Transcription
Annual Report20212021 Annual Report1
ContentsPinnacle Glossary. 4Chair’s Letter. 6Overview, Operating and Financial Report. 8Nature of operations and principal activities.8Key financial highlights.10Pinnacle Affiliates. 12Business strategies and prospects for future financial years. 21Economic conditions and material business risks. 21Review of Group Results.22Statement of Comprehensive Income.22Consolidated Statement of Financial Position.23Corporate Sustainability . 26Directors’ Profiles. 28Directors’ Report. 34Remuneration Report.36Letter from the Chair of the Remuneration and Nominations Committee. 38Key Management Personnel. 40Role of Remuneration and Nominations Committee.41Executive remuneration policy and framework for the Company. 42Links between performance and outcomes. 462 Pinnacle Investment Management
Details of Executive Key Management Personnel remuneration. 48Executive service agreements. 50Non-executive director remuneration.53Share-based payment compensation.55Equity instrument disclosures relating to Key Management Personnel.56Loans to Key Management Personnel.57Equity Capital.58Auditor’s Independence Declaration. 62Financial Statements.64Consolidated statement of profit or loss.65Consolidated statement of comprehensive income. 66Consolidated statement of financial position.67Consolidated statement of changes in equity. 68Consolidated statement of cash flows. 69Notes to the consolidated financial statements.70Directors’ Declaration. 128Independent Auditor’s Report. 130Shareholder Information. 138Corporate Directory. 1422021 Annual Report3
01.PinnacleGlossaryTermMeaning2020 Annual Reportthe Group’s annual report for the 2020 financial year.2020 financial yearthe period 1 July 2019 to 30 June 2020.2021 Annual Reportthis document.2021 Financial Yearthe period 1 July 2020 to 30 June 2021.Affiliates or Pinnacle AffiliatesPinnacle’s sixteen affiliated investment managers, being Aikya, Antipodes, Coolabah, Firetrail, Hyperion, Longwave,Metrics, Omega, Palisade, Plato, Resolution Capital, Reminiscent, Riparian, Solaris, Spheria and Two Trees.AikyaAikya Investment Management Limited.AntipodesAntipodes Partners Limited.ASX Principlesthe Corporate Governance Principles and Recommendations 3rdEdition, published by the ASX CorporateGovernance Council.AuditorPricewaterhouseCoopers.Boardthe Board of Directors.Board Committeesthe Audit, Compliance and Risk Management Committee and the Remuneration and Nominations Committee.ChairAlan Watson, the Chair of the Board.CompanyPinnacle Investment Management Group Limited.Company SecretaryCalvin Kwok, who held the position during the 2021 financial year.Coolabah or CCICoolabah Capital Investments Pty Ltd.Corporations ActCorporations Act 2001 (Cth).Deutsche AustraliaDeutsche Australia Limited, which held an 18.8% shareholding in the Company at the start of the 2016 financial year.As at the date of this report, Deutsche Australia no longer has any shareholding in the Company.EOSPPinnacle Employee Option Share Plan.FiretrailFiretrail Investments Pty Limited.Foundationthe Pinnacle Charitable Foundation.FUMFunds Under Management.Group or Pinnacle GroupPinnacle and the entities that it controlled during the 2020 financial year.HyperionHyperion Asset Management Limited.Key Management Personnelthe individuals identified as such on page 40 of the 2021 Annual Report.LTIlong-term incentives offered to individuals who are employees of the Group.LongwaveLongwave Capital Partners Pty Limited.Managing DirectorIan Macoun, who was appointed as an executive director on 25 August 2016.4 Pinnacle Investment Management
TermMeaningMetrics or MCPMetrics Credit Partners Pty Limited.New Loansis a reference to the loans more fully described at page 57.NPATnet profit after tax.NPBTnet profit before tax.NTAnet tangible assets.OmegaOmega Global Investors Pty Limited.PalisadePalisade Investment Partners Limited.PIMLPinnacle Investment Management Limited, the principal operating subsidiary of the Group.PIML Acquisitionthe transaction approved by shareholders on 16 August 2016, pursuant to which the Company acquired the 24.99%equity stake in PIML it did not already own.PIML LTI Schemethe long-term incentive scheme described on page 45 of the 2021 Annual Report.Pinnacle or PNIPinnacle Investment Management Group Limited.Pinnacle Omnibus Planthe Pinnacle Omnibus Incentive Plan described on page 45 of the 2021 Annual Report.PlatoPlato Investment Management Limited.PL8Plato Income Maximiser Limited (ASX: PL8)Principal Investmentsinvestments made by the Group in listed and unlisted equities and unit trusts on its own behalf.ReminiscentReminiscent Capital Pty Limited.Resolution CapitalResolution Capital Limited.RiparianRiparian Capital Partners Pty Limited.Securities businessthe corporate finance, equity capital markets, institutional sales, research and private wealth managementbusinesses previously owned by the Company and now known as Wilsons Advisory.Sellerseach of Macoun Superannuation Fund Pty Ltd as trustee for the Macoun Superannuation Fund, Macoun GenerationZ Pty Ltd as trustee for the Macoun Generation Z Family Trust, Usinoz Pty Ltd as trustee for the Ihlenfeldt FamilyTrust, AJF Squared Pty Ltd as trustee for the AJF Squared Family Trust, Andrew Chambers and Fleur Chambers astrustee for the Andrew C Chambers Family Trust, Adrian Whittingham as trustee for the Whittingham Family Trust,Mark Cormack and Melanie Cormack as trustee for the Cormack Family Trust and Dellreid Pty Limited as trustee forthe Dell Family Trust.SolarisSolaris Investment Management Limited.SpheriaSpheria Asset Management Pty Limited.STIshort-term incentives offered to individuals who are employees of the Group.Two TreesTwo Trees Investment Management Pty Limited.2021 Annual Report5
02.Chair’s LetterDear Fellow Shareholders,I am pleased to present Pinnacle’s Annual Reportwill present themselves to us, or when; however,for the financial year ended 30 June 2021.we will continue to apply our rigorous criteriaYour Company has concluded a successful year,delivering record profits, record funds inflows –both institutional and retail – together with anto any such opportunities. Nonetheless, ourbusiness enters FY22 in excellent shape as weprogress to the next stage of our growth.enhanced, more robust platform, well positionedDuring the 2021 financial year, seven Affiliatesfor further growth. We have commenced thedelivered performance fees totalling 86.22022 financial year with by far our highest levelmillion, of which Pinnacle’s share, after tax,of Funds Under Management ever achieved,was 19.5 million. This is a significant increaseand distribution and infrastructure capabilitieson 2020, in which five Affiliates deliveredto allow for substantial further growth, both inperformance fees totalling 26.7 million of whichAustralia and overseas.Pinnacle’s share, after tax, was 6.6 million. WeFunds Under Management commenced the2021 financial year at 58.7 billion. Net inflows of 16.7 billion were achieved during the year andgains from market movements and investmentperformance totalled 14.0 billion, resulting inFunds Under Management at the start of the2022 financial year of 89.4 billion. Notably,this is in excess of 20% higher than our averageFunds Under Management through the 2021financial year.continue to pursue a deliberate strategy to seekperformance fee structures as an alternative tohigher base fees – they are direct substitutes anda means of maximising average annual revenuepotential, particularly in capacity-constrainedstrategies and/or strategies in extremely highdemand, and further align client outcomeswith performance. We have a healthy mixtureof base fees and performance fees, whichwe believe yields optimal overall businessoutcomes – ample consistent base fee revenuesSince 2016 we have pursued a strategy ofwhilst maximising average annual revenuediversification of our business and we believeby a diversified range of substantial potentialthat this has led to a platform that is flexible,performance fees. We are encouraged by thestrong and sufficiently adaptable to pursue bothbalance and diversity of our fee structures andorganic and inorganic growth, domestically andasset classes at this stage of our developmentoffshore. We do not know what opportunitiesand growth.6 Pinnacle Investment Management
Our distribution force continues to excel, bothThese results are only achievable by theat home and overseas. We delivered recordcombined effort of the people of Pinnacleinflows during the 2021 financial year acrossand all the Affiliates working both tirelesslydomestic institutional, retail and offshore. Thisand symbiotically for the benefit of ouris despite the continued and well-understoodclients, and I wish to acknowledge theirchallenges in the Australian institutional market,diligence and commitment on behalf of allwhich we expect to continue into FY22. Weshareholders.are encouraged particularly by the momentumwe are building in offshore markets, where theopportunity for further growth in Funds UnderManagement is significant.In summary, during the 2021 financial year,Pinnacle produced: NPAT attributable to shareholders of 67.0m(up 108% from 32.2m in the 2020 financialyear), representing basic earnings per share of38.2 cents per share (up 103% from 18.8 centsin the 2020 financial year); Aggregate Affiliate revenue (at 100%) growthof 43% to 415.5m (including performancefees of 86.2m, and Coolabah revenues forthe full financial year); Finally, we wish to express our thanks to you,our owners, for your continued support ofour Company as shareholders.Further operational detail is discussed in TheOperating and Financial Report commencingon page 8, and detail of our remunerationphilosophy and outcomes are describedfrom page 36 in the Remuneration Report,including the letter from the Chair of theRemuneration and Nominations Committee.We look forward to welcoming you to theCompany’s Annual General Meeting on 26October, 2021.Yours sincerelyGrowth in our share of aggregate AffiliateNPAT of 75% to 66.4m; Growth in Funds Under Management of52.3% to 89.4 billion at 30 June 2021, up from 58.7 billion at 30 June 2020;Alan WatsonNet inflows of 16.7 billion, of which retail4 August 2021was 4.5 billion; A strong and flexible balance sheet, with FY21year end net financial assets of 55.0 million,comprising cash and Principal Investments of 155.0 million, and debt of 100.0 million.In recognition of these strong financialresults the Board has declared a fully frankedfinal dividend of 17.0 cents per share, doublethe fully franked final dividend of 8.5 centsper share declared in FY20, making a fullyfranked total of 28.7 cents for the full year(86% higher than total dividends of 15.4cents for FY20).2021 Annual Report7
03.Overview,Operatingand FinancialReportNature of operations and principal activitiesPinnacle is a leading Australia-based multi-affiliate investment management firm. Our mission isto establish, grow and support a diverse stable of world-class investment management firms inAustralia and overseas.Founded in 2006, Pinnacle currently consists of 16 investment Affiliates. At 30 June 2021, thePinnacle Affiliates collectively managed approximately 89.4 billion in assets across a diverse rangeof asset classes. Pinnacle offers its Affiliates: equity, seed capital and working capital; superior distribution services, business support and responsible entity services to allowinvestment managers to focus on delivering investment outperformance; and independence, including separate management reporting structures and boards of directors,whilst still offering the economies of scale and financial support inherent in being part of a largerinvestment group.The principal activities of the Group during the 2021 financial year were: developing and operating investment management businesses; and providing distribution services, business support and responsible entity services to the PinnacleAffiliates.The diagram on the following page shows the Pinnacle Affiliates and Pinnacle’s effective interest ineach as at the date of this report.8 Pinnacle Investment Management
2021 Annual Report9
Key financial highlightsDuring the 2021 financial year, the Group held shareholdings (throughits principal operating subsidiary, PIML) of between 23.5% and 49.9%in each of the Pinnacle Affiliates, which together have 89.4 billion inFUM as at 30 June 2021.In the 2021 financial year: Pinnacle Affiliates generated aggregate revenues (at 100%) of 415.5million, up 42.7% from 291.1 million in the previous year. Of this, 86.2 million was performance fees ( 26.7m in the previous year). Pinnacle generated total NPAT attributable to shareholders of 67.0million, up 108.1% from 32.2 million in the prior year. Pinnacle’s share of NPAT from Pinnacle Affiliates was 66.4 million,up 74.7% on the prior year.The table below outlines the performance of the Pinnacle Group forthe 2021 and 2020 financial years:FY2021FY202089.458.7Revenue ( million)415.5291.1Net profit before tax245.4142.7Tax expense(65.9)(42.5)Net profit after are of Pinnacle Affiliates net profit after tax66.438.0NPBT from continuing operations attributable toshareholders67.032.4--67.032.4-(0.2)67.032.2From continuing operations38.218.9Total attributable to shareholders38.218.8Pinnacle Affiliates (100% aggregate basis)FUM ( billion)*PinnacleTaxationNPAT from continuing operations attributable toshareholdersDiscontinued operationsTotal profit attributable to shareholdersBasic earnings per share (cents):*Non-statutory measure10 Pinnacle Investment Management
Pinnacle Affiliates - FUM189.490858075706558.7FUM ( bn) - at 1.73.54.4Jun 08Jun 0910.310.0Jun 11Jun 1210.912.30Jun 07Jun 10Jun 13Jun 14Jun 15Jun 16Jun 17Jun 18Jun 19Jun 20Jun 21Pinnacle Affiliates - Revenue2450Affiliate performance fees - 100%Affiliate revenues - 100% (excl. performance fees)400350Revenue ( millions)300250200150100500Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 211 Pinnacle FUM includes 100% of FUM managed by Pinnacle Affiliates.2 Revenue shown is 100% of all Pinnacle Affiliates’ revenue. This is shown to indicate trend and excludes revenue derived by Pinnacle itself.2021 Annual Report11
Pinnacle’s focus duringthe year was oncontinuing to supporteach of the PinnacleAffiliates and assistingthem to grow theirbusinesses andprofitability.Pinnacle AffiliatesPinnacle remains strongly focused on supporting each of the Pinnacle Affiliates andassisting them to grow their businesses and profitability. Pinnacle continues to carefullyinvest in additional resourcing ahead of further growth, both in distribution and ininfrastructure, with a continuing focus on growing the Group’s international distributionand infrastructure capabilities. The quality of the Pinnacle Affiliates was again affirmedand demonstrated during the year. Following is an overview of each of the PinnacleAffiliates during the 2021 financial year:12 Pinnacle Investment Management
AikyaAikya Investment Management was founded in 2020 and specialisesin managing Emerging Markets equity portfolios. The team intendsto maintain a small and simple organisational structure in order toavoid the bureaucracy and distractions that often arise in larger, morecomplex investment management businesses.Aikya’s edge is their long-term approach, which primarily focuseson assessing the quality of the business owners and managers inEmerging Markets. Aikya looks to identify long-term stewards whohave grown cash flows, navigated a few economic cycles, anddemonstrated fairness to all stakeholders. Their approach has provenover time that such people create shareholder value and drive longterm investment returns.Sustainability is at the heart of Aikya’s investment approach. Thename Aikya means oneness in Sanskrit, which reflects the team’s corebelief that true stewards align their businesses with the interests ofall stakeholders. Companies that take short cuts when it comes tocustomers, employees, suppliers, the environment, or broader societyare unlikely to be rewarding long-term investments.The Aikya Global Emerging Markets Fund was launched in March 2020.Antipodes PartnersAntipodes was founded in 2015 and manages global, Asian andemerging markets equities. Its 30-strong investment team serves aglobal client base from offices in Sydney and London.Antipodes adopts a ‘pragmatic value’ style and aspires to grow clientwealth over the long-term by generating absolute returns in excess ofthe benchmark at below market levels of risk. Antipodes’ approach seeksto take advantage of the market’s tendency for irrational extrapolationaround change, identify great businesses that are not valued as such andbuild high conviction portfolios with a capital preservation focus.2021 Annual Report13
CoolabahCoolabah Capital Investments (CCI) is a leading long-only and longshort active credit manager that is responsible for managing numerousinstitutional mandates, the Smarter Money Investments’ product suite,and the BetaShares Active Australian Hybrid ETF (ASX: HBRD).CCI’s edge is in alpha generation in liquid, high-grade credit incontrast to traditional fixed-income strategies that drive returnsthrough adding more interest rate duration, credit default, and/or illiquidity risk (beta). This alpha is a function of the world-classanalytical insights rendered by CCI’s human capital, which includes27 executives with a long-term track-record of delivering prescientinsights. In 2019, CCI’s portfolio managers were selected as one ofFE fundinfo’s Top 11 “Alpha Managers” based on their risk-adjustedperformance across all asset-classes.Pinnacle acquired a 25% holding in CCI in December 2019.Firetrail InvestmentsFiretrail is an investment management boutique founded in 2018. Thefirm was established with a goal to align its people with their clients.Importantly, the firm is majority owned by its investment staff and theteam is invested alongside their clients in the investment strategies.While founded in 2018, the Firetrail investment team have a long,successful track record of investing in equities. Prior to establishingFiretrail, the portfolio management team including Patrick Hodgens,Blake Henricks and James Miller worked together at Macquarie forover a decade. The team were responsible for managing the highlysuccessful Macquarie High Conviction Fund, which was one of the topperforming Australian equity funds over the medium- and long-term.Firetrail has a diverse client base across Institutional Investors,Foundations, Family Offices, High Net Worth individuals, FinancialAdvisors and Retail Investors.14 Pinnacle Investment Management
Hyperion Asset ManagementHyperion Asset Management exists to help clients protect and grow theircapital over the long-term. When investing capital in listed companieson its clients’ behalf, Hyperion has the mindset of long-term businessowners, not short-term traders. The average holding period for thecompanies in their portfolios is 10 years and the long-term sustainabilityof the businesses Hyperion invests in is core to its philosophy.The Hyperion Global Growth Companies Fund was established in 2014for wholesale investors. Based on the strong performance record ofthe strategy, it was opened to retail investors during the 2019 financialyear and, since March 2021, investors have been able to invest in theHyperion Global Growth Companies Fund (Managed Fund) via theASX (ASX:HYGG). As at 30 June 2021, the fund has outperformed itsbenchmark by 12.57% (per annum, since inception, gross of fees).Longwave Capital PartnersLongwave is a boutique investment manager that is dedicatedto delivering superior, long-term results through the innovativecombination of technology, experience and insight.David Wanis and Jai Beathe are the founders of Longwave. Together,they have a long history of designing, building and managing highlysuccessful investment strategies. From pioneering the SchrodersAustralia small and micro-cap strategies to running global multi-assetportfolios, they have worked with a broad range of institutional, retail,charitable and sovereign wealth fund clients.The Longwave Australian Small Companies Fund, Longwave’s activeand diversified portfolio of high-quality small companies that hasbeen built through the combination of quantitative discipline andfundamental insight, launched on 1 February 2019.2021 Annual Report15
MetricsMetrics is the leading Australian non-bank corporate lender witha presence in Sydney, Melbourne and Auckland NZ. Metrics is analternative asset manager specialising in fixed income, private credit,equity and capital markets. Through its managed funds Metricsprovides unrivalled access to the highly attractive Australian privatedebt market to investors ranging from individuals to global institutions.Metrics launched its first wholesale fund in June 2013 and is themanager of a number of wholesale and retail investment trustsin addition to the MCP Master Income Trust (ASX: MXT), whichsuccessfully listed on the ASX in October 2017. Metrics’ second ASXlisted vehicle, MCP Income Opportunities Trust (ASX: MOT), wassuccessfully listed on the ASX in April 2019. Pinnacle acquired an equityinterest in Metrics in August 2018, having been its distribution partnerfor a number of years.Omega Global InvestorsOmega’s “Smart Beta Plus” approach optimises exposures to factorsthat are researched to be return drivers while controlling commonrisk, thereby ensuring investors are appropriately rewarded.Omega believes the benefits derived from Smart Beta Plus arecompelling, providing the opportunity for investors to improveinvestment outcomes via a cost-effective systematic approach.Omega offers smart beta, factor-based investing across bonds,equities, FX and cash. Pinnacle acquired an equity interest in Omegain July 2018.Subsequent to 30 June 2021, Omega, Plato and Pinnacle haveagreed that Omega will integrate into Plato, as Plato continues tobuild-out a multi-strategy ‘quant powerhouse’.16 Pinnacle Investment Management
PalisadePalisade provides institutional and wholesale investors with access toAustralian infrastructure assets through tailored portfolios and comingled funds. Palisade’s multi-disciplinary and experienced teamfocuses on attractive mid-market assets that are essential to theefficient functioning of the communities and economies they serve.Palisade manages investments in assets within the Transport, Energy,Utilities, Renewables, Agri-infrastructure and Social (PPP) sectors. Eachasset is specifically targeted in sectors where Palisade believes it canexhibit a competitive advantage.As at 30 June 2021, Funds Under Management and investorcommitments totalled approximately 3.2 billion across Palisade’sthree pooled funds and separately managed accounts. Palisade’sflagship fund, Palisade’s Diversified Infrastructure Fund, generated agross return of 7.7% for the year, including 8.7% yield.Plato Investment ManagementPlato was founded in Sydney, Australia, in 2006 and is majority ownedand operated by its investment staff. Plato is a stable, research-ledorganisation focused on and aligned to client outcomes. The firm’sstrategies today encompass global and Australian equities that aretailored to specific investor objectives of wealth accumulation, incomegeneration and downside protection.The majority of Plato’s strategies outperformed in the financial year,and the firm saw pleasing growth in assets under management. Platohired one of its Women in Finance Scholarship winners during the year,following a successful internship.2021 Annual Report17
ReminiscentReminiscent Capital is a Discretionary Asia Macro investment firm basedin Sydney, Australia. Reminiscent aims to deliver attractive, uncorrelatedabsolute returns through a concentrated, directional and dynamicinvestment portfolio of fixed income, foreign exchange and equities, byemploying an eclectic top-down approach for uncovering importantmacro themes and using a combination of conventional and novelmethods for implementing skewed expressions of their best ideas.Reminiscent was founded by David Adams, formerly of Brevan Howardand Morgan Stanley, in partnership with Pinnacle.The Reminiscent Capital Global Macro Fund was launched in February2019, with the strategy also being made available through a CaymanIslands vehicle from April 2020.Resolution CapitalResolution Capital is a specialist global listed real assets manager,with a 26-year investment track record. The firm is majority employeeowned and is headquartered in Sydney, Australia and maintains anoffice in New York.The firm is a fundamental analysis orientated investment manager withthe objective of delivering superior risk adjusted long-term returns,compared with recognised industry benchmarks. This is achievedthrough investment in a concentrated portfolio of carefully se
Pinnacle is a leading Australia-based multi-affiliate investment management firm. Our mission is to establish, grow and support a diverse stable of world-class investment management firms in Australia and overseas. Founded in 2006, Pinnacle currently consists of 16 investment Affiliates. At 30 June 2021, the
