Good afternoon, and welcome to the IGM Financial Second Quarter 2019 Earnings Results Call for Thursday, August 1st, 2019. Your host for today will be Mr. Keith Potter. Please go ahead, Mr. Potter.
Thank you, Patrick. Good afternoon. I'm Treasurer and Head of Investor Relations, and welcome everyone to IGM Financial's 2019 second quarter earnings call. Joining me on the call today are Jeff Carney, President and CEO of IG Wealth Management and President and CEO of IGM Financial. There's Barry McInerney, President and CEO of Mackenzie Investments, and Luke Gould, Executive Vice President and CFO of IGM Financial. Before we get started, I'd like to draw your attention to the cautions concerning forward-looking statements on slide three of the presentation. Slide four summarizes non-IFRS financial measures used in this material. On slide five, we have provided a list of documents that are available to the public on our website related to the second quarter results for IGM Financial.
With that, I'll turn it over to Jeff Carney, who will review IGM's 2019 second quarter results, starting on slide seven.
Good afternoon, everybody. We reached another record high quarter end AUM level, with IGM's total assets reaching CAD 162.3 billion at June 30th, 2019. That's up 1.2% during the second quarter. Our clients earned significant investment returns during the first half of the year, driving IGM's AUM up 8.9% relative to December 31st of last year. Investment fund net redemptions were CAD 364 million in the quarter, or 0.9% of average AUM on an annualized basis. IGM continued to gain market share relative to the industry advice channel, which experienced net redemptions rate of 1.5% during the second quarter. Adjusted net earnings per share were CAD 0.81 for Q2 2019.
Reported EPS of CAD 0.77 includes CAD 8 million after-tax relating to Great-West Lifeco's sale of its U.S. individual life insurance and annuity business. We executed on non-commission expense control during the quarter and are maintaining our 4% growth guidance for full year 2019. We repurchased 2.5 million shares during the quarter at a cost of CAD 91 million, bringing our year-to-date repurchases to CAD 100 million. As a reminder, IGM received proceeds of CAD 80 million during the quarter from our participation in Great-West Lifeco's substantial issuer bid. Slide eight highlights the performance of major equity and fixed income indices. Since December 31st of last year, our clients have earned significant investment returns of 9%, including 1.3% during the second quarter. Turning to Slide 9. Investors' confidence remained low as we entered the second quarter.
The industry advice channel experienced long-term mutual fund net redemptions of CAD 2.8 billion during Q2. That said, we began to see improvements in the industry flows during the month of June, which supports a more positive outlook for the remainder of 2019. Turning to slide 10 on our results for the second quarter. Average AUM increased to CAD 161.8 billion, up 2.7% year over year. Investment fund net redemptions of CAD 364 million, compared to net sales of CAD 171 million in Q2, 2018. IGM's adjusted net earnings were CAD 193 million for the quarter, and adjusted net earnings per share were CAD 0.81, up 15.7% from Q1, 2019.
We would note that our adjusted net earnings of for Q2 2019 includes Personal Capital's losses of CAD 4.6 million and lower Great-West Life earnings due to true up of approximately CAD 3.8 million. Excluding these items, adjusted earnings were relatively in line with the second quarter of last year. As I mentioned earlier, IGM's reported net earnings included an after-tax loss of CAD 8 million or CAD 0.04 per share. Slide 11 contains the breakdown of IGM's quarterly results across all of our segments. You can see that the corporate and other is a key driver for the change in earnings versus last year, which is the result of lower proportionate share of associates' earnings from Great-West Life and the inclusion of Personal Capital losses starting this year. Turning to IG Wealth Management's Q2 highlights on Slide 13.
AUM reached a record quarter and high of CAD 90.2 billion, up 8.5% year-to-date, driven by strong investment returns for our clients. Net redemptions were CAD 537 million during the second quarter, excluding CAD 62 million of net flows into high interest savings accounts. This is in the context of low investor confidence, as the industry remains in net redemptions. IG Wealth Management's growth sales stabilized during Q2, and the sales per consultant were up 10% year-over-year. The net sales trend also stabilized and is looking more favorable heading into the third quarter. The improvement in growth sales is supported by success in the high net worth and mass affluent segments, which experienced a 15.6% increase in sales into our high net worth solutions.
I'm also excited to share that the National Service Center we launched in 2018, focusing on our mass market clients, is now servicing over 150,000 clients, representing over CAD 1 billion in assets. The servicing center is resourced with a team of salaried, licensed financial representatives to help them ensure we are providing our very best consistent service level to all households. This helps free up consultants' time to acquire more high net worth and mass affluent clients and servicing exists on households in this segment. Turning to slide 14 on operating results, you can see that IG's gross sales stabilized in Q2 and is in line with 2018. This is an important improvement from the trend last quarter.
I'd also note that Q2 is typically a seasonally slower sales period for IG due to the extensive consultant-focused events we hold during that quarter. As I mentioned, our reported net sales does not include flows into the high interest savings accounts. We intend to expand our disclosures to include a view of total dealer assets under administration and flows in 2020, corresponding to the introduction of the unbundled pricing for all, where an advisory fee is charged on the AUA. We are optimistic, we are optimistic investor sentiment is coming back, and we look forward to improvements in industry net flows in June. We're seeing signs of similar improvements at IG Wealth Management during the month of July.
Slide 15 highlights IG Wealth Management's long-term trailing twelve-month redemption rate of 9.9%, which remains well below the industry average of 17.2%. Turning to slide 16, we continue to make progress in delivering better beta with our focus on managed solutions, which now represents 54% of our long-term AUM and 80% of our long-term growth sales. High net worth solutions represented CAD 46.7 billion in assets under management and 52% of total sales. As I mentioned, IG's growth sales into high net worth solutions increased 15.6% year-over-year. A key component of this increase is coming from the acquisition of new client households. Specifically, gross sales from the acquisition of new households with more than 500,000 increased 14% relative to last year.
As a result, that result demonstrates our strategy is showing early signs of progress. With that, I'll now turn it over to Barry to discuss Mackenzie's results.
Thank you, Jeff, and good afternoon, everyone. If you could please turn to slide 18. Mackenzie reached another record high level of investment fund AUM at the end of the second quarter of 2019, CAD 61.4 billion, completing the first half of the year with a 10.6% increase relative to the end of 2018. During Q2, Mackenzie also continued to gain market share versus peers in the advice channel, with total investment fund net sales of CAD 284 million. Our retail investment fund net sales were once again strong at CAD 392 million. This was our eleventh consecutive quarter of positive retail mutual fund net sales and our thirteenth consecutive quarter of positive retail ETF net creations.
Mackenzie continues to deliver a solid investment performance, with 46% of our mutual fund AUM in four- or five-star rated funds as at June 30th of this year. Slide 19 highlights Mackenzie's operating results for the second quarter of 2019. Mutual fund gross sales of CAD 2.5 billion was an all-time record high Q2 result for us, after adjusting prior periods to remove fund allocation changes. Total investment fund net sales were CAD 284 million. Mackenzie continues to capture market share versus peers in the advice channel, as mentioned. Our long-term investment funds, which includes both ETFs and long-term mutual funds, had an organic net sales rate of 1.3% during the 12 months ending June 30th. Our strong momentum at Mackenzie continued in the summer months, and IG will report Mackenzie's July investment fund net sales results tomorrow.
We experienced CAD 534 million net redemptions within the institutional sub-advisory and other line during Q2. This included the impact of recent sub-advisory changes at IPC and also includes approximately CAD 200 million out of CAD 1.3 billion in sub-advisory assets that are being internalized this year by one of our partners. The remaining CAD 1.1 billion of low fee funds is expected to redeem during the third quarter. The annual revenue impact is marginal at approximately CAD 1.5 million. On the positive side, Mackenzie has a number of institutional wins, totaling approximately CAD 650 million across three strategies and three client geographies, namely here in Canada, the U.S., and Europe. CAD 150 million of these wins already funded during Q2, and the remaining CAD 500 million is expected to fund in the third and fourth quarters.
Details of our continued retail sales momentum are presented on Slide 20. Mackenzie's retail sales represented 7.4% of advice channel long-term mutual fund gross sales during Q2 versus 6.8% last year. Our retail gross sales capture rate improved across several categories with a substantial increase in the foreign equity gross sales capture rate of 11.2% relative to 5.7% in Q2 of last year. As I mentioned earlier, the second quarter of 2019 marked the 11th consecutive quarter of positive retail investment fund net sales. Both mutual funds and ETFs are attracting positive net flows. Turning to Slide 21, Mackenzie's ETF AUM was CAD 3.5 billion at the end of June.
Our ETF assets continue to be diversified across strategy and client type, and retail makes up more than 50% of Mackenzie's ETF AUM. Traditional beta and active ETFs benefit from positive net creations, whereas our strategic beta products were impacted by advisors rebalancing their portfolios during the quarter. On slide 22, we take a look at the liquid alternatives landscape. Well, there's been many recent developments in the alternative investment space in Canada. Most of the product solutions have been commonplace in the U.S. for quite some time now. In fact, the U.S. has experienced a 16% compound annual growth rate over the past decade, reaching approximately $700 billion in liquid alternatives this year. We're getting a lot of questions on liquid alternatives, and I wanted to draw your attention to our view that we see there being two distinct and notable subcategories.
One being liquid alternative asset classes, and the second being liquid alternative strategies. Both these categories have an important characteristic in common. That is, sources of return that have low correlations to traditional asset classes. However, in Canada, it was only 15 months ago that Mackenzie broke new ground when it launched the first, Canada's first liquid alternative strategies product to Canadian retail investors based on the regulator's alternative framework for conventional mutual funds. We now have a total of CAD 1.1 billion of AUM across our liquid alternative products, and we foresee a significant, long-lasting upside for liquid alternatives in our country. On slide 23, Mackenzie's long-term investment performance remains strong, further improving quarter-over-quarter on all the metrics highlighted on the page.
Mackenzie's percentage of assets in the first or second quartile advanced quarter-over-quarter in each of the 1-, 3-, 5-, and 10-year time periods. At the end of the quarter, we had more than 50% of our mutual fund assets above median in the 1-, 3-, 5-, and 10-year periods. Forty-six percent of Mackenzie's AUM is in 4- or 5-star rated funds, the fifth highest in the industry. Finally, on slide 24 for Mackenzie, value-oriented strategies remained out of favor and continue to remain out of favor during the second quarter. Mackenzie's growth-oriented boutiques continue to have the majority of their assets rated 4 or 5 stars and are attracting significant net sales in the retail channel. Our global equity and income team and fixed income team are also performing very well. With that, I'll turn it over to Luke to review IGM's financial results.
Okay, thanks, Barry. Hi, everybody. I'll go to page 26, and on this slide, you can see our consolidated assets for management. I just remind that as Jeff said, we had all-time record high asset levels, driven by continuing investment returns of 1.4% in the quarter for our clients and 9% year to date, and that's informed our earnings result. I'll turn to page 27. We can see our consolidated EBIT and margins as a percent of AUM. Starting on the left, I just highlight our EBIT of CAD 276.4 million was up 15% from Q1. This was driven by higher asset levels, with average assets up 4%. It was also driven by noticeably lower expenses, which were down CAD 15 million from Q1.
As mentioned earlier, there are some timing-related items and expenses as we focus on initiatives. I'd also reinforce that our full year guidance of no more than a 4% increase for IGM and our major subsidiaries is staying in place. On the right, you can see our net management fee rate of 1.22% was stable, and the EBIT margin of 57 basis points was up meaningfully due to the expense declines. I'd also say at the onset here that we did introduce our previously announced high net worth fee reductions at IG during the first quarter. It was actually March 1st, 2019, and I think some may have been expecting lower management fees than we reported.
So we did announce that there would be a 3 basis point reduction on IG's fee rate upon these changes. But, but I'd also highlight, a third of it was felt in Q1, and the remaining two thirds felt in in Q2. So I think people are expecting slightly lower management fees, but, but this is our current run rate that you're seeing here. I'd also highlight that in the case of Mackenzie, we are seeing strength in retail and strength in equities, which is putting upward pressure on the weighted average fee rate. Page 28, I make a few additional comments on the consolidated income statement. First, as Jeff highlighted, if you look at the proportionate share of associates earnings, you can see we had CAD 28.2 million in this line.
This is largely our, our share of Great-West Lifeco's income, our 4% share. I would remind that, each quarter's results reflects analyst estimates of Great-West Lifeco's earnings, and we true up, from the, the actual the previous quarter. And in this period, we did have CAD 4 million of negative adjustment, and excluding that, the result would have been net-- been CAD 32 million. If you go all the way to the bottom, I'd also remind that we did do some financing, activities in Q1, and we, we did retire our preferred share issue of CAD 150 million. So you can see perpetual preferred share dividends, has, declined from CAD 2.2 million a quarter to zero.
and I note that the impact of that refinancing was a CAD 6 million annual benefit, and we're starting to see that in Q2. And I'd also remind, in the second row from the bottom, we did buy back CAD 100 million worth of common shares, and the impact on our average shares outstanding was to reduce that balance by 1% in the quarter. Move to page 29. I don't have many comments on the fee and compensation rates for IG. I would just remind that, at the top left, you can see the weighted average management and admin fee rate. It's 199.3 basis points.
This is down two basis points from last period, and again, we signaled that the high net worth pricing adjustments would have a three basis point impact. A basis point of that was felt in Q1, with the remaining two basis points felt in Q2. Moving to page 30, you can see IG Wealth Management's income statement. I commented on management and admin fees on the last slide. I, I would highlight IG's earnings are up 19% from Q1, driven by higher asset levels and lower expenses. I think there's some noteworthy items in distribution fee. You can see we earned CAD 44.6 million, up about CAD 4 million from last quarter and CAD 4 million from last year. That is as a result of higher insurance sales, which we, we think is favorable.
I'd also remind that a large part of that is paid out in compensation expenses, and you can find that in asset-based comp and other. I'd also highlight that in point one on the side, you can see sales-based commission expenses, which we're now expensing as incurred for a large part of our sales commissions, is down from last quarter due to lower sales levels, primarily due to seasonality. Then lastly, non-commissioned expenses, CAD 152.9 million, was up 4% from last year, and this is consistent with our guidance for the full year. Page 31, moving there, you can see Mackenzie's fee rates and asset levels. I just remind you, in the top left, net revenues were 79.6 basis points, up slightly from last quarter.
We did highlight last quarter that we pay a quarter of the asset-based comp in Q1, in spite of earning 90/365, you know, on the revenue line. So that does impact the rate. The other thing impacting the rate, as mentioned, was real strength in retail and also strong investment returns on the equity, the equity component of Mackenzie's AUM. Moving to page 32, you can see earnings before interest and taxes for Mackenzie were up 24.8% relative to Q1 due to higher asset levels and lower expenses. I would remind, if you look at the net investment income, another line that Mackenzie did enjoy really good investment returns on its seed capital in Q1, and we experienced a lower return during the second quarter.
I'd also highlight non-commissioned expenses of 84.8 were stable from Q2 of 2018. However, there's some timing there, and we do expect that full year Mackenzie will be up 4% from 2018's level. And then turning to page 33, we've added a new slide to walk through some of the activities in the quarter in our strategic investments. The first point I'd highlight is we, we did invest CAD 11 million in Portage and CAD 18 million in Wealthsimple in the quarter. You can see that aggregates to CAD 29 million in the top left. So as was disclosed in the quarter, Wealthsimple did have a funding round of CAD 100 million, which we participated in, and did include a third party being Allianz.
We marked up, you can see in point two, the value of our investments by CAD 24 million, and that reflects the subscription price of this funding round. And importantly, you can see we are carrying these investments at a fair value of CAD 285 million. And I'd also remark, Wealthsimple continues to do very well. I hope all of you have seen their advertising in the marketplace. They now have over CAD 5 billion in assets, which is an increase of over 90% in the last year, and they have 150,000 client relationships and growing. So the investment's been going very well. I'd make a few remarks on Personal Capital and ChinaAMC .
First, that we've reflected the strength of the Canadian dollar, and we've highlighted that in points 3 and 4. And I'd also remind that we got our annual dividend from ChinaAMC of CAD 8 million during the quarter, and you can see on the right, these investments are worth CAD 200 million and just under CAD 700 million, respectively. So, it is a significant amount of value we have in these investments. And then lastly, as it relates to our investment in our 4% stake in Great-West Lifeco, we did tender proportionately to their Substantial Issuer Bid. You can see the proceeds received from CAD 80 million, and I'd remind of two things.
One, we used the proceeds to repurchase CAD 100 million of IGM common shares in the period. And I'd also remind that this investment is worth CAD 1.1 billion on IGM's balance sheet. And if you look through our balance sheet, you'll see additional excess capital that that is valuable. That concludes my remarks, and I'll turn it back over to Keith.
Hi, Patrick. I think we're ready to open the line for questions.
All right, perfect. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from Gary Ho with Desjardins Capital Markets. Please go ahead.
Thanks, and good afternoon. Just want to start off and get a bit more color on the non-commission expense line. Maybe help us think through kind of the change from Q1 to Q2, the material drop that we saw. Kind of what items drove that, and would those reappear in the back half of 2019?
Yes, thanks, Gary. It's Luke. So, your question was on non-commissioned expenses. Yeah, as indicated last period, we had some technology initiative expenses that drove it up in Q1. So that was timing. Those expenses fell off, as well as some of the quarterly or seasonal brand and marketing costs in Q1. So those are the two biggest components, and we also disclosed that one of the initiatives in particular that drove expenses was what we're calling our advisor portal at IG Wealth. And so that is actually the launch of Salesforce, and we're on track to have that rolled out during 2019.
I'd also reinforce, as far as full year spend, we are sticking to our guidance of being up no more than 4% year-over-year. And there may be, it's hard to predict Q3 versus Q4, but full year, we're very confident with that guidance.
Okay, that's helpful. Maybe second question, just switching gears a bit. Want to get some perspective on the management fee rate. It does feel like, you know, the magnitude of the fee cuts from the industry have slowed in the first half of this year versus, you know, 2017 and 2018. I guess first, you know, is that a correct observation? And second, you know, how's the competitive environment out there? You know, have there been players that's been more aggressive on prices, et cetera?
Hi, Gary. Great question. So we're constantly monitoring our pricing at Mackenzie and IG, and to be competitive. We feel pretty good still. Made some moves, as you know, a few times last 3 years , 4 years. We're always, I think, going forward, for the next little while, probably pretty much status quo, maybe a little bit of housekeeping and tweaking here and there, but we're always monitoring it. So, you know, have we seen it slow down a bit? There probably was. Sometimes there's a flurry of price reductions across the industry, and sometimes, you know, it's not as active. But, you know, we're just monitoring it. We're feeling good, and we're competitive. So, that's about it for us in terms of long-term trends.
We'll just keep watching it and make sure, ensuring we're competitive on long-term performance and be competitive on price.
As you know, we've made some pricing decisions earlier and feel very good in where we are for high net worth, which is what we're really trying to grow in, and we're as competitive as anybody in the industry when it comes to that.
Okay. Then just my last question. You talked about, you know, the CAD 18 million investment in Wealthsimple in the quarter. Can we get an update on that platform as well? Kind of maybe relate that to the discussions around kind of use of capital. Appears, you know, you've slowed down your buybacks considerably after spending CAD 90 million in the quarter. You know, if, you know, if it's not buybacks, you know, what is management considering?
Well, we've got a number of options based on Personal Capital and, well, Wealthsimple's development and continuing to monitor their success. And as you can see, they're growing, both of them growing significantly. And so, you know, we're just monitoring those developments, and as we see opportunities, we'll put the capital where it's most effective for our shareholders.
What do you think about the current dividend level at this point?
You know, we're comfortable with where we are. We obviously, overall, everything we're doing is to be able to increase our dividend over time. But we've got these great opportunities right now, and we want to make sure that we continue to develop them.
I think, Gary, in the past, we've given that clear guidance. We're here to grow earnings and here to grow our dividends, and we've been targeting a dividend payout rate of 65%, and when we reach that level, you can expect that increases.
Got it. Okay, that's helpful. That's it for me. Thank you.
If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll take our next question from Jeff Kwan with RBC Capital Markets. Please go ahead.
Hi, good afternoon. Jeff, just maybe to start, and I just want to make sure I'm understanding your comments around the net sales environment. So with the industry sales, look like they may be getting better. You were kind of talking about the improved sales of the consultants and also obviously the push in the high net worth side. So kind of putting that all together, does it feel like, and at least based on your crystal ball, that we should see, after we adjust for seasonality, some improvements in that net sales performance line in the coming months?
Absolutely. We've got a lot of our initiatives are starting to come to fruition, and they're all, to make it easier for our consultants to do their best every day. And so, there's a number that we've done. Our products, are doing really well, that we've got some new capabilities that we've brought in, new, manufacturers, globally, that we're using. And, I think our organization and our consultants feel like they've never had more tools than they have right now, and we still have a lot of work to do to go forward, as you know, in our overall implementation. So we've got momentum, and we're gonna continue to build on it.
Okay, thanks for that. Just my other question was for Barry. I missed all the numbers you were talking about when you talked about kind of the institutional other line on the net sales. Did the announcement from June on the MD Management changes that they made, was that the CAD 200 million that you were referencing? I'm just trying to get a sense as to the puts and takes on the net sales and the pipeline and ultimately to your comments on the revenue impact.
Actually, it's Luke. I'll tell you what, Jeff. So I think Barry identified that, as was previously announced, there was a change at MD, so Mackenzie is losing, or has lost now in July, CAD 1.2 billion. The revenue impact is de minimis and think CAD 1 million a year, given the nature of the mandates and what that business was. And Carney also highlighted, CAD 500 million in wins in the institutional business that have been won and will be funding over the coming months. And I think, Barry, you identified as three clients in three geographies-
Mm-hmm.
and a couple of our boutiques who won it.
Yeah. Yeah, it's actually pretty exciting. We're taking a very focused approach in selling our institutional products here in Canada and U.S. and Europe. And so we picked up a win in each country and different mandates too, so across our boutiques. So but yeah, so that will nicely offset any reduction from the MD redemption, which was expected.
Okay. So I just want to make sure I've got that, and I guess I had the wrong number. So July's numbers will see the CAD 1.2 billion outflow, but it's only CAD 1 million a year in revenues, but you're picking up CAD 500 million wins at, you know, sometime in the coming months. And then, from a fee perspective, were those, you know, what the, the types of mandates should see a bit of a nice tick up on the management fee line?
You got it right, Jeff. Yeah, the average fees on the new wins are higher than the assets that we lost. Yes.
Okay, perfect. Thank you very much.
We'll take our next question from Graham Ryding with TD Securities. Please go ahead.
Hi, good afternoon. Maybe I can start with IG. Just an update, you know, the tech spending initiatives, just an update maybe on where you're at with some of those key projects and what's coming through.
Yeah, we're pounding through. It's been great projects. So, we've got digital capture. That's already happened. We've got a number of initiatives coming out shortly. We're working very closely on our Salesforce launch, which will give our consultants a digital experience for them, and it's gonna create-drive great productivity. So those are all in flight, and we'll start having impacts in the couple next quarters.
Okay, got it. And then sticking with IG, it looks like the gross sales are actually sort of matching last year's levels, which is probably not that bad, given the volatility we saw, you know, coming out of the end of last year. But it seems to be more of a redemption issue. I'm just wondering if you could give any color on, you know, why gross sales are holding in, but why redemptions are picking up at IG.
We just went through the volatility that everybody else did. It hit us a little bit harder, but we're back right where we were, so it was just a little bit of a blip. But we're in good shape. You know, we've got a number of, like we have more consultants having programs in their own areas than we've ever seen before. So there's a lot of activity in the field. They're very energized. They've got new tools to work with, and they're feeling good. So I expect that we'll continue to see significant growth.
And then see the 14% increase in sales for high net worth, I think it's starting to show that, you know, that segment that we really want to win and win in, in the long term is starting to have its fruition, and we can't wait to see that grow going forward. And that's without all the other capabilities that we're going to be bringing to them. So lots of good momentum, lots of energy in the field. They're feeling good.
I think, Jeff. So we saw the improving investor confidence in the industry in June, and that's continued in July. So the sales story is good. It's been stable, and consultant productivity is actually up by 10% from last year in Q2. So we've seen momentum with the field. But our redemptions, we saw it stabilize in June for IG, and we saw it stabilize for the industry. And we'd highlight for July, that's continued. It's been more favorable. We do have positive net sales in July for IG and are announcing that soon. So we're seeing the trajectory turn the other way.
Okay, that's good color. Thank you.
We'll take our next question from Tom MacKinnon with BMO Capital Markets.
Yeah, thanks very much. Good afternoon. This question for Barry on slide 21, when you outline these ETF net creations. Generally, we've never seen anything below the line here, and now we got some of that in the second quarter. Now, do you think this is becoming a trend now, people just recycling through ETFs rather than just kind of always adding to them? Or is it, or is this some, is this just sort of a blip that just happened this quarter? Just trying to think what you see going forward with respect to this trend-
Yeah.
on the second quarter.
No, it's a good question, Tom. It's the latter, it's a blip. So, you know, we, you see, we've had good flows. If you just look at this year, good flows in Q1 and Q2, actually, the flows were fine, but we... Now that we're getting to a certain size, that we've sometimes advisors rebalancing, just from an asset allocation perspective. And so, they might rebalance out of an ETF we have and into an asset class that we don't have an ETF. So, that, that was it probably goes with getting to be bigger and have more and more clients. So, but it's not a trend at all. And you'll, you'll see the July numbers, obviously, everything just reversed back very, very strongly.
So we're very keen on ETF. The industry's growing. We're gaining market share. You know, we've started to launch the new ones. Now we want to take a little bit of a breather and build up more scale in our existing ETFs, but we launched our emerging market debt last week, with a hedge, and we have more coming the rest of the year. So, we're really excited about it and getting some more flows. Obviously, retail is doing well for us. We're getting some institutional wins that you'll be hearing over the next coming months. But that's a fair question. Thank you.
Okay, thanks.
Once again, if you'd like to ask a question, please press star one. We'll take our next question from Scott Chan with Canaccord Genuity. Sorry, please go ahead.
Good afternoon. Jeff, Jeff, you talked about, like an Investors Group, new capabilities a couple of times, and maybe can you just kind of expand on that? And, and you talked about new mandates and, and kind of what's going on, and some of the progression that you've kind of made year to date on that, and maybe what to expect over the, the next several quarters?
Couldn't hear that very well. Could you repeat that?
So you talked about IG's new capabilities a few times, on-
Oh, yeah.
I was just wondering if you could expand on that. You also talked about new mandates. Obviously, a lot's going on, probably internally, that we don't see, and perhaps just an update on what's gone on recently and, you know, perhaps over the next several quarters, what, you know, what, what to expect.
Yeah, I mean, we've been doing a lot on the product side, as I mentioned, working with some new partners to build out and give our clients more breadth of opportunities and help consultants with some really talented capabilities. So we've been working with.
large organizations, and as they're now into the products, and they're available to the consultants. And so we'll see that grow as we go forward, and make sure that they're armed with the best possible skills and talents in the world. And so we work with global firms and, you know, obviously with Mackenzie and others. But we've got a shelf that's becoming very competitive, and it's really energizing the consultants.
Okay, great. Just Barry, just on liquid alternatives, you know, I've kind of looked at the U.S. data that you guys kind of cited. Obviously, it's grown to $700 billion. You guys are at $1.1 billion. Do you know how big the industry is in Canada? I know it's relatively new, and just trying to get a perspective on, you know, kind of where Mackenzie sits relative to the industry right now, if you have that.
Yeah. It's, you know, it's interesting. Just to, if I could just make a comment on the US, and I'll get back to Canada in a moment. Because we need to. We wanted to parse out the data ourselves, which is the slide 22 on the left, between the two types of liquid alternative offerings. And so, the liquid alternative strategies are what everyone's launching effective first of this year, because the regulators are now allowing leveraging and shorting within the mutual funds. So those are alternative strategies. Last time we looked, that's growing industry-wise quite well. I think it's still. I don't think the numbers are precise, and maybe, you know, $4 billion or $5 billion or so maybe in terms of that industry, that part of it.
We probably, collectively as an industry, need to measure like they have in the U.S., better in Canada, the other types of liquid alternatives, listed infrastructure, REITs, commodities, et cetera. So they're not long leveraged or shorting. It's more of the replicating, in a listed fashion, real assets that allow the ultra-high net worth and the large institutional investors. So we don't have precise numbers on that. So, but we did want to highlight those two categories, because you can see how they've grown considerably in the last 10 years in the U.S., and I was there when it was happening. They're just really good, diversified sources of return for the retail investors. And they're obviously liquid and daily valued, not the direct investments, but these are, again, liquid alternatives.
So probably good for us, the industry in Canada, to track both types. But the types that we're most talking about are the new ones, January first, regulatory allowance of liquid alternative strategies, and we've seen some numbers, probably 4-ish, CAD 4 billion or so already. There's a number of experts have felt that liquid alternatives could grow to CAD 100 billion in Canada in short order, roughly 10% of where the U.S. is. And that would be good for the industry, good for the asset management industry. There are healthy fees, and most importantly, they're good for Canadians because they, they really do offer, they really do offer nice diversified returns for portfolios.
Great. That's very helpful. Thank you very much.
You're welcome.
We'll take our next question from Paul Holden with CIBC. Please go ahead.
Thank you. Good afternoon. So maybe to just continue the discussion on liquid alts, and including both types to start. To what extent are you using these products in your managed solutions? And I guess both for Mackenzie and for IG product as well.
Yeah, so that's a good question. So, our current offering, I'll start with the liquid alternative asset classes. For Mackenzie, that's just our MDAF, Mackenzie Diversified Alternative Fund. We launched it four years or so ago. It's up to, oh, CAD 650 million or pushing CAD 700 million. It's growing very, very nicely for us. That's really mostly just a completely external sale as opposed to being used in-house, because we have yet to develop component parts to that, and that's something that we're looking at to see. If we have component parts to that, then you know, the Mackenzie PMs can use the component parts for exposure that they need. Now, on the liquid alternative strategies, our main offering there is MSARF.
We got lots of acronyms here. Mackenzie, that's the Mackenzie Multi-Strategy Absolute Return Fund, MSARF. That we also have launched early this year, some of the sleeves of it. And so that is being used internally, mostly by our multi-asset teams, and it's being sold externally, too. So, you know, we can get you the breakdown, but, I just want to, to your point, the alternative strategies are being used in-house and externally. The MDAF is principally an external sales product at this point in time. But we really are really excited by liquid alts. We think, again, good for Canadians. We're going to continue to manufacture more of them, both categories.
We think they've got, you know, to start with, a nice 5%-10% allocation to a portfolio. I mean, some of the, as we know, these are liquid, not direct, but if you look at some of the, you know, prominent and preeminent pension plans in Canada, CPPIB to start with, they're 30%, 40%, 50% in alts, as we know. So, you know, again, we can see this trend occurring with portfolios for retail investors having a starting to have an allocation to these types of strategies.
Just to what extent are they being used today within the IG platform, if at all?
Yeah, yeah, there's none of the Mackenzie alternative funds are held by IG funds currently. Yeah.
Okay. Do you think that changes in the point at some point? Because Barry's point on, you know, asset allocation and efficient frontier would argue that managed solutions, which are used extensively in the in the IG side of the business would benefit from, you know, a 5%-10% allocation to uncorrelated assets, such as alternative strategies. Like, it seems like it's like it's, it's an easy win-win for the company and for and for investors. But-
I can comment on that. It's Jeff Carney. I was actually at Mackenzie, or Putnam, when we launched the split return funds there, and it was early days. We'll be looking at these products as well. It's just how we use solutions, and we complement with other products, and it's just demand. It's really timing.
Okay, got it. Other line of questioning. One of the sources of institutional sales for Mackenzie was in Europe. So I think that's maybe one of the first times I've, I've heard about European sales for Mackenzie. So maybe any kind of color you can give us on the size of that business today, whether it's significant or not, and if that's maybe somewhere where you push harder to grow in the future?
Yeah. So, it's our second major win with... It has been a couple of years since we won a large mandate for a pension plan in Europe. This one's more of a investment outsourcing platform, a global platform, where the client, the PM overseeing that particular strategy for this client, is located in London. So, you know, it's the strategy is emerging market equities, so it's nice margins to it. And what happens in a lot of these platforms, as you're probably familiar, once they get comfortable with one of your strategies, so we're having dialogues now with them for other of our strategies, because they like to have, you know, multiple strategies per asset manager, as they get to know us.
So, we're, you know, trying to be very selective, though, because, you know, We identify those strategies that we have on the retail side, run by our 14 boutiques in Mackenzie that are of institutional quality and of interest to institutional investors. So a handful of them. They vary, by the way, by region, so those that we market in Canada vary from U.S. and vary from Europe. But we're getting pipelines growing, we're getting finals, and we picked up 3 wins. So, yeah, so you'll, you know, you'll hear more wins in each of the geographies. But, surprisingly, the wins that we have are spread out between the three geographies.
Right now, the recent win puts us at about CAD 800 million in institutional AUM in Europe, so. Then we've got a growing presence in the U.S. and here in Canada.
Got it. That's helpful. Thank you. Last question is regarding non-commission expenses. So 2019 is supposed to be, expected to be the last year of, let's call it, above long-term run rate, expense growth. So expectations down to 3%, I think, I think long term. So just want to confirm that that's, on track in terms of you completing all of the additional projects spend you expect, in 2019, and then also any kind of, progress update you can give us on, the work Mike Dibden's team's been doing to help find, expense efficiencies.
Yeah, it's been a long journey of hard work to get to this place, but we're, yeah, absolutely, absolutely committed to the 3% in 2020, and we'll see where we go from there. We've got a lot of work that that Mike Dibden's been working on, and he's busy doing that, and we're starting to see the fruit of his work, and that'll have started having impacts on our value proposition and that will drive our increased revenue as we go forward. So feel like we're in a really good place, and most important thing is our consultants are really excited about all these new tools that are coming to them, and they're starting to see it, and they're feeling positive in that direction.
Okay, great. That's all the questions I had. Thank you.
That concludes today's question and answer session. Mr. Potter, at this time, I will turn the conference back to you for your closing remarks.
Yeah, thank you, Patrick, and thank you for those attending the call. I hope you enjoy the upcoming long weekend, and with that, we'll end the call.
The conference is now ended. Thank you for your participation. You may disconnect-