AGF Management Limited (AGFB) Earnings Call Transcript & Summary

Welcome to the Quarter 4 2020 AGF Management Limited Earnings Conference Call. My name is Jenny, I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Adrian Basaraba. Mr. Basaraba, you may begin.

Thank you, operator, and good morning, everyone. I'm Adrian Basaraba, Senior Vice President and Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the fourth quarter and fiscal 2020. Slides supporting today's call and webcast can be found in the Investor Relations section of agf.com. Also speaking on the call today will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer. For the question-and-answer period with investment analysts following the presentation, Judy Goldring, President and Head of Global Distribution, will also be available to address questions. Turning to Slide 4, I'll provide an agenda for today's call. We will discuss the highlights of the fourth quarter and fiscal 2020, provide an update on the key segments of our business, review our financial results, discuss our capital and liquidity position and finally close by outlining our focus for 2021. After the prepared remarks, we'll be happy to take questions. With that, I will turn the call over to Kevin.

Thank you, Adrian, and thank you, everyone, for joining us today. Over the last year, despite the volatility and uncertainty caused by COVID-19, we made significant progress against our strategy and stated goals. I'll begin with some of the highlights. We successfully monetized our interest in Smith & Williamson, a notable achievement given the market environment in the first half of 2020. The transaction generated gross cash proceeds of almost $300 million, which allowed us to fully repay our long-term debt and returned $40 million to shareholders through a substantial issuer bid. With a strong balance sheet and liquidity, we are well positioned to reinvest in the business and pursue growth initiatives that will generate stable sources of earnings and cash flow. In line with that goal, we continue to develop our private alternatives business with several milestones achieved during the year. We established the AGF Alternatives Advisory Committee with industry veterans, Ron Mock and Michael Latimer. In June, we announced the final closing of the in-store AGF potential infrastructure Fund II with approximately USD 1.2 billion in aggregate equity commitments. And in September, we expanded our partnership with SAF Group to enhance our private credit capabilities. We will be launching several innovative private credit products in the coming months, which Adrian will discuss in a moment. We established AGFWave Asset Management, a new joint venture with WaveFront Global Asset Management to deliver our investment capabilities to China and South Korea. We continued to drive the firm towards sustainable organic growth. Our mutual fund business moved into positive net sales, and our institutional business has several large prospects in the pipeline. In addition, AGF and our funds were recognized with multiple awards during the year. AGF was named Employer of Choice, silver awarded the Wealth Professional Awards in September, and several of our funds received FundGrade A+ and Lipper Fund Awards. We advanced our strategic priorities while maintaining expense discipline. SG&A for 2020 is $5 million lower than our guidance of $180 million. Excluding Smith & Williamson, we reported adjusted diluted earnings per share of $0.42 for the year, which is 5% better than the prior year on a comparable basis. The Board confirmed a quarterly dividend of $0.08 per share for the fourth quarter. And starting on Slide 6, we'll provide updates on our business performance. On this slide, we break down our total AUM in the categories disclosed in our MD&A and show comparisons to the prior year. AUM ended the quarter at $38.8 billion. Mutual fund AUM increased by 5%, and I'll provide more color on our fund business in a moment. Institutional, sub-advisory and ETF AUM decreased compared to prior year, mainly due to the redemptions that we disclosed in previous quarters. Post Q3, AUM increased by 4%. As indicated on the previous earnings call, we received an allocation of approximately $125 million from an existing strategic partner. Looking ahead, the committed pipeline for institutional and sub-advisory is currently negative $270 million. We have some committed redemptions from a value adjustment strategy that is currently out of favor with investors. We believe that value investing may be more rewarding for patient investors over the coming years. While we are disappointed with the committed redemptions, we are seeing positive sales momentum across several key strategies. In the U.S., a small institutional mandate funded in January, and we are currently in the final stages of onboarding 2 large institutional clients who have selected 4 of our global equity investment strategies for sub-advisory and SMA mandates. While the AUM growth from these mandates will occur gradually over time, these wins demonstrate that our recent investments in the U.S. are starting to pay dividends. We are seeing strong interest in our global sustainable growth equity strategy, which is one of the longest tenured in Canada and has outperformed the benchmark by almost 500 basis points on a 1-, 3- and 5-year basis. RFP and RFI activity for this strategy has been strong, which bodes well for future sales. Given the increased interest we're seeing across multiple strategies and jurisdictions, we are confident about our ability to generate sales within the institutional segment. For our ETF business, our suite of Canadian and U.S. exchange-listed funds has seen strong growth over the past year. AGF was recently named Best Smart Beta Equity ETF Issuer at the 2020 ETF Express U.S. awards, which reflects our strength in factor-based investing. In October, we launched 2 actively managed ETFs in Canada as we move to become increasingly vehicle agnostic. AGF Global Sustainable Growth Equity ETF, which trades under the ticker symbol AGSG is the ETF version of our global sustainable growth equity strategy, which we just highlighted. AGF Global Opportunities Bond ETF, which trades under the ticker simple AGLB is a newly actively managed global fixed income strategy. We anticipate strong flows into these products given the growing demand for sustainable investing and fixed income. Our private alternatives AUM was $2.8 billion, which is a solid progress towards our goal of reaching $5 billion by 2022. Turning to Slide 7, I'll provide some detail on the mutual fund business. After a difficult spring season, the Canadian mutual fund industry continued its trajectory of improvement, reporting net sales of $11 billion during our latest fiscal quarter. AGF's mutual fund business reported net sales of $88 million for the quarter, excluding net flows from institutional clients invested in mutual funds, net sales were $66 million compared to net redemptions of $181 million in Q4 of last year. AGF's sales improvement has outpaced out of the industry. Gross new money flowing into our long-term funds increased 37% year-over-year compared to a 21% increase for the industry. The positive sales momentum has continued into Q1, and we are seeing strong inflows across multiple categories, which is encouraging. As investors continue to move away from domestic strategies toward global and international opportunities, AGF is well positioned to capture this trend. Before I turn the call back to Adrian, I want to give a quick update on performance. AGF measures mutual fund performance by comparing gross returns before fees relative to peers within the same category with first percentile being best possible performance. We target an average percentile ranking versus peers of 50% over a 1-year period and 40% over 3 years. Performance was stable over the last quarter. Average percentile ranking over the past 1 and 3 years was 41% and 53%, respectively, at the end of Q4 compared to 42% and 51%, respectively, at the end of Q3. A number of our global and fixed income strategies continue to outperform versus peers. In November, AGF U.S. Small and Mid Cap Fund and AGF Global Convertible Bond Fund won Lipper Fund Awards for 3- and 5-year performance. This is the second year in a row that the AGF U.S. Small and Mid Cap Fund has received this honor. With that, I will turn the call back over to Adrian.

Thank you, Kevin. We made a lot of progress in 2020 to position ourselves for profitable growth in coming years. We continue to exercise expense discipline with SG&A coming in $5 million lower than our initial guidance and lower than prior year. Our retail line of business is driving towards sustainable organic growth, and we made further inroads with our private alternatives business. September, we expanded our partnership with SAF Group to enhance our private credit capabilities, while also securing the opportunity to increase our ownership in SAF over time. Our expanded partnership marks an important step towards our goal of reaching $5 billion in private alternatives AUM by 2022. And it's consistent with our objective to generate more sustainable recurring management fee earnings. As Kevin mentioned earlier, together with SAF Group, we'll be launching several innovative credit products in 2021. In coming months, we will launch a private credit strategy aimed at institutional and high net worth investors, followed closely by a trust fund targeted at retail investors. The retail fund will have more liquidity and enhanced redemption privileges. These products will allow us to meet the needs of our clients who are demanding access to uncorrelated asset classes in the face of changing market dynamics. Moving on Slide 8 reflects a summary of our financial results for the fourth quarter with sequential quarter and year-over-year comparisons. For ease of comparison, we've included adjusted numbers and restated prior period results for IFRS 16 throughout the remainder of this presentation. Excluding Smith & Williamson from the current and prior period results, EBITDA before commissions for the current quarter is $31.6 million, which is $10.3 million higher than Q3 2020. The improvement is due to favorable AUM, timing of SG&A and higher earnings from our private alternatives segment, which is becoming a bigger portion of our business. Our private alternatives business contributed EBITDA of $7.1 million this quarter. This includes LP earnings of $5.5 million and carried interest revenue of $1 million as one of our private alternatives funds exceeded its performance threshold. As we continue to grow our private alternatives platform, management fee profits and earnings from our LP investments will become more consistent and predictable. Before I leave the slide, I'll address our SG&A guidance. Over last 3 years, we've reduced our expense base by over $20 million. Our achievement in efficiency has come in a time when we're also investing a significant amount of resources to new emerging growth areas, including private alternatives, global and quantitative investing and ETFs. Today, we're announcing SG&A guidance of $180 million for 2021. This assumes a return to net sales for our retail organization. This is flat compared to our original guidance for 2020, and it assumes limited travel and entertainment for most of 2021. Before I leave this, I'll remind you, our SG&A guidance does not include any acquisitions, and it assumes performance at its current trajectory. Further improvement in sales, our investment performance could result in higher variable compensation expenses. Turning to Slide 9, I'll walk you through the yield on our business in terms of basis points. This slide shows our revenue, operating expenses and EBITDA before commissions as a percentage of average AUM on the current quarter as well as the trailing 12-month view. Note that AUM and related results from Smith & Williamson, private alternatives business, onetime items and other income are excluded. Q4 revenue yield is 114 basis points that's 3 basis points higher than the trailing 12 months. As you can see on the slide, the increase is mainly due to a shift towards our mutual fund products with relatively higher fees. Q4 SG&A as a percentage of AUM was 50 basis points, which is 1 basis point lower compared to the trailing 12 months. This resulted an EBITDA yield of 28 basis points compared to 25 basis points in the trailing 12 months. Turning to Slide 10, I'll discuss free cash flow and capital uses. This slide represents the last 5 quarters of consolidated free cash flow on a trailing 12-month basis, as shown by the orange bars on the chart. The black line represents the percentage of free cash flow that was paid out as a dividend. Our trailing 12-month free cash flow was $46 million, and our dividend payout ratio was 53%. Including dividends, the NCIB and the SIB we have returned $70 million to shareholders in the past year. Sale of Smith & Williamson has provided additional capital flexibility and further strengthen our balance sheet. As of November 30, we have cash of $94 million, short- and long-term investments of $170 million and no debt. The strength of our balance sheet allows us to pursue initiatives that will increase our earnings and free cash flow. Redeploying this excess capital is a key strategic priority. Turning to Slide 11. I will turn it over to Kevin to wrap up today's call.

Thanks, Adrian. Despite the challenges posed by COVID-19, we made substantial progress against our stated objectives in 2020. With the sale of Smith & Williamson now complete, we have repaid our long-term debt and returned $40 million to our shareholders through the SIB and are well positioned to pursue growth initiatives. We continue to develop our private alternatives business with multiple milestones achieved during the year. Our retail distribution team closed the year with positive sales momentum that is carried into the new year. We maintained expense discipline while investing in new areas of growth. Along those lines, I'd like to reiterate our strategic priorities, which are to deliver consistent repeatable investment performance, drive the organization to sustainable net inflows, position the firm to reach $5 billion in alternative assets by 2022, and meet our expense guidance while continuing to invest in key growth areas. I want to thank everyone on the AGF team for all of their hard work in these challenging times. We will now take your questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Gary Ho from Desjardins Capital.

First question is on the net flows, I guess, both from retail and institutional side. Just wondering if you can provide a bit more color on the retail flows. I know you provided it quantitatively what that was first couple of weeks of December. Just wondering if you have a more up-to-date number so far in Q1? And then as well on the institutional side, just want to clarify the $270 million, Kevin, that you mentioned, was that something that's in Q1 just want to double check that, please.

Sure. Why don't I start, Gary, and then I'll pass it to Kevin to elaborate on the institutional flows. In terms of the retail, we continue to see strong flows across a broad range of the funds, which is very encouraging. As you noted, we did prerelease numbers so that at the end of December 9, we showed, 2020, we showed $15 million in net sales. To the end of December, we saw $58 million in net sales and then for January 1 to end of day yesterday, we've seen flows of net positive $74 million. So for AGF fiscal year-to-date, we are seeing $132 million in net sales. I think what we are looking to is just seeing the year-over-year improvement, which is close to $450 million. And when we look at some of these other interesting metrics, like gross sales, overall, were up 85%. And when we look at the gross new money flows, which, as you know, is sales excluding transfers within a complex, AGF is outpacing industry by more than 2x at this point. So we're really encouraged by what we're seeing.

Yes. And Gary, it's Kevin on the second question on the outflow. We do have a couple of strategies. We have a number of strategies that are fundamentally based that actually have valuation methodologies inherent in them. And as you saw over the last few years, those strategies, whether they be core but have more 2 way valuation methodology, well underperformed the pure growth market that we saw. Interestingly, at its peak last year, growth generically overvalue was almost a 40% spread difference. You saw that start to reverse in September when the market started to broaden out. And that strategy has actually done quite well since then, actually since midyear. Having said that, when you underperformed because of your style, some investors are going to want to basically change gears. And so we know that and we've seen some redemptions there. But the process has been one that we've had around in the manager for probably 20-plus years. And so we're pretty confident that we can weather that value, we think, it's probably a place that will start to gain more traction. So we like how ended the mix, but we know that some clients are going to weary of some style variances when they get to be that wide as we saw last year.

Okay. Kevin, is that going to come out in Q1 or is that going to be later in the year?

That's going to be Q1.

Okay. And then, Judy, as a follow-up, can you elaborate where you're seeing the flows come from in terms of channel? Is it some of your strategic partners or is it elsewhere? Just a bit more color would be helpful.

Sure. I mean what we are encouraged about is the fact that it is really across a number of -- all of our different channels. So we're seeing the improvement, both MFDA and IIROC. And the adviser activity and engagement with our sales team has been and remains to be extremely high. So not only just strategic partners, but also, as I say, advisers across both MFDA and IIROC channels.

Yes, Gary, just one of the things, it's Kevin, if I can add on that. If you go back to Page 7 on the deck that we presented for the earnings, in the chart on the right-hand side, and if you were just kind of to pencil in where we are year-to-date, just in this first 1.5 months, you can see that the pattern has not been haphazard. It's been a pretty logical step function upward. So that gives us some confidence on the momentum.

Okay. That's helpful. And then my second question, maybe for Adrian. I noticed that DSC expense line was a bit lower. Any color on that in the quarter? Is it just the higher sales mix into non-DSC funds? Like what's -- anything that's driving that?

Yes. Thanks for the question, Gary. Yes, that's absolutely what's happening because of the diversity of sales. We are seeing DSC as a percentage of gross sales decline. So just to give you a little bit of context around that, in 2019, our DSC sales were about 43%. For the full year 2020, DSC sales were about 40% of our gross sales. And for Q4 2020, they fell down to 33%. So another kind of positive trend, similar to the comment that Kevin made, we can kind of see that progression over time. So that leads us to believe that, that's kind of a sustainable trend line there in terms of a decreased amount of DSC sales as a percentage of our overall gross sales, which I think is encouraging.

Adrian is referencing that as a total mutual fund sales. If you think about the company because of the fact that funds are roughly half, it's a much lower number.

Yes. And then maybe just last question, Kevin. Cash balance, $94 million, like you mentioned. Can you walk us through kind of use of capital priorities for the next 12 to 18 months? I guess, related to this, how much is earmarked for the private outside, including the new fund launches Adrian mentioned, and you sound pretty confident in hitting the $5 billion over the next couple of years.

Yes. No. I mean, Gary, we're happy with the strength of our balance sheet. It's nice to sit here with a net cash positive. We've returned as I think Adrian said in his comments, not just the $40 million in the SIB, but when you add up the NCIB earlier in the year and the dividend is probably $70 million to shareholders. So as we go forward, I think a balanced approach is still appropriate. So we'll be opportunistic on the NCIB. But we'll look to return capital to shareholders, but most of it's going to go back to both one, in growing the organic parts of our business as we're seeing, how do we bolster that. But two, probably the bulk of it will go into that alternatives plank, where we see opportunities because of the fact that investor appetite for alternatives are growing. We can take a spectrum approach to it, meaning liquid alternatives at one end and private alternatives to the other. And we can use that broad distribution base that we have, which is just retail for the liquid side, maybe the larger IIROC books for more OM. And then really for our institutional family office, something that's a hybrid or even more private. So I think using the capital and putting it back into that plank is probably the highest growth opportunity we have. I think the time frames have said probably something that looks like 18 to 24 months, we want to be disciplined about it and thoughtful. But in terms of targeting a specific dollar amount to each, yes, we haven't gone that far in terms of giving that out yet.

And our next question comes from Graham Ryding from TD Securities.

So you mentioned that there's some institutional value bent strategies that could be redeeming in Q1. But I think you also mentioned you're onboarding some mandates in the U.S. did you quantify that? If so, I missed it, could you get some color on what the offset is?

Yes. So we're looking at about an offset over the next few quarters, somewhere between $100 million and $200 million at the beginning. These are build out mandates on a platform. So as the flows increase over time, we would expect to see a cumulative growth of assets on those particular mandates. But as I said, in the short run, the next couple of quarters, we'd expect a couple of hundred million.

Got it. And did you mention what the redemptions that are coming through on the value strategies are?

We did. I think on the earlier comments, it was about $270 million is the committed negative pipeline right now.

Yes.

And Graham, it's Kevin. I just would reiterate, it's a strategy that is as the markets have grown growth here. Well, it's a core strategy. It finds the index getting to tip more to the right towards growth. And it does use a disciplined approach to be thinking about how to value company. So obviously, it's been out of favor. But it's not -- I wouldn't classify as some people think of deep value or value, okay?

Got it. Okay. And then I think you mentioned previously that you've got a $15 million commitment to seed some of these new private credit funds with the SAF Group. Like does that capture everything that you're planning to do with them? Because I think you mentioned you're focusing on a few different channels like institutional high net worth and also retail. Or is there -- is the capital required to get all those funds and channels going? Is it higher than the $15 million?

Yes. I mean, I'll start, maybe I'll let Adrian follow-up. But on that first fund, we're probably looking at something a little lower than $15 million that should get that off the ground. And as we've talked before, as you see successive funds with a manager, you tend to have to put in less and less and less. So the first fund is always the most second fund is a lot less. The third fund is much more less. If that's worth. And -- but you'll see us recycling capital from other funds over time. So -- and I think, Adrian, maybe you want to add some color to this, but we don't see it as a large incremental drive over what we've told you guys in the past, but as we launch further funds with SAF, we should be monetizing assets from prior funds to seed some of those funds. So it's not as if this is an unending drain on capital to get this going.

Yes. Agreed. It's Adrian. That's precisely. Obviously, if we start to build new types of capabilities, that might require a bit more capital. But with the business kind of more seasoned, where we're cycling a lot of capital. And as Kevin mentioned, successive funds, it's kind of an industry thing. They do require less seed capital.

Okay. Understood. Have you -- this will be my last question on that, but have you -- do you have a target for what you're trying to raise through these new funds at the SAF Group?

Graham, it's Adrian. Yes. So we try not to give out fund by fund targets because it's a little bit too detailed. But we do have that $5 billion target out by 2022. So that's kind of how we look at it is. We set an overall target, and then we've got a variety of different kind of strategies to try to reach that target.

And our next question comes from Nik Priebe from CIBC.

Okay. So with the Smith & Williamson transaction complete, you've got no debt, and you also have some flexibility to relever as well as necessary. In that context, I'm wondering what your appetite for M&A might look like? And maybe the way that I'll ask is whether that's something you would just evaluate in normal course or whether M&A might be something that you're more inclined to proactively seek out at this point?

Yes. Nik, it's Kevin. As I said, we like the balance sheet the way it is, but there's an appropriate amount of leverage that a company should have. Over time as we see opportunities that exceed our cost of capital, probably in the alternative space, you'll see us relever the company back up to 1.0 to 1.5x, which I think is the appropriate level. And if we do that right, that should be fairly accretive. But I don't think you need to think about anything transformational. We're going to stay on strategy. We like the model that we've got in terms of alternatives, which is partnering with folks. And thinking about our income stream from not just being an LP investor, but being part of the management fees coming in as well as some of the carry. So don't think of us having to try to do something large scale, but there may be things that we would invest in the tuck-in around our core businesses as well to drive future organic growth. But I would say we're not thinking large scale M&A at this point. I don't know if Adrian or Judy want to add anything to that?

No, nothing to add. That's it.

Okay. Okay. That's helpful. Just one other for me. I was wondering if you could help quantify what you consider to be excess capital in the business? And maybe the way I'll approach it is, is there a minimum level of cash that you'd like to have on balance sheet that you're kind of comfortable operating with for working capital purposes, where anything in excess of that should be considered available to be allocated either through capital return or seeding new strategies or other uses?

Yes, sure. So I guess I'll take a stab at that. Yes, there obviously is working capital required to run the business, but we don't necessarily need to have it in cash because we do have a revolver that we can draw from. But we'd probably like to keep $30 million to $50 million of cash just for pay year and bonuses and that kind of thing, but you've got to step back and think we've got 0 debt. We've got $94 million in cash at year-end. We have $150 million of long-term investments, and we could borrow a couple of hundred million dollars and still keep within a reasonable debt to EBITDA. So with that type of balance sheet, we're not really thinking about keeping enough cash to pay the bills because you just have so much liquidity. We're obviously going to be really smart and disciplined about how it gets deployed. But we're thinking more so about our capacity to use that to grow.

And our next question comes from Geoff Kwan from RBC Capital Markets.

My first question was just with the increased focus on ESG, I know your financials kind of talk about what you're doing at the corporate level, I've seen various forms on that. But can you talk about how you're positioned today, where you may want to evolve over time, both from an investment standpoint, but also from a product standpoint?

Geoff, it's Kevin, I'll take that. I think as you know, we were one of the first firms. The sign of PRI here, probably going in 5 years ago now. We have ESG running through all of our investment processes today. We have got very high grades in our PRI annual scores. So at the firm level, we've adopted, you know that, we have a sustainability council that Judy heads as President of the firm that really is overseeing the firm's view of ESG on top of what the investment view is. In terms of the product landscape, we probably have one of the largest -- or I'm sorry, longest tenured ESG specific mandates, probably in North America, which has been performing phenomenally. And as you can imagine, not just investment performance but also flows and because of the fact that I think that this is the theme that we've talked about many times on this call, that's not going away. You've seen us launch in the last part of last year an ETF that mimics that strategy to some degree. So again, as we start to become more vehicle agnostic, we want to deliver things that are not just funds, but in ETFs, but also in SMAs, where that also can be applied. And so you'll see us bring more and more offer to bear here, but it's something that we've been focused on for a number of years.

Okay. And then on the OpEx side, on our run rate or annualized basis, given what the COVID-19 impacts from last year, are you assuming higher technology lower travel, like what would have been that net amounts? And then when you -- when things eventually normalize, how much of that I'm assuming net savings do you expect to come back into the OpEx versus what might be more permanent, lower expenses, all else equal?

Geoff, it's Adrian. Thanks for the question. Yes, you're probably right in a sense that there's a savings for us, it might be $5 million related to just reduced activity. But then you're right also in the sense that there's some offsets around technology and that kind of thing. So it's maybe a few million dollars less than that. That's a sustainable increase over time. And that's also going to depend on behavior changes, right? Like it's still left to be determined whether we go back to pre-2020 activity as far as travel and meals and entertainment. So that will play out over time. But we basically assumed in the guidance that we gave you that later in the year, we kind of return back to a normal meals and entertainment type of environment and that's kind of our best guess for 2021.

Sure. Okay. And just my last question is I know you've talked a fair bit in terms of the institutional business in terms of what's going on in the current order and then upcoming. But what would have been the institutional net sales in Q4, but also for the fiscal 2020 year?

Geoff, we're going to -- I'm going to pull that up right now. But we were a net outflow on the institutional business for most of the year last year for that value strategy, which was our global core strategy that we talked about earlier on the call. We had a couple of similar type redemptions early on in the year, but that's where it was centered. And we think that, that's starting to stabilize now, though, as I've said, as you've seen this shift from value. But I don't know if Judy or Adrian has that number.

But I was just going to also comment, though, that we were repositioning our U.S. business under new leadership. So our sales team now has been fully ramped up, and that's where we have quite a degree of confidence in the opportunity in the U.S. And so net outflows last year, actually, I apologize, I don't have that exact number, but it was a net outflow number.

We can get back to you for the full year on that, Geoff, okay?

Okay. Yes. Yes, just a Q4 and the full...

It was the same strategy, though, that we talked about earlier.

Correct.

[Operator Instructions] Our next question comes from Tom MacKinnon from BMO.

Two quick questions here. One, if we look at sort of management and advisory fees as a percentage of AUM, we get the similar story to what you have there on Slide 9 that it was higher in the fourth quarter versus the third quarter and certainly higher in the fourth quarter versus the first and second quarters of this year. And I think you had said it was in part due to maybe changes in mix. It seems like maybe a little bit more in terms of some mutual fund business that had helped that. So how should we be thinking about that at this in terms of basis points going forward? Is it the current mix? Should that stay the same? How do we work that in with any kind of further fee compression? And then I have a follow-up.

Tom, it's Kevin. I'll let Adrian follow-on that or Judy, but it has been a mix shift. We have more of an equity tilt. We've seen -- we've a number of well-performing strategies right now. It's a broad set of things that are performing really well, which are attracting sales. So as people have moved away from fixed income, they've redeployed back into equity. So it is some mix shift going on there. I still think when you look at the industry, over the last several years, this is more anecdotal, Tom. We haven't seen the big fee cuts that we have seen before in the industry. And so I think that has started to level it off. But my gut tells me we should still be thinking 1 to 2 basis points. I'd say the last piece is we've seen people starting to shift away from index product, not wholly, but back to active management here, which will also -- you'll see some firms who have that kind of -- and it's not us. We don't do the index suite here. But those firms are also going to see a lift in that as this folks move away from their index suite back to an actively managed suite. So there will be some mix shift for the industry, for sure, I think. But Adrian, I don't know if you -- any other thoughts on the 1 or 2 basis points.

Yes, that's accurate, Kevin. It's coming from our mutual funds. And we've had some really successful products. I mean it's been a very broad story as far as which funds are producing the net sales, but they have tended to be our more differentiated equity type products. And then we've had some redemptions in products that have slightly lower fee rates. So I think it's another encouraging trend.

Yes, I mean -- sorry, just go ahead.

Go ahead, yes, go ahead, Judy.

Yes. Just a feet on that. I mean, it really is around our exposure on the global side and the fact that we've got higher-margin products on that side of the business. Our GSG fund is trending very well. Again, performance is helping enormously on that fund our Global Select Fund and even the convertible debenture fund. So it's been a good, long -- like we've talked about, the breadth and depth of our suite of products that are selling has been very positive.

Okay. So that sounds like 1 to 2 bps, but if trends shifted to more index and away from active towards more kind of balanced or fixed income based funds, then that could be perhaps a little bit more. Maybe as a -- and then the second question has to do with the share of profit that you got from your JVs in the quarter, $1.6 million. How should we be thinking about that going forward? Is that a proxy for like a $2.8 billion in alternatives and if you moved it up to $5 billion in alternatives. So we just sort of just keep moving that up accordingly?

Yes. Thanks, Tom. It's a little bit difficult to model, to be honest with you. So we are trying to make it a little bit easier for you. And if you look on Page 5 of the MD&A, breaking out the alternatives business, showing what we're earning for the manager versus what we're earning investing in the LPs. And so you will see, obviously, as the platform gains more scale, you're going to see more of a consistent and repeatable amount of profits coming from our interest in the GPs/managers. But again, I've explained this a few times in the past, just the way the accounting works for alternatives, this affects all firms that have sizable alternatives businesses, you have to accrue carry -- unrealized carry as an expense, right? And so that ends up limiting the amount of profit that you can show. At the same time, this unrealized carry, you don't realize the income from the carry until it's actually earned. So Ken kind of create a distorted picture because of equity accounting. But one of the things you can do is look on our cash flow statement and also Note 5. And that's going to show you like the cash that we get from the managers, and that might be a better way to look at kind of the recurring income-generating power from our interest in these managers. And if you look at Note 5, you'll see that we received about $3.7 million of cash. And so that's kind of the number that I would have you look at. Just keep in mind, though, that's after tax, that's net of everything, right? So it's not an EBITDA as far down on the income statement you can go. And then that $3.7 million, obviously, is probably the one that you'll see grow consistently over time as we move towards that $5 billion target.

And our next question comes from Graham Ryding from TD Securities.

Yes. Just a follow-up on -- appreciate the color that you gave on the institutional and mutual fund. How about on the high net worth side and your ETFs, just some color on flows would be appreciated.

Sure. I mean the private client business is incredibly stable. It's close to flat year-over-year. And it performs -- continues to perform well with steady referral business in terms of the new sales coming in. In terms of the ETF, we saw about year-over-year about a 7% increase on our total AUM. We're confident about the product offering that we have within that suite of products. As you know, we offer both actively managed and factor-based ETFs. Our market neutral anti-data strategy is used as a tactical play. And so we'll see a lot more movement in and out of that particular ETF, but it's doing exactly what it's designed to do. And then we -- I think Kevin mentioned that we did just launch a Global Sustainable Growth ETF, which is really trying to harness the opportunity and take advantage of the opportunity that's really the appetite that we're seeing advisers and investors are looking for. So we've seen immediate traction on that and that was just launched last fall. So again, we're looking for some sustainable traction in that space.

And Graham, it's Kevin. Just to follow-up on that. We're seeing advisers, again, as we have a very broad set of channels that we're in, so some are fund based, some are increasingly ETF based, some are ETF and funds, and some are using SMA. So we have to be positioned to be true as I think about a vehicle agnostic as we head into the future. It will take us a while to get there. So -- but ETFs will play a role in that is, again, offering a capability and letting the adviser pick the wrapper.

Okay. Understood. And in SMA, would that come through in your institutional flows? Or would you capture that as a retail mutual fund flow?

I think, Adrian, those are coming through on retail, correct, Adrian?

So it kind of depends what report you're looking at. So if we give a --

So it's in the institutional. It means SME usually does show within institutional numbers.

Yes. If you're looking at our MD&A, that's where it's going to come through.

Yes.

We have no further questions at this time. I will turn the call back over to Mr. Basaraba for closing remarks.

Thank you, operator. So thank you very much for joining the call, and you can find the conference call and webcast archive on our webcast, and we'll look forward to seeing you again when we report our first quarter results. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.