Fiera Capital Corporation (FSZ) Earnings Call Transcript & Summary

Good morning. My name is Jessica, 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 third quarter of 2021. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I will now turn the conference over to Ms. Mariem Elsayed, Director of Investor Relations. Ms. Elsayed, you may begin your conference.

Thank you, Jessica. [Foreign language] Good morning, everyone. [Foreign language] Welcome to the Fiera Capital conference call to discuss our financial results for the third 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 ir.fieracapital.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. On Slide 4, I will provide the agenda for today's call. We will begin by providing highlights of the third quarter. This will be followed by a discussion on AUM and flows, an update on our private and public market platform as well as an update on distribution. We will then review our financial performance. Following our prepared remarks, we will take your questions. With that, I will now turn the call over to Jean-Philippe.

Thank you, Mariem. Good morning, everyone, and thank you for joining us. I am on Slide 5. Assets under management reached $180.8 billion as of September 30, a $1.3 billion increase compared to June 30 and a $1.6 billion increase over the last 12-month period. Excluding the impact of the dispositions over the last 12-months, AUM at September 30, 2021, would have increased $16.4 billion or 10% compared to $164.4 billion at September 30, 2020. During the third quarter, we continued to execute on our catalysts for growth with multiple positive developments happening on our private markets platform. On the public market side, the Fiera Atlas team continues to generate above median investment performance, the investor interest momentum is holding steady. For the [ barter ] public markets platform, long-term investment performance remains very strong. On a 3-year basis, 94% of our equity assets under management and 96% of our fixed income assets under management have outperformed. In private markets, we saw strong positive performance across all our key strategies. What's more, thanks to our experienced investment teams across our entire platform, we were able to capitalize on attractive investment opportunities in mid-market assets, converting committed capital to deployed AUM at a strong pace, allowing us to put our clients' money to work swiftly and responsibly and thus converting these into fee-generating AUM. In terms of financial performance, we delivered great results again in Q3. We generated basic adjusted EPS of $0.36 during the third quarter, unchanged from Q3 of last year. Adjusted EBITDA was $55.4 million for Q3 of 2021, representing a $2 million increase compared to the same period last year, and this, despite the sales of 2 private wealth businesses and the rights to manage the Fiera Emerging Markets Fund. Excluding these dispositions, comparable year-over-year adjusted EBITDA would have been up by $12.4 million or 29%. The margin corresponding to the $55.4 million is 31.6%, a 30 basis point increase compared to Q3 of last year. I will now cover AUM on Slide 6. While we experienced net flows of $1.6 billion in public markets, we generated positive net flows, including net new subscriptions of $1 billion in private markets. Notwithstanding the unfavorable flows of $600 million, we still expect to generate an incremental $600,000 of base management fees from these net flows. Now, I am pleased to share a few of the many private market highlights that occurred during the third quarter and start of the fourth quarter of this year. I am on Slide 7. Private markets AUM reached $15 billion on September 30, a $1 billion or 7.1% increase compared to June 30. We raised $715 million in new subscriptions in Q3, primarily for our real asset strategy and deployed over $500 million into new portfolio investments. Our private markets business has raised $2.6 billion on an LTM basis, representing estimated revenues of $30.8 million upon deployment, a 23% year-over-year increase. Our $2 billion infrastructure platform continues to have an incredible year on several fronts. Clients are showing significant interest in this asset class as evidenced by over $600 million in new subscriptions raised for this platform to date this year. On the deal side, we acquired a 50% ownership in Augean, one of the U.K.'s leading specialized waste management businesses that operates in a highly regulated industry with significant barriers to entry, limited competition and stable inflation-linked revenues. Furthermore, I am pleased to report that GRESB, the global ESG benchmark for real assets released its final 2021 scores on October 1, and our flagship EagleCrest Infrastructure fund received a score of 82 over 100, improving on its 2020 score. The GRESB average for all funds scored in 2021 is 77, which implies that we are above industry average. Moving on to real estates, where AUM has reached $5.7 billion and keeping with the ESG theme, Halo, one of our joint office developments in the U.K. has achieved a BREEAM Outstanding accreditation in 2 categories. BREEAM is the world's leading sustainability assessment method for master planning projects, infrastructure and buildings. Halo's combined score is the second best score to be awarded in the U.K. to date and the first development outside of London to achieve it. In addition to this, our U.K. real estate team achieved the GRESB Green Star status on every one of its funds and our Fiera Real Estate opportunity fund U.K. IV received the top score, outperforming all of its northern European peer group. In private debt, a $4.9 billion platform, I am very pleased to share the details of a partnership we entered into in October that we are particularly excited about, consisting of our participation in a $200 million financing package for SOFIAC, a joint venture initiative, helping commercial and industrial sector businesses increase competitiveness while contributing to the fight against climate change. We will lend up to $60 million in this partnership, and the funds will go towards renovating and retrofitting assets -- asset, which will enable an estimated annual reduction of 20,000 tonnes of GHG emissions, thus contributing greatly to both Quebec and Canada's transition to a low-carbon future. This is a great transaction that benefits our clients and our firm and simultaneously act as a direct positive impact on society and the environment by helping firms reduce their energy consumption. Investors in Fiera Private Debt Fund VI will participate and benefit from the financial returns of this partnership. We continue to source multiple attractive opportunities for capital deployment across our global private markets platform and are pursuing growth prospects in each vertical. We are excited about the future of our diversified 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. To date, we have grown this business exceptionally well, as you will see on Slide 8. In just 3 years, we have taken our private markets business from $7.7 billion of assets under management to $15 billion to date, almost doubling the platform. The $7.3 billion increase represents growth of 94.8% or a CAGR of almost 25% for the period. Not only does this sign of business enable us to achieve better investment outcomes for our clients, it diversifies and grows our revenue streams. What's more, by commanding higher average fees and strategies invested in traditional equity and fixed income asset classes, our private markets platform will also act as a revenue and margin growth accelerator in the years to come as we continue to grow our platform. Turning to Slide 9 for a review of investment performance of select market -- private market strategies, our performance remained strong across all key strategies during the third quarter and deal activity remained high. The Canadian and the U.K. real estate strategies continue to deliver strong performance in Q3 2021 after building momentum in the back half of 2020 and through the first half of 2021, driven by their allocation to industrial and material sectors. The portfolios, which span the CORE, value-add and opportunistic risk spectrum continue to be well positioned to capture the strong market tailwinds emerging from the COVID-19 pandemic. With low interest rates and vast amounts of stockpiled capital seeking deployment to assets that protect against inflationary pressures, real estate is experiencing exceptional performance. Notably, the Fiera Real Estate Small Cap Industrial Fund generated 6.4% of return during the quarter and 14.5% since inception. The Private Debt side, most of our strategies generated strong returns for the quarter. The Fiera Private Debt Fund VI has notably generated a 1-year absolute return of 5.9%, in line with expected returns for this private senior loan strategy. And the infrastructure strategy performed well during the third quarter, generating a 2.52% and an IRR since inception of 9%. The assets within the strategy are essential in nature, and in many instances, revenues are underpinned by long-term and fixed-price contracts. Those assets with the degree of GDP linked revenues experienced strong performance with volumes returning to or ahead of pre-COVID-19 levels. Our Global Ag strategy continues to deliver solid performance in the second half of the year, driven by strong performance from our Australian row-cropping platforms and California Specialty Tree fruit business. The investment team has closed on 3 bolt-on opportunities over the last quarter, and the pipeline of opportunities for the fund remained robust. Our global PE funds portfolio has continued to grow, generating a 1-year absolute return of 32.6% and adding 2 direct investments in Q3. In early July, the fund acquired a minority interest in a U.S.-based sustainable infrastructure finance company, playing a leading role in the energy revolution in North America and Europe. We are very pleased with the work of our teams and with our third quarter results, which are a testament not only to our focus on investment performance, but also to our dedicated deal teams and commitment to growing the private markets platform even further for the benefit of our clients and our shareholders. Turning now to public markets on Slide 10. Public markets AUM reached $165.8 billion as of September 30, an increase of $.03 billion from the end of the second quarter, with both equity and fixed income markets generating value for the platform. In connection with the termination of the revenue sharing arrangement with CNR we closed during the third quarter, there were final withdrawals of totaling $0.8 billion. Furthermore, as part of our continuous review process of the investment strategies on our platform in order to ensure relevance, performance and scale for the benefit of our clients and shareholders, we made the decision of closing one of our liquid alternatives funds based out of the U.K. The closure of the subscale fund allowed us to crystallize the fund's year-to-date performance fees in Q2 and only impacted AUM by $.05 billion. The new Fiera Atlas has continued to perform very well during the quarter, generating alpha for clients and growing AUM steadily. AUM as of September 30 is approaching the $1 billion mark, significantly higher than at time of onboarding early in the year. This strategy remains very much in favor across the globe. And as such, we are developing a second usage vehicle for our European and Asian investors. Finally, I am pleased to report that the Sub-advisory partnership we announced with StonePine Asset Management last quarter is progressing. Clients have reacted positively to the news. And as such, we are confident that all closing conditions will be satisfied and are targeting closing towards the end of 2021. Furthermore, we have already begun discussions with StonePine on partnering together in common future ventures. On Slide 11. I will review investment performance for select public market strategies, most of which have generated alpha during the third quarter, with all of our large-cap equity strategies outperforming. The Atlas team generated 1.16% of added return in Q3 and 13.6% since inception or over 4 years, ranking first quartile for both periods. Our U.S. Mid growth strategy, despite generating an absolute return of negative 1.62%, still beat benchmark by 1.91%. On a 1-year basis, the strategy has generated an absolute return of 36.17%, adding 4.1% over the bench line. The Frontier Markets strategy, like the U.S. Mid generated alpha during the third quarter in spite of negative absolute return. The strategy ranks first quartile on 1, 3 and 5-year basis and has generated an impressive 46% of value-add over 1 year for an absolute return of 78.2%. For the 3 month, 1 and 3 year periods, all our Active Universe fixed income strategies generated positive value added, and all of them ranked either first or second quartile within their respective periods over 3 years. Moving on to Slide 12 for a review of net flows by distribution channels during the third quarter. In institutional, we won $1.5 billion in new mandates, marking our fourth consecutive quarter with over $1 billion in new mandates in this channel. Mandates won span the range of our asset classes with important wins in the real assets. These wins were offset by lost mandates and redemptions from existing clients, totaling $2.2 billion during the quarter, which stemmed mainly from clients rebalancing their asset mix following strong equity performance in recent quarters and reducing exposure to emerging market equities. And also, a Canadian pension plan find internalizing a portion of their fixed income assets. In financial intermediaries, we won new mandates, primarily in fixed income with a few smaller but impactful wins in real estate and infrastructure. These were offset by lost mandates in fixed income and equity strategies. Having said that, we are preparing a full marketing launch of asset strategy in Canada through our consultant relationships to introduce the team to investors and accelerate take up. We expect to follow suit with a similar initiative in the U.S. in Q1 of next year. Another relationship we are excited about is the one we announced just 2 weeks ago with Lawyers Financial Advisory Services. This partnership highlights a key dimension of our commercial strategy. Our investment expertise and ability to offer customized investment solutions, leveraging our public and private markets platforms through a wealth advisory intermediary partnership, giving us the potential for an accelerated growth opportunity in this space. In private wealth, although net organic growth remained relatively flat during the quarter, our ability to offer access to the private markets assets through multi-asset mandates to our private wealth clients contributing to us winning mandates that will generate $1.6 million in annualized revenues. Mandates marked loss were primarily U.S. tax-efficient fixed income strategies. Note, on a year-to-date basis, the private wealth platform generated 9.8% of net organic revenue growth in Canada. By developing partnerships for our strategies across public and private markets platforms and continuing to focus on rolling out our distribution capabilities globally, we are positioning ourselves to leverage untapped opportunities in worldwide markets. And maintaining our focus on these key organic growth catalysts, we will deliver on our plan and ambition of becoming a leading provider of investment services on a global scale. I will provide further color on Slide 13. Because our private market investment strategies generate multiple revenue streams, base management fees, performance fees, and in some cases, transaction and commitment fees, it's important to consider the impact of committed capital and new subscriptions on our different types of revenues. In order for our shareholders to fully appreciate the organic performance of our business, we have computed the annualized organic impact on our base management fees from our Q3 2021 year-to-date and last 12-month flows. As I previously mentioned, we expect to generate approximately $0.6 million in base management fees on an annualized basis from the net flows of the third quarter. Looking at this on a year-to-date basis, we would expect organic client flows to generate $13.9 million in base management fees or 3.5%. And on a last 12-month basis, we expect organic client flows to generate $16 million in base management fees or 3.1%. In both cases, this growth is on the higher end of our industry peer group. These figures exclude any transaction, commitment or performance fees the business is likely to realize from committed undeployed capital. Accordingly, when we looked at it in isolation, committed capital of $1.8 billion on September 30 is anticipated to generate fees of $24 million, not including performance fees. For these reasons, our diversified private markets platform remains a key area of focus for us, and we will continue allocating the necessary resources to grow it further. As fund raising momentum continues and the pace of capital deployment is maintained, we will see increased recurrence in revenue items such as transaction and commitment fees and as the different platforms mature, the potential for steady harvesting of performance fees will increase. I will now turn it over to Lucas for a review of our financial performance.

Thank you, Jean-Philippe, and good morning, everyone. I am on Slide 14. I am pleased to report the total revenues of $174.9 million for Q3 2021, an increase of $7.5 million or 4.5% when compared to the prior quarter. This increase was primarily driven by higher base management fees of $6.4 million as a result of higher average AUM and more favorable asset class mix for the quarter. Compared to Q3 2020, revenue increased $4.2 million over the same quarter last year. This includes the impact of lower revenues from the sale of 2 U.S. private wealth operations and the termination of the CNR revenue sharing arrangement. Excluding the impact of these dispositions, year-over-year revenue would have increased $31 million or 22%, with normalized revenues increasing from $143 million in Q3 2020 to $174.5 million for this quarter. Breaking the actual results down further. Base management fees were $158.2 million for the quarter, down slightly when compared to the 159.7% for Q3 2020. However, excluding the impact of the dispositions, base management fees would have been $134.1 million in Q3 2020, leading to a year-over-year increase of $23.9 million or 17.8%. We look at this by channel. In the institutional channel, which was not affected by the dispositions, base management fees of $84.1 million for the quarter increased by $14 million year-over-year, mainly as a result of more favorable asset class mix and market appreciation. In the financial intermediaries channel, base management fees were $51.7 million for the quarter compared to $57.4 million in Q3 2020. Excluding the impact of dispositions, revenue in this channel would have increased by $5.1 million or 10.9% compared to last year. The increase was mainly a result of market appreciation, particularly with regards to our large-cap equity strategies. Finally, base management fees from our private wealth channel were $22.4 million during the quarter compared to $32.1 million in Q3 2020. Again, adjusting further dispositions in this channel, base management fees would have actually increased by $4.8 million or 27.3% as a result of a more favorable asset class mix, given our ability to offer private wealth clients access to our private market investment capabilities. Moving on to performance fees. We generated $3 million in performance fees during the third quarter of 2021, a $2 million increase compared to the same period last year. This increase was mainly due to clients profiting from higher returns on some of our funds based out of the U.K., and they thereby crystallized performance fees during the quarter by redeeming some of these high-performing funds. We recorded $2.7 million in share earnings and joint ventures in Q3 compared to $2.1 million last year. The increase stems from our realization of underlying joint venture projects undertaken by our Fiera U.K. Real Estate team. In other revenues of $11 million in Q3 2021 was $3 million higher compared to last year. This includes $1.5 million of lower revenue during the period from the sale of the rights to manage the Fiera Capital Emerging Markets Fund as well as from the sale of Bel Air Excluding the impact of these dispositions, other revenue for the 3-months ended September 30, 2021, would have been $10.8 million compared to $6.3 million on a year-over-year -- or a year-over-year increase of $4.5 million. The increase was primarily due to transaction and commitment fees in our private markets platforms and higher revenue from Sub-Advisory Services provided. On the last 12-month basis, total revenues grew by $4.1 million compared to the last 12-month period ended at September 30, 2020. Excluding dispositions, last 12-month revenues would have increased by $76.5 million or 13% compared to the last 12-month period ended September 30, 2020. We are very pleased with our revenue results for the quarter. They speak to the strong demand for our competitive suite in investment strategies and the progress we continue to make in further developing our distribution capabilities on a global basis. Turning to Slide 15. SG&A were $132 million for Q3 2021 compared to $122.6 million in Q3 2020, an increase of $9.4 million or 7.7%. The increase was primarily due to higher revenue related variable compensation costs and higher share-based compensation expense. Share-based compensation expense was $12.4 million for the 3-months ended September 30, 2021, compared to $5.3 million in the same period last year, an increase of $7.1 million. The increase was primarily due to accelerated vesting of certain share-based compensation during the quarter. When excluding share-based compensation, SG&A for the quarter was $119.6 million compared to $117.3 million for Q3 2020, representing an increase of only 2% relative to an increase in revenue of 2.5% for the same period. Further, excluding the impact of dispositions, SG&A less share-based compensation would have increased 18.6% year-over-year relative to a 21.6% increase in revenues for the same period. Turning to Slide 16. We recorded net earnings attributable to company shareholders of $2.3 million or $0.02 per share during the third quarter of 2021 compared to $4.7 million in Q3 of last year. Adjusted net earnings during the quarter were $37.5 million compared to $37.6 million a year ago period. The difference between net earnings and adjusted net earnings is explained largely by the amortization and depreciation of $16.2 million, $10 million of restructuring, acquisition and other costs, mainly because of severance costs as well as costs incurred in connection with the wind down of some of our subscale funds in Europe as well as additional optimization of middle and back-office support on our private market platforms. In addition, $12.4 million of share-based compensation expense for the quarter. And as mentioned, this amount includes $6.9 million related to the accelerated vesting of certain share-based compensation during the quarter. I am now on Slide 17. We generated adjusted EBITDA of $55.4 million in the current quarter compared to $53.4 million in Q3 of last year, an increase of $2 million or 3.8%. Excluding the impact of dispositions, adjusted EBITDA during the current period was $55.3 million, an increase of $12.4 million or 28.9% compared to Q3 2020. With regards to the adjusted EBITDA margin, we are very pleased with the 31.6% margin realized in Q3 of this year. It compares favorably not only to the 31.3% margin in Q3 of 2020, but also more favorably to the 29.9% margin when we are factoring the impact of dispositions over that same period. On a last 12-months basis, we achieved a margin of 30.8% or $216.5 million of adjusted EBITDA and continue to trend positively in that regard. On to Slide 18. I am pleased to mention that our financial leverage ratios trended down once again this quarter, having lowered net debt by $17.2 million over the course of Q3, we lowered all associated leverage metrics accordingly. Net debt, which includes our convertible and hybrid instruments and excludes cash, now sits at $563.3 million as of September 30, which is down $50.3 million or 8.2% over the last 5 quarters. Likewise, our funded debt was computed by our funded debt-to-EBITDA ratio as per our credit facility is at its lowest level in the last 3 years at 2.29x for the quarter, testament to our prudent allocation of capital over that time. This is the third consecutive quarter where this ratio has remained below the 2.5 mark. 2.29x, this is even lower than it was prior to completing 6 acquisitions over the course of 2018 and '19 and despite the setbacks from the pandemic in 2020. Basically, the consistency with which we have been reducing our debt levels and simultaneously improving our operating results has allowed us to lower our financial leverage. On to Slide 19. In addition to reducing our financial leverage, delivering value to shareholders through optimized capital allocation remains an ongoing priorities for Fiera Capital. Following the renewal of our NCIB in August of this year, which purchased and cancelled close to 590,000 Class A shares during the third quarter, for total consideration of $6.2 million, bringing total Class A shares purchased and cancelled during the first 9-months of the year to 1.2 million shares, a total consideration of $13.4 million. Moving on to our dividend. Our shareholders continue to benefit from a high dividend yield. As of market close on November 9, Fiera shares were yielding a dividend of 7.8%. Accordingly, we paid out $65.4 million to shareholders in the form of dividends in the first 9-months of the year. Between the NCIB and the dividend, this brings the total value paid to shareholders to $78.7 million through September 30. At note, I am also pleased to announce that after holding our dividend constant through all of 2019 and all of 2020, the Board has approved a dividend increase of $0.005 or 2.4%. As such, our next dividend payable in December 2021 will be a dividend of $0.215 per share, up from $0.21 per share previously. Finally, our dividend reinvestment remains in place. This program is entirely for the benefit of shareholders, offering them a convenient way to reinvest cash dividends into Class A shares. Given the NCIB in place, we are currently buying our shares on the market to satisfy this program and are not issuing them from treasury. I will now turn the call back to Jean-Philippe for closing remarks.

Thank you, Lucas. Turning to Slide 20. The last 18 months has been characterized by multiple successes at Fiera. We introduced and implemented a global operating model to strengthen strategic alignment and affect operating leverage. We continue to enhance our public markets investment platform, notably by onboarding the Fiera Atlas team, adding investment capabilities to our global equity offering. In private markets, we continue growing the platform by adding high-quality assets to our funds and making ESG a top priority. We increased our capabilities specialist headcount and established new partnerships to further enhance our reach with clients and focus our firm on organic growth. We navigated through uncertain times brought on by the pandemic unwavering in our responsibility of managing capital prudently while returning value to shareholders. And most recently, we announced an agreement to establish a sub-advisory partnership with StonePine. Each of these achievements directly contributes to the company's future growth and our shareholder value proposition. We remain focused on growing our private market investment platform, a diversified platform, extremely relevant to achieve our client investment outcomes. 2021 has been a stellar year for this business. Notably, we expect that by the end of 2021, the infrastructure platform will have deployed $1.2 billion during the 12-month period into high-quality assets across the globe, the majority of which offer a high degree of inflation protection. Our private debt platforms are expanding geographically, adding to capabilities across European corporate debt, Asian corporate and real estate debt as well as North American corporate, real estate and infrastructure debt. Moving forward, investment performance will remain a core and top priority for our business. Distribution, which you have heard us talk about for over a year now, will persist as an area of importance for Fiera for the delivery of our growth ambitions and the continuation of the privileged relationship we have with our clients. And ESG, which we look at from a responsible investing perspective and the CSR perspective will be an ongoing commitment. Finally, our dedication to returning value to shareholders will not change and remain a key priority. As we near the beginning of 2022, the executive team is finalizing the blueprint of our strategic direction for the next 3 years. We have a high degree of conviction in our future growth, and we look forward to sharing highlights from this updated plan with you in Q1 of 2022. In closing, I want to thank our dedicated teams across the organization. Their energy, their passion, their resiliency and their client first mindset keep driving our organization forward. This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] Your first question comes from Rasib Bhanji with TD Securities.

I just wanted to start off with the share base comp this quarter. I understood that this was related to accelerated vesting. Just wanted to confirm if this is related to the agreement with Nadim Rizk and the StonePine partnership?

Yes.

Okay. So I guess, once the transaction closes towards the end of 2021, what would the run rate for share-based comp look like heading into 2022?

So we are -- if you look on a quarterly basis, we are probably running at about sort of high $5 million, call it, $5.7 million, $5.8 million. And that would be a normal run rate going forward into 2022 on a quarterly basis, as you say. But we do have an extra quarter of acceleration to get through in 2021.

Okay. Understood. And just for -- just to remind, could you remind us what the expected margin impact you are expecting from the transition to the sub-advisory relationship?

In terms of that impact of the share-based compensation, it has no impact, as we say, on sort of the overall economics and net income just because of that share-based compensation was below the line. But at this point, that's really forward-looking guidance that you are asking for in terms of what that would have looked like on the 2022 revenue-generating basis. So I prefer to wait till the end of Q4. You could see at that point, sort of how much we have accelerated for this year based on the AUM that the team is generating. And that should give you a better indication going into 2022, about what the impact could be.

Okay. Understood. And then I could shift to your leverage ratio. So the funded debt-to-EBITDA turn out 2.3x. Is this level within your target range or the comfort level?

It is very much in our comfort level. I think at this point, we have struck the right balance between getting our leverage ratio down to a level that we are comfortable with. And at the same time, redeploying some capital on our share buybacks. And I think I have alluded to how much we have deployed already on a year-to-date basis. And from our perspective, it's an important trade to make from the position that we are actually buying back a very expensive equity instrument at this point. That's -- we think it's a good divestiture of capital in terms of how we are managing that between managing our leverage and buying back our shares.

Okay. Understood. And just my last question also on your capital deployment priorities. Could you talk more about the thought process behind increasing the dividend versus other forms of capital deployment, for example, increasing the pace of share buybacks?

Sure. And we took all of that into consideration. I guess, one of the considerations for us is that we are fortunate enough to be part of the Dividend Aristocrats index. And we had a grace period of 2 years where we did not have to increase the dividend at all, which we did not do. However, the index does require that over a 5- year period, we do need to be increasing the dividend. So we are coming to the end of 2021, and this would have been a decision point for us as to deciding whether or not we wanted to stay in that index. We have -- there's very good company in that index and very good constituents and peers. So we would like to keep maintaining our presence in that index. And as such, we felt that rewarding shareholders with -- I think a slight increase in the dividend that reflects, again, the prudent capital management that we have exercised over the last 2 years, but at the same time, enabling us to stay in the index going forward.

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

Just as it relates to the dividend, can you just refresh us on what you are thinking in terms of like payout ratios on earnings or cash flows? And I take it that this seems to be just more of a technical dividend increase to stay in the index. But is there anything else going forward that you can guide us to around that?

Thanks for the question, Jaeme. In terms of the ratios, you will know in the past, we have been anywhere above -- in terms of ratio as a percentage of cash flow from operations. We have been running anywhere above 70%. Consistently, we have been able -- by holding the dividend constant for the last several years, by growing our cash flow over that time period, we are now comfortably in a position where that payout is at 58%. And you will recall a while back, we have given ourselves a target of trying to keep that ratio below 65%. So currently being at 58% on a year-to-date basis, that's quite a comfortable place for us to be relative to that target we gave a few years back. And even this modest increase that we propose will keep us below the 60% ratio as a percentage of cash flow for comps.

In terms of the share-based compensation, you guided just to the last line of questioning to maybe the high 5s as a normal run rate. My understanding was that, that was -- that would have been a normal run rate, but then because of the deem risk considerations that share-based comp would likely fall as a result of being on a no longer as I got -- employees. So is there something that shifted in the share-based comp guidance that has caused that to sort of tick up versus what we were previously looking for?

So let me just break it down in terms of time periods. So coming back to in terms of Q3 and Q4 of this year, you will see -- continue to see some acceleration as a result of that StonePine arrangement. To your point, going into 2022, that compensation will no longer be part of share-based compensation. But that $5 million range is still good as a quarterly range, Jaeme, just because we have had other grants over the course of the year. And so we feel comfortable with that level of expense going forward in share-based compensation.

Okay. Got it. On restructuring costs that came in just under $10 million. I was under the impression that we would see restructuring another cost tail off quite considerably. What's the latest update in terms of where those costs are headed into the upcoming quarters. And maybe a little bit more color as to specifically what that was tied to?

So I will answer the latter part of your question first. So it literally was tied to one of the investment themes we had for liquid alternative funds in the U.K. and the associated distribution team with that. So we no longer maintain that strategy. It was a subscale strategy. We decided to exit that. So the bulk of what you are seeing there is related to that. There were some additional charges that went through during the quarter. We continue to optimize our private market platforms in terms of their back and middle office support. So there was some consolidation there and some outsourcing. So again, we took some charges in the quarter there. So that speaks to sort of what that charge represents for the quarter. In terms of guidance going forward, again, we are always looking at optimizing our platform and looking for ways for us to be more efficient. So if there is anything that comes in the future, that will be what it will be related to.

Okay. Great. And last one for me, just in terms of the net flow performance. It's been a pretty robust market for most asset managers on the net flow side. So just looking at the Q3 performance came in a little bit maybe lighter than what we would have expected prior to your AUM release a couple of weeks ago. What can you tell us around the dynamics as to what those -- what clients are talking about to you in terms of how they are thinking about upcoming flows, net contributions, things of that nature? And is there anything early into Q4 that you can hint at on a net flow basis?

Sure. I will take that one, Jaeme. So from a describing what happened in the third quarter, really, the main theme of the negative portion of the flow is really related to outstanding equity performance across the board, large-cap and also emerging markets with clients just basically reallocating to target asset allocation weights, especially on the institutional front. So that's really the story there, which is sort of a good problem to have in a way, but that's mainly the main reason why we have experienced debt in the past quarter. In terms of forward-looking guidance in terms of flows, always -- it's always hard to give specific color. The only thing I will say, though, is that our recent organic growth performance on the private market side, we are seeing continued interest on that front. And the fundraising momentum is still very strong, and we are also pretty dedicated as well and pretty rigorous in terms of our ability to deploy at the proper pace as well to match that momentum in fundraising and that we expect this to continue in the quarters to come from a demand standpoint and market dynamic standpoint.

[Operator Instructions] Your next question comes from Gary Ho with Desjardins.

Maybe just -- just following on the questions on the share-based comp. I just want to make sure I have this correct. So we should see an accelerated amount in Q4 as well. And then that drops, I guess, below the line starting in 2022. And I think previously, you have guided to around $7 million. And can you remind me, is that on that quarterly or is that on an annual run rate?

Thanks for the question, Gary. So a couple of things. In terms of -- it actually goes the other way, it's going to fall back above the line going into 2022 because basically, it was an expense that was share-based comp outside of our margin. And you can expect to see that baked into the margin going forward. In terms of the run rate, look, that $7 million I provided last quarter was effectively sort of the average or midpoint of where we were in the aging of the 3-year vesting program. So to your point, in terms of what the overall impact would be, I would say, once we have the number, the accelerated number out of Q4, that should give you a good indication in terms of what was accelerated between Q3 of this quarter and Q4 as to what the overall annual impact will be next year. So I think once we get through the acceleration of Q4, and we will be able to highlight what that amount is, that should give you a good idea as to what 2022 should look like in terms of the amounts that should be going back above the line at that point.

Sorry, when you say above the line that -- it's going to reduce adjusted EBITDA?

Correct. Correct.

Okay. And then just on the other question, just on the private market strategy. Just curious, good flows in this quarter, kind of what drove that? Is that your initiatives in distribution? Just wanted a little bit more color. I think you mentioned a little bit in that JP on the pipeline, but maybe you can elaborate how it looks into 2022 and specifically which mandates would you expect to see higher flows?

Sure. Thank you, Gary. So let us start maybe with the latter part of your question. At this point, and it ties back to the first part of your question, infrastructure, for instance, is really in the perfect zone right now in terms of investor demand, quality of offering and macro fit as well when we look into the future. So infrastructure is definitely an important piece of this growth and we expect it to continue to be in the near future. The initiatives that we have implemented in distribution that will continue to also accelerate in the next year is definitely a factor contributing to that. Where -- and a testament to that is that our fundraising is actually well diversified worldwide. I mean, we look at the sources of funds and where they come from. It could be in Asia, it could be in Europe. We also have it in the U.S. and in Canada, it's really across the board. So our focus is really to maximize the opportunity that we have and the capability of deployment in these asset classes is really what we are trying to achieve. And I think it's been a good year towards that. So overall, I mean, you can continue to expect -- I mean, we have highlighted in the deck that over the past 3 years, we sort of doubled the AUM of the private markets platform. And looking at it from a forward-looking standpoint, I mean, that space is definitely an aspiration that makes sense as well looking into the future. So yes, that's how I would couch it.

Okay. And then just my last question. I know you won't give us numbers on the performance fees for Q4. Any context you can give us because that number is a little bit hard to model year-over-year. Any color you can provide in terms of performance fees for the upcoming quarter?

Sure. Look, to the extent of the color I can give you is, I think, as JP highlighted in the Performance section, it's -- we are going into Q4 with a very strong performance tailwind at our back. And so I think that should be a data point to take into consideration. I would say also, if you look at our year-to-date performance fees in terms of how they have been earned compared to last year. So last year, we were -- at about this time year we were a bit sitting just over $6 million in performance fees. And this year, we are sitting at close to -- closer to 10 -- $9.8 million. So we have no reason to believe as long as performance holds as it's currently expanding, that, that trend or that ratio that we are looking at in terms of the $9.8 million versus the $6 million last year, but that doesn't kind of translate into sort of the trending for Q4 results. So again, but that is entirely predicated on being able to maintain performance right up until December 31.

There are no further questions at this time. Please proceed.

Thank you, Jessica. That concludes today's call. Thank you for joining us today.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.