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Operator
Welcome to ONIX second quarter 2021 conference call and webcast. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question and answer session with pre-qualified analysts. At that time, if you have a question, please press star one on your telephone keypad. If at any time during the conference you need to reach the operator, please press star then zero. As a reminder, this conference is being recorded. I will now turn the conference over to Jill Hominick, Managing Director, Shareholder Relations and Communications at Onyx. Please go ahead.
Jill Hominick
Thank you. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Jerry Schwartz, our founder and CEO, Bobby LeBlanc, Onyx's President and Head of Onyx Partners, and Chris Govan, our Chief Financial Officer. Earlier this morning, we issued our second quarter 2021 press release, MD&A, and consolidated financial statements, which are available on the shareholder section of our website and have also been filed on CDAR. Our supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in U.S., unless otherwise stated. I must also point everyone to our webcast presentation for our usual disclaimer and cautionary factors relating to any forward-looking statements contained in today's presentation and remarks. With that, I'll now turn the call over to Jerry.
Jerry Schwartz
Thanks, Jill. Good morning, everyone, and thanks for joining us today. Q2 was another good quarter for ONIX. All of our businesses continued to execute well. Investing capital per share increased. sometimes referred to or commonly referred to as net asset value per share or NAV per share, ended the quarter at US $80.32. Private equity had a particularly active quarter with both deployments and realizations extending right into Q3. At Omnics Credit, the team made good progress on our objective to make our CLO business less capital intensive. Gluskin Chef delivered a quarter with positive net inflows, and client capital in our private strategies continuing to increase. Bobby and Chris will provide more detail on this. Across our businesses, our focus on stronger integration continues to enhance results. Through our one-on-x approach, our team is working together to identify and to leverage opportunities for the benefit of all of our stakeholders, including, of course, shareholders. At our September 30th Investor Day, we will lay out a roadmap for how ONIX will evolve and grow in the coming years. You will hear detailed presentations from each of our business leaders. We plan also to highlight our expanding ESG programs, and we look forward to introducing more of our senior leaders. Our Investor Day will be a good opportunity to profile the progress we've made in the year since we announced our management changes in the appointment of Bobby as president. I'm proud of the work that our team has done to advance our businesses and our financial performance. We have significant momentum across ONIX and I'm confident in our ability to continue to deliver strong long-term value. Our goal is to ensure that the value and potential we see is also appropriately reflected in the value we provide to you, our shareholders. As always, we appreciate your continued support. Thank you for that. Now I'll turn it over to Bobby for more on the quarter.
Jill
Thank you, Jerry, and good morning, everyone. Earlier today, we reported segment net earnings per share for Q2 of $3.04 and net earnings per share of $1.95. As Jerry said, it was a quarter where all of our businesses made good progress on key initiatives. Investing capital per share grew 3% in the quarter and is now up 9% year-to-date and 33% over the last 12 months. Gross private equity returns for ONIX were 4% in the quarter, 13% year-to-date, and 47% for the last 12 months. Year-to-date, ONIX partners 4 and 5 have returned 15 and 12% respectively, and our on-cap funds returned a collective 17%. All of our industry verticals delivered positive returns over the last 12 months. We were active across our private equity portfolios in Q2, and into Q3. Within Onyx Partners, we completed secondary offerings for both Jeldwyn and Clarivate. In July, Power School and Ryan Specialty Group both completed their initial public offerings on the New York Stock Exchange. In the case of Power School, all the proceeds were used to pay down debt. With RSG, we realized approximately $490 million as a result, delivering a realized gross MOC of 1.8 times to date. RST continues to be a substantial investment on our balance sheet. Turning to capital deployment, Onyx Partners V completed its seventh investment with the acquisition of Newport Health, a leading U.S. provider of mental health services for teens and young adults. Healthcare is one of our core investment verticals, and we have a long track record of successfully investing in the sector, including behavioral health. Our ONCAP team was also active, completing an investment in Comar Industries, a US-based designer and manufacturer of industrial waste and recycling processing systems. In total, year to date, our private equity platform has already realized $1.5 billion and deployed $1.9 billion of capital. With the investments we've made, ONIX Partners 5 is now 60% invested, and ONCAP 4 is just under 75% invested. As previously communicated, we expect to be in the market with our next ONCAP fund later this year, followed by ONIX Partners in 2022. Within ONIX Credit, we are actively fundraising for our new strategies and expect AUM growth to accelerate throughout the remainder of the year. Jason New will provide a more detailed update at our investor day. In the quarter, We were opportunistic in executing on our objective to make our CLO business less capital intensive. We generated total proceeds of 65 million by accretively selling down portions of our equity in eight select US and European CLOs. Most of these had already seen their value increase from refinancing or resetting transactions completed by our team. Through the sell downs, we were able to reduce our total average equity ownership for the group from approximately 70% to 44%. Turning to wealth management, Plask & Schiff had another good quarter, growing fee-generating assets by 4%, with net client inflows for the first quarter since Onyx's acquisition. Access to our private strategies continues to be a strong draw, with approximately $950 million of client capital now in these strategies, an increase of 10% from Q1. we continue to expect positive net flows at Gluskin for the remainder of the year. Last quarter, I mentioned that we're expanding our ESG program. In July, Judy Cott joined as Onyx's new head of ESG. She brings a wealth of experience to our team and has already focused on enhancing our firm-wide ESG framework and establishing key priorities. As Jerry mentioned, you'll have an opportunity to hear more from Judy at our investor day. Over the past year, we have articulated a number of priorities for our organization, and we're making progress with all of them. Our private equity teams are generating quality opportunities within our core verticals, and the funds are contributing longer-term returns more aligned to our historical performance and future expectations. We've diversified within Honest Credit, which over time will add a more consistent fee-related earning stream and increase profitability. We feel confident with the level of integration we've achieved with Klusken Chef and the future potential of that business. Working together, guided by our One Onyx approach, these platforms will provide future value for our shareholders. We look forward to talking to all of you about this in more detail on September 30th. With that, I'll turn it over to Chris.
Jerry
Thanks, Bobby, and good morning, everyone. As Bobby noted, we reported segment earnings of $3.04 per share in the quarter, including $2.44 from investing and $0.60 from our asset and wealth management segment. Let's get started by looking more closely at ONIX's PE investing results. The quarter included net gains from private equity of $185 million, reflecting an underlying 4% gross return. When combined with the first quarter, private equity generated year-to-date net gains of $454 million, or a 13% gross return. Our PE returns will not always track the public equity markets in the short term, and this was the case in Q2, with the S&P returning 8%. Of course, we fully expect our portfolio to outperform the public markets in the long run, as we have when you look back over the last 12 months or back to the December 2019 pre-pandemic marks. Our Q2 PE returns reflect continued momentum in a diversified portfolio we believe is positioned to generate strong returns going forward. For those of you that follow us closely, you'll know that we've been providing a breakdown of our portfolio based on COVID exposure since Q1 of last year. With economies continuing to open and rebound, we've reverted to thinking about our diversification and performance based on our core industry verticals, as reflected on this slide. You can see that the story doesn't change much from what we communicated to you in the COVID focus charts last quarter. We've seen consistently positive returns across a well-diversified portfolio. You'll find this slide in the supplemental information package posted to our website. In addition, in response to shareholder feedback, you'll see our SIP now also includes a summary of our significant private equity investments. I'll turn now to credit investment. Our credit portfolio returned 5% and contributed $47 million of net gain. while the underlying loan market returns just over 1% in the quarter. These results included $35 million of net gains from CLOs, representing a 7% quarterly return and over 55% on an LTM basis. As you know, we've been focused on reducing the capital intensity of our CLO business. To this end, we strategically sold down our equity interest in several CLOs for total proceeds of about $65 million, all with values that exceeded our marks. When you include the capital returned to us through regular quarterly distributions, Onyx's exposures to CLOs was reduced by about $100 million in Q2, which will improve the already attractive return on capital from our CLO platforms. Let's take a look at how our investing activities impacted our allocation of investing capital. Overall, investing capital per share was up $1.99 or about 3% in the second quarter and $6.71 or 9% in the first half of 2021. Adjusting for the capital used to acquire Falcon at the end of 2020 Hard NAV per share is now up 29% from December 2019 pre-pandemic levels. The Q2 composition of investing capital is largely consistent with year-end, with invested assets at 83% of total investing capital. Pro forma for the cash impact of the RSG IPO and new investments in Newport Healthcare and Comar Our invested assets are just under 80%, which continues to represent a strong basis for future growth in Hardin AB per share. Turning now to our asset and wealth management segment. We generated net earnings of $0.60 per share in Q2 and $2.21 per share in the first half of 2021. The year-over-year improvement in Q2 segment earnings reflects continued strength in PE, with OP4 and OP5 again accruing meaningful carried interest. This progress is even more evident in the year-over-year improvement in first-half results, with $188 million of private equity carried accrued in the first half of 2021. With all of our PE funds in carry and fundraise expected for both ONIX partners and ONCAP in the next year, ONIX's private equity manager is positioned to continue its meaningful contributions going forward. At the credit manager, we continue to focus our attention on growing AUM as a precursor to improving our margins, which currently reflect the upfront investments we've made to support the platform's growth. Year over year, Credit's fee-generating AUM has grown 43 percent, largely driven by the acquisition of Falcon. Excluding that acquisition, fee-generating AUM grew 10 percent at credit in the last 12 months. Finally, our wealth management business is making progress growing client capital. Fee-generating client capital is up 4 percent from Q1 and 9 percent year-to-date. This reflects strong net performance in the funds and solid client influence. And with that, we'd now be happy to take any questions.
Bobby
Thank you. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. To withdraw your question, please press the pound key. And our first question comes from the line of Jeff Kwan with RBC Capital Markets. Your line is open. Please go ahead.
Jeff Kwan
Hi, good morning. I know you... talked about, I guess, the pro forma cash from the monetizations in July. But just wondering, relative to what things were recorded at June 30th, do you have like a ballpark mark-to-market adjustment for the monetizations that you've done in July, just trying to figure out the net impact to the NAV?
Jerry
Sure. Yeah, I don't have it to kind of the dollars and cents, Jeff. But if you think about the RSG and PowerSchool IPOs combined, together they were a little bit above our marks, but that's at the IPO prices. And so I think you can assume there's a little bit of tailwind there, but all of the upside from those IPO prices is, I'll call it, you know, a good head start on Q3. Okay.
Jeff Kwan
And then on Glasgow Chef NetSeals being positive, Bobby, I think you said in your remarks you think that this can be sustained through the second half of the year. Just wanted to understand, I guess, what were the key drivers around that view? And for the new clients that are coming in, are there any interesting trends in terms of profile things like age, geography, or whatever? And where's the focus in terms of who and how you're targeting new clients?
Jill
And the client base is pretty diversified across Canada, Toronto and Montreal specifically. The net flows are benefiting largely from Onyx's own products being sold through the Gluskin network. There's been really, really good demand for a direct lending product that we have coming out of our Falcon acquisition. Our other credit products are in high demand. And as we're looking toward ONCAP, In OP, we expect those flows to continue to be positive. And just generally speaking, the other products that they have have performed well. So that good performance is attracting new dollars.
Jeff Kwan
Okay. And just my last question was similar to that on Gloskin is what has been, generally speaking, and I know it can vary quarter to quarter and everything tends to be lumpy and high net worth, but the mix of money coming in between new clients versus existing clients giving more money.
Jerry
I don't have that number off the top of my head. Chris, do you? I don't have it handy, Jeff, but we can certainly circle back with you. It continues to be, I'd say, a typical mix. As you know, gaining share of wallet is an important part of that business, but I just don't have those numbers handy at the moment.
Jeff Kwan
Okay. All right. Thank you. Thanks, Jeff.
Bobby
Thank you. And our next question comes from the line of Scott Chan with Canaccord Genuity. Your line is open. Please go ahead.
Scott Chan
Good morning. So you talked about the CLOs and how you accreted $65 million in proceeds in the quarter from eight select U.S. or European CLOs. Is there the opportunity to get more capital back with the remaining CLOs on the U.S. and European side over time?
Josh
Absolutely.
Jill
You know, market dependent, price independent, absolutely.
Josh
Karen, Ronnie, and the team are constantly looking at that and trying to figure a way to optimize the returns relative to the capital deployed in that product.
Jerry
Yeah, and I just would add on that, you know, in addition to the ability to take capital off the table from the CLOs we already have financed, I'll say, or sponsored, you know, going forward, the plan is to put less capital into each CLO as we grow the business so that we've got a nice trend line in terms of hopefully an ever-decreasing percentage of the CLO AUM that's coming from ONIX, and therefore just better returns on capital for the business.
Scott Chan
Got it. And then in your opening remarks, you talked about the healthcare sector, where I guess with your new disclosure, it just represents 5% of your gross private equity capital. And then you bought Newport. So is it fair to say that the pipeline is probably the strongest within that subsector that you're seeing right now?
Jill
No, the pipeline is pretty good across all the verticals we're focused on. On the OP side, Josh and Adam and the team have been focused on behavioral for the better part of two years now. We have a long history in behavioral with Magellan and ResCare, two prior investments.
Josh
But I wouldn't take that to mean the next two or three deals that you see coming out of OP will be healthcare. That could be the case, but I wouldn't expect it to be that concentrated.
Scott Chan
And then can you share a bit more information on the Newport Health? I know you kind of provided a descriptive narrative on it, and I see that Onyx put up less than $200 million of capital towards it. But is there any other details that you could provide us that would be – that might be helpful for us to look at.
Jill
No other financial details. I'll tell you, though, it's a really interesting part of healthcare.
Josh
The amount of demand for that service in the teen and young adult community of people needing those types of residential mental health treatment centers is really, it's really, there's so much more demand than supply.
Jill
So I would expect
Josh
there to be a lot of organic and de novo growth coming out of that platform, and we've capitalized the business so that companies will be able to do that and have that growth ahead of it. We expect that to be a good growth story for OP.
Scott Chan
And last question, just on PowerSchool, you didn't get any partial realization from that IPO. Is that correct?
Josh
That's correct. We used all the proceeds to pay down debt and the expenses related to the IPO. Okay, got it. Thank you very much. You're welcome.
Bobby
Thank you. And again, if you have a question at this time, please press star, then 1. That concludes our question and answer session, and I would like to turn the conference back over to the company for any further remarks.
Jerry Schwartz
Well, another good quarter. Nice to see you. Thanks, everybody. I appreciate your joining us today, and we really appreciate the opportunity to talk with you at any time, but this is a pretty good medium to do so. I can only say enjoy the rest of your summer, and we look forward to speaking with you again at our Investor Day on September 30th. Thanks, everybody, and bye.
Bobby
This concludes today's conference call. Thank you for participating. You may now disconnect.
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