AGF Management Limited

Welcome to the Q3 2021 AGF Management Limited Earnings Conference 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 touchtone phone. Please note that this conference is being recorded. I'll now turn the call over to Adrian Basaraba. Mr. Basaraba, you may begin.

Thank you, operator, and good morning, everyone. I'm Adrian Basaraba, Senior Vice President and Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the third quarter of fiscal 2021. Slides supporting today's call and webcast can be found in the Investor Relations section of AGF.com. Also speaking on the call today will be Kevin McCready, Chief Executive Officer and Chief Investment Officer. For the question and answer period with analysts following the presentation, Judy Goldring. president and head of global distribution will also be available to address questions. Turning to slide four, I'll provide an agenda for today's call. We will discuss highlights of Q3 2021, 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 2021. After the prepared remarks, we'll be happy to take questions. And with that, I'll turn the call over to Kevin.

Thank you, Adrian, and thank you, everyone, for joining us today. During Q3 2021, we continued to execute against our strategy and stated goals. I'll begin with some highlights. Our strong business momentum from the previous quarter was carried into Q3. AUM and fee-earning assets reached $43.4 billion at the end of Q3, an increase of $2.6 billion compared to the second quarter. Our mutual fund business continued its sales momentum, reporting net sales of $288 million, marking the fourth consecutive quarter of mutual fund net sales. As a tenured leader in sustainable investing, we are proud to announce that AGF International Advisors Company Limited has been successfully named as a signatory to the UK Stewardship Code. The UK Stewardship Code 2020, recognized globally as a best practice benchmark in investment stewardship, sets high stewardship standards for those investing money on behalf of UK savers and pensioners and those that support them. Diversity and inclusion have been a long-standing pillar of our social responsibility commitment. In early September, we entered a multi-year partnership to create a scholarship program with INSPIRE, a national indigenous organization that invests in the education of indigenous people. This partnership is part of our multi-year plan to accelerate our diversity and inclusion initiatives. Over the past few months, we have made significant progress in diversifying and expanding our private alternatives business. In early July, we launched the AGF-SAF Private Credit Limited Partnership and Trust. The LP targets Canadian institutional investors, while the Trust offers increased liquidity that is more appealing for Canadian retail investors. Subsequent to the launch, we refined our long-term partnership with SAF. Furthermore, we strategically expanded our private alternatives business into the private equity and venture capital space by partnering with First Ascent Ventures, a firm that focuses on investing in emerging technology companies. The strong business momentum has translated into strong financial results for the quarter. We reported an adjusted diluted EPS of 21 cents, up 163 percent from the 8 cents in Q3 of 2020, excluding Smith & Williamson. We have achieved these results partly by holding core expenses flat, which we will continue to do going forward. We have been able to realize efficiencies and unlock some capacity during COVID by relying on our digital strategy and doing larger virtual meetings. When you look at our process prior to COVID, there was a lot more travel and administration necessary in our sales process. We believe that going forward, our investment management business can grow with the existing resource base. Having said that, incremental operating expense and capital will be required for corporate development as we accelerate the redeployment of our excess capital. Finally, the board confirmed a quarterly dividend of $0.09 per share for the third quarter This level was increased last quarter from $0.08 per share. Starting on slide six, we will provide updates on our business performance. On this slide, we break down our total AUM and fee-earning assets in the categories disclosed in our MD&A and show comparisons to the prior year. Mutual fund AUM increased by 24%. I'll provide more color on our mutual fund business in a moment. Institutional, sub-advisory, and ETF AUM increased by 11%. We continued to receive allocations from our existing institutional clients, including $100 million U.S. into our global sustainable growth strategy during the quarter. After successfully onboarding a large institution who selected three of our global and U.S. equity strategies on their SMA platforms in Q2, in August we onboarded another large institution who chose one of our global equity strategies on their SMA platform. While AUM growth on these SMA platforms will occur gradually over time, we are optimistic based on flows for the initial few months. Building on the success of these wins, we target entering into similar relationships with other SMA platforms in the US. During the quarter, we received a redemption notice from one of our institutional clients for $900 million. The redemption was a result of an asset allocation shift, which resulted in a large reduction of their public equity exposure overall in favor of alternatives. This highlights the importance of alternatives, and also the SMA business, which tends to be less lumpy and will create some consistency in AUM levels. Looking forward, RFP and RFI activities have remained strong. We continue to see interest from institutional investors in a number of our strategies, which bodes well for future sales. Our private client business continues to demonstrate consistent, steady growth, with AUM increasing 23% year over year. Our private alternatives AUM and fee-earning assets were $2.2 billion, and we maintain our goal of reaching $5 billion in AUM and fee-earning assets by the end of 2022. During the quarter, we refined our partnership with SAF, where we have entered into a definitive agreement along with a distribution arrangement as an alternative to AGF exercising its option to acquire management contracts of select SAF funds. We will be the exclusive provider of their investment capabilities in the Canadian retail marketplace. This arrangement allows both firms to capitalize on the expected growth in the private credit space. Our strategic partnership with First Ascent Ventures helps to broaden our alternatives platform into an area that gives investors an opportunity to invest in top-tier emerging technology companies. AGF committed $30 million to First Ascent's second fund and is a member of the Limited Partner Advisory Committee. These initiatives, along with our robust pipeline of opportunities in the alternative space, will help AGF achieve our goal of reaching $5 billion in AUM and fee-earning assets by the end of 2022. Turning to slide seven, I will provide some detail on the mutual fund business. The Canadian mutual fund industry continued its strong pace in the summer months, reporting net sales of $33 billion for the three months ending August 31st. Excluding net flows from institutional clients invested in our mutual funds, net sales were $288 million, compared to net redemptions of $4 million in Q3 of last year. AGF sales improvement outpaced that of the industry. Year-over-year, gross sales for our long-term funds improved by 61% compared to 46% for the industry. We continue to see year-over-year improvement across all channels, IROC, MFDA, and strategic partnerships, and strong flows into multiple categories, including global and U.S. equities, fixed income, and ESG or sustainable opportunities. The momentum in our retail mutual fund business has continued into September. Excluding net flows from institutional clients, we have net sales of approximately $80 million up to September 24th. 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% over any one year and 40% over the three-year period. At the end of Q3, average percentile rankings were 53% over the past one year and 49% over the past three years. It's important to note that one- and three-year performance for our top-selling funds have largely remained in the top quartile. With that, I will turn the call back over to Adrian.