Pinnacle Investment Management Group Limited · ASX:PNI
Pinnacle Investment Management — H1 FY2021 Earnings Presentation
68 slides from Pinnacle Investment Management's earnings presentation, Feb 3, 2021
Slide 1: Interim Results – 1H FY21
PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED (PNI) Interim Results – 1H FY21 3 February 2021
Slide 2: Disclaimer
PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED (PNI) 1 • This presentation has been prepared by Pinnacle Investment Management Group Limited ABN 22 100 325 184 (PNI). The information in this presentation is current as at 3 February 2021. • PNI has prepared this presentation based on information availa
Slide 3: Agenda
Agenda 2 • First Half FY21 (1H FY21) Financial Highlights – Ian Macoun, Managing Director • 1H FY21 Business Highlights – Ian Macoun, Managing Director • FUM and Flows • Other Business Highlights • 1H FY21 Results Discussion – Dan Longan, Chief Financial Officer • Performance Fees – Ian Macoun, Mana
Slide 4: 1H FY21 Themes
1H FY21 Themes 3 • Strong financial outcome, strong growth in FUM and strong net inflows • Growth in size and breadth of Affiliate base is delivering clear benefits to shareholders: • Greater diversification across different asset classes and investment strategies • Enhanced performance fee potentia
Slide 5: 1H FY21 Financial Highlights
1H FY21 Financial Highlights 4 • Net profit after tax (NPAT) attributable to shareholders of $30.3 million, up 120%1,2 from $13.8 million in the prior corresponding period (PCP) • Basic earnings per share (EPS) attributable to shareholders of 17.5 cents, up 116% from 8.1 cents in the PCP4 • Diluted
Slide 6: 1H FY21 Financial Results
1H FY21 Financial Results 5 H1 FY21 ($M) H1 FY20 ($M) % Change PINNACLE Revenue 1 14.4 11.4 26% Expenses (15.9) (15.3) 4% 2, 3 Share of Pinnacle Affiliates net profit after tax 31.8 17.7 80% 4 Net profit before tax (NPBT) from continuing operations 30.3 13.8 120% Taxation - - NPAT from continuing op
Slide 7: 1H FY21 Business Highlights – FUM
1H FY21 Business Highlights – FUM 6 • Aggregate Affiliates’ FUM of $70.5 billion at 31 December 2020 (at 100%)1 • Up $11.8 billion or 20% from $58.7 billion at 30 June 2020 • Up $8.9 billion or 14% from $61.6 billion at 31 December 2019 • Aggregate Retail FUM (at 100%) now $16.7 billion; up 28% from
Slide 8: 1H FY21 Business Highlights – Record Flows
1H FY21 Business Highlights – Record Flows 7 • Net inflows for the six months 31 December 2020 (1H FY21) of $5.5 billion • $1.0 billion in the six months ended 30 June 2020 (2H FY20) • $2.0 billion in the six months ended 31 December 2019 (1H FY20) • Retail net inflows for 1H FY21 of $1.9 billion (n
Slide 9: FY21 Business Highlights – Affiliates
FY21 Business Highlights – Affiliates 8 • Four Affiliates earned performance fees totalling $45.2 million (at 100%; Pinnacle post-tax share $11.0 million) in 1H FY21 • The diversity of strategies with performance fee potential is now large (and growing), and performance fees of virtually every strat
Slide 10: Understanding 1H FY21 financial outcome
Understanding 1H FY21 financial outcome 9 • Total Affiliate revenues1 were $201.3m during 1H FY21, including $45.2m (22%) in performance fees; in 1H FY20, total Affiliate revenues were $132.5m, which included $0.5m (0.4%) in performance fees • This represents 52% growth in total Affiliate revenue (1
Slide 11: Significant components of 1H FY21 results – Pinnacle Parent
Significant components of 1H FY21 results – Pinnacle Parent 10 • Revenue growth returning with costs controlled in Pinnacle Parent: • Typically, Pinnacle Parent revenues are stronger in the second-half, when certain ‘success-based’ distribution fees crystallize and become payable • As shareholders w
Slide 12: Significant components of 1H FY21 results - Affiliates
Significant components of 1H FY21 results - Affiliates 11 • Significant growth ($14.1 million, or 80%) in Pinnacle’s share of Affiliate profits compared with 1H FY201: • Performance fees (at 100%) of $45.2 million in 1H FY21, across four Affiliates (Pinnacle share post-tax of $11.0 million); $0.5 mi
Slide 13: PNI Balance Sheet
PNI Balance Sheet 12 Cash and Principal Investments of $51.4m 31 Dec 2020 ($M) 30 Jun 2020 ($M) Change • • Includes $38.7m invested in strategies managed by CURRENT ASSETS Pinnacle Affiliates Cash and cash equivalents 10.8 16.1 (33%) • Excludes $10m of cash applied for Affiliate equity Financial ass
Slide 14: Our Response to the COVID–19 crisis
Our Response to the COVID–19 crisis 13 “The reputations and future success or otherwise of investment management companies are often determined by their behaviour and performance during periods of crisis and their capacity to resume growth depends on the strength of the capabilities with which they
Slide 15: Performance Fees
PERFORMANCE FEES
Slide 16: Performance Fees – Repeatability and Size
Performance Fees – Repeatability and Size 15 • Potential aggregate performance fees are both sizeable and repeatable each year • Deliberate strategy to seek performance fee structures as an alternative to higher base fees – they are direct substitutes and a means of maximising average annual revenue
Slide 17: Performance Fees – FUM and Strategy Growth
Performance Fees – FUM and Strategy Growth 16 • The volume of FUM with performance fee potential has increased significantly • The number and diversity of strategies with significant performance fee potential continues to increase (improving the annual reliability of overall performance fee revenue)
Slide 18: Large and increasing performance fee FUM and strategy diversity
FUM subject to material performance fees, by strategy 17 Date 30 June 2016 30 June 2018 31 December 2020 FUM ($bn) $3.3bn $10.3bn $23.0bn Significant strategies 5 8 18 30 Jun 16 30 Jun 18 31 Dec 20 Large and increasing performance fee FUM and strategy diversity
Slide 19: Performance fees have been delivered by a number of Affiliates each year
Performance fees have been delivered by a number of Affiliates each year 18
Slide 20: Factors to consider in estimating future performance fees
Factors to consider in estimating future performance fees 19 • 2H v 1H - the potential and reliability of performance fees are, logically, greater in 2H than 1H • 7 out of 18 strategies that currently have potential to deliver significant performance fees crystallise only in in 2H • Thus, 11 of 18 s
Slide 21: Funds Under Management
FUNDS UNDER MANAGEMENT
Slide 22: 1H FY21 Funds Under Management
1H FY21 Funds Under Management 21 Gross FUM growth ($bn)1 • FUM of $70.5bn as at 31 December 2020 • FUM has grown at a CAGR of 22% p.a. over the last ten years (21% excluding $6.8bn ‘acquired’ in July 2018 and 3.0 billion ‘acquired’ in December 2019) • Increase in FUM of $11.8bn in the six months to
Slide 23: FUM History
1H FY21 Funds Under Management 22 Pinnacle Hyperion Plato Solaris RCL Palisade Antipodes Spheria Two Trees Firetrail Metrics 4 Omega Longwave Riparian Coolabah Reminiscent Aikya (total) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) 1 1 2 FUM History (at 100%) 3
Slide 24: Continuing strong investment performance of Affiliates to 31 December 2020
23 Continuing strong investment performance of Affiliates to 31 December 2020 5Y (p.a.) 10Y (p.a.) Inception (p.a.) Inception date Pinnacle Investment Management 86% of Pinnacle Affiliates’ Hyperion Asset Management - Gross Performance Hyperion Australian Growth Companies Fund 14.90% 14.19% 13.88% 1
Slide 25: Affiliates’ investment performance – December 2020
24 Affiliates’ investment performance – 31 December 2020 Inception Inception 1Y (p.a.) 3Y (p.a.) 5Y (p.a.) 10Y (p.a.) (p.a.) date Pinnacle Investment Management Hyperion Asset Management - Gross Performance Hyperion Australian Growth Companies Fund 33.91% 21.29% 14.90% 14.19% 13.88% 10/1/2002 Outper
Slide 26: Affiliates’ investment performance – December 2020
25 Affiliates’ investment performance – 31 December 2020 25 Inception Inception 1Y (p.a.) 3Y (p.a.) 5Y (p.a.) 10Y (p.a.) (p.a.) date Pinnacle Investment Management Two Trees Investment Management - Gross Performance Global Macro Fund - USD Composite 7.36% -2.28% 3/07/2018 Outperformance -7.75% -3.77
Slide 27: Pinnacle Affiliates continue to win major industry awards
26 Pinnacle Affiliates continue to win major industry awards 2020 Zenith Fund Awards: 2018 Professional Planner | Zenith Fund Awards: • Resolution Capital – Global REIT Category Winner (sixth consecutive year) • Pinnacle – Distributor of the Year Winner (third consecutive year) • Metrics – Listed In
Slide 28: Growth & Resilience
GROWTH & RESILIENCE
Slide 29: Growth & Resilience
Growth & Resilience 28 • Clear evidence of strategy execution success • Growth and Resilience simultaneously delivered • An exceptional platform in place to move ahead with sustained growth from a proven business model and philosophy
Slide 30: Growth, Resilience, and an exceptional Platform for further Growth
Growth, Resilience, and an exceptional Platform for further Growth 29 • For several years, we have been consistently implementing our strategy: • A 'pure play' investment management firm comprising only the best investment professionals, focused on investment excellence • Highly-regarded distributio
Slide 31: Three Horizons of Growth
Three Horizons of Growth 30 • Continue to build Pinnacle by taking a measured approach to growth • Support the growth of our current affiliates with increased investment in distribution channels (e.g. international and listed markets) • Invest in / seed new affiliates where management teams have a s
Slide 32: Recap on Horizon Criteria – What could we acquire?
Recap on Horizon 3 Criteria – What could we acquire? 31 • Criteria • Must not place the Company at risk • Only consider if low risk and high return on capital • Exercise great care and careful due diligence • Must be synergistic with existing core • Few will meet this test • Status • Metrics and Ome
Slide 33: Future Growth Drivers
Future Growth Drivers 32 • Investment in (and continuing to evolve and grow in size and sophistication) our distribution platform • Grow ahead of our Affiliates • Listen to clients and move quickly to meet their evolving needs • Do not become the market – be ahead of it • Investment in new Affiliate
Slide 34: Growth of our Platform
Growth of our Platform 33 CON TI N U I N G TO I N V E ST I N A DI V E RSI FI E D PLATFO R M TO STRE N G TH E N FU TU RE GROWT H • Executives of both Pinnacle and Pinnacle Affiliates have significant equity interests • Equity ownership enhances alignment with shareholders Seed FUM and working capital
Slide 35: Growing a resilient, diversified business
Growing a resilient, diversified business 34 Resilience has been enhanced by progressive diversification of: 1. Asset classes 2. Client type 3. Client domicile 4. Percentage of funds exposed to performance fees
Slide 36: Growth by Affiliate
Growth by Affiliate 35 30 June 2016 31 December 2020 Total FUM $19.8bn Total FUM $70.5bn Hyperion 28.5% (largest affiliate) RCL 16.1% (largest affiliate) Hyperion Solaris Palisade 7.1 14.1 Plato 7.2 Resolution Capital Hyperion 2.3 Antipodes 6.3 23.2 Solaris Spheria 28.5 14.1 Palisade Firetrail 7.8 O
Slide 37: Growth in Asset Classes
Growth in Asset Classes 36 FUM by Asset Class FUM by Asset Class 30 Jun 2016 (%) 31 December 2020 (%) 8 Australian Equities* Australian Equities 9 Global Equities* 7 3 24 Global Equities Real Assets (Public 46 Markets) Real Assets (Private 2 Real Assets (Public 17 Markets) 67 Markets) Credit (Public
Slide 38: Growth in Client Type and Breadth
Growth in Client Type and Breadth 37 Institutional – Domestic International Retail – Intermediated Retail – Direct
Slide 39: Growth in Client Type and Breadth
Growth in Client Type and Breadth 38 Total FUM at 30 June 2016 (%) Total FUM at 31 December 2020 (%) Industry Super Fund Industry Super Fund 13 16 Public Pension Fund 19 Public Pension Fund 1 24 3 Corporate Pension Fund Corporate Pension Fund 4 Financial Institution Financial Institution 1 1 11 Sove
Slide 40: Growth in Retail FUM
Growth in Retail FUM 39 Retail FUM evolution 6.5x Total FUM 30 June 13: $10.9bn Total FUM 31 December 20: $70.5bn Retail: $0.9bn Retail: $16.7bn 18.6x 8% Retail 24% Retail 92% institutional 76% Institutional • Pinnacle has invested significantly in retail distribution and has generated substantial r
Slide 41: Growth in Performance Fee FUM
Growth in Performance Fee FUM 40 Affiliates' FUM (at 100%) subject to performance fees Total FUM 30 June 16: $19.8bn Total FUM 31 December 20: $70.5bn Subject to performance fees: $3.3bn Subject to performance fees: $23.0bn 17% Perf fees 33% Perf fees 83% No perf fees 67% No perf fees • Significant
Slide 42: Institutional & International Funds Market
INSTITUTIONAL & INTERNATIONAL FUNDS MARKET
Slide 43: Institutional - Australia
42 Institutional - Australia 1. Steady conversion of mandate pipeline • Robust equity market performance has underwritten the confidence of asset owners to make decisions • All pre-pandemic mandate search processes resumed during the half; some have concluded and now funded • Maiden mandates secured
Slide 44: International
43 International 1. New institutional mandates funded from international investors • Aikya • Antipodes • Hyperion • ResCap • Palisade 2. Mandates secured from the AMER, EMEA and APAC regions • Private Pension Plans • Sovereign Funds • Endowments • Wealth Managers • Insurance Companies 3. Japanese di
Slide 45: Outlook
44 Outlook • Fundamentals in place for sustained sales growth • High performing affiliates with strong local and international consultant ratings • Diverse stable of affiliates (asset class, style, strategy, maturity) ensures “all-weather” relevance to our clients • Highly motivated and resourceful
Slide 46: Retail Funds Market
RETAIL FUNDS MARKET
Slide 47: Retail
Retail 46 Record retail flows achieved on the back of strong investment performance, adaptation to the environment leading to a significant lift in sales activity levels and continued focus on high performance operating model 1. Secular trends impacting intermediated advice channel have accelerated
Slide 48: Retail
Retail 47 3. Transition from ‘analogue’ to ‘digital’ distribution practices • Highly competitive environment for share of voice with increasingly time-poor advisers/investors • Optimised engagement through best practice thought-leadership and consultative practices • Shift from long-term campaign pl
Slide 49: Total size and net flows in retail asset management industry
Total size and net flows in retail asset management industry – narrower range of winners! 48 $1,600Bn Total Funds Under Management - Retail Funds $1,400Bn $1,200Bn $1,000Bn $800Bn $600Bn $400Bn $200Bn $0Bn $44Bn Annual Estimated Net Flows – Retail Funds $50Bn $31Bn $15Bn $25Bn $10Bn $12Bn $9Bn $9Bn
Slide 50: ‘What Factors Drive Investment Flows?’ – A.I. and Machine Learning
‘What Factors Drive Investment Flows?’ – A.I. and Machine Learning 49 Australia Equity Factor Premia Morningstar runs a monthly cross-sectional regression of the fund’s growth rate against their fund characteristics. • Positive factors: • Inflow momentum • 5 Star rated • Passive • Negative factors:
Slide 51: Factor Statistics - Persistence
‘What Factors Drive Investment Flows?’ – A.I. and Machine Learning 50 Factor Statistics - Persistence The facto premia correlations are persisted through time. The fees and outflows are negative while five-star, positive growth rates and index funds are consistently positive. 3.00 2.00 1.00 0.00 200
Slide 52: ‘What Factors Drive Investment Flows?’ – A.I. and Machine Learning
‘What Factors Drive Investment Flows?’ – A.I. and Machine Learning 51 Source: Morningstar Direct, data as at February 2021
Slide 53: Corporate Sustainability
CORPORATE SUSTAINABILITY
Slide 54: Pinnacle as a Responsible Firm
53 Pinnacle as a Responsible Firm We are focused on continuous improvement, striving to do better by building a long-term, sustainable firm that focuses on our staff, customers and shareholders as well as the communities in which we engage • Sustainability Committee • Pinnacle has established a Sust
Slide 55: Diversity, People and Community
Diversity, People and Community 54 Diversity • Pinnacle believes that workplace diversity in this context includes but is not limited to gender, gender identity, age, race, disability, nationality, marital status, cultural background, sexual orientation, religious belief and ethnicity • To support t
Slide 56: People, Diversity and Community
People, Diversity and Community 55 People • Fully supportive of initiatives to optimise the mental health of employees through access to the Employee Assistance Program for employees and family members • Employees are encouraged to always act in Pinnacle’s best interests and maintain a line of sight
Slide 57: Affiliate commitment to ESG
Affiliate commitment to ESG 56 Ten affiliates are signatories to the United Nations supported Principles of Responsible Investment (“PRI”): Incorporate ESG into Affiliate Signatory to PRI Have an ESG policy Investment process Aikya Yes Yes Yes Antipodes Yes Yes Yes Coolabah No Yes Yes Firetrail Yes
Slide 58: Pinnacle Affiliates at the forefront as responsible investors
Pinnacle Affiliates at the forefront as responsible investors 57 • PRI signatory since 2010 • PRI signatory • PRI signatory • Responsible Investment Association Australasia (RIAA) • CDP signatory • Fundamentally integrate ESG into the investment member • Fundamentally integrate ESG into the investme
Slide 59: Pinnacle Charitable Foundation
58 Pinnacle Charitable Foundation • Pinnacle is passionate about enabling better lives through investment excellence. This belief is strongly reflected in Pinnacle’s commitment – together with Affiliates – to the Pinnacle Charitable Foundation • The Foundation’s focus is on growing the sustainabilit
Slide 60: Pinnacle Charitable Foundation
59 Pinnacle Charitable Foundation • Key focus areas and partners for 2021 are as follows: • Promotion of strong mental wellbeing, together with support for prevention and early intervention strategies aimed at reducing mental illness and driving down suicide rates. Long-term partnerships are in plac
Slide 61: Affiliate Summaries
AFFILIATE SUMMARIES
Slide 62: Pinnacle Affiliates
Pinnacle Affiliates 61 Global Emerging Market Equities • High quality • Absolute return • Concentrated portfolio • Long term sustainable growth • Stewardship and Sustainability • Headquartered in London, United Kingdom Global & Asian Value Equities (Long Only and Long/Short) • Global & Asian equitie
Slide 63: Pinnacle Affiliates
Pinnacle Affiliates 62 Experts in high conviction investing • Deep fundamental research approach consistently applied for 15+ years • Focused on generating alpha from stock selection, whilst reducing exposure to unintended macroeconomic or thematic risks • Unconstrained approach provides flexibility
Slide 64: Pinnacle Affiliates
Pinnacle Affiliates 63 Australasian Private Credit • One of Australasia’s largest non-bank lenders • Participation across all loan market segments – leverage finance, project finance, commercial real estate, corporate • Investment across the capital structure– investment grade debt through to equity
Slide 65: Pinnacle Affiliates
Pinnacle Affiliates 64 Australian Accumulation, Low Volatility and Tax-Exempt Equities, Global Income Equities and Global Long/Short Equities • Customised alpha models and portfolio construction for accumulation, retirement and absolute return solutions • Systematic implementation of fundamental ide
Slide 66: Pinnacle Affiliates
Pinnacle Affiliates 65 Australasian Private Agriculture, Food & Water • Real asset backed investments • Uncorrelated exposure to traditional asset classes • Inflation protection • Mid-Market value focus • Commodity agnostic and counter-cyclical • Change of land use and asset optimisation to improve
Slide 67: Pinnacle Affiliates
Pinnacle Affiliates 66 Systematic Global Macro • Former GMO SGM team • Competitive edge is the novel way in which the firm fuses together a deep philosophical understanding of financial economics with rigorous scientific techniques for forecasting returns, volatility and correlations and the way in
Slide 68: Q&A
Q&A
Pinnacle Investment Management Group — H1 FY2021 Earnings Presentation on 6ix