Record PLC
LSE:REC
Earnings Call Analysis
Summary
Q2-2024
Record's leadership transitions are being carefully managed with new senior personnel ready to lead. While the long-term company growth is envisioned, the immediate plan to recoup first-half setbacks relies on new fund launches, counting on an infrastructure fund to generate revenue before year-end, despite uncertainties. Management fees have grown by 3% in the half-year, underpinning the steady growth of the underlying business. Senior team members, involved since intern stages, now helm the strategy, ensuring continuity as they launch and implement new products, including a complex infrastructure fund involving Swiss pension funds and a Dutch originator. This fund, promising higher and longer-lasting fees, has faced delays due to the intricate agreement processes involved.
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Good afternoon, and welcome to the Record plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so.
Before we begin, I'd like to submit the following poll. I'd now like to hand over to Leslie Hill, CEO. Good afternoon.
Thank you very much. Good afternoon, everybody. Yes, this is Leslie, Leslie Hill, and I'm with Steve Cullen, our CFO, whom some of you probably have seen and heard before. We would propose to do what we've done in the past, which is to work through the presentation in an organized fashion. But we will be happy to take questions as they occur to you, and I will try, as will Steve, to answer them in as timely a fashion as possible rather than taking it all until the end.
I do recognize one or two people find that a bit chaotic, but it does seem to me that when someone has a question, it is good to try and answer it as quickly and effectively as possible. So I hope you'll bear with us there.
Right. So Steve, we're going to kick off with the first page, which is the financial highlights, which in time [ honored ] fashion, I'm going to ask you to highlight any key points we want to make, and then we'll move on to strategy and other questions.
Yes. Thanks, Leslie. So the financial headlines, we will kind of just run through quickly. I think rather than just jumping straight in, taking a step back in terms of the half year, I think people would have read that we had a couple of fund launches already this year, and we expect to see at least another 1 fund launch before the end of the financial year, possibly another 1 as well.
There have been delays in the fund launches versus where we initially anticipated the timing. So I think we've seen a bit of slippage in terms of some of the new revenue streams coming on board. And hence, I think maybe the impact on the half-year results has been sort of slightly behind where we expect it to be.
Notwithstanding that, we do expect, and as we've said in the interim results announcement, we do expect to be on track in terms of consensus numbers for the final FY '24 year-end in March '24.
So just skipping through the financial headlines, still strong assets under management, $84.5 billion, slight downward movement since the year-end, broadly on our sort of passive hedging suite of products. Again, a 2% shift on the passive hedging is sort of the general business as usual, inflows, outflows, clients rebalancing, et cetera. So -- but still a very strong and significant number.
I think in terms of the revenue line, half year on half year, down slightly 3% on first half last year. But I think if you drill down further into the detail on the revenue, what you can see is that we've actually seen an increase in management fees, 3%, half year on half year.
And really, the decrease in the revenue reflects the decrease in the performance fees versus last year, which were, as we previously said, I think the performance fees last year were an exceptional level of performance with nearly 6 million in performance fees for the whole year.
So the headline numbers maybe don't show the true picture, I think we're still very pleased to report for the Record performance fees for the half year, albeit they are down on this time last year.
What's the impact then on sort of pretax profit? So we've gone from $7.5 million down to $6.3 million, which is a 16% sort of better downward move. Again, we would lead that to some of the delays in the new fund launches and some maybe upfront costs that we're starting -- that we're seeing in terms of getting these new product launches ready to go to market, not yet being offset by the revenue flows that we fully expect to come on board in the second half of the year and onwards after that.
I think the Board is still comfortable and confident in the FY '24 numbers, as we've said. And then I think that's reflected in the interim dividend that's been announced, which is an increase of 5% on this time last year. So we've gone from [ 2.85p ] to [ 2.1p ], in line with our progressive dividend policy, which we haven't changed, we fully stand behind that.
Operating profit margins, similar to the pretax profit. We've seen sort of a decrease half year-on-half year. Again, a lot of that is linked to the exceptional performance fees that we saw this time last year.
There is a bit of a lag on the operating profit margin in terms of, again, the delays to some of the new product launches that we've seen. We are launching products at higher revenue margins, and we fully expect to see an increase as these fund launches come online and we start to see some of the revenue flows accordingly.
[ EPS ] down from 3.27p to 2.48p. Again, the same story, really. We have been slightly exacerbated by the change in the tax rate for the year. It would have been about sort of an 18% decrease without the change in tax rate, but still a decrease half year-on-half year, again, linked to the same sort of issues that we previously mentioned.
Shareholders' equity, GBP 28.5 million, so a slight increase on this time last year of GBP 28 million. You know, it is our policy, I think, as people know, to retain a strong and robust balance sheet to support the business in terms of the future investment and expand us in stead with clients and potential clients, et cetera. And so that's not something that we would look to change significantly, certainly not at this point in time.
So on a financial headlines basis, potentially comes across a little bit disappointing, possibly to investors. But what we [ draw ] the line, I think, is that absolutely, the new fund launches, the new product launches are -- remain on track in terms of -- we have commitments from investors. This is in no way impacted by the investors, they are still committed to investing with us.
It has literally been down to getting all the [ ducks ] in line in terms of new product launches from a legal perspective, regulatory perspective, and it's just taken a lot longer than I think we initially anticipated.
But as I said, the commitments are there. And we don't see any sort of change of mind or anything like that from some of the -- from any of the clients, they're fully committed to the new products.
So I think that's kind of the -- I don't want the financial [ hippos ] to come across overly down. I think it's positive in terms of management fees. I think we have been slightly impacted by the exceptional performance fees we saw this year. Although it's still pleasing to report [ GBP 1.5 million ] for the half year anyway.
I think I would reiterate the message that in terms of on a full-year basis, we do still believe that we can -- that we're on track to deliver the full-year numbers as currently in the market. I'm sure there will be questions, but I think that's a quick zip across the sort of headline numbers, if you like. Leslie, should we...
I think if anybody has questions, they ask anyway, so I probably don't need to ask if anyone has questions. But we'll progress, I guess, to Slide 5 now, where we're talking about growth strategy, the Modernization, Diversification and Succession mantra, which some of you will have heard before, and many of you might have heard before.
So there are 3, 4 pieces to this slide. One is we continue to diversify, which all of you, I think, understand. We have 2 new flagship funds. One is the infrastructure fund. The other is our cryptocurrency fund, which are both in launch phase. They are ready to roll. One of them is effectively launched, but we're waiting for the accountants to sign off on their role within it, which we can get more into in a minute.
Modernization is a constant state of mind and state of being for Record now, so that's continuing. We've done a lot more for asset management clients with our reporting suite and continue to do that.
A very important piece of it is Succession, with the announcement that next year, I will retire. And unfortunately, I will still come back and -- to help. I say unfortunately because I recognize that with my history, I can help the new team, but [ that ] the new team already.
And the reason why I think it's important to do this now or next year is because my job was really two things: The first was, I was asked 4 years ago to build a diversified product and service range, a strategy of diversification away from pure currency, which we've done. We've gone from 3 products, we now have 8, either launched or ready to launch or nearly ready to launch. So they are really going to be a very diversified suite. So I think I've done a decent job on that.
The second piece is planned for genuine succession as opposed to talking about succession and not doing it, which was what we did for some years and what, I know, other companies do, too. We really have got a genuinely exciting team, and there are more of them coming on stream.
So what I feel is the next job is monetize and implement the strategy, monetize all the work we've done, move the senior -- the young, the new senior people up, give them more responsibility, whilst at the same time, since I'm -- still got life in me and enthusiasm, having me in the background, in the wings ready to help if needed in any way.
I will continue to be a very significant shareholder, so I will probably be even more interested than all of you in how well Record continues to do and that it continues on this growth and diversification and modernization trajectory.
So we're going to go for it. And I feel comfortable and confident that these guys can do this. They really can do this. They just need mom to be in the vicinity occasionally, but not leaning over them. And that's why I decided it would be good. It took a while to think it through and talk about it with everyone within the company, but I think it's a good thing to do for both the business, the share price and probably for me and my colleagues.
Hello, it's Malcolm. I'm going to read this question, Steve, and then you can have a look.
Can you give examples of how Q2 will make up for H1 -- sorry, half year 2 make up for half year 1 to meet the same full-year expectations? Steve, do you want to address some of the sort of things we have, obviously, carefully put in our calculations to give everyone a sense for where some of this activity might come from?
Sure. As it says in the statement, we do now have 2 line of funds launched in the first half, so the expectation will be that we will start to see setting some revenue flows or more revenue flows and growth from those funds in the second half. We do have the infrastructure fund that as Leslie has already alluded to, which has taken quite a while to get together and to put together, but it's certainly coming very close to fruition, hopefully, before the end of the calendar year.
Although the revenue flows from that will be based on the projects when the capital has cooled down. So the timing of those is potentially uncertain, but we would hope to see at least 1 deal done in that fund before the end of the financial year.
I think in terms of, again, steady growth in management fee that we've just reported, 3% on the half year, so our underlying management fees continue to grow, as does our asset base. I think we've got sort of visibility, if you like, on some further asset flows on the hedging side of the business as well. So we can see sort of growth not just in one product, but saw a fairly broad growth across the product range.
And not forgetting performance fees, I think the current market environment is particularly helping in terms of potential performance fees. They can be very episodic and could drop away at any minute, but I think there is certainly opportunity for us in that respect on things like enhanced passive hedging and some of the other products as well.
So hopefully, that answers the question. The strong underlying fundamental run rate, if you like, on the management fee [ saw a ] plus some of the new product launches coming on board for the second half.
So I think I've covered most of the material that's in this particular slide. And if there are no other questions, I would propose -- Steve, what would we like to go to next?
So in the next slide might not be -- hang on, there's another one.
I will be sorry -- oh, Roger. I'll be sorry to see you go, he said. I think he's talking about me. We will talk -- we talked about Diversification. My reading of the Board of Directors is that they are first-class boys and girls, but not clear to me that any of them had experienced with another company in doing such diversification. I [ flush ] about this.
More question for the Chairman, and I'm sure he's asked about this. What does he say?
So he is a relatively new Chairman, as you know. And what he tends to say -- his background, in fact, is in venture capital, that is where he made his life, his work, his money, and he has actually been at Record as a non-exec once before. He was always very frustrated that Record was not adopting a much more of a growth agenda and perhaps, let's say, being slightly more aggressive with ourselves about realizing our potential.
So he only came back because I convinced him that we were serious this time about doing it. So he is the champion of evolving a business, growing a business, changing a business because that is the world of venture capital. And he is driving from the front to encourage this. Our Record Digital Asset Ventures piece, which is run by our CTO, has got his whole [ harshed ] backing, and he's spending quite a bit of time getting to know that.
So I think that does help a lot. But I absolutely recognize what you're saying, it is important for us to have people who are -- who are not -- who understand what a growth business is all about and that with it, comes a heightened level of activity, heightened level of complexity. David is a tremendous help in that regard. And Jan, who will be the CEO, has been absolutely at the forefront of much of this, as indeed, has Becky.
So I know what you're saying, Roger, and of course, I've thought a lot about this in the last 6 months. And as I was thinking about whether this was a good idea, it is a bit of a risk, of course, but I do believe that the risks are outweighed by the potential benefit of having David and Becky and Jan there and really committed to this.
So my shareholding will remain. And I, just like you, will be going, "Gosh, come on guys." And I will be talking to them and encourage them all to work towards this. They all have shares, and David is acquiring shares. So all of that is helpful, I think.
Probably, I would add this, Leslie, I think that both Jan and Becky have come through -- looking at those 2 individuals specifically, they both come through in the business from sort of an intern stage, if you like.
And Jan, especially as the CEO, has worked across the business in terms of the research teams, the sales teams, et cetera. He knows the business very, very well. He's been instrumental in setting up the sort of asset management side of the business. And I think, Leslie, you've previously said, your job was to sort of implement change in terms of getting the strategy up and running. And now, the next stage, if you like, is the implementation in terms of the funds, which the guys -- this is what the guys have been doing.
So it's not the person that's been sort of running everything is leaving. It's the person that's been sort of pushing through the change in strategy is retiring, but the building blocks are already there, and these guys are now going to go on and implement those strategies -- those plans, [ et cetera ], of new products .
Exactly. There's a question from James here, James B.
Perhaps you're coming to it, but can you elaborate on the reasons for launch timing being worse than you expected?
Yes, we can do that now, if you would like to. So I'm going to give two examples: One is our infrastructure fund, and the other is our cryptocurrency fund.
On the infrastructure side, so this is a fund where Record acts as the GP in the center, we're obviously not infrastructure originators. We are running the fund with the asset manager, we are monitoring, managing and, as I say, being the GP there. Our clients are, in the first instance, 5 Swiss pension funds, and the other part of the equation is the originator, which is a very large Dutch pension fund that's also very large in the world of infrastructure.
So the 5 Swiss clients have a lot of lawyers, as do the Dutch, so there's a lot of bureaucracy associated with putting together a fund, a lot of work because these -- the infrastructure fund will last for over 12 years, which is attractive for us. The fees are higher than we get from currency. But at the same time, they are -- they have more longevity, they are locked in once the funds start to be drawn down.
But with that comes -- because of the commitment that the Swiss are making and indeed the Dutch, there's a high level of scrutiny and a lot of agony about trying to have your cake and [ eat it ], which is never easy. And we've had to nurse that process as the glue that holds it all together.
So on the one hand, it's been bureaucracy and a group trying to agree how they wanted to do it and how it would work, that's one side, and that has been slower, longer. In the middle of it all, we have the UBS, Credit Suisse merger, which slowed us down a little bit because then they were saying, well, will we both go in or only one of us go in or both but in a small [ amount ], you can imagine.
On the other side -- Jamie S. and Joseph D., I've seen you, just let me finish my answer here. On the other side, in the world of cryptocurrency, we have a partner, [ Darren Janine ] from [ Derr ] Capital, who has been very successful in the world of cryptocurrency for a number of years, over 7 -- longer than 7 years, has his own following, has made -- has been very successful himself. He partners with us to help. We help him launch a fund in Luxembourg that enables him to institutionalize his offering, which is what he would like to do.
We participate in performance fees as well as management fees, which is great. We get a higher share if we bring the assets, a smaller share if we are simply managing the fund with him or for him. However, it's new, getting regulated in Luxembourg. We will launch before we're regulated, but we are mirroring in the fund exactly what a regulated fund would look like, so as to encourage the regulator to sign off on this.
That means we can only raise a certain amount of money unregulated. The total is 600 million. But after that, we can raise more. The fees are far more akin to the sort of thing you are used to seeing from extremely active managers or hedge fund managers, so it's attractive for us. But we are breaking, to some degree, new ground, finding a specialist custodian, people who can value the instruments in a way that keeps everyone happy.
And that is not easy work. We're early, we're one of the first, and it's time consuming. But I'm confident we're getting there. We're nearly there. We're actually launching -- launched. But now we need the accountants to sign off on everything, new accountants, et cetera.
Hopefully, James, it gives you a flavor for the kinds of things that happen. What I would stress is it's not about the clients, it's entirely about getting all our [ ducks ] lined up, as Steve said.
Unless you have any more questions on that, I'm going to move to Jamie S.
Can you give any guidance on the outlook for operating margins, going forward, as you diversify? Do you expect the new areas and funds to be higher or lower margin in the existing book of business?
It's a question I love, this one, because we have deliberately not added anything that was not at better fees than we're used to seeing for passive hedging and dynamic hedging and currency for return.
So the passive end of the spectrum, as you all know, we're talking very much single basis points but large bandaids. In the middle, when we look at some of the work that Record Asset Management is doing with the fund launches, we're talking about double digits but sort of lower double digits.
Our Emerging Markets Sustainable Finance fund, which launched with 1 billion with UBS nearly 3 years ago, and it reaches its 3-year anniversary in June, which is very important; it's around the 50 basis point mark, perhaps a little higher. And then we move to the top end or infrastructure with locked-in fees of sort of double digits but on the lower end of that spectrum.
Cryptocurrency is more hedge fund fees, and we have a very attractive share of that. So if you're asking whether our margins are going to go up as these new products represent a larger and larger part of our pie, I think the answer must obviously be yes, and that's why we did it, if that answers your question.
Higher margin, whilst we don't want to remove the lower-margin business because it's good for our brand, it's a very solid business, we really like the clients; the infrastructure deal we did the Swiss clients was done with clients who use this for passive hedging. So we're able to cross-sell on occasion, and that's good, too. But yes, we're after better margins, obviously, as you can imagine. I hope that answers your question, Jamie.
Joseph. Joseph D. Can you give us a sense for the rough scale of the infrastructure fund once it reaches maturity?
Absolutely. So it is a big commitment in the sense that there are 5 individual funds going in. It will be close to 1 billion, we're not -- when it's running, fully running. And it's not the only one we believe we can do. We didn't do this as a one-off, but we would like to continue to partner with the Dutch and show this idea to other Swiss clients. We already know that there are others who are interested in a second tier or a second tranche, if you like.
So I think it could be really good size, lower fees than EMSF by the similar quantum, so that's good. A very little operational risk for us as GP, although we are the manager, so we've got to manage the assets, if you like. It isn't the same as trading large volumes of FX, so that's good. Well, Joe's has just got another one, hang on.
Leslie, can we just add to -- I just want to reiterate on the infrastructure funds. Although we're talking in terms of one full scale of 1 billion, the revenue streams for that are not fully on the full amount from day 1. They're as the projects draw down on that 1 billion.
So maybe in tranches of, I don't know, 150 million, 200 million each time, but I just want to make sure that that's clear because obviously, it makes more difference in terms of revenue.
Thank you, Professor Cullen, you're absolutely right. Yes, a good point.
We've got Joseph asking another question, which I'm going to attempt to answer. You mentioned adding more resource to RCML to onboard new assets and new pension and asset management clients. How material could these wins be?
Okay. So let's see. I want to make sure I don't get ahead of myself here. Steve, so do you want to think about how you would like to answer that one?
More resource in terms of increasing -- in terms of the IT efficiency, in terms of skill sets, in terms of not adding headcount for the purposes of adding headcount, but adding the headcount where we see gaps in terms of levels of capability or experience or knowledge.
I don't think -- I think we've been looking very closely at making the processes on the sort of hedging side, RCML side of the business more efficient, and that's linked to the increase in costs on the technology side of things. But that was part of the reason for doing it because in terms of scaling up the business on the hedging side, the old way of doing that was to add headcount, and that's a very expensive way of doing it.
How material could these wins be? I think, I know we're comfortable in saying that we did -- that the inflows on the hedging side of the business, as people might know, it can be very lumpy. We could wait 6, 12 months historically and then had a significant decline in terms of billions of U.S. dollars.
Just talking about revenue, if you look at the bottom left, you can see he came back again.
Sorry, how big will these new assets be in revenue terms you meant? So as you said, big and lumpy, they tend to come in. We had our biggest trading day ever last week, in fact. In a day, we traded just over 10 billion. So they are big, and they do have an impact on revenue. But the revenue, obviously, are relatively low. So it's a slow and steady rather than a big surprise, if you like.
Yes, apologies. I missed the last piece of the question. Do we take another question?
Yes, James has said he's sorry to see me go, but he would like to have seen and heard from the CEO-elect on this call, and I totally get that.
He is just elected, if you like. So we only really announced this morning, which is not to say we haven't been talking and preparing. And I do get that, we did debate that. And do not worry, there will be plenty of airtime with him. We will find ways to -- for him to be much more visible to the outside world, to investors, and you will not be short of interactions with him.
But I do take that as quite justified, it was an option we could have taken, which we didn't take. He is very engaged, just finishing up on one particular, one of these funds, and I said, "Don't worry, I'll do it." Sounds like mom again, doesn't it? Mom sure would have probably said, "No, you do it." But anyway, we -- don't worry, we're not going to keep you away from him. We will give you plenty of opportunity.
Anthony, if you have -- Anthony, I wonder if that's Anthony [ Boon ]. Anyway, if you have further delays, can you cut costs? What is fixed and what is variable?
Okay. Well, clearly, our biggest costs are salaries. And also, there's a fair amount, there's also the bonus, which we can vary between -- we try and keep it between 25% and 35%. And variable costs, well, [ they've ] been going up.
Steve, do you want to address a little bit about [ cost ] cuts?
I mean we've -- over the last sort of 1.5 years, we have done our utmost to try and maintain, if you like, the level of fixed costs in terms of personnel. Instead of awarding salary increases, we've been paying sort of one-off cost-of-living bonuses with the idea that it would link to drop inflation, going forward, then come back down to sort of the previous level.
What we haven't done is we haven't awarded pay increases for the last 18 months, 2 years. So I think, there is also the challenge for us to maintain pay levels on a market level. So we do got some benchmarking on that side. So we have just announced a 3% salary increase for the -- across the business from -- effective 1st of October. And again, as I said, that's just sort of bringing us up with market sort of levels, sort of the pay.
The variable pay, as Leslie has already alluded to, we do have a lever to use on that, and we can -- the Remuneration Committee have got sort of the authorization to go from 25% to 35%. And actually, that's what they've done this half year, is to reflect sort of the delays and the slightly lower-than-expected performance for the first half year.
They've used that lever, and we've actually moved down from 30% -- just under 35% to 30% for the half year, which has brought sort of our admin expenses sort of back into line, if you like, or slightly lower than the second half of the last year.
So we are very mindful, of course. We have been expanding. We've got an office in Germany, we've got a headcount in Germany to run the asset management business over there. So we are seeing upfront costs, if you like. But what we hope to see is the offset now once the fund is launched and the revenue streams start to come in.
So we are very mindful of costs. And obviously, the inflationary pressure has been pretty substantial over the last 12 to 18 months. But we are very mindful of that, and we're controlling those costs as best we can while maintaining pay levels to retain and attract people where we see that we need them.
Let's see. Steve, do you want to see what's next here that we might want to address?
Leslie, just on that slide, I think we've talked about the sort of 2 new funds launched in the period, but -- and we've also talked about infrastructure. There was just, what more that we're making progress on the Sharia side of things?
Yes. Excellent point.
Might be worth, sort of just on the -- just talking about.
This has been a quite a long, slow trajectory, where we engaged with Sharia experts, looking at some of our new products to see if they could be made Sharia-compliant, and indeed, they can and are being made; and then finding people would be interested in it. And we're now at the stage -- we're in the final stages with our first one of these clients, has taken -- it sounds a bit like a mantra, doesn't it? Taking longer than we thought.
And that would open a very interesting door for us if we could combine the expertise in Sharia, which we get from our partner, with our clients, new clients, of course, a whole new client sector, whole new client type; and using some of the funds and partners that we've already developed.
So that is a good one, Steve, and I should have mentioned it, but thank you.
We have Anthony [ Boon ]. Anthony [ Boon ] is asking another question, or maybe he's not. Well, Anthony, we're very flattered you've joined us this afternoon.
Okay. Now...
No, just on the outlook. I think it's worth reiterating some of what we've already said. Apologies if people are getting fed up of hearing it, but we do believe the strong pipeline is absolutely there. It hasn't gone away. We've got very firm commitments from clients.
We see this bump in the road has been a short-term issue, related to timing of new fund launches or new product launches rather. We've maintained a strong capital position. We are confident, and I think that's reflected in the increase in dividend, which I sort of alluded to, previously.
So I think, with any company that's -- or business that's trying to grow and diversify and grow revenue streams, we've added 10 million a year for the last 2 years on to the top line revenue. These things are never a straight line, they're not linear. We should expect the old bump in the road.
But ultimately, do we still believe that we can hit FY '24 numbers? Yes, absolutely. And do we still believe in the trajectory and the growth of the business? Yes, absolutely. So I think that's kind of the message, I think, that I certainly wanted to get across in terms of short-term [ bonds ] versus -- actually, we can still the long -- we can absolutely see the long-term path of the business despite a few sort of hiccups occasionally.
So Leslie, is there anything you want to add to anything on that side?
Covered everything that we might reasonably be wanting -- oh hang on. Hang on. I got my glasses on here. Jamie. Jamie says, given that your forecast dividend cover is getting close to 1x and your progressive dividend policy enables you to pay out 100% of the earnings, is there any risk you might need to retain more capital for regulatory reasons?
No. But sorry, Steve, do you want to just address the amount of regulatory capital we need with RAM and that we obviously need with RCML?
Yes. I mean it's a good question. And because we have now got 2 regulated businesses rather than just the 1, we have seen an increase in our regulatory requirements. So we are at or around 8 million now versus, I think it was about 6 million previously.
In terms of linking to the sort of dividend policy, again, with the trajectory of the business, we don't see that causing an issue. We do retain sort of the right to dial up and down in terms of the 70% to 90% range that we've previously spoken about, which leaves us a sufficient buffer, if needed, for -- well, for regulatory purposes, if that's required, but I don't think it will be.
But certainly, for investment purposes, if and when we see any opportunities that come along that we know we might be interested in. So the regulatory capital has gone up, but then, I don't see a problem -- it doesn't cause us a problem in terms of the dividend policy.
Thank you, Steve. Now I don't know that there's any other summary material we would cover. But of course, if anyone has any questions about any of the details in the finances or any changes that you've observed and if you looked at it, we're very happy to answer, otherwise we've told you what we would like to tell you.
And we will obviously make sure that the new CEO, the CEO-elect, Jan, will be very visible and available. And you must all believe in us, we believe in ourselves, and we can do this, and they can do it. More importantly, I don't -- I'm one person, there are lots of them.
Oh, Roger, sorry, one more question from Roger.
You talk about delays in getting funds started on impact on earnings, but say that infrastructure will take time to get the funds in, and hence, earnings, do I assume that the new funds will kick in straight away?
So the infrastructure fund, we start to [ add ] when the funds are deployed. Having said that, both the investors and the Dutch team, who are the organizers, if you like, they are ready to roll with projects, which come in a lot all the time. So that shouldn't take too long to get started.
In terms of the other funds, they are much -- they are quicker. It's -- the infrastructure inevitably builds up slowly and last a long time and -- so I don't think it will be a really slow trajectory. But of course, infrastructure is the slowest of all of them.
It's worth adding -- sorry, Leslie, it's worth adding to that so outside the infrastructure funds or the other funds, as we said, have been sort of [ seeding ] it with -- or not [ seeding ], by us, the [ seeding ] from investors with just over $200 million. And I think it's normal course that in order to attract those initial investors, they come in at a slightly discounted rate.
But our expectation -- but that is still from day 1, they are paying fees. And we would expect that -- we will expect that rate to increase as the sort of second tranches, if you like, of investors coming into those funds.
Your balance sheet, Alistair asks. Our balance sheet shows investments of 4.4 million compared, comprising investments in funds and other investments. Could you highlight these?
So one of the things we did when we started RDAV was we [ ring fenced ] 2 million, which the Board approved for us to invest in different ventures to -- principally, to get a seat at the table, to learn, to engage with people, it was how we met [ Darren Janine ] from [ Derr ] Capital and another company, which we [ looked at ], Block Scholes, who we've now done 2 rounds of investment. They're doing extremely well.
So there are, what I would call, RDAV investments, which we've made, which some of them are long term, some of them are locked up, some of them are more liquid, like the [ Derr ] Capital Fund. We invested 1 million with [ Darren ] early on, so that we get to know him, which grew to 1.2 million, and we took a little bit of that out in order to reinvest in other digital entity, Block Scholes. There's also -- what other investments -- I should be able to roll this off the tip of my tongue. Steve, I know you can. What else have we got in there?
We've got -- again, we tend to put our own sort of skin in the game when we come across new-perspective-products. So we've invested just over 1 million in some secret funds, which are trade receivable funds. And these are funds, third-party funds, that we are also distributing, so we expect to get some distribution income from those running -- going forward.
Leslie has already talked about the [ Darren ] fund again. That's skin in the game, that was 1 million that we put in of our own money. We've got another strategy called the sector rotation strategy, which we have sort of currently invested in -- sorry, Leslie?
I said experimenting with, and trying to...
Sort of experimental capital. Other of it is, as I said, skin in the game. We -- in terms of discussing with clients, the fact that we have our own money invested in some of these products is a strong argument in terms of getting them, getting interest in these funds.
So it's kind of a mix of experimental and having sort of our own capital at risk, if that's the right term, from a selling -- being-able-to-sell-products' perspective.
Jamie has asked, any color on the outlook for performance fees in H2, Steve?
I think I can probably -- I think I might have mentioned it earlier, but I think the current market is fairly positive. I think, at the moment in terms of opportunities for us to [ decap ] some performance fees on the enhanced passive hedging side. So there are no guarantees, and these fees can be very episodic, and they can fall away as well. But I think the current situation is positive for us. So I would be hopeful that we can certainly deliver something in terms of performance fees for the second half.
And I think our currency for return for the first time in a while is showing the potential performance fees as well.
That's right. And these products or these mandates have got different performance windows. So some of them have got 12-month performance windows, and there's others that are quarterly, sort of 6 monthly. So that's kind of diversifies the opportunity for us as well. So yes, I mean, I would like to say yes, but obviously, it's all subject to sort of market conditions, as you would expect.
But the wind is set fair, should we say?
Exactly. Yes.
Has anybody else got more questions? You usually have lots. And you're doing quite well actually because there's been a good flow but not overwhelming ones.
Now if you haven't got anything else for us, I think we're done with what we wanted to say. It's a huge day, but we still have a few minutes. So please feel free if you -- or alternatively, if you wish to come to Record with questions, we're happy to take them at another time. If you -- something occurs to you later, please do reach out to us.
Anymore for anymore, I think, is the phrase that one is supposed to use in this context. If not, I very much enjoyed these. I must say I'm going to miss this bit. I quite like it. But I will still be around at Record not doing this bit, but doing other things. And I will be keeping an eye on things, guys because -- oh, we've got more, because I, as I said, am a shareholder as well.
If you were to reset your targets, which year would you imagine hitting all the 60 million target?
Okay. So we've said 25 million or 60 million, that was our target and still would be ideally our target. I could see another year, potentially, maybe less than that. It does depend to some degree on how, for example, the cryptocurrency fund grows and some of the other funds we've already launched. But I definitely see this 60 million as a step on the way, and so do all of my younger colleagues.
And I think -- Steve, am I being to conservative or not conservative enough when I say that, what do you think?
I don't disagree that the 60 million target is absolutely achievable. What it comes down to is back in FY '22, when we initially set those targets, there was a different environment at the time. Since then, we've seen, with hindsight, things taking longer than initially anticipated to sort of get set up and start to get some traction. And we've also obviously had higher than normal inflationary environment for a good part of that time as well.
So I don't foresee that we won't hit 60 million. It's certainly -- the original target date was FY '25. Unless something really exceptional happens, I wouldn't expect it to be FY '25, but '26, '27, depending on timings and size of inflows, if you like, that we can attract, then I would say, yes, '26, '27 would be a reasonable assumption, hopefully quicker.
But we will get -- we will certainly hit that target, I think, with the new products and services that we've got coming on board, and the growth in the -- on the hedging side of the business and the, certainly, the EMSF fund, which I think we can see some real progress on the EMSF fund from its [ third ] anniversary in June.
And we are putting some resource to work -- additional resource to work on that with a specific sort of aim of growing that as well, which is currently standing at about $1 billion.
So again, timing dependent, et cetera, then yes, we -- I think the 60 million is absolutely achievable when it is subject to everything I've just described. So that's the more conservative view, Leslie, if that's okay.
Yes. No, I know that's your job. And my job is just to be wrapped on the knuckles for being too enthusiastic. So you're quite right. Okay. I think we might be done, unless anybody is sort of trembling on the brink of another observational question. And as I said, we're very happy to take questions out of sync. If somebody comes up with something, we're very happy to do that. So please feel free.
And we really enjoy these. And we really, really are grateful for your interest in our business, which, I believe, has a long way further to go.
Perfect. Leslie, Steve, thank you for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically redirected to provide your feedback in order that the management can better understand your views and expectations? This will take a few moments to complete, but I'm sure it'll be greatly valued by the company.
On behalf of the management team of Record plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.