AGF Management Limited (AGFB) Earnings Call Transcript

Thank you. Thank you for standing by and welcome to the Q3 2026 AGF Management Limited Earnings Conference Call. This call is being recorded. And I introduce your host for today's conference, Mr. Tsang. You may begin.

Thank you, operator, and good morning, everyone. I'm Ken Tsang, Chief Financial Officer of AGF Management Limited. Today we will be discussing the financial results for the third quarter of 2026. Slides supporting today's call and webcasts can be found in the Investor Relations section of AGF.com. Also speaking on the call today will be Judy Goldring, Chief Executive Officer, and Ashley Lawrence, Head of AGF Capital Partners. For the Q&A period following the presentation, John Porter, Chief Investment Officer, will also be available to address questions. Slide 4 provides the agenda for today's call. After the prepared remarks, we will be happy to take questions. With that, I will now turn the call over to Judy.

Good morning and thank you for joining us. Q3 was a solid quarter for AGF. Our AUM and fee-earning assets were $74 billion at quarter end, up 31% from a year ago. AGF Investments Canadian Retail Mutual Funds delivered its ninth consecutive quarter of positive retail mutual fund net sales with $92 million in the quarter. Our SMA and ETF continue to see strong growth with AUM increasing by 57% year over year to $5.5 billion. And our Canadian SMA and ETF net flows were $179 million in the quarter. Kensington Capital Partners welcomes Saar Pekar and Bo Zananovic, two industry veterans with extensive experience in private equity and venture capital, to strengthen the senior leadership team at Kensington. Turning to our financials, we reported adjusted diluted EPS of $0.49 and generated $39 million of free cash flow in the quarter. Our balance sheet remains strong with $432 million in short and long-term investments, net debt of $28 million, and $170 million available on our credit facility. The strength of our balance sheet and capital position provides us with flexibility to deploy capital thoughtfully in line with our strategic priorities. Starting on slide 6, we will provide updates on our business performance. On this slide, we break down our total AUM and fee-earning assets in the categories disclosed in our MD&A and show comparisons to the prior year. AGF Investments Mutual Fund AUM was $37.5 billion, up 14% year over year. The growth of our ETF and SMA AUM globally remains strong, up 57% year over year. I'll provide more color on our mutual funds, ETFs, and SMA sales in a moment. Segregated accounts and sub-advisory AUM decreased 12% year over year. This quarter, we saw $650 million of redemptions from one of our institutional clients, of which $150 million was pre-announced on our Q2 earnings call. The $650 million in redemption this quarter was not performance-related, but rather an asset allocation decision. Our private wealth AUM increased by 7% compared to prior year to $9.7 billion. AGF Capital Partners' AUM and fee-earning assets were $15.7 billion at the end of the quarter, which now includes New Holland's AUM. Turning to slide 7, I'll provide some details on our Canadian retail sales. The Canadian mutual fund industry saw positive net sales of $18 billion in the quarter, while headline industry net flows were strong, 70% of the net flows were directed to fixed income and balance funds with only 12% flowing into equity funds. Given our tilt toward equities, we are pleased to deliver the ninth consecutive quarter of positive net sales in our Canadian retail mutual fund business with $92 million in the quarter. Our Canadian ETF and SMA saw positive net flows of $179 million in the quarter, more than tripling that of last year. As we have noted on the previous call, we continued to see strong flows in our Canadian ETFs and SMAs as retail clients look to utilize different investment vehicles to access our investment capabilities. Turning to slide 8, strong sales momentum has continued to drive growth in our overall ETF and SMA AUM. ETF and SMA assets globally have grown at 60% on a compounded basis over the last two years, now reaching $5.5 billion. We continue to see consistent growth and momentum across U.S., Canada, and Asia, where many of our strategies are available on leading wealth management platforms. Now let me provide a brief update on our investment performance. AGF Investments measures mutual fund performance by comparing gross returns before fees relative to peers within the same category, with the first percentile being the best possible performance. Our 1, 3, and 5-year performance was in the 46th, 47th, and 44th percentile. And approximately 57% of our funds outperformed peers on a 3 and 5-year basis. I will now pass it over to Ashley Lawrence to provide an update on the AGF Capital Partners business.

Thank you, Judy. We are pleased with the continued growth of AGF Capital Partners, our multi-boutique alternatives business. As Judy mentioned earlier, AGF Capital Partners AUM and fee-earning assets reached $15.7 billion at the end of the quarter across our various strategies. As we have stated previously, our goal is to continue growing AGF Capital Partners by supporting the growth of our affiliate managers while also continuing to look for targeted acquisition opportunities. On the origination front, we've seen a pickup in activity and held active discussions over this quarter. While we are actively underwriting a select few of these opportunities, M&A timing remains difficult to predict. We will update the market if and when any of these transactions come to fruition. That said, the discussions we are engaged in reflect the recognition of the market that the value proposition AGF can bring to these partnerships as we continue to build out the platform. I will also provide some quick updates on Kensington Capital Partners, our Canadian affiliate focused on private equity and venture capital. As Judy mentioned, following an extensive global search, Kensington welcomed two new industry veterans to its leadership team during the quarter. Saar Pekar was appointed as the President of Kensington and Bo Zananovic was appointed as a Senior Managing Director and Head of Private Equity. Both Saar and Bo have also joined Kensington's Executive Management Committee and investment committees of the funds under Kensington's management. With their strong institutional investing backgrounds at OMERS, PSG, and Ontario Teachers' Pension Plan, the leadership transition will bring a deeper institutional rigor to Kensington in today's challenging market. Finally, we recorded $4 million of revenue from our long-term investments in the quarter, which was subdued due to a $5 million markdown by a legacy partner in the venture capital space. This was partially offset by gains from other long-term investments. As we have seen in prior quarters, fair value can be lumpy, and venture investments can be especially choppy given its asymmetrical return profile. Since inception, these investments have generated returns of approximately 11% per annum. Given the composition of the portfolio with a high proportion of capital in later stage mature investments, we expect our LP returns to be around 6% to 8% over the next 1 to 5 years. This is lower than our long-term target returns of 8% to 10%, as returns are generally more subdued as assets reach their maturing stage, which is where most of our legacy long-term investments are at the moment. As we add strategies associated with our current and future affiliates and diversify the long-term investments book, we will continue to target long-term returns of 8% to 10%. We also expect to monetize a material portion of our long-term investments over the next 1 to 5 years with two main goals. These monetizations will be used to recycle capital into the business to support further investment in new affiliates and their strategies. And secondly, as mentioned earlier, our long-term investments are currently heavily concentrated in maturing legacy infrastructure assets. As these investments monetize, we will take a more diversified approach to our long-term investments portfolio as we continue to invest across our managers and strategies. While we participate in the fee-related earnings and carried interest of our legacy investments, we are not the general partner and thus do not control the timing of the monetizations. But we do expect these realizations to occur in the next 1 to 5 years given fund life considerations.

With that, I will now pass it over to Ken to discuss our financial results. Thanks, Ash. Slide 10 reflects a summary of our financial results with sequential quarter and year-over-year comparisons. The financial results in these periods are adjusted to exclude severance, corporate development, non-cash acquisition-related expenses, as well as other adjustments as noted in our MD&A. Adjusted EBITDA for the quarter was $49 million, down $15 million from the prior quarter, mainly due to a $15 million gain recorded from the New Holland transaction in the prior quarter, and up $3 million from the prior year, mainly driven by higher net revenues. SG&A was $64 million, up $1 million from the prior quarter and $2 million from the prior year. The increase from both comparative periods was attributable to higher non-compensation expenses, while inflation also contributed to year-over-year increases. Adjusted net income attributable to equity owners for the current quarter was $32 million, and adjusted diluted EPS was $0.49. Free cash flows for the quarter was $39 million, which is up $3 million from the prior quarter and $8 million from the prior year, mainly due to higher EBITDA from our AGF Investments business. Slide 11 provides a further breakdown of our net revenues. Within AGF Investments and AGF Private Wealth, net management fees were $101 million for the quarter, which is up $4 million from the prior quarter and $12 million from the prior year, mainly driven by higher average AUM. DSC and other revenues were lower this quarter due to lower mark-to-market adjustments on our seed capital investments. Revenues from AGF Capital Partners was $11 million this quarter, representing a decrease from the prior quarter and prior year. As mentioned earlier, this decrease versus the prior quarter was mainly due to the $15 million gain recorded in Q2 on our New Holland transaction. Revenues from our long-term investments was also lower versus comparative period. As explained by Ash, fair value adjustments can be lumpy. On slide 12, we outlined adjustments to our EBITDA. As you might recall, M&A transactions in the AGF Capital Partners business gives rise to various liabilities. These liabilities are fair valued each quarter with the difference flowing through to the P&L. For these non-cash items along with severance and other adjustments, our adjusted EBITDA for this quarter is $49 million. Turning to slide 13, I will walk through the yield on our business in terms of basis points. This slide shows our average AUM, net management fees, adjusted SG&A, and EBITDA as basis points on our average AUM in the current quarter, previous quarter, and trailing 12 months. This view excludes AUM and related results from AGF Capital Partners, as well as DSC revenues, other income, and any other one-time adjustments. Net management fee rates of 67 basis points are down 1 basis point from Q2 and trailing 12 months. Given the strong momentum of our ETF and SMA products, we are guiding to a 2 to 3 basis point net management fee rate decline going forward. While net management fee rates have come down, the continued growth of our AUM, coupled with strong expense discipline, has allowed us to see improvements in our EBITDA margins. The EBITDA yield for this quarter was 26 basis points, which is 1 basis point higher than the trailing 12 months. On a trailing 12-month basis over the last five years, our EBITDA, expressed as a percentage of our AUM, has consistently increased from 17 basis points in 2022 to 25 basis points in the last 12 months of 2026. Turning to slide 14, I will discuss our capital uses. This slide represents the last five quarters of our consolidated free cash flows on the trailing 12-month basis, as shown by the orange bars on the chart. The black line represents the percentage of free cash flows that was paid out as dividends. Our trailing 12-month free cash flows was $143 million. Our dividends paid as a percentage of free cash flows were 23%. In the same period, we returned $56 million to shareholders, consisting of $31 million in dividends and $25 million in share buybacks. During the quarter, we repurchased over 600,000 shares under our NCIB. We have materially increased our share buybacks this year. Year to date we have repurchased 2.2 million shares under our NCIB compared to 1.5 million in the prior year period. We ended the quarter with net debt of $28 million. We also have $432 million in short-term and long-term investments and have $170 million remaining on our credit facility, which provides credit to a maximum of $250 million. Our future capital allocation will be balanced and includes returning capital to shareholders in the form of dividends, share buybacks, as well as investing in areas of growth. Before I pass it back to Judy, let me take a minute on slide 15 to look at our market valuation. This slide shows our trailing 12 months adjusted EBITDA of $195 million and our enterprise value of approximately $1.2 billion, implying a 6.3x EV to EBITDA multiple. At this multiple, our long-term investments are valued at $85 million, representing an 80% discount against the balance sheet value of $415 million as of Q3, and the rest of the business continues to trade at over a two-turn discount against other traditional asset managers. This suggests potential further upside in our valuation, despite the strong share price movement over the last few years. When we see volatility in our stock, we continue to be very active and will continue to look for opportunities to buy back shares opportunistically. I will now pass it back to Judy to close out the presentation.

To sum up this quarter, we continue to make progress against our strategic objectives. AGF Investments and AGF Private Wealth businesses remain strong. Our AUM and fee-earning assets were 31% higher from the prior year. Our investment performance remains solid and our sales momentum remains strong. We remain encouraged by the continued growth and strategic progress within AGF Capital Partners. We remain disciplined in our expense management while investing for growth. The strength of our balance sheet and capital position will provide us with flexibility in our capital allocation strategy and the resilience to weather different market environments. I would also like to take a moment to thank our AGF team for all their hard work. We will now take your questions.

[Operator Instructions]

So the first one I wanted to touch on New Holland. Could you give us some color on the next steps that you're looking to do with New Holland? I understand that you need the approval of the fund investors before you get a controlling interest. Could you tell us if you're in discussion with New Holland to get that through and if you think it's going to happen, will it happen this year or the next one or further down the line?

Hi, it's Ash. Happy to answer that question. So just a bit of background. When we did our transaction with them to increase our ownership earlier this year, we maintained an option for an additional ownership to get us to a controlling position. Part of the reason for that option was to allow the firm, New Holland, enough flexibility in terms of how they operate in order to continue growing the business. And it is somewhat related to how we view their profitability profile over the next 2 to 3 years. Our expectation that at some point in the next 1 to 3 years we would look strongly at exercising that control position. We are not presently or they are not presently engaged with their LPs in terms of getting the consent for that exercise. We have been a partner of theirs now for 2 plus years, and we have been in front of their LPs and their large LPs on multiple occasions. So we do anticipate that when and if we exercise that option, we don't expect those conversations to be lengthy or difficult, but we are not presently undertaking them.

Okay, that makes sense. And the other question I had on New Holland is regarding the profitability. Do you expect the profitability to start increasing meaningfully over the next 2 or 3 years?

Yes. Yes. So on their profitability, maybe one quick clarification. Oftentimes when we're talking about profitability, we're really talking about fee-related earnings, which generally excludes performance fees when we talk about it. When we include performance fees, this firm is profitable, although performance fees and carried interest, you can never forecast with a huge degree of accuracy. As it relates to fee-related earnings and profitability, our expectations, and this has been consistent really through our ownership period is that sometime in the next 12 to 24 months with the operating leverage that they have built and invested in the business, we do expect them to move into a fee-related earnings profit position, excluding the benefit of performance fees and carried interest.

Yeah, I get it. Just lastly, just to clarify, I don't know if you can see or not, but have they been profitable so far?

On inclusive of performance fees and carried interest, yes, they've been profitable for a number of years. On that query. No, on FRE at present, they are roughly breakeven.

Okay, all right, thank you for answering my question.

[Operator Instructions]

Hi, good morning. I'm wondering if you could just give us some commentary on your flows in a few different areas. So maybe start with mutual funds. They've slowed a little bit. Any color and just what's behind that and how is Q4 trending?

Yes. Sure, Graham, thank you. Hi, good to hear you from you. In terms of, I guess, well, just to let you know, flows month to date or quarter to date are sitting at around minus $48 million. We did see a risk off sort of appetite kick in with investors during Q3 and you heard on our opening comments that a lot of the flows went into balanced funds and fixed income. And as you are well aware, investors generally come to us for equities, which as a result, we were a bit muted in that category as a result of the appetite changing for the investor. That being said, we do and as you know, last quarter, we started with the retail fund flows combined number, which included our Canadian SMA and ETFs, and we continue to see strong positive flows. So on a combined basis, we are net positive.

Okay, great. And maybe just on the institutional pipeline, anything to call out, good or bad, on that.

There was the one institutional redemption which we have highlighted in our earnings that came out. We had $120 million come out from our institutional series of our mutual funds, and then an additional $500 million that came out during the quarter from our strategic partner. Again, that we emphasize was not performance related, but was instead an asset allocation decision taken by that strategic partner. And on a go forward basis, we're not aware of any other redemptions that are forthcoming at this point.

Okay, great. And then on the SMA side, the SMA growth looked pretty healthy quarter over quarter overall. You broke out flows into the Canadian SMA, which are positive. Should we assume that flows were also pretty constructive on the U.S. SMA side?

Yes, they are.