AGF Management Limited

Welcome to the Q3 2022 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 01 on your touch-tone phone. Please note that this conference is being recorded. I'll now turn the call over to Adrian Bessaraba. Mr. Bessaraba, you may begin.

Thank you, Operator. Good morning, everyone. I'm Adrian Vassarava, 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 2022. 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 investment analysts following the presentation, Judy Goldring. President and Head of Global Distribution, and Jenny Quinn, Vice President and Chief Accounting Officer, will also be available to address questions. Turning to slide four, I'll provide an agenda for today's call. We'll discuss the highlights of Q3 2022, 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 2022. After our prepared remarks, we will be happy to take questions. With that, I'll turn the call over to Kevin.

Thank you, Adrian, and thank you, everyone, for joining us today. Before I speak to our quarterly results, I want to take some time to address a recent leadership change and address our transition plans for the Chief Financial Officer position within the firm. As announced this morning, after 18 years with AGF, including six most recently as CFO, Adrian Basaraba informed our senior leadership team of his desire to leave his position as Senior Vice President and Chief Financial Officer. Adrian helped guide us through the difficult period of the pandemic, which we greatly appreciate. With the pandemic largely behind us, our finances in solid stable position, and with the strategic priorities progressing positively against the plan, Adrian felt the timing was now right for him to make this career change. During his tenure, Adrian contributed to major advances in AGF's business operations and the successful management of AGF's capital and liquidity. During Adrian's time with AGF, the organization has transformed incredibly, increasing our strategic focus and capacity to deliver diversified investment options for our clients. We want to thank him for all he has done, in particular his contribution to the firm's growth over the years. Jenny Quinn, who has been with AGF for more than 15 years and serves as our current Chief Accounting Officer, has been named Interim CFO and will remain in place through Adrian's departure and the announcement of a new CFO. The search process has been launched and we are pleased to note that Adrian has agreed to remain with AGF in an advisory capacity until November 30th to help with the transition. Now to our quarterly results. The third quarter of 2022 saw continued market volatility. Despite the challenging backdrop, we had another solid quarter. I'll begin with some highlights. We reported AUM and fee earning assets of $39.6 billion at the end of Q3. Our mutual fund business reported net sales of $51 million, marking the eighth consecutive quarter of positive mutual fund net sales. We reported diluted EPS of 32 cents of 52% from a year ago. Our investment performance in the quarter outperformed target. AJF 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 one year and 40% over three years. At the end of Q3, The average percentile ranking was 39% over the past one year and 34% over the past three years, with a number of our top selling funds remaining in the top quartile. In the midst of this market volatility, we continued to deliver strong investment performance through our disciplined processes and focus on risk management and saw the benefits of our unique liquid alternative offerings, where our anti-beta market neutral strategy saw almost 100% year-over-year increase in assets. One of our subsidiaries, AGF International Advisors Company Limited, was once again accepted as a signatory to the UK Stewardship Code, a best practice benchmark in investment stewardship. This stands as a testament to the rigor of our responsible investing practices and our ongoing focus on our corporate sustainability initiatives. We ended the quarter with $55 million in cash, $198 million in short and long-term investments, and no debt. We remain well positioned to weather the market volatility and have capital available to strategically invest to generate recurring earnings and return capital to shareholders. We aim to have a balanced approach to capital, including investing for growth and returning capital to shareholders. Over the last two years, we have returned $119 million to shareholders. That includes dividends, share repurchases under our NCIB, and the $40 million substantial issuer bid, or SIB, completed in November of 2020. Today we have announced our intention to launch another substantial issuer bid in which the Board has approved the plan to utilize up to $40 million to return capital to our Class B shareholders. Given our current share price, we believe that buying back our own shares is an attractive option. Subject to market and other conditions, we expect the terms of the SIB to be finalized in early October and the SIB to be completed in November. Investing for growth is an imperative, especially because we have excess capital. which is an attractive situation considering the current market disruption. While we currently have no debt, we're comfortable increasing our net debt to EBITDA up to 1.5 times should the right opportunities arise. Our remaining capital commitment to our private markets business, recently rebranded as AGF Private Capital, is $57 million. Not included in this is our anticipated commitment of $50 million to an upcoming third fund managed by Instar. Capital commitments may be funded from excess free cash flow, but keep in mind there will also be further recycling of capital as monetization occurs, which will help to fund future commitments. Redeploying excess capital to generate recurring earnings is a key strategic priority. We would consider small acquisitions, tuck-ins, and partnerships to add or complement our suite of products, especially in the private market space. AGF's value proposition is bolstered by a strong history of successes and product innovation we offer access to distribution channels and top-notch operational and government infrastructure outside of private markets we would also consider opportunities that are strategically in line with our priorities over the past few months we continue to evaluate our pipeline of capital deployment opportunities however with the current market environment conditions to complete a transaction have become more challenging the board also declared a 10 cents per share dividend for q3 2022. 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 decreased by 5%. I'll provide more color on our mutual fund business in a moment. Institutional, sub-advisory, and ETF AUM decreased compared to prior year, mainly due to institutional redemptions we addressed in previous quarters. We continue to see interest from institutional investors across multiple strategies and jurisdictions, which bodes well for future sales. We are expanding our U.S. SMA business. As of August, we have successfully onboarded SMA strategies onto three leading U.S. turnkey asset management platforms, Bestmark, SmartX Advisory Solutions LLC, and InvestNet. Our U.S. SMA relationships continue to generate positive flows in the quarter, and AUM is expected to grow gradually over time. During market volatility, our liquid alternative products also attracted interest from investors. Managed by our quantitative team in the U.S., our market-neutral anti-beta strategy has the potential to generate positive returns in highly volatile negative markets. In the recent market volatility, when the S&P retreated from the summer rally, down 14% from August 16th, our market-neutral anti-beta strategy was up 10%. This strategy has doubled in assets from a year ago. As uncertainty looms in the market, we have seen interest in this strategy from investors who are looking for a strategic or tactical hedge for their equity portfolios. Our private client businesses captured under the new AGF Private Wealth brand continues to demonstrate resiliency, with AUM decreasing 4% year-over-year. AGF Private Capital AUM and fee-earning assets were $2.1 billion. It is our goal to reach $5 billion in AUM and fee-earning assets. However, our timing of this target could slip into 2023. The delay is a natural delay given the current market conditions, and we continue to take a measured approach when evaluating our pipeline of opportunities. Achievement of this target will also depend on timing of fund closes. Turning to 5.7, I'll provide some detail on the mutual fund business. The mutual fund industry, which continued to experience outflows, reported net redemptions of approximately $20 billion for the three months ended August 2022. Despite the industry trend, our mutual fund business remained positive, reporting net sales of $51 million for the quarter. AJF outperforming the industry is attributable to our fund's strong performance, advancing discussions with our key clients and partners, and diversifying our relationships across different channels. Effective June 1, sales into mutual funds on a deferred sales commission basis are no longer available. Our business is positioned for industry changes, with a lineup of products that can accommodate a variety of fee arrangements and purchase options, such as ETFs, SMAs, and F-Series for fee-based accounts. We continue to work with our partners to support them through the transition, as well as review our products to ensure they remain competitively positioned. Subsequent to quarter end, we want an allocation of over $200 million from a strategic partner into one of our equity strategies, which is expected to be funded in Q4. With that, I will turn the call back over to Adrian.