reflected some expected redemptions in a number of our earlier vintage funds and red cables. We recently launched the MA Sustainable Future Fund with seed assets either secured or in due diligence. While the initial fund is relatively small, the concept is compelling and will achieve scale over time. We also entered due diligence on a $110 million office asset in Perth, and if all runs smoothly, the asset will form the basis for a new standalone office in this half. In lending, Finsure settled a record $3.7 billion gross of new loans during July, benefiting from the tailwind of refinancing related to rate mortgages rolling off. In residential lending, we continue to make progress in setting the foundations to scale with the addition of senior underwriting and processing capability, and we have implemented a new loan management system. In corporate advisory, deal flow in the first seven weeks has been strong, with over 17 million in fees considered de-risked. This is in addition to the 28 million of fees booked in the first half. The transactions continue to be biased to mergers and acquisitions in a range of sectors and industry groups. In summary, momentum has continued into the second half across all divisions, with the only caution being the uncertainty in migration visa processing in Hong Kong and mainland China and general equity market volatility. Turning to the next slide in the FY22 guidance. We've already confirmed our guidance for between 30% and 40% per annum underlying earnings per share growth on FY21. This growth is being delivered despite the strategic investment being made in future growth opportunities in the business. In December 2021, we had originally guided the market to 10% to 20% underlying earnings growth per share on the old measure. And if we were using that measure today, our guidance would remain unchanged. We provide guidance with our normal health warnings and point out that markets are uncertain. It's worth noting that there are features of our earnings, including performance fees, that are difficult to forecast, adding variability to our results. Now, turning forward to slide 15 to talk in more detail about the divisional performance. Asset management delivered another record result with underlying revenue up 58% and underlying EBITDA up 74%. Primary growth drivers for asset management were base management fees underpinned by ongoing strong inflows and improvement in the base fee margin as we cycle the COVID-related impacts of the prior period and a strong transaction and performance fee contribution. The period was also the first full six-month contribution from Reproint as we settled the acquisition 1st of April 2021. This incrementally added $3.1 million in base fee revenue and $2.1 million of operating expenses to the half. Transaction fees were up significantly in the period, reflecting the strong growth in the real estate credit strategy. AUM under the strategy exceeded $900 million today compared to $80 million this time four years ago. Red Cape Hotel Group delivered a $22 million performance fee during the period, underpinned by a return of distributions to investors and strong capital growth in asset valuation. We remain positive on the hospitality sector and believe the strategy will continue to contribute meaningful performance fees in the periods ahead. Operating expenses increase as we invest in the platform with a focus on enhancing our fund operations to scale more efficiently. Turning forward to slide 16. This chart illustrates a business delivering on a consistent strategy to scale our investment specialisations with a focus on the alternative asset classes of credit, real estate and hospitality. Now turning to slide 17 to talk through our fund flows. This slide demonstrates the benefit of diversity. As mentioned, credit investing has been a major beneficiary of volatile equity markets as investors seek to find defensive yield with capital protection. Over the last 12 months, our credit investing funds have received over $700 million of gross inflows, which is an excellent result from the investment strategy we accelerated into only five years ago. While net flows are slightly less than gross flows across the group, The main impact is due to asset realisations in the real estate and BCPE strategies during the period. In relation to flows by investor channels, the gross flows of $574 million is a very pleasing result, and given the visa processing issues for Hong Kong and mainland Chinese migration apps. Gross domestic flows were $268 million, up 61% on the prior period. Over the last 12 months, we've raised $583 million from this channel, and this compares to $142 million two years ago. Our international high net worth flows were $306 million for the period, down on the prior period, although reflective of the migration progress processing issues. The pleasing data point here is international non-migration high net worth flows. They're up 53% to $194 million. The growth in this segment is accelerating. With regard to our migration-related flows, we continue to see strong interest in the significant investor visa program from applicants from a diverse number of countries. We currently have investors from approximately 30 different countries in our funds. In relation to Hong Kong and mainland China, our pipeline of visa applicants is deep, and we see no underlying issues translating to reduced demand. As to the international non-migration high-network opportunities, The flows are gaining momentum and wealth diversification globally for these ultra-high net worth investors is a high priority. Australia is viewed as a mature, safe, secure and attractive market for these investors. With this in mind, we are focused on continuing to build a private wealth business for this category of international investor and believe we are uniquely placed to provide this service. In addition, we have proactively moved into new international markets for both migration and non-migration investors. This initially saw us establish a presence in Hong Kong and we're now focusing on South Africa, Vietnam and Singapore. As part of our core strategy, we'll continue to diversify our channels where we can be effective and the benefit of this strategy can be seen in the numbers today. I'll skip over slide 18 as it demonstrates a similar narrative around our AUM becoming more diversified by investment type. Turning to slide 19, which overviews our investment strategies and some highlights. Credit investing experienced significant flows underpinning an increase of $343 million in AUM. Both our real estate credit strategies and priority income funds experienced strong interest as defensive yield offers a strong alternative to equity markets. In terms of rising interest rates, while we do see increasing competition for yield products as term deposits increase, we're well positioned with the majority of our funds having variable loans and therefore yield yields to the investors that rise with the market. In hospitality, the community venues have traded very well over the last six months, which was underpinned by active management. Red Cape Hotel Group, our flagship hospitality fund, delivered investors a 31.5% total return over the 12 months to June, which is a great result rebounding from the COVID disruptions. We acquired Brunswick Heads in the Byron Shire in February, and the Beach Hotel was revalued up to $135 million during the period. We remained positive about the Byron region and are well positioned to take these iconic hospitality assets to another level. We also divested Minsky's, achieving a 40% premium to book value, which reflected the latent real estate value in the venue. In real estate, we made a conscious decision to pause coming into 2022 as we felt the direct markets would take time to digest the upward movement in interest rates. During the period, we settled on a number of small industrial investments and 25 Grenfell Street, Adelaide, which was exchanged late 21. We believe we bought this asset well and the leasing performance today has been positive. As to the markets generally, we do believe that there will be opportunities in the current market as the buyer universe has shrunk and sellers are willing to meet the market. Our equity funds have had a difficult first half with market conditions challenging. Since balance date, the fund's performance has improved, and we believe many equity stocks offer compelling valuations at these levels, although economic uncertainty makes it difficult to predict how long it will take to rebound. During the period, we divested of a number of smaller legacy assets, including a childcare and feedlock investment. In the scheme of things, these investments were relatively small, and it was positive to finally exit these investments on good terms so that we can return our focus onto larger opportunities. Asset management's key drivers continue to be very positive. We are very pleased with the increased diversity in the distribution channels and the decrease in reliance on any single investor site. The funds continue to predominantly perform well which translates into investor confidence in the business and in flows. Now turning to slide 21 and lending, our newest division. We remain very excited about the opportunity and have invested significantly into setting it up for scalability and growth. The acquisition of Finsure and MKM during the period both represented important steps in building out the platform. We've made a significant investment in upgrading MKM's systems to ensure that it can offer a leading service to residential borrowers based on much larger volumes. All of these strategic decisions take time and incur expenses to put in place and are part of a well-considered multi-year plan to build a substantial residential lending business. While Finsure is a great business day, the strategic opportunity to unlock incremental NIM and grow fee-based revenue is significant. And as we discussed at the investor day, we're working on a number of initiatives that we'll launch in this half. Technology is a key focus for the lending division, and we believe that our technology offering can differentiate our residential lending proposition for our customers. Back to the business result, the total revenue grew to $25.2 million, which was largely underpinned by the acquisition of Finsure and MKM. The loan book growth of $119 million was predominantly due to growth in principal and specialty finance activity. Now turning over to slide 22 and some of the key lending metrics. The key drivers on this page are very positive and exceed our expectations for the business. As we have previously mentioned, the NIM will blend down as we focus on large scalable markets. The lower NIMs will be offset by much higher volumes while retaining an attractive return on capital. The return on capital in this period is less than our targets although that largely reflects MKM being loss-making as we invest in the business to drive future growth. In terms of loan book health, we've adopted conservative underwriting assumptions with substantial stress testing of underlying borrower serviceability and collateral performance. Actual credit losses are currently tracking well below provisioned levels. We ensure that managed loan book has grown 25% in the six months from December, which is a great result. This was underpinned by both the growth in productivity of brokers and an increase in the number of brokers on the platform. Over the coming years, we anticipate these numbers to change materially as we lean into the large residential mortgage market and utilise our unique position with Finsure to originate loans. Now turning to slide 23. That's out the growth in the loan book to around $720 million at the end of June. As a percentage of loan books, the average capital committed was 11% for the half versus 20% for December half. As the loan book grows into the residential lending market, we'd expect the percentage required to fund the loan book to decrease, although the absolute capital required to increase. Importantly, we also expect the capital invested to generate NIM and deliver a very attractive return on invested capital for shareholders. And we continue to explore strategies to optimize the capital efficiency of our lending business as we scale. Now turning to slide 24, Clearly all of Finshaw's indicators are very strong and we are very pleased with the performance since acquisition. We believe that the Finshaw business offers a unique distribution channel for a number of products in the lending market and look forward to executing on the multi-year strategy. Turning to corporate advisory and equities on slide 26. The business has had a strong first half performance underpinned by merger and acquisition advisory roles. Some of the transactions we've been involved in include advising consolidated press holdings in relation to the Crown transaction, Balkan Clark's acquisition of Ality, the merger of DDH1 and SWIC, the sale of technology company Blizz and the sale of Stockton. As I mentioned earlier, the second half has started well with over $17 million of advisory fees already significantly seen risk. We've made a couple of senior hires through the year with a focus on technology and equity capital markets. I'll leave slide 27 with you to digest, although it just highlights the seasonality in corporate advisory inequities, which appears to be the case again this year. I'll now hand over to Graeme Lalonde, our CFO, to talk through the financials.

Thanks, Julian, and good afternoon, everyone. Starting on slide 29, we've talked a fair bit about our revenue growth and its diversified nature, so I thought I'd briefly touch on the expense side of the equation. In this regard, there are two key impacts running through our results, one being the impact of acquisitions, and the second are continued platform investments. The acquisitions added over 10 million of OPEX in the half, with this figure said to be higher in the second half as we cover a full six-month trade. On the platform investment side, as we mentioned at the four-year result, compensation expense will continue to increase, excluding acquisitions, Both fixed and variable comp were impacted by headcount growth of over 30 FTE in the period. I expect this growth to continue in the second half. However, looking into the crystal ball, this should moderate as we move into 2023. Variable comp also moves with revenue performance, and given our strong results in the half, this has also resulted in an increase. Other key expense items relate to our investments in new premises, with associated costs up over $4 million and a half. Staff feedback has been fantastic, and we believe our new offices will be an ongoing competitive advantage as the work environment continues to evolve post-COVID. Amazingly, despite these expense increases, we've managed to maintain our margins, and the combination of increased earnings and our strong cash conversion means we have increased our interim dividend by 20%. As always, we have stayed within our dividend policy payout range 25% to 50%, which enables us to balance shareholder returns with the retention of good levels of cash for future investing. And on the topic of cash and investing, over the page on slide 30 is our operating balance sheet. For those of you that read our stat accounts, you will notice a much-changed statutory balance sheet, with growth assets and liabilities increasing to incorporate our lending securitisation structures and FinShure's commission trailbook. Our operating balance sheet seeks to present a simpler view of invested capital, which I hope you will find easier to follow. A key highlight in the half was the successful acquisition of both Finture and MKM, with the $120 million of capital raised at the turn of the year utilized for this purpose. It's worth pointing out that both cash levels and NTA were artificially high at the year end because of this capital raising. Following settlement, our NTA has returned to a more normalized position at 30 June, with cash continuing to build from our usual working capital low point, following the annual bonus and dividend payments in the first half. Borrowings were unchanged in the period. However, the highlight was the finalization of a new $40 million revolving corporate facility. This facility, which is currently undrawn, not only enhances our balance sheet flexibility, but gives us another lever to optimize our use of capital. What's more, with over two-thirds of our debt carrying fixed coupons, we're comfortable with the balanced nature of our borrowing costs. Looking forward, I don't see any change in our approach of maintaining a dynamic but prudently capitalized balance sheet. It certainly stood us in good stead and allows us to not only invest in existing platform growth, but also explore new opportunities. Over the page on slide 31, I'll touch on some of these investment highlights. Our focus in the first half was the ongoing support of key lending and asset management strategies, coupled with a drive on capital efficiency. This efficiency is best highlighted in our lending division, where we reduced our invested capital while continuing to grow our loan book. While this is unlikely to be a recurring feature, importantly, the proportion of invested capital to loan book size can continue to reduce and ultimately drive stronger returns. Furthermore, we continue to recycle our seed and co-investment capital, utilizing the proceeds to reinvest some $45 million into new and existing strategies in the heart. This dynamic nature of the balance sheet and our focus on capital efficiency will continue to underwrite our future growth. For mine, the recycling of capital is a real strength, whilst the efficiency focus will be an important factor driving returns in our lending business. Moving into the second half, when it comes to investing our capital, we will continue to maintain a level of cautious optimism. And with this in mind, I'll now hand back to Julian to talk you through our strategic outlook.

Thank you, Graeme. And moving on to slide 33. At MA Financial, we have a strong focus on building businesses, and this slide illustrates how our method translates into results. We look to leverage our capabilities and platform into large addressable markets where we have competitive edge establishing a well-considered strategy and executing on it. We balance investing in new ideas with letting the business scale and seeing the benefits flow through to investors. This is always a strong focus for us and we are aligned as fellow shareholders. Moving on to slide 34 where we talk more to our medium and longer-term strategies. We're a builder of valuable businesses in large addressable markets. We focus on scale and diversity in distribution channels We diversify our source of capital and we have a strong balance sheet to support growth initiatives. Our advisory capabilities provide technical edge and our stable and experienced management team is strongly aligned with investors. In closing, MA Financial has had another great start to the financial year, despite the significant market headwinds we all face. On behalf of the management team, we are very proud and pleased with the performance of the group and we look forward to executing our consistent strategy in the years to come. With that, I'll hand back to the moderator for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Glenn Wellham with MST Financial. Please go ahead.

Yeah, well done on the results, guys. Just a question on the loan book. Obviously, you've had really strong growth in that. Just wondering what our expectations should be going forward, particularly given that the overall market in residential lending is coming off. And just as a follow-up, are you planning to spend more money to increase your brand awareness for residential lending?

Yeah, it's Chris. Yeah, I'll take the question in relation to the residential lending loan book. So firstly, in relation to residential lending, we are starting from a very, very low base, obviously. And the residential lending market has two impacts really on the business. Obviously, one, the loan book that we grow and earn NIM off. And then secondly, the amount of residential lending volume that goes through the FinShore platform through the brokers and the aggregators. So in relation to the loan book that we have, on our platform, it's really quite small, and we think we've got the ability to continue to grow that, even though that you might see the market volumes moving around with the uncertainty in the residential market. What we are experiencing and seeing is a large volume of loans are rolling off from being fixed rate. And so that means that we estimate over the next 12 months, you've got about $350 billion worth of home loans coming off fixed rate where people will shop around for the best deal. So that does two things. It puts into the arena quite a large amount of volume for us to compete for to provide that residential loan from that very small base from where we're starting from. And so hopefully for us that's a tailwind. And secondly, that volume coming through the market with increasing predominance of brokers being the main route via which people undertake sort of their home loan and mortgage process should also push quite a lot of volume through the FinShore platform which we've seen sort of early stage evidence of. So I think there we're starting from a very small base and so we are optimistic that there's the growth there ahead of us. In relation to CapEx and spend on the brand and positioning, which I think was the second piece of your question, At the moment, we are still bedding down the infrastructure and systems that we need to have in place to cater for a lot larger volume within our residential lending platform that we just acquired earlier in the year. So it's something that we're grappling with and debating, but at the moment, the main expense coming through that residential lending division within lending is around the systems and processes that we're putting in place.

Anything I'd add is I think the Finshaw pipe gives us access to the distribution channel for residential home loans, which is obviously one of the competitive advantages we have in the residential lending space.

Yep, great. Thanks for that. And just one other question. Obviously, asset valuations have held up pretty well across your well-diversified book, but how should we think about it? Well, how conservative should we be going forward? Obviously, there's a bit of a lag between you know, cap rates increasing and valuations. How should we think about that going forward?

Yeah, sure. And I think I'll focus on the hard asset side of it in terms of I think credit's pretty secure around the provisions and the underwriting. But from a hard asset perspective, when I think about real estate, the predominant exposure we've got is around the shopping centre, where probably 75% of that exposure probably sits. And really the cap rates around the shopping centres that we acquired being sub-regionals or non-discretionary neighbourhoods have really been tightened as much as probably some of the other asset classes. So we feel like we had a fair bit of buffer in there between bonds and sort of the yields that they were offering prior to coming into this year. In terms of hospitality, I think the positive around hospitality is that there's real earnings growth coming through the system. So there's still transactional evidence that points to quite deep levels of demand for hospitality assets, which is compelling and it supports probably cap rates tighter than where we have our hospitality assets valued. But in terms of having additional buffer to our valuations, we're forecasting EBITDA growth at the venue level between 8% and 10% this year. And the assets are valued on a backward-looking basis. We're very confident around the sector. It's operating very well and for us to have that sort of growth, there is plenty of cushion around sort of valuations in the future. So we feel pretty good about it. I'd say we've said it in my commentary. We acted on it. During the half, we paused in terms of looking at broader real estate initiatives just because we thought there would be a period of time between sort of vendor expectations, rising interest rates and where we saw value. I think the buyer universe has really thinned out quite a bit And we're seeing quite a few opportunities come to market where you can be more selective and look at things quite interestingly. So we'll be more opportunistic in the next half.

Great. Thanks for that.

Thanks, Ben. Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Nick Burgess with Ord Minute. Please go ahead.

Yeah, afternoon, guys. A couple of questions just on the asset management business to start off with. Have you got a more recent funds under management update given the flows and market movements across July and August?

I think the update would be sort of 280 odd million of net flows. Obviously, there's sort of valuation movements that come through over that period of time, but that would be a reasonable indicator for movement in AUM, give or take. But we're really seeing... Yeah, we're really seeing most of the asset classes perform well. I think equities has obviously had a tricky first half given the volatile market conditions, and we did see that rebound nicely in July, but it's a very difficult market to predict at the minute. So I think AUM would reasonably closely track net flows, but not perfectly.

Yeah, okay. That's helpful. Thank you. Just in terms of the international high net worth flows, and sort of joining the dots between comments you made at the strategy day versus now. You know, the bottlenecks in Hong Kong in particular, to what degree have they unwound and what's been the experience like in the first seven weeks of the year and what are your prospects like for the remainder of the half?

Yeah, it sort of remains a little bit uncertain, but what I would say is that demand, as strong as we've seen it, so from a demand perspective, Our pipeline's very strong of high, medium sort of targets, and it would be as strong as it's ever been, right? So we feel like the demand there for the migration-related sort of visas. I think from a processing perspective, so both Hong Kong and mainland Chinese applicants are processed in Hong Kong, and with the COVID restrictions around the workforce there from an immigration perspective, They've obviously been working from home and it's still disrupted and that just means that sort of sensitive visas that come down this pipeline just take longer to process or are sort of in the queue to be processed. And then the other thing I'd say is that through applicants in needing to verify documentation in China or in Hong Kong, the disruption also causes issues around just processing those documents. So we've seen some opening up of the process over the last sort of six weeks but it's I wouldn't say it's a flurry in any sense, and we're still monitoring the space very closely. And there's also the overlay of immigrations, a strong focus domestically around how to prioritise immigration as well. So, yeah, there's a fair bit of uncertainty around that, I guess. I'd always point to the pleasing number, and that's sort of the non-migration flows have been very strong in the period, and we continue to see those accelerating. So these numbers have been delivered in what has been a lot slower period for the migration visas.

Yeah, okay, and so some of those bottlenecks still persist. Okay, just a further couple of questions on the asset management business. So you've mentioned that the main contributor to the performance fee, you know, very strong performance fee in the first half was Red Cape, I think about $6 million unaccounted for. Any further clarity on where those performance fees came from? And I guess whilst difficult, any comments in terms of the potential opportunity in the second half for performance fees for the group overall?

Yeah, sure. So the red cape performance fee was around $22 odd million. The other six predominantly related to our equities fund. And you may remember from previous conversations, our performance fees are slightly different in those funds where they sort of work through realised profits, distributions paid to investors and to the tax year ends. So there's some overflowing from last year that fell into this year based on that calculation, and that largely represented the $6 million, I think. In terms of the opportunity going forward, clearly we're seeing equities as a difficult market to predict, so we're less optimistic about that in the second half, but if you can tell me where the markets will be in June next year, I can probably help you with a performance-based measure for June. In terms of hospitality, we still see the hospitality assets, they're still not large, there's a Significant delta between the directives valuations and the independent valuations and that's really caused by the independent valuations come through on an 18-month cycle where you might have two or three assets valued each month and in that we see a large accrual sitting in red tape in the order of sort of mid $40 million, so you can call it $45 million and we've accrued $22 million in this half. So there's still a lot of tar wins in the sector. We still see a lot of competition for assets. The actual operating performance of the assets is very positive. and we see that sort of helping us through the next 12, 18 months, and we think we'll see continued performance fees from Red Cape. CEBC is a little bit more transactional-based, where it comes down to selling assets or transactions around the sort of investment companies that we're in. We'd anticipate to see some flows in the second half of the year, but it's a bit more difficult to predict what may come through after that.

Okay, thank you. So just to clarify those comments around Red Cape, so CEBC, Accrual of $40 million of performance fees. So assuming a sort of a stable... $48, right.

Sorry, $45, Nick, is the accrual in Red Cape. And the point around that is the actual NAV of Red Cape accrues the full performance fee based on director's valuations. So it means that investors coming into the fund are basically coming in clean of any performance fees if you revalue the whole portfolio to independent valuations. But we only take the statutory accounting for the performance fees, and therefore it's based on independent valuations only. But we'd expect that to unwind over time, but there's probably always a lag on it, given that the valuations are only taken over an 18-month period.

Yeah, but just that number, that 45 number, so is the right way to think about it, it's an 18-month cycle? you've just recognised 22, so there's, you know, on those numbers, 23 million left that if the environment is stable, that you would expect to recognise that as fees over the next 12 months, i.e. the remaining 12 months of that 18-month cycle. Is that broadly the right way to think about it?

That's not a bad way to think about it, but you've also got to overlay that directors' valuations will move and, you know, the next 12, 18 months, there could be more tar wins, there could be headwinds, but that's not a bad way of thinking about it.

Okay, thank you. And just lastly, just one final question on the lending business or Finshaw particularly. So you've said settlements of $3.7 billion in July. Just for context, what sort of settlements have you been doing in the previous few months on average?

Yeah, so the earlier part of the year, we saw settlements in the high twos and as the year's gone on from the beginning of the year, that sort of just crept up month on month. So I think an average around about $3 billion a month you could probably look at over the first six months of the year. There is a bit of seasonality to the numbers because of school holidays and when there is types of volume and people get around doing things. So it's not a perfectly linear relationship. So it's It's a bit ahead of where we thought, which is really good, and helped by that tailwind of fixed rate loan roll-off, which we think is driving a lot of activity.

Yeah, okay, that gives some good context. Thank you. Thanks very much.

Thank you. Once again, if you wish to ask a question, please press star 1. We'll now pause a moment to allow for any final questioners to register. There are no further questions at this time. I'll now hand back to Mr. Biggins for closing remarks.

OK, thank you, Melanie, and thank you, everyone, for taking interest and listening in to the conference call. And we look forward to continuing to deliver strong results in the future. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.