Fiera Capital Corporation (FSZ) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our Fiera Capital Annual Meeting. It's a pleasure to see everybody here this morning. I'm Jean-Guy Desjardins. I am the Executive Chairman of the Board of Fiera Capital Corporation. And I'm pleased to welcome you to this General and Special Meeting of Fiera Capital Corporation. We are pleased to host this meeting both in person and virtually through our live webcast accessible to all of our shareholders regardless of their physical location, allowing them to participate, submit questions and vote at this meeting. Before moving on with the formal portion of this meeting, let me say how proud I am of our organization. The performance that we deliver year after year is a collective effort by our people to be the best in the industry. We have the support and judicious counsel of our Board and that makes our success possible and puts our goals within our reach. I thank them all for their passion and their collaboration. And now let's move on to the formalities. Certain forward-looking information within the meaning of applicable securities laws may be presented in the course of this meeting. We encourage you to review the cautionary statement relating to forward-looking information, which appears on the screens at the front. I would now like to introduce the officers joining me at the head table this morning. Jean-Philippe Lemay, Global President and Chief Executive Officer, to my right; Lucas Pontillo, Executive Vice President, Global Chief Financial Officer, to my far right; Gabriel Castiglio, Executive Vice President, Chief Legal Officer and Corporate Secretary between the 2. I love his smile. He always cracks a smile. It's great. I would also like to introduce the company's Directors and Director nominees who are joining us here today in person. And I would ask them to stand when I call their name. Please hold your applause to the end. France Margaret Bélanger, Réal Bellemare, Gary Collins, [ Lucie Martel ], Guy Masson, Jean Monty, [ François Olivier ], David Shaw, Norman Steinberg and myself, Jean-Guy Desjardins. Mr. Geoff Beattie and Mr. Jean Raby cannot be with us in person today, but are attending the meeting virtually. So they're with us, nevertheless. Congratulate to one and all, and thank you for your -- good excellent service. In accordance with the bylaws of the company and my mandate as Executive Chairman, I will act as Chair of the meeting and Gabriel Castiglio, will act as Secretary. To ensure the orderly contact of the meeting, we have designated in advance Jean-Philippe Lemay, who will act as proposer; and Gabriel Castiglio, who will act as seconder. Please note that both Mr. Lemay and Mr. Castiglio are shareholders of the company. This year's meeting will be held in French but simultaneous translation in English is available. Please note that your questions may be asked either in French or English. While management holds proxies representing over 74.54% votes in favor of all matters, which would normally allow us to conduct the votes by a show of hands. The virtual participation of other shareholders required us to conduct votes by ballot. We will announce the preliminary results of voting on each resolution prior to the closing of the meeting. And the final results for each of these matters will be filed on SEDAR as soon as they are available. Please pay attention to the following voting instructions as they will be used for every item requiring a vote at today's meeting. For those attending the meeting virtually who are registered shareholders or duly appointed proxy holders and have not already voted by proxy, voting will be conducted via the online platform following the steps displayed on your screen. You can now vote on each resolution up until the closing of the vote after the last resolution. You will be notified when the voting period is over. For those attending the meeting here in person and who are registered shareholders or duly appointed proxy holders and who have not already voted by proxy, if you registered with Computershare upon your arrival, you will have received a voting handset. If this is not the case, please go to the scrutineer's table and one will be provided to you. We would like you to remind you that only registered shareholders and duly appointed proxy holders will be entitled to vote or ask questions during the meeting. If you have already voted by proxy prior to the meeting in any manner, there is no need to enter a vote using either the polls or a handset. You should only vote by poll or by handset today, if you want to change your previous vote. If you choose to vote again, only your vote cast during the meeting will be counted, and the vote that you previously submitted by proxy will be revoked. Once discussion on all items of business have concluded, I will take a quick pause to allow you to record your vote on the online platform or using the handset as applicable in case you have not already done so, and then I will declare voting closed on all resolutions. Let's move on to the meeting's agenda, which is as follows. We will begin with the appointment of the scrutineer and a confirmation that quorum is reached. The second item of business is the presentation of the company's financial statements for the financial year ended December 31, 2021, and the independent auditor's report thereupon. And then we will elect the company's Directors and proceed with the appointment of the company's independent auditor. Then we will vote on a resolution relating to the approval of unallocated entitlements under certain of the company's security-based compensation plans. And finally, I will present highlights of the 2021 fiscal year and the first quarter 2022, and I will provide an outlook, economic and financial, for 2023 -- '22, '23. During the meeting, registered shareholders and duly appointed proxy holders joining us in person or virtually will all have the opportunity to ask questions on the matters to be presented. Shareholders and duly appointed proxy holders attending the meeting in person, may address the meeting when there is a request to discuss a motion before the meeting. For those joining us virtually, you'll be able to do so by selecting the messaging icon on the online platform. To avoid delays, please provide your questions to us as soon as you are logged in, and we will address each of them at the appropriate time during the meeting. I will pause here for 5 seconds after asking if there are any questions on a particular motion to take into account any latency we may expect over the Internet. A general question-and-answer period with respect to questions submitted that do not relate to an item on the agenda for business will take place after we have addressed all the matters to be submitted to a vote today. Pursuant to the authority granted to me by the bylaws of the company, I appoint Ms. Pina Pacifico, a representative of Computershare Investor Services, Inc., as scrutineer of this meeting. The scrutineer -- scrutineer, how do you say that in English? The scrutineer has informed us that we have quorum since at least two shareholders holding at least 20% of all voting shares are present or represented by proxy. I thus, declare the meeting validly called and duly constituted for the transaction of business provided for in the agenda. The scrutineers' report will be given to the Secretary of the meeting and attached to the minutes of this meeting. Please also note that you can obtain the minutes of the last annual meeting upon request to the Secretary of the company. In addition, I confirm that the Corporate Secretary of the company has provided me with a copy of the notice of meeting, the management information circular and forms of proxy and the confirmation from Computershare that these documents have been duly sent to the shareholders. These documents will be attached to the meeting of the -- the minutes of the meeting. Let us now begin the formal portion of the meeting. I refer you to the consolidated financial statements for the financial year ended December 31, 2021, and to the independent auditor's report therein. These documents have been provided to any shareholder who requested them, and they are also available at www.sedar.com and on the company's website in the Investor Relations section. We understand that you reviewed these documents, and we will therefore not ask the secretary of the meeting to read them. As previously mentioned, once we have addressed all the legal and technical items on the agenda, you will have the opportunity to ask us your questions. The next item on the agenda is the election of Directors. As provided for in the articles of the company, the holders of Class A subordinate voting shares, voting separately as a class, are entitled to elect 1/3 of the members of the Directors referred to as Class A Directors. And the holders of Class B special voting shares, voting separately as a class, are entitled to elect 2/3 of the Board of Directors referred to as Class B Directors. We will therefore have one vote for Class A Directors and one vote for Class B Directors. Pursuant to the management information circular, management proposed to elect 12 nominees as Directors of the company being four Class A Directors and eight Class B Directors. I would now request a motion for the nomination of the Class A director nominees of the company. The following persons are proposed as Class A Directors of the company: Geoff Beattie, Gary Collins, Jean Raby and David Shaw.

Mr. Chair, I move the nomination of the following persons Class A Directors of the company; Gary Collins, Geoff Beattie, Jean Raby and David Shaw.

Mr. Chair, I second the motion.

The motion is duly moved and seconded. Are there any questions regarding this matter or any proposals for other Director nominees? No? I will now ask the corporate secretary to indicate whether we have received any questions on this item of business or proposals for other Director nominees through the electronic platform.

Mr. Chairman, I confirm we have not received any questions on this item of business through the electronic platform.

Given that we have not received any proposals for other Director nominees, I declare that the nomination period is now closed. We will now vote. If you are registered -- a registered Class A subordinate voting shareholder or duly appointed proxy holder of a registered Class A subordinate voting shareholder attending virtually, you may vote using the platform. If you are a registered Class A subordinate voting shareholder or duly appointed -- sorry about that, duly appointed proxy holder of a registered Class A subordinate voting shareholder attending in person, please use your handset to vote. We will announce the preliminary results of voting on this election later during the meeting. [Voting]

With respect to the election of Class B Directors of the company, only the holders of Class B special voting shares voting separately as a class are entitled to vote. The following people are proposed as Class B Directors of the company. Ms. France Margaret Bélanger, Mr. Réal Bellemare, Ms. [ Lucie Martel ], Mr. Guy Masson; Mr. Jean Monty, Mr. Norman Steinberg, and myself, Jean-Guy Desjardins. I confirm that the sole holder of Class B special voting shares, Fiera Capital L.P., has voted in favor of the election of each of the nominees proposed by management to be elected as Class B Directors of the company. Accordingly, I declare each of those nominees elected as Class B Directors of the company. I'd like to take this opportunity to thank Mr. Raymond Laurin and Lise Pistono, who are not standing for reelection for their outstanding contributions to the development and growth of Fiera Capital over the years. On behalf therefore, of Fiera Capital, we would like to thank you for your dedication to our success and wish you the best in your future endeavors. The next item on the agenda is the appointment of the auditor for the financial year ending December 31, 2022. Shareholders are asked to reappoint the auditor Deloitte until the next Annual General Meeting of Shareholders and to authorize the Board of Directors to fix its remuneration. The holders of Class A subordinate voting shares and Class B special voting shares are entitled to vote on the appointment of the auditor. I would now request a motion for the appointment of the auditor.

Mr. Chairman, I propose that Deloitte LLP be appointed as auditor of the company until the next Annual Meeting of the Shareholders and to authorize the Board of Directors to fix its compensation.

Mr. Chairman, I second the motion.

The motion is duly moved and seconded, therefore, are there any questions regarding this matter? I will now ask the Secretary to indicate whether we have received any questions on this item of business through the electronic platform.

Mr. Chairman, I confirm that we have not received any questions on this item.

No questions have been received. We will now move to the vote. Once again, if you are a registered shareholder or duly appointed proxy holder attending virtually, you may vote using the platform. If you are a registered shareholder or duly appointed proxy holder attending in person, please use your handset to vote. [Voting]

The next item on the agenda relates to the approval of the unallocated entitlements under certain of the company's security-based compensation plans. As explained in the management information circular, the unallocated entitlements under certain of the company's security-based compensation plans must be approved by shareholders every 3 years pursuant to the rules of the Toronto Stock Exchange. We will now proceed to the adoption of an ordinary resolution of the holders of Class A subordinate voting shares and Class B special voting shares, approving the unallocated entitlements under certain of the security-based compensation plans. The full text of the resolution is set forth in Appendix D of the management information circular sent to the shareholders prior to the meeting. The Board of Directors of the company recommends that the shareholders vote in favor of this resolution. I would now request a motion for the adoption of the unallocated entitlements resolution.

Mr. Chair, I propose the adoption of the unallocated entitlements resolution.

Mr. Chair, I second the motion.

Thank you. The proposition is duly moved and seconded. Are there any questions regarding this matter? I will now ask the secretary to indicate whether we have received any questions on this item of business through the electronic platform.

Mr. Chair, I confirm that we have not reserved any questions on this item of business through the electronic platform. Thank you.

No proposals or further questions have been received on this matter, we will now vote. If you are a registered shareholder or a duly appointed proxy holder attending virtually you may vote using the platform. If you're a registered shareholder or duly appointed property holder attending in person, please use your handset to vote. [Voting]

Since we have covered all of the topics on the meeting agenda, we will now take a short break to allow registered shareholders and proxy holders to vote if they have not already done so. I remind you that if you have already voted by proxy, it is not necessary to vote again. [Voting]

Short break, 10 to 20 seconds. That's short. I kind of preferred 1 minute. 30 seconds. The results of voting, I have -- the scrutineer has provided us with the preliminary report on the results of the votes. I therefore declare that a majority of the votes cast by holders of Class A subordinate voting shares were in favor of the election as Directors of each of the following: Geoff Beattie, Gary Collins, Jean Raby and David Shaw. I also declare that a majority of the votes cast by the shareholders were in favor of the appointment of Deloitte and authorizes the Board of Directors to set their compensation. I also declare that a majority of the votes casted by the shareholders we're in favor of the unallocated entitlements resolution. The final results for each of these matters will be filed on SEDAR as soon as they are available. In this next section of the presentation, I will review our accomplishments in 2021 and then provide an update on the first quarter of 2022. I will also discuss our -- the investment performance and share highlights on our investment platforms, followed by an overview of our growth catalyst for the future. 2021 was a painful year, and I'm incredibly proud of our employees for staying focused on creating value for our clients in the face of the volatility and the difficult macro environment. It was a record year in several respects, including assets under management, revenues, EBITDA and net income. Over the past year, we made significant progress in evolving Fiera to become a diversified global asset management firm that efficiently allocates capital and stays at the forefront of investment science. While focusing on the future of Fiera, last year, we also reset our long-term vision for what Fiera Capital can become. We continue to execute on our strategic priorities, demonstrating the success we adapted to profound and sudden disruptions, thanks to the resilience of our people, the breadth and diversity of our asset base. As we advance towards our goal of becoming one of the world's top-tier asset managers, we will continue maximizing opportunity from this strong foundation. During 2021, we also articulated a 3-year plan that clearly explains how we will progress towards the achievement of our 10-year vision. In the process, we asked ourselves 4 questions: Who are we? What do we want to be? What is our role? And who do we work for? And our answers to these questions are as follows. First of all, we are capital allocators. We allocate capital that has been entrusted to us by our customers, clients. Secondly, we want to thrive to be the most efficient capital allocators. So efficiency is key. The expression in English is particularly precise. In English, they say, efficient capital allocation. Next, our role as capital allocators is to develop investment strategies and investment portfolios with an optimal financial risk-reward relationship, but also have an optimal and environmental, social and governance impact. We are outstanding as efficient capital allocators, which incorporate all of these responsibilities into our decision-making processes. Then we work for our clients and their constituents and every single beneficiary across the global economy. And finally, capital allocation efficiency not only leads to higher rates of return for our clients and a greater productivity growth and prosperity, but also to greater social responsible and environmental outcomes. Also, as many of you know, Jean-Philippe Lemay became CEO in January 2022, a decision, which is a part of our ongoing succession planning. The Board and I are of the utmost confidence in Jean-Philippe's ability with the help of his team, Gabriel, Michael Quigley, then -- this is a little bit danger because I run the risk of forgetting somebody. John. Is John here? We can't forget John. I hope I haven't forgotten anybody else. Please raise your hands if I've forgotten you. So complete with this -- by this exceptional team, they have the capacities required to lead Fiera Capital in the coming years, and we will reach new summits. As far as I'm concerned, I will be transitioning to Executive Chairman of the Board. I will continue to provide leadership and direction to the Board and to senior management of Fiera Capital. And I will continue to be actively involved in strategic decision making. And I look forward to continuing to work closely with Jean-Philippe. I will also have the pleasure of retaining my functions within the global tactical asset allocation team and my responsibilities and portfolio management for our private wealth group, which I have continued to fulfill. And as a manager, with John, I forgot to mention my boss, John, I might be in trouble leader. But it's an enormous pleasure to be working with John in private wealth as the head of a team that is managing of roughly $5 billion in investment funds in different alternative strategy within John's private wealth group. And I'm confident that our new leadership team and our strategic commission will enable us to achieve continued success for Fiera Capital well into the future. Now an overview of 2021. Our company's well-positioned for a new phase of growth. We have a strong, well-established and competitive public market offering in public markets, which is scalable and have room for expansion without necessarily requiring additional capital spending, especially through our solutions group. We have a competitive position in private markets with a wide range of well-established private markets investment strategies that Fiera Capital developed over the last 12 years. The demand for private marketing offerings among high-net worth and institutional investors is growing very rapidly. We will need to invest more capital to fully benefit from that increased demand, and our capital allocation plan is dedicated to it. We will continue to invest in building up our distribution capacity in our high net worth financial intermediary and institutional channels. And we are also proud of the significant progress to date and intend to allocate more capital to growing our capacity, especially aimed at our private market groups -- private group under the leadership of John. Our team remains focused on efficiently updating capital through innovative and purposeful investment strategies. This will enable us to construct optimized client portfolios that deliver on client outcomes. To ensure that we achieve our 10-year visit, we will focus, over the next 3 years, on organic growth. We will maximize the potential -- commercial potential of our public markets platform. We will attempt to accelerate growth through our private markets platform with a focus on real assets and private credit. And we will further develop our customized client solutions. We will put the full strength of the organization toward organic growth and owning our place as a truly global asset management firm. For me, the future is one of further optimization improvement and progress in the pursuit of even greater capital allocation efficiency. Now let's turn to our financial results in 2021. Our strong 2021 financial performance is also from active investment management, creating value for clients over the past 2 years despite an uncertain economic backdrop. Assets under management reached $188.3 billion, increasing $6.4 billion in the year, or $17.6 billion, if you exclude the impact of dispositions undertaken in 2021, so 2 organizations that could -- were not performing to the height of our expectations, meaning that they had an impact on our assets, which explains the difference between the 2 numbers. This increase was driven by market appreciation and the strong performance generated by our investment teams across public and private markets. In the public markets division, 95% of equity and 96% of fixed income investment strategies outperformed their benchmarks. We also onboarded the Atlas Global equity team in March 2021. And the team had strong performance and growth with its assets under management increasing from $0.9 billion to approximately $1.5 billion by the year end -- the end of the year. In private markets, assets under management grew by $2.5 billion or 18.7% to reach $15.9 billion. In 2021, we raised $2.6 billion in new subscriptions and deployed $2.9 billion in assets globally. The fact that we were able to deploy close to $3 billion in 1 year in high-quality assets across multiple strategies, speaks to the expertise and the strength and the commitment of our teams. In 2021, total revenues were registered at $749.9 million, $749.9 million, $750 million in 2021, increased by $54.8 million or 7.9% compared to 2021. Adjusted EBITDA for the year was $247.7 million compared to $209.7 million, and adjusted EPS increased by 27% to hit $1.78 per share. This strong performance contributed to further reducing our financial leverage. As at year-end, our funded debt-to-EBITDA ratio was 2.04x, which was a reduction of 22% over the course of the year. This is lower than what it was prior to completing six acquisitions over the course of 218 -- sorry, 2018, 2019, despite setbacks from the pandemic in early 2020. Visibly, therefore, the consistency with which we have been reducing our debt levels and simultaneously improving our operating performance demonstrates our focus on efficiently allocating capital and managing our balance sheet. Meanwhile, we held our quarterly dividend constant at $0.21 per share. And we are pleased to announce that the Board approved a dividend of $0.215 per Class A share and Class B share, which was last paid in April 2022. Therefore, in 2021, we paid $87.7 million to our shareholders in the form of dividends, and we repurchased 1.6 million Class A shares for a total of $17.9 million in the form of share repurchases and redemptions under our NCIB, which totals $105.6 million that we'll return to shareholders over the course of the year. Let's talk about our results for the first quarter of 2022. The first quarter was characterized by a confluence of geopolitical and economic events that significantly affected global financial markets and created the highest inflation rates in several decades. Despite the challenging equity and fixed income markets, which induced portfolio rebalancing during the quarter, we are pleased with our business activity. Indeed, we delivered $1.9 billion in gross new assets under management for the quarter, which is expected to translate into estimated incremental growth and gross annual base management fees of $14.9 million. Assets under management reached $174.5 billion as of March 31, 2022, an increase of $1.6 billion over the same period last year. We saw a reduction of $13.8 billion or 7.3% when compared to assets under management for the fourth quarter of 2021. This decrease is entirely attributable to our public market assets under management and is overwhelmingly driven by adverse market returns, given the volatile quarter in both equity and fixed income markets. Our continued focus on building out our private markets investment platform proved to be highly beneficial both for our clients and for our firm's performance. The private markets platform continued to scale, growing by $1 billion in the quarter to reach $16.9 billion, generating year-over-year growth in assets under management of 24.3%. Private markets continue to demonstrate great resiliency and as expected in an inflationary environment, delivered a robust performance. Furthermore, we continue to maintain a healthy deployment pace into attractive opportunities with $700 million deployed in Q1. We also accumulated $2 billion in committed undeployed capital, which is really interesting for all the opportunities that will arise. And for the growth, that our public markets division should be able to experience over the next quarter. We had revenues of $172.3 million in the first quarter, so up 4% compared to the previous year's first quarter. In terms of our financial performance, adjusted EBITDA was $47.3 million in the first quarter compared to $47.5 million in the prior year period. Our last 12-month adjusted EBITDA margin continued to trend above 30%, coming in at 32.7% as at Q1 2022. We're also pleased to announce that the last 12 months adjusted EPS increased 10.8% compared to the first quarter of 2021. Net earnings attributable to company shareholders of $3.4 million or $0.03 per share during the first quarter of 2022 compared to net earnings of $22.2 million in the first quarter. And adjusted earnings for the quarter were $32.3 million compared to $37.5 million. And we also reviewed -- or renewed rather, our distribution agreements with Natixis and repurchased for cancellation $3.56 million Class S shares. This allowed us to return $34.9 million to shareholders. And this was an extremely attractive dividend yield. We are very pleased to announce that during the first quarter earnings call, the Board approved a dividend of $0.215 per share payable to shareholders on June 13. Our tactical asset allocation team made a decision to underweight equity, move to shorter duration fixed income and overweight private markets, which contributed to outperformance in clients' portfolios at the end of the quarter. On February 1, 2022, we announced the formal establishment of the sub-advisory partnership with StonePine Asset Management. We continue to see strong client support for the new arrangement, which reflects the resiliency of our client interactions and engagement model. StonePine and Fiera Capital continue to move and work hand-in-hand constructively and collaboratively to foster the relationship and achieve thoughtful investment solutions and long-term value preservation. I'd now like to take a little bit of time to look at the economic market outlook, the financial markets and the perspectives for the end of 2022 and specifically for 2023. What we're currently experiencing when it comes to goods and services in the economy -- I mean we know that we are experiencing inflation at 8.5%, 9% inflation. That 8.5%, 9%, if we eliminate the impact of commodities and oil prices, we know that we have an inflation rate, which is core. It's fundamental of 5.2% as a matter of fact. Now oddly, when we look at these numbers and we look at numbers around the world, the world's numbers are very similar. The same phenomenon exists in England, in Europe and in the U.S. as in Canada. So it's an inflationist thing that is structural and possibly transitory. If we take the 9.5%, we assess that maybe 4% of that is transitory. But fundamentally, we have an inflation problem at 5.5%. Now where is this coming from? It comes from a situation today when we look at the goods and service sector, we see a sector with excessive demand for goods and services. And it is a question of what the economy can supply when it's up -- when it's working full capacity. In a normal condition, if we only had that problem, we would still have inflation because demand is too high compared to the capacity of the system to respond and meet needs. Now it's not a plan that we should throw out, but governance and central banks -- governments and central banks overall and following the pandemic in 2020, implemented monetary policy, financial policy that stimulated too much for too long. So what that causes is excessive demand on the system that normally cannot meet the needs of the demand. What complicates things further is that distribution networks around the world are not working correctly. Distribution chains are short-circuited because COVID exists, we see it. We've seen it every day. And so it continues to have an impact on distribution chain efficiencies. And in industrialized -- or underdeveloped nations, we don't hear about them as often, but there are huge pressures on those countries due to the virus. They have to close their economies, and that contributes to poor functioning of distribution lines. So in goods and services, what we have is excessive demand. We know why. But in terms of supply, supply is handicapped, shall we say, by this phenomenon that I just explained which concerns distribution chains. So normally, excessive demand would create inflation and the fact that supply is not where it should be, then inflationary pressures are even stronger. And that's where the 5.2% comes from once structural. Unfortunately, what we hoped was transitory, well, there's the Russians attacking the Ukraine, so there's a war, and that has a huge impact on some commodities, including oil and gas, food, communities -- commodities as well, agricultural commodities, but there are also lots of industrial commodities that are affected by this conflict in the Ukraine. And that is creating inflation and a huge increase in price of these commodities. Therefore, that explains or contributes to explaining why for the 5.5%, or at 9% for inflation, but we hope this is transitory. There's an economic scenario for 2022, 2023. And the assumption is that inflationist pressures coming from pressures on Russia and the Ukraine is transitory. There could indeed be a resolution to this conflict, which would then lead us to conclude that if there's no resolution, there's no war -- or if there's a resolution, there's no war. The commodities should return to normal or more or less, but we also have to say that, that is true for as long as the sanctions imposed upon Russia will also be removed. So the assumption is we want the conflict to be resolved in the 4, 5, 6 next months, but we also have to say that maybe the sanctions will also be taken away for the most part. Now in the decision that needs to be made on this scenario, we determined that the probability that these 2 things happen over the next 3, 4, 5, 6 months, well, it's not terribly probable. It's possibly very weak, which means that inflationary pressures that are transitory that go from the 5.5% to 9%, perhaps they're not as transitory as we would have hoped. The other side of the coin, so the job market, is experiencing the same problem. We have a demand for workers in the Canadian and American economies. Each unemployed person has the possibility of getting two jobs. This has never before been seen in job market statistics. Previously, we are in a situation where employee demand was just as strong as the -- what was offered and what we're experiencing now. Now why is demand so strong? Well, because the economy is growing very, very quickly, much beyond its normal potential. So the economy is too strong. And also, the employee supply is below what it was before the pandemic. Now I won't go through the reasons why, but that is a reality. The imbalance that exists between demand and employees is one that has an impact on salaries and prices for goods and services are also affected, causing inflation. And in the job market, when there's pressure, there's pressure on costs, so for employees, and it creates inflation. And that's an inflationary problem, which is much more complex than the one that comes from goods and services. So central banks when faced with this phenomenon and -- need to face the reality of the situation in which they are, including governments and taxation. In this situation, central banks know that excessive demand needs to go down. The economic growth needs to slow down so that things aren't beaten -- aren't as strong. And we hope then that supply for goods and services and the transitory problems will be sorted out more or less naturally. And then there's the problem of COVID, which continues to exist. Can we assume that in 6 months, we won't hear about COVID ever again, and there will be no more impact? Well, currently, that's not true. Today, and even in the U.S., there is currently -- I mean, we barely talk about it, but there has been a big acceleration in COVID cases and current hospitalizations at this particular time. So we can hypothesize that if we don't talk about it, it's going to be over and done with, but that's a hypothesis that is a little bit on the optimistic side. It's more realistic to accept the idea that COVID will remain the stabilizing factor in the mechanics of goods and services distribution worldwide, we're thinking, for the next 18 months. So the supply of goods and services, the situation could be a transitory, but it may be less so. So the transition is going to be slower than -- and inflationist pressure will remain with us for some time to come. As far as supply and demand in the labor market is concerned, the equilibrium can be achieved by slowing the economy so that the demand for jobs at a time when they're actually -- it's including -- there are people left at labor market during the pandemic, and there's a little bit of immigration that contributes to it. But when we look at the potential for the return of workers to work, the potential of people who would contribute to increasing demand for workers and when we look at the size of the demand, it's not by increasing supply that's going to solve the problem. We have to lower the demand and that goal is only achievable through economic slowdown. So the central banks are in the process of -- well, they're not being monetarily restrictive, but they're going to have to gradually increase interest rates to, little by little, achieve a monetary policy, which we technically refer to as neutral as presented by -- the Central Bank suggests. And it's been discounted by the financial markets. When we look at the markets, the bond rates are up, prices are up as well. A neutral policy, which is a short-term policy of the Federal Reserve for the Bank of [ Canada ] was 3%, where we've got 2% of inflation and a growing economy. So indications are that between now and the 3rd years, we're going to have 3% short-term interest rates. But that's 3% in a context in which inflation will be at 8% or 9%. A real inflation -- core inflation will be at 5.5% and interest rates at 3%. This is not a restrictive monetary policies. It's stimulative. Neutral monetary policy would be a 1% core inflation rate. If you're at -- this is so -- could be -- it would have to be 0.5% or 0.75%. But if we have 9% of inflation, the headline rate, and you've got a 3% interest rate, the policy remains stimulative. An excess demand for goods and services is not going to be dampened. And you're also not going to affect excessive supply of labor. And you're hoping that the war in Ukraine will be over and distribution works will -- distribution networks will start operating more [ reasonably ]. There's a lot of -- for which you have to have very optimistic hypotheses, and they strike us as overly optimistic. Our scenario for 2023 is that we are headed for a recession, because central banks -- and this is, of course, the big question, central banks, when we're at -- in Q4 of this year, they will look at the situation and see that the things that they hope were going down naturally are not going down naturally. We'll have to adopt a more aggressive policy. Our position is that the central banks around the world are already cognizant of this, but they haven't started preparing it for us yet. If we look at the behavior of the central banks, and it's very appropriate by the way, the central banks' rate in the fall was 0.25%. And they started preparing us to the fact that interest rates was going to go up and would be adjusted to a neutral position because at the time, we were operating at full capacity, and there were inflationary presence because they were excessive demand pressures. And then they said, okay, we're going to go up to -- we're going to increase by 0.5% in March. And then they started preparing us by saying, well, the situation is it is. Looks like we're going to add 2%, 3%, which is the new neutral position between now and the end of the year. And it's very probable that in the fourth quarter, they'll start preparing us to the coming reality with 5.5% of core inflation and 8%, 9% of headline. 3% is not going to cut it and their commitment and their -- come to bring inflation to 2% to 3%, which is the appropriate under economic theory. And this has been the case for 40 years. It's been clearly demonstrated that in the interest of people and the long-term prospects of the economy and society, if we have 2% to 3% inflation, this is the appropriate level to achieve the objectives. So the determination of central banks and government in terms of what has to be done in the short term to bring inflation down to 2% to 3%, we think that this determination is unshakable. And if this is the case, they're going to announce that the interest rate is not going to be 3%. It's going to be 4.5% or maybe 5% for a period of 6% to 9% in 2023. So that's the last stage that we're going to need to move on to a recession starting [ at ] the theory of the soft landing that they're talking about now is probably not achievable. We're likely to see a little -- well, if it's not a soft landing, it's like to be a little bit of a rough landing, maybe. Yes. So we're headed -- we have three scenarios, basically, a soft landing, maybe 10% probability, according [ class ]; a stagflation, which is our perspective since last fall, which caused us to reduce our clients' exposure to the equity markets; and to use private wealth vehicles, which have all of the characteristics of bond achievements, which risk return characteristics that are very similar there too, but are less affected by interest rates. The interest rates for 10-year bonds went from 0.8% for 1 year to 2.9%. So on a normal bond 5-year duration according to the Canadian index, if you're at 5 years, and the interest rate has gone up 2%, you've lost 10% of your capital. That's already happened in 2021 and '22. We were able to protect our clients against this depression of their bond held capital, thanks to the tools and investment strategies that we developed over the last 12 years, to a large extent, under the leadership of John. And this enabled us to provide an extraordinarily competitive service to our clients in our portfolio management. So the prospects is that's over 50% likely that we're going to have a recession, 2023 and maybe 35% for the stagflation scenario, which was our most probable scenario up until recently. So this is a significant change in our analysis and the conclusions that we're drawing about the economic and financial prospects ahead. So we have to expect over the next 12 months that we -- there are going to be significant additional drops on the stock markets and they'll be discounting for an economic recession. And we'll be defining all of this as we move forward in time and [ as this unfolds ], is this really the scenario that materializes. And the other thing, as I said, we don't know the magnitude and the duration of this recession. It's a little early to draw any conclusions on those two aspects. But the big question, again, with a recession scenario confirming itself over the next 12 months, then we have to anticipate as to what the depth and duration of the recession would be. And that would have an impact on the size of the impact of the recession on financial markets and how we need to position the portfolios of our clients as capital allocators, which is our brand now as capital allocators operating in the interest of our clients. So if you have any questions, I'm delighted to respond. I could talk about this for 2 hours until somebody gives me a kick to say enough already. But I would be delighted to answer any questions you might have. All right. Next. Is that it? Okay. In conclusion, in the -- I'd rather speak to then read, but looking over the past year, I'm proud of our employees' contributed to our success in another unprecedented environment and delivered on our commitment to people we serve. And I would also like to thank our clients and -- for their renewed trust as we continue to raise the bar in terms of our solutions. Now I don't know -- I would like to take a pause here, because this has always been something that I found powerful in the course of my career. It's not a whole that long since I've been working this market. Why are people laughing? If you stop to think a moment to what extent it's rewarding to have -- well, what, $180 billion, roughly? I think we can say $180 billion, $180 billion of assets under management of many, many people who, on a discretionary basis, entrust us with the responsibility of investing their capital efficiently, because they have confidence in us. Now just take a moment or 2 to think how rewarding that kind of is, to have this testimony of trust and confidence. I don't know if any of you have had experienced anything equivalent, but it is flattering in the extreme. And let me return to my text, I'm grateful to our Board members for their invaluable expertise and visionary leadership in helping steer us through the headwinds we have faced. And last but not least, thank you to our shareholders and creditors for putting your trust in us and for your unwavering support. So thank you for your attention, and we're now we're ready to move on to our Q&A. Thank you, one and all. I guess I was pretty clear. Either I was very clear or I put you all to sleep. Let's hope I was clear. All right. If there aren't any questions for Jean-Philippe or Gabriel or Lucas, I would remind people that -- actually, I don't really need to. Thank you, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]