The Westaim Corporation (WED) Earnings Call Transcript & Summary

Okay. Good morning, and welcome. Wow, this is our first in-person Investor Day since May of 2019, so a special welcome for everyone here. And of course, for our virtual audience, we welcome you back, and thank you for attending. Earlier, we just completed the administrative responsibility of the Annual General Meeting. And we all really appreciate your ongoing support and continued confidence. So let's get the Investor Day underway. But before I begin, I want to remind everyone that particularly with Skyward Specialty Insurance now being a public issuer on NASDAQ and with Rob Kittel and I continuing to be active Skyward Board of Directors, we will be limiting our Skyward comments and encourage you to visit Skyward's website and subscribe to their investor communication. Today's investor presentation, as I scroll to it, from an agenda perspective, we really organized it in 4 distinct sections. I'm going to start with a very brief introduction, and then I'm going to invite Dan and Parag and members of the Arena team to come on up to the mic and provide a fulsome overview of their growing business. And then I'll return to discuss Westaim's strategic path forward and thereafter, we welcome all your questions. As many of you are aware -- we worked on this. As many of you are aware, each quarter, Westaim releases a very detailed investor presentation on our website. It is rich in content and provide shareholders with a thorough update and an overview of our respective businesses. Earlier this week, Westaim released Q1 2023 earnings alongside a refreshed investor presentation. Today, the opening slides of 8 to 13, which will be posted on our website hereafter, were included in our Q1 update. I'm going to assume that you have already reviewed this content and I will make a few general observations. Page 8 really reflects our ownership position in Skyward, Arena Investors, Arena FINCOs. The biggest change being that the Westaim ownership in Skyward is now 37%, down from 44%, reflecting the post-IPO ownership. Slide 9 highlights a unique and strong quarter, specifically, Skyward's Rule Your Niche strategy continues to excel, and the company reported very strong operating results. Gross written premium was up 27%. Net income was $15.6 million, combined ratio improved to 90.3%, with net investment income declining against a very strong Q1 2002 (sic) [ 2022 ]. Shareholders' equity increased to $507 million, and the annualized return on equity was 13.4%. Arena investors produced net income of $2 million with committed AUM of $3.4 billion, recurring revenue improved to $10.8 million and fee-related earnings, which we all know the term FRE, improved to $5 million. Arena has 6 active fundraising campaigns in 2003 (sic) [ 2023 ], and Parag will be speaking to this shortly. Arena is well positioned today in a very challenging environment and difficult banking community. The attraction and attention to private credit continues to grow. On Page 10, we're really summarizing Westaim's operating results. Obviously, producing a $94.5 million quarter stands out. And this was largely driven by Skyward's successful IPO and follow-on share price appreciation. As you know, Westaim adopts fair-value accounting. And with Skyward now being an actively traded public issuer, their share price has become the cornerstone of our valuation mark. As of March 31, 2023, Skyward was $21.87, materially higher than the $15 IPO price. The FINCO portfolio declined 1.7%, reflecting the independent mark-to-market valuation process. And lastly, Arena Investors produced $2 million in net income with Westaim's share being $1 million. Page 11 reviews Westaim's balance sheet. The 25% increase in our book value to $3.21 or in Canadian dollars, CAD 4.34, reflects the price appreciation in the Skyward ownership. Today, Westaim owns 14,567,139 Skyward shares. Pages 12 and 13 are waterfall charts to highlight the specific quarterly activity within our earnings per share and book value growth. At this point, I'd like to invite Dan to the podium to give a fulsome overview of Arena.

Thanks, Cam. So I'm going to take you through the business that we've created as well as the opportunity set ahead of us and kind of where we're going from here. Starting on Page 16, and I'm not a big kind of page-flipping person, but I'm going to kind of keep loosely to this format. We want to really walk through the business that we're trying to create. And we think about that as AIGH, Arena Investors Group Holdings, which is a combination of what we'll refer to, and we'll talk about this later, as AI, Arena Investors, where we manage capital on behalf of third parties, including the Westaim Holding Company, including Skyward, and others; and AIS, Arena Institutional Services, where we effectively monetize a lot of the additional intellectual property we have available in ways that don't use other people's capital. We also have, as I mentioned before in previous conversations, a very extensive kind of global network. And it's key to understand because people have asked us, well, why doesn't -- why didn't AUM go up faster? Why don't you just raise more and more funds? Why don't you act like a mutual fund? Why don't you act like a private debt fund? The question is, are we going to build ourselves on a kind of very narrow platform that subjects us to the overall macro environment? That puts our eggs in a single basket of being the corporate private lender, the real estate private lender? Or we're going to build an enduring enterprise? And enduring enterprises kind of don't get built on tiny narrow platforms. And along with that, I'd point out that within AI, we talk about -- and it's good to keep in mind, our 3 sources of edge. One is our mandate flexibility, which is powerful, because in a world where people pigeon hole themselves into little areas and then impale themselves on a spike of moral hazard, we want to be in a position to not do that, which doesn't make sense. And to avoid things like many of the things that we're going to talk about that have been subject or part of this massive asset bubble in which we find ourselves. The second is that we want to leverage that mandate by being able to look at a lot of stuff. And we want to do that without kind of breaking the fixed-cost bank. And so through our global network of kind of 40-plus joint ventures that complement our 8 business units, we are looking at a lot of stuff. And we are dispassionately comparing all of those things on a return per unit of risk basis. And even without a top-down view, it's allowing us to be clear on where the return per unit of risk is and where it isn't. And so as we saw in 2017, '18, '19, the kind of bubble opportunities getting larger and larger in much more conventional areas like corporate private lending and conventional mortgage lending, it would have been easy to do it as long as you knew when the end was near. But we didn't know when the end was going to come, and we didn't want to be involved in those things. And our global infrastructure allowed us to see very clearly where the good return per unit of risk was. And third, you've got to be able to handle all this stuff. And one of the many unintended consequences of the post-GFC alternative investment expansion that we will likely encounter is the fact that people have systematically under-invested in their infrastructure necessary to do this business. It's not easy. It doesn't just scale magically. Every loan doesn't pay off in a world where there's not an easy refi on the corner. And so we need to have systems that handle all of this. We have 1,000 bank accounts with Citibank and HSBC all over the world. We're running a non-bank bank. We're running the bank that banks should be, but for the obvious profligacies they've gone through over the decades. And at the same time, we're on top of our servicing. We're on top of our assets. We're not kind of waiting for some magic to take us out of things. And so we're doing deep and constant surveillance with our Quaestor Advisors team. We're in a position to be super proactive. I'm sure some of you have -- you saw in The Globe in the last couple of days people talking about real estate and how people are marking or not marking their positions or dealing with the issues that they encounter. When we see an issue, we run at it and we deal with it as opposed to hoping we get taken out of our problem. And so having a robust servicing platform and ability to kind of administer and deal with assets, not be afraid of taking assets, while not gratuitously seeking them, is critical. As I mentioned, we want to be clear about what we didn't do because we really feel strongly that at this point, we have built an infrastructure and an enterprise that has the prospects for material scaling, material production of incremental contribution margin effectively by virtue of the fact that having created the platform we have, we really have only to add assets to address an enormous market opportunity with a minimal amount of incremental kind of people cost to exploit that. And so it's taken a while to get here, but we feel very comfortable about where we are. And again, to reiterate, we don't take macro risk. We have never taken it. We have no view on the macro environment that is investable. And so we've limited our exposure to rates, to commodities, to currencies. And people, if you're not vigilant, those implicit assumptions kind of work their way into the cracks and crevices of your investments. And so we are laser-focused on avoiding those issues because we have no competitive advantage on getting them. We obviously are not big on math investing. There are people who are experts in that. We're not. We don't have to be. We're seeking what we would view as machete decisions, not scalpel decisions. And then third, we don't need a greater fool to take us out of things. We don't need -- we want to be dedicated deep-value investors but at the same time, be in situations where our ultimate crystallization is within our control. So as I'm sure all of you have seen, a small-cap value investor says, this is the greatest thing ever. It's a discount to the sum of the parts. There's a big holding company discount. And someday, it's going to happen, maybe, maybe. In our investments, we are crystal clear that it is within our control through structure, right? And that's ultimately what kind of credit-oriented investing allows you to do to get our way out of things and crystallize that. And so that when things -- when Mr. Market does make prices bounce around, we're a beneficiary of that what's called convexity. What we didn't do, right? Again, what I found routinely among large-scale institutional investors is a relative lack of internalization of the underlying leverage that is within their portfolios. We weren't at the bottom of the stack, buying assets that seem very safe. And we'll see this happen -- we'll see this as the issues kind of continue to metastasize, where you have great assets with just terrible capital structures for which people grossly overpaid, right? We were at the top of the stack with short duration, minimal exposure to rates, if not any at all. And in fact, we're a beneficiary of issues that might have arisen because of an idiosyncratic or macro environment where we had to leverage to say to our counterparty, here's what you're going to do now. But -- and if not, we're going to have to monetize the asset. We weren't involved in any part of the kind of ecosystem that has grown in the last decade in kind of the middle-market leveraged finance world generally, which connects CLOs to direct lending to leveraged finance to middle-market private equity. All of those areas needed one another in order to kind of promulgate the bubble that occurred. And now all of that is reversing itself very harshly, and we're only in the very, very beginning stages of that. And finally, we didn't participate in ways that might have been easier on a marginal cost basis. It might have gotten us a short-term benefit in terms of fees but put ourselves in a position where we are now up the proverbial tree, dealing with hundreds and hundreds of workouts and other issues with very little flexibility, given the very light covenant structures that are out there. We did basically 4 things, and we continue to do them. We lent low LTV, short duration, high cost, always for a reason, right? So there's never any magic to our investments. There's never a, how did they get that return, right? Both buyer and seller, both borrower and lender have the same view on value, but we're going to look for a process issue. I need it in a week, right? Or no one likes energy now, right? Or I don't understand Puerto Rico, whatever it might be, and we're going to demand excess return per unit of risk in a very straightforward manner. And when people ask us to compete, we say, well, you need to go seek a solution elsewhere. And when you've run out of alternative solutions, then come on back. Number two, and we try to explain this a lot of times to our investors because we want to keep reminding them of it. As the bubble inflated, the regular way opportunities to lend a piece of money, make a normal coupon, clip the coupon every month, create that calm lack of "volatility" people love became more and more difficult because everyone wants easy and no volatility in a coupon every month. And so we use the infrastructure that we have to do a lot of other things that were far, far superior return per unit of risk but weren't quite so "nonvolatile" by insofar as you would kind of clip a coupon each month. So buying charge-off credit card receivables in Colombia, liquidating airplane engines, hypothecating or factoring various forms of collateral, where you're effectively investing into a liquidation, which implicitly is a low -- can be a low loan-to-value, can be very short duration and be very, very predictable, but not down to the 30-day increment just like a coupon, right? And so we like that. We like situations where for noneconomic reasons, people are less likely to be involved. And so as things got crazier, our ratio of #2 to #1 got higher and higher. And now we're going to talk about how it's going to circle back the other way. Two other things we did. And again, taking advantage in the first case with Mr. Market. There are situations where we can create, through convertible structures, large amounts of cheap or free call optionality. And sometimes, those things hit and once they do, they kind of bounce around between the time where they hit and you're monetizing them. And so people say, oh my goodness, that's more volatility. But actually, it's free vol. You are a beneficiary of that bounce. And for a variety of reasons, we see a lot of opportunities to own cheap optionality in a world of 10,000 small and micro caps. None of -- very few of which can access capital in the world. And then finally, we are very concerned about the overall environment. We would never take a directional macro view, but we would certainly buy insurance. And this notion of what we call and a couple of others call portfolio volatility protection is important. And every month, we take about 8 basis points or about 100 basis points a year, and we buy the most asymmetric, i.e., a big upside if there's a big downside such that if, for instance, the S&P is down 20 in a month, we're going to ensure ourselves quite handsomely. And if not, not. But given the nature of where we are and what we're facing economically, we view this as money well spent. We talk about the pipeline. Again, reminding folks that we have -- we call -- there's 6 buckets there but 8 business units: North American corporate, North American real estate, North American structured global markets, natural resources, secondaries and liquidity solutions, European privates, and Asia Pacific privates. So again, those are areas where we're not going to subject ourselves or our investors to moral hazard. Those are relatively wide swaths of activities though among those 8 businesses. But we're then going to complement that with the 40 to 50 joint ventures that have much more particular capabilities, either a sourcing capability, analytic one, a servicing one that will be episodically of interest to us. As all of these things, generally, are these different areas but put us in a position to kind of go at it when it makes sense and avoid it when it doesn't. We talk about our kind of returns. We try to be as transparent as possible about our returns. The only way to really understand it is to look at the vintages, look at the outcome. We've done here about 350. Including our pipes, probably something like 400 transactions in 8 years. We continue to grade ourselves every day, every month on the loan-to-value that we're creating, the return we're making, and the duration over which we're making it in order to really kind of aggressively optimize for the return that we're seeking. And again, in the marketplace, what you're seeing is a lot of obfuscation. The private debt fund that says it's all senior, except it's from 0 in the capital stack all the way into the mezzanine or equity. A firm that says, it's the direct loan fund. It's corporate loans. It's no problem, except that it's 2 or 3x levered, right, or the CLO that's 10x levered, right? There are a lot of these ways where people try to move the bouncing ball away from the investor, such that they don't necessarily explicitly internalize the levers they're taking on. And we're going to see how that impacts the market in the next couple of years. Our defaults. So how do we do this? Again, referring to the article in The Globe a couple of days ago. We are -- we ruthlessly look at ourselves in the mirror. Keeping in mind, we have a servicing enterprise, Quaestor Advisors, that puts a separate independent person or persons on every transaction we have. So our front office folks can never really be the victims of Stockholm syndrome, can never fall in love with their counterparties, because we have a stone-cold view as to what we're doing and what we have. And when we see a problem, we're running at it, right? We're not masking it. We're not afraid. Oh my gosh, we're going to have to report a default and everyone's going to think that the sky is falling down. We want defaults, right? You can mask defaults and interest coverage by having very weak covenants and charging nothing, right? We focus on leverage and coverage, right? So we want to keep leverage low -- I'm sorry, leverage and severity. And we want to lose very little, if not negative, when we have a default. And the only way to do that is to charge a lot and measure your covenants all the time and have them be very, very tight. So then as the knife falls, you catch it and you act very proactively. And so what you see here is we have the notion of level 0, 1, 2 and 3, 0 being we have what we have. It's performing. It's fine. Level 1 being some sort of technical default because someone's breached one of our very tight defaults. Level 2 is where we're getting into more of an amendment discussion, could be a bit of a scrap, et cetera. And that happens, and that will happen. It's going to happen a lot more in this market. And level 3 is situations like level 2, except where I think we have a shot at losing money, right? And so what you see here is, frankly, in the last 3 years, we've probably had in our multi-strategies one situation of $10 million that kind of went into what I would call the operating room. And I actually -- I think we've solved the solution with the gentleman involved who didn't do what he said -- he told us that he would. I think over 400 transactions, the number of times that we have lost any material dollars due to any other reason than kind of obfuscation or fraud is 0, right? It's -- we're not losing because we didn't judge the E&P market. We didn't judge a country. We didn't judge the credit markets. It's when someone doesn't do what they told us. And in the vast majority of those times, because of the covenants that we have, we run at the situation and we deal with it. And what that shows is not only are those very infrequent, but even in the couple of times they are, they do happen, we mark the heck out of it downward, right, which basically nobody in our world does because we want to be stone-cold truthful with ourselves so that we can identify a problem, we run at it and we deal with it very proactively. You'll see the returns here across our product platform, which Parag will tell you about. Ultimately, the greatest predictor of whether we raise ASOF III or NZ REC III or whatever the subsequent funds are going to be is that we're delivering what we said. And we deliver what we say by sticking to, again, what are our attachment points, what's our loan-to-value, what are we making, how sure are we making it, and how are we effectively enduring ourselves to the overall cycle? And we've continued to do that. We have a big opportunity in front of us. We have -- we are the victims of a combination of really profligate monetary policy since 2012 with the initiation of QE2 by the Fed and effectively its peers, which recreated the largest asset bubble that's ever been, both absolute and relative, and as well as the kind of grossly profligate fiscal policy that we've had since 2020, both in the U.S. and around the world. You kind of can't have both of those without a real problem, right? What Japan showed is you could have an asset bubble and reasonably responsible fiscal policy and kind of slowly deal with that bubble over a couple of decades. That's our best case. It would appear, and I know -- we're no macro experts, political experts or otherwise, but it is highly likely that we are, certainly in the U.S., committed to fiscal and discipline for the near to mid-future, which effectively ties the hands of monetary authorities, which means that ultimately a combination of rates and inflation will be highly likely to be higher than and for longer than people currently expect. And by the way, if none of that happens and Powell drops rates and all is well and there was never a problem and it was all just a dream, we're okay with that, too, given the nature of our investments, right? We don't need that to happen in order to be successful and very successful. We've talked about what's happening in CRE. And we'll mention what's happening now is a slow rolling out of problems generally in conjunction with the degree to which there's a cash need or asset liability imbalance. So we first saw it in kind of the growth in venture world where people hit a wall, and they're now going through a kind of existential crisis. We've seen it begin in the entire world of GPs and LPs and the overcommitment for over -- for too long a duration, the things people didn't understand, and we're going to see the results of that. Over the last 2 months, though it was clear and present and obvious for 2 years, we -- the market's woken up to the CRE issues. And not just office, right, the whole thing, right? Because even clean non-office apartments were bought at cap rates that were ridiculous financed at levels that were unsustainable, such that you're looking at values that go from generically a situation where someone bought a wonderful apartment building at a 5% cap financed at 75% at 4%. And now that building is worth 70% of what it was. The equity's gone, the debt's impaired and the cost of that debt is going to be 2.5x what it was before. That's going to cause a big, big change. And virtually none of that has kind of been shown through the mark, so to speak, in what we're seeing but it's beginning. We've talked about also what's happening in corporate. It's a little delayed. I think in the next 6 to 9 months, we'll see a lot more. You've seen more bankruptcies filed this year so far than we've had since 2010. In almost every instance, when you read it, read about them, you see these notions of restructuring support agreements, and what those basically are is a way to defer the problem. When you -- in a world where you had covenants people and you had people who didn't have an institutional imperative to kind of perpetuate a tough and difficult situation, what happened was people went and got their collateral, restructured and moved forward. What you now have is agreements among creditors to kind of delay, delay, delay. And we're seeing that in these, what they call restructuring support agreements, that permit basically something worth $0.40 or $0.50 to be -- continue to be marked that $0.80, $0.90 par. And we're going to see more and more articles like we saw in The Globe this week about people questioning whether that's -- how real that is. But ultimately, the ratings downgrades will happen. The cash flows won't be there, and the walls are going to be hit in corporate and structured, just like they have begun in real estate. And then finally, to mention structure, we're seeing delinquencies move up across the board in consumer finance and related structured finance areas. And so again, there's a lot of paper that's held. We saw with SVB and First Republic this notion of hold to maturity. There are versions of that in other financial industries where effectively, people don't have to take unrealized losses into their income statement. And so it allows everybody to pretend like they're not happening. And so ultimately, those chickens have to come home to roost, and we'll be a beneficiary. How? One big barbell. As an opportunity set, Arena is in a great position to pursue both sides of this barbell that we talk about. On the one side is the demolition of this long-term asset bubble and all of the existing obligations that are going to be bought and sold, all of the new assets from these things that are going to be financed, all of the opportunistic process-oriented transactions that will arise from the midterm -- minimally midterm rationalization of all these terribly priced and mis-structured assets. The total addressable market is in hundreds and hundreds and hundreds of billions of dollars. On the left side, though, and it's certainly, in some ways, music to the ears of us as owners of the enterprise, is that there's a whole lot of areas where the -- or actually, my barbells are switched there. But on the right side on the page, there are opportunities to do things that are much more conventional. Why wouldn't you do that all the time, right? So we just created another asset-based lender similar to the one that I created in the wake of the crisis in 2010. We are offering a new fund in our excess capacity pools for more conventional commercial bridge lending. We're going to see a version of that in cash flow lending. There are a whole series of opportunities that are much more scalable, much more homogeneous, much more compelling as shareholders, as long as the risk/reward makes sense. In the last several years, they were terrible, and we didn't do them. But now they're coming back around and all of these things cycle. Nothing's ever good or bad all the time in the things that we pursue. So that means that the size of the opportunity is enormous for us. But also, the nature of it for us as owners of the enterprise is enormous because of these 2 -- of each side of this barbell that we're seeking to exploit. So I think with that, I'm going to pass the baton to Parag to talk about our kind of product set and what we're seeing out there in the market as we try to scale assets.

Thanks, Dan. So as Dan noted, we have certainly have a very compelling going-forward opportunity for Arena. Dan, after this section that I have, will speak to the fact that we have the infrastructure to capitalize on it with the corresponding margin opportunity. And also, importantly, we have the product platform to go after it. So this first slide, which you've seen before and has been in the supplemental presentations for some time now, we've had several good years of fundraising, several more to come. When I started Arena 5 years ago, we were around $800 million of committed assets under management and invested. And based on the foundation that had been laid before I joined and a lot of effort, we now have about $3.5 billion. And equally importantly, if you look at the next slide, we have a product platform that allows us to have effectively a core offering that we can importantly be -- have a good, compelling return but also not be exposed to the market cycles, as Dan conveyed. And then it allows us, in what you see on the right side, the upper right side of this slide, to flex into opportunities that are very attractive at a point in time, in what we call our excess capacity offerings, where there's more to do than we can do in the multi-strategy, which is on the left side. But it's very compelling, and it's right in front of us and investors kind of can decide to take advantage of that opportunity as it's available. And then also, we're on the lower-yielding side of things and sort of more kind of asset class exposures where we can deliver a very differentiated return per unit of risk in those lower-yielding things through our stable income offerings. So we'll always be evolving this platform, but this is a good design and a good base to have. And it's a great position as we look at the investment landscape ahead of us. Just to say a few words on the environment right now. There are both headwinds and tailwinds. Certainly, it is a challenging fundraising environment for a couple of reasons. One, there's a lot of uncertainty about what kind of lies ahead, and so that effectively has certain investors on pause, and recognizing that risks could be skewed to the downside. For those that have been very active in private markets, there is the notion of what Dan referred to in terms of a lot of those assets not really being properly marked to reality. And so you have this divergence of people looking at their private portfolios and their public portfolios and kind of saying, well, where are these things going to end up? And I'm over-allocated at a moment in time to those things. And in general, kind of -- I don't know, obfuscating or complicating all of that is the fact that, in general, across the money management industry kind of regardless of what's happening, the incentive is to say now is a great time and this time is different. And Ed, who's one of our salespeople who's here speaking to investors recently, who is saying that historically, he was getting these literal numbers, kind of 200 inbounds a day for managers, senior professional at a pension fund. Today, it's 400 a day, so just to give you a sense of kind of how much people are soliciting and how challenging it is on that side. But at the same time, while there are those headwinds and there are always going to be headwinds of some sort, our tailwinds are greater than our headwinds. So we have a great client base for which we have delivered very good returns. They are -- they continue -- that client base continues to grow with us and be supportive as we continue to have new offerings. We have a very differentiated approach. This has been communicated to investors globally over thousands of meetings over the time that I've been here and beyond, and we have a track record that supports all of what we said. And as well, I think as investors are looking for where there is opportunity and where they want to put money, generally, we fit into certain labels that people are using in certain buckets and things like opportunistic, fixed income, special situations, even areas like distressed where people are looking for opportunities. So there's a matching up of people who are even looking to find us as much as we are looking to find them and communicate to them. One of the things I was asked to kind of clarify as well on the asset growth, which I think is important for everyone to understand, is that our asset growth, while it's been significant, has been a bit lumpy timing-wise. And this is because as you see kind of on the left side of this page, we've tended over the last several years, and I think that will continue through the next kind of year and change. As we continue to build and evolve the platform, we've tended to raise money around different campaigns and product launches as we've been kind of building and evolving this platform. So for our multi-strategy offering, we've had 2 big launches of our closed-end funds. That's what you see here with Arena Special Opportunities Partners I and Partners II at the bottom. So that's been about $1.5 billion plus of money that's come in. In these excess capacity opportunities, the main one has been our New Zealand real estate franchise where we have -- we are financing the construction of affordable housing in New Zealand, where the government protects our downside through an offtake guarantee. And so we've done 3 successive fund launches on that side, mostly coming between 2019 and 2022. That's been about $800 million. And then also, we started a pilot program, which I'll talk about also in the going forward campaigns for an ABS product in our stable income offering. And so if you look at kind of the fund raise, this slide kind of combines the previous slide with the slide too before that, If you kind of look at how our assets have grown, they've grown around these campaigns that we've had. So as we have done the launch of these multi-strategy funds in orange, the excess capacity, you've kind of seen that asset growth come through. But coming back to now what that means for going ahead and how we see the assets kind of evolving from here, and this is what we're working on and this is what we're excited about, just a caveat, these are not projections or guidance. These are our targets for what we are hoping to achieve. The -- I mentioned the kind of excess capacity in New Zealand Fund III. And we're -- that was raised mostly into 2022, although we just recently closed -- formally closed that fund at a little over $300 million. And we'll expect that probably, there's going to be more to do in that and/or other offerings. On May 1, we're very excited about our new insurance-dedicated fund. So we launched a partnership and a feeder fund on a platform called SALI, S-A-L-I, where basically into one of our existing or open-ended fund, we have the ability to work with individuals and wealth managers and different insurance companies to effectively offer U.S. taxable investors a way to invest in our strategy that is highly tax advantaged. And so that opens up, we think, a market where we've had some success but where given the nature of what we do, which is very high current income, is very tax punitive. And so it makes what is very compelling, even after tax, that much more compelling. And as one anecdote on that, recently in a report by Goldman Sachs on the family on -- in their global family in their -- sorry, family office study, only about 2/3 of family offices are even invested in private credit, if that's nominally kind of the bucket that we're associated with. But the average -- and even then, the average allocation among those is only about 3%. And so they see and project kind of 30% of those kind of family office, high-net worth individuals and families are planning to expand their allocation. And by the way, that's based on taxable allocations to this world, not kind of tax advantaged. So we're very excited about that vehicle. It just launched May 1. We're starting to develop and nurture a pipeline into that, and we think that will create good amount of AUM growth there. We also believe we're close to launching -- having the first close of our third drawdown vehicle. And so that's one where it's going to be anchored by commitments from folks that have been investors in the first and second fund, and we're looking to kind of close that into the summer. Those funds, if you look in kind of the previous slide that Dan had covered, are returning to those investors kind of mid-teens net returns. And so again, very attractive. The track record is there, and we're excited about that. I think as a fact of the matter, I think our last offering was close to $1 billion. We think that we're going to target at least that, if not more, for the next one. And then we've also -- Dan alluded to this, have signed a fundraising partnership and ourselves are really looking to raise money in this excess capacity opportunity in commercial -- short-term commercial bridge loans in the real estate world, where we can make with a slide -- with the application of leverage, a mid-teens type of net return in kind of 18- to 24-month loans against income-producing or near income-producing properties. And again, very attractive as the world of kind of real estate and real estate investors are starting to migrate from this idea of real estate being an equity investment to debt being very attractive and us having managed this also on an unlevered basis in our stable income offering for some of our insurance clients for now going on 7 years or so and having a track record that shows that we have, again, differentiated return per unit of risk that we can offer in this space and a great track record across nearly $1 billion of global real estate deployed since our inception. And then finally, kind of as we look to this year and into next year, for a stable income ABS offering where we're buying kind of asset-backed securities, again, with sort of roughly kind of double the return in half the duration of what the market is, we think that we are working on a partnership where we may offer that in an interval fund format and that the natural buyer for that is likely more the retail consumer. And it's a very -- and it's a world where such an offering does not exist amongst those types of vehicles, and so we're very excited about that. So look, we have a lot to do. We have a great set of offerings. We continue to expand the team. Our team is mostly all here. So Lindsay is sitting next to Ian. And then we got the back row, I guess, over here with James and David and Ed and Amanda. So we'd love to talk to you afterwards, and feel free to meet the team and they can tell you kind of how it is out there and what we're doing and what we're working on. The pipeline continues to grow. We remain very excited. We think that what we're building and how we are doing on the assets under management front should only continue to increase, just as it did from us going from about $200 million a year of new money in our first kind of 4, 5 years then jumping to kind of $700 million raised in 2020 and about $1 billion in the last 2 years. So we see that continuing to increase. We see the brand recognition continuing to get there. And on a bottom-up basis, again, we're having thousands of conversations with investors and finding those that are very compelled to participate alongside this giant opportunity along with us. So with that, I will pass it back to Dan.

Thanks, Parag. Now here, we just want to kind of circle back to some of the ideas I started the presentation with, where we're talking about us as co-owners of this enterprise. And what are we trying to -- what outcome are we trying to create and how we're going to get there. As I mentioned, keeping in mind our 3 sources of edge, in addition to this mandate that allows us to avoid moral hazard, we have this global sourcing infrastructure and a similarly global servicing and surveillance infrastructure that allows us to kind of gain the edge that we do. And I keep in mind, as we think about our expansion and the operating leverage we're seeking, note that our largest office is in Bengaluru, and our second largest office is in Jacksonville. And the point here is that we have -- the Bengaluru effort arose as a result of a decade-long experience I've had in a previous business building substantial infrastructure in India. It is not -- it is -- there are certain capabilities and skills necessary to do that thoughtfully, but we have built the groundwork such that, that can -- that office that supports all of our different functions can scale very, very materially and very cost efficiently. And the level and scale and capabilities that we encounter in our employees there is really excellent. And it means that as we grow substantially, our ability to just add and add and add there is going to be very high as we've done the hard work upfront to set that on its right course. Second, in Jacksonville. Why Jacksonville? We spent a lot of time 6 or 7 years ago thinking through what's the right time zone, what's the right tax regime, and importantly, where on a temporal basis has the largest kind of bank implosion happened. And so non-Miami, Florida really rose to the fore. It's only gotten better, given the kind of relative tax regime and kind of climate there. But it has allowed us to very materially scale as well our Quaestor servicing capabilities in a really thoughtful incremental way. And so with those 2 as the engine, we can lightly put people into the world's capitals and be in a position where our incremental costs associated with very large-scale asset growth relative to what we've developed thus far can be very limited. And thus, we achieve operating leverage. Again, reminding you of the structure. AIGH is the enterprise that we're trying to grow equity value in. Again, we have AI, where we are investing on behalf of other people and then AIS. Again, AI, we have our Arena Investors asset manager. And associated with that, we have Quaestor Advisors doing surveillance and workout as well as its associated entity, Quaestor Strategic, where we are doing operational improvement. And again, the more -- in a tougher situation that requires operating skills, whether it's corporate or structured or real estate, the more you are utterly comfortable and indifferent to taking the keys, the less you're going to get them. And the opposite is the case. And so to be in a position where we have great operators who can handle -- can lease up a real estate asset, can develop a marketing plan, can build a Board, can develop IT infrastructure for a company that we take over or building up, is vital to make sure that we're always kind of dealing with the downside before we encounter it. And from AI, we're going to go and seek to maximize 2 of our 3 line items that we're going to focus on as an enterprise. One is FRE, our fee-related earnings, which is our management and servicing revenue, minus all the cost other than those associated with kind of incentive compensation for our employees from our investments; and net incentive fees, which is what the -- what we make from the -- our investors minus what we pay out to the folks in our 8 business units and others related to those gains. And so generically, in my head, and I won't assign numbers to it, but -- public and private comps fly around. But in certainly in my head, I think to myself after speaking with innumerable bankers in this area of kind of a 10x FRE and a 5x net incentive fee, and I hear those numbers a lot out there. And then second, Arena Institutional Services, et cetera, we put into 3 buckets. One is Quaestor Capital Markets, right? What we found, obviously, that we use a lot of banking services in our enterprises. Do we need to do or refinance a loan? Do we need to auction a company? Lots of things out there where the ability to control that outcome on behalf of our investors is valuable, and we do that. But when you know where the bodies are buried in terms of the raising of capital, as we do very intimately, your ability to do that for third parties escalates and people start to ask us, can you find me that money that maybe Arena wouldn't necessarily do for a whole variety of reasons but is available in the marketplace, and we're aware of it, and we'll do that. Number two, QCG, Quaestor Consulting Group. Again, as we've talked about, when you have the wall of corporate and structured and real estate assets coming at us that we do, it is logical to think that a number of folks have either systematically under-invested in their ability to deal with their assets, either in terms of workouts or operational issues, or theirs is just simply not positioned given their scale or scope to be able to do that thoughtfully and are faced with the choice of not doing anything at all or paying really, really high prices for large-scale brands in those areas that are otherwise focused on multi multibillion-dollar situations. And so when you think about 3 big things across QCM and QCG people will happily pay for and you think about finding money where it's tough, dealing with very, very difficult painful workout situations or getting something that's not making cash flow to make some cash flow, I think people are happy to pay for that. And we found that our people are beginning to pay us for doing that for them. And I think there's a lot more where that came from. And then third, in Arena Business Solutions, we have found, again, situations. And I alluded to these 10,000 small and micro-cap companies that are public out there. It's provided us a lot of opportunities on the investment side, certainly, but also as a kind of facilitator. Ultimately, a large number of those smaller cap companies feature business models that are capital intensive, that are not necessarily moated. They leave them always looking for another dollar. And at the same time, when you take into account the secular change in the -- what we'll call the gamification of retail investor -- investment, it turns out that a lot greater proportion of those 10,000 have actual trading volume than they have ever had before. And that creates opportunities for these small companies that otherwise wouldn't have access to capital to get it because of the liquidity and the volatility of those stocks. And so we have found that on a kind of service basis, we've been able to kind of place capital for folks through the ABS business, and we think there's going to be a lot more of those things happening. And it's very high margin, very lucrative and leaves our counterparties very happy. And so that's the third line, which is this notion of AIS FRE or AIS EBIT that we're going to deliver. And again, in my head, which is completely my purview and opinion and not a projection of any sort, I think in my own head at kind of 7x that. So I go 10x line 1, 5x line 2, 7x line 3, those 3 lines we're trying to maximize. We take away our small debt that we hope to extinguish soon, and we get to an equity value for our enterprise that we're seeking to optimize. As we talked about, we're going to show you this more and more clearly. As an enterprise, we are basically sitting down monthly with our business units, our 8 business units, and going through our business planning and what we call -- what is called OKRs, objectives and key results. And very -- with a great focus on not just what are we going to invest in, which is important, but also in what areas and how are we going to do it through what vehicles, right? So that's not just Parag and his team off to the side. That's intimately tied into the activities and priorities that are set at the business unit level that say we should do these kind of investments through these types of vehicles coordinating with our marketing people and our infrastructure to make sure that we can deliver that total package. And as we play with those levers, how does that affect the return on invested capital to our owners, right? So we are laser-focused on the optimization of ROIC at a business unit level that will then roll up to the overall enterprise that we're talking to you guys about. And as the subsequent quarters come, we're going to be ever more explicit about articulating that clearly so that we're as kind of transparent and open as possible about driving those numbers and give our investors and owners the chance to focus on products to make sure we're kind of staying on top of that optimized ROIC message. So with that, I will turn it back to Cam.

Thanks, Dan. Thanks, Parag. We're on the third section here, our strategic path forward. So in the years past or in past presentations, you've heard us often use or the thematic undertone of Westaim is that we acquire, we build and then we harvest. And talking about this in the last while, and to some of Dan's points, [ flossers ] will say the only thing that's constant is change. And obviously, in the last 4 years, between a pandemic, inflation, the banking issue, world tension, there's a lot of issues that have got our attention. But that said, we've been fortunate in both Arena and Skyward to have businesses that have been able to prosper through this particular period. And so we should look back and say over the last few years in this environment, what's happened? Well, when we look at Skyward, completing the loss portfolio transfer was really an important ingredient. In that regard, we took away prior reserve development and the rest of them. With the success of the FINCO returns, we participated in a $100 million rights offering, and we really did so to position Skyward for growth and to stabilize their credit rating. We found Andrew Robinson and made him CEO, and we put him in place and we dropped him in Houston in May of 2020. Because of my work visa, I actually could travel. And when we arrived in Houston that day, it was -- there was no one on the street. There was no one in the office. And when he walked in, he walked in pretty much unannounced and started making his impact. And the impact quickly became immediate and evident. He refocused business lines, an immense change to the culture. And how the industry saw this business and his leadership became apparent. All this activity resulted in the company being re-branded as Skyward Specialty Insurance. When you look at it forward, he made additive acquisitions in Aegis, which was a high-quality surety business, and they attracted a talent and now the company was positioned to seek a public listing. We retained E&Y as the auditor. An S-1 was filed. Through this period, we did 50 test-the-water campaigns. And through that, the messaging was clear that the company was being embraced by the community. In early January, the company launched on the NASDAQ market. It was the first U.S. IPO. It was 7x oversubscribed. And from a $15 IPO price, today it trades around $24. The company has 6 analysts following with buyer -- all with buyer ranges in a target price of about $24 to $34. When we look at Arena, through this period, and repeating some of the points Dan and Parag made, we've watched the AUM grow from $1.3 billion to $3.4 billion. The FINCO performances talked about allowed us to participate $44 million into the rights offering, and that was a very good capital allocation. Today, Arena's platform is global. It's spread among 7 offices with 158 professionals. And as Parag noted, the sales activity is really afoot. There's no question, as you've seen it in the press, the attraction to a private credit platform is immense. All the mega firms are very active in the space and positioning their organizations accordingly. So with all this activity, where are we at? Well, clearly, value is being created. We can see it in our NAV. The CAGR growth on that over this period since we started is approximately 8.5%. And you might say, given that the -- and I'll speak in Canadian dollars, CAD 4.34, that CAD 4.34 reflects a Skyward share price of $21.87. And I think a lot of us would believe or take the view that the valuation we employ on fair value accounting on Arena Investor is probably understated. It's currently around $27 million, with $24 million of that in debt. As 22% insiders, we are well aware of the disparity between what not only is the net asset value or the intrinsic value against our own share price. The Skyward IPO was clearly an important event, and it positions Skyward or positions Westaim an ability to harvest those returns and to use that capital in an effective manner going forward. Going forward, we are going to -- to be clear, we are going to seek to accelerate the growth in our intrinsic value. And in doing so, we are absolutely focused on closing the gap to the share price to that intrinsic value. And so how do we do that? Well, we go back to, again, build, evolve and unlock. When you look at the -- with our mandate being opportunistic investing, where we are at today with Skyward, we're coming up on our objectives of a 15% IRR. Today, it's approximately 12.5%. We are in the early innings of a very good company, and we expect that IRR to improve. Our partnership with aligned and capable management teams has proven to be correct. And as we -- our most important characteristics, we think of ourselves and we act like owners. When we retained Andrew, and we are in the early days of the discussion, and we had a lot of discussions with different candidates. The conversation is what is my mandate. Our mandate to him was simply, we want to be a first-quartile business. If we can't be first quartile, then we're out. If we can build this as a first-quartile business, we'll always be in a position of strength, and we will have lots of opportunities and lots of levers to realize on that value. Today, that's the position we find ourselves in. We've had this slide come up in years past, and I'll just touch on a few points. If you go down and we look on the left side, unlocking value, Dan talked about the platform of Arena and the levers that are now available for us to take that to the next level. This is a young management team that's clearly on the cusp of a J curve of growing. When we look at the ability for Westaim to optimize returns, I want to be clear, we consider all avenues. We consider capital market opportunities, structure opportunities and strategic opportunities. We are well aware of our tax issues and our go-forward thoughts toward that, not only on how to properly apply our operating losses, but our paid-up capital. And to put it in perspective because a question has come in, the gains in Skyward up into the mid-20s will largely be tax free. When we look forward on a go-forward basis, in years past, we've been -- while we've been active on the share buyback, we weren't active in a major way, largely because there wasn't a lot of cash flow coming back up to the holding company. And nor would we ever put the company in a position of vulnerability. But clearly, with the path we went on in taking Skyward where it is today, even our ability to put it in context and share with you, in the current banking environment, you would say, well, why wouldn't you go get just a term loan or a line of credit at Westaim and start buying your shares? Today's banks don't like net asset plays. They like cash flow. And while we have many of our Canadian and U.S. banker friends either shareholders or an LP investor in Arena, there is no discussion or debate about the value. Everyone sees the value being created, but they struggle in trying to provide a reasonable term line of credit back to Westaim for us to be active on, so we continue that dialogue. Now whether -- because Arena is conflicted, they can't do it. But there's lots and lots of Arena firms that will give us money all day long. But Dan just talked about the terms that currently they command, we're not so interested in that rate. But for the most part, I wanted to emphasize with you our discussions with all the bank players have been active for the last number of years. They all recognize the value creating. Whether it's regulatory rules or concentration rules, they see the Skyward value, they see the CUSIP. It is not a simple pathway to getting that line of credit in place as some might believe to be the case. That said, we continue on that path. This last slide, I think, is the most important one. Again, we go back to build, evolve and unlock. And let's break it down into the periods. In 2014, '15, we found both businesses and we acquired. In some cases, we stabilized. We've built the foundation. And from there, we've built upon it. And we talked about the years of 2016 to 2022. Dan talked about it. We reviewed it in some of the prior slides. And here we are ourselves today at 2023, and so what can we do? Well, we are -- obviously, we are -- we've executed on Skyward. In the test-the-water meetings, I was participating in a few of them, because the question by many of the new investors is what's Westaim's plan? Is this -- are you a Fairfax or are you a Third Point, if you will, other large investors looking to control the float? That was not our mandate. We made that clear. Like JEVCO, we positioned and we -- our narrative was that we will be disciplined and opportunistic in realizing on this investment. There is no question that with each passing quarter, we view that the value of this company will become more evident and will only reflect in a better share price, where they are in the early innings of creating a very special organization. But that said, we recognize and we're very cognizant of the playbook on this, being that providing some shares to the market will allow the share base -- share ownership base to expand, create better liquidity. That will only enhance our remaining shares. More importantly, we have an immediate use for shares. Despite the activities and the inbound of opportunities we see, it would be hard-pressed to find a better opportunity risk/reward that we understand better than buying in our own shares. So therefore, being very active on an NCIB or on an SIB, of course, that's obvious. We would move on that. When we look at the FINCOs, in the early days, as you remember, the genesis of the FINCO was we are going to raise some capital, and we are going to be aligned with management. And the returns that we earn on that portfolio will allow to cover the burn, the earlier burn of the GP. We've achieved that. Arena Investors, we've talked about has been profitable since the last number of years, and we expect that profitability to only grow. So therefore, in collaboration with Arena, we are working to figure out the best way to optimize that capital. There's no question having that strategic capital's been a very important cornerstone, not only in securing investors, in seeding new opportunities, new funds and certainly having that representation. It's true with all accounts, whether you're a private equity. And if you look at the mega firms, a big reason why a number of them go public is having the cornerstone of that permanent capital to lead by example. That said, we are very focused on accelerating the growth of the Arena development, and we are on the J curve with inbound opportunities that are interesting and that we think can accelerate their curve. So I would conclude that we continue to seek opportunities with our focus on the asset management business. This is a wonderful business within the current environment we find ourselves in and the opportunities and the verticals that can come out of that in the context of what we believe has to be high [media] rates of return or otherwise, we'll keep buying our shares. And to accept this, again, I speak for 22% of the insiders, the notion that we're comfortable seeing our discount to where it is today is unacceptable. But more importantly, really, we are just entering the period, if you will, on the ability now to pull the levers effectively to be able to act on that and to narrow that discrepancy. Before I open it up to questions, It would be remiss if I just didn't being spent 4 years if I didn't take a minute, first of all, to -- [indiscernible] is not here, first of all, to acknowledge and thank all the employees through this period, it was a big effort for them to do what they did to get the IPO out. And to my Arena partners, their execution of building a business from a standstill to where we are today with the global platform is inspiring. And we hear it every day from those that come in not only to see us an investor but approaching us for inbound opportunities. And then to my own partners to every -- Rob and Glenn and Jason, all the others. And certainly, the Board of Directors, we want to say thank you very much. And I'd like to acknowledge Steven Cole, who has retired as a director who was with us 8 years who brought forward a great contribution. So with that, I'd like to thank everyone for coming back in person. And at this point, welcome your questions. And of course, know that we're all available hereafter to address with you one-on-one. So thank you. Yes, sir.

[indiscernible] I'm really surprised that the share prices has remained so flat for so long when you have added assets and growing the business at a very high rate and there is a flat share price for so long, It doesn't add up to the [indiscernible] do you have a [indiscernible] rating versus [indiscernible].

Well, I think you've just asked the question that everyone is thinking about that we talk about. And small caps, first of all, have not been a great place to be. And I think there's some in the audience that could probably speak to it better than I can. But holding company structures have had issues in the past. But they ebb and flow. Sometimes, people like to -- a lot of times, they like to box you. What do you like? And when we look at a comparative, I think of ourselves and sometimes probably more in the U.S. sense when I'm answering this question like a White Mountain. White Mountain is an NYSE-listed company, 30 years. It's focused on finance insurance. And through the years, they started, they made investments and the stock didn't do much despite the intrinsic value as they were creating. But as they started to harvest, they moved on the activity and they started buying their shares and then they repeated that process. And if you go back and you look at their share price, which were IPO'ed in the mid-teens and today is $1,200, it went like this. And up to now, we haven't had an ability to act on it. I think certainly, the inside ownership, which has not -- has been continuous, and I think you'll see it continue, certainly it reflects the confidence that you just spoke of. We don't have a big following. We have 1 analyst, and thank you, Jeff, for coming. He is here. For all purposes, we're a U.S. company listed in Canada. So today, our ownership is about 45% foreign with mid-30s being U.S. owners. And so all those on their own probably create some friction. But we do have levers now available to us to narrow that deficit.

[indiscernible] fast track, is that a possibility? How much of business is focused on the U.S.?

Well, we have really very little in Canada. We don't have anything in Canada to speak of. So Skyward is a U.S. business. And as Dan talked about, Arena's U.S.-based with platforms across the globe, but for all purposes outside of some investors, both at Arena, Skyward and to Westaim, there's no business activity per se in Canada.

But what percentage in the U.S.?

Well, in Skywards case, it's largely U.S. And in Arena's case, Dan, what would you describe your dispersion about, 70-30, 65-35? Yes.

So you've got, obviously, a major commitment to India and [new zealand].

Okay. As we talked about it, we have a commitment in India with regards to our human resources. Those folks are not conducting Indian-specific business. They're supporting what we're doing globally in a very cost-efficient way for our undercarriage for the infrastructure at the firm. With regard to New Zealand, it so happens that, that's been an area for or what we call our excess capacity funds, which is one example of things that we're doing where there's just way more to do than dollars that we have to do it with while maintaining the diversity that we like in our multi-strategy efforts, and we'll will size up in an area like that. So there's nothing to very different circumstances. But ultimately, as Cam said, we're U.S.-based, at least 2/3 plus of our investments are in the U.S. I think that will continue to evolve globally over time. But if the response to the question was in service of your query regarding the NASDAQ, if we were to list anywhere other than Canada, I can't imagine it would be any place other than the U.S.

Do you have Europe too?

Absolutely. But again, a minority piece of our business is there.

I had a question for Dan for. You guys speak to avoiding hammers looking for nails as you've structured the investment function. And I'm curious in terms of LP conversations today, to what extent are they overcommitted on strategies that were hammers looking for nails relative to the multi-strat offer? You guys were sort of building it before. It became important. And now it seems to be growing in importance, but I'm just wondering if LPs are there with you, It's through an increasing degree? Or are they still looking for sort of sleeve allocations relative to the multi-strat approach?

It's both types, but I would say that you're right in saying that historically and up until kind of the recent period, it's been the minority of folks who would just say, "Hey, I really am interested in kind of a special situations type of investment strategy and opportunistic type of fixed income allocation without kind of having a view or a narrowness to that to say. And I want to allocate it to X versus I want to give a manager the ability to sort of figure that out." But I think as these things go, there's kind of investors that lead and there's managers that lead and kind of the 2 that come together kind of create these evolutions in how people think and collectively act with their allocations and their investment strategies. And I think you can just see it across even the very large mega asset managers, name a firm that's not already announced or about to announce or thinking about or previewing their opportunistic fixed income, they're kind of go anywhere, there take advantage of the opportunity type of funds. So I don't know that investors yet because of just the nature and the incentives of how these things are marked and so forth are yet kind of regretting not having done that before. But certainly, as they look forward and are making allocations. Increasingly, it's really flipped the other way. And that's why as the ratio we have never had -- my team has never had as many inbounds kind of coming in to people saying, "Hey, I'd like to learn more about Arena."

So maybe then just you could just speak to what the upper bound is on the multi-strat raise for this year because $1 billion is insignificant relative to the size of the asset class like some single strat or sleeve funds are 20x that in our finding commit. So I'm wondering, is it 1 to 5? Do you think you could raise or 1 to 2? What would be a great outcome?

Well, I think we want to put -- and Dan can speak to this well, but we want to put quality first not quantity. And so kind of the way we think about it is let's be conservative in that. Let's recognize that this is a capacity-constrained strategy ultimately, at least for our multi-strategy, although, again, the ability to flex into other things and have a much larger platform. And so when we are -- and with the caveat that these are not projections or guidance, when we're kind of setting a fund size or kind of how much money we're going to bring in, we're doing that, always looking at what is the opportunity immediately ahead of us and how can we size that in a way that we can put the money to work relatively quickly as well. And for us, it's less about saying, okay, let's sort of put a larger size on that, we'll just raise [excessive] funds kind of as we go into it. So it's more that the sizing reflects kind of if you took a snapshot today and the money all showed up today, what would -- where would we be able to put it to work in kind of a 4- to 6-month type of period. And then, by the way, if there's more opportunity, we'll do more if there's more of a pipeline, we'll bring in more. And that also only relates to, again, the closed-end offering. Our funds because they're also importantly, asset liability matched on the out, we're taking in money across different vehicles. So this has the opportunity, $2.5 billion our multi-strategy to grow. But also, we're not looking to build a plain vanilla, undifferentiated, taking as much money as possible, be bloated platform. I don't know, Dan, can you add to that?

Yes, I would say again, repeated -- our frame here is a level of self-control and staying aligned with our investors. And there are a lot of people who went from $800 million to $1.5 billion to $6 billion to torture people. And we have no need to do that. And frankly, people don't like -- we don't -- unlike maybe those more fortunate, we don't get compensated on uninvested committed, right? So there are people who have an incentive to kind of get -- put a big headline number up which may put their money in their pocket in the short term but ultimately may enter to their detriment. In our case, we do see investors say, even though they prefer a drawdown structure to Parag's point, they do want to see it invested relatively soon. And if we keep doing our job, we should be able to just kind of keep doing that and doing that and doing that. And I'd say also, you are right about the addressable market. If someone came to us with a view that added a 0, I have great conviction around how that could be accomplished and over what time frame. And I'd say I like how we're looking at things organically, but -- and I see that's constant progress. But at the same time, it's a big world out there. I think a lot of people who are asset-heavy and capability light are trying to figure out inorganic ways to kind of help themselves. And for us, if we -- if and when we see an opportunity to kind of pull forward our business plan, we're not going to be shy about it given the marketplace and the addressable market.

It sounds like you're taking the benchmark as a venture world, you're going to route benchmark versus recent.

something Like that. I think -- look, in my head, I think when I think of great firms like [outpost] or Eliot or my old firm, [indiscernible] at farallon. There's a lot of reasons why they could be $300 million right now. But I don't think they've ever had to apologize for a decision they made. So long term, we've committed to our investors that we would be an investing business and not a marketing business.

Dan, can you talk to your relative performance in the asset class? My impression is that '21 was maybe a better year and that there were more performance fees you earned in possibly '22. And then maybe that accounts for not being quite as aggressive on the AUM growth that you're forecasting for the coming year?

No. No. I think if you look at what '22, as I alluded to in terms of the types of investments we did near the top of the bubble, they were intrinsically better return per unit of risk, but didn't have as smooth a return distribution to them. And so obviously, that creates some confusion because if people say, well, aren't you the [lone] guys, isn't it supposed to be a point a month no matter what. Well, when you liquidate [your financials], they don't go exactly per month or whatever those things might be. And in that case, we had a couple of things that -- as an example, we have a wonderful energy business where we've never taken a commodity view, and we foreclosed on 6 different enterprises. We've made nearly $100 million doing it. But once you then own it, you become the residual owner of the bounce in commodity, right? So we have negative basis, and it's wonderful, and we're liquidating every day, lifting and selling every day, but it creates some more bounce. Now it bounce is as a result of the manner by which you're ultimately collecting your winnings, I don't mind that, right? As I say, if I'm not playing with the house's money, I don't mind how much a bounce is. But the pace by which we seek to add money has really been about what we see out there and what we can do responsibly. And if anything, I think it's nuanced. So on the one side of the barbell in terms of taking advantage of the kind of implosion as we're seeing, we've been pretty patient about watching these things unfold, right? Real estate was obvious 2 years ago, but you can't make the market get there. And now 2 months ago, it became there. And I think you are seeing across -- even in the areas I've outlined where there is an implosion ongoing right as we speak. It's not like everybody in those areas is willing to capitulate immediately and hand us over at 22% return with no risk. There are myriad stories of 5 stages of grief happening around the world in that regard. And so our backlog has been increasing investment-wise, but our number of completed over the last 3 or 4 months per month has been relatively lower and it is a relatively low ratio of what we see in the backlog over time. And on the left side of the barbell, as I mentioned, we saw what was happening on the corporate side. A year plus ago, we started creating a new asset-based lender. It's operating now, right? Two years ago, we started having seen what was coming in corporate cash flow, started planning the cash flow lending business. We're currently raising in excess capacity for commercial bridge lending. So we're pretty [thasle]. We're moving with markets, but it doesn't happen in a split second. And so we have to match -- we have to be thoughtful about matching our investment base to our capital. And overall, I'm marginally -- I'm always going to be concerned about either having capital or having investments. And I'm marginally more concerned in growing on capital because I see what we can do, and I see what's out there. And we don't mind having what we call a Darwinian funnel, right, where our bar just gets higher and higher and higher, that's fine. But it really is not about that. It's about matching those to. And as the chart show, it is, particularly at our scale, it's still lumpy, right? You're raising -- you're spending something and then you're raising another big chunk. And so over a longer period of time, you see that graph going where it needs to go, but we're still early enough that you're going to see lumps in it. 15 years ago, having $1 billion meant something. We're still emerging as according to our investors, 400 investments and 9 years into it. So the bar just keeps rising for what is going to be referred to by large-scale allocators as institutionally accepted.

So maybe a couple of questions on Arena, Dan. So obviously, fundraising underway, which is great. But for most of the last year, you've had a fairly consistent balance of deployed capital and about $800 million or $900 million of committed but not deployed. So it's been fairly flat. And maybe just speak to the dynamics there and thinking around the cadence of deploying that from here, right now at the same time as you're bringing in some fresh capital?

Well, again, keep in mind, sometimes your success is your -- fights against you, right? So if you look at ASOP 1, our drawdown first fund to draw down third fund, one is we're decreasing AUM as we harvest that and give it back, right? Even though as we gain in NAV, we are increasing in fees as we go. But we do have to give it back, and that's what we said we would do. And furthermore, a lot of folks who are in those drawdowns say, we love the ASOP 3, how much of our ASOP 1 are you giving back so we can recycle it back into ASOP 3? So you're always going to be kind of churning as you move upward. And so the -- we continue to -- if you look quarter by quarter on our exited, we continue to exit transactions and realize them. And so again, that -- the gross number as a result of what I talked about has been the case where you're at the [screaming peak] and you're not going to kind of give ground on return of free risk and the net number is further exacerbated by this harvesting of older things that we need to do to show that the vintages. Ultimately, you're looking at flight structure finance, you're looking at static pools or ultimately what should be your grade, your report card. And we're going to continue to press and exit things. If you take the [diametric] opposite of that of what's happening in the asset management world, there are folks who should be crystallizing what -- in all likelihood are actually losses, but just crystallizing generally, but are effectively incentivized to keep things out there that they shouldn't and ultimately not bring money back to the investors and not be in a position to then deploy more the capital that they just gave back. So it's just the dynamics of the asset management capital raising world that that's the case. And to Parag's point, I think definitely up to 2 years ago, it was I want my European mezzanine shipping guy on every other Thursday fund, and people are realizing that, as you know, as someone who covers financial institutions, the one way you get murdered in this stuff in Canada going back to myriad recent specialty finance enterprises or even get back to [Con Fed] life or other historic blow-ups is by being a hammer that always in nails and putting your investors up a tree. And so I think as you see some of the large brands, as an example, Brookfield's Oaktree changing their fund from distress to, what they call it, opportunistic, right, where you see a fabulous firm called [Six Street] doing what they call their [tau], which is a go-anywhere structure, that is becoming more. That light bulb is going off more and more about how this should be and how it's risk reducing, not risk permitting to let people go where the money is.

And I guess in the context of looking forward, I mean, clearly, the funnel is getting bigger and the opportunities expand. So you're going to bring in incremental capital here. I mean, we think about it on the outside as Westaim shareholders in terms of the recurring fees going higher, the share performance fees coming through. So I guess the thought process from here is you're clearly teed up to drive the aggregate to be sizably larger?

Yes. Again, you go back to our business units, right? They all have senior people. We don't -- there's no need for incremental MD, so to speak, right? It's all ,as we say, adding leaves to the branches, not adding any branches to the tree. In a very general sense, a world where we are $10 billion, probably means we have 300 people in Bengaluru, right? But the marginal -- contribution margin of that move is going to be significant.

And maybe one more follow-up because you did mention you've largely built out that infrastructure today. You've got what you need in place to grow and achieve those sorts of ambitions that you've laid out. I mean, Cam, you spoke to Westaim potentially playing a role in accelerating the growth of Arena from here. So help me square those 2 things. Is there an adjacent line of business, an acquisition or something you think that could be very complementary to Arena that perhaps Westaim could play a role in? Or how should we think about what kinds of opportunities we're sort of speaking about here?

Well, we're I'm utterly and completely aligned with [In-Cam] and [indiscernible]. We want to optimize the value of what we've tried to build, and that can come in every -- any given type of form. The finco has been vital to help us seed different opportunities. Skyward has helped us seed different opportunities. And so those things could be incremental or they can involve a whole different myriad version of things that are happening out there. Obviously, the kind of M&A and strategic partnership marketplace in our world is as active as it has ever been. And Cam and I have been -- have continued to say that if there are opportunities to pull our business plan forward, we want to address those. And never before have we been in a position where the platform is where it is and the opportunity set is where it is.

Maybe speaking to getting $10 billion of AUM and 300 people in India, how much capital could you deploy with the existing MD base, I guess?

Certainly $10 billion or more.

And as we think about doing that and perhaps seeing some operating leverage, is there any reason why should look like other alternative managers would sort of see 40-plus percent FRE margins? Like does structure of the business with excess capacity funds and perhaps smaller average deployment size, I mean there's a reason you wouldn't get there?

What I would say is there are if you really model it out, there are 2 levels of what Cam referred to as [torque]. One is just the absolute growth. And the fact that both grew a combination of the multi-strategy with the excess capacities and the excess capacities and stable income themselves are actually more -- higher margin, marginally even at lower fees because of the homogeneity of what's going on there. That's an opportunity. And then the second part is that we have inevitably in these situations when you're earlier in your life cycle, you might not get the same fee structures that other people who have been around since the 1980s, right? But ultimately, if you're delivering the same alpha, you're going to converge toward where they are. And so I think the notion of -- when you look at our founders class levels and other things that we've done for our special partners, nobody in our business delivering what we do in the way that we do charges that, nobody.

I just might have another question. I don't know if it's more Arena or Westaim, it's probably both. But given everybody's crystal ball [sucks], you guys are ultimately going to become really large owners of Westaim through the mechanism, the incentive mechanism that was created many years back. When we talk about seeking new opportunities, to what extent is it Westaim is a SPV for Arena-originated opportunities? Or is it Westaim originating their own opportunities and separate and distinct from things that Arena would see? And do you have a view or a preference?

I just want to maximize value. And anything of a strategic nature that arises, I'm immediately talking to [cam] and Rob that we see. You can see when you look at the convergence of insurance with asset management, and I would say, frankly, more life and fixed annuity than P&C with asset management, there's a lot of new structures and new options and possibilities out there. And we have an origination machine in an addressable market that is enormous. So we're turning over every rock, I can assure you.

Yes. I mean, that's a 2-part question. So the first thing is one of the byproducts of our share price is over the years, we had a lot of inbound, unsolicited approaches. For the most part, they don't really accelerate the business plan. The idea of sitting on someone's shelf and being harbored there for 6 or 7 years, and they're not really driving anything does nothing for us. We have growing profitable businesses. You're well aware of the M&A activity in this space. And we are of the view that the platform Arena building is very unique. And through that, we've talked about some of the Splinter or the new silos that can be created. That said, too, from a Westaim perspective, when you look through the passage of time, I think the relationships we have built within the insurance world, whether it's through Jevco, now Skyward is being recognized. We are a source that people will call for opportunities. When we see what we've done with Arena, we get those calls too on opportunities that we make calls. And now we are at the cycle we're able to consider and respond, where before, we're very much focused on -- we were acquiring, we were building and now we're in the Phase III. And so that rotation is coming through again. The difference that we would highlight though is given our share price is we have a very high hurdle here being it has to be something for us to act on that out of the gate is competitive for us versus buying our own stock or it's got to be pretty much accretive right out of the gate or it has to have such dynamics in that it would be obvious why to act on. And I think through our history over the last -- really, if you go back to 2010 has demonstrated that.

I'm just thinking insider ownership is 20% plus, it will go to 40% plus, and then you guys are going to buy back shares. So you're not really solving the liquidity problem, you're kind of creating a new one?

Well, I mean, look -- that's right. I mean, it depends which side of the argument you want to be on, right? So listen, there's no better answer than creating really good businesses that people covet and that people admire. And if that's also then being reflected by the insiders, well then -- that's a good issue. And you can solve liquidity or you can find stock, you just sometimes have to pay above the ask. And I do get calls for people looking for shares. They can't see any. If you believe in the IRR, if you believe in the intrinsic value, then going up a little on the ask really shouldn't matter, but that's over you. So that really is that gentleman's question. Maybe people get fixated on a price that doesn't move, but we're pretty comfortable. We're very comfortable on the value that's being created and then the path ahead.

We'll have them call us because we have a few million shares for sale at $7.

Andy?

I'm not so concerned for liquidity at all because of the gap between the intrinsic value of market correction. I mean you do some of the parts that doesn't -- some of the parts is kind of pacing, right? That's the lower end what obviously [indiscernible]. and you're now about to $5. So let's call that a 67% opportunity on the S&P. And I appreciate you weren't using the adjective obvious [indiscernible]. And I also agree with your assessment of been operating on, certainly, within Canada and are as called more [indiscernible].

To be clear, we did not [indiscernible] our friends in the U.S. We know us well. Yes.

Okay. So -- but I really encourage your management to explore other areas because markets -- financial markets have become so sophisticated that there is someone out that once they really understand the situation would be inclined to lend in some money. Now worst case is you wait until the end of the lockup, which I believe is July.

July 12.

yes, July 12. And then have access to. But I really encourage you to stay on that because that's a big gap. And if you actually describe some value to what you guys have done here and saying, "Oh, look, just going to keep on going" then [insicernible].

Duly noted. Yes. Thank you.

[indiscernible] other shareholder. Yes. I'd like to talk about some -- you mentioned buying back shares and then you mentioned adding to the value of those shares and how you can get people interested in the stock that you claim for $35 [indicernible] is. And today, I believe around $0.02, I'm just guessing. Instead of buying those shares back, if you launch your confidence in the stock and get more people attracted it to it, why not give a dividend instead to the shareholders? I believe that would have more outlook on the stock than just buying back shares, which basically doesn't attract any new investors, but dividends to attack investors.

Thank you for the question. You look at we're asset heavy. We're in the early years of generating the operating leverage of Arena that will flow to the holding company. And with all due respect, buying shares is way more attractive than putting out a step and little dividend. And we've thought of it, we've considered -- I want to assure you and an all participating today. I'm pretty comfortable we've considered every scenario. We've had -- and we welcome the feedback we get from shareholders to think of new ideas. That has certainly been one of them. But buying back the stock, in our view, is way more attractive than issuing a little dividend.

And also I'd like to correct something you mentioned -- so people are really interested in small-cap stocks. Well, I'll tell you this much. I want a few small cap -- junior oils that pay good dividend. And believe me, people are interested in those stocks, some that are paying as much as 10% dividend right now. So being a small cap does not mean that people aren't interested in it. So I'd just like to also point it out to you.

Thank you.

And only thing I'd like to say is all things being equal right now -- but let's say, we go under a real recession what has happened, a lot of your Arena or is that -- I believe Arena that has so much tied up in real estate. What has happened then?

Dan, do you want to address?

Sure. Well, as I mentioned, real estate is all not created equally, right, both in terms of the asset types as well as the place in the capital structure. So one, as an example, we have little or no office exposure, right? But much more importantly, we don't buy equity or mezzanine in real estate. So as an example, we had a loan -- 2 loans to a group that had a kind of smaller scale outdoor mall that was NOI producing, great counterparties, made all the sense in the world. One loan was due in November and one was due in February of '23. And as we got into the fourth quarter, the guy said, "Well, I don't really like where interest rates are going, I'm a little concerned. Why don't you just extend the loan for 6 months and I'll pay you 25 basis points." And we said, no, we have the maturities coming up. We have 30% subordination, i.e., your money underneath us, and we're going to have to monetize the asset if you're not able to repay us. And Lo and behold, we dug deep and paid us down 25% of our money, which meant that effectively we were advancing yet again, 65% to 70% against an asset that now is valued at a 7 or 8 cap instead of a 5 or 6 cap. So when you -- if you've done your work and had tight structure with short duration, when there are problems in an asset with other people's money below you, and whether those problems they're macro-oriented or idiosyncratic, that's when you get to make more money. And if you look historically, when you look at all of our defaults, what our recovery rate is, it's 120%, right, which means that when we have defaults, we make more. And I don't see anything in our portfolio that suggests to me that whether it's recession-oriented or idiosyncratic that we're not going to be a beneficiary of those problems without being loan-to-own oriented or [inciscernible] in any way, but simply making sure people stick to what they told us they would.

Again, like I said, not in any kind of recession right now.

I think it's...

I'm saying really going through recession -- real recession, that's a kind that we're in right now, where you still got got high employment, everything is basically grows here right now. I'm talking about a real recession. What would really...

There's no investment we own that I have made or I don't presume that the U.S. is going into the 1970s. I challenge you to outbear me...

How about 1929?

Well, it's actually it's good that you mentioned that. I think I've had people say, well, what if -- similarly what if 1973 comes, right? Okay. Well, if the entire equity market is valued at 3x cash flow, then I'm a buyer of the equity market, right? Ultimately, I follow where the cash flows are and the cash is coming back to me, I don't care. And so I like the things that we have. To be clear, when you get to in 1929, ultimately, what you got to was a period between 1929 and 1933, these things don't go down in one shot. And so when you have an entire portfolio that has a sub-2-year duration with super type covenants monitored monthly, you're going to get bites of the apple as it drops, drops, drops and people are going to actually either pay us or pay us back or we're going to take assets and we're going to liquidate into that. And ultimately, we're following the cash flows. So we don't have a thing where, as an example, we never -- if you're familiar with the mortgage business, you know there's a thing called non-qualifying mortgages. And I had people on our team say, well, we should lend against at a high rate against these non-QM mortgages, they're very high-return things. And I said, well, okay, so if I foreclose on those, now I own a bunch of non-QM mortgages with a 10-year duration. What do I do then, right? So we're not just looking at the duration of what we have. We're looking at the duration of the underlying and whether we can get on top of it and liquidate it very rapidly. So can anybody endure themselves ultimately to the worst of the worst of the worst, and whether it's 1929 or the initiation of a World War? No. Can we be the last one to go down in that instance? I think we can, if we do our job right, and I like what we own and how we're positioned.

In the interest of those folks that are online, there were some questions that were asked in advance of the meeting. So why don't I ask one of those questions now. The question is any idea when Arena will pay back the $24 million loan to Westaim and initiate the buying of shares? That was the first question. Second question is, is this an interest-free loan? And I'll answer the second question. The answer is no. It's a 7.25% coupon, I believe, loan. But with respect to the first question, maybe Dan or even Tim [Neville], who is the CFO of Arena is online. He was traveling. So he's online today. That's the guy on the screen. Dan, you or Tim want to address that?

Sure. Well, Tim is the architect of the financials that you're going to see in the next couple of quarters that outline these kind of 3 lines that we're pursuing. And obviously, I don't think there's, as an arithmetic matter, anybody who benefits more from the repayment of the loan than me personally. So I couldn't be possibly more focused on it. The reality is, as Cam mentioned, is that we have to have clarity about what's happening underneath the hood, right? And so the very same things that Tim is working on that we're going to be showing you in the next quarter and the subsequent quarters are what we need for that purpose. And so we are in talks with folks who are awaiting those -- that clear outline of those 3 streams. And I think in all likelihood, the most likely case is we will do a credit line with people that we're talking to that partially repays it and then ultimately through a combination of either distributions or the increase of that line will kind of get it towards extinguishment. So we're couldn't be more laser-focused on it, and I think it's eminently doable. But again, you can't be grateful for the opportunity that Banks Act as they do on the investment side and then curse them for not doing what they need to do on the borrowing side. Tim, do you want to give me -- maybe you can give some color in terms of the financials and what we're going to be disclosing and how we're going to do it over the next couple of quarters?

Yes. Thank you. So I think Dan is exactly right with kind of how we're projecting our cash flow when it comes to the AIG business. I mean if you look in the last 2 years, the cash flow turning positive and really building an FRE and available cash for distribution is growing. We also have a lot of unlocked value within our drawdown funds, which are coming into harvest period. So as you see on the financials that get distributed. You see the unrealized incentive available on ASOP I coming into harvest the growth in ASOP II with those cash flows coming along with a possible refi. I mean, you see cash coming through the business available for that pay down. So I think those factors are good, and we're going to continue to refine the financial metrics we can provide around the balance sheet and the cash flows. So that's very clear where we're projecting that.

Thanks, Tim. Other questions.

I've got 2 here. First question is for Dan and Cam and Rob too. So as part of the initial 2015 agreement between Westaim and Arena, there is the waterfall model where Arena investors must buy shares in Westaim after certain AUM and margin thresholds are hit. Dan, you're a value investor, obviously, you like the the discount to NAV here, as Kevin's outlined here. Is there any contemplation between Arena and Westaim to change that structure whereby that allows Dan and his team and Parag to purchase Westaim shares early -- earlier before you hit the margin target?

Why don't I give it the first job?

Sure.

So now in hindsight, a lot of what we created in that agreement, as you noted correctly, it's a double trigger. When we introduced that, it was acknowledged and celebrates being a lot of folks, particularly within our industry thought we got it right. And now with the passage of time in hindsight, I think we got a lot of it right. The alignment remains true. The question will come up with every now and then if we're buying the stock, does that put Dan in a conflict or Parag and others who are actively buying. There's never been a conversation about that. And there's even going back and tweaking it from that perspective, we wouldn't do it. Now where you could see a tweak is you can see a tweak being as we go through the strategic process, as we start pulling levers and we've talked about some of the activity, whether it's inbound M&A accelerator, all those could generate a reason to rethink. And we're okay with that because in the end of the day, we want to create a structure -- first of all it has to be economically fair. And otherwise, you won't retain talent. And so whatever shape that takes in, it will be reflective of some form of what's existing today. But -- and by the by, I'm not suggesting there's anything a foot, but it's a topic we've thought about because when you do get these inbounds, that will be something that someone will look at. And if they're bringing in or we do a transaction where it's so additive for all the stakeholders, then you just have to rethink the pie, what's fair, how are all the proper [indiscernible] being properly valued for their capital they're putting up and for the returns that the professionals are generating. Dan, do you want to add to that?

Yes. Look, I think that we have a decent amount of ownership amongst our employees. The agreement doesn't preclude us from buying shares. I'm also kind of floated to the gills in our funds, right? So I'm as [indiscernible] as I can be and the [indiscernible] as I can be. We are completely cognizant of the discount. And as Cam said, we're going to be pulling every lever and there's a lot of leeway ultimately for us to be -- to adjust if and when something transformative arises, it allows us to pull that business plan forward.

I mean the only reason why I say that is because I'm sure you're attracted to the discount as well being you'd like to buy that discounted cash flow against. And so I just wanted to raise that to see if there's any consideration. Another unrelated topic on the Arena, and this is somewhat related to Skyward, -- and so that you can you don't have to respond if you don't have if you don't want to Arena -- sorry, Skyward mentioned that they might be looking to reduce their allocation to Arena. Like they don't want to be as concentrated to you, now that they're a separately publicly traded company. Have you had any discussions on how much that could be in magnitude and also the timing of the maybe not renewing or maybe actively withdrawing some of the capital from your existing funds and maybe which sleep of the funds are there in?

So I'll speak to that in a limited way. I would make the observation that when you look at most insurance companies, they all have an alternative exposure now and it's growing. But in Arena's case, the exposure it was 20 points. And so it is a large weighting. So we would say that as a private company in the last number of years in a low rate environment, it was incredibly out of. In fact, the most additive manager of all the consortium they used, it was the most consistent, both on an absolute and a relative basis. That said, the structure of [indiscernible] investments, not necessarily Arena all, it goes through from an accounting perspective, it goes through what they call their NII line, their income line. And in a world now where you can make 4%, 5% on risk-free smooth line effect, you can see the analyst dialogue. They really reward that. They want to see that smooth line. And so from a perspective where you're creating a little more volatility in the NII that makes it harder for them. And so it was -- you should expect that , that weighting will go down for the obvious reasons that you can get a smoother effect, but it's not a reflection on the rates of return those strategies achieved. It's just a byproduct of a higher rate environment.

I'd add to that, that you're already seeing the wind go down implicitly because of the growth of the business. that investment portfolio 2 years ago was $765 million, that was $1.2 billion or $1.3 billion now. And with the growth in premium that they're experiencing, that's only going to generate even more float. So as a result of just by the organic growth of the business, the weighting is going to drop.

And so as they redeem or not renew as they come to maturity, like are -- and I'm assuming that you guys have investors that want to come into these ones, but cannot due to capacity issues. Like do you guys have standby investors that wouldn't take that amount?

Just to be clear, we have no dollars under management that can be redeemed for cash. So there is no notion of knock on the door, here's like. So all of our pools are asset liability matched. And so there's no need to ever kind of swap anybody or do anything of that sort. I think over time, as Cam mentioned, insurance analysts love this stream. We happen to actually deliver not just premium alternative stream, but premium commercial mortgages and premium investment-grade APS. And I think there's a whole variety of things that they do with us that match their goals in terms of not only the return they want to get, but the multiple they want to get on it.

And there's no question, over the years, other insurance companies have seen, it's not only the return, but particularly if you take 2022, your investment-grade portfolio, while you've got your coupon, the value of the portfolio got crushed with the rates going higher. In Arena case, in '22, they delivered about a 6%, 7% return for Skyward. So being able -- and that's a book value item, too. So not only is it going through, but it's adding to book value, which obviously helped on the IPO. But I talked about test the waters, that was clearly one of the questions because the analyst community, they don't know us. They don't know Arena to a large extent at that point, the insurance folks. So I think they wanted to understand is this effectively I referenced the third point, where that "hedge manager is taking over of the float." And that was never the objective. Ours was Arena should stand on its own, the returns justify the allocation. They started small as they did with every insurance company and now through time, Parag, correct me, we're 18, 20 plus or and each one continues to increase that allocation. So it's a good fit, but certainly, the NII accounting treatment, everyone thinks about that with all alternative investments, just not credit.

Maybe just last one for me. So Dan, on the operating leverage. I mean, the system is built at $10 billion, you can probably take that in 5 years from now without adding a body or many bodies...

Any senior bodies.

Or any senior bodies. How do you think about the incremental margin? Because right now, your margins are wherever they are, and you have to pay your senior people pretty well. These are alternative folks. As you grow to -- from 3.3 to 5 to 7 to 10, how do you envision the margin profile to grow during that time frame?

Well, I think we're going to have -- as you'll see in subsequent quarters, we're going to have more of an ability to kind of provide that the ability to model that and play around with that. We're super laser-focused on that, as you can imagine. I would point out that when you think about retention, this isn't -- we are not a fund where someone is a PM on a desk. And as the PM goes the returns or the opportunity or the strategy goes anywhere, I like to use the analogy that Bill [indiscernible] does about "next man up," we have in these business units in any given business unit challenge them to create franchises that are in their heads in our heads, $1 billion franchises among the 8. And in each case, through a combination of existing assets that are paying, existing joint venture relationships for discount relationships, the interconnection to our Questor advisers and Questor strategic, the front office analytics support that we have in Bengaluru, you have a lot of support infrastructure. And I view our senior folks on the front office side is as really talented like Formula One drivers, right? We have all the machine and all the staffing, the entire car, everything. It doesn't mean we don't want a great driver. But it's not like a 1995 multi-strategy hedge fund where your CV guy walks out the door and there's no business. It's just very different. We're building intangible value.

And what kind of firms are using the Questor from a third-party perspective?

On the Questor Capital Markets side, it tends to be more independent companies looking for either to auction a company or to access new, I would say, small and middle market kind of finance. In Questor Consulting Group, it is small or mid-scale private equity firms with portfolio companies that are at issue. And as well, I think smaller scale conventional private differences, right? So when you think about in either of those cases, if you have 25 portfolio companies, even today, at least maybe 20 are fine, 2 are okay-ish, but 3 are really exits -- going through existential issues, you can't really create a questor to handle 3 businesses that you might have over a couple of years. And so there's a diseconomy of scale and scope opportunity there. And certainly, you can go to world powerful, capable global firms like Alvarez [indiscernible] and or [J Alex] or those kind of folks. But the reality is they're going after the next class of [indiscernible] and Adelphia and [indiscernible] that are coming our way and not really focus on something with $12 million of EBITDA that's underwater. So the addressable market for that business is just enormous. And for really talented capable people who are able to kind of lock into those situations, that's really mono from heaven for those customers. So it's a real opportunity in leveraging [IT] we already have.

Great. Just going back to your comments about -- and obviously, your demonstration of that, I'm just respond size ability of the machine. [indiscernible] How does that I don't know if there's an investment in public [indiscernible].

Well, I don't know -- I mean, I don't necessarily know that we have to categorize ourselves as investment-led and in the investment management industry. I would much rather think in terms of Berkshire, Markel, Berkeley, Prem, John Malone and other really careful allocators of ROIC, whether they happen to be managers of funds or not. And plenty of those folks, if you look at -- if you look at those kind of historical superstar allocators of capital, we're not investment management firms, but we're brilliant investors. And having a -- if you look at what Henry Singleton did after the late '60s boom ended and we went into the '70s and in the book value per share he created in that kind of environment, being public can be quite accretive over time. So I wouldn't -- I think it's another tool in the toolkit of anyone who is really thoughtful about optimizing ROIC over time.

You talked about the increase disclosure at arena going forward. Maybe if you could give -- elaborate a little bit more on the increased disclosure and maybe the objectives of that and what investors can expect over the next couple of quarters?

Well, when we started, there were some Canadian specialty finance enterprises who are no longer with us that were not big disclosures of what they owned. And so we wanted to go over the top on a line-by-line basis on the left side of the balance sheet so that we allow the owners of our company to understand what we were investing in, and we continue to do that. When it comes to now the right side of the balance sheet and those 3 streams we were talking about, we want to make it as clear as possible those -- what those 3 lines are and how we're getting to them. And we want to -- obviously, I've been in all of your shoes and I am in all of your shoes all the time, right? And so if I were -- and I happen to be an owner of this enterprise, and I was trying to model this enterprise out, I know what that needs to look like, and I want to give people as clear a path toward doing that modeling as humanly possible. And so -- this arose probably in 2017, '18, where I knew I wanted to do this. It's easier said than done. And we implemented an entire NetSuite project, I don't know if you're familiar with that. But basically, to do what we want to do you need to be able to bucket every expense you have, right? And every expense you have should fall into 1 of a series of buckets that are collectively exhaustive and mutually exclusive as either direct expenses or then allocated indirect expenses. And so we needed to implement NetSuite in order to actually capture each of those -- every single check that went out of the accounts payable and put it into those buckets. And so we implemented that enterprise software system, which Tim did. And we created a strategy capability. We have a head of strategy and FP&A who has a strategy guy and a kind of FP&A modeling guy reporting to him, that have only been focused on doing this. And so we are at the precipice of being able to report in the way that I would like to. And that, in turn, will dovetail with a rolling 3-year forward model, the first year, which is effectively the budget that we're working with that then connects into what we're then showing to you all. So I would love to -- I would love it to be already there. It's almost there, and we're going to deliver.

I think from a public market perspective and what you guys see right now for -- we've evolved our disclosure of Arena investors over time. I think what you should expect is that right now, we've got FRE and incentive fees, and that makes up the EBITDA of the business. I would expect that the AIS business that Dan has been referring to has really been a nascent business where we've had sort of build -- start up, build up expenses. It's just now reaching a point where it's going to start to earn material revenue. And so it makes sense for us to now break that out of the FRE. It's sitting in FRE right now. So there's been a bit of a drag on FRE from some of the start-up costs of these very high-margin businesses. We're going to be breaking that out to show -- because this is the way we view it internally as 3 separate operating lines. And so I think you should expect to see that over the next couple of quarters. And it will really help sort of refine exactly what FRE is for our business. On the balance sheet side, our disclosure on the balance sheet has not been that great historically, but also hasn't been a focus of a start-up asset manager of the balance sheet usually isn't a focus. But as Tim alluded to earlier, if you look at our assets and our liabilities in that business, they've grown quite a bit. And you guys see 1 line item for each. One of the reasons is we've got a lot of accrued carry in there that is going to turn into cash flow over time. And I think it's important that our investors see a balance sheet that's more in keeping with being able to understand that. As the business matures, you're going to get into things like distributable cash and other things like that, where we're going to start to disclose more in keeping with what a larger asset manager would disclose. But we're going to take baby steps first and run later.

And I guess maybe a follow-up question, unrelated, but maybe back to what Parag had said about some of the headwinds of trying to raise capital in this environment. People already have allocations to alternatives or they believe they already have a good slice of either private credit, maybe they have real estate investments where they think this -- they don't want to add to their current exposure. How do you anticipate to sort of separate yourself from others in this space that have this label and that will potentially end up looking like pretenders in an environment where they were taking not great risks? How are you hoping to separate yourself from them trying to raise capital in this environment where right now, they all may look the same, but how are you hoping to differentiate and put a spotlight on what you do differently?

I would say it's kind of a convex shape to things, right? On the one end, you had 2018 and 2019, where everyone said they already knew how to do it. No need for us, right? We're going to do our direct lending and our other hammers and only see nails. On the other end, if we do have an absolute catastrophic 1929 mixed with a global war, and people are under their desk, they're not going to be responsive to [indiscernible] calls. But in that middle part, where I think we are. I think that -- I think it is net-net, very positive for us. And I think that I know who's competing and what they're doing in the market. And there's never been more than 2 dozen firms in what we would describe as our ecosystem. The majority of which are continent focused, meaning only U.S., only Europe or only Asia Pacific and the great minority of which are global. And of those that are global, there are virtually none that are not already several, several tens of billions. So I don't find people go saying we have this already virtually ever. I do know if you want to add to that, Parag?

Yes. No, it starts with by being different. And I think it's apparent. I mean, in the first -- when we're having first conversations with folks, we describe what Arena is and what we do and how we approach it. And I don't know, 9 times out of 10 or more people say, wow, that's really different. And then you look at the returns that are uncorrelated to what they've got. Obviously, some of that's [indiscernible] because everything has been going one way and it will only be clear. But it is -- it's accretive to a portfolio, whether it's their someone's first investment in private markets or are there 20th. So I think we're seeing that, and we're just seeing that, that is a process that, in general, does take time. The average institutional sales cycle is 18 months plus and we encourage we're very transparent. So we lay it all out there and people can dig into everything and talk to anyone and look at the underlying investments and investment memos and track record and all of that. And we find the people who do that work. only gain that much more confidence relative to the just 50,000-foot view that, yes, this is something that I don't talk to people who do what you do. So we only see that getting more to our benefit and moving more into asset growth.

It's 11:45, and I know that some of you folks have heard 12:00. And so if there's one last question, glad to take it otherwise, I suggest we conclude and for the last 15 minutes for those that have to depart at noon, we're all around to take your individual questions. And if you have the ability to stay past 12, we're here too. But there's one last question, great to take it. Otherwise, I want to say thank you, everyone, for participating or joining us online. And anytime anyone has a question or thought, an idea, please reach out, e-mail, send us a letter, we will respond. Thank you.