Navigator Global Investments Breaks The Mould

Small Caps | 11:10 AM

New research on Navigator Global Investments highlights a business model with structural advantages over listed peers and potential to lift earnings above market expectations.

-Navigator Global Investments set for compounding growth
-New research highlights performance fee leverage
-Management’s M&A strategy provides a further boost
-UBS sees upside to current consensus forecasts

By Mark Woodruff

New research on asset manager Navigator Global Investments ((NGI)) highlights structural advantages over listed competitors and points to meaningful potential for earnings to exceed current market expectations.

UBS emphasises the appeal of the company’s compounding growth model, noting that unlike many asset-management peers, Navigator’s performance-fee profile avoids the typical ‘feast-or-famine’ dynamic.

Performance fees are generally regarded as volatile and non-recurring, yet the company’s diversified exposure to uncorrelated alternative asset classes, low hurdle arrangements, and wide strategy breadth support a steady performance-fee profile through varying market conditions, the broker explains.

Not only does the business possess unique performance fee leverage, but management’s M&A strategy has potential to lead to material EPS accretion over FY26-28, helping drive long-term value, suggests UBS.

Navigator provides investment management products and services worldwide through a dual-segment model: the Lighthouse Group, a global absolute-return funds manager, via wholly owned Lighthouse Investment Partners; and the NGI Strategic segment, which holds minority stakes in several alternative asset managers such as recent investments Marble Capital and Invictus Capital.

Macquarie noted at FY25 results in August, the contribution from these two investments alone has the potential to drive earnings upgrades.

Ord Minnett explains the breadth of partner firms provides a smoothing effect once performance fees are aggregated, and when combined with the high margins typical of alternative managers, produces high-quality recurring cash flows.

According to Ord Minnett, several partner firm principals spoke highly about Navigator’s various value-add levers at last week’s Investor Day, particularly the support delivered through Blue Owl’s Business Services Platform.

A publicly listed alternative asset manager based in New York, Blue Owl Capital (formerly Dyal Capital Investors) originally sold a portfolio of minority stakes in leading alternative asset managers to Navigator, then received additional Navigator shares as part settlement.

Blue Owl acts as both a strategic partner and significant investor with a 46.5% stake in Navigator in a relationship which provides Navigator with capital, and access to Blue Owl’s global alternative-asset network.

Navigator possesses a wholly owned hedge fund platform and minority equity stakes in ten boutique partner firms covering hedge funds, private credit, real estate, commodities, volatility arbitrage, and other niche strategies.

These affiliate managers are well-established, institutional-quality businesses diversified by investment style, products, and client base.

Management has outlined a clear and deliberate inorganic growth strategy, which UBS contends is not yet fully recognised by the market.

The company aims to leverage its balance sheet strength and around US$90m per annum capital generation to pursue opportunities.

Upside to consensus

The consensus estimate indicates to UBS the market is assuming minimal organic growth (below 5% for FY27-28) and consensus is assigning no value to potential inorganic upside.

Ord Minnett sees Navigator well placed to achieve its 2030 target of a doubling of earnings (EBITDA) to greater than US$200m from 2025.

UBS notes this target implies 12-13% per annum profit growth, comprising roughly 8.5% organic and 3.5-4% acquired. On the organic trajectory alone, earnings would reach about US$145m by FY28, around 24% above the current circa US$116m consensus forecast, before factoring in any M&A, explain the analysts.

Management is aiming for earnings growth of 5% and 10% per annum for Lighthouse and Strategic, respectively, supplemented by inorganic acquisitions generating a 10-15% return on around -US$80m per annum of M&A spend.

The analysts point to management’s proven M&A execution, with acquired partner firms achieving over 50% growth in assets under management (AUM) and generating returns above 15% per annum on invested capital since acquisition.

Relative to this broker’s forecasts, there is considered scope for between 5-15% cumulative EPS accretion by FY28 under the company’s current M&A framework.

Performance fees

Navigator earns management and performance fees aligned to each firm’s success. UBS believes the latter is proving more recurring than consensus currently prices in.

Performance-fee exposure is increasing as the company expands further into private markets, supported by the change of control in NGI Strategic (Blue Owl’s economic interest) and greater exposure to Lighthouse, explains the broker.

Within NGI Strategic, performance-fee asset under management (AUM) has lifted to about 80%, or circa US$9.4bn, from around 70% in June 2023.

Strong performance-fee leverage is evident, with 47% of the AUM base eligible for performance fees, primarily driven by the NGI Strategic segment.

Given these fees are predominantly derived from absolute-return strategies and exhibit low correlation with equity markets, UBS contends a higher earnings multiple should be applied to Navigator.

Valuation premium?

UBS believes Navigator deserves a higher multiple because the performance-fee profile is both more stable and more recurring than peers.

NGI Strategic’s performance fees show less than half the variability of comparable managers, implying greater predictability. The division’s diversified alternatives exposure also produces fees that are far less pro-cyclical than those tied to public markets.

With a large share of fees earned on an absolute-return basis rather than benchmark-plus-high-water-mark hurdles, the revenue stream is structurally more consistent, due to avoiding long periods where fees drop to zero simply because markets fall or a benchmark outperforms.

FY25 results

In late August, Navigator released a robust FY25 financial performance.

Adjusted earnings (EBITDA) grew by 26% to US$113.6m, exceeding management’s upgraded guidance by about 5%, following strong profit distributions, ongoing investment performance momentum, and growth in assets under management (AUM).

Revenue grew by 20% to US$203m, driven by increased recurring management fees and performance across partner firms, management explained.

Lighthouse earnings rose 58% to US$39.1m, supported by US$35.7m in performance fees, of which US$31.7m was generated in 1H25.

NGI Strategic earnings increased 13% to US$74.5m, with Navigator receiving US$80.1m in distributions from its Strategic Partner Firms, up 9.7% year-on-year on the back of AUM growth and a strong 2024 performance.

This strong outcome was driven by improved operating performance, as net profit after tax jumped 80% to US$119m. Management noted the profit leap reflected the positive impact of strategic investments and efficiency gains.

Total AUM across Navigator’s affiliated managers climbed to US$84bn, up 12% year-on-year, with NGI’s ownership-adjusted share of FUM at US$28bn, up by 6%.

Notably, the Lighthouse hedge fund unit saw its adjusted earnings rise about 18% in FY25, fuelled by higher management fees and a surge in performance fees from strong fund returns.

Navigator maintained a conservative balance sheet with substantial cash reserves (circa $287m) and minimal debt, providing flexibility for further growth.

Management stated a review was pending of the dividend policy to consider "whether paying a dividend (circa US$16m per year) is the best use of capital during the Group’s current growth phase".

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