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Operator
Welcome to ONIX third quarter 2023 conference call and webcast. During the presentation, all participants will be in a 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 11 on your telephone keypad. As a reminder, this conference is being recorded. I would now turn the call over to Jill Hominick, Managing Director, Shareholder Relations and Communication at ONIX.
Jill Hominick
Please go ahead. Thank you.
spk00
Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Bobby LeBlanc, ONIX's Chief Executive Officer, and Chris Gevin, our Chief Financial Officer. Earlier this morning, we issued our third quarter 2023 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 Bobbie.
Bobby LeBlanc
Good morning, everyone. ONIX delivered a solid Q3 and continued to build shareholder value with investing capital per share of 4% over the last three months and 15% over the last year. The team remains focused on the value creation plan we presented at Investor Day, and we are making progress on strategic initiatives across our platforms. As I mentioned at Investor Day, we are ramping up our sales and marketing function to support our businesses in achieving their fundraising objectives. I am pleased to announce that we have hired a new leader for our client and product solutions group, and he's expected to join us in early 2024. I look forward to more formally introducing him once his garden leave is completed. In the meantime, I can tell you that he brings extensive experience in fundraising and distribution, along with strong LP relationships, and will bring a new perspective to our already talented team. I know he is very excited about joining Onyx. Emma Thompson, who has provided many years of leadership for Onyx and the CPS team, will work closely with him to fully leverage the opportunities ahead. In private equity, Onyx Partners V announced an agreement to acquire Accredited, a specialty insurance business from R&Q Insurance Holdings. Our extensive knowledge of the insurance industry, together with our expertise in complex carve-outs, was a major contributor to securing this transaction. We expect to close sometime in the first half of 2024, subject to customary approvals and closing conditions, including R&Q shareholder approval. We still have room for one more investment in OP5, similar in size to accredited, and the team is working hard to secure a good opportunity before the conclusion of the fund's investing period later this month. Earlier this week, we announced the successful realization of ASM Global, a business that was significantly impacted by the pandemic, yet recovered incredibly well. The transaction was completed, consistent with our current mark, and achieved a two times multiple of capital. This was another significant step forward in providing valuable DPI, or return of capital, to our OP4 investors. In credit, we issued one US and one Euro CLO in Q3, and just last week priced our second Euro CLO of the year, which will bring the total raise from our platform to more than 1.8 billion this year. The team remains confident in our ability to continue to issue CLOs amid strong investor demand. In our private wealth business, The team is making good progress on the transition to our new sales and distribution model. In addition to our private credit and equity products, there are good products across the legacy Klusken Chef platform that we believe will be competitive and attractive to clients and advisors. We expect to be in a position to actively market our funds to new advisors and clients in the new year. Profitability was a core message at our investor day, and we intend to be strategic and pragmatic in how we evolve and grow this platform. In that vein, we have made the tough but necessary decision to wind down the Blair Franklin Fund. This comes after careful consideration and following changes with the investment team. Blair Franklin served blessed and chaffing clients well over time, but the recent changes led us to conclude that we no longer see a viable future for this fund. We have notified clients and are working to ensure a smooth and responsible wind down. The remaining legacy funds are a part of our go-forward plan. The focus will be on adding new fee-generating AUM to ensure these strategies contribute to ONIX's overall profitability within a reasonable timeframe. We will continue to update you over the coming quarters. Our firm-wide cost management program began in earnest in the spring, accelerated over the summer, and will continue to deliver benefits into the new year. The result of the actions we have already taken can be seen in our Q3 financials, where we achieved both positive asset management and total fee-related earnings. The impact is reflected across our expense lines, and although FRE will be more challenged in future quarters, you can expect expense management to contribute to more consistent and positive FRE over time. Finally, we continue to actively buy back ONIX shares over the last three months. reinforcing our belief in the underlying value of our business relative to the significant discount embedded in our stock price. As of the end of October, we had bought back 3.5 million shares under our current normal course issuer bid, and we still have about 3.2 million shares capacity remaining on the NCIB. We will continue to take advantage of the buyback opportunity, generating meaningful value for our shareholders. Achieving the objectives we laid out at Investor Day will require focus, hard work, and the willingness to act quickly and make tough decisions when necessary. Our team is committed to doing what it takes to deliver value for our shareholders. We will continue to proactively communicate our progress and appreciate the support of our shareholders as we work to drive increased value in the years ahead. I'll now turn it over to Chris.
Emma Thompson
Thanks, Bobby, and good morning, everyone. our third quarter investing capital per share of $103.19 is up nearly 4% quarter-on-quarter and 15% in the last 12 months. In Canadian dollars, investing capital was just shy of $140 per share, up 13% year-over-year. We ended the quarter with cash and year cash of $1.5 billion, representing 19% of investing capital. Our near cash now includes the proceeds we expect to receive later in Q4 from the Ryan Continuation Vehicle that closed during Q3. Looking forward, liquidity is expected to remain strong with the announced realization of ASM and OP4 more than offsetting ONIX's share of OP5's investment in Accredited early next year. We also expect a return of capital associated with ONCAP 5's first two investments as additional capital is raised for that fund. Given the strong capital position and our share price trading at what we see as a material discount to intrinsic value, ONIX repurchased 2.6 million shares since the end of June. Year-to-date, we've captured about $220 million Canadian dollars of hard NAV for our continuing shareholders through share repurchases. Looking at private equity, our PE portfolio delivered a solid third quarter, with the overall portfolio up 4%, which compares to the S&P 500 and MSCI world mid-cap indices, both off about 4%. The ONIX partners and on-cap portfolios both contributed in Q3, with our direct investments having a particularly strong quarter, up 17%. Turning to credit investing, overall performance remained strong across our credit funds with a $44 million net gain or 6% return on ONIX's credit investments in Q3. This was driven by an increase in the fair value of CLO investments consistent with returns in the underlying leveraged loan market. Now, let's turn to the asset management side of the business. ONIX ended the quarter with $34.2 billion of fee-generating AUM, essentially unchanged from Q2. FGAUM in the quarter benefited from the close of the Ryan Continuation Vehicle, which combined with two new CLOs added nearly $1.3 billion of FGAUM. We also recently priced our next European CLO and expect that deal to add to AUM before year-end. These additions were offset by net outflows from liquid strategies tied to the wind-down of the Gluskin-Cheff wealth management business. At the end of October, we had about Canadian $5.2 billion managed for private wealth lines. Approximately Canadian $1 billion of that was held in the Blair Franklin Fund, which, as Bobby explained, will wind down by the end of the year. Of the remaining Canadian $4.2 billion, $2.3 billion has already been transferred in kind or is invested in closed-end alternative products. such that we continue to earn fees on this AUM on a go-forward basis. But it's very difficult to predict how the Canadian $1.9 billion balance will unfold as between transfers in kind and redemptions. As one data point, in October, approximately 50% of Gluskin-Champ client departures were via transfers in kind, with the rest being redeemed. We're continuing to work towards a smooth transition for our remaining wealth management clients and establishing a strong foundation for growing private capital AUM going forward. Turning to fee-related and distributable earnings, as Bobby said, we're starting to see the benefit of our cost reduction efforts, with total FRE of $8 million in Q3, including $13 million from the asset management platforms. The improvement in Q3 reflects lower compensation and other costs resulting from our restructuring and efficiency efforts that I discussed at Investor Day in September. We believe that over three-quarters of the estimated $40 million of cost-saving opportunities are now reflected in FRA. We continue to advance Phase 2 of our initiative with a zero-based budgeting approach focused on hard costs. We expect run rate costs will continue to decline as further opportunities are executed and are reflected in our results. As I've discussed several times, run rate PE management fees will drop by approximately $40 million when OP5 exits its commitment period later this month. We expect some of that decline to be offset by the changes to our cost structure and fees on new capital raised. In 2024, we expect to add new FGAUM for ONCAP 5 and our first transportation fund. And we're also exploring additional FGAUM opportunities to offset the expected decline in fees. As I outlined at Investor Day, if we reach our targets for ONCAP 5 and the transportation fund, it should only take another 500 to 600 million of FGAUM for PE to reach break-even next year. our credit run rate management fees were $118 million at quarter end. The decrease reflects the new fee structure within our private wealth strategy, which is now focused on third-party distribution. As we previously mentioned, substantially all of the decrease in revenues is offset by the lower cost of our distribution strategy. However, we can expect the wind down of the Blair Franklin Fund and additional redemptions by private wealth lines to be a headwind in the near term. Looking at distributable earnings, Q3 was a relatively strong quarter with 223 million of DE driven by PE realizations. Finally, an update on ONIX's carried interest opportunity. We ended the quarter with $240 million of unrealized carried interest, up 29 million from Q2. The majority of this increase was driven by net gains within OP5. As a reminder, ONIX has about $28 billion of private equity and credit AUM subject to carry. All in all, it was a solid quarter, and we continue to see early progress on the objectives we outlined at Investor Day. Compounding ONIX's investing capital per share will continue to be the most significant source of value creation over the next few years, and our recent results are consistent with the 14 to 16% target range. At the same time, we're driving forward with our plan to surface value and profitability from our asset management platforms, and are beginning to see progress there too. While the path forward will not be a straight line, especially with the current market headwinds, we look forward to updating you as we progress on the plan. That concludes the prepared remarks, so we'll be happy to take any questions.
Operator
Certainly. Ladies and gentlemen, as a reminder, if you do have a question at this time, please press star one one on your telephone. If you'd like to remove yourself from the queue, simply press star one one again. Our first question comes from the line of Dick from CIBC Capital Markets. Your question, please. OK, thanks for the question.
Dick
You mentioned that you have room for one more investment in OP5. I'm just wondering what Onyx's remaining commitment might be to that fund. I'm just trying to get a sense of how much capital Onyx would have left to deploy, not at the fund level, but at the Onyx level. And I'm just sort of thinking through the evolution of balance sheet liquidity in that context.
Bobby LeBlanc
Yeah, so, well, I'll answer that in two parts. So we do have room for one more investment post-accredited in OP5. We're pretty far along on an opportunity that we hope to have done per the – Paul Cecala, For our LP agreement rules by the end of this month. Paul Cecala, For the you know next 12 to 18 whatever month is going to be before we begin fundraising for op six again, we do have plans that will hopefully be able to share with you early next year in terms of. Paul Cecala, capital deployment for that op team for next year and ways to do that, but you should expect onyx portion of that to look very similar to what it would have looked like. in terms of OP6, which would have been sort of $400 to $500 million deployment in a year.
Dick
Okay. And are you able to speak on the ASM transaction, just how the exit value might have compared to your own internal fair value estimate that would have been incorporated now? It's essentially at the mark.
Bobby LeBlanc
There's a bit of an earn-out component to the deal where when the dust settles, we could be, you know, a couple of percent below or a couple of cent above, but you should view that as to be right on the mark.
Dick
Okay, and then one last question for me. I was just wondering if you could speak to the monetization pipeline more broadly, and I think Chris might have had a few comments that I might have missed, but without being too specific, you know, would you say you have a few other irons in the fire there?
Bobby LeBlanc
We do. We do some partial, some full exiting. We always try to keep in somewhat balanced capital deployment and capital return, and I would expect you to see a few other monetizations coming over the coming quarter or quarters.
Emma Thompson
Okay, that's all I had. Sorry, Nick, it's Chris. I'll just jump in because you might have been confused by my comments around ONCAP 5. Just want to clarify that, that as that fund raises more capital, Onyx will be diluted in the first two deals. So we're not talking about realizations from those deals, but simply us being diluted and receiving returns of capital from the new investors. And that could be up to about $100 million as OnCap 5 works towards its final close.
Dick
Oh, understood. Okay. All right. Thanks, Chris.
Jill Hominick
Thank you. One moment for our next question. And our next question comes from the line of Graham writing from TD Securities.
Operator
Your question, please.
Tad
Good morning. Maybe I'll just stay on that same theme. Can you just remind us of what you're targeting for timing and potential size for the ONIX Transportation Fund and also the ONCAP 5 Fund?
Bobby LeBlanc
Yep. So for ONIX Transportation, Tad Piper- And we haven't publicly come out with a fun size for that. Tad Piper- The plan is for us to warehouse the first one or two deals that they do they do have a very good pipeline of lps that like that strategy they'd like to see what the first. Tad Piper- deal looks like, but I would expect us, you know, to have something if not closed signed within the next couple of months, where that that would trigger. are beginning to formally fundraise for that platform. So we've been out meeting LPs and getting the pipeline filled, but we haven't formally started fundraising yet. But I would expect us to do so sometime in the early part of the first half of next year. In terms of on-cap, the target fund size there, I think we've spoke publicly, is about $1.5 billion, and that still remains the target size of that fund. Which onyx, Chris, is $200 million? That's right.
Tad
Okay. That's helpful. And then just with your cash at $1.5 billion, should we be interpreting that as you still are in a position with excess liquidity to support buybacks?
Bobby LeBlanc
Well, that's one source of that liquidity or the need for that liquidity or the desire for that liquidity. Yes, we will continue to buy back shares. But again, as I mentioned at Investor Day and last quarter, it also gives us some optionality in a very volatile market where we'd like to be able to take advantage of some opportunities as they may arise on the near term. Volatility creates opportunity, and we just want to be able to pounce on that should it arise in the near term.
Tad
Is that like a like private equity portfolio type opportunities? Or are you thinking more asset management tuck in M&A type opportunities? What are you referring to there?
Bobby LeBlanc
It's more of the former, as we said, we are what we do, we are looking at tuck in acquisitions as well on the asset management side. But when I when I talk about being really opportunistic, it's on it's deploying capital whether that be in a PE deal on the equity side or some kind of junior capital in the industry, we know really well.
Tad
Okay, great. And then one last, if I could, just on the CLO side, how are your default rates there trending relative to what you're seeing in the overall, I guess, the high-yield market or the levered loan market?
Emma Thompson
Yeah, no, Graham, the portfolio is in very good shape. And in particular, if you look at the portfolio against the various risk metrics that people track for CLOs. And that might be the amount of triple C in the portfolio, et cetera. We're typically top quartile across the industry. And so we feel really well positioned with our CLO portfolio.
Tad
Thank you. Thank you.
Operator
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Bobby LeBlanc for any further remarks.
Bobby LeBlanc
Thanks for your time today. If you have any questions, as always, feel free to call me or Chris or Jill or Zev. We'd be happy to answer your questions. Hope you have a nice weekend and look forward to talking to you all again soon.
Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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