Fiera Capital Corporation

Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to FIARA Capital's earnings call to discuss financial results for the third quarter of 2023. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer period. As a reminder, this conference call is being recorded. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star 2. Thank you. I will now turn over the conference to Ms. Marie-France Gay, Senior Vice President, Treasury and Investor Relations. Ms. Gay, you may begin your conference.

Thank you. Good morning, everyone. Bonjour à tous. Bienvenue à l'appel de conférence de FIERA Capital pour discuter des résultats financiers du troisième trimestre de l'exercice 2023. Welcome to the FIERA Capital Conference Call to discuss our financial results for the third quarter of 2023. Note that today's call will be held in English. Before we begin, I invite you to download a copy of today's presentation, which can be found on the Investor Relations section of our website at irfieracapital.com. Also note that comments made on today's call, including replies to certain questions, may deal with forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on page 2 of the presentation. On today's call, we will discuss our Q3 2023 results, starting with an update on our AUM flows, followed by our highlights of our public and private market platforms, as well as our private wealth business. We will then review our financial performance. Our speakers today are Mr. Jean-Guy Desjardins, Chairman of the Board and Chief Executive Officer, and Mr. Lucas Pontillo, Executive Director and Global Chief Financial Officer. Also available to answer questions following the prepared remarks will be Jean-Michel, President and Chief Investment Officer, Public Markets. With that, I will now turn the call over to Jean-Pierre.

Thank you, Marie-France. Good morning, everyone, and thank you for joining us today. Firstly, I would like to provide an update on the evolution of our restructured distribution model. We have recently announced the appointment of Eric Roberts, as Executive Director and CEO of FIERA USA, and this follows the appointment of Claes Schuster to the role of Regional CEO of Europe, Middle East and Africa, and of Rob Petty as Regional CEO of Asia. We have also recently completed the search for a Regional CEO of FIERA Canada, and we expect to be in a position to announce the selected candidate before year end. These appointments allow us to expand and strengthen our presence in each of our geographies as we continue to focus on building local capabilities and being closer to our clients. We expect a significant impact on our new business growth from this reset and decentralized distribution model. Now moving to the third quarter market backdrop and its impact on our assets under management. The resiliency of the global economy was challenged in the third quarter of 2023 as the burden of monetary tightening weights on economic growth. Although inflation has been declining, the core component and wage inflation remains sticky, supporting expectations of further downside risks ahead for the economy and sustained high interest rates. The gains experienced since the start of the year in the equity markets were eroded in the last few weeks of September, with US, Canadian and international equities posting negative returns for the quarter. The negative returns were even more pronounced in fixed income markets where we saw a dramatic shift in the yield curve as the market digested that rates would be higher for longer and pushed out expectations of future rate cuts. So against this landscape, we reported assets under management of 155.3 billion at September 30th, a drop of 5.4% or $8.9 billion versus that reported on June 30th. Assets under management in our private market division remained essentially flat at $18.8 billion as new mandates were by and large offset by return on capital and income distributions. We continue to see positive net organic growth into our private market strategies for this year. As such, the drop in assets under management in the quarter was entirely felt in our public markets division. Over half of the $8.8 billion reduction is attributable to unfavorable market returns totaling $4.8 billion, of which $3 billion is related to fixed income due to the re-steepening of the yield curve adversely affecting our longer-duration fixed income and LDI mandates. We also saw negative growth as investors rebalanced and de-risked their portfolios in expectation of economic weakness and further volatility across equity and fixed income markets. Of the $3.5 billion in negative organic growth in our public market division in the quarter, $3.1 billion was related to Pinestone's sub-advised assets under management. Of this, $1.1 billion was transferred directly to Pinestone. and $1.8 billion related to lost mandates from clients exiting global and US equity strategies entirely. The remaining $200 million related to negative net contribution from client rebalancing. On a year-to-date basis, assets under management decreased by $3.2 billion. While favorable market increased assets under management by $6 billion, this was offset by negative organic growth of $8.3 billion, primarily in public markets. In addition, AUM was reduced by $500 million relating to the sale of three public market funds to New York Life Investments that were sub-advised by Pinestone, and $400 million was due to income distributions by private market funds. Of the $7.5 billion of negative organic growth in the Pinestone sub-advised mandates, $3.9 billion related to AUM transferred directly to Pinestone, while 2.6 billion related to lost mandates where clients exceeded these strategies. The remaining 1 billion related to negative net contributions from clients rebalancing their portfolios to reduce their allocation to these strategies. I want to emphasize that the 2.6 billion in lost mandates and $1 billion in rebalancing will add nothing to do with the arrangement that we have with Pinestone. Rather, it is normal course business activity due to the uncertain economic outlook and clients' appetite for global equity exposure. Of the $7.5 billion of outflows connected to AUM sub-advised by Pinestone, $2.2 billion related to National Bank investments, of which approximately $1 billion was transferred directly to Pinestone and the balance to other third-party managers. National Bank is also expected to withdraw its remaining $5.6 billion in assets under management sub-advised by Pinestone by late 2024, early 2025. Going forward, excluding the AUM outflows related to National Bank, management continues to expect the AUM reduction from lost mandates transferring directly to Pinestone to be in the range of $1 to $3 billion per year, which is to be more than made up by the growth in market value and new flows on the retained Pinestone mandates. Also, on a year-to-date basis, the public market platform ex-Pinestone has shown an increase of $600 million in AUM with $2.5 billion in new mandates across equity and fixed income strategies and positive market performance partially offset by outflows. In particular, our Atlas global equity team has generated 300 million in net organic growth on a year-to-date basis and is experiencing significant momentum into the fourth quarter. Lastly, we are pleased to see an improvement in our average fee margin, as although year over year, average assets under management are lower by $1 billion, the amount of base management fees earned on the AUM has increased. I will now turn to our commercial and investment performance across our platforms in the third quarter. Starting with our public market platform. The public market platform, excluding AUM, sub-advised by Pinestone, experienced a muted negative organic growth of $400 million in the quarter, largely due to rebalancing of cash positions by institutional clients, of which a portion was reallocated into equities. We often see large movements in cash accounts from one quarter to the next as these accounts are subject to the normal treasury activities of certain clients. Our equities platform saw positive organic growth of $600 million in the quarter, with inflows across our key strategies including Canadian US equities, emerging markets, and Atlas global equity strategy. Lastly, we are already seeing the benefits of our decision to regionalize our distribution model in Europe, Asia, and USA, with the regions seeing positive organic growth in the quarter, and we expect this momentum to continue in the coming years. Turning to investment performance in public markets for the quarter. In equities, it was a difficult quarter for most developed market strategies, as equity market gains evaporated in September. The majority lagged their benchmarks, except for the U.S. S&P growth strategy, which maintained its sustained odd performance in the quarter. As a testament to this strong investment performance, New York Life Investments allocated $315 million to the strategy over the quarter as part of our new distribution arrangement with New York Life. The Emerging Markets Select and Frontier Markets strategies continued to excel in the third quarter, generating in excess of 400 basis points of outperformance relative to their benchmarks. With regards to the frontier market strategy, its significant outperformance is striking well for its ability to generate significant performance fees by year-end. Over the long term, 97% of our assets under management invested in equity strategies outperform their benchmark. Fixed income markets continued to generate negative returns in the third quarter of 2023, which were further aggravated by a significant steepening in the yield curve. Although the majority of Canadian fixed income indices were down, most of Sierra's strategies were able to generate positive relative results through efficient sector allocation and duration positioning. Sierra's foreign fixed income strategies saw mixed results, with the standout being the global multi-sector income strategy, which generated significant outperformance of close to 200 basis points due to strong selection of foreign corporate bonds. Overall, we continue to be amongst the leaders in the industry in terms of investment performance, over the long term with 92% of our AUM invested in fixed income strategies outperforming their benchmarks over a five-year horizon. Now turning to our private markets platform. The expectation of an economic downturn has made for a more challenging capital raising environment as many investors select to overweight cash as they evaluate the macroeconomic landscape. This has resulted in a more muted quarter for our private markets platform, which saw new mandates of $200 million in the quarter, for a total of $1.8 billion in new subscriptions generated year-to-date. Negative contributions consisted essentially of return of capital to clients. We converted $500 million of capital from committed to deployed in the current quarter. We also maintain a good pipeline of $1.5 billion available for deployment into future opportunities. With respect to investment performance for private markets in the third quarter, in real estate, The underlying fundamentals continue to demonstrate remarkably consistent stability, particularly in the industrial and residential sectors, providing offsetting valuation protection against rising capitalization rates. The Canadian Industrial Fund continues to generate best-in-class performance despite the challenged environment with an absolute return of 1.28% in the quarter. In infrastructure, the strategy saw a return to positive performance for the quarter. The strategy continues to focus on its platform approach, which can provide significant and attractive deployment opportunities that are often in less competitive sectors, accretive, and leverage existing expertise. This, as demonstrated in the current quarter as a follow-on investment, was closed within an existing platform, while integrating the newest solar energy platform into the portfolio. This platform will play a meaningful role in the continued commitment to support energy transition across core markets. Our private credit strategies. continued to generate strong returns despite the tough economic backdrop. The overall outlook for the strategies remains optimistic while being fully aware of the various systematic and non-systematic risks that could arise from the current economic landscape. The private credit team continues to put emphasis on testing leverage and debt servicing capacity of existing investments and to focus on identifying opportunities for investment in resilient businesses backed by experienced sponsors. Lastly, the Global Agriculture Fund signed two new deals in the quarter worth $290 million U.S., including Grove Juice in Australia and Inoliva in Portugal and Spain. Inoliva is one of the largest producers of premium organic olive oil globally. It will represent the strategy's 10th partnership, an additional geography, and a 15th major commodity. Moving on to private wealth. We saw marginal negative organic growth in private wealth and public market strategies in the third quarter as a number of high network clients temporarily reallocated to GICs with the expectation that these flows will return once interest rates subside. Despite a small reduction in AUM, we have seen an increase in base management fees this quarter compared to the second quarter of 2023. This is in part reflective of the pricing increase related to private wealth clients. We implemented an additional fee for private wealth clients invested in public market pool funds and segregated accounts, as well as private market funds. This process will be implemented in a phased approach, with the first phase having become effective September 1st, following communication to clients, informing them of the change in June 2023. The last phase will be completed in the fourth quarter of this year. We foresee this to be revenue and margin accretive going forward. The new pricing is reflective of the value chain of activity that private wealth clients are receiving, which includes advice, access to private market funds, and the uniqueness of our asset allocation capabilities through our feeder fund structures. Our tactical asset allocation offering remains a key differentiator for our Private Well clients, providing agile solutions in a rapidly changing economic environment. This quarter, the strategy added value as its defensive stance with its underweight position in equities and fixed income limited its exposure to the market volatility experienced in September. On a three-year historical return basis, our tactical asset allocation calls have added 2.45% of enhanced total fund return to our clients. With that, I will turn it over to Lucas for a review of our financial performance.