AGF Management Limited (AGFB) Earnings Call Transcript & Summary

Welcome to the Q3 2021 AGF Management Limited Earnings Conference Call. My name is Richard, and 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 third quarter of fiscal 2021. 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 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 highlights of Q3 2021, 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 the remainder of 2021. After the prepared remarks, we'll be happy to take questions. And with that, I'll turn the call over to Kevin.

Thank you, Adrian, and thank you, everyone, for joining us today. During Q3 2021, we continued to execute against our strategy and stated goals. I'll begin with some highlights. Our strong business momentum from the previous quarters carried into Q3. AUM and fee-earning assets reached $43.4 billion at the end of Q3, an increase of $2.6 billion compared to the second quarter. Our mutual fund business continued its sales momentum, reporting net sales of $288 million, marking the fourth consecutive quarter of mutual fund net sales. As a tenured leader in sustainable investing, we are proud to announce that AGF International Advisors Company Limited has been successfully named as a signatory to the U.K. Stewardship Code. U.K. Stewardship Code 2020 recognized globally as a best practice benchmark in investment stewardship sets high stewardship standards for those investing money on behalf of U.K. savers and pensioners and those that support them. Diversity and inclusion have been a long-standing pillar of our social responsibility commitment. In early September, we entered a multiyear partnership to create a scholarship program with Indspire, a national indigenous organization that invests in the education of indigenous people. This partnership is part of our multiyear plan to accelerate our diversity and inclusion initiatives. Over the past few months, we have made significant progress in diversifying and expanding our private alternatives business. In early July, we launched the AGF SAF Private Credit Limited Partnership and Trust. The LP targets Canadian institutional investors, while the trust offers increased liquidity that is more appealing for Canadian retail investors. Subsequent to the launch, we refined our long-term partnership with SAF. Furthermore, we strategically expanded our private alternatives business into the private equity and venture capital space by partnering with First Ascent Ventures, a firm that focuses on investing in emerging technology companies. Strong business momentum has translated into a strong financial results for the quarter. We reported an adjusted diluted EPS of $0.21, up 163% from the $0.08 in Q3 of 2020, excluding Smith & Williamson. We have achieved these results partly by holding core expenses flat, which we will continue to do going forward. We have been able to realize efficiencies and unlock some capacity during COVID by relying on our digital strategy and doing larger virtual meetings. When you look at our process prior to COVID, there was a lot more travel and administration necessary in our sales process. We believe that going forward our investment management business can grow with the existing resource base. Having said that, incremental operating expense and capital will be required for corporate development as we accelerate the redeployment of our excess capital. Finally, the Board confirmed a quarterly dividend of $0.09 per share for the third quarter. This level was increased last quarter from $0.08 per share. Starting on Slide 6, we will provide updates on our business performance. On this slide, we break down our total AUM and fee-earning assets in the categories disclosed in our MD&A and show comparisons to the prior year. Mutual fund AUM increased by 24%. I'll provide more color on our mutual fund business in a moment. Institutional, sub-advisory and ETF AUM increased by 11%. We continued to receive allocations from our existing institutional clients, including USD100 million into our global sustainable growth strategy during the quarter. After successfully onboarding a large institution who selected 3 of our global and U.S. equity strategies on their SMA platforms in Q2, in August, we on-boarded another large institution who chose one of our global equity strategies on their SMA platform. While AUM growth on these SMA platforms will occur gradually over time, we are optimistic based on flows for the initial few months. Building on the success of these wins, we target entering into similar relationships with other SMA platforms in the U.S. During the quarter, we received a redemption notice from one of our institutional clients for $900 million. The redemption was a result of an asset allocation shift, which resulted in a large reduction of their public equity exposure overall in favor of alternatives. This highlights the importance of alternatives and also the SMA business, which tends to be less lumpy and will create some consistency in AUM levels. Looking forward to RFP and RFI activities have remained strong. We continue to see interest from institutional investors in a number of our strategies, which bodes well for future sales. Our private client business continues to demonstrate consistent steady growth, with AUM increasing 23% year-over-year. Our private alternatives AUM and fee-earning assets were $2.2 billion, and we maintain our goal of reaching $5 billion in AUM and fee-earning assets by the end of 2022. During the quarter, we refined our partnership with SAF, where we have entered into a definitive agreement, along with a distribution arrangement as an alternative to AGF exercising its option to acquire management contracts of select SAF funds. We will be the exclusive provider of their investment capabilities in the Canadian retail marketplace. This arrangement allows both firms to capitalize on the expected growth in the private credit space. Our strategic partnership with First Ascent Ventures helps to broaden our alternatives platform into an area that gives investors an opportunity to invest in top-tier emerging technology companies. AGF committed $30 million to First Ascent's second fund and is a member of the Limited Partner Advisory Committee. These initiatives, along with our robust pipeline of opportunities in the alternative space will help AGF achieve our goal of reaching $5 billion in AUM and fee-earning assets by the end of 2022. Turning to Slide 7, I will provide some detail on the mutual fund business. Canadian mutual fund industry continued its strong pace in the summer months, reporting net sales of $33 billion for the 3 months ending August 31. Excluding net flows from institutional clients invested in our mutual fund, net sales were $288 million compared to net redemptions of $4 million in Q3 of last year. AGF sales improvement outpaced that of the industry. Year-over-year, gross sales for our long-term funds improved by 61% compared to 46% for the industry. We continue to see year-over-year improvement across all channels, IIROC, MFDA and strategic partnerships, and strong flows into multiple categories, including global and U.S. equities, fixed income and ESG or sustainable opportunities. The momentum in our retail mutual fund business has continued into September. Excluding net flows from institutional clients, we have net sales of approximately $80 million up to September 24. Before I return 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 the first percentile being the best possible performance. We target an average percentile ranking versus peers of 50% over any 1 year and 40% over the 3-year period. At the end of Q3, average percentile rankings were 53% over the past 1 year and 49% over the past 3 years. It's important to note that 1 and 3-year performance for our top-selling funds have largely remained in the top quartile. With that, I will turn the call back over to Adrian.

Thank you, Kevin. Slide 8 reflects a summary of our financial results for the third quarter with sequential quarter and year-over-year comparisons. Excluding Smith & Williamson from our prior period results, EBITDA before commissions for the current quarter was $37.5 million, which is $9.3 million higher than previous quarter and $16.2 million higher than the prior year. For ease of comparisons, we've shown EBITDA before private alternatives contribution separately. Excluding the private alternatives business, we reported EBITDA before commissions of $29.2 million in the quarter. This is $1 million favorable compared to Q2 2021 and $9.1 million favorable compared to prior year, driven by an increase in AUM. SG&A was $50 million, an increase of $3 million from Q2 2021 and $4 million from Q3 2020. This is driven by higher mutual fund sales and strong investment performance. SG&A in the quarter was also impacted by increased corporate development activity and associated expenses of $1.3 million. As we work to deploy capital, these costs may temporarily increase SG&A. Core SG&A, which excludes variable compensation and corporate development costs, were relatively consistent with last year. EBITDA from our private alternatives business was higher in the quarter. We recorded $8.3 million from our private alts business, and this quarter includes $5.4 million of LP earnings, which benefited from the weakening of the Canadian dollar relative to the U.S. dollar. This is the opposite phenomenon we saw last quarter when the U.S. dollar weakened, which suppressed LP earnings. As noted as a subsequent event in our financial statements and on our previous call, one of our long-term private alternative investments managed by SAF fully monetized in June 2021. As part of the transaction, AGF recorded carried interest revenue of $2.2 million this quarter. And we continue to grow and diversify our private alts platform, management fee profits and earnings from our LP investments will become more consistent and predictable. Diluted EPS was $0.21 in the quarter, that's $0.14 higher than Q2 2021 and $0.13 higher than last year. Private alternatives had a strong quarter due to the combination of increased carried interest revenue and strong earnings from LP investments. Deferred selling commissions were $14.1 million this quarter compared to $17.7 million last quarter. SG&A has been influenced by business performance, which continues to exceed our forecasting. Last quarter, we guided to SG&A of $185 million to $190 million for this fiscal year. We anticipate being in the upper end of that range. We're currently in the middle of our annual strategic planning and budgeting process. And as Kevin mentioned, expense control is a key objective. Turning to Slide 9, I'll walk you through the yield in 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, the private alts business, onetime items and other income are excluded. The Q3 revenue yield is 112 basis points. That's 1 basis point lower compared to the trailing 12 months. Q3 SG&A as a percentage of AUM was 50 basis points. That's 1 basis point lower compared to the trailing 12 months. It resulted in an EBITDA yield of 27 basis points, which is flat to the trailing 12 months. Let's turn 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 $52 million, and our dividend payout ratio was 45%. Our cash balance at the end of August was $72 million. We have $173 million in short and long-term investments and no debt. We also have a credit facility available to provide credit to maximum of $150 million. So while we currently have no debt, we're comfortable increasing our net debt-to-EBITDA up to 1.5x should the right opportunity arise. Our remaining capital commitment to the private alternative business is $77 million, which is $26 million higher compared to Q2. The increase reflects the $30 million cornerstone investment to First Ascent's second fund, which was announced in August, not included in this quarter as our anticipated USD50 million commitment to an upcoming third fund managed by Instar. Capital commitments may be funded from excess free cash flow. But keep in mind, there will also be further recycling of capital as monetizations occur, which will help to fund future commitments. Taking all that into account, we currently have excess capital available. Our future capital allocation will be balanced and include returning capital to shareholders and investing in areas of growth. Those growth areas include investing in our private alternatives business as well as opportunities outside our private alternatives that are strategically in line with our priorities. Redeploying our excess capital to generate recurring earnings is a key strategic priority. Over the past few months, we've made significant progress to begin deploying our capital and have generated a robust pipeline of corporate development opportunities. Executing on this priority will be a catalyst for EBITDA growth and value creation. Last quarter, in recognition of our strong results, robust financial position and confidence in our business, AGF's Board of Directors increased the quarterly dividend by 12.5%. This is just one example of how we are directly returning capital to our shareholders. So turning to Slide 11, I'll turn it over to Kevin to wrap up today's call.

Thanks, Adrian. Q3 was a solid quarter. Our AUM and fee-earning assets continue to climb. We recorded another quarter of positive mutual fund net flows, marking the fourth consecutive quarter of net sales. We continue to deploy our capital and invest in key growth areas such as the private alternative businesses. We launched the new AGF SAF Private Credit products in July, refined our partnership with SAF and partnered with First Ascent Ventures. Our strong business momentum translated into strong financial results. Excluding Smith & Williamson from the prior period results, EBITDA before commissions was $37.5 million or 76% higher than Q3 of last year. Our margin also expanded by 860 basis points year-over-year. Adjusted EPS for the quarter was $0.21, 163% higher than last year, excluding Smith & Williamson. We are focused on building on the momentum from the past few quarters and creating value for our shareholders over the long term. In the past 12 months, we have returned almost $70 million to our shareholders through share buybacks and increased the dividend payments, which started last quarter. We will continue to strategically invest and accelerate the deployment of our capital to key growth areas, creating value for shareholders. Along those lines, I'd like to reiterate our strategic priorities, which are to deliver consistent and repeatable investment performance, drive the organization to sustainable net inflows, redeploy our excess capital to generate recurring earnings and position the firm to reach $5 billion in alternative assets by 2022, while we continue to be diligent in controlling costs to ensure increased revenue translates to expanded profits and margins to take advantage of the operating leverage in our business. I want to thank everyone on the AGF team for all of their hard work, and we will now take your questions.

[Operator Instructions] And our first question on line comes from Mr. Gary Ho from Desjardins Capital.

In your MD&A, there were several mentions of this capital deployment plan, and you also spent a couple of million on the corp debt costs. I think both, Kevin and Adrian, you mentioned it in your prepared remarks. But Kevin, can you just refresh us on the key pillars of that plan? It sounds like a lot of effort is bulking up your private alts platform. Is that where we should see growth come from in the next 2 to 3 years? And how much would you look to deploy in that silo in particular?

Gary, so a couple of thoughts on that. Capital is always something that we try to balance out between growth doing some buybacks as well as we'll continue to think now about the dividend as well. Over the last year, as we've said, I think we've put back $65 million to our shareholders in 2 of those buckets, right? Now it's -- with the fact that we've -- a year on, we've got the S&W transaction behind us, we really are going to amp up getting the capital back to work and accelerate that. So with that, we'll come with some deal costs, which are kind of one-time things that -- and as part of that, obviously, is we look at the landscape around us, the alternative space continues to get bigger and bigger. Asset allocations are continuing to grow across the spectrum from large institutions, family offices, even retail brokers. So we know the core public markets are going to shrink, the alternative asset areas are going to grow pretty significantly over the next decade or so. So yes, for us, strategically, it makes sense for us to start to rapidly accelerate the deployment of that capital. Part of that is, we'll bring a new head of alternatives. We are in the late stages of a search process for a significant hire there. We are down to several very good candidates there. So hopefully, we'll have somebody onboard here into the early part of next year where we can then really ramp that up. Soon we get that capital back to work, as you all know, the soon we can drive those earnings through. So we're on pace to, I think, as we've said a year ago, at this time, we said it would take us 18 to 24 months. So I think you're now starting to see the beginnings of that. In terms of the quantum, we have a lot of dry power, right? If you think about current cash on the balance sheet at $70 million, if you think in a world post DSC, our cash flow is probably going to ramp to north of $100 million. And then we think conservatively about relevering the company up to 1.5x our EBITDA. So you can kind of think of that over a multiyear period about how you can get that to scale into earnings.

Perfect. Okay, great. And then next question, just maybe related to some of Kevin's comments there. Just on the free cash flow, Adrian, was on the quarter, $21 million. I think there's some kind of onetime private alts carry or distribution in there. And then LTM is around $52 million. But when you look at the run rate, what's the free cash flow profile look like for the company? Is that $50 million sustainable? And I'm looking at it, excluding the DSC benefit that's coming next year. Can you maybe walk us through how you think about that?

Gary, yes, I think that the $50 million is sustainable based on where our AUM is today. And I would not call the free cash flow contribution from the alternatives platform as onetime. I might categorize it as lumpy. And as we build out the platform and diversify it, as Kevin mentioned, what you're going to see is that the cash, if you want to talk about cash, the cash we're getting from management fee profits from carry and also from treasury investments and our LPs is going to become more consistent and sustainable.

And if you factor in the DSC, I think Kevin's comments was probably close to $100 million. Is that where you guys are thinking there?

Yes. I mean, rough math there. We spend about $60 million a year in DSE now. That goes away mid-2022. There's a temporary benefit there. But for a couple of years, it's going to be in the $60 million range in terms of a tailwind on our cash flow. And then as we've talked about, we're cognizant of the fact that, that financial benefit reverses over time. But yes, for the first 2 or 3 years, it's a significant increase in our free cash flow.

And Gary, that's probably why you want to see us accelerate this a little bit, right, as we can take advantage of that in those beginning years.

Yes, makes sense. Great. And then last question for me, maybe for Judy. Can you -- can we get an update on how you plan to distribute some of these private alts products to accounts outside of institutional? So I think it was mentioned kind of high net worth customers and whatnot. Do you need to significantly invest on the distribution side of things?

Thanks, Gary. So we are looking at the alts platform across the spectrum of offerings. So starting really with the mutual fund and real assets, ETF vehicles for liquid alternative strategies have been quite strong as well, whether it be the market neutral or long-short strategies and then with our private credit offering. It is available to retail as well as family offices and institutional. And on the distribution side, whether it be in our Canadian institutional team, our U.S. institutional team or across the retail channel and our team there, we have capacity and we've got the capabilities to distribute all of these products to the investors as they are demanding them, and we don't anticipate significant additional expenses or head count there.

And Gary, one of the things that when we strategically thought about this, we do have that end-to-end distribution there and where others have to acquire pieces of it. So for us, I think it's natural to go the other way, which is to provide product to that spectrum.

Our next question on the line comes from Geoff Kwan from RBC Capital Markets.

Just on the SG&A. So I think the guidance is $185 million to $190 million for the year. And at the high end would imply the Q4 number would have to be around $45 million or just under that, which would then be kind of like $3.5 million lower than the year-to-date quarterly average. I know you mentioned the corporate development expenses, but just wondering what's going to drive the SG&A to be meaningfully lower in Q4 to hit your guidance range?

Geoffrey, it's Adrian. I mean, basically, the short answer is that we're 3 quarters of the way through the year now. So we have a little bit of a better read on where the performance type compensation is going to land. But again, I do want to reiterate that when you look at the SG&A increase in the quarter, again, it related to corporate development, which we're going to incur these expenses to generate future incremental profits and also performance compensation. And so the performance compensation relates to the pretty impressive sales. So $2.9 billion in gross sales of mutual funds year-to-date versus $2.2 million in the full year last year, so that obviously drives some expenses. And we recorded $288 million worth of net sales in mutual funds in a seasonally slow quarter. So I just want to make sure everyone understands that some of the increases in the first 3 quarters really relate to the fact that we didn't anticipate the performance to be as strong as it has been for the year, but we have a pretty good read out now on where the full year 2021 is going to land.

I mean, just I'm trying to get...

Geoff, it's Kevin. The only thing I'd reiterate is that, and we've tried to [ accept ] the, what I call, sales base and investment performance comp and just bonus comp based on the success. The core SG&A is running basically flat than where it was a year ago.

Right. And it's just -- I mean, obviously, the net sales, and we see it in the numbers as you've reported, right? And the AUM has been reported. And I'm just trying to get a sense is, okay, if we see the momentum sustain itself into Q4, you still hit with all the factors in terms of performance-based comp and the corporate developments. Are you still comfortable that you can hit it within that range? Or as a result of the growth you've had and the performance you've had, it's going to come in higher, just to make sure there's a matching in terms of trying to forecast out what the margins look like for the last quarter of the year.

Yes, Geoff, it's Kevin again. Yes. So I would say, leaning toward the high end there, right? But that can get me back toward as -- we do try to true-up each quarter. So we don't have this effect. So clearly, if we have another blowout quarter in sales, we may have to push that a little higher, but I think you guys would look at that and say that's a pretty good short-term trade-off. Remember, some of these things will reset, right? The bonus numbers all start to reset as we go into a new year, the targets get higher, et cetera. So these are the essentially the impacts of probably too great of success on some of these metrics, vis-a-vis where we had planned, right? So -- but some of these will reset as we move into 2022. And we haven't done that work yet. We're just starting our planning process right now, but lean to -- for toward the high end of the range right now.

Okay. So if you have -- sorry, just not to labor the point is, if you have the same momentum through the first 3 quarters as you get into Q4, are you comfortable that you'll still be within the target range?

Yes. I mean, we -- I think we've said a number of times in the prepared remarks and during the answer is that we're upper end of the range, which is $190 million. And we're not going to -- we can't give you too much transparency into some of the minutia around how we do the forecast. But at this point, that's where we -- that's what we're anticipating. So we're certainly not going to change that today.

Okay. Just on your alternatives business, can you help us understand, I guess, how much have your clients invested into the various alternative strategies? And what is that kind of mix between the different line-up in terms of institutional versus retail versus have a client that sort of segmentation?

Yes. So I think, Geoff, we want to look at that between our current, which is roughly $2.2 billion of private alternative assets, right, we've got $150 million-ish in our money in that. And again, there's some other commitments that will follow on to that. But you can think of the rest of that as third-party client money that stretches from institutions and family offices. And we've just started on the side on the -- really rolling out this retail product that will be available to hire broker. So you'll see that come on last. So I would say of the $2.2 billion-ish, most of that is institutional family office type money across the spectrum of products.

Okay. And one last question. To your point, Kevin, in terms of if alternatives is where it's at and where our clients are going, shifting capital, does it make sense to build kind of an in-house specialization and in-house team as opposed to kind of partnering with some third parties as you've kind of done so far?

Yes. We spent a lot of time on this, right, with our Alternatives Advisory Committee and the team here. I think you guys -- and I've been on -- I come from this as a PM and an analyst as a -- in my DNA, right? If we went out and just started ramping up OpEx to build it out, you wouldn't see the return on that for 6 or 7 years, right? I think if we can partner, take majority stakes, work with folks on GP structures where we're joined together in it, that's a way to kind of rent-to-own it model, which I think you drive the earnings first and bring the, what I call, a knowledge equity in-house over time. That's, to us, a better way to reward our shareholders to get the earnings flowing quicker, be in the space, test out some partners, and think of it as a portfolio of products and managers that we'll acquire over time. But you should think of it, though, that should lead you to, hopefully, over time, bring that expertise in house, but not through an organic body by body expensive growth.

Our next question on the line comes from Mr. Tom MacKinnon from BMO Capital.

Just on the $5 billion private old school, I know you've been sitting at $2.2 billion now for about a year, certainly talking as if you would be putting more capital work into this. But if you want that goal by the -- that $5 billion goal by the end of 2022, that's more than doubling within a year or about five quarters, I guess. So can you give us any kind of path as to how we should be thinking about this? And then would that be another commitment of $100 million of your capital? Just if I kind of look at the $150 million you put in the $2.2 billion you have so far? So just 2 parts to that question, in the past to get to $5 billion and what are some of the cash flow demands of that?

Yes, Tom, it's Kevin. I think we're still pretty comfortable with that $5 billion number over the next horizon, for sure. In that, it implies a couple of new initiatives we may be putting on the Board over the next year, not to get us there. There may be a little slippage, but I think we're comfortable with what we're -- line of sight to that. In terms of the -- what our capital would be, we've already disclosed that we're going to put $50 million into support Fund III on Instar when that rolls out, and then obviously, a couple of the other ventures, we'll probably have some seed capital to work with there. So I'm not sure we're going to -- we've circled the number yet. You can know that $50 million is clearly committed on that. And so it could be in that range, it could be higher. But it's not going to be significantly in the first year. In other words, I wouldn't see us out of that band. But again, it's stuff that we're comfortable with right now.

And you mentioned over the next horizon, is that by the end of 2022?

Yes. I think that's what we said. And I think we're still looking at -- at the end of 2022. And I said if there's slippage at maybe a quarter or 2, but it feels like it's tracking to that at this point.

Well and if it feels like it's tracking, it's been flat over the last year. So how -- what in there -- what are you reading in terms of looking you feel like it's tracking to get to that?

Yes. We've had some monetizations that have been bringing things down. We haven't had a lot of new initiatives as I said in the earlier part of the call. We have just rolled out a new product on with SAF, which we have high expectations for, but there'll be a ramp time there. At the same time, we've made an investment in our first early-stage Venture fund. That is -- hasn't been called yet. So while we have got some things that we have started to ink, it will take a little bit of time to get in that call. And there are things that we're working on that are in the pipeline that will also play into that. So I'm not fluffed by the flattish given the fact that we've had some monetizations and carrier that came through. I mean, Adrian, do you have some other thoughts on that?

No, [indiscernible] I think that covers it. Anything else on that, Tom?

No, that's good. Thanks, Adrian.

Our next question on the line comes from Nik Priebe from CIBC Capital Markets.

So just to build on the conversations surrounding excess capital deployment and the recent cash build, in the past few quarters, you've alluded to some of the commitments that you've made to various funds in the private alts side. I was wondering if you might just be able to give us a sense of what your total unfunded commitments might amount to. I'm just trying to keep track of that to better understand how excess capital might be at least partly earmarked?

Yes. It's Adrian. So there's about $77 million of unfunded commitments that we have with the funds that are up and running now. But one of the things you have to keep in mind is that when we look back over the years, a lot of these new commitments get funded through recycled capital, #1, and that would be monetizations from investments within the funds that we've invested in, but also cash earnings that are coming out of the GPs in the form of recurring management fee and other income as well as carried interest. So you sort of have to look at the net number, which would be much lower than that.

Understood. Okay. And then just one high-level question on the net flows outlook. Demand for retail investment products at the industry level has clearly been very strong this year, presumably, a consequence of improving household balance sheets and higher savings rates, among other factors. Just interested to canvas your views on the sustainability and the trajectory of that trend. As we see spending patterns begin to normalize, how quickly we might see demand for retail investment products normalize accordingly? I wouldn't expect you to have a crystal ball, but just thought I'd ask for your read on some of those macro dynamics.

Nick, it's Kevin. I'll start and I'll pass though you for some of the micro parts of our business on that. Yes. I think clearly what's been a big benefit has been the higher savings rate. We think that, that savings rate probably stays up a little bit elevated with the hybrid work world. So think about the fact that if folks only work downtown 2 or 3 days a week, they're saving communing costs, et cetera, gas, things like that, there will be some offsets with higher inflated prices for things. But if you put that in the mix, there should be some extra disposable income in that. So we've seen that go into some of -- we know it's going into some parts of the savings world in the market. And how sustainable is that? I think it will wane out over time as we normalize hybrid and the downtown starts to come back. I'd say probably second most important thing and maybe even more important is the market itself. If we -- if the market stays in this range, even if it's range bound to choppy, range bound from upward trend, flows will be fine. I think where you get into trouble in our industry, as you've seen, is when you have market declines of 20% to 30%, the retail investor steps back, you see redemptions. And this last recession was a little odd because it was so short driven, right? The market dropped and it came back pretty quickly. So I'd say that's probably the bigger impact of the 2 on the macro front, is what the market does over in the near term. Having said that, I think things -- we're not calling -- you're calling for like many others, probably some choppiness in here, maybe some minor pullbacks. But we're not seeing a scenario where we think things are coming off a cliff at this point. So those are the 2 big drivers on the macro side. And then I don't know, Judy, you can talk on where we're seeing.

I mean just with AGF itself, I mean, we've been outpacing the industry by that 15% year-over-year. And I guess what we're seeing is just the breadth and scope of our product offering out of the top 10 selling funds, 6 are top quartile performing funds. So we would be very optimistic that we could continue that outpacing industry going forward.

Yes. And I'd add to that, Nick, that there are also things that are probably the highest demanding. So it's not only strong performance, but also in key categories of people. We focus the shelf to things that advisers really can't do themselves, so things that are harder to do, more global, et cetera, and that's where we're having the outperformance. So there's some linkage to that sustainability there, I would suspect as well.

[Operator Instructions] Our next question on line comes from Mr. Graham Ryding from TD Securities.

Your -- the investment in the First Ascent, I just want to make sure I've got that correct. It sounded like it's a $30 million commitment on year-end. Is that incremental to the $77 million, Adrian, that you flagged as commitments otherwise to your private alts platform?

Graham, no, that's included, because we have -- we made that commitment, yes.

Okay. And then should we interpret that partnership as something that you're hoping will grow into a fund and a sort of fee-earning AUM opportunity for you?

Yes. It's a good question. I mean we -- this is an investment fund. It's really a partnership and a structure where we'll have multiple points of revenue, if you think about it, right, not just as an LPC, but also through the structure itself and some carry. But it really sets us up to do more with them in the future, what we think is one of the better early-stage technology venture firms out there. So think of it really as the first part of a multi-pronged approach to this.

Okay. Understood. And then my second question, not related, just the regulatory changes around client-focused reforms. We've seen recently that some of the banks have announced that they're moving to a more proprietary model within the branch channels. Any expectation that, that would have an impact on your flows at all or the independent asset managers largely?

This is Judy. This has been a trend that has been developing over a number of years. And so for ourselves, and I do -- I would argue with most of the independent asset managers it will have minimal impact as we really have not seen a significant sales flow through the bank branch in many years. So we're not concerned about it. It's an interesting development. It'd be interesting to see what the regulator says to it. But at this point, we're not concerned.

Okay. And then maybe just a follow-on on that. Your mutual fund sales momentum is strong. Can you give us some indication of how that is currently split across the different channels, IIROC and FDA and then your strategic partnerships?

Yes. The gross sales across -- while we're seeing about a 50% increase across IIROC and MFDA both just in terms of the sales, in terms of the trajectory of where they're going and in terms of the split, we're seeing about 25%, I believe it's through IIROC and a smaller -- yes, I believe it's about 25% to IIROC and the rest -- where is it? I think that's correct. Yes. Sorry. I can get that number, firm it up for you.

If it's directionally correct, then that's fine.

We have no further questions at this time. Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. AGF's next earnings call will take place on January 26, 2022. You may now disconnect.