Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's earnings call to discuss financial results for the fourth quarter and full year of 2023. Note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answers period. As a reminder, this conference call is being recorded, and if you would like to ask a question during the time, simply press star one on your telephone keypad. If you would like to withdraw from the question queue, please press star and two. Thank you. I will now turn the conference over to Marie-France Guay, Senior Vice President, Treasury and Investor Relations. Please go ahead.
Thank you, Sylvie. Good morning, everyone. [Foreign language] Bonjour à tous. Bienvenue à l'appel de conférence de Fiera Capital pour discuter des résultats financiers du quatrième trimestre et de l'année 2023. Welcome to the Fiera Capital conference call to discuss our financial results for the fourth quarter and full year of 2023. Note that today's call will be held in English. Before we begin, I invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at ir.fieracapital.com. Also note that comments made on today's call, including replies to certain questions, may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on page 2 of the presentation.
On today's call, we will discuss our Q4 2023 results, starting with an update on our AUM flows, followed by highlights of our public and private markets platforms, as well as our private wealth business. We will then review our financial performance. Our speakers today are Mr. Jean-Guy Desjardins, Chairman of the Board and Global Chief Executive Officer, Mr. Lucas Pontillo, Executive Director and Global Chief Financial Officer. Also available to answer questions following the prepared remarks will be Jean Michel, President and Chief Investment Officer, Public Markets, John Valentini, President and Chief Executive Officer, Private Markets, and Maxime Ménard, President and CFO of Fiera Canada and Global Private Wealth. With that, I will now turn over the call to Jean-Guy.
Thank you, Marie-France. Good morning, everyone, and thank you for joining us today. After a difficult 2022 and amid concerns that aggressive increases in interest rates would cause a recession, markets were surprisingly strong in 2023, bolstered by the moderation in inflation, resilient economies, and strong corporate earnings. However, we experienced volatility during the year, arising from, among other things, a regional banking crisis, large-scale geopolitical events, and the changing expectations of the path of policy rates due to sticky inflation. The last quarter of the year ended on a strong note for both equity and bond markets, as economies began to soften and central bankers signaled the end of rate hikes.
In a year characterized by rallies and corrections, we are pleased with the resilience of our investment platforms to provide superior returns to our clients and the associated benefits to our business. We reported assets under management of CAD 161.7 billion at December 31, an increase of 4.1% or CAD 6.4 billion, versus that reported on September 30, and up CAD 3.2 billion or 2% compared to last year. Assets under management in our private markets division remained constant at CAD 18.5 billion in a year where the entire industry faced challenges in new fundraising. New mandates were, by and large, offset by the return on capital and income distributions to our investors.
The significant rebound in financial markets in the last two months of the year drove a rise in assets under management in our public markets division, which saw an increase of CAD 6.6 billion or close to 5% in the quarter. This increase was almost entirely attributable to public markets, excluding assets under management, sub-advised by PineStone, which grew by CAD 6.3 billion during the quarter. The increase was due to a positive market impact of CAD 8.1 billion and was partially offset by CAD 1.8 billion of negative organic growth, largely driven by lost mandates and rebalancing in long duration, fixed income mandates for clients in Canada and the US.
For assets sub-advised by PineStone, there was a slight increase in assets under management, as lost mandates of CAD 2.6 billion were more than offset by the positive market impact of CAD 3.6 billion. The vast majority of lost assets under management sub-advised by PineStone related to a large Canadian financial intermediary client, and were transferred directly to PineStone. The same client is also expected to redirect an additional CAD 3.1 billion during the first half of 2024 as part of their ongoing transfer of assets to PineStone that was initiated at the beginning of 2023. We now expect that this leakage directly to PineStone from this Canadian financial intermediary will be coming to an end at the end of the second quarter. Looking at the full year in public markets, assets under management increased by CAD 2.9 billion.
While favorable market impact increased assets under management by CAD 17.1 billion, this was offset by negative organic growth of CAD 13.6 billion. Of the CAD 13.6 billion of negative organic growth, CAD 10.7 billion, or 79%, related to assets sub-advised by PineStone. It is important to note that of this amount, only CAD 6.3 billion related to lost clients that transferred directly to PineStone. The balance was made up of CAD 3 billion related to lost clients who exited the PineStone sub-advised strategies altogether, and CAD 1.4 billion related to existing clients who simply reduced their allocations to these strategies. The favorable market impact for the year on assets under management, sub-advised by PineStone, was CAD 7.3 billion, which more than offset the pure leakage of CAD 6.3 billion seen through the year.
Going forward, excluding the assets under management outflows related to a large Canadian financial intermediary, management expects the assets under management reduction from lost mandate transferring directly to PineStone to be in the range of CAD 2 billion-CAD 3 billion this year. Following 2024, we expect the leakage going directly to PineStone to be in the range of CAD 0 billion-CAD 2 billion. On a full year basis, the public markets platform, excluding PineStone, saw an increase of CAD 7 billion in assets under management. While the division benefited from CAD 9.8 billion in positive market performance, it also won CAD 3.8 billion in new mandates across equity and fixed income strategies. This was partially offset by CAD 6.6 billion of outflows, mainly in lower fee fixed income strategies.
I will now turn to our commercial and investment performance across our platforms in the fourth quarter, starting with our public markets platform. The public markets platform, excluding assets under management sub-advised by PineStone, experienced a negative organic growth of CAD 1.8 billion in the quarter, largely due to outflows in fixed income, mostly from financial intermediaries in Canada, as well as rebalancing from institutional clients, a portion of which was reallocated into equities. Our equities platform was essentially flat on the quarter, with minor outflows in Canadian and emerging market equities, offset by inflows in U.S. equities and Atlas Global Equity, which saw CAD 400 million in net organic growth for the year. This growth, combined with market impact, resulted in assets under management reaching CAD 2 billion for the Atlas Global Equity team, an increase of 55% for the year.
The strategy continues to see great momentum, with further inflows expected to crystallize in early 2024. Now turning to investment performance in public markets for the quarter. In equities, it was a strong quarter for most developed market strategies as equity markets shot up in the last two months of the year. The majority of our strategies beat their benchmark, with the Canadian Equity, Small Cap, and Atlas Global Equity leading the pack with over 4.5% and 3% of outperformance, respectively. The Frontier Market strategy continued to excel in the fourth quarter with an additional 200 basis points of outperformance, adding up to over 18% of value added for the year, delivering significant performance fees for 2023.
Our Emerging Market Select strategy, which began in January 2021, also had an excellent year, with over 22% of outperformance relative to its benchmark. This was also recognized by Bloomberg News and the Financial Post, citing that the fund outperformed 99% of its peers, beating all but 12 of the 4,383 funds in its peer group. Fixed income markets also rallied in the final quarter of 2023 as expectations shifted towards a soft landing, with cooling inflation leading to expectations of rate cuts.... All of Fiera's flagship Canadian and foreign fixed income strategies generated positive relative returns. The Global Multi-Sector Income strategy continued to excel in the fourth quarter, generating over 170 basis points of outperformance and an impressive 8.77% of value added for the year.
Fiera Capital has a strong track record of outperformance, with 98% of its public market strategies beating their benchmark over the 5-year period. This excellence was acknowledged on numerous occasions in 2023. We were recognized as a top performer at the Global Manager Research 2023 Top Performer Awards, which pay homage to asset managers and funds available to Canadian institutional investors. In addition, 5 of the funds and ETFs we sub-advise for our investment partners, including 3 fixed income and 2 equity funds, won Lipper Fund Awards in 2023 in recognition of their exceptional performance over the 3-, 5-, and 10-year periods. Turning to our private market platform. The expectation of an economic downturn made for a more challenging capital-raising environment in 2023, as many investors selected to overweight cash or to maintain liquidity in case of uncertain events.
This resulted in a more muted growth for our private markets platform, which saw a total of CAD 1.7 billion in new subscriptions during the year. Net contributions included return of capital to clients of just over CAD 330 million, and we also saw client redemptions of about CAD 700 million, mostly in the Real Estate Core Fund. We also distributed CAD 640 million to clients, converted CAD 900 million of capital from committed to deployed in the year, and maintained a pipeline of CAD 1 billion available for deployment into future opportunities. With respect to investment performance for private markets, in real estate, it's the sector saw downward valuation pressures in 2023 from rising capitalization rates affecting returns. Notwithstanding this, underlying fundamentals demonstrated stability, particularly in the industrial and multi-residential sectors, where Fiera strategies are overwhelmingly concentrated.
There are encouraging signs that pressures are subsiding, which bodes well for future growth, particularly given the undersupply and high tenant demand for these segments. The Fiera Real Estate Industrial Fund continues to generate best-in-class performance with an 8.5% absolute return for the year, ranked number one in the Property Fund Index, and recently crossed the $1 billion threshold in assets under management. In infrastructure, the portfolio continues to have over 50% of assets that are in the climate infrastructure that supports a future with a changing climate and circular economy needs. 2023 was a challenging year for the fund, as high interest rates, inflation, and global supply chains disruptions have affected the equity of operating businesses in which the fund is invested. Discount rates have also put pressure on valuations.
The infrastructure portfolio is composed of long-term, high-quality, essential infrastructure assets with excellent upside potential, which remain resilient despite the downdraft in valuations in 2023. Our private credit strategies continued to perform well as they benefited from strong yields. Clearwater Capital Lending Opportunities generated strong returns, reaping the benefits from fees payable on several loan repayments. The infrastructure debt strategies also saw very strong performance, with a one-year absolute return exceeding 14%. The outlook for the private credit strategies is optimistic, as this asset class remains top of mind with investors, where many expect to increase their allocations in 2024. On private equity, the strategy generated strong performance in the quarter and achieved a one-year absolute return in excess of 15%.
This is attributed to broad-based positive developments across the portfolio, including healthy earnings growth for several investments, offsetting downdrafts caused from the higher interest rate environment. The team closed two transactions in the quarter and continues to have a robust pipeline. Lastly, the Global Agricultural Fund closed two deals in the quarter: Grove Juice in Australia in October and Innoliva in Portugal and Spain in November. The fund delivered additional distributions to investors in the quarter, along with solid operational performance and capital gains. And finally, the newly established Sustainable Timberland is anticipating its first close by the end of the first quarter, 2024. Moving on to private wealth. Private wealth assets under management were essentially flat on the year, as market performance offset negative organic growth in public markets and income distribution in private markets.
Although assets under management were stable, we did see an increase in base management fees for the division for the quarter and the year. This largely pertains to the previously mentioned pricing increase initiated in September related to private wealth, which are increasingly accretive as the full benefits flow through. As previously highlighted, the new pricing is reflective of the value change of activity that private wealth clients are receiving, which includes advice, access to private market funds, and the uniqueness of our asset allocation capabilities through our feeder fund structures. Now, with that, I will turn it over to Lucas for a review of our financial performance.
Thank you, Jean-Guy. Good morning, everyone. I will now review the financial results for the fourth quarter and the full year of 2023. We are pleased with our performance in 2023, which contributed to a significant improvement in virtually all of our financial measures when compared to the prior year. Starting with total revenues. Across our investment platforms, we generated total revenues of CAD 211 million in the current quarter, up CAD 26 million or 14% over Q4 of the prior year. Base management fees were flat, as increases in private markets helped offset decreases stemming from outflows and fixed income and equity mandates in public markets. Performance fees for Q4 2023 were CAD 42 million, compared to CAD 22 million for the same period last year, an increase of CAD 20 million or over 88%.
Earnings in joint ventures were CAD 9 million in Q4 2023, compared to CAD 6 million the same period last year, an increase of CAD 3 million or 52%, while commitment and transaction fees were down just over CAD 1 million. Other revenues were over CAD 5 million in Q4 2023, compared to a negligible amount in the same period last year, primarily due to insurance proceeds received on a previously disclosed claim, interest income on cash balances, and higher administration fee revenues as part of the fee increase initiatives in Canadian private wealth. For the full year 2023, total revenues of nearly CAD 687 million were more than CAD 5 million higher than the previous year's total revenues of just over CAD 681 million.
As performance fees and other revenues more than offset declines in public market-based management fees and private market joint venture earnings and commitment and transaction fees for the year. Looking more closely at private markets. Private market revenues for Q4 2023 were CAD 72 million, compared to CAD 62 million for the same period last year, an increase of CAD 10 million or 16%. Base management fees increased to CAD 45.2 million, or over CAD 3.5 million and 8% from the same period last year, driven largely from institutional clients in Canada and EMEA, investing in our agriculture and real estate strategies, with higher average AUM stemming from new subscriptions and market appreciation.
Performance fees of CAD 10.5 million in the quarter increased by nearly CAD 5 million or 87% when compared to the same period last year, and were driven mainly from our agriculture fund and Asia Credit Lending Opportunities Fund. Earnings in joint ventures can vary significantly from quarter to quarter due to the long-term nature of the underlying projects within Fiera Real Estate UK. This quarter, we saw a CAD 3 million increase compared to the prior year quarter as a result of that timing. Additionally, commitment and transaction fees were down just over CAD 1 million due to lower volumes of deals from clients in Canada, generating this type of revenue. We wrapped up the year with private markets contributing to a continually growing proportion of Fiera Capital's total revenue.
With almost CAD 220 million in revenue for the year, this represents 32% of total revenues for full year 2023, compared to 30% for the previous year. Year-over-year, Private Markets revenues increased by almost CAD 16 million or 8%. This, despite a difficult year for fundraising across the industry. On a base management fee basis alone, Private Markets revenues were up CAD 20 million or 13% in 2023 when compared to last year, a continued testament to both the diversity and the differentiation of our Private Markets platforms. Performance fees for Private Markets were also in line with our expectations as roughly CAD 16 million for the year, which represented almost a CAD 6 million or 57% increase over last year.
Due to the lower than expected fundraising during the year, commitment and transaction fees were down to almost CAD 19 million in 2023, representing just over a CAD 5 million decrease from the prior year, effectively offsetting the year-over-year gain in performance fees. Turning to a review of public market revenues. Compared to the fourth quarter of 2022,... Public markets total revenues also increased CAD 11 million to just under CAD 134 million in Q4 2023, up from CAD 122 million in the same quarter prior year. Base management fees declined slightly from the same quarter last year, by CAD 3.5 million, to finish the quarter at just over CAD 102 million. This was primarily due to lost fixed income and equity mandates from clients in Canada, along with losses from PineStone Equity mandates in the US.
This was offset by an increase in revenue generated from our financial intermediaries channel in EMEA, from higher average AUM, along with increases in revenue from private wealth, as we see the continuing benefit of our recent repricing changes. Performance fees and public markets were strong during the quarter. We saw an increase of CAD 15 million in performance fees compared to Q4 of last year, primarily from our emerging market strategies in Europe and institutional clients in Asia. On a full year basis, public markets revenues were down to CAD 453 million, compared to CAD 471 million the prior year.
Base management fees decreased from CAD 449 million in 2022 to CAD 418 million in 2023, to in large part, the lower average assets under management for public markets throughout 2023, as well as higher weighting of fixed income mandates in the asset mix. The decrease was also impacted by the fact that CAD 6.3 million in revenues for the year was now recognized in performance fees and other revenues, as opposed to base management fees. Performance fees in 2023 were roughly CAD 35 million, when compared to the CAD 22 million in 2022, again, driven mainly by the strong performance of our emerging market strategies in Europe. With regards to SG&A, SG&A expense, excluding share-based compensation, was CAD 133 million for Q4, and in line with CAD 132 million for the same period last year.
On a full year basis, SG&A expense was CAD 481 million for 2023, compared to CAD 490 million for the prior year, a decrease of over CAD 9 million or almost 2%. Turning to adjusted EBITDA and adjusted EBITDA margin. We generated adjusted EBITDA of nearly CAD 78 million in the current quarter, an increase of CAD 25 million or 47% compared to the same prior year period. This led to an associated adjusted EBITDA margin of 37%, far surpassing the 29% achieved in Q4 2022. On a full year basis for 2023, we generated adjusted EBITDA of CAD 206 million, compared to CAD 192 million for 2022.
We are pleased with the return of our last twelve months adjusted EBITDA margin of 30%, compared to 28% in 2022, particularly when considering the investments being made in establishing a regional distribution model. Looking at net earnings and adjusted net earnings, the company recognized net earnings attributable to shareholders of over CAD 39 million or CAD 0.30 per diluted share during the fourth quarter of 2023, compared to the net earnings of CAD 3 million in the corresponding period of 2022. Adjusted net earnings for Q4 2023 were just over CAD 50 million or CAD 0.37 per diluted share, exceeding results achieved in Q4 2022 by CAD 17 million or CAD 0.05 per diluted share. On a trailing twelve-month basis, adjusted EPS was CAD 1.21 per share.
With respect to free cash flow, last twelve months, free cash flow was just over CAD 89 million for the fourth quarter of 2023, an improvement of CAD 30 million over the same prior year period. The significant improvement in our last twelve months free cash flow represents the realization of our previously communicated expectations that LTM free cash flow would be close to or in line with our dividend by the end of 2023. After reversing one-time charges in 2022, which caused a significant drag during the period. It is also important to note that performance fees recognized during the quarter have no impact on the free cash flows in the current quarter, as working capital requirements associated with the fees receivable offset the benefit in net earnings.
The free cash flow benefits from our strong performance fees in the fourth quarter will only be realized in Q1 2024, further increasing our LTM free cash flow at that point. Turning to financial leverage. Net debt decreased by about CAD 20 million from the third quarter to the fourth quarter, from CAD 623 million to CAD 604 million, as cash and cash equivalents increased to CAD 66 million in Q4, compared to CAD 42 million in Q3. As such, our net debt ratio decreased from 3.4 times in Q3 of this year to 2.9 times in Q4 of 2023. The first time our net debt ratio is below 3 times in over a year.
At Q4 2023, our funded debt of CAD 483 million, as defined by our credit facility agreement, was also lower compared to the CAD 405 million in the prior quarter, and resulted in a lower funded debt ratio of 2.65, compared to 2.92 in the third quarter. We also remain steadfast in our commitment to returning capital to our shareholders. As such, I confirm that the board has declared a quarterly dividend of CAD 0.215 per share, payable to unit holders of record on April 11th, 2024. This maintains a trailing twelve-month dividend of CAD 0.86 per share. I'll now turn the call back to Jean-Guy for his closing remarks.
... Thank you, Lucas. 2023 was a transition year for Fiera Capital, where we initiated the transition from a global distribution model to a new regionalized distribution model focused on building local capabilities, which will allow Fiera to expand and strengthen its presence in the US, the Europe, Middle East, and Africa region, and Asia. To this effect, Klaus Schuster was appointed Executive Director and CEO of Fiera EMEA in May. Rob Petty as Executive Director and CEO of Fiera Asia in September, Eric Roberts as Executive Director and CEO of Fiera US in November, and we concluded with the nomination of Maxime Ménard as President and CEO of Fiera Canada and Global Private Wealth, as announced in January this year. The regionalized distribution model will drive closer proximity to clients, better knowledge of local markets, and executive leadership for all employees in each region.
We have a solid plan for growth by increasing sales and distribution resources, including entering and opening offices in new key markets to develop new business opportunities. We are committed in acting swiftly on this plan, as evidenced by the recent announcements of new offices in Switzerland and Abu Dhabi. The Switzerland office will be located in Zurich and serve as a primary hub for Fiera Capital's intermediaries business in Europe, the Middle East, and Africa. The local team will also be responsible for the strategic growth of the institutional business in Germany, Switzerland, and Austria, as well as cultivating and growing relationships with family offices, private banks, wealth and asset managers, and large IFA platforms across Europe.
The office in the heart of Abu Dhabi represents the first step in Fiera Capital's growth plans across the Gulf region, where it has forged enduring ties and strong relationships with sovereign wealth funds, family offices, pension funds, and major listed corporates in the region. Fiera is itself an investor in the Gulf region, both in its active positioning across its emerging markets and frontier markets strategies, in addition to its dedicated MENA mandate. Investors at all tiers have a growing preference for multi-asset portfolio solutions across public and private market strategies, which can be tailored to meet specific asset allocation criteria. Our offering in the Middle East will replicate the bedrock on which Fiera Capital's success has been built, a philosophy of investing in quality over long-term horizons in the absolute pursuit of steady and financially sustainable alpha.
I will now turn the call back to the operator for the question period.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, simply press star followed by two. If you're using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star one now if you have a question. The first question will be from Etienne Ricard at BMO Capital Markets. Please go ahead.
Thank you, and good morning. To circle back on the new distribution model, you previously raised the potential for growth sales to pick, to pick up meaningfully by 2025. Now that you have appointed new leaders across geographies, what are the next steps for 2024 as you look at increasing the visibility of your strategies?
A question for me, I assume?
That's correct.
Okay. Now that we have the regional leaders in place, it's really a question of execution and having the highest quality people to assume that execution responsibility. And the responsibility of those regional leaders over and above having put in place their organizational structure that they believe is the one that should be put in place. And there's a high degree of consistency between the four CEOs, by the way, which is a good thing. Their responsibility is to establish priorities in different markets. So, find the right leaders to, on the institutional side, lead the consultant relationship part of it, the direct distribution aspect of it to institutional clients.
Also, to have the right leader on the development of the intermediary channel, and the same thing on the high net worth side of it. So, the key from here is execution. And my job is, after what I've done last year as the CEO of the firm, is to support the regional CEOs to whom we have delegated those responsibilities, and who assume the responsibility of generating the acceleration in sales and new business this year. And like I said before, and you mentioned it, I think the real momentum will be in 2025.
My job is to support them, and I make myself available to support these regional CEOs, when and if they feel that my presence will help them succeed. So that's the key, it's execution from here.
Maybe if I can just, I'll let Max speak to his first 51-day journey here at Fiera and his impressions in that regard. But just to highlight to that point, we had our first offsite last week, where not only we brought in each of the regional heads, but also all the lead portfolio managers, to sort of set the strategy and the tone for 2024. And it reaffirmed the assumption that we had, that just given the uniqueness of each one of the markets that we operate in, both from a competitive perspective and sort of a growth opportunities perspective, that this was really the right model for us.
Listening to each of their unique views in terms of how to tackle their markets, both the opportunities and the challenges, I think will really set the tone for success this year. So with that, Max, give you
Yeah. Thank you, Lucas. So I think the opportunity to be a global organization from a manufacturing standpoint, and have the ability to get closer and the proximity and be more closer to our distribution channel, are immediate opportunity for us. Number one thing is, I think we want to create more proximity with the consulting relationship. Our existing relationship, particularly in Canada, is probably one of the bigger opportunity when we think about short-term opportunity to introduce new solutions to our existing clients. And there's immediate opportunities where we could increase our market share within the pension markets. Namely defined contribution, OCIO, family offices, large pension assets.
Early in my journey here at Fiera, but I certainly see tremendous opportunity for us to increase our market share in the pension market, and also see some pockets of segment opportunity within what I consider to be mid-market institutional through multifamily offices and the likes, where we could offer the entire investment platforms to potential investors.
Okay, appreciate the details. And as a follow-up, considering a more constructive market environment relative to three months ago, for what asset classes do you see the best organic growth potential over the next year? In other words, do you first expect flows to improve in fixed income, followed by equities and private alternatives, or could we see strengths across asset classes?
Listen, it's really across the board. We already see, in fact, we already know of a substantial increase in some of our fixed income strategies. Obviously, the interest rate environment will be very conducive to support that, so it feeds that kind of interest in the investing community. We can see a significant impact happening on the private market side. Not, notwithstanding, the beginning of an increase in the interest of investors on the real estate side of things, which is, I think, quite appropriate, as a matter of fact, but it's happening.
And that should be picking up steam if central banks initiate the beginning of an interest rate decline, we think it's gonna happen in the third quarter of this year. So that will feed into this movement. So we're seeing that across the board, because higher interest rates have been a headwind for the growth and the distribution of new business in the private market side of things. And as interest rates move on their way down, move down over the next, that's likely to be an affair that will last probably at least a year and a half before we go back to a neutral stance on monetary policy.
That momentum should be picking up for private market strategies in the course of that 18-month period, starting, like I said, in this June. On the equity side, listen, we have exceptionally performing equity strategies. It's mind-boggling. You know, even ourselves, sometimes we say, this is
Hello, can you hear me?
Yeah. Yeah, even ourselves, sometimes we say, this is, this is, quite special. We have a Canadian equity strategy that is a great performer in the Canadian market. We have, out of our business in Dayton, Ohio, in the U.S., we have a mid U.S. equity strategy that is super performing. We have a U.S. large cap strategy. We have an ETF strategy out of Dayton, Ohio, the same portfolio management group that is extremely competitive. And out of London, we have our Atlas Global Equity strategy, which I've mentioned is right now significantly building momentum and attention. Now, you put all that-
... You know, I think people have recognized that we have an exceptional investment platform with exceptionally competitive investment strategies. Now that I think we have in place powerful regional leadership and a strong focus at the regional level on the need to have professional and well-organized distribution. I think if we succeed in putting those two things together, we're quite optimistic about the future. And like I said, 2025 will be the year where we'll know if all this transition that we've been going through will be yielding the results that we're expecting.
Great. Thank you very much.
Thank you. Next question will be from Nick Creed at CIBC. Please go ahead.
Okay, thanks for the question. Lucas, I think you mentioned on free cash flow, the free cash flow from the performance fees will only be recognized subsequent to quarter end. What component of the CAD 42 million would be allocated to the investment teams versus what would be captured by Fiera? I'm just trying to size the magnitude of the impact on Q1 free cash flow.
Yeah, it's... Well, I mean, in terms of, you know, they vary by team, quite frankly, and we've had, you know, basically three different teams that contributed to it. You know, I'd say at the end of the day, we are projecting for Q1 to be anywhere between CAD 105 million to CAD 110 million of free cash flow for the quarter. So give you an indication of how we would trend sort of above the current trend line.
Okay, very good. And that's the first quarter, is that when variable incentive comp tends to get paid out? Like, is that inclusive of... I always thought of the first quarter as being a bit of a low point for the year, just based on the pattern of variable comp.
There's. Yes, you're right. There's two aspects to it. There's the variable comp component, but more importantly, there's the benefits component to salary and wages, which is not an expense you can amortize during the year, and you have to take early on in the first quarter. So you're right, those two elements do affect the first quarter, but we expect them to be more than offset by the performance fees in that regard.
Okay. Okay, that's good. Also, the 105-110, that's an LTM number you're referring to, obviously?
Correct. Absolutely.
Got it, got it. Okay, that makes a lot more sense. And then when I look across the investment performance statistics that you present, the frontier market strategy really stands out on both an absolute and relative basis. I'm just kind of curious, what does the demand look like for that capability? Like, are you seeing an uptick in RFP activity? Are you putting more of a concerted effort behind the marketing effort, marketing efforts of that strategy? I'd just be interested to hear a little bit more about that one.
Yeah, this is Jean-Michel. So yes, we've seen a lot of attention to those products last year. I think the main one that we have started to talk to the market to is the Emerging Select. This product just turned three years old last year with tremendous performance, and we have seen a lot of demand, I guess, for that. We expect a lot of this to transform into new mandates during the year this year. So we have we have a lot of capacity there. Like, I think the first, this is a smaller market product. I think we have- we can raise, like, anywhere between CAD 2 billion and CAD 3 billion in a short period of time with no problem.
Got it. Okay, that's great. That's it for me. Thank you.
Thank you. Next question will be from Gary Ho at Desjardins. Please go ahead.
Thanks and good morning. First question is just on the net flow side, the CAD 5 billion in Q4. I understand, you know, the CAD 3.2 billion from PineStone, a chunk of it from National, but I'm surprised at the CAD 1.8 billion outside of the PineStone channel. Your performance has been pretty stellar, 98% beating benchmark. And generally, Q4 markets have been pretty supportive. Maybe can you help me think through kind of what drove the redemptions, if performance is in the issue and market's been pretty supportive? Is there one or two redemptions that kinda took that number higher? Just wanted to pick your brain on that.
Yeah, I think it's a great question, and any of those things are not related to, I guess, the platform or the performance, as you mentioned. A lot of it comes from rebalancing, and we've seen a lot of redemption coming from fixed income and treasury accounts. We have a lot of large institutional clients and insurers that, I guess, use us as their bank accounts, and sometimes those flows are positive or negative, and just happened that in the last quarter, those. We had significant outflows in those, I guess, short-term and treasury accounts. And obviously, there's just no concern for us. It just happened that it happened during that quarter.
Over the long run, you expect those, those flows to be to net to zero over long run.
Okay. That's, that's helpful. And then, next question, maybe for Lucas. Just on the expense side, encouraging to see the 30% margin you achieved for the full year. Some of your asset manager peers mentioned, you know, greater increased focus on cost containment, keeping a tight lid on headcount, for 2024. Some of them targeting kind of low single digit, SG&A expense growth. So just wanted to hear your thoughts this year with respect to SG&A and excluding performance fees. We know that can be lumpy, but what are you targeting in terms of SG&A expense growth?... and is 30%, EBITDA margin achievable this year? Maybe chat about the build-out of your decentralized distribution model and the incremental costs associated with that.
Yeah, thanks for that, Gary, 'cause, 'cause you've highlighted a key point here, which is, you know, along the way, be it over 2023 and going into 2024, we have been quite mindful of our cost structure, and, and we've been addressing costs, particularly with the intention of being able to subsidize the distribution efforts that we're making, which, which have not been insignificant as, as we're building out these teams in each of the regions. So as you can see, we've been pretty flat year over year in terms of the overall spend. And I do think it is a testament to the fact that we're effectively recycling the dollars, where we're trying to contain costs in certain areas and redeploying them for growth.
The expectation for going into 2024 is indeed to be able to achieve that 30% margin and to maintain a flat cost structure as we continue, let's say, to reallocate capital to sort of more distribution-focused activities.
Okay. And I think John is on the line. Just wanna hear your thoughts on the private alt side. After maybe a slowish year, feels like activities may be starting to pick up. What are you seeing on both the monetization and maybe capital deployment side? And then maybe on monetization, are there any significant performance fees to be crystallized if activity picks up?
Yes. Hi, Gary. So with respect to Private Markets, maybe provide a bit of perspective on the last year and provide a forward-looking view of what we see. So last year was a challenging year across Private Markets. The Denominator Effect that we entered a year in, 'cause 2022 had an impact, where many funds coming in were impacted by increased overall allocations to their privates, that had an impact. The environment of increasing interest rates and inflation obviously had an impact. So people were on pause for allocating to privates, particularly real assets, where it's one of our core strengths. So that impacted fundraising. Overall, fundraising in the market was tough. However, you know, those three factors are not factors going into this year.
I mean, when you look at the interest rate, inflationary environment and also, the public market environment. So people are focused back on allocating capital, and we started to see that. I mean, we released a first close on our private credit strategy. So we do see the environment being significantly more positive. And our just the momentum in sales of our strategies, we see a much better market environment this year than last year. I think you alluded to performance fees. I think as our strategies are more mature than they've ever been. I mean, a lot of the strategies we've developed over the last years, now we have portfolios with significant AUM starting to get scale with, you know, 5-year, 6-year, 7-year performance.
I'm quite confident that we will continue to see performance fees going forward from our Private Markets strategies. I don't know if I addressed all of your questions, Gary.
Yeah, no, that's helpful.
More specifically on that one, Gary, because I know it's probably what you're thinking in terms of how much of these performance fees get replicated again in 2024.
Yeah.
Particularly on the private market side, the CAD 15 million that came in for the year, CAD 16 million, was directly in line with our expectations. So it's about CAD 5 million or CAD 6 million higher than it was last year. But to John's point, just given the scale and diversity of the platform now, we expect that to be a more constant amount going forward in private markets.
Okay, that makes sense. Thank you very much. Those are my questions.
Thank you. Next question will be from Geoff Kwan at RBC Capital Markets. Please go ahead.
Hi there. Good morning. My first question was just with the, you know, regional distribution model in place, the new hires and Jean-Guy your comments on execution. Just wondering how quickly we should be thinking about how quickly you might be able to get traction on the growth sales activity under the new model.
It's Max. I'm gonna volunteer the answer on this one. I think it's about accelerating the sales process. So it's not like we turn the switch on and off. There's already been a very effective distribution model. What we do by going regional is, I think we get closer to the source of how we get execution in terms of increasing the velocity of RFPs, getting closer to consulting, closer to the sales cycle, and helping in order for us to introduce additional solutions to the existing client base. That's the number one thing.
Then after, as you deploy additional resources through the market, you are able to identify immediate opportunities in markets where we think we have significant added value and are highly competitive in the Canadian market, particularly, and other markets for my peers, CEOs. And as we've gone, and Lucas mentioned that we did a full offsite last week, we've identified immediately what are the low-hanging fruits for us in terms of how can we accelerate that process in some of the segments where we have a differentiating factor from a full investment platform, and also how can we execute faster by deploying the right resources in those different segments?
I think what you should expect for the years to come or the year to come is certainly increased activity in areas where we are highly competitive and we have the right investment solutions, and also to see new segments.
... adding incremental value to our bottom line by identifying those immediate opportunities for us.
Okay. Thank you for that. Just my second question is, the dividend, it's been unchanged for the past couple of years. Wanted to get to your view on, you know, what the potential for increasing the dividend at some point over the next 12 months?
Yeah, the one consideration in that for us right now is when we'll get to Q4 of this year. If we want to remain in the Dividend Aristocrats Index, we will have to increase the dividend at that point. So certainly it's a consideration. Not the only one, but that's certainly one of them that's out there. And again, it speaks to a broader capital allocation decision between also debt reduction, which we're committed to, as well as potential buybacks. So all to be considered for this year. But as I said, I think that the key one to your question is the fact that if we want to remain in the index, in Q4, we would have to consider an increase.
Okay. Yeah, that's what I was kind of getting at. Thank you for that.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. Your next question will be from Jaeme Gloyn at National Bank. Please go ahead.
Yeah, thanks. I, I just wanted to dig in first on the OpEx, and I believe, Lucas, your sort of guidance towards flat operating expense is 2024 versus 2023. And so just wanted to dig in a little bit in terms of, you know, given the spend on the global distribution model, where you might be finding some savings elsewhere in the business to help fund that flat OpEx guidance. And I believe that was on an absolute dollar basis, but maybe confirm and sort of discuss that.
No, you're correct. And, you know, the short answer is, we've made significant investments in our technology and operations platforms over the last few years, and we're finally starting to reap the benefits of, you know, process reengineering, changing. You know, while we've gone to this regional model from a distribution perspective to really be closer to our clients, you know, and, and distribution being a local sport, a lot of the back office synergies that we talked about in terms of, you know, keeping that centralized and keeping that global, has been coming to fruition over the years. So as I say, I think this is where we've been seeing the benefits come in over 2023, and we expect to continue to getting some in 2024, to help fund that.
So when you're looking at overall SG&A, you might continue to see a creep up from revenue-related expenses, as Gary already alluded to, in terms of particularly the impacts from performance fees there. But when you're looking at overall sort of our management of compensation, we're flat, and commissions as well from distribution, obviously. But the cost structure itself is looked to maintain flat.
Okay, understood. And then, second question is related to, let's say, like, the other revenue sources, share of JV, you know, those drivers. You know, obviously there's some seasonality in Q4, but the step up over last year was quite significant as well. And so is that a step up? Is that a growth rate that we can kind of expect for 2024? Or how should we be thinking about some of these, some of these other revenues? I know they're lumpy, but maybe a little bit of insight or visibility that you can provide would be helpful.
Yeah. You know, I'd, I'd love to be able to give you some guidance, just the reality is, and we keep sticking to the tagline that, that they're lumpy, and, and that's just the reality of it. There's, you know, there's a pipeline of projects, you know, quite frankly, for us, we even had two surprise to the upside in Q4 of this year, which was, which was helpful. But it depends, and I think particularly on the real estate side, given the challenges that we saw in, in 2023, it made it more challenging to bring some projects online and to market. You know, will that cause an acceleration in 2024? Perhaps.
But as I say, I'd rather not put out any guidance there because it's one of those things where it just really does depend on when the keys are handed over at that point.
Yeah, maybe just to comment on that.
Yeah.
I mean, what the, the share of earnings, of the JV earnings we report are really related to value add strategies we run in real estate. And rather than running those strategies through funds, we run them through joint venture partners that are basically investing institutional capital. So it's just a question of because of the structure we have, we report them as earnings as opposed to really performance fees, but it's profits and performance fees being generated by specific projects we have with partners, and they're principally value add real estate strategies. So the comment as to where historically this number has been significantly higher when we've had a very strong real estate market. The U.K. real estate market has been weak over the last year, and I wouldn't say it would necessarily...
I still say it's in. It's not in the strongest position, but we will continue to have earnings of a similar nature like this. But the potential, it could be significantly higher once the real estate environment, you know, becomes more of a, I'd say, back into a bullish market, 'cause we've generated significantly more in earnings in the past, coming from this revenue stream.
Thank you very much.
Thank you. Next question will be from Graham Ryding at TD Securities. Please go ahead.
Hi, Lucas. Just to confirm on the working capital piece, I think typically Q1, there would be a drag on that front. I believe you said that would be just sort of related to variable comp being paid out?
... But this year, you think because the performance fees are strong, when the net performance fees, that's more gonna, going to more than offset. Is that the right interpretation?
Correct. So, I mean, what happens is, in the fourth quarter, you recognize the revenue that goes into your earnings, but then because you don't actually collect the performance fees, you have to take the working capital charge on the receivables. So it's a net wash. And what happens in the first quarter, we'll reverse that receivable, get in the cash, and you'll see the working cap lift, which actually helps the free cash flow at that point.
Okay, understood.
Again, given the reality of the performance fees in Q4, you'll see that positive pressure in the first quarter.
Okay, understood. And then just on the PineStone, mandates, I think your, your guidance, you know, I could ask this to Jean-Guy or anybody, but I think it was CAD 2 billion-CAD 3 billion of further leakage in 2024, and then nil to 0 to 2 billion in 2025. Just conceptually, why would you still be guiding or expecting some further leakage? Like, why would clients not, if they were going to transition away directly to PineStone, why would they have not done so already?
Well, what you just said is exactly what I think, you know? But, you know, it's a question of prudence. You know, it would have been inappropriate if I had said that we expect that leakage after 2024 will be zero, huh? So, I think it's just a question of providing a certain element of conservatism and prudence, which we do, and we manage on that basis. That, not knowing anything with 100% certainty, that's why I've used a range of 0-2, you know? That's the only reason. But what you just said is absolutely right in terms of what you normally would be expecting.
People who had the intention or the desire, or if you take this large financial intermediary, which for business model reasons made a decision to shift something like CAD 7.5 billion, which comes to an end at the end of the second quarter this year. People who have the intention or have the reason or have whatever structural constraints that leads them to to move directly, would normally have done that in the course of the first two years, which would be 2023 and 2024. So your logic about what happens after the first two years, I think is pretty solid, you know?
That's it for me. Thank you.
Thank you. At this time, it appears we have no further questions. Please proceed.
Thank you, Sylvie. That concludes today's call. For more information, do not hesitate to either call me or take advantage of our website at rr.fieracapital.com. Thank you for joining us. Merci.
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.