Thank you for standing by, and welcome to the Q1 2024 AGF Management Limited Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. As a reminder, this call is being recorded. I would now like to introduce, for today's conference call, Mr. Tsang. You may begin.
Thank you, operator, and good morning, everyone. I'm Ken Tsang, Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the first quarter of fiscal 2024. 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 McCreadie, Chief Executive Officer and Chief Investment Officer. For the Q&A period following the presentation, Judy Goldring, President and Head of Global Distribution, and Ash Lawrence, Head of AGF Capital Partners, will also be available to address questions. Turning to slide 4, I'll provide the agenda for today's call. We will discuss highlights of the first quarter results for 2024, provide an update on our business, review our financial results, discuss our capital and liquidity position, and finally, close by summarizing the key investment highlights for AGF.
After the prepared remarks, we will be happy to have questions taken. With that, I will now turn the call over to Kevin.
Thank you, Ken, and thank you everyone for joining us today. At the end of the first quarter, our AUM and fee-earning assets reached CAD 45 billion, up 7% from a year ago. Adjusted diluted EPS was CAD 0.51 in the quarter, up 89% year-over-year. In addition, we have CAD 320 million in short and long-term investments on our balance sheet, net debt of CAD 17 million, with CAD 110 million available on our credit facility. We have capital available and flexibility in our capital allocation strategy. In February, we announced a strategic investment in New Holland Capital, a New York-based multi-strategy investment manager with over $5 billion in AUM or CAD 7.4 billion in Canadian dollars.
Subsequent to the quarter, on March 8, we also announced the closing of our previously announced transaction to acquire 51% of Kensington Capital Partners. I'll speak more to this later on, and Ash will be available for questions. Finally, the board declared a CAD 0.115 per share dividend for Q1 2024, representing a 5% dividend increase. This is the fourth consecutive year where we have increased our dividend. Starting on slide 6, 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 increased 9% year-over-year, outpacing the industry, which increased by 7%. Our ETF and SMA AUM increased 20% year-over-year.
I'll provide more color on our mutual fund businesses and ETF and SMA AUM in a moment. Segregated accounts and sub-advisory AUM increased by 2% compared to the prior year. During the quarter, we received a redemption notice from one of our institutional clients for CAD 800 million. The redemption was driven by the client's shift towards passive management. Last quarter, we onboarded two of our global equity strategies onto an institutional platform in Asia. Getting onto this platform expands our distribution reach for the strategy. Since this relationship started in late Q4, we've had cumulative net flows of close to CAD 72 million. Our private wealth AUM increased by 7% compared to the prior year to CAD 7.8 billion, and our Capital Partners AUM and fee-earning assets were CAD 2.2 billion at the end of the quarter.
Closing the Kensington transaction will increase the assets to CAD 4.8 billion. Turning to slide 7, I'll provide some details on the mutual fund business. The challenging market environment continued to weigh on industry and AGF flows, but improved from Q4 to Q1, in part due to the RRSP season. The Canadian mutual fund industry experienced net redemptions of approximately CAD 4 billion in the quarter, which is the industry's eighth consecutive quarter of net outflows. AGF reported mutual fund net redemptions of CAD 125 million in the quarter. Since Q2 of 2022, when interest rates started increasing, the industry has had over CAD 140 billion of net redemptions in long-term funds, while AGF achieved positive retail mutual fund net sales of approximately CAD 100 million over that same period, allowing us to grow our overall market share.
Looking forward, we continue to take a long-term approach to increasing our penetration in high-growth distribution channels by diversifying our capabilities and offerings. I want to now give a quick update on our investment performance. AGF 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. Our long-term fund performance remains solid. At the end of Q1, our three-year performance has been in the 50th percentile, and our five-year performance has been in the 45th percentile. Furthermore, approximately 60% of our strategies are outperforming our peers on a three- and five-year basis.
In addition, four of our funds, the AGF Global Select, AGF American Growth, the AGF Global Convertible Bond, and AGF Fixed Income Plus, earned the FundGrade A+ Awards, which are given annually to investment funds and their managers who have shown consistent, outstanding, risk-adjusted performance throughout the year. Our one-year performance was in the 68th percentile. As discussed in previous quarters, our one-year performance continues to be impacted by extreme market narrowness experienced in the spring of 2023. As those months drop off, our one-year performance is expected to improve. Slide eight shows our ETF and SMA AUM. The AUM in this category has grown 49% on a compounded basis over the last two years. Included in this number are Canadian and U.S.-listed ETFs and SMA platforms globally.
We have seen consistent growth and momentum in the SMA business, both in the U.S., Canada, as well as Asia, where a number of our strategies are available on leading SMA and wealth management platforms. In February, we broadened our ETF offerings with the launch of ETF series on three of our long-standing funds. These ETF launches further advance our goal to provide investors with options to access our capabilities in their preferred investment vehicle. With that, I will turn the call over to Ken.
Thanks, Kevin. Slide nine reflects a summary of our financial results for the first quarter with sequential quarter and year-over-year comparisons. The financial results in these periods are adjusted to exclude severance and corporate development expenses. Adjusted EBITDA for the quarter was CAD 49.5 million, which is CAD 22 million higher than Q4 and the prior year, mainly due to revenue from AGF Capital Partners. I will speak further about this in a minute. Net management fees for the quarter was CAD 75 million, which is 4% higher than Q4 and 2.6% higher than the prior year. This is due to higher AUM, offset by lower management fee rates. As a reminder, the net management fee rate is directly influenced by the product and series mix within our mutual fund assets.
Adjusted SG&A for the quarter was CAD 53.5 million, which is 5.5% higher than Q4 and 1.3% higher than prior year. The increase against Q4 includes a timing impact of higher government-related employee benefit expenses, such as CPP and EI, which are paid annually in the first quarter. The year-over-year increase is consistent with our guidance on annual SG&A expenses, increasing by 1.5% from 2023 to 2024. AGF Capital Partners contributed revenues of CAD 24.4 million in the quarter, which is approximately CAD 20 million higher than Q4 and the prior year, mainly due to an outsized fair value gain on our long-term investments. Revenue from Capital Partner managers this quarter's was CAD 1 million, which is down CAD 400,000 from the previous quarter and flat to the prior year.
Carried interest and performance fees can be variable quarter to quarter and are impacted by the timing of monetizations within the funds. Revenues from Capital Partners' long-term investments was CAD 23.4 million this quarter, compared to CAD 2.5 million in Q4 and CAD 2.9 million in the prior year. As a reminder, AGF participates as an investor in our partner's LP funds, benefiting from valuation increases and distributions from those funds. Our portfolio of long-term investments has performed very well in the current market environment. While fair value adjustments on the investments can be lumpy quarter to quarter, we remain conservative in our guidance and target annual returns of roughly 8%-10%. Since inception, our investments have returned an IRR in excess of 12% on a net basis.
Adjusted EPS was CAD 0.51 this quarter, which is higher than Q4 and prior year, due to the higher revenues from net management fees and Capital Partners. Turning to slide 10, I'll address our SG&A guidance. In January, we provided our 2024 adjusted SG&A guidance of CAD 209 million. After adjusting for seasonality in our Q1 results, we remain confident with this pre-acquisition core guidance. We had previously committed to providing an updated SG&A guidance upon closing of the Kensington deal. Today, we are revising our guidance to CAD 227 million to include our recent acquisitions and additional near-term investments to support our growing AGF Capital Partners business. We continue to be thoughtful and disciplined in our approach to expense management while also investing for growth.
Our updated expense guidance does not include any expenses related to performance fees and carried interest earned by our partners. It also does not include severance and corporate development costs. Finally, our adjusted SG&A guidance also assumes investment performance, fund sales, and AGF stock price trades within a certain level. Turning to slide 11, I will walk through the yield on our business in terms of basis points. This slide shows our average AUM, net management fees, adjusted SG&A, and EBITDA as basis points on our average AUM in the current quarter, previous quarter, and trailing twelve months. This view excludes AUM and related results from Capital Partners, as well as DS C revenues, other income, severance, corporate development, and acquisition-related expenses. The Q1 2024 net management fee yield was 73 basis points, which is 1 basis point lower than the previous quarter and the trailing twelve months.
The net management fee yield decline is in line with what we've guided to in the past as we execute on diversifying our client base. Scaling our business across different business lines has offset the rate reduction. Adjusted SG&A as a percentage of AUM was 52 basis points this quarter, which is in line with prior quarters and the trailing twelve months. This resulted in an EBITDA yield of 21 basis points in the quarter, which was 1 basis point lower than the comparable period. Turning to Slide 12, I will discuss the free cash flows and capital uses. This slide represents the last five quarters of consolidated free cash flows on a trailing twelve-month basis, as shown by the orange bars on the chart. The black line represents the percentage of our free cash flows that was paid out as dividends.
Our trailing twelve-month free cash flows was CAD 78 million, and our dividend paid as a percentage of free cash flows was 36%. In the same period, we returned CAD 46 million to shareholders in the form of dividends and share repurchases under our NCIB. Our cash balance at the end of February was CAD 23 million, and we have CAD 320 million in short-term and long-term investments. We have CAD 110 million remaining on our credit facility, which provides credit to a maximum of CAD 150 million. Our remaining capital commitment to our existing Capital Partners LPs is CAD 17 million. Taking all of this into account, we have ample capital to deploy, even after considering our 51% acquisition of Kensington and our strategic investment in New Holland Capital.
Our future capital allocation will be balanced and includes returning capital to shareholders in the form of dividends and share buybacks, as well as investing in areas of growth. Redeploying our remaining excess capital to drive growth and generate recurring earnings remains a key strategic priority. Before I pass it back to Kevin, let me take a minute on Slide 13 to look at our market valuation. AGF's current share price is about CAD 8.40. Our adjusted EPS, as at the end of 2023, was about CAD 1.35, which implies a PE of about 6x for our three main businesses. Comparing this multiple against that of our peer group suggests AGF is trading at a discount. For instance, using conservative industry assumptions, we've assumed a market multiple of 8x for traditional asset managers and 15x for alternative managers.
This would suggest a discount of 25% and 60% for those two businesses. If you valued our long-term investments at the current book value, this would suggest a discount of about 60%. Besides our earnings, AGF also has an enviable balance sheet with virtually no debt, making us one of the lowest-leveraged companies in the industry. I will now pass it back to Kevin to close out the remainder of the presentation.
Thanks, Ken. Given the recent announcement of our two completed transactions, I'd like to take a minute to talk about our AGF Capital Partners business. We started our journey about 10 years ago, when we partnered with different firms to build out our footprint in the alternative space. Over the years, we have seeded over CAD 400 million into various funds and achieved over a 12% IRR on those investments. As Ken alluded to earlier, we currently have close to CAD 300 million of long-term investments, with exposure across venture capital, private credit, and infrastructure. In addition to our AGF Capital Partners business, we have also been building our capabilities in liquid alternatives, including our market-neutral Anti-Beta strategy, ETFs, which have garnered interest from investors over the last few years.
With Ash Lawrence coming on board, we made it a strategic priority to significantly scale this business through acquisitions. AGF Capital Partners' objectives are to build a diversified private alts business that is meaningful in scale, provide access to a broad range of strategies across asset classes and categories for investors, and to generate material and sustainable income streams from this business. With that as a backdrop, let me discuss our recent investment in New Holland Capital on the next page. On February twelfth, we completed our strategic investment into New Holland Capital, a New York-based multi-strategy investment manager with more than CAD 7 billion in AUM in Canadian dollars. Founded in 2006, New Holland has more than 17 years of experience providing institutional investors with absolute return strategies across the liquidity spectrum.
Their flagship Tactical Alpha Multi-PM investment strategy focuses on identifying alpha-generating opportunities in both fundamental and quantitative strategies in liquid markets. They also manage strategies that invest in non-correlated niche credit opportunities, including specialty finance and real assets infrastructure. In addition, they deliver customized absolute return investment solutions for large institutional investors. We made the investment in the form of a note convertible into a 24.99% interest in New Holland, with an option to subsequently increase our ownership stake over time. The investment into New Holland, along with our completed transaction with Kensington, will allow us to evolve into a true multi-boutique alternatives business, which I can speak to on the next page. With these two recently completed transactions, coupled with our existing alternatives capabilities, AGF now has diverse capabilities and a broad suite of solutions across private and liquid alternative strategies.
Under this umbrella, clients will benefit from our partners' specialized investment expertise in private equity, venture capital, private credit, absolute return, and liquid alternatives. As we continue to look for acquisitions in this space, partnering firms will also benefit from AGF's scale, brand, and distribution network to drive further growth.
To sum up this first quarter, we continue to make great progress against a number of our strategic objectives. Our AUM and fee-earning assets continue to climb, reaching CAD 45 billion. We are delivering against our Capital Partner strategy through our investments into Kensington and New Holland. Finally, we increased our quarterly dividend, now four years running, on the back of our strong capital position and free cash flows. I want to thank everyone on the AGF team for all of their hard work, and we will now take your questions.
Thank you. If you have a question at this time, please press star one one on your touchtone telephone. One moment for questions. Our first question comes from Gary Ho with Desjardins Capital. Your line is open.
Thanks, and good morning. Maybe first question for Ash. Can you give a bit more color and details on the CAD 24.4 million revenue from the AGF Capital Partners, maybe the chunkier pieces? And then historically, you've guided to that 8%-10% return on your long-term investments. The question is, you know, why is that still relevant? I think in your slide, you show kind of 12.3% IRR, and obviously, you've done better than that, this quarter.
Yeah, thanks for the question. So maybe I'll start with the twenty-four million, and a good chunk of that is the fair value increase. That fair value increase is largely, not entirely, but largely related to our infrastructure investments. So I'll just make three very quick points, more specific to that. So right off the bat, and as we've said in prior calls, some of these fair value increases can be pretty lumpy in nature, as a result of underlying closed-ended funds, business plans at the portfolio company level, and J-curve impacts. We would expect, as we've seen in our historicals, that lumpiness would continue. More specifically to our infrastructure investments, we started in this space in 2016.
That's the vintage where a lot of our early dollars went in, so we're now looking 7-8 years ago. Generally, those investments are now on the other side of the J-curve, again, from a business plan, execution, and value creation perspective. So it's not surprising to us that we're starting to see some of this value creation come through in the fair values. And lastly, I'd say that, again, it's not surprising for us to see business performance and metrics improving for infrastructure assets, especially those that fall into the more traditional definition of infrastructure. And by traditional, I mean businesses that have a pretty high component of real assets, inflation-linked revenue streams, and pretty high barriers to entry.
And in our case, when you think about the revenue streams, we would expect that in the environment we've been in with inflation, that you would start to see this push through, on the revenue impact, and that is indeed what we are seeing in some of the underlying investments. And so I think we're at that stage now where it is starting to get reflected in, in valuations. All that being said, we remain pretty comfortable that our fair values are reflective of the underlying investments, given the sectors that it's coming from and, and what's going on, both within that sector and on a macro basis.
Okay.
On the second-
Thanks again.
Sorry, just on your second question around the returns. We think of the 8%-10% and our invested capital in the space, and what we can expect sort of averaged out, even though it's gonna be lumpy from that perspective. Really, the 12.3, and mentioning that, is for us to indicate that we are achieving the returns that we would expect on these investments. And if you think about that from a net basis, and you think about the sectors we're in, in infrastructure and private credit for the most part, that is a pretty fair to good performance on a net basis after fees.
Okay. Thanks, thanks for that. And the second question I have here, maybe for Ken. You know, how, how should we think about the Kensington contribution and performance fee expectation now that you've kind of closed that transaction? Can you provide kind of historical performance fees versus management fees mix? And then on a related question, for New Holland, can I-- maybe just remind me, how their contribution hits your financial? Is it just the interest from the convertible notes or any other nuance that we should be aware of?
Yeah, happy to answer that, Gary, and good morning. Yeah, firstly, maybe with respect to, Kensington, we typically, you know, would not guide to revenues, overall for each of the respective businesses. And, as many are aware, in particular, performance fees can be quite lumpy, quarter to quarter. Having said that, though, I mean, the SG&A guidance we did provide, related, for the most part, to, you know, the consolidation of Kensington, plus some additional investments that we are looking to make for the broader, Capital Partners business in general. The expectation is that, even factoring in, the SG&A increase, that, we would still be, accretive from an EBITDA basis, on a go-forward basis.
With respect to your question on New Holland, this is very much just treated as an investment in our books. And so you're right, it is very much one where it you know generates investment income on a quarter-by-quarter basis, and as well as any fair value adjustments that we would have to make in light of current market environments.
Okay. Sorry, just wanted to clarify. So on the Kensington piece, are you able to provide maybe the historical performance fee mix versus management fees, like, not on a prospective basis, but that may be historically how they have done?
I'll let Ash jump in as well. But I mean, I think, as the results will flow through, you'll notice that, you know, the performance fees typically are quite lumpy. And in fact, that deal, you know, potentially paid out sort of even towards the end of a year, right? And so, it's just quite challenging to forecast that out and provide just a lot of guidance on it. But I'll ask Ash to provide any further color.
Yeah, I think part of what we see is over the last few years, if you think about 2020, 2021, and 2022, it is highly reflective of that lumpiness. And so, you know, in 2021, generally across the private equity industry, you would have seen very, very high levels of carried interest. 2020, you would have seen almost the exact opposite, and then it slowed down again in 2022 as rates went up, and there was a little bit of a freeze in the capital markets from a transaction perspective. So it becomes difficult to think about it on a go-forward basis because it is heavily dependent on how the capital markets are behaving.
Just to be clear, those performance fees are essentially like carried interest, and that they are driven by underlying monetizations, which is sort of leading to both Ken and I's comments around the lumpiness.
Okay.
Can I add to that? Sorry, Gary, I was just gonna add that my point on the EBITDA accretion is, would be sort of even prior to any performance fees being paid.
Yes. Okay, that, that makes sense. And then if I can just sneak one more in for Judy, I think she's on the call. Maybe just update on the RSP season. Maybe talk about how you're positioned to capture the potential flows back to investment funds when rates eventually fall and GICs and cash kind of move back out of the sidelines.
Sure. Thanks, Gary. Well, just a quarter to date, I guess that would be from March 1 to today, we're seeing about... I'd call almost flat, of course, but -20 in redemptions. So it's been an improving trend quarter-over-quarter since the last few quarters, which is encouraging to see. And then as we look to the market, you know, you've probably seen the same data that we've been looking at, which is quite a big shift of money flowing into actual fixed income mandates. You know, maybe GICs are coming mature and et cetera, and they seem to be flowing more into the funds. And from that perspective, we feel quite comfortable. We've got a really good lineup of fixed income mandates. We expect we can be taking our share of that market.
We have Fixed Income Plus, which is a four-star Morningstar F series and Global Convert and a couple of others. And maybe, Kevin, did you want to add anything else on the investment side?
Yeah, Gary, good morning. Yeah, you're starting to see anecdotally, if you look at just money market flows and HISA flows, just at the margin starting to turn negative, which would lead me to believe that when we look at industry data in March, my guess is it should actually be the first non-RRSP month in two years, that we may see a slight positive flow for the industry. Not sure, it's a guess. What will happen is it'll come back, as Judy said, as GICs mature. People will first go to bond funds because you're actually getting income now. And second, people are gonna play for a rate cut, which means, anything with duration is gonna do well. And so my guess is you'll see it slowly start to seep out of some of that.
I think the real big impact on flows, though, will happen when you start to seriously cut rates. You start to... The banks will drop GIC rates a lot faster. That will move money back into things. But I think at the margin, you're starting to see it. But in terms of, you know, we outran this for, I think, seven of the eight quarters that the industry was negative. We knew we were gonna eventually flip it over, and which we did. And I think now you're seeing the other side. We should start to pick back up as the industry starts to get healthy. So we're pretty optimistic that we're positioning capture either vis-a-vis that fixed income trade or if it turns back to equities later on, given the strong start to the year.
Okay. That's perfect. Those are my questions. Thank you.
One moment for our next question. Our next question comes from Nik Priebe with CIBC Capital Markets. Your line is open.
Okay, thanks. I just wanted to circle back on the question around the fair value adjustment in the quarter. So the adjustment was CAD 22 million. The long-term investments at the beginning of the quarter, about CAD 250 million. So, you know, the magnitude is something like 9%. I don't know what the split is between infrastructure and private credit, but, you know, really simplistically, if it were split evenly, it would apply more like a 19% or you know, something in that order of magnitude, in a single quarter. It just seems unusually large to me. Like, was there any event that triggered the revaluation of a chunkier investment or anything, you know, more specific that kind of prompted the markup there?
Thanks, Nik. Maybe I'll take that. So, so generally, we won't and are really in a position to comment on, on the underlying investments. I, I, I will say there was no single event, that created, this, the CAD 20-odd million increase. I, I go back to some of the general things we're starting to see in the infrastructure space take hold, again, largely because of the inflationary environment. And if you think about the vintage of our early fund, it invested in a market where there was still, the traditional definition of infrastructure was still what we were investing in.
And like I said, those are the ones that are going to see the most benefit in this kind of environment, versus what you see now in the infrastructure definition, where you have a little more digital infrastructure sneaking in, which sees less of that benefit. So I think this is very much, a result of the sector and the vintage that we've invested in. With private credit, you know, for the most part, our valuations there don't move around that much. We get a lot of distribution out of it, but fair values are generally smaller moves. It's mostly on the closed-ended infrastructure funds where we're seeing this.
Maybe I'll just add to it from a financial perspective, Nik. I mean, if we've historically talked about an 8%-10% sort of a return, which is, you know, useful as a high-level guidance to what the, you know, annual rate of return is for our overall Capital Partners business, right? So if you look at sort of 8%-10% on a CAD 300 million book, that equates to about CAD 24 million-CAD 30 million or so per year, or roughly CAD 6-CAD 7 million per quarter for that business, right? So, you know, obviously, given where we've landed in the first quarter, you know that annual number that we've, you know, we've talked about looks quite achievable for the rest of the year.
Okay. Okay, no, fair enough. And then there was also a CAD 16 million capital commitment that was made in the quarter to the private markets business. Now, Kensington, that investment was completed subsequent to quarter end, which is when I would've expected to see any related commitment made. So what was that CAD 16 million commitment related to in the quarter?
Yeah, sure. Gary, we still have commitments that are required in our existing long-term investments portfolio. So this relates to really those types of investments. You'll recall, I think we mentioned we still have about CAD 17 million or so of remaining commitments to these existing long-term investments portfolios. Sorry, and did you have a second part to your question?
No, that was it. And just also, like, you know, how are those commitments expected to evolve? Like, are you expecting to have further commitments with Kensington, I guess, subsequent to quarter end? Like, I'm just—I'm just kind of balancing that against, you know, the scale of proprietary capital and balance sheet and how that'll all play out.
Yeah, it's Ash here. So as Ken said, we have existing commitments that relate to funds we've already committed to. On a go-forward basis, any commitments we make to future partners are going to be, I'll call it, strategic in nature, so new product launches that need seeding and those kind of, strategic use of our capital. So as of now, we aren't expecting any near term, and our existing commitments are slowly starting to burn off, so that should burn off over the course of the year. That's not to say we won't have future commitments, but they will be specific to, again, like I said, new product launches, entering new geographies with a product, those areas where a commitment by the sponsor can be beneficial to raising third-party capital.
Nik, if I can add, it's Kevin. The other thing to remember here, as Ash said, we're some of these are long tail now. You're going to start to see monetizations come out of some of those early-stage funds, which will actually, again, start to recycle some of that capital back. So, the 16, as you said, is prior commitments made, and probably most of that, many of them might not even get called. And you'll probably see, again, more recycling of things from those vintages.
Yeah. Okay. No, that's good. And then last one for me before I pass the line. So net redemptions in the mutual fund business in the quarter were CAD 125 million. Are you able to say what those net flows would have been if we also included the ETF and SMA offerings as well?
Yeah, sure. Why don't, why don't I take that? Thanks, Nik. Yeah, we—you're right, we were CAD 125 million in net redemptions, which, as I pointed out earlier, is, you know, an improvement over Q4 2023. That being said, we don't, when you talk about ETF and SMA, it is a, a good question because it is a changing environment that we're working within. It's hard to get clear and timely data, particularly on the SMA side, and you can't necessarily conclude that if you have growth of SMA, it would have otherwise gone into your mutual fund. But when we do look at it, you know, we don't break it down, and we don't typically give that, that breakdown out.
But that being said, if we look at the data, I think what we would roughly be able to say is our redemptions would have improved by about half. And we're seeing great growth on our SMA platform. We're up 87% year-over-year in Canada, quarter-over-quarter, up 30%. So that is a great area of targeted growth for us at this point.
Yeah, and Nik, it's Kevin, just to follow on that. It's going to get more challenging. I think we've talked about this on prior calls. Our SMA business is doing so well. We know that every dealer, every platform, are putting these technology layers in, which is going to allow and drive that faster. So it's going to be harder to interpret until the industry does a better job of reporting net flows across vehicles, how a company's really doing, because you're going to see some of it coming out of the vehicle of a fund, not being able to tell how much of it's going back into your SMA or ETFs, et cetera. But I think it's something we have to evolve as an industry on how we look at that data.
Okay. I guess we'll have to keep a closer eye on that line item in the AUM schedule. Okay, that's it for me. I'll pass the line. Thanks.
One moment before our next question. Our next question comes from Graham Ryding with TD Securities. Your line is open.
Hi, good morning. Just wanted to touch on, I think you've mentioned, Kevin, that there's a CAD 800 million institutional redemption coming through next quarter. Can you just give us some color on sort of what type of mandate and, what kind of revenue or fee impact we should, we should be forecasting out from this?
Yeah, why don't I start, and I'll and Kevin can add any color. The redemption is coming from a large U.S.-based institutional client, that we're not going to disclose the name. We've had that client for many years, and from the client's perspective, it really was a change of objectives, where they are moving to a much more passive strategy, and we were one of many, sub-advisor managers that were impacted. In terms of revenue impact, again, you can appreciate it was a large mandate at a quite a competitive rate. But our financial outlook is really not impacted as a result of this loss of client, although it is unfortunate.
Yeah, and that's appropriate.
So safe to assume that the management fee rate is lower than your weighted average management fee rate?
Yeah, it won't have an impact on it, really, Graham.
Okay, understood. And then, now I guess now that the Kensington deal is closed, you know, can you give us some color, Ash, maybe on just what your initial focus is here? Are you going to try to promote and, you know, accelerate the penetration of the retail channel? Or, and if so, how do you go about that?
Yeah, we have a few, I'll call them, early initiatives that are underway with Kensington. A lot of them do relate to sort of what you describe as how we can help them with broad exposure, given some of the resources that we have within our shop. As a quick example, how can we help them leverage our marketing and production capabilities in that area of the AGF complex to benefit them in terms of exposure of their product? They've done a very good and admirable job, and it was actually something that attracted us to them on the distribution side. And so a lot of what we're doing is how we can help them accelerate that?
Some of the other things we're talking to them about are geographic expansions around distribution and product set. That will take a little bit of time for us to flush out. Obviously, that involves regulatory vehicle structure considerations, but those discussions are ongoing now. And then, you know, the less outward-focused things that are underway are around just helping them become more efficient in some of their support functions. So not the direct investing, not the direct distribution, but some of those things behind the scenes that contribute to the success of their business, and how we can help them make them more efficient from a cost perspective, but also from a best practices perspective.
Okay, perfect. It's helpful. Maybe, Ash, I'll stick with you in just sort of a bigger picture question. Should we expect some more M&A activity from you over the near term, or are you looking to sort of consolidate, given you've done a couple of deals recently? That would be the first part. And then, what's your sort of overall vision here? Are you going to have investments in several private asset managers? Do you let them run independently as boutiques, and then you look to support them on the distribution and operational side? Is that the broad vision?
Yeah, maybe I'll take those two in reverse order. Yes, you're correct. Our strategy is to build a multi-boutique with multiple managers, sort of under the AGF umbrella. And each manager is going to have a different profile in different areas where we can help. There'll be some consistency around that. I presume distribution and product development will sort of be a factor in most partners. But that is the structure we're putting in place to bring our size, scale, specific expertise, level of resources to help these managers grow, but leave them as distinct operating entities for the most part. We are also looking to build a multi-boutique structure, where the individual managers we partner with underneath don't compete with each other.
So we're not going to double up on strategies in geographies where we're effectively cannibalizing ourselves. The other thing this does is it puts those managers in a much easier position for us to facilitate collaboration among them. So not just vertically upwards with AGF, in terms of efficiencies and collaboration, but also horizontally among our manager partners, as we move forward. To get to the origination and deal pipeline, our deal pipeline is still open and active. Obviously, we're going to make sure we put resources and time and effort with our existing partners to make sure those partnerships start off on the right foot and are productive and beneficial for both parties. But our pipeline is open. It is still relatively healthy.
We are going to be a little more focused now that we've got sort of two of our target sectors and areas and geographies in place with Kensington and New Holland Capital. We expect most of our activity is going to be managers south of the border. We're still looking at U.S.-based private credit. Secondaries is an area of focus, and we do think real estate both credit and equity is at an interesting stage of that evolution for us to start thinking about. Keep in mind, as you think about the balance of our fiscal year, even with our two transactions, they tend to have relatively long deal cycles, as we are dealing with private companies, often with founding partners, complex tax situations, things like that.
So while the pipeline is open, and we would hope we would start to see some origination activity fall to the bottom of our pipeline funnel, it does take time for us to get that to fruition. I think the average of our first two deals was almost a year to get it from initial handshake, and introduction to closing.
Okay. That's good to me. Thank you.
One moment for our next question. Our next question comes from Tom MacKinnon with BMO Capital. Your line is open.
Yeah, thanks very much. With respect to Kensington, now that it's closed, I think you're gonna be accounting for this on a 100% basis, both in terms of revenue and SG&A, and then, back out some non-controlling. Do I have that correct?
Yeah, that's correct, Tom.
Okay. And so on slide 10, what does this 18 increment reflect any of the, does that reflect 100% of some of the SG&A associated with Kensington then?
Yes, it's 100% associated with Kensington, and we've also factored in some additional growth investments for the broader private capital business.
What percentage of that 18 reflects the stuff that isn't Kensington?
It's a much smaller percentage, obviously. The bulk of that would relate to Kensington.
Okay, then. And then how should we, so you've given some sort of guide on SG&A with respect to Kensington here, but you haven't given any guide with respect to revenue on Kensington. Do I have that correct? And then how should we be thinking of that? Is that, you know, what should we be thinking of just in terms of fee-related revenues?
Yeah, sure. I mean, yeah, no, you're correct, Tom, we haven't historically guided to revenues for really any of our businesses. But, I mean, you know, for the purposes of your models, I think you've, you know, there are some sort of fee disclosures, percentages, with respect to Kensington that you could leverage for your modeling purposes. But, as a whole, I would say, you know, overall, this business, you know, as I'd mentioned earlier, it would be accretive, both from an EBITDA and an earnings per share basis, prior to factoring any cost of debt.
Great. Just to confirm, that 18 includes 100% of Kensington, despite the fact that you only own 51%, correct?
That's correct.
Yeah. Okay. And then if we go to slide 13, it's an interesting slide with respect to just the earnings components. If you look at long-term investments, with making up almost a quarter of your 2023 adjusted EPS, you know, a significant shift from years ago. How do you see this kind of evolving going forward? Do you see the core continuing to shrink and as a percentage of the total adjusted EPS? How should we be-- what's the strategy with respect to any kind of mix of your earnings between those three buckets, i.e., the managers, the long-term investments, and then the core AUM?
Yeah. Hey, Tom, it's Kevin. Good morning. Let me start, and I'll hand it to Ken to follow on. You know, we think about the world and what the client wants, right? The asset allocation preferences for our clients are changing. Not just the vehicle change we talked about with in our retail business about SMAs and ETF, but actual asset allocation choices to things that are more alternative, looking, both private alternative, liquid alternatives. You can reference U.S. studies. It's not just the institutional client base, but heavily the retail client base. So it's logical that this mix will shift over time. The shift that Ash has made from the strategy, from again, passively investing in funds to get us started, to actually now moving toward more operating businesses. So that pie will shift.
In terms of what that looks like, you know, hard to say, but you can see again, if you link this with, again, client preferences, it's logical to see that this portion of the pie, they will both grow, but this may grow faster.
Yeah, and I'll just add. Oh, sorry. Tom, I was just gonna add to Kevin's point that, you know, the EPS number on slide 13, of course, is 20, last year's full year EPS number, right? This quarter's, you know, earnings, obviously, we had a pretty blowout earnings from the fair value adjustment, right? And just gives us more assurance that we would, you know, have a considerable amount of confidence in hitting that overall annual number, as I had indicated earlier.
Understood. Assuming if you say it's based on what clients want, so if clients were sort of thinking that, okay, maybe I'll be 30% in alternatives, then why would that bucket associated with Capital Partners be bigger than 30%?
Yeah, well, let's... Yeah, let me take a couple of looks at that, Tom. If you look at our asset mix today, and you consolidate even our, well, let's leave New Holland aside for a second, right? It's, it's less than that when we think of the Capital Partners and managers, right? And as we think about the, the fee component, if we obviously make the shift again from what I call today, being driven by a lot of LP earnings and drive them into operating earnings as we start to make this shift, then I think the, the balance is more appropriate. I don't think clients will be at 30%. Not everyone's gonna take the Yale model.
But let's assume that if the industry in Canada, just take retail, between ETFs and mutual funds is $2 trillion today. And if that allocation to alternatives grows by just 5% from where we are today, which is probably a low single-digit number, that's $100 billion of assets at play. So it is a growing and attractive space for us. I also think the world is changing, right? We've had near zero interest rates for 15 years. Things that didn't work are going to work in the alternative space. So the New Holland acquisition for us is an attractive opportunity to think about absolute return.
If we think that interest rates drop a little bit, and they stop at 3.5% or 4%, and you have a vehicle that can give you, you know, that cash rate of 3% or 4%+ . 3% or 4% with low volatility, that's going to be a very interesting product to have in the market as we go through this next cycle. So I think, again, it's asset allocation preferences, but it's also about how we shift the strategy. And I don't know, Ash, if you've had any other thoughts on that, to answer Tom's question.
Yeah, no, I think that's all accurate. The only thing I would add is, asset mix, whether it's 30/70 or some other mix allocation in the future, from a revenue perspective, the fee rates, there's a differential in the fee rates between some of our traditional products and some of the alternative, and certainly the private capital products that are out there, which will throw off the allocation versus the impact on our business.
Okay, great. And sorry, just squeeze in one more. I think Ken gave fair value adjustments of 6-7 per quarter as sort of a guide on the 24-30. Does that include... I assume that does not include the, recent investment in, New Holland Capital, correct?
That's correct. That excludes it.
So it would be slightly higher, including that, then?
Yeah. I mean, bear in mind, I mean, the New Holland investment was $4 million, right? So, obviously, the quantum is very different.
Got it. Okay, thanks so much.
Again, ladies and gentlemen, if you have a question at this time, please press star one one on your touchtone telephone. Our next question is a follow-up from Gary Ho. One moment. And Gary, your line is open. Gary Ho with Desjardins, your line is open. You can ask your question.
Yeah, sorry about that. So just a quick follow-up, maybe for Kevin or Ash. So you've now hit your CAD 5 billion alternative target. Maybe just going back to Graham's question there. So when you look out maybe three to five years, what is the next target that we should think about in terms of either AUM target or EBITDA or next target for your alternative business?
So Gary, it's Kevin. I'll let Ash answer this one. So, maybe you start, Ash, and I can come back around.
Yeah, for sure. So, as we're in the build mode on our business and adding partners, as mentioned earlier, our pipeline is still open, and so we do expect over the next few years to add some additional partners in different geographies and different sectors. AUM becomes a difficult target to set because of the volatility around it with acquisitions. And what we are very conscious of is we don't want to aim for AUM targets as we're looking at managers. What we would rather do is look at track record compatibility with AGF and some of those other factors around the sectors and channels they operate in.
So as you can see, there's a big variability even between the AUM and between Kensington and NHC, and that obviously is a factor in terms of the AUM being able to generate track record, but it's not a direct drive factor in how we're going to choose partners going forward. So as we're in build mode, we're not going to focus on an AUM target per se. We're going to look at each partner, and look at those other factors before we add them.
Yeah, and Gary, from my perspective, I think we set that five a, a bunch of years ago to kind of give us and you guys some guidance about how we were thinking to get this initiative off the ground. Now that we're there, I say to Ash's point, I can tell you, this part of the pie will grow faster, so it's less relevant as a number versus, how we do it and, and how quickly we can get there.
Okay. Got it. Thanks for those.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. I'm not showing any further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. AGF's next earnings call will take place on June 26th, 2024. You may now disconnect.