ONEX Corporation

Welcome to ONIC's second quarter 2026 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 1-1 on your telephone keypad. As a reminder, this conference call is being recorded. And now I'll hand the conference over to Zev Korman, Vice President, Shareholder Relations and Communications at ONIX. Please go ahead, sir.

Thank you. Good morning, everyone. 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 Meg McClellan, our Chief Financial Officer. Also joining today's Q&A session is Paul Brand, Chief Executive Officer of Convict. Earlier this morning, we issued our second quarter 2026 press release MD&A and consolidated financial statements, which are available on the shareholders 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 USD, 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 Bobby.

Good morning, everyone. I'd like to thank Convex CEO Paul Brand for joining Meg and me for this call and for being available to answer your Convex-related questions when we get to Q&A. Onyx delivered a good second quarter. Convex continues to perform well our private equity funds returning meaningful capital to our limited partners and to ONIX, and our credit platform grew, regenerating assets under management and posted its strongest quarter yet for structured credit earnings. Before discussing our businesses in greater detail, I want to spend a few minutes on ONIX's strategy and capital allocation priorities. Our strategic plan remains focused on driving long-term enterprise value creation and earnings growth. When we announced the Convex acquisition, we described it as a key step in Onyx's evolution. The broader strategic direction outlined at that time can be summarized in four priorities. First, reposition our investing capital towards the direct ownership of Convex and one or two other additional businesses that ideally have a strategic fit with Convex and or our asset management business. while providing enhanced disclosure to our investors. Second, utilize our balance sheet more efficiently. Third, reduce the capital intensity of our asset management business while driving fee related earnings and carried interest growth. And fourth, position ONIX to resume returning capital to shareholders through share repurchases. We've made significant progress against each of these priorities in the first half of the year, and I will discuss each in turn. First, the mix of our investing capital. At year end 2025, private equity represented 5.6 billion, or 65% of investing capital. That has changed quickly over the past six months. Between the acquisition of Convex Significant realizations across our private equity portfolio and the sale of Emerald, which closed after quarter end. Private equity now accounts for $4.4 billion, or 46% of invested capital. That is a 19 percentage point reduction in six months. Convex now represents 44% of investing capital. Second, the balance sheet. Honest historically maintained a significant cash balance, in part to support large private equity and credit commitments. At year end 2025, our net cash balance was $2.1 billion, which was 24% of our investing capital. We deployed a significant portion of that cash and drew $700 million from an ad loan to help fund the convex acquisition. Since then, We have used private equity realizations to rapidly reduce the NAV loan to $220 million, leaving us in a net neutral cash position today. Third, the profitability and, as I just mentioned, the capital intensity of our asset management business. We remain on track to achieve $35 million of exit run rate FRE by the end of 2026, driven by improved profitability across both our private equity and credit businesses. Achieving this goal is dependent on having a successful first close for onyx partner six in Q4, which we believe is achievable. At the same time, we are reducing the amount of onyx capital required to support these businesses by limiting our participation in future onyx funds to a maximum of 10%, ensuring alignment with our limited partners while allowing for a higher proportion of third party fee paying capital. Meg will discuss our FRE trajectory and the related fundraising drivers further in her remarks. Fourth, how we allocate capital from here. Our strategy will include both share repurchases and deploying capital into one or two additional investments that can deliver compelling risk-adjusted returns for shareholders and where we will provide a high degree of disclosure and transparency. As we outlined last quarter, The continued repayment of the NAV loan was expected to position us to restart share repurchases. With the NAV loan now reduced to $220 million, ample liquidity available, and Onyx's shares continue to trade at a significant discount to management's view of intrinsic value, we expect to resume share repurchases immediately. None of this happens without good partners. Both Convex and our strategic investor AIG are proving to be exceptional partners, and both are closely aligned with us on the path to value creation. We recently closed the first allocation from AIG under its three-year, $2 billion commitment to Onyx's funds with an investment in Moscow 2. And we expect more to follow for future Onyx funds, including Onyx Partner 6, and to separately manage accounts investing in Onyx's credit strategies. Turning now to Convex's performance. Convex delivered another strong quarter with premium growth, disciplined and profitable underwriting, and an attractive return on equity over the last 12-month period that continues to exceed 20%. Gross premiums written were 1.9 billion and a quarter, up 8% year over year, with growth across both insurance and reinsurance. Importantly, this growth was achieved despite negative price pressure with year-to-date rate changes at negative 5%. As we forecast at the time of our convex acquisition, insurance pricing has softened, in particular in short-tail classes of risk, such as property. In contrast, there has been rate increases in areas affected by the Middle East conflict and in casualty classes. It is important to reiterate that Convex's underwriting strategy is focused on profitability as opposed to top-line growth. Despite market conditions, Convex has continued to increase market share without sacrificing this strategy and expects to continue generating attractive underwriting performance. Convex generated net income of $169 million in the quarter and delivered an 85% combined ratio. Net investment returns were $45 million lower than in the prior year period. This is primarily reflected by mark-to-market losses on the investment portfolio this quarter, compared with a mark-to-market gain in the second quarter of last year. On a year-to-date basis, Convex generated adjusted net income of $275 million. Results were negatively impacted by $62 million of mark-to-market losses and Convex's investment portfolio, primarily related to fixed income investments. Excluding this non-operational accounting item, adjusted net income would have been $337 million. During the quarter, Convex completed the planned transition of his fixed income portfolio to an available for sale classification. As discussed last quarter, this treatment is consistent with peers and means future unrealized changes in values will be recorded outside of net income. The last 12 months provide the clearest view of Convex's earnings trajectory. Adjusted net income increased 38% to 719 million from 520 million in the prior year period, while the combined ratio improved to 84% from 94%, primarily reflecting a reduction in the loss ratio to 48% or 59%. Return on average tangible equity increased 350 basis points to 20.3%. Looking ahead, as Convex continues to mature and scale, we expect its earnings to benefit from the same structural levers we have previously discussed with shareholders. These include continued market share gains, prudent growth and asset leverage, which remains well below industry norms, improvement in investment portfolio yields, and improved operating leverage as the business continues to scale. We remain pleased with Convex's performance and value our partnership with Paul Brand and the entire Convex team. On to private equity. Realizations, or DPI, had OP's two most recent funds are well into the top quartile for similar funds of the same vintage. OP5, a 2019 vintage fund, has now returned 1.0 in DPI, which is a very important metric for the OP6 fundraise. Over the past 12 months, and including July transactions, ONIX has realized approximately $1.4 billion in distributions from ONIX partners, excluding Convex. OnCap is also actively working on realizations in Fund 4, which we expect would bring that fund's DPI to more than 1.0. The OnCap team is also focused on the continued deployment of OnCap 5 and has a robust deal pipeline of opportunities with the potential to close this year. Turning to credit, the team continues to grow assets under management by delivering differentiated and high-performing products and by expanding its investor base. Credit fee generating AUM has grown by 13% over the last 12 months. And just a few weeks ago, Onyx was ranked the 11th largest broadly syndicated CLO manager globally by AUM, putting us within reach of the top 10. It is worth highlighting once more that direct lending represents only 1% of Onyx credits AUM. The combination of a long-term and sophisticated institutional client base, together with an intentionally underweight position in direct lending, is allowing us to avoid many of the headwinds facing the industry. In the first half of the year, the credit team has raised or extended 10 CLOs, representing a total of $4.4 billion in fee-generating assets. And in July, they also successfully achieved a final close for their second structured credit opportunities fund, OSCO II, bringing the new aggregate capital committed to deploy in this strategy to more than $500 million. Structured credit, which includes CLOs, ONTAPs, and the OSCO funds, delivered $19 million in fee-related earnings in Q2. It's best FRE quarter to date and remains well-positioned for continued growth. So let me close where I started. We said we would reposition our investing capital, use our balance sheet more efficiently, increase the profitability of our asset management business, and position ONIX to resume share buybacks as quickly as possible. We have already made meaningful progress against these goals in the first six months of this year.