AGF Management Limited

Welcome to the Q3 2020 AGF Management Limited Earnings Call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Adrian Basaraba. Mr. Basaraba, you may begin.

Thank you, operator, and good morning, everyone. I'm Adrian Basarabas, Senior Vice President and Chief Financial Officer of AGF Management Limited. Today we'll be discussing the financial results for the third quarter of fiscal 2020. Slides supporting today's call and webcast can be found in the investor relations section of AGF.com. Also speaking today will be Kevin McCready, Chief Executive Officer and Chief Investment Officer. For the live question and answer period with investment analysts following the presentation, Judy Goldring, President and Head of Global Distribution, will also be available to address your questions. Turning to slide four, I'll provide an agenda for today's call. We will discuss the highlights of Q3 2020, provide an update on the key segments of our business, review our financial results, discuss our capital and liquidity position, and finally close by outlining our focus for the remainder of 2020. After the prepared remarks, we'll be happy to take questions. And with that, I'll now turn the call over to Kevin.

Thank you, Adrian, and thank you, everyone, for joining us today. On September 1st, the merger between Smith & Williamson and Tilney to create one of the UK's leading integrated wealth management and professional services groups closed. Completing this transaction, particularly in the current environment, is a notable achievement and marks an important step forward. AGF received net cash proceeds of $277 million and will recognize a gain of approximately $96 million next quarter. With our strong balance sheet and liquidity, we are well positioned to return value to shareholders, service debt repayment, and pursue growth initiatives. We have announced today our intention to launch a substantial issuer bid, or SIB. Our board has authorized AGF to use up to $40 million of the SNW proceeds to return capital to our Class B shareholders through the SIB. Subject to market and other conditions, we expect the terms of the SIB to be finalized by month end and the SIB to be completed by the end of November. Also earlier today, we announced as we will be expanding our partnership with SAF Group, one of Canada's leading alternative providers. In the coming months, AGF and SAF Group will work together to launch a series of innovative private credit products for institutional and high net worth investors. In addition, we have the right to increase our ownership interest in the management fee partnerships of select SAF Group funds at any time in a 12-month period. The option agreement creates a path toward forming an internal private credit capability and positions us to capitalize on the expected growth in private debt investments. Adrian will provide more color on this initiative later in the call. We view alternatives as a spectrum, ranging from liquid alternatives at one end to private alternatives at the other. Our liquid alternative funds, which include long, short, market neutral, and derivative-based strategies, have track records dating back to 2011. Our private alternatives business has strong capabilities in private infrastructure and private credit. Focused on driving growth in our alternatives business, we have established the AGF Alternatives Advisory Committee to provide strategic insight and advice to the executive management team. The committee will be compromised of individuals who have made a significant impact in investment or leadership role in organizations noteworthy for their success in the alternative sector. I'm excited to announce Ron Mock. former President and CEO at the Ontario Teachers Pension Plan, and Michael Latimer, former President and CEO of OMERS, have joined the newly established Alternatives Advisory Board. To have these two tenured industry leaders with substantial knowledge and experience at the table with us will be invaluable as we seek to deploy capital for our growth initiatives and look to grow our alternatives capabilities and partnerships. We recently established AGF Wave Asset Management Inc., a new joint venture with Wavefront Global Asset Management Corporation that will provide asset management services and products in China and South Korea. The new entity will combine AGF's investment capabilities and global brand strength with Wavefront's existing distribution capabilities in China and South Korea. AGF will gain direct access to these rapidly growing markets by leveraging the robust distribution channels and sales capabilities of Wavefront's local strategic partners. In terms of other highlights for the quarter, AGF is committed to responsible and sustainable investing practices across the organization. We are signatory to the United Nations Supported Principles for Responsible Investment, or UNPRI. In our 2020 assessment report, AGF either maintained or exceeded the median score in all six modules. We will be launching two ETFs and two mutual funds next month to expand the distribution reach of our strategies through a variety of investment vehicles. We recognize that our clients want choice in the way they access our strategies to best suit their respective business models and investor portfolios. We reported adjusted diluted EPS of 19 cents a share for the current quarter, which is 6% higher than the third quarter of last year. We remain on track to meet our SG&A guidance of $180 million with the potential for further savings due to additional expense efficiencies. The Board confirmed a quarterly dividend of $0.08 per share for the third quarter. Starting on slide six, we will provide updates on our business performance. On this slide, we break down our total AUM and the categories disclosed in our MD&A and show comparisons to the prior year. AUM entered the quarter at $37 billion. Mutual fund AUM increased by 2%. I'll provide more color on our fund business in a moment. Institutional supervisory and ETF AUM decreased compared to prior year, mainly due to the redemptions that we addressed in previous quarters. At the end of Q3, we have a committed sales of approximately $125 million, including an allocation from an existing strategic partner. With the COVID-19 lockdown now past the six-month mark, most institutions have adapted to the new normal, and many are assessing the impact of the recent market volatility on their portfolios. Not surprisingly, we have seen an increase in RFP and RFI activity with strong interest in several of our global strategies. Our global sustainable growth equity strategy is one of the longest tenured in Canada, and performance has been stellar, exceeding the benchmark by well over 300 basis points on a one, three, and five-year basis. We're seeing appetite for this strategy from investors globally. Under Regina Chee's leadership, performance for our emerging markets equity strategy has also improved. and will approach the three-year mark this fall, which is key for the institutional channel. For our ETF business, our suite of liquid alternative funds continues to attract interest. Our market-neutral anti-beta strategy has the potential to generate positive returns regardless of the direction of general market, as amply demonstrated during the market correction in March. This strategy has gained over $100 million in AUM this quarter. As COVID-19 continues to cast uncertainty over markets, We have seen interest in this strategy from both retail and institutional investors in the US and in Canada who are looking for strategic or tactical hedges for their equity portfolio. Finally, AGF was recently nominated for two ETF Express US awards, Best Smart Beta ETF Issuer and Best Thematic ETF Issuer. Winners will be announced in October. Our private alternatives AUM was $2.8 billion at the end of the quarter, which is solid progress toward our goal of reaching $5 billion by 2022. Turning to slide seven, I'll provide some detail on the mutual fund business. Aided by the market recovery since March, the Canadian mutual fund industry bounced back in our latest fiscal quarter, reporting net sales of $10.8 billion, compared to net sales of $3.5 billion for the same period last year. Similar to industry trends, AGF's retail mutual fund business also demonstrated encouraging results reporting net redemptions of $4 million in the quarter, compared to net redemptions of $103 million in Q3 of last year. Within the quarter, in July, we recorded net sales of $11 million, and August was essentially flat. We are also seeing days of positive net sales in September. To maintain momentum for our retail business, which includes both mutual funds and ETFs, we will be launching several new funds next month as we look to expand the distribution reach of our products. Included in the launches are the mutual fund version of AGFIQ Global Income ETF portfolio, which won a fund-grade A-plus award last year, and the ETF version of our Global Sustainable Growth Equity Fund. Retail demand for ESG is quickly gaining pace, and as mentioned earlier, performance for our Global Sustainable Growth Equity strategy has been stellar. Before I return the call back to Adrian, I want to give a quick update on performance. AGF measures mutual fund performance by comparing gross returns before fees relative to peers within the same category, with the first percentile being the best possible performance. We target an average percentile ranking versus peers of 50 percent over one year and 40 percent over three years. For our mutual funds, our average percentile ranking over the past one and three years improved from 49 percent and 56 percent, respectively, at the end of Q2 to 42% and 51%, respectively, at the end of Q3. In the last several years, we have invested heavily in our global investment capabilities, which is reflected in our performance figures. Our top-performing funds within the first quartile include Global Convertible Bond, Global Select, Global Sustainable Growth Equity, U.S. Small and Mid-Cap Equities, and our Large American Growth Fund, just to name a few. As investors continue to move away from domestic strategies toward global and international opportunities, AGF is well positioned to capture this trend. With respect to our ETFs, 83% of our Canadian-listed ETFs have outperformed their peers year-to-date, and 67% of our U.S.-listed ETFs have outperformed their peers year-to-date. With that, I will turn the call back over to Adrian.