Thank you for standing by, and welcome to the Q3 2026 AGF Management Limited earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. As a reminder, this call is being recorded. I would like to introduce your host for today's conference, Mr. Tsang, you may begin.
Thank you operator, and good morning, everyone. I am Ken Tsang, Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the third quarter of 2026. 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 Judy Goldring, Chief Executive Officer, and Ash Lawrence, Head of AGF Capital Partners. For the questions and answers period following the presentation, John Porter, Chief Investment Officer, will also be available to address questions. Slide four provides the agenda for today's call. After the prepared remarks, we will be happy to take questions. With that, I will now turn the call over to Judy.
Good morning, and thank you for joining us. Q3 was a solid quarter for AGF. Our AUM and fee earning assets were CAD 74 billion at quarter end, up 31% from a year ago. AGF Investments Canadian Retail Mutual Funds delivered its ninth consecutive quarter of positive retail mutual fund net sales with CAD 92 million in the quarter. Our SMA and ETFs continue to see strong growth, with AUM increasing by 57% year over year to CAD 5.5 billion, and our Canadian SMA and ETF net flows were CAD 179 million in the quarter. Kensington Capital Partners welcomed Saar Pikar and Bo Cenanovic, two industry veterans with extensive experience in private equity and venture capital to strengthen the senior leadership team at Kensington. Turning to our financials, we reported adjusted diluted EPS of CAD 0.49 and generated CAD 39 million of free cash flow in the quarter.
Our balance sheet remains strong, with CAD 432 million in short and long-term investments, net debt of CAD 28 million, and CAD 170 million available on our credit facility. The strength of our balance sheet and capital position provides us with flexibility to deploy capital thoughtfully in line with our strategic priorities. Starting on slide six, 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. AGF Investments Mutual Fund AUM was CAD 37.5 billion, up 14% year over year. The growth of our ETF and SMA AUM globally remains strong, up 57% year over year. I will provide more color on our mutual funds, ETFs, and SMA sales in a moment. Segregated accounts and sub-advisory AUM decreased 12% year over year.
This quarter, we saw CAD 650 million of redemptions from one of our institutional clients, of which CAD 150 million was pre-announced on our Q2 earnings call. The CAD 650 million in redemption this quarter was not performance related, but rather an asset allocation decision. Our AGF Private Wealth AUM increased by 7% compared to the prior year to CAD 9.7 billion. AGF Capital Partners AUM and fee-earning assets were CAD 15.7 billion at the end of the quarter, which now includes NHC AUM. Turning to slide seven, I will provide some details on our Canadian retail sales. The Canadian mutual fund industry saw positive net sales of CAD 18 billion in the quarter. While the headline industry net flows were strong, 70% of the net flows were directed to fixed income and balance funds, with only 12% flowing into equity funds.
Given our tilt toward equities, we are pleased to deliver the ninth consecutive quarter of positive net sales in our Canadian retail mutual fund business, with CAD 92 million in the quarter. Our Canadian ETF and SMA saw positive net flows of CAD 179 million in the quarter, more than tripling that of last year. As we have noted on the previous call, we continue to see strong flows in our Canadian ETFs and SMAs as retail clients look to utilize different investment vehicles to access our investment capabilities. Turning to slide eight, strong sales momentum has continued to drive growth in our overall ETF and SMA AUM. Our ETF and SMA assets globally have grown at 60% on a compounded basis over the last two years, now reaching CAD 5.5 billion.
We continue to see consistent growth and momentum across U.S., Canada, and Asia, where many of our strategies are available on leading wealth management platforms. Let me provide a brief update on our investment performance. AGF Investments 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 one, three, and five-year performance was in the 46th, 47th, and 44th percentile respectively, and approximately 57% of our funds outperformed peers on a three and five-year basis. I will now pass it over to Ash Lawrence to provide an update on the AGF Capital Partners business.
Thank you, Judy. We are pleased with the continued growth of AGF Capital Partners, our multi-boutique alternatives business. As Judy mentioned earlier, AGF Capital Partners AUM and fee-earning assets reached CAD 15.7 billion at the end of the quarter across our various strategies. As we have stated previously, our goal is to continue growing AGF Capital Partners by supporting the growth of our affiliate managers, while also continuing to look for targeted acquisition opportunities. On the origination front, we have seen a pickup in activity and held active discussions over this quarter. While we are actively underwriting a select few of these opportunities, M&A timing remains difficult to predict. We will update the market if and when any of these transactions come to fruition.
That said, the discussions we are engaged in reflect the recognition of the market that the value proposition AGF can bring to these partnerships as we continue to build out the platform. I will also provide some quick updates on Kensington Capital Partners, our Canadian affiliate focused on private equity and venture capital. As Judy mentioned, following an extensive global search, Kensington welcomed two new industry veterans to its leadership team during the quarter. Saar Pikar was appointed as the President of Kensington, and Bo Cenanovic was appointed as a Senior Managing Director and Head of Private Equity. Both Saar and Bo have also joined Kensington's Executive Management Committee and investment committees of the funds under Kensington's management. With their strong institutional investing backgrounds at OMERS, PSP, and Ontario Teachers' Pension Plan, the leadership transition will bring a deeper institutional rigor to Kensington in today's challenging market.
Finally, we recorded CAD 4 million of revenue from our long-term investments in the quarter, which was subdued due to a CAD 5 million markdown by a legacy partner in the venture capital space. This was partially offset by gains from other long-term investments. As we have seen in prior quarters, fair value can be lumpy, and venture investments can be especially choppy, given its asymmetrical return profile. Since inception, these investments have generated returns of approximately 11% per annum. Given the composition of the portfolio, with a high proportion of capital in later-stage mature investments, we expect our LP returns to be around 6%-8% over the next one to five years. This is lower than our long-term target returns of 8%-10%, as returns are generally more subdued as assets reach their maturing stage, which is where most of our legacy long-term investments are at the moment.
As we add strategies associated with our current and future affiliates and diversify the long-term investments book, we will continue to target long-term returns of 8%-10%. We also expect to monetize a material portion of our long-term investments over the next one to five years, with two main goals. These monetizations will be used to recycle capital into the business to support further investment in new affiliates and their strategies. Secondly, as mentioned earlier, our long-term investments are currently heavily concentrated in maturing legacy infrastructure assets. As these investments monetize, we will take a more diversified approach to our long-term investments portfolio as we continue to invest across our managers and strategies.
While we participate in the fee-related earnings and carried interest of our legacy investments, we are not the general partner and thus do not control the timing of the monetizations, but we do expect these realizations to occur in the next one to five years, given fund life considerations. With that, I will now pass it over to Ken to discuss our financial results.
Thanks, Ash. Slide 10 reflects a summary of our financial results with sequential quarter and year-over-year comparisons. The financial results in these periods are adjusted to exclude severance, corporate development, non-cash acquisition related expenses, as well as other adjustments as noted in our MD&A. Adjusted EBITDA for the quarter was CAD 49 million, down CAD 15 million from the prior quarter, mainly due to a CAD 15 million gain recorded from the NHC transaction in the prior quarter, and up CAD 3 million from the prior year, mainly driven by higher net revenues.
SG&A was CAD 64 million, up CAD 1 million from the prior quarter and CAD 2 million from the prior year. The increase from both comparative periods was attributable to higher non-compensation expenses, while inflation also contributed to year-over-year increases. Adjusted net income attributable to equity owners for the current quarter was CAD 32 million, and adjusted diluted EPS was CAD 0.49.
Free cash flows for the quarter was CAD 39 million, which is up CAD 3 million from the prior quarter and CAD 8 million from the prior year, mainly due to higher EBITDA from our AGF Investments business. Slide 11 provides a further breakdown of our net revenues. Within AGF Investments and AGF Private Wealth, net management fees were CAD 101 million for the quarter, which is up CAD 4 million from the prior quarter and CAD 12 million from the prior year, mainly driven by higher average AUM.
DSC and other revenues were lower this quarter due to lower mark-to-market adjustments on our seed capital investments. Revenues from AGF Capital Partners was CAD 11 million this quarter, representing a decrease from the prior quarter and prior year. As mentioned earlier, this decrease versus the prior quarter was mainly due to the CAD 15 million gain recorded in Q2 on our New Holland Capital transaction.
Revenues from our long-term investments was also lower versus comparative period. As explained by Ash, fair value adjustments can be lumpy. On slide 12, we outlined adjustments to our EBITDA. As you might recall, M&A transactions in the AGF Capital Partners business gives rise to various liabilities. These liabilities are fair valued each quarter with the difference flowing through to the P&L. Adjusting for these non-cash items along with severance and other adjustments, our adjusted EBITDA for this quarter is CAD 49 million. Turning to slide 13, 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 12 months.
This view excludes AUM and related results from AGF Capital Partners, as well as DSC revenues, other income, and any other one-time adjustments. Net management fee rates of 67 basis points are down one basis point from Q2 and the trailing 12 months. Given the strong momentum of our ETF and SMA products, we are guiding to a 2- 3 basis point net management fee rate decline going forward. While net management fee rates have come down, the continued growth of our AUM, coupled with strong expense discipline, has allowed us to see improvements in our EBITDA margins. The EBITDA yield for this quarter was 26 basis points, which is one basis point higher than the trailing 12 months.
On a trailing 12-month basis over the last five years, our EBITDA, expressed as a percentage of our AUM, has consistently increased from 17 basis points in 2022 to 25 basis points in the last 12 months of 2026. Turning to slide 14, I will discuss our capital uses. This slide represents the last five quarters of our consolidated free cash flows on a trailing 12-month basis, as shown by the orange bars on the chart. The black line represents the percentage of free cash flows that was paid out as dividends. Our trailing 12-month free cash flows was CAD 143 million. Our dividends paid as a percentage of free cash flows were 23%. In the same period, we returned CAD 56 million to shareholders, consisting of CAD 31 million in dividends and CAD 25 million in share buybacks. During the quarter, we repurchased over 600,000 shares under our NCIB.
We have materially increased our share buybacks this year. Year to date, we have repurchased 2.2 million shares under our NCIB, compared to 1.5 million in the prior year period. We ended the quarter with net debt of CAD 28 million. We also have CAD 432 million in short-term and long-term investments and have CAD 170 million remaining on our credit facility, which provides credit to a maximum of CAD 250 million.
Our future capital allocation will be balanced and includes returning capital to shareholders in the form of dividends, share buybacks, as well as investing in areas of growth. Before I pass it back to Judy, let me take a minute on slide 15 to look at our market valuation. This slide shows our trailing 12 months adjusted EBITDA of CAD 195 million and our enterprise value of approximately CAD 1.2 billion, implying a 6.3x EV to EBITDA multiple.
At this multiple, our long-term investments are valued at CAD 85 million, representing an 80% discount against the balance sheet value of CAD 415 million as of Q3, and the rest of the business continues to trade at over a two-turn discount against other traditional asset managers. This suggests potential further upside in our valuation despite the strong share price movements over the last few years. When we see volatility in our stock, we continue to be very active and will continue to look for opportunities to buy back shares opportunistically. I will now pass it back to Judy to close out the presentation.
To sum up this quarter, we continue to make progress against our strategic objectives. AGF Investments and AGF Private Wealth businesses remain strong. Our AUM and client assets were 31% higher from the prior year. Our investment performance remains solid, and our sales momentum remains strong. We remain encouraged by the continued growth and strategic progress within AGF Capital Partners. We remain disciplined in our expense management while investing for growth. The strength of our balance sheet and capital position will provide us with flexibility in our capital allocation strategy and the resilience to weather different market environments. I would also like to take a moment to thank our AGF team for all their hard work. We will now take your questions.
Thank you. If you have questions at this time, please press the star one one on your touch tone telephone. One moment for our questions. Our first question comes from the line of Romel Sabat of Jefferies. Your line is now open.
Hello. Thank you for taking my question. The first one I wanted to touch on New Holland. Could you give us some color on the next steps that you're looking to do with New Holland? I understand that you need the approval of the fund investors before you get a controlling interest. Can you tell us if you're in discussions to get that through? If you think it's going to happen, will it happen this year or the next one or further down the line?
Hi, it's Ash. Happy to answer that question. Just a bit of background. When we did our transaction with them to increase our ownership earlier this year, we maintained an option for an additional ownership to get us to a controlling position. Part of the reason for that option was to allow the firm, New Holland, enough flexibility in terms of how they operate in order to continue growing the business. It is somewhat related to how we view their profitability profile over the next two to three years. Our expectation is that at some point in the next one to three years, we would look strongly at exercising that control position. We are not presently, or they are not presently engaged with their LPs in terms of getting the consent for that exercise. We have been a partner of theirs now for two-plus years.
We have been in front of their LPs and their large LPs on multiple occasions. We do anticipate that when and if we exercise that option, we do not expect those conversations to be lengthy or difficult. But we are not presently undertaking them.
Okay. Yeah, that makes sense. The other question I had on New Holland is regarding the profitability. Do you expect the profitability to start increasing meaningfully over the next two, three years? I think what you mentioned. Yeah.
Yeah. So on their profitability, maybe one quick clarification. Oftentimes when we are talking about profitability, we are really talking about fee-related earnings, which generally excludes performance fees when we talk about it. When we include performance fees, this firm is profitable, although performance fees and carried interest you can never forecast with a huge degree of accuracy. As it relates to fee-related earnings and profitability, our expectations, and this has been consistent really through our ownership period, is that sometime in the next 12- 24 months, with the operating leverage that they have built and invested in the business, we do expect them to move into a fee-related earnings profit position. Again, excluding the benefit of performance fees and carried interest.
Yeah, I get it. Just lastly, just to clarify, I do not know if you can say or not, but have they been profitable so far?
Inclusive of performance fees and carried interest, yes, they have been profitable for a number of years.
On FRE.
No, on FRE at present, they are roughly breakeven.
Okay. Makes sense. Yeah. Okay, got it. All right. Thank you for answering my questions.
Thank you. One moment for our next question. Our next question comes on the line of Graham Ryding of TD Securities. Your line is now open.
Hi. Good morning. I am wondering if you could just give us some commentary on your flows in a few different areas. Maybe start with mutual funds. They have slowed a little bit. Any color on just what is behind that and how is Q4 trending?
Sure, Graham. Thank you. Hi, good to hear from you. In terms of, I guess what I will just do is let you know flows month to date or quarter to date are sitting at around CAD 48 million. We did see a risk-off sort of appetite kick in with investors during Q3, and you heard on our opening comments that a lot of the flows went into balanced funds and fixed income. As you are well aware, investors generally come to us for equities, which as a result, we were a bit muted in that category, as a result of the appetite changing for the investor. That being said, we do, and as you know last quarter, we started with the retail fund flows combined number, which included our Canadian SMA and ETFs, and we continue to see strong positive flows.
On a combined basis, we are net positive.
Okay, great. And maybe just on the institutional pipeline, anything to call out good or bad on that front?
There was the one institutional redemption, which we have highlighted in our earnings that came out. We had CAD 120 million come out from our institutional series of our mutual funds, and then an additional CAD 500 million, sorry, that came out during the quarter from our strategic partner. Again, that we emphasized was not performance related, but was instead an asset allocation decision taken by that strategic partner. On a go-forward basis, we are not aware of any other redemptions that are forthcoming at this point.
Okay, great. Then on the SMA side, the SMA growth looked pretty healthy quarter-over-quarter overall. You broke out flows into the Canadian SMA, which are positive. Should we assume that flows were also pretty constructive on the U.S. SMA side?
Yes, they are.
Okay, great. My last question, if I could, for Ash. You talked about expecting monetizations over the next one to five years for that sort of on-balance sheet capital that you have co-invested behind that platform. Can you give us some context of how much you've been able to monetize over the past year, and should we expect a pickup from that, or is that a run rate?
Hi, sure. Within the investment book, there hasn't been much monetizations in the last year at all. As you know, in the markets, it's been a tough transactional year in a number of sectors. Maybe more specific to our portfolio, as a reminder, about 50%-60% in that range of our book, more than half of our book is in legacy investments. In these legacy investments, while we have the benefit of participating in the fee-related earnings and the carried interest or the performance fees, we don't actually have a controlling interest or an interest in the general partner itself. We do not control the timing of the monetizations, and really have insight as a regular but large limited partner would have in terms of the underlying investments themselves.
Our one to five year guidance is largely based on the knowledge we do have as a limited partner, as well as the fund life and where these funds are in terms of their life cycle and term and extensions.
Okay. Is it fair to say that these funds are returning capital slower than what you would have originally anticipated as an LP?
I wouldn't say lower from a dollar perspective. I would say the timing is really the question for us in terms of a macro perspective. Again, I think as we've mentioned before, over the long term, we've seen, I think, around an 11% return from our long-term investments. I don't want to lose sight in sort of a short-term perspective on some of the choppiness this year, that over the long term, these investments have actually done quite well for us. And given that a good chunk of the book is infrastructure, those are obviously long-term investments when you think about returns and expectations.
Okay. That's helpful. Thank you.
Thank you. One moment for our next question. Our next question comes on the line of Bart Dziarski of RBC Capital Markets. Your line is now open.
Great. Thanks, and good morning, everyone. Maybe for Ash, can you just give us a bit more detail on what drove the fair value loss? I think you had mentioned venture capital. Just flesh that out a bit for us. Thanks.
Sure. Of course. Maybe just to start, just to clarify on the movement in our fair value investments. While we had a -CAD 3.3 million of fair value adjustments to our long-term investments, we also received CAD 7.2 million of distribution income from those as well. The total revenues from our LTI were actually a + CAD 4 million for the quarter. Maybe more specifically to your question, obviously we're fortunate enough to be in a position with that + CAD 4 million, but 2026 has been a tough year in general for a number of sectors we're invested in, namely private equity, venture, and in the first half of the year, some of our absolute return strategies, especially as the conflict in the Middle East broke out around March.
As it relates to the venture markdown that we saw, that was in one of our legacy investments, again, that we don't control as a GP, but we do participate in some of the fees. Somewhat of an idiosyncratic situation where a portfolio company lost their key client really in terms of their business, and thus the write-down. Again, for venture, it does tend to have an asymmetric return profile. So you do get zeros and then you get massive home runs. That's just sort of the nature of the sector from that perspective and the risk profile of the sector. If you look at that and the first three quarters, it's essentially brought us on our full long-term investments book to flat for the year where we're standing today.
As a result of that and the fact we're at the end of Q3, we are expecting muted returns for 2026 on the book. If you look just at 2026, we expect it to be somewhere in the 1%-2% range overall for the full book. Again, I think on venture, the only other thing I would say on venture is we do have other venture investments, largely through our exposure with Kensington and the investments we've made with them. Within that portfolio, we're actually pretty constructive. Over the second half of this year, a little bit in the second quarter, there's been some pretty good market headwinds in the venture space with some IPOs and obviously the overall benefit AI has brought to that space.
Within that portfolio, within the Kensington portfolio, we do have exposure to some of those themes and some of those names and brands that are broadly driving some positive sentiment within the venture space.
Okay. That's very helpful. Thanks for the wholesome response. Maybe sticking with performance, I'm just looking at Kensington's private equity fund, and year-to-date performance is down 7.5%. Can you just help us understand what's driving that performance to date for 2026 in private equity?
Yeah, for sure. There's a couple things impacting that. I'd say the first is just some underlying performance on the private equity side of the business that has been lackluster, to be blunt. I think that is in a few larger investments that are impacting the returns. The new team that we've brought on the leadership side is obviously very focused on that. The second reason, as we've said before, there is a focus within that fund as it relates to investment redemption demands to generate liquidity. When you look at the private equity market today, specifically as it relates to transactions, which are still heavily muted in terms of volume, they tend to be concentrated in very large deals, but the actual deal number count is still quite subdued.
When you look at it from that perspective, in order to generate liquidity as the investors are demanding within that fund, there is a cost to that. We are seeing some of the write-downs we are taking in that fund as a conscious decision to satisfy some liquidity and debt repayment decisions, and sort of balancing that against the write-downs we are going to take as a result of those decisions. It's not the ideal situation to be in, but it is over the longer term, the better decision for the fund, in terms of taking that cost of liquidity.
Okay, thanks. Just last one on performance, maybe tying it all out and looking a bit kind of longer term. The 6%-8% sort of lower outlook over the next few years, I think you mentioned in one of the prior responses that infrastructure's a big chunk of your private markets exposure, and I'm hearing generally the outlook for infrastructure is constructive, but the return guide was lowered near term. Can you just maybe help us square that? What's driving the 6%-8% in light of what's otherwise kind of a positive outlook on infra more broadly, infrastructure more broadly? Thanks.
Yeah, absolutely. Our guidance change as it relates to that concentration we have in infrastructure, is not a market view on infrastructure or a view on the assets. That is very directly a life cycle change in the returns for that particular fund and the investments in the fund. It is a, I will call it a typical J-curve explanation, which is, in at least one of those funds, we are reaching the life cycle of the end-of-fund, which means we are in harvest period for those assets, which means the value add activity that is largely driving returns and has driven returns over the last 10 years for that fund, has given way to more harvest-related activities as they try and move to a realization stage for all those assets.
Our guidance is taking into account that fact that we expect as these things get close to that realization date, the return profile just changes as they are mature now.
Okay, got it. Very helpful. Thanks for taking my questions.
Thank you. Again, if you have questions, please press star one one on your touch tone telephone. Again, if you have questions, please press star one one on your touch tone telephone. Our next question comes from the line of Tom MacKinnon of BMO Capital. Your line is now open.
Yeah, thanks very much. Good morning. Just if you could give a little bit more color on the two to three net fee rate decline that you are talking about going forward. Is there any specific parts of the business that might be driving this? Seems to be a little higher than what you may have suggested before. Thanks.
Yeah, sure. Thanks for the question, Tom . The 2-3 basis points decline is really driven by both a shift in product mix and a shift in mutual fund series. With our book of business right now, we are on the mutual fund side, seeing more flows to the F series of mutual funds from the MF series. From a product perspective, really a broader shift as Judy Goldring had alluded to earlier, in terms of the strong growth in SMA sales over the mutual fund sales. That has been driving a big part of that. I will highlight that the one note is that, really the SMA sales in particular, the flows and the AUM and the revenues attributable to that. The revenues really do drop to the bottom line as the incremental marginal cost associated with that product is actually quite minimal.
The other point I would also highlight as I alluded to earlier, is we have actually seen, despite revenue margin declines over the last few years of 2-2 basis points, our EBITDA as a percentage of our AUM has actually been increasing quite steadily over the last five years, from about 17 basis points to currently about 25 basis points over the last 12-month period, which I will also note is actually, if you compare that to the industry, the 25 basis points is more than twice that of the overall industry today. So we are quite pleased with the results of that.
Okay, thanks.
Thank you. Again, if you have questions, please press star one one on your touch tone telephone. I am not showing any further questions. I will now pass it over to Judy for closing remarks.
Thank you for your questions. This was another strong quarter for AGF. Our investment performance and sales momentum remain strong. Our strong balance sheet and strong cash flow position provides the flexibility to return capital to shareholders, continue investing in the long-term growth and remain resilient through market conditions. We look forward to our Q4 earnings call on January 21st, 2027.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.