A$14.8m underlying profit as Pacific Current weighs strategic alternatives

Strategic Review Opens Pacific Current’s Next Chapter

Pacific Current Group Limited (ASX:PAC) has ended FY2026 with its balance sheet repaired but its corporate future unresolved. The asset-management investor says it is weighing a non-binding proposal from River Capital, a potential sale of PAC itself, and delisting from the ASX followed by an orderly realisation of its holdings. No transaction has been agreed, and the company cautions that there is no certainty any proposal or alternative will proceed.

Under River Capital’s proposal, PAC would acquire River Capital for approximately A$80 million, paying with about 6.3 million PAC shares, subject to adjustment for distributions declared or paid after 30 June 2026. The board said the proposal prompted a formal review of strategic alternatives, while maintaining that the process remains at a preliminary stage.

Debt Eliminated as Earnings Base Contracts

The review begins from a substantially different financial position. PAC repaid its A$62.2 million senior secured facility in October 2025, removing roughly A$4 million of annual net interest expense, and finished the year with no financial debt. It reported A$258 million of cash and financial assets, equivalent to A$9.25 per share, while corporate overheads fell 41% to A$9.4 million.

That improvement in financial flexibility did not prevent earnings from falling. Underlying net profit after tax declined 43% to A$14.8 million and underlying earnings per share fell to 50.2 cents from 55.8 cents. The statutory result was a A$1.5 million loss, reflecting non-cash fair-value movements and the absence of the prior year’s A$97.3 million gain on disposals. PAC returned 48 cents per share in dividends during the year and bought back 2.2 million shares for A$22.9 million.

Victory Park Valuation Drives Statutory Loss

The sharpest pressure came from Victory Park Capital and VPC-Holdco. PAC reduced their fair values by A$16.8 million and A$27.1 million respectively, citing slower fundraising than assumed in the previous valuation and a higher discount rate amid a more challenging fundraising environment for private-credit strategies. PAC retained a 9.2% equity interest in VPC, along with interests in future and existing carried income.

The valuation exposure matters because 51% of PAC’s A$174 million of fair-value investments were classified as Level 3, relying on unobservable inputs. The company’s sensitivity analysis indicates that a one percentage-point change in the discount rate would alter the value of Level 3 FVTPL assets by several million dollars. That leaves reported net asset values more exposed to assumptions than the debt-free balance sheet might suggest.

Portfolio Shrinks While Secured Lending Expands

PAC realised A$35.8 million during the year through sales of its Janus Henderson holding, part of its Abacus position, a portion of its Victory Park interests and its entire Aether position. Group funds under management fell to A$26.4 billion from A$30.0 billion, with the exit from Aether and a stronger Australian dollar contributing to the decline. PAC cautions that FUM does not translate directly into economic benefits because fee structures, ownership levels and investment arrangements differ between boutiques.

Capital deployment has not stopped. PAC agreed three secured loan facilities with Independent Financial Partners, Northern Lights Alternative Advisors and a Roc-related entity, committing A$42.1 million at rates of 10% to 11% per annum. A$14.6 million had been drawn by year-end, shifting part of the portfolio’s income generation towards contractual lending returns while the strategic review proceeds.

Capital Returns Meet Strategic Uncertainty

The board plans to keep operating as usual in FY2027, with dividends funded from underlying cash earnings and further capital deployment assessed against buy-backs and shareholder distributions. The on-market buy-back was suspended on 27 August after 2,214,211 shares had been repurchased, despite the original programme having been increased to a maximum of 2,603,418 shares.

Two unresolved issues now sit alongside the company’s stronger balance sheet: whether PAC’s portfolio can rebuild earnings after disposals, and whether shareholders ultimately receive value through continued ownership, a corporate transaction or asset realisation. The Federal Court has also reserved judgment after hearing an appeal connected with the long-running derivative action. Until the strategic review produces a firm proposal, PAC’s cash, valuation assumptions and willingness to return capital remain more tangible than any promised transaction outcome.