Fiera Capital Corporation (FSZ) Earnings Call Transcript & Summary

Good morning. My name is Sakan, and I will be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's Earnings Call to discuss Financial Results for the First Quarter of 2021. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] Thank you. I will now turn over the conference to Ms. Mariem Elsayed, Director of Investor Relations & Public Affairs. Ms. Elsayed, you may begin your conference.

Thank you, Sakan. [Foreign Language]. Good morning, everyone. [Foreign Language]. Welcome to the Fiera Capital conference call to discuss our financial results for the first quarter of 2021. Before we begin, I invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at fiera.com. Note that comments made on today's call, including replies to certain questions, may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on Page 2 of the presentation. Turning to Page 3. Our speakers today are Jean-Philippe Lemay, Global President and Chief Operating Officer; and Lucas Pontillo, Executive Vice President and Global Chief Financial Officer. Following their prepared remarks, they will take your questions. Turning to Slide 4, I will provide the agenda for today's call. We'll begin by providing highlights from the first quarter. This will be followed by a discussion on AUM and flows, an update on our investment platform and a review of our investment performance and first quarter financial results. We'll conclude by sharing a business update before opening the line for questions. With that, I will now turn the call over to Mr. Jean-Philippe Lemay.

Thank you, Mariem. Good morning, everyone, and thank you for joining us. I'm on Slide 5. We reported strong operational and financial results for the quarter of 2021. Assets under management reached $172.9 billion as of March 31 and a $13.4 billion or 8.4% increase over the last 12-month period. During the first 3 months of the year, excluding the impact of recent dispositions, AUM increased by $1.3 billion, driven by strong organic growth. We generated basic adjusted EPS of $0.36, up from $0.20 in the year ago period. Adjusted EBITDA was $47.5 million for Q1 2021, representing a $4 million increase compared to the same period last year. With regards to investment performance, although rising interest rates created a challenging environment for fixed income assets, our teams continue to outperform over the long term. On a 3-year basis, 96% of our fixed income assets under management have outperformed their respective benchmarks. Our equity strategies continue to be true to their investment styles and processes. And on a trailing 3-year basis, 88% of our equity AUM outperformed their benchmarks. In private markets, we saw strong positive performance across all our key strategies. We're also seeing positive fundraising momentum across the platform, notably our agriculture and infrastructure strategies. We continue to invest in our leadership to ensure we have the right team in place to support our plans for future growth. To that end, I'm very pleased to announce the appointment of Lyne Lamothe during the first quarter, who joined as Global Chief Human Resources Officer. Lyne is part of our global leadership team and will be responsible for developing a global HR strategy aligned with our ambition of making Fiera Capital 1 of the world's most top-tier asset managers. Lyne brings more than 25 years of experience as an HR executive in large organizations and has led many companies through organizational transformations. In March, we announced the addition of a new global equity team with a first-class track record and ample available investment capacity, positioning us for continued growth in this area. With the existing cap on our current global equity strategy, this addition will allow us to continue building on our previous success in the strategy by offering new and existing clients a strategy for which we continue to see steady demand and enable us to fully capture this growth opportunity globally. Note that the team's assets under management of approximately USD 0.5 billion is not yet reflected in our consolidated AUM number. We expect to begin including these assets in Q2 or Q3 as we formally close the transaction. We also signed a definitive agreement on March 30, 2021, for the sale of the right to manage the Fiera Capital Emerging Markets Fund. Recall that the agreement in principle was announced in early March. We also closed the previously announced sale of Bel Air in March, which contributed to driving our financial leverage lower. On to Slide 6 to discuss our AUM. As we explained on our last 2 earnings call, effective January 1, we started tracking AUM under slightly modified distribution channels and asset classes. As part of these changes, we are now including the committed undeployed capital related to our private market investment strategies in total consolidated AUM. This number is a factor of 2 metrics: the amount of new subscriptions received from clients and the amount of capital deployed into fee-generating AUM. As at the end of Q1, we had undeployed capital on hand of $1.7 billion. To facilitate AUM comparison between the end of Q4 2020 and the end of Q1 2021 we have backed out the impact of the sale of Bel Air and the impact of the termination of the revenue sharing arrangement with CNR. Accordingly, AUM increased by $1.3 billion during the first quarter, mainly from new mandates of $3.2 billion and contributions from existing clients of $1 billion. New mandates were for various types of equity, fixed income and private investment strategies as well as for cross-asset mandates. These were partly offset by loss mandates of $1.1 billion. Global markets and foreign exchange together unfavorably impacted AUM by $1.7 billion. While AUM benefited positively from the appreciation in global equity markets, this was more than offset by unfavorable fixed income markets, mainly due to the rising interest rate environment. I will now discuss flows in more details on Slide 7. Our new global operating model and the continued enhancement and rollout of our global distribution model contributed to strong organic growth of $3.1 billion during the first quarter. What's more? We generated net sales in each of our distribution channels with institutional generating $1 billion of organic growth, financial intermediaries generating $1.5 billion, and private wealth generating $600 million of net organic growth. In institutional, we had another very successful quarter. Net sales of $1 billion were driven largely by over $1.4 billion in new mandates in a variety of equity and private investment strategies as well as in multi-asset mandates. The institutional team is building on this success and has continued to carry out the implementation of our Canadian investor interaction model across all regions, focusing on client retention, cross-selling, and expertise-led new sales efforts backed by experienced capability specialists. In financial intermediaries, net sales of $1.5 billion were driven by new mandates as well as significant contributions from existing clients. We won close to $1.1 billion in new mandates with large wins in Canada and the U.S. for multi-asset and private market mandates. Contributions from existing clients of over $900 million consisted mostly of assets derived from strong Q1 fundraising by our strategic partners, with whom we continue to work on developing and launching innovative new strategies. In private wealth, we experienced strong flows on the platform leading to net sales of $0.6 billion in the quarter. These were driven by new large mandates in Canada and the U.S. for fixed income as well as cross-asset mandates. Taking into consideration the impact of lost mandates and contributions from existing clients, we expect net organic AUM growth of $3.1 billion to contribute approximately $8.4 million in annualized revenues. On Slide 8, you'll see that our AUM in public market investment strategies reached $159.3 billion as of March 31, representing an increase of $1.1 billion since the end of 2020 when excluding the $10.3 billion related to the impact of Bel Air and CNR. Note that there is still approximately $0.8 billion in AUM remaining in the emerging markets fund that we expect will leave in Q3 as we close this disposition. As I mentioned, we onboarded a complementary global equity team during the first quarter, reinforcing our investment platform. The team is integrating nicely and our distribution efforts have already begun, including participation in RFPs for new business activity. We've also seeded the team's long-only and long-short pool funds that I've just launched. Given the interest rate environment in Q1, markets unfavorably impacted our fixed income portfolio by $4.1 billion. Equity markets, however, had a positive effect of approximately $3 billion on the investment platform. In private market strategies, AUM as at the end of the first quarter was $13.6 billion, a $200 million increase compared to December 31 and which includes $1.7 billion of committed undeployed capital. We raised approximately $300 million in new subscriptions in Q1, mainly for our global ag, global infrastructure and real estate strategies, and a similar amount was deployed into new portfolio investments over the period. Notably, we are pleased to report that our platform hosting our agriculture, private equity and recently launched international private credit opportunity strategy has now crossed the $1 billion mark. We are seeing significant interest in the global agriculture space as investors begin to focus allocations in this private real asset class. We have several initiatives underway to further expand our private markets platform and distribute proactively our current offering to continue meeting client demand for this category of investment strategies and others specifically designed to improve client outcomes even further. I will now turn it over to Lucas for overview of our financial performance.

Thank you, Jean-Philippe, and good morning, everyone. I'm on Slide 9. Total revenues for the first quarter of 2021 were $165.6 million, an increase of $3.9 million or 2.4% from Q1 2020. Breaking this down further, base management fees accounting for 94% of total revenues this quarter increased $1.6 million year-over-year or 1.1% to $156.5 million. This increase despite the strategic structural changes we made to our business model by exiting certain businesses over the year. These results highlight the success we are achieving in our organic growth initiatives by channel and across our distribution model. In the institutional channel, base management fees for the quarter increased $14.6 million or 23.1% year-over-year, reaching $77.8 million. We won new mandates across all geographies. With our new London-based Atlas Global Equity team now in place, we are also very well positioned for continued growth in this area as we leverage our existing distribution capabilities which have a proven track record of successful distribution of global equity strategies. In financial intermediaries channel, base management fees were down $6.9 million compared to last year, stemming from the sale of Fiera Investments real estate mutual funds in June of last year and the termination of the revenue sharing arrangement with CNR in Q4 2020. These were partly offset by new mandates won in Canada, the U.S. and Europe across a variety of strategies. Base management fees for private wealth also decreased $6.1 million to $24.6 million, again, due to the restructurings, and this was mainly driven by the sale of Bel Air and Wilkinson Global Asset Management announced in Q4. Moving on to performance fees. We generated $1.4 million in performance fees during the first quarter of 2021, mainly attributable to our private debt platform in private markets and our hedge fund strategy in public markets. This compared to $3.3 million a year ago period as Q1 2020 included unusually higher performance fees for the first quarter due to the crystallization of performance fees from early redemptions in some of our hedge funds grown on by the onset of the pandemic in Q1 of last year. We recorded $600,000 of share of earnings in joint ventures in Q1 2021 compared to a loss of $200,000 last year. This line item stems primarily from incremental revenue from Fiera Real Estate's U.K. joint venture projects and can fluctuate from quarter-to-quarter depending on timing of project completions. Other revenues of $7.1 million was $3.3 million higher compared to last year. The increase was mainly as a result of a $5.1 million loss on FX contract in Q1 of last year and partly offset by lower transaction commitment fees in private market investment strategies for the first quarter of this year. On a last 12-month basis, total revenues grew by $23 million or 3.4% compared to the last 12-month period ended March 31, 2020. We are very pleased with our revenue results for the quarter. They speak to the strong demand for our competitive suite of investment strategies and the progress we continue to make in further developing our distribution capabilities as we realign our business within the framework of the global operating model we introduced last year. Turning to Slide 10. Selling, general and administrative expenses, including external manager expenses, were $121.4 million during the first quarter of 2021. This was up $3.1 million or 2.6% from last year. The year-over-year increase in SG&A was mainly due to higher share-based compensation of $3.3 million recorded in Q1 compared to almost nil in Q1 of last year. Higher bonus accruals in Q1 2021 compared to Q1 2020 as a result of management actions taken at the onset of the global pandemic last year were effectively offset by savings in travel and marketing expenses this year. In addition, we realized $5 million of cost synergies in connection with the global operating model that we introduced last year, which were redeployed into other key areas of the business for growth. It is also important to note that our first quarter results usually have higher benefit related costs of roughly $3 million compared to other quarters during the year as a result of the timing of this expense recognition. Going back over 2 years, SG&A is up 11.2% when compared to a 64% increase in total revenues. Turning to Slide 11. We recorded net earnings attributable to company shareholders of $22.2 million or $0.21 per share and $0.20 per share on a diluted basis during the first quarter of 2021. This is an increase of $14.6 million or $0.14 per share compared to the first quarter of last year. We generated adjusted net earnings of $37.5 million in Q1 of 2021 compared with $20.5 million in the year ago period, an increase of $17 million or 83%. The difference between net earnings and adjusted net earnings is explained largely by the gain on sale following the sale of Bel Air and results mainly from the reversal of the currency translation adjustment, reflecting the depreciation of the U.S. dollar between when we acquired the business and when we sold it. As for previous quarters, the other main adjustments from net earnings to company shareholders to adjusted net earnings were amortization and depreciation, restructuring and acquisition-related costs and share-based compensation. Adjusted EPS was $0.36 in Q1 2021 compared to $0.20 in Q1 of 2020. Diluted adjusted EPS for the current quarter was $0.32 as a result of the effect of higher diluted weighted average number of shares outstanding. I am now on Slide 12. We generated adjusted EBITDA of $47.5 million in the current quarter compared to $43.5 million in Q1 of last year, an increase of $4 million or 9.3%. The increase was mainly driven by the $3.9 million year-over-year increase in revenues compared to the Q1 2019 adjusted EBITDA of $8.7 million higher or 22%. What's more? We are very pleased with the Q1 adjusted EBITDA margin of 28.7%. Recall that as a result of timing of benefit costs, our first quarter are characterized by more margin pressure than during the other 3 quarters of the year. Looking back at our Q1 results over the past 3 years, the increasing margin over time speaks to the headway we have made in scaling the company's operations to improve operating leverage. Compared to a margin of 26.9% realized in Q1 of last year, this is an increase of 180 basis points. Looking back 3 years, the Q1 margin has expanded by 150 basis points. These strong results also demonstrate the value of the acquisitions we have undertaken, and importantly, their successful integration. Our focus on organic growth is also proving successful and driving increased operating leverage. On an LTM basis, we achieved an adjusted EBITDA margin of 30.6% or $213.8 million of adjusted EBITDA. And again, we're looking at margin on an LTM basis. So you can see that it has been steadily increasing. On Slide 13, delivering value to shareholders through optimized capital allocation remains an ongoing priority for Fiera Capital, as evidenced by the results of the quarter. Notably as a result of the sale of Bel Air, which was done with the objective of better aligning our private wealth operations, we further reduced the company's leverage in a quarter when it tends to trend upwards. As such, I'm pleased to report that as of March 31, 2021, our funded debt-to-EBITDA ratio in our credit facility was down to 2.4x. Not only was it lower for the fourth consecutive quarter, but more importantly, still, it was at its lowest level over the last 3 years, lower than it was prior to completing 6 acquisitions over the course of 2018 and 2019 and despite the setbacks from the pandemic in 2020. With regards to our cash position, we ended the quarter with $46.2 million in cash and cash equivalents and the Board has once again approved a quarterly dividend of $0.21 per share, unchanged for the previous quarter and payable in June. We paid $7.1 million in the form of share repurchases over the course of the first quarter. To date, we have repurchased 895,000 Class A shares for total consideration of $10.1 million since the inception of the share buyback program. With the recently extended increase to the number of Class A shares that we may repurchase, we still have room to buy and cancel an additional 3.1 million shares, another means at our disposal by which we can return value to our shareholders. Finally, you will notice a significant reduction in the purchase price obligations liability on our balance sheet. This is a direct result of the termination of the revenue sharing arrangement with CNR and subsequent decision to sell the rights to manage related emerging markets fund. As a result of the strategic transaction, the carrying value of the CNR related purchase price obligation went from $60 million as of September 30, 2020, to only $2.3 million at the end of March. This final amount represents the final payment remaining for the second quarter of 2021. I will now turn the call back to Jean-Philippe for a review of our investment performance and a strategic update.

Thank you, Lucas. On to Slide 14. Most of our equity strategies delivered positive returns in Q1 with global equity markets rising throughout the world as expectation for an economic recovery strengthened. Our large cap strategy has performed as expected, given their growth quality tilt against the backdrop of a return to favor of value stocks. Notably, the MSCI World Value Index outperformed the MSCI World Growth Index by 9.2% during the first quarter. Benchmarking against the MSCI World Growth would result in a Q1 added value of 2.24% as opposed to the negative 2.38% you see here. On a long-term basis, all our large-cap equities investment strategies generated positive value-added compared to their respective benchmarks and continue to rank mostly in the first quartile. We're happy to report that Atlas, the new global equity team we onboarded this quarter, has delivered 4.5% of value-added on a 1-year term and 8.75% over 3 years. For outstanding still, the team has delivered 12.9% of annualized value-add over the past 4 years. Our U.S. small and mid-cap growth strategy outperformed its benchmark by close to 4% during the first quarter and ranked in the second quartile. On a 1-year basis, the team has generated a remarkable 99.9% return to clients. The Frontier Market strategy continued its incredibly strong run as it outperformed the MSCI Frontier Market Index by 8.5%. The performance over the 1-year period for the strategy highlights its impressive returns both in absolute and relative terms, generating a positive 91.7% absolute return and a notable outperformance of 52.4%. On the fixed income side, our strategies were affected by the steepening of the yield curve and the spread between long and short-term rates rising to multiyear highs. Underperformance within the active universe strategies was driven by increased long duration exposure as yields moved higher, in line with our team's investment style. Our specialized credit strategy ranked first quartile during the quarter, outperforming its benchmark as a result of their allocation to credit. On a 1-year period, all of our active universe strategies generated positive value added. And over a 3- year period, all active universe strategies generated positive value added, and most of them ranked within the first and second quartiles within their respective peer universe. In U.S. fixed income, the tax-efficient core plus strategy slightly lagged its benchmark, owing to its tilt towards quality credit as credit spreads narrowed. The strategy continues to outperform on a 1 year and 3-year basis. Turning to Slide 15 for a review of select private market strategies. We saw strong performance across all key strategies in private markets during the first quarter. The Canadian and the U.K. real estate strategies continued to deliver strong risk-adjusted returns in the first quarter. Strategic allocation towards the historically strong industrial and logistics sector increased exposure to residential markets. Allocation only to the most stable service-oriented retail properties and an underweighting in the office sector were the key drivers of the strong performance. Most of the company's private debt strategies had a strong start to the year and generated a positive net return in the first quarter. Positive macroeconomic trends have materialized in the form of increased activity within the private debt portfolios and are expected to continue. Notably, our Asia lending opportunities fund generated a 2.9% return during the first quarter, and the fund's IRR since inception is a solid 11.9%. The Fiera Real Estate Financing Fund also continues to yield strong returns. Since inception in 2006, the fund has returned annualized 12.9% to its investors. The resilience of the portfolio highlights the benefits of our diversification across regions and sectors. The conservative loan-to-value ratios and the primarily senior secured loans, all of which are all marks of our strategy. The infrastructure strategy continued to perform well and remain resilient throughout the COVID-19 pandemic and in the first quarter with increased fundraising activity, signaling investors' confidence in this real asset class. The assets within the strategy are essential in nature. And in many instances, revenues are underpinned by long-term and fixed-price contracts. The strategy's internal rate of return since inception sits at 9.1%. The global agriculture strategy also continued to see positive momentum in fundraising as its demonstrated resilience throughout the pandemic has garnered additional interest. I'm very pleased with the work of our teams and their absolute dedication to delivering value to our investors. Turning to Slide 16. We're pleased to share some of the differentiating factors of our firm serving as the main catalyst for future growth and directly addressing key industry trends across the globe and across investor preferences. Going forward, we will continue seeking out initiatives and implementing change that benefit all our stakeholders, and this always driven by our mission to optimally and innovatively allocating capital for our clients. We are committed to our review of becoming a top-tier global asset management firm and believe that our investment platform and distribution efforts position us to take full advantage of the tailwind created by the underlying trends in the asset management industry as well as the migration of capital globally. We're excited about the future of our private markets platform, which, by virtue of the predictability of its returns, lower correlation to equity and fixed income markets, as well as real income and capital protection, has demonstrated its resilience during the pandemic. For instance, investors are increasingly turning towards the global agriculture asset class, which has been identified as an underowned institutional investment. We have a focus on ag, infrastructure and real estate strategies, investing in both debt and equity. And for this reason, we're recognized as a specialist in real asset markets. We invest in mid-market assets across the globe and develop partnerships accordingly. The mid-market focus is conducive on the less competitive environment for capital deployment as well as providing more attractive risk and valuation characteristics for the benefit of our investors. As we continue to gain ground in private markets globally, the variety of access points we are offering to investors has proven to be a distinguishing quality. Investors can gain exposure to our strategies by investing directly in our funds, several of which are offered as open-ended structures or by co-investing alongside us. Our multi-asset solutions are another area that sets us apart, especially in the Canadian market. Increasingly, we are seeing a trend from investor towards the consolidation of asset management providers in an effort to manage cost and simplify oversight. To remain competitive in this changing market environment, asset manager not only must provide breadth of offering as well as expertise in both public and private market strategies. They also have to be able to offer these strategies in outcome-oriented combinations. We are 1 of only a few asset managers in the country offering this unique asset allocation expertise. And accordingly, we are winning more and more multi-asset mandates. Additionally, these mandates tend to have a longer average life than specialized mandates, resulting in greater revenue stability. Of note, in Q1, 51.7% of gross new revenues in our Canadian institutional distribution channel were from multi-asset mandates. Next, we also expect global equity to remain another solid growth vector for the company. As 1 of the broadest public markets actively managed investment strategies available to investors worldwide, the strategy remains very much in favor across the globe. We've demonstrated proven international distribution success with our global equity offering over the last 10-plus years. To the point we are given that success, we've decided to cap the strategy, now at $56 billion of AUM in order to preserve the quality of alpha generated by the team. Notably, net organic growth in this strategy has increased at a CAGR of 9.6% over the last 3-year period. Having brought on an additional team with an outstanding 4-year track record of performance as well as significant investment capacity, we are very well positioned to replicate our prior achievements in this space and we're already seeing strong momentum and early indications of interest by investors. Finally, core to our growth story is our ability to expand to and in other geographies. And the continued enhancements and rollout of our distribution capabilities are positioning us to leverage the untapped growth opportunities in worldwide markets. In infrastructure, for example, we are pleased to have expanded yet again the international reach of our strategy by establishing a distribution agreement with a partner in Australia. In addition, we're also finalizing similar partnerships in key regions in Asia, as well as in major European markets to take full advantage of these areas. In all cases, we seek to partner with well-known established local players to match the quality of our investment offering. We are developing partnerships for both our public and private markets investment strategies. And already, we've added clients in new regions such as China, South Africa and Finland. Furthermore, in the U.S., we are focused on aggressively growing our presence in the financial intermediaries segment by leveraging our relationships with major wirehouses, national platforms, regional banks and independents, including the fast-growing RIA markets. We are starting off a strong base of 21 -- $28.1 billion in AUM in this segment. In Canada, we are addressing the core institutional market, generally defined as the $1 billion-plus investor, which by our estimates control over 70% of addressable pension and endowment control assets in the country. We believe our investment platform ranging across public and private markets, solutions modeling capabilities and combination possibilities qualify us as a highly competitive provider in our home market. With these organic growth catalysts, we're solidly positioned to continue making strides towards establishing ourselves as the asset manager of choice for all clients. And as we continue to execute on our strategic priorities, we are seeing evidence of strong organic growth, higher operating leverage and improved financial leverage. In closing, I want to add how extremely appreciative we are of our teams for their dedication and their collaborative spirit, enabling us to continue serving our clients in the best possible way, ensuring current and future success for them, for us and for all our stakeholders. This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] Your first question comes from the line of Nik Priebe of CIBC Capital Market.

I had a few high-level questions related to investment performance. I think you do a pretty commendable job disclosing relative performance for a cross-section of some of your more prominent strategies, but it can be a little bit difficult to interpret without the corresponding AUM figures. So just from a high level, can you give us a sense of roughly what proportion of AUM, those strategies that you highlight in table 1 of the MD&A might collectively represent? Okay. I recognize the breadth of the product lineup significantly exceeds what's presented on that page. So just trying to get a sense of whether those strategies might represent like half or 75% of AUM or more. Just a general sense there would be helpful.

Yes. Thank you, Nik. We'll give you some more information. So just to give you a high level idea. I mean, on the equity side, total large-cap strategies are sitting around $70 billion. That's a high level number as at the end of Q1. Fixed income assets overall, $72.7 billion, and most of our active strategies represent roughly $26 billion. And on the private market side, obviously, our major asset class in the private side is real estate with around $5 billion -- $5.4 billion. And then the second most important 1 is private debt at $4.4 billion. To just give you an idea overall of the relative importance of the different strategies.

Okay. Okay. Fair enough. And then I think most people would reasonably expect investment performance and net flows to be correlated at the fund level to some extent, although the relationship doesn't always seem as direct as you might expect very strong flows in the first quarter on a consolidated basis for you guys. Just in the context of the recent performance of some of the larger cap global equity strategies, how would you characterize the gross sales pipeline and the outlook for net flows for the balance of the year?

In terms of linking short-term flows to performance, as you see, there's a kind of de-correlation this quarter where we have a strong inflow this quarter, whereas in some of our strategies, we've been challenged from a relative performance standpoint. So I would really try to connect the prospects of future flows with long-term performance results. So especially as we think about institutional, all of our client types, in fact, would be looking at more longer-term performance anchor to drive future growth. And given those performance are relatively well positioned over the long term -- in fact, in most of our platform is very well positioned in the long term, we're still very positive from a stronger organic growth standpoint in the future. But very hard to estimate quarter-by-quarter.

Your next question comes from the line of Geoff Kwan of RBC Capital Markets.

My first question was just with the Bel Air and Emerging Market Fund divestitures, did that have a positive or a negative impact on the consolidated adjusted EBITDA margin?

It was fairly still a bit of noise in the quarter, and it's just because the timing of when each of these exited. So we went through having WGAM that actually closed prior to Jan 1. We had about 2 months of Bel Air in the P&L. And then CNR was just sort of a slower bleed throughout the quarter. So as a result, you're not getting sort of the pure view of what the net impact is. I think as I highlighted in Q4, overall, on an annualized basis, we were talking about $100 million of revenue with a mid-30% EBITDA margin on that. So you can extrapolate that for a full quarter and call it, $25 million be the margin on that. As I mentioned, those are gross figures, however, because they never did incorporate sort of the overall overhead to manage these 3 U.S.-based businesses. So I'd say for the quarter, the impact was muted. We still had roughly -- of that $25 million, I'd say we probably still had about $16 million of revenue that was in the quarter with the applicable margin. So those are sort of the metrics around that.

Okay. And so sorry, if you're saying it's mid-30s kind of margin on the overall business that's leaving, then overall, like once things kind of normalize relative to where you were beforehand, the margin would be, I guess, a little bit lower. Is that the right way to think about it or...

I'll come back to that. That is a gross -- sort of a gross contribution number that I'm giving you, which is -- again ignores sort of the overhead of having to manage those businesses. So as I mentioned in Q4, we do expect a slight dip in dilution in the short term, but nothing we don't think we can overcome by refocusing on other higher-margin businesses. And the other thing to keep in mind is part of the thought process and rationale around these divestitures was that they were also businesses that weren't growing for us anymore and quite stagnant from a top line growth perspective. So again, I think as JP has just highlighted, the first quarter alone, in terms of organic growth has generated over $8 million of annualized new run rate revenue. So again, just to highlight in contrast to that point.

And JP, I just want to clarify the comments on the questions that Nik had on the net sales. So I think there's that National Bank redemption that's, I think, supposed to hit this quarter. But overall, I think from what you're kind of saying here is, is it fair to say that you're kind of optimistic or positive that you can kind of sustain the momentum of delivering positive sales? But obviously there's always going to be a little bit of uncertainty around that, but directionally, you feel better about it than you would have, say, a few quarters ago.

Well, we've been extremely focused on this aspect of the business, both from an organizational structure, resources, focus of management over the past few quarters, definitely an important aspect of our growth catalysts and focus. So yes, some of it will still be unpredictable to some extent. But let's say, this quarter, I would say, roughly half of it of the $3 billion was in line with long-term performance results and the quality of our investment platform. And maybe the other half was more timing of flows stemming from our financial intermediary partners in the first cycle. So it depends. But overall, I feel very strongly about the organic growth in the future. That's what we're focused on as a management team and as a firm.

Okay. And my last question was just on where the share price is today? And given that leverage has been kind of continuing to gradually decline, is your appetite changing in terms of level of activity or desire with respect to share buybacks?

Well, I think, like I said, we've already demonstrated, we've done $10 million sort of on a total program basis so far. We have about another $30 million that we can do at this point. So certainly, something we're looking at as part of our broader capital allocation decisions at this stage.

Our next question comes from Gary Ho of Desjardins Capital Markets.

Maybe first question is for JP. Thanks for the detailed comments on the growth catalyst. Can you sum up what your expectations are maybe from an organic net sales growth perspective looking out given the 4 catalysts that you mentioned? Like what's the opportunity there?

Yes. I would try to refrain at this point, unfortunately, Gary, to give a percentage of net organic growth target number. But what I would say, though, is that we are very focused on delivering and tracking that KPI. That KPI is as important for us as the AUM organic growth as we see in the future. So we're continuing to deliver efforts and to be focused on scaling our private markets platform, for sure, across our channels. And we also have, like I mentioned, many, many opportunities on the public side both from a specialized and combination of multi-asset standpoint as well. So -- but yes, and as we obviously are going to go along, we're going to provide more transparency as well on that front.

Okay. Great. And then next 1 is for Lucas. Maybe just going back to Geoff's question. So in Q1, I want to please be clear, you said $15 million in the quarter, mid-30% EBITDA margin. So roughly $5.6 million of EBITDA from the dispositions flow through in Q1. I just want to gauge the current run rate earnings power.

Yes. So those are the right metrics. And then my point would be Q2, it will be the first clean quarter where you won't see those anymore. And it was really just as a result of timing over Q1 that you still have that residual.

Okay. And then a related question, just on the CNR. I know you've provided disclosures on the purchase price obligation change. For this transaction, would there be any proceeds that you're getting back? Or is it just the removal of the purchase price obligation? If you can walk me through the moving pieces, that would be helpful.

Sure. I mean, there will be a small portion, which we haven't disclosed, but you need to recall, there wasn't in terms of upfront purchase at the time either. And that was the way this entire transaction was structured back in the day, was effectively to have the majority of it be sort of a pay-as-you-go arrangement with the revenue share on CNR. So you can almost think of it as the reversal of the PPO effectively being what we would have had to pay upfront had we acquired it for cash upfront at the time. And instead, we had an obligation on our balance sheet, which we were going to amortize over a 10 year life. And with the fact that we've now agreed to terminate the revenue share arrangement and then sell the rights to manage the funds, that's where you're seeing that larger write-down in the purchase price obligation on the balance sheet because that's effectively what we're no longer obligated to meet as part of the revenue share. So that is really the meat and the crux of the unwinding of that transaction.

Okay. That's great. And then just last 1 for me. Lucas, you mentioned you're -- you achieved kind of $5 million cost save synergies and that's been redeployed to fund future growth. When can we start to see some of that fall to the bottom line? Is it more kind of back half of this year?

It's hard to tell with timing. I mean, obviously, a lot of that did go into investing in our distribution infrastructure. And hopefully, we're proving as we can with the results in Q1 in terms of how that organic growth and how we benefited from that infrastructure that we've put in place. But -- so again, as part of forward looking, it's going to depend on sort of flows quarter-over-quarter. But that was 1 key area that we invested in. As I said, hopefully, Q1 is demonstrating that it's bearing fruit.

Your next question comes from Graham Ryding of TD Securities.

Just interested maybe on just sort of house view on the markets here. Like are your portfolio managers perhaps on the equity side getting more defensive? Or are they pretty constructive despite the run-up in the stock market?

Our managers across the platform are really looking at continuing to keep in line with their investment style. That's their main focus. And I think depending on the strategy, some styles are more conducive to that environment than others. But I would say they're continuing to focus on delivering the client promise at this point and maybe less focused on predicting the data on that side.

Okay. Fair enough. It was a good quarter for net inflows. I just want to make sure I sort of heard correctly. Did you say that $0.3 billion was from the private market side and then the remainder of the sort of $3.1 billion would be from, I guess, equity, fixed income and multi-asset. Is that the right way to think of it?

It's a bit different than that. So roughly $3 billion came from public markets across the board, in equity, fixed income and multi-asset. And in terms of new subscription in the quarter on the private side, it was about $300 million and the same amount of number -- the same number approximately for capital deployment over the quarter. So mostly public markets this quarter.

Okay. And you gave -- I appreciate you gave a couple of metrics there on the debt side, funded debt and then a net debt metric. What are you thinking of in terms of where is an optimal level that you'd like to operate the business over the medium term?

Certainly, we're very comfortable at the level we are now, I think particularly having been able -- how we've been able to demonstrate the deleveraging over time, as I say, coming out of what was already a challenging year in 2020. That being said, we continue to evaluate that and look at what is the best reallocation of capital at this stage. So we've maintained the dividend for the quarter. We've initiated buybacks, which we'll continue to look at. For the moment, are using to, at a minimum, manage any dilution that's created in the shares. And we'll continue to balance that with just managing our overall leverage ratio. And as I say, hopefully, we've demonstrated that we can take that ratio down fairly quickly by virtue of managing our expenses and the revenue growth.

Okay. Understood. My last one, if I could. Just the tax rate is pretty low this quarter, 4% was my calculation. Why so low? And then what should we be using as a run rate going forward?

Yes. It's a tougher 1 based on certain jurisdictions. We have different tax profiles in different type of countries, and we have different losses that we were able to carry forward. So it was a bit -- I'd say there was some unwinding part of as a result of the Bel Air transaction as well and things that we took into the quarter. So we'll get back to you. But in terms of just an overall rate, as I say, it's not -- a blended rate wouldn't give you a good picture on that either. So let us get back to you on that, Graham.

And maybe, Graham, just to give you a bit of color to expand on your first question. I gave a perspective from a portfolio manager standpoint, but you mentioned as well the house view. I just wanted to take a bit of time to share the house view. But we're still very positive and bullish, I would say, in the equity markets in general, given the macro backdrop and the fiscal and policy stimulus that we are observing across the developed markets and also very positive on more energy focused markets in general. So the simple answer here is that we're still bullish on equities over the next 12 months.

Your next question comes from Scott Chan of Canaccord Genuity.

Appreciate Slide 16 on catalyst for growth. You talked about private markets, multi-asset solutions and the new global equity. But I wanted to focus on worldwide growth and just get a bit more color outside of Canada. And you talked about an opportunity with the financial intermediaries in the U.S. So I think you called out $21 billion out of the $69 billion. And several distribution channels that you're attacking within the RIAs, wirehouses and regional banks. Can you kind of present to us kind of have you beefed up your own internal distributions to kind of tackle those distribution channels? And which 1 would you say would be the -- kind of the best opportunity near term? Or kind of what stages are you at to kind of really leverage those relationships in what is very -- U.S. being a very competitive marketplace?

Sure. Thank you for the question. We've been very active in hiring new resources in the U.S., specifically to address these channels. But I want to reiterate that we're starting off from a strong base in the U.S. on that front. I called out an amount of AUM in the U.S. in the FI space, but having relationship with the Morgan Stanleys, the Merrill Lynch platforms of the world. And we're starting with very strong relationships already. Most of our U.S. mid strategy is present through these platforms. A very strong relationship as well in our municipal bond operation in New York as well in the space and even some tentacles as well in Europe from our emerging market frontier and adjuvant strategies there. So from a resource standpoint, that's the heart of your question. Yes, we are hiring. We actually just confirmed the hiring of a new Head of Global Financial Intermediaries that will be based in the U.S. in Boston actually. And we're going to continue to round up the team there. So -- but the intensity and the resource allocation and the cost acquisition in that channel for us is a much more effective and profitable way of delivering organic growth than doing it directly. And that was kind of the main premise behind our decisions to refocus our approach in the retail channel through intermediaries as opposed to doing it directly. I hope it does give color.

It does. And you kind of talked about certain strategies that are within the U.S. side right now. But what about like all the other broad strategies that you have? Is there an opportunity to kind of present those strategies and kind of get in within those platforms?

For sure. Our -- many of our strategies are ready for commercial rollout in the U.S. Many of our strategies are global in nature, so relevance for any clients anywhere. And whether we're talking about some of our global private market strategies or some of our public strategies, they are relevant in many cases. And we're developing as well the vehicle and access points for that category of investor as well, which is a challenge given the nature of the asset class, but we're developing innovative ways to give relevant and effective access for these investors.

If I could add and just add some color on the economics of that because that's a really good question, and thanks for asking. If you look at the average bps per channel, and then that was part of the idea behind these new disclosures as well, is giving you a flavor of the revenue and AUM per channel. That channel right now probably represents our lowest average bps, just over 30 or 31. So that potential to improve the product mix into that channel is quite significant given the already existing relationships and strong foothold, as JP already mentioned in the U.S. as well as some innovation that's going on, on the product side, to get higher fee products onto those platforms, so.

That's helpful. And lastly, JP, just on that worldwide growth. And you touched about some of the partnerships in Eurasia, obviously, a different distribution attack down there. Can you maybe expand on kind of those comments? Like are these partnerships costing you money? I think you touched upon a few right now. But what's kind of the opportunity or kind of broad strategy within Eurasia?

Yes. For us, if I take the example of the Australian partnership for infrastructure, for us, it's a very effective way to address both the institutional space down there and the wholesale space down there without having to deploy capital there for -- with boots on the ground to be a very direct client-facing there. So we feel it's a very effective way partnering -- choosing the right partner locally. It's a very effective way -- cost-effective way for us to gain growth and presence through a partnership in that way. And from an economic structure standpoint, it typically comes down to a percentage of revenues that is shared with the local distributor. And it sort of becomes, from a wholesale price standpoint to an Institutional or a financial intermediary price standpoint. But from a margin standpoint, it's very effective and very accretive business to go at it that way. So that's why. And for us, instead of having, let's say, 25 relationship, we only have 1 relationship to engage with in a very -- in a remote market, where we don't have boots on the ground. So that's kind of the rationale behind it.

Your next question comes from Jaeme Gloyn of National Bank Financial.

Nice work getting the leverage down and seeing good organic flows this quarter. It's positive to see those 2 factors. One thing that stands out, the $3.1 billion that you added this quarter and then the comment that it's driving $8.4 million in annualized revenues. I mean, that kind of, by my math, translates to 27 basis points. So it's lower than the average management fee rate that you're generating overall in any of those 3 new distribution categories. So is there -- is that -- am I reading that right? Is there -- what's going on there exactly?

Yes. Thank you for that, Jaeme. So the way I would characterize it is twofold. First, I think you probably -- I don't think we provided that color, but the nature of the new mandates and the contributions, which were positive in amplitude and the nature of them compared to the nature this quarter, in particular, of the loss mandates made that average bps sort of dilutive this particular quarter. But it's just a factor of the actual this quarter composition of the wins and the losses. So -- but 1 positive way to look at that number, however, is to convert that $8.4 million as an annualized CAGR from our base management fee basis, let's say, from last quarter in Q4 and look at that number from an organic growth standpoint, which is something where we are tracking very, very closely. So yes, this quarter, it is dilutive overall, but it's really the nature of the ins and the outs, particularly this quarter, that drives that.

Okay. Okay. Got it. And just around those management fee rates in general. The Q1 levels that we're looking at, there's a -- I guess, there's a pretty big step-up in private wealth, step down in financial intermediaries, institutional kind of level, but maybe a bit of a step up. Like how should we think about those management fee rates as -- are they good guidance for run rate? Or how should we expect some movements around those management fee rates in the near term?

So you're speaking about the management fee rates of the delta in the specific Q1 quarter or you're computing it sort of on an annualized overall basis of the -- overall business bps?

Yes. Like in the management fee rate as a percentage of the average AUM. So I'm just trying to get an understanding as to like how real are these Q1 numbers. Is that the best way to look at it? Should we be looking at those fee rates as a looking back further, just -- it's our first quarter looking at these numbers, and I just want to get a better sense as to how you're thinking about the realistic or reasonability of these numbers going forward?

Well, I would say that most of our private market strategies, which are higher fee rate in nature, resides in institutional mostly and in private wealth. So -- and financial intermediaries is mostly public assets. So 1 could say that we're expecting the financial intermediary to grow more in terms of average bps and to a lesser velocity, maybe in institutional as well. But these 2 -- these current average bps are a good starting point. But again, it depends on the mix. And the mix will translate itself at different amplitude by channel, given our focus on increasing private markets weight in our overall business.

Okay. Great. That's helpful. And then in terms of the financial intermediaries and the build-out of the U.S. distribution platform. Anything you can mention today on early wins? Is there a particular focus for these new distribution standpoints or touch points in terms of what they're focused on? Is it equity? Is it multi-asset? Is there anything that you can share on that standpoint?

Well, in the U.S., the applicable strategies that we have in the short-term are global equity on the public side, U.S. fixed income and U.S. SMID and emerging markets in general. These are applicable on the public side, the ones that come to mind. The -- on the private side, I mean, all our globally focused strategies are candidates. Like infrastructure is already in place with a partnership in Natixis in the wholesale space there. But global ag is a candidate in the U.S. as well and some other Asian credit -- direct credit strategies as well. So I mean, in the U.S., we have at least 10, if I would not say, 15 strategies in our platform that are relevant and make sense commercially to go out at this particular point in time. That's very encouraging.

Yes. And Jaeme, I would just add, like, to your comment about it sort of being a new channel for us. I mean, keeping in mind again -- and I know the disclosures are new in terms of how we've repositioned this for this quarter. But there is over $70 billion of assets under management in that channel already. So when we talk about having a strong footprint there, at this point, it was really about realigning our distribution model to be even more focused on that channel and recognizing that it would take a slightly different approach than our traditional institutional channel would in the U.S. So just to reiterate the comment JP made earlier. It's actually -- it's not new. We are starting from a very strong base there in terms of what we look to leverage going forward.

Yes. That's understood and fair, I should say, renewed focus or renewed focus on distribution in that footprint. The -- sorry, I did have 1 more, but I've lost my trace on that one. So I'll just leave it there.

Okay. No problem. You can contact us directly if needed.

Your next question comes from Graham Ryding of TD Securities.

I just wanted to follow-up. You mentioned product innovation focused on the financial intermediary channel. Is that a reference to you structuring some of your private asset strategies with, I guess, liquidity parameters that are more appropriate for high net worth investors as opposed to how those strategies might be structured for institutional investors?

Yes. It's a good example of innovation. Innovation is true in the investment content of innovation, but also true in terms of vehicle and, in particular, ways to access our product packaging. So yes, definitely right that we're trying -- we're finding innovative ways to give access in different channels to our private market strategies, and that's 1 way we are innovating in that space and in that channel, for sure.

There are no further questions at this time. I'll turn the call over to Ms. Elsayed for closing remarks.

Thank you, Sakan. That concludes today's call. Thank you for joining us, everyone. [Foreign Language].

And this concludes today's conference call. Thank you for participating. You may now disconnect.