AGF Management Limited

Robert J. Bogart - Chief Financial Officer and Executive Vice-President Blake Charles Goldring - Chairman and Chief Executive Officer

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division Paul Holden - CIBC World Markets Inc., Research Division Graham Ryding - TD Securities Equity Research Scott Chan - Canaccord Genuity, Research Division Stephen Boland - GMP Securities L.P., Research Division Phil Hardie - Scotiabank Global Banking and Markets, Research Division

Thank you, operator. Good morning, everybody.

I'm Bob Bogart, CFO of AGF Management Limited. We thank you for joining us today for discussion of our third quarter 2013 financial results.

Please note that the slides supporting today's call and webcast can be found in the Investor Relations section of agf.com. Today, Blake Goldring, Chairman and CEO, and I will discuss our third quarter 2013 financial results.

Turning to Slide 4, the agenda for today's call. We'll discuss the highlights of the third quarter, provide a business update, review the financial results, discuss our capital and liquidity position and finally, close with an outlook for the rest of 2013.

After the prepared remarks, we'll be happy to take questions from the analysts. With that, I'll now turn the call over to Blake.

Thank you, Bob, and thank you, everyone for joining us on today's call. Financial market performance was mixed during our fiscal quarter, with developed global markets outperforming Emerging Market equities.

Concerns over the Federal Reserve tapering it's asset purchase program, which proved to be premature, contributed to EM underperformance, particularly in countries with current account deficits and those with weakening currencies versus the dollar. European markets performed well and U.S.

equity markets continue their streak of out-performance due to increased optimism and marginal improvements and economic data. Canadian equity has performed positively during the quarter, supported by the financial and consumer sectors.

However, year-to-date, Canadian equities continue to underperform global markets. So for this reason, we continue to stress the importance of investing globally, both for equities and fixed income, not only due to the current headwinds facing the Canadian markets, but in an effort to take advantage of the expanded opportunities that -- and diversification benefits available outside of Canada.

Rotation to equity investing has begun. Year-to-date, Canadian mutual fund industry net sales for equity funds totaled over $2 billion compared to net redemptions of almost $9 billion for the same period last year.

Non-Canadian equity net sales are also positive when last year they were negative. Trends in Canada are following the U.S.

where equity fund sales are reaching historic highs. AGF has improved redemptions in non-Canadian equity, and we expect to capture an increasing portion of these sales going forward, as we believe we have a competitive advantage in global investing capabilities.

Now with that backdrop, let's review a summary of the third quarter. Assets under management ended the quarter at $36.4 billion.

Market action was negative in the fiscal quarter despite broad market buoyancy. Our market return was influenced by high relative exposure to a more Emerging Markets Equity.

In our retail mutual funds, we've achieved an improvement in net outflows on each of the past 7 months compared to the equivalent months in 2012. Our Institutional business has also made significant progress in attracting new client commitments in Europe despite modest outflows for the quarter.

EPS came in at $0.11 a share, and free cash flow was sufficient to cover dividend payments. To that end, the Board approved a $0.27 per share dividend consistent with previous periods and our commitment to shareholders.

Turning to Slide 6. Currently, 20% of our retail assets under management is above median on a 1-year basis as reported by MorningStar.

Investment performance remains a focus for us. However, there are funds that are extremely relevant in our Retail business that are not rated by MorningStar.

For example, AGF Floating Rate Income Fund. Launched in 2012, this fund provides safety, yield and a hedge against rising rates.

This is a blockbuster product. It's current run rate is around $400 million per year and it's on its way to being a $1 billion fund.

Last month, we launched the AGF U.S. AlphaSector Class, also unrated.

It offers exposure to U.S. equities with a managed volatility overlay.

The fund employs risk control strategy in down markets, but still providing equity exposure for upside capture in positive markets. The basic premise is that over the long term, investors can come out ahead by avoiding a large volatile market down drafts in their equity exposure.

We believe this is a great time for this product as investors want equity exposure, but the pain of losing money is greater than the potential rewards, and this is a product that will specifically address that concern. It's still early, but my feeling is that we've got a -- again, we've been very successful in fulfilling a market need, and we may yet have another blockbuster in our hands.

This fund currently has a sales rate of over $0.5 million a day. Another innovation launched last year was AGF Focus Funds, which are thematic bundles of our internally managed funds.

They've enjoyed wide appeal with our clients. Net sales for Focus Funds are in the range of $150 million annually.

In addition to products, we've invested in our investment teams and process. I'll share just a few examples.

We've invested in our North American team. Most recently, the addition of Steve Bonnyman, a 20-year veteran of the global material space, who joined our research team in May.

Steve's already helped us position our North American funds and has helped shape the investment process of our global resources strategy. We improved the process employed at Highstreet, which is our quantitative investment manager based in London, Ontario.

We introduced new investment leadership at Highstreet, built out its research team and now -- including an additional 3 PhDs, and established working academic relationships with the University of Western Ontario. Our Dublin office, which manages our global and European value mandates, had terrific success in the past with its stock selection, but the portfolio suffered during the financial crisis.

We've improved the investment process employed by Dublin by improving its portfolio construction capability and managing risk in a more thoughtful manner without sacrificing Alpha generation. The results have been very encouraging.

Highstreet's Canadian equity fund, which is our largest quant strategy, has outperformed its benchmark every period from 1 month to 3 years. The retail funds managed by Dublin are now all in first quartile over a 1-year period.

Turning to Slide 7. Retail advisor net outflows improved by 20% compared to the same quarter last year.

The improvement was the result of both increased gross sales and fewer redemptions of mutual funds, resulting in a reduction and outflows from $712 million in Q3 of last year to $567 million in the current quarter. If you include the sales we received from our strategic partners in Q3, the percentage improvement is even more dramatic, rising to 36%.

Including these strategic partner flows, we recorded net redemptions of $458 million in the third quarter. This is the best result since the first quarter of our 2011 fiscal year.

Strategic partnerships are important as mutual funds are increasingly moving towards platform sales and third-party wraps. AGF, with a strong brand and independence, is well-positioned to participate in this trend.

We currently resigned a long-term contract with our largest strategic partner, Primerica, and we're focused on developing and nurturing more partnerships. As I stated in the past, it's not necessarily only distribution that's paramount, but how a firm works with and supports its distribution partners that will support long-term value creation.

As shown on Slide 7, we changed the trajectory of our mutual fund net outflows. We expect this trend to hold for the remainder of the year.

One of our strategies behind the improvement is providing products that are unique, fill a need and can't easily be replicated by advisors, for example, the AGF Floating Rate and the AGF U.S. AlphaSector Class.

We want to use such products to establish new relationships and create cross-selling opportunities. For instance, over 900 advisors have purchased AGF Floating Rate, 30% of them were not doing business with us previously.

Up to nearly 300 new advisors who have purchased AGF Floating Rate, 60% have bought a second product, which shows that the cross-selling strategy is working. We aim to repeat the success with the AGF AlphaSector Class.

And while it's early, we're seeing familiar trends with new advisors selling this product. We want to find new advisors, revitalize existing relationships and get our advisor clients buying a broad-based of AGF products.

This is how we move towards net sales in the Retail business. Turning now to Slide 8.

I want to get into some detail on our Institutional business and the context behind the Q3 activity. At the end of the second quarter, we reported $530 million in the Institutional pipeline.

Of this amount, $100 million is funded and $430 million will fund this quarter as we work with the transition manager. There are $535 million new commitments in the pipeline from Q3, which brings our total committed pipeline of gross sales to $965 million.

Our net pipeline is $105 million after deducting redemption notices. We see volatility in global equity markets, and some clients have been cautious as they wait for signals that markets are stabilizing.

This is particularly relevant for our emerging market strategies. The secular trend for growth in emerging markets, however, remains intact, which is why we remain very confident that our clients will continue to increase allocations in this strategy over time.

As I mentioned last quarter, we focused on the U.K. and European markets and are close to launching a UCITS platform for purposes of distributing our global mandates into the United Kingdom and European markets.

$535 million of new commitments in Q3 are related to seed investors of our use of structure. Having UCITS with scale is significant benefit for AGF.

This will allow us to market, not only to institutions, but it opens up the European and Asian retail sub-advisory markets. We've had success with the sub advisory strategy with the U.S.

wealth management platforms and plan to market our capability in a light manner in Europe. I recently stated that I thought our Institutional business could double in 5 years, but business is lumpy, so it may not happen in a straight line.

But based on the opportunities that we're seeing, it's an achievable target. There are many opportunities to discuss, but I'll talk about our most significant near-term opportunity, Global Core.

Managing Global Equity is a very competitive space. There are about 400 direct institutional competitors for our strategy around the world.

Placing global mandates is generally a consultant-driven market and building consultant relations takes time. We started the process in earnest about 2 years ago and including the hiring of an individual responsible for our global consultant relationships.

During 2013, we've had 4 consultants include our Global Core strategy in searches in Canada. We've also had 2 consultants in the U.K.

include us in searches, one of which placed AGF on a fiduciary platform, which will invest on our use of Global Core fund. Although not in our pipeline, our expectation of flows is approximately $200 million per year.

This fiduciary platform is the equivalent of being placed on a growing sub advisory platform here in Canada for our touchstone relationship in the United States. We frankly very much like that type of business.

Going forward, in the next few months, we'll be targeting specific consultants in Europe and later, Australia. There's also an invite-only non-consultant channel.

To gain an invite, the firm must have terrific investment strategy such as our Global Core. In addition, the firm needs to have an effective distribution platform and the relationships that grant access to the selection process.

In the U.S. alone, we've had 3 active invite-only opportunities for Global Core.

That's important for 2 reasons: Number one, it's a validation that the mandate is a world-class mandate. Two, it's a real education to us that the demand for global equity investing is accelerating.

Doubling our Institutional business over 5 years is an achievable target as we feel that the Global Core alone has the potential to be a $15-billion business within the same timeframe. Moving to Slide 9, I'll turn the call back over to Bob to review the financial results in more detail.

If you've had a chance to look at our published financials and MD&A, you'll notice that our presentation's been divided into continued operations and discontinued operations. This is consistent with presentation of results from previous quarters.

Discontinued operations are identified as a single line item, just below income from continuing operations and reflect the financial results from our trust operation that was sold in August of 2012. Slide 9 reflects a summary of our financial results for Q3 2013 as compared to Q3 2012, as well as trending quarterly results.

For relevant quarters, we've also presented adjusted numbers, which excludes significant one-time adjustments. EBITDA for Q3 2013 is $38.6 million relative to $36.3 million a year ago.

Adjusted EBITDA, excluding one-time items recognized in Q3 2012 declined from $42.2 million. The decline is fully attributable to a decrease in revenue due to AUM levels and increased stock compensation expense.

Adjusted EPS for the quarter came in at $0.11 compared to $0.11 in the same quarter last year. Turning to Slide 10, I'll walk you through the basis points yields on our business.

Now this is a slide that we regularly show on our calls. They'd like to see our performance on a longer-trended basis and smoothing out some of the impacts of market volatility.

It shows our investment management revenue from operating expenses and EBITDA as a percentage of average AUM on the current quarter and the prior year's quarter, as well as a full year view. Although the quarters have been annualized and the results exclude the impact of one-time costs, their value adjustments, interest and other income and Smith & Williamson.

This represents our core revenue from the asset management business. We've also adjusted the prior year's SG&A to reflect the current year's change in our presentation of fund expense reimbursements, which I've mentioned in the previous quarters.

This allows for an apples-to-apples comparison. With respect to revenue, the operations reflect a quarter-over-quarter increase in revenue yield due to a higher mix of Retail business per dollar of AUM as the relatively larger redemptions from a year ago were associated with lower fee institutional assets, which have caused the rate to increase.

Our SG&A as a percentage of AUM was higher in Q3 2013 over Q3 2012 as a result of higher stock compensation and lower AUM levels. As I mentioned on Q2's call, we expect SG&A to come in around $184 million for fiscal 2013 assuming a stable share price.

We exceed the run rate guidance I expect it would primarily be due to the variability of the stock-based compensation expense. As an example, the share price increased 12% during the quarter, and is up 45% from the beginning of our fiscal year.

That has an impact on our results, but certainly for all the right reasons. Overall, EBITDA yield was lower than Q3 2012 and on a 12-month trailing basis due to the decline in scale primarily attributable to lower AUM in the business.

Although not reflected on this slide, our 31% interest in Smith & Williamson continues to perform nicely. Profits in the firm are up 57% year-on-year.

We'll see an uptick in the dividend paid in our fourth quarter reflected of the improving performance. Turning to Slide 11, I'll discuss free cash flow and dividend coverage.

This slide represents the last 5 quarters of free cash flow shown by the blue bars on the chart. The cash flow represented is consolidated free cash flow with only Q3 2012 including contributions from AGF Trust.

It's important to note that the free cash flow from quarter to quarter can be impacted by a variety of items including timing of cash taxes and dividends received from minority investments. Our Q3 2013 payout ratio came in at 91%.

At current equity market levels, we forecast that our free cash flow generation will be sufficient to fund the dividend for fiscal 2013. Although our Retail flow trajectory is improving, net redemptions in Retail may persist.

Absent market gains or substantial net flows in our institutional strategies, we may choose to use our balance sheet to support the dividend in 2014. The support of the dividend will continue as long as it's financially prudent, given our revenue growth and free cash flow outlook and balance sheet position.

This is reviewed quarterly by the management and board. We've been selectively active with the NCIB and we'll continue to be opportunistic as we progress throughout the year.

We repurchased approximately 900,000 shares for total consideration of 9.8 million over the course of the current quarter. Since the sale of AGF Trust, we have repurchased 9.8 million shares or roughly 10% of our total shares outstanding.

Going forward in fiscal '14, the NCIB could see reduced activity in favor of dividend support. We remain confident with our financial position.

We have $360 million in cash-on-hand with a net cash position of $51 million. In addition to the dividend in NCIB, we will employ our balance sheet cash strategically.

And as we have been indicating over the past few quarters, our intention and preference is to build capabilities for organic growth. We are exploring options in the alternative space where we see tremendous market demand that is both a fit with our institutional clients and leverageable with our distribution footprint globally.

From a strategy perspective, it will provide additional diversification of products and open up new dimensions to our existing client base. Start up working capital required is relatively minimal, and the long-term economics are very attractive if executed properly.

We'll have more to say about this in the upcoming quarters as we execute against our plan. Moving to Slide 12, I'll turn it over to Blake to wrap up today's call.

Thanks, Bob. For the rest of 2013, I want to outline our priorities and expectations.

Firstly, we'll continue to build on the improvements we've made in the investment process, philosophy and performance. We'll continue to innovate and expect to launch new products in 2014 to fill unmet customer demand.

We expect continued improvement in the year-over-year retail mutual fund net sales over the remainder of this year and this is going to be driven by our sales team leveraging our performing products and increased activity supported by our brand and marketing push. For the Institutional business, we have a strong growth pipeline and the use of structure will facilitate new flows.

We will invest to grow our business. As we mentioned, we see opportunities to add resources and grow the global platform capabilities to take advantage of a multi-billion dollar opportunity to distribute through the Retail and Institutional channels over the next 5 years.

We will remain active on the NCIB on an opportunistic basis. Free cash flow has been sufficient to cover our dividend to date and we have $360 million of cash on our balance sheet.

We also want to use our cash to fund growth, which is what Bob alluded to when he mentioned the research we're doing in the alt space, which could be a great complement to our Institutional business. I wanted to thank everyone on the AGF team for their hard work over this quarter and our shareholders for their continued support.

Now, we'll take your questions. Thank you.

First question I had was just on the Retail side of the business. I know you talked a little bit, Blake, on the flows, and I think that what the industry flows have been showing, that bond funds are not doing well, dividend funds, more recently, not doing well, and on the equity side -- or staying with the equity side, it's been the global and the U.S.

equity. Can you talk about what you guys have been seeing today?

Is that the same for you guys or are you seeing a different experience?

Yes, I would say that, certainly, global products continue to do -- to be a real tight spot. Certainly, our global dividend net sales increased significantly year-over-year.

Our U.S. as well as our American growth fund and our U.S.

AlphaSector class, those sales have also been very encouraging. So I think that those are general trends that we're definitely seeing.

The floating rate fund, as well as people being concerned about the rising interest rate environment, we found that this has been a very key area for us as well.

Okay, and switching to Smith & Williamson. Bob, I have a question in terms of when you talked about the dividend up, were you talking about on a quarter-over-quarter over year-over-year?

And then also on Smith & Williamson, just given that the markets have been better, are you guys with the other shareholders have been revisiting potential monetization of that asset, whether or not it's a potential sale or an IPO?

With respect to the first part of the question, Geoff, it would be increased on a quarter-over-quarter basis and we get the dividends twice a year, so the next one is scheduled in October. The latter part, that strategic review is an ongoing review with management.

I would say that their preference in the short term is probably not to monetize in a sense of an initial public offering, although that's something that I know has been on the strategic docket in the past and maybe brought to light in the quarters to come with the improving market in the U.K. At this point in time, there are no plans.

Okay. And your comment around the dividend versus the NCIB, but specifically on the dividend, were you talking to just making -- ensuring that the free cash flow in the balance sheet is just supporting the current dividend or whether in the context of a potential increase that may be at some point over the next 12 months?

I think it was the former in terms of just supporting the existing dividend.

Okay, and the last question I have was just your comments around looking at the alternative space. Is -- recognizing you, you maybe just kind of early stages of exploring, expanding into this part of the market, are you able to say whether or not this will something that you think you'll have existing capabilities to leverage existing managers to do that?

Or is this something where you may need to hire people, teams or something along those lines?

Right. It would be the former.

So the type of alternatives that we're considering would not necessarily be in-house capabilities. We would pursue external individuals to assist in that effort.

First question is related to retail flows, on sort of more of a point of clarification. So the $100 million you got in global mandates in Q3, is that effectively a fund of fund rebalance where you were awarded the mandate?

That is correct.

Okay, okay. Next question will be related to the Institutional business.

So you did a very thorough job of explaining why you think net flows on that business should improve going forward, but maybe you can just take a step back and look at the business, what happened over the last year? Because I think at the end of fiscal 2012, you're a little bit more positive on the prospect for growing that business in the current fiscal year.

So, maybe, where did the business deviate from the original plan over the last year?

We -- I guess, 2 things. One is the more macro environment for the Emerging Market; appetite among institutional investors that softened because of, obviously, the questions about tapering that I mentioned in my comments.

So that would be on sort of the inflow side. And then, there were still some, I'm going to call legacy products that were being redeemed, that we hoped that might not go, but indeed they did.

But EM demand still remains strong and our global fund type is also robust.

Okay. So EM demand was softer than the you expected over the last 12 months, but you expect that will change going forward?

I think so. But, again, I think though Paul, from where we started, I think last year we've done occasionally $2 billion of growth sales, which is a pretty commendable showing.

Okay. And can you tell us how much AUM you have in the Emerging Markets on the Institutional side?

We don't actually disclose by mandate other than the aggregate amount.

Okay. How about, I'll rephrase the question.

Would you say that you've retained a significant amount of the AUM since the prior PM departed on the Institutional side?

What happened -- yes. There's no question there.

And as I say, it's the extent that more recently there have been -- any movement is purely related to the more macro issues. But interestingly, at the same time, we have other clients that are looking at this as a great time to reposition to move into Emerging Markets.

So, I mean, you can't say that people are completely uniform or different groups that we're dealing with around the world are thinking all of the same thing at the same time.

Okay, okay. So you're still focused really on the global core -- global dividend and Emerging Markets on the Institutional side in terms of building the pipe and then, of course, the UCITS that comes with that?

Absolutely. I mean, those are the near-term areas that we're seeing real great, great success.

And certainly, on the EM side, I mean, at the current rates, I mean, I think we'll be full in 3 years as far as our capacity.

Okay. And then final question is related to the floating income rate fund.

Obviously, you have tremendous success with that fund and it's probably well timed and I think as a result of that, you've seen a number of our competitors come out with a similar product. Has the introduction of competing products in your view impacted net sales at all?

Or how do you think about the competition on that front going forward?

Well, I mean, we're no strangers to any competition and I guess, there's no greater compliment than imitation, I guess, they always say. But certainly, there's been no impact that we're seeing in our flows in this area.

And frankly, we see there's actually a lot more opportunity, I mean, it just continues to grow. Bear in mind that our partner, Eaton Vance, with whom we have a reciprocal relationship down in the United States with our resource expertise that we provide them.

I can tell you that they've been in this business for a long, long time and they are the dominant player in the United States and they're bring that sort of expertise along with our abilities here. I think that, that combination is very, very strong.

The only thing I would add to that Blake is that there's a fairly -- we've only touched a fairly small percentage of the advisors that are able to sell that product at all. So I think we can dig wide, as well as dig deep with respect to that.

I was wondering if I could touch on the Institutional side as well. Can you give us the amount of the actual institutional sales that funded this quarter and what your redemptions were?

On a net basis, we were -- we had modest outflows of about $76 million, Graham.

And the actual redemption that you related to on the legacy account, was that Emerging Market related or which mandate was that?

That was a European mandate.

Okay, and when I look at your pipeline -- that you referred to the $535 million from the usage structure, what sort of commitment is behind that or maybe we'll phrase it another way, what is your confidence behind that coming through and funded?

Very high. So the UCITS are planning to be launched in late October and that's when we expect the funding to be made.

Okay. And then maybe lastly, if you can just touch on the Retail side.

Your growth sales certainly improved. Can you give us some color around, maybe, which distribution channels in particular you're having improved success within?

Certainly, IIROC has been very, very strong. It continues to garner a huge amount of corner office support in the areas like floating rate and of course, the -- we're just on a roadshow right now at the U.S.

AlphaSector, but I'll say, we're pointing about $0.5 million a day with -- before really getting out there and telling the story. So it's -- without any question, it would be the IIROC channel, we're seeing a real uptick.

My first question is maybe for Bob just on the SG&A. You gave us kind of normalized guidance for fiscal 2013, just looking at fiscal 2014 and the normal market, normally just stock, could you give us maybe a range or if you think the total will be above or below fiscal 2013 in terms of the total SG&A total cost?

Yes. I mean it's a bit early to provide that Scott, but I would say it's not going to be anything greater.

We are year-over-year, we're down headcount by 6%. We anticipate that we've got sufficient capacity to manage the business that we have in-house today in the business that we'll be bringing in over fiscal '14.

The -- one of the volatile items on our P&L has been the stock compensation. Again, it's a positive result because the stock is up 45% from the beginning of the fiscal year.

We will be looking towards certain structures to help reduce the volatility of the stock price. And so, I think that will be helpful in terms of taking out the noise from quarter to quarter.

But our expectations on SG&A are, at this point, flat, but I'll have more to say about that most likely in January.

Okay, that's fair. In terms of the $860 million Institutional redemptions, they're kind of in the pipeline, is that -- was there a large or what portion of that was EM?

You said there was 1 European mandate, but was it mostly a large Emerging Markets mandate?

That's correct. There are essentially 2 redemptions that accounted for that.

One was European and one was Emerging Markets from a client who took down an allocation but still remains a client.

Okay. And then just from Paul's previous question before Blake, you're mentioning that Emerging Markets hasn't recorded that much significant redemption since Patricia left back in April, but in my calculations, it seems that half EM Institutional business has been lost since her departure, is that a fair statement?

No. That would not be correct.

On a net basis.

Yes. I mean the issue frankly that we faced were other mandates.

There were some redemptions, but it was not nearly -- anywhere near.

Well, for example, Scott, the $500 million mandate, which is going to leave most likely in Q4, actually came in after the team departure, as an example. So the half is overstated.

Okay. And then when you talk about doubling the Institutional business in 5 years, is that the total including the sub-advisor or are you just talking about the pure institutional, which is kind of lower of what -- than the total reported amount?

Well, I think, we've been looking at pure institutional. I mean, I used to say, I have mentioned just on 1 key mandate at Global Core, that on its own could be a $15 billion mandate.

It should be...

Couple of questions. I guess with the Institutional business, the outflows and the inflows are going to be stable, I guess, in the next quarter or so.

Can you just discuss what, if any, would the margin impact is? Like, is it the same type of margin that you're going to get on the new business as the old business that's going off the books?

Actually, it should be -- Steve, it should be increased. And, I mean, Blake mentioned the sub-advisory business, which we really like and the reason for that is that it does have less price sensitivity than a pure institutional account.

That said, EM and Global Core skew a bit higher in terms of the yield that we can obtain on that business, vis-à-vis some of the legacy business, which is coming off the books. So on an institutional like-for-like basis, I would say that the rate of revenue will increase as opposed to decrease.

Okay, and is that being driven more on the UCITS stuff or is that just the traditional -- I'm sorry, traditional...?

A little bit of both, but the UCITS will garner a higher basis points fee. In addition, the mandates that we're selling, in general, do attract a higher basis points fee.

Okay, so a combination. Okay.

So, I guess, I ask this question every quarter. I guess, I look at your long-term debt-to-EBITDA metric around 200%, 91% free cash flow being paid out, still repurchasing shares -- I guess, calculated $54 million of net cash.

So are you still, I guess, comfortable? You said you're comfortable with the dividend, are your lenders still comfortable with your balance sheet and is there any restrictions being -- or what metrics should we watch for that maybe, restrict your ability to repurchase share or pay the dividend?

Can't speak for our lenders, but from my perspective there, they're really happy with us. We have a terrific relationship with them, Steve.

They took you golfing, I think.

With that said, there are no restrictions on the horizon that we're forecasting which would limit our borrowing capacity and/or any -- will have any impact on our ability to repurchase through the NCIB or fund dividend. I mean, we obviously have the cash on the balance sheet, which, if we needed to, we could utilize to repay debt, but that's not anticipated in the short term.

Just a quick question just on retail fund side. I know you touched on some new product launches.

Any thoughts just overall on revisiting and consolidating the current fund lineup and whether that's been an issue that redirects and resources to support the key funds or to improve some overall economics and absorption cost given that lower AUM levels?

Absolutely, Phil, and in fact, we're taking that very review now and certainly, we -- I guess, about half a dozen changes in the summertime and we certainly are reviewing different areas for us to streamline our product offering and get -- change some of those efficiencies that you talked about, but I think it's a very good point. So the answer is yes.

Okay, and just another follow-on question. Just on the AGF U.S.

AlphaSector Class, are you able to talk a little bit about maybe on the relative profitability of that fund? I know it's sub-advised.

I can see some of the details of the fund that's from the public documents, but is that, relative to the rest of the portfolio, in line with average marginal profitability? Is it higher or lower?

What should we expect with growth on that fund?

Phil, that ought to be -- your expectation would be slightly lower profitability on that fund for the sole reason that you pointed out, it is a sub-advised mandate.

Okay, and you mentioned before that the sales rate was 500k per day and this is launched last month, is that...?

That's correct and I'd say that the speed in which it got to that level was I'd say even surprised ourselves and it's trajectory is upwards.

Thank you very much, everyone, for joining us today. Our next earnings call will take place on January 29, 2014 when we review our fourth quarter results and fiscal 2013.

Details of the call will be posted on our website. Finally, an archive of the audio webcast of today's call with supporting materials will be available in the Investor Relations section of our website.

Have a good day, everyone.