Welcome to Onex Q3 2026 conference call and webcast. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session with prequalified analysts. At that time, if you have a question, please press star one one on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the conference over to Josh Wood, Managing Director, Shareholder Relations and Communications at Onex. Please go ahead.
Thank you. Good morning, everyone. We appreciate you joining us today to discuss our latest results. Hosting the call are Bobby Le Blanc, Onex' Chief Executive Officer, and Meg McClellan, our Chief Financial Officer. Also joining the Q&A session is Paul Brand, Chief Executive Officer of Convex. Earlier this morning, we issued our Q3 2026 press release and MD&A and consolidated financial statements, which are available on the shareholders section of our website and have also been filed on SEDAR+. Our supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in USD unless otherwise stated. I would also point everyone to our webcast presentation for the usual disclaimer and cautionary factors relating to any forward-looking statements contained in today's presentation and remarks.
On a personal note, I just want to add that I'm thrilled to be joining Onex to lead shareholder relations in what I think is a compelling period of transition and growth. I'm excited to engage with our research analysts and investors and look forward to connecting with many of you in the coming weeks. With that, I'll now turn the call over to Bobby to get us started.
Good morning, everyone. I'd like to thank Convex CEO Paul Brand for joining Meg and me on this call and for being available to answer your Convex-related questions. I also want to welcome Josh Wood, who recently joined Onex as Head of Shareholder Relations. I know he's looking forward to working with all of you. Onex continues to execute on our strategic priorities. Convex has generated strong results since we announced our acquisition. Our structured credit business delivered $20 million of FRE in Q3 and remains a top 10 issuer of CLOs. Private equity continued to return capital to Onex through realizations, which are partially utilized to buy back shares. Notably, Onex Partners reached a significant milestone when they first closed of over $2 billion for OP6 earlier this month, which we flagged as the major catalyst to achieving our FRE exit run rate target by year-end.
I'll now provide an update on our businesses first, and then I'll touch on our progress against our key strategic priorities. Let's start with Convex. Over the past year, Convex has delivered strong results, growing premiums written and earned, improving its combined ratio, and increasing net income. On a last 12-month basis versus the prior year, gross premiums written increased 8% to $6.4 billion, net premiums earned increased 7% to $3.8 billion, and adjusted net income increased 13% to $659 million from $584 million, primarily driven by stronger underwriting profit, which rose $496 million from $357 million. Convex's combined ratio improved by 290 basis points to 87%, and its loss ratio decreased to 50% from 56%. Adjusted return on equity was 18.5%, up from 18%.
In the third quarter, gross premiums written were $1.4 billion, up 20% year-over-year, and net premiums earned grew 8%, with growth across both insurance and reinsurance. Pricing improved modestly in the quarter. Year-to-date rate change was - 4% compared to - 5% last quarter. Rate increases in classes affected by the Middle East conflict and in certain casualty classes has partially offset lower pricing in shorter tail classes such as property. As we said last quarter, Convex's underwriting strategy is focused on profitability rather than top-line growth. Despite softer market conditions, Convex has continued to gain market share without compromising on that discipline. The value of our investment in Convex was essentially flat this quarter at $4.1 billion, equating to CAD 78 per share in Canadian dollars.
This was not a reflection of performance, as Convex generated $132 million in net income in the quarter, which increased tangible book value. Instead, the flat valuation was driven entirely by unrealized mark-to-market losses on Convex's fixed income portfolio due to the higher interest rates. Following Convex's move to available-for-sale accounting, these losses no longer create volatility in net income, but they do impact tangible book value. Since our acquisition of Convex in February, the value of our investment has increased by $323 million, or 8%. As we also mentioned last quarter, we see the potential for Convex to pay meaningful dividends over time. Looking ahead, as Convex continues to scale, we expect its earnings to benefit from the same structural levers we have previously discussed.
These include improved operating leverage as the business continues to grow, prudent growth in asset leverage, improvement in the investment portfolio yield, and finally, continued market share gains. Now on to private equity. Over the past 12 months, the overall private equity platform has generated $1.4 billion in proceeds to Onex, excluding Convex. As I mentioned, Onex Partners had its first close in Onex Partners VI vehicles, raising more than $2 billion in aggregate capital commitments, including Onex's commitment of up to $300 million. I have spoken before about this team's right to win, given its competitive advantages in its sectors of emphasis and strong performance delivered across its most recent funds. This is borne out by the support received from OP VI's first closing, with two notable statistics. First, we saw a 100% re-up rate from institutional investors in the Onex Partners Opportunities Fund.
Second, we had the largest number of institutional investors to ever participate in an Onex Partners first close. I am also pleased that our strategic partners, AIG and Convex, were meaningful investors in the first close. With Onex's commitment capped at 10% of the fund size, OP VI will also benefit from a higher proportion of third-party capital compared to predecessor funds. This will support our focus on fee-related earnings growth. This is a great outcome for Onex that exceeded our expectations. In early Q4, Onex continued to return capital from its private equity platform. Onex has agreed to sell a portion of its interests in certain Onex Partners funds through several secondary transactions, which are expected to generate $334 million in proceeds, which represents 92% of June 30, 2026 carrying value.
We expect additional proceeds to Onex pending further syndication of interest, and all proceeds are expected to be received by the end of the first quarter of 2027. Importantly, these sales also established new fee-generating assets under management, the Onex Partners platform. Second, also in Q4, ONCAP IV agreed to sell Walter Surface Technologies to a single-asset continuation fund managed by ONCAP. Onex's current share for the related realization is approximately $50 million, with additional proceeds expected here as well. The transaction is expected to close later in 2026 and should ultimately bring ONCAP IV above the 1.0 DPI threshold, which will be an important statistic for future ONCAP fundraising. In credit, we continue to build on our core strengths. In 2026, the platform has raised or extended 18 CLOs, representing a total of $7.9 billion in fee-generating assets, making Onex a top 10 issuer globally.
In early Q4, the team has raised or extended another five CLOs, representing $2.4 billion in fee-generating assets. Structured credit delivered $20 million in fee-related earnings in Q3 and remains well-positioned for continued growth. We recently added new team members to leverage our credit track record to launch new infrastructure CLOs and infrastructure debt funds. With the benefit of expanding insurance partnerships and the potential to grow its currently subscale strategies, credit is carrying good momentum into 2027. I am pleased with the progress we are making across the platform, and I will now give you an update on how that performance is driving progress on our four strategic objectives. First, reposition our invested capital towards Convex and one or two additional businesses that ideally have some strategic fit with Convex and/or asset management.
Pro forma for signed transactions, private equity will represent 43% of our investing capital, down significantly from 65% at year-end. Second, utilize our balance sheet more efficiently. We are already seeing the benefits of this, as we no longer have the drag of a large cash balance needed to support our large historical fund commitments. We have repaid a significant portion of the NAV loan and are now close to a net neutral cash position. Third, reduce the capital intensity of our asset management business while driving fee-related earnings and carried interest growth. As I noted earlier, the successful first close of Onex Partners VI was important to keep us on track to achieve $35 million of exit run rate FRE by the end of 2026. We are well-positioned to continue accelerating FRE growth as our asset management business continues to scale and raise more third-party capital.
Finally, disciplined capital allocation. With ample liquidity and Onex's shares trading at a significant discount to management's view of intrinsic value, we believe share repurchases remain a compelling investment opportunity. In keeping with our commitment last quarter to start our normal course issuer bid, we repurchased more than 800,000 shares in Q3. We will continue to balance that initiative with building liquidity to fund our next strategic direct investment. As I finish today's remarks and turn it over to Meg, I want to leave you with a simplified view of Onex's valuation. We've added a slide seven in our supplemental package to illustrate this point. Again, our goal is to drive shareholder value by transitioning towards an earnings-based business model. Our detailed disclosure for Convex gives you a clear view of the company's growing profitability and Onex's proportional ownership.
These earnings, in addition to our expectation of achieving our exit run rate FRE target, collectively equate to approximately $450 million of earnings for Onex shareholders. You only have to place a modest 13x P/E multiple on that earnings stream to reach Onex's current market cap. Importantly though, in addition to those earnings, our shareholders own another $5.4 billion of investing capital, primarily private equity and credit investments in our funds, worth another CAD 101 per share, which we are demonstrating an ability to monetize at attractive pricing relative to the carrying value. This is another way for us to express our confidence that intrinsic value will ultimately be reflected in our share price as we continue to execute on our strategic plan. I'll now turn it over to Meg.
Thank you, Bobby, and good morning, everyone. First, I'd like to provide an update on Onex total investing capital. Onex ended the third quarter with total investing capital per share of $125.73, or CAD 178.93. Excluding the one-time dilutive impact of issuing shares to AIG earlier this year, Onex investing capital per share has increased by 7% over the last 12 months. As a reminder, we expect the incremental fee-related earnings generated by AIG's $2 billion commitment to Onex private equity and credit products to more than offset the dilution from issuing shares to AIG. Turning to Convex, the value of our investment in Convex was essentially flat versus the prior quarter at $4.1 billion, equating to CAD 77.59 per share.
The valuation continues to be based on a 2x price-to-tangible book value multiple, unchanged from last quarter. This valuation is supported by Convex's strong return on equity, as well as the earnings levers Bobby referenced. This valuation, Convex's implied price-to-earnings multiple is 10.6x the last 12 months' adjusted net income. Moving to other investing capital, which includes private equity and credit investments, as well as our cash, near cash, and the remaining balance of our NAV loan. Other investing capital ended Q3 at $5.4 billion, or CAD 101.34 per share. Our private equity investing capital generated a 6% return over the last 12 months and 2% during this quarter. Of note, our private equity teams continue to generate strong realizations. During the quarter, private equity had $298 million of realizations and distributions, led by the sale of Emerald.
This transaction generated $256 million of cash proceeds for Onex, including carried interest. This is in addition to the more recent secondary transactions that Bobby shared. Realizations and distributions from private equity are enabling us to continue paying down the NAV loan, which currently has a principal balance outstanding of $220 million, compared to $700 million we initially drew to fund the Convex acquisition. On to credit investing capital, which declined 4% over the last 12 months and was flat during the quarter. This change in value over the last 12 months primarily reflected unrealized mark-to-market impact of our European CLO investments and opportunistic credit strategies. Turning to asset management, our focus remains on growing fee-related earnings by building a more durable recurring management fee base and maintaining expense discipline.
Fee-generating AUM was $43.7 billion at quarter end, up 4% over the last 12 months and up 1% during the quarter. Private equity fee-generating AUM was $12.1 billion, down 3% during the quarter, primarily due to Onex Partners' realization of Emerald. Credit fee-generating AUM was $31.5 billion, up 13% over the last 12 months and up 3% during this quarter. This was driven by net new CLO fee-generating AUM and the final close of Onex Structured Credit Opportunities Fund II in July. Our total asset management run rate management fees were $213 million, up 5% year-over-year. As I mentioned last quarter, our primary metric for measuring the performance of our asset management business is run rate FRE. Run rate FRE provides a clearer view of the underlying earnings power of the business given where we are in scaling the business.
While we continue to track in-year FRE, these results can be influenced by the timing of fundraising activities and related items. Our focus currently remains on growing run rate FRE to drive the value of our asset management business. As Bobby noted, we completed the first close of Onex Partners VI earlier this month, which will add to fee-generating AUM. We remain on track to achieve $35 million in exit run rate FRE by the end of 2026. Finally, on liquidity, we ended the quarter with $161 million of cash and near cash, and have access to $600 million of undrawn capacity under our revolving credit facility. We also expect to receive meaningful cash inflows before end of the year from private equity secondary transactions. This will reinforce our already solid liquidity position.
In closing, we continue to make progress against strategic priorities and have strong momentum heading into year end of 2026. Thank you. We will now open the line for questions.
As a reminder, if you would like to ask a question at this time, please press star one one on your touchtone phone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Étienne Ricard with BMO Capital Markets.
Thank you, and good morning. It is interesting to see the secondary transactions to monetize the private equity portfolio. Why is this the right time to monetize part of the portfolio, and to what extent do you expect to remain active with such transactions going forward?
Good morning, it is Bobby. This is a part of the alt industry that has really grown over the last little while. I would not focus only on the 92 stat relative to NAV. They are not technically tied to the secondary sales, but they come with commitments to our funds, in the case of OP this quarter, that came into Fund VI, where when you look at the 92, you also have to look at the incremental fee-generating AUM and carry opportunity that comes along with those. When I look at that plus the 92, it is actually accretive to shareholder value. As we continue to try to reorient the balance sheet, to me, the best way to do that is to create opportunities to sell above our mark, all inputs considered, and that is what we did here this quarter.
Would you expect to remain active in secondary markets?
It depends on the terms, right? The terms we got there were quite attractive. I would say we will continue to look at those opportunities. I cannot guarantee whether more will happen, but it is something that we are looking at very closely all of the time. Again, relative to our marks, where we are doing those things, if you can buy back shares with those proceeds relative to that price, it really seems like a very easy way to create shareholder value.
Switching gears to Convex, the growth in premiums written accelerated this quarter. I am curious, in what pockets of the market are you seeing this growth, and I guess what gives you the confidence that the returns will be attractive given softer industry pricing?
Paul, you want to take that one?
Yeah, no, absolutely. Thank you for the question. One of the lines of business that we write is marine war, and obviously we have seen that market have a lot of activity following the U.S.-Iranian war. So those are very highly priced policies. They are not really part of what I would call the soft market, which has largely been focused on areas where underwriters have made more money perhaps than they might have expected, particularly property catastrophe. So we are an active participant in that market, and that has definitely helped the growth level in Q3. We also had a little bit of catching up. You might remember from my comments around Q1, we had some of our larger contracts, they just changed inception dates, and some of those have booked a bit later.
And then we are also seeing some improvement in terms in the U.S. casualty book. This is not us just chasing the market down. It is examples of, yeah, a diversified and specialty line of business, particularly where Convex leads.
At what combined ratio are you comfortable operating at over the next few quarters?
I mean, the sort of facile answer is as low as possible. I mean, I think it is an interesting time as you sort of think about where the market might move to in a year, two years' time. What Convex is actively doing is we are taking little bits of volatility out of the book, partly by reshaping the gross underwriting. If you took us back to 2023, we were very heavily exposed to the U.S. property cat business. We are still exposed to that business, but not to the same level because we are not seeing the same sort of peak pricing as we saw back at that point in time.
We are also, and you can see this coming through in the numbers, our reinsurance spend is also going up, which again has the impact of moderating the tail a bit, and also, it is creating fee income that we get off particularly the quota share treaties. As we are starting to see margins, and I still think the margins are very good. I mean, we were 87% combined ratio last 12 months, and so that is an indication of very strong margins. But as we start to see those margins squeeze in some areas, we just kind of slightly downshift from some of the volatility. I would expect that trend would continue as you sort of look ahead. But nobody knows how long the market stays soft for.
I mean, typically they will get changed by some surprising event where the market realizes that whether it has been mispricing, and clearly the carriers that are the least negatively affected when that change happens are the ones who can really sprint into the future and take advantage of what will be much improved post-event. So we are sort of thoughtful about how we position ourselves as markets soften.
Just one more point on combined ratios. When Paul and I and the Convex board discuss combined ratios, of course, we look at a quarterly result, but we focus much more on the LTM because you can have noise in any given quarter. So we think that is a better way to look at the financial performance and the health of what we are doing financially. Again, always look at Q3, but we put much more emphasis on the LTM.
Thank you very much.
Our next question comes from Scott Fletcher with CIBC.
Hi, good morning. Appreciate the desire to focus on the LTM combined ratios, but I will ask a question on the Q3 for Paul. You saw favorable prior development in the quarter, but it was lower than it has been in recent quarters. Is that more normal quarter-to-quarter variability, or is there anything we should expect on moderation of PYD as the book matures?
Yeah, I think I remarked at Q2 that actually I was surprised by. So if anything, I think the PYD development was probably a bit high at Q2 and a little bit at Q1. We go through what we call a re-parameterization exercise in Q3 pretty normally, and that can have a flattening effect. I would still I'd be surprised if it'd be worth seeing PYD in Q4, positive. So again, as Bobby said, you sort of need to think about these things through a last 12 months lens, because there will just be little bits of noise as you look at individual quarters.
So, I wouldn't say Q3 is the new normal, because it was a bit lighter than I might have expected, exactly the same way as I wouldn't say Q2 was the new normal, because that was probably slightly ahead of what I might expect. But as you sort of look at what happens through a year and in prior years, we are a business where we have a tendency to produce positive prior year development as part of our numbers.
Okay, great. That's helpful. Thanks. On the close for OP6, you mentioned, Bobby, sort of that it exceeded your expectations. Can you give us a sense of what exactly exceeded expectations? Was that the dollar amount, the mix of LPs, the pace? Just some more detail on that would be helpful. Thanks.
Yeah, when I used the word exceeded, it was the dollar amount, but it was also a very healthy close in terms of, again, the 100% re-up rate from the Opportunities Fund LPs, and of course, the diversity of the LP base, given it was in the 40s of LPs, which is the highest we've ever seen for an OP close. You got to give kudos to [Topic], the OP team, and our client and product and solutions group. In this kind of fundraising environment, it's an outstanding result that we're really proud of.
Okay, great. Thanks. I'll leave it there.
Our next question comes from Bart Dziarski with RBC Capital Markets.
Great. Thanks for taking the questions. Good morning, everyone. Could you unpack the top-line growth between the marine war policies you're writing and sort of the core business, if you will? Wars can resolve themselves, and then this opportunity might go away. I'm just trying to get a sense of the underlying top-line growth in the soft market. Thanks.
Yeah, Bart. So very good question. Yeah, so as I said before, I think the underlying growth is much closer to the 8% LTM. So I wouldn't expect to see, yeah, nigh on 20% growth through the year. I think that we might end the year slightly better than the 8% last 12 months. So somewhere between 8% and 10%. Yeah, and then as we look into 2027, yeah, I would still expect to see the business growing. We need to see what's happening to rates before I can be super confident about that. But I would expect the business to be growing, yeah, maybe slightly less than we've seen in 2026, but broadly, up in the high single digits, maybe as much as 10%. But it depends on the opportunities that we see.
Yeah, and as you say, again, I think in lots of ways, all of us hope that the war's finished sooner rather than later. So you can't bank on the war premium being there to the same magnitude in 2027 as we've seen in 2026.
Okay, got it. Thanks, Paul. That's helpful. How are you thinking about the upcoming 1/1 renewal season? If I look at the Convex book, it's roughly split evenly between primary and reinsurance. As a buyer, you benefit, but as a reinsurer, pricing is just getting softer. Can you help us unpack those dynamics ahead of 1/1 renewals?
Yeah. Not all reinsurance pricing is getting softer. You're still seeing a positive price in some of the long-term reinsurance lines and the long-term insurance lines. Yeah. Yeah, so if I sort of going back to last year, just to give you a flavor, those are numbers that we know. We saw slightly lower rates than we anticipated on our inwards portfolio. Broadly, sort of a - 4%, I think, going back to that Q1, where we might have expected sort of - 2.5%, something like that. So inwards book broadly where we expected to be, but a bit weaker. In terms of what we achieved on the business we were ceding, that was a much bigger rate decrease. So we think that we were a net beneficiary of essentially that trade between inwards, where we're writing business, and outwards, where we're buying reinsurance.
Exactly what happens at this coming up renewal season, I expect the short-tail lines, there will be a lot of competition. I think the interesting factor then is, not all markets are created equal. So, the markets like Convex, who have very strong client relationships and participate through programs, and have worked on those relationships assiduously. I think we stand to do better in terms of being able to retain the business that we want, and particularly in a co-insurance, managing to essentially keep the shares that we ask for and the shares that we receive in the right spot. So, I think about Convex as being in a stronger place than most of our competitors, but in what will be a more difficult market, particularly on some of those short-tail reinsurance lines.
Got it. Very helpful. Thanks, Paul. Then final question from me, just on OP6. So, nice to see that first close. Of the $2 billion, could you help us unpack how much was AIG and Onex, how much was third-party capital? Then, Bobby, any latest thoughts around how big you think that fund could be based on these constructive dialogues with what sounds like third parties? Thanks.
So, we never disclose individual LP commitments. As I mentioned, they were meaningful, but there were other LPs that were at or above the commitments of AIG and Convex. I just highlight that to emphasize that it was a very good diversified first close of true third, what we will call non-Onex-related third-party capital vis-à-vis Convex and AIG. For the ultimate size, we are not going to put a hard number out there. We will for our LPs in terms of hard caps and things like that, but we are well on our way as a percentage of what we were thinking when we launched, given the first close.
Okay. Without getting into individual, but is there a sense you can give us, was the majority third party, non-third party? Just even a high-level split of that first quarter?
Yeah, yeah. Certainly majority. Yes, yes. Again, there were LPs that were at or above the levels that Onex and AIG came in. It is a very good diversified LP base.
Okay, got it. Very helpful. Thanks for taking my questions.
Thank you.
Our last question today will come from Graham Ryding with TD Securities.
Hi, good morning. I wonder if I could just dig into the secondary transactions, kind of interesting. Which funds are involved on the other side, and are the parties taking stakes in the funds or select assets?
I'm not sure I understand the second part, but it ranged from ONCAP IV to OP5 to the Opps Fund, across the secondary trades and the CVs. In the secondary sales, again, not contractually tied, but all of those sales came with new commitments to, in this case, Onex Partners, at our full fee and carry rates. Again, when I think about 92 in a transaction like that, plus fees and carry that you wouldn't have gotten otherwise, and where our shares trade, monetizing that to cash and turning around and buying back shares of that is about the easiest corporate finance decision you can make. It's accretive, in my view, to our marks when you add all the inputs together, and you can turn around and buy that stuff back at, I would argue, for close to free, when you buy back the shares.
That's kind of the thought process going into it. It also helps strategically, de-emphasizing our invested capital or our NAV, away from private equity and more into the direct investments like Convex on the balance sheet. It all ties in to the broader strategic plan, but it also makes really, really good mathematical sense.
Okay, understood. What's your, I guess, appetite, or what is the capacity or demand on the other side to do more of these transactions?
There's just been so much capital formed over the last couple years around secondaries and CVs and all of that type of stuff. Just because the capital's there doesn't mean that we're not going to be disciplined on what we do in terms of price and making sure we get fair value for what we're doing. We've done a very good job of that so far, if you look at the numbers and think about the math that I outlined, which includes fees and carry. We're open to it. If we can get more bids like that, we're open to it, is the bottom line, to make it very clear.
Understood. Understood. My last question, if I could, just the good progress on the FRE front. I guess this question's for Meg . It sounds like because of this close, or the first close of Onex Partners VI, that you're trending towards that $35 million FRE target. What is the timing around that? Is that something that you would see in Q4, or does that actually surface in Q1 2027?
Yeah, so the close really occurred post-quarter end. We're actually looking at a $35 million exit run rate for 2026. So we're doubling what we exited 2025 with. I think notably, we've got the revenue on one side, which is very steady credit growth in terms of the revenue, and also this great OP6 experience. It also means that because the expense base is largely in place and largely controlled, we have good operating leverage. So stronger margins, and we expect that benefit to continue through 2027.
Okay, great. That's it for me. Thank you.
That concludes today's question and answer session. I would like to turn the call back to Bobby Le Blanc for closing remarks.
Thank you very much for taking the time to be with us today. As always, if you have any questions, feel free to call any of us and our new colleague, Josh Wood. I am sure he would love a couple of calls, so reach out to him. I hope you all have a nice weekend, and we look forward to continuing to reporting to you on our progress. Thanks.
This concludes today's conference call. Thank you for participating. You may now disconnect.