AGF Management Limited

Thank you, operator. And good morning, everyone.

I am Adrian Basaraba, the Senior Vice President and Chief Financial Officer of AGF Management Limited. Today we'll be discussing our financial results for the fourth quarter and fiscal 2021.

Slides supporting today's call and webcast can be found in the Investor Relations section of agf.com. Also speaking on the call today, will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer.

And for the question-and-answer period with investment analysts following the presentation, Judy Goldring, President and Head of Global Distribution, will also be available to address questions. Turning to Slide 4, I'll provide an agenda for today's call.

We'll discuss highlights of the fourth quarter and fiscal 2021, provide an update on the key segments of our business review, our financial results, discuss our capital and liquidity position, and finally, close by outlining our focus for 2022. After the prepared remarks, we will be happy to take questions.

And with that, I'll turn it over to Kevin.

Thank you, Adrian, and thank you, everyone for joining us today. Over the past year, we have made significant progress against our strategy and stated goals.

I'll begin with some highlights. Our business momentum was strong in 2021.

AUM and fee earning assets reached 42.6 billion at the end of Q4, an increase of $4.4 billion compared to 2020. Our mutual fund business reported net sales of $352 million in the quarter, marking the 5th consecutive quarter of mutual fund net sales.

We achieved mutual fund net sales over $1.4 billion for the year, that being the best year since 2007. In November, we evolved our launch then relationship with Primerica, one of the fastest-growing distributors in Canada, with the establishment of a new multi-year product insurers distribution management agreement.

AGF was named as one of only two managers to launch on their platform. This showcases AGF's success in strengthening this relationship dating back to 1996, and our commitment to supporting the evolution of our strategic partners as they adapt to changes in the market.

In 2022 we will launch a new lineup of funds that will be offered exclusively to Primerica clients. The new funds are subject to regulatory approval.

Over the past year, we have made significant progress in diversifying and expanding our Private Alternatives business. In early July, we deepen the Alternatives business with the launch of two Private Credit products with the SAF group.

Subsequent to the launch, we refined our long-term partnership with SAF as their exclusive provider of SAF's Private Credit products in the Canadian retail marketplace. We also strategically expanded our Private Alternatives business into the private equity and venture capital space by partnering with First Ascent Ventures, a firm that focuses on investing in emerging technology companies.

Most recently, we announced Ash Lawrence will be joining AGF as the head of Alternatives. Ash brings over 20 years of private alternatives experience in global markets, including 16 years.

Most recently with Brookfield Asset Management, where he led real estate investing for Canada. He will be leading the continued growth of our diversified private alternative business.

Private alternatives are an integral part of our growth strategy. And with the progress we made in 2021, we're well-positioned to accelerate its growth.

The strong business momentum has translated into strong financial results for the quarter. We reported an adjusted diluted EPS of $0.19.

On a full-year basis, we reported an adjusted diluted EPS of $0.55, up 31% from the $0.42 reported in 2020, excluding onetime items in S&W. In addition, AGF in our funds received various recognition's during the year.

AGF was named employer of choice and digital innovator of the year in 2021, Wells professional awards. And our global convertible bonds on received the Lipper Fund Award.

Finally, we paid a quarterly dividend of $0.09 per share for the fourth quarter. Starting on Slide 6, we will provide updates on our business performance.

On this slide, we breakdown our total AUM and fee-earning assets in the categories disclosed in our MD&A and show comparisons to the prior year. Mutual fund AUM increased by 18%.

I'll provide more color on our mutual fund business in a moment. Institutional sub-advisory and ETF AUM decrease compared to prior years, mainly due to the redemption's that we disclosed in the previous quarters.

During the year, we on-boarded two large U.S. institutions.

We selected a number of our strategies for inclusion on their SMA platforms. While AUM growth on these SMA platforms will occur gradually over time, we are optimistic based on flows for the initial months.

Leveraging the success of these wins, we are onboarding our strategies onto more platforms. Looking ahead, RFP and RFI activities have remained strong.

We continue to see interest from institutional investors in a number of our strategies, including our global, sustainable, and multi-asset offerings, which bodes well for future sales. Our private client business continues to demonstrate consistent steady growth with AUM increasing 17% year-over-year.

Our private alternatives AuM and fee earning assets were $2.2 billion. With Ash Lawrence joining us next month along with our robust pipeline of opportunities in the alternative space, we maintain our goal of reaching $5 billion in AUM and fee-earning assets by the end of this year.

Turning to Slide 7, I'll provide some detail on the mutual fund business. Canadian mutual fund industry continued its strong pace towards the end of 2021, reporting net sales of $22 billion for the three months ending November 30th, 2021.

Excluding net flows from institutional clients invested in funds, net sales were $355 million compared to $66 million in Q4 of last year. AGF sales improvement outpaced that of the industry.

When comparing Q4 to prior year, gross sales for our long term funds improved by 39% compared to 18% in long term funds for the industry. We continue to see year-over-year improvements across all channels IIROC, MFDA, and strategic partnerships, with strong flows into multiple categories, including global and U.S.

equities fixed income and sustainable opportunities. The momentum in our retail mutual fund business has continued into Q1.

Excluding net flows from institutional clients, we have net sales of approximately $115 million up to January 21. Before I turn the call back to Adrian, I want to give a quick update on investment performance.

AGF measures mutual fund performance by comparing gross returns before fees relative to peers within the same category with first percentile being the best possible performance. We target an average percentile ranking versus peers of 50% over one year and 40% over three years.

The end of Q4, average percentile ranking was 53% over the past one year and 51% over the past three years. It's important to note that the one and three-year performance of our top selling funds have largely remained in the top quartile.

With that, I will turn the call back over to Adrian.

Thank you, Kevin. Slide 8 reflects a summary of our financial results for the fourth quarter, with sequential quarter and year-over-year comparisons.

For ease of comparisons, we've shown the numbers adjusted for one-time items and Smith&Williamson in prior period results. EBITDA before commissions for the current quarter was $35.5 million, which is $2 million lower than the previous quarter.

When you look at Q4 versus Q3, 2021, management fee revenue was a $113 million, an increase of $2.1 million. And this increases in line with the increases in mutual fund assets.

The decline in revenue really relates to a couple of items we recorded in Q3. One was the $2.2 million of carried interest revenue related to the monetization of one of our long-term Private Alternatives investments managed by SAF.

As we continue to grow our Private Alternatives platform, management fee profits and earnings from our LP investments will become more consistent and predictable. The other was income from our short-term investments, which can also be lumpy.

SG&A was relatively flat quarter-over-quarter at $49.9 million. So on a full-year basis, EBITDA before commissions was $127.7 million, which is $27.8 million higher than the prior year.

The increase reflects higher revenue from higher average AUM and and increased revenue rate driven by strong mutual fund sales and market growth. Income from private alternatives was 8.2 million higher compared to prior year.

2.2 million of the increase was driven by higher management fee and carry earnings, while 6 million reflected higher distributions associated with our long term investments. SG&A for the year was a 195.19 million.

SG&A levels were influenced by performance-based compensation, which is not fully determinable until the end of Q4, due to the design of certain compensation plans. As a result, we often see true-ups in the last quarter as plans are evaluated and payouts are finalized.

We believe that the level of performance-based compensation is appropriate, given significant improvement in business performance. Mutual fund gross sales hit $3.8 billion, which is a 70% increase compared to prior year.

We also reported mutual fund net sales of over $1.4 billion compared to net redemption of $400 million in 2020. Q4 2021 marked the fifth consecutive quarter of positive mutual fund net sales and we've seen that momentum continue into 2022.

The improvement in our business was also reflected in our share price, which increased by 39% year-over-year, which meant additional share-based compensation expenses, as we marked to market the liability. We also made progress on your alternatives front with two new private credit funds with SAF, and an expansion into private equity and venture capital by partnering with First Ascent Ventures.

These partnerships resulted in increased corporate development expenses. As we work to deploy capital, these costs may temporarily increase SG&A.

We're happy to pay for success-based performance in our abilities to significantly reduce our expense base over the past few years has given us the flexibility to fund our rapid growth. While sales commissions in DSC paid on these sales are expensed immediately, not capitalized.

We will continue to earn revenue on these sales over a much longer period, generally seven years. Core SG&A, which excludes variable comp and corporate development costs, was consistent with the prior quarter and also consistent for our fiscal year compared to the prior year.

Before I leave this slide, all address our SG &A guidance. Today, we're announcing SG &A guidance of a $198 million for 2022.

We continue to be thoughtful and disciplined in our approach to expenses, while also investing for growth. SG&A for 2022 reflects these investments, as well as salary increases for cost of living and inflation.

As a reminder, our SG&A guidance does not include costs related to acquisitions, should any materialize, and it assumes performance at its current trajectory. Significant improvement in sales or investment performance could result in higher variable comp expenses.

Turning to Slide 9, I'll walk through the yield in our business in terms of basis points. The slide shows our revenue, operating expenses, and EBITDA before commissions as a percentage of average AUM on the current quarter as well as the trailing 12-month view.

Note that AUM and related results from the private alts business, one-time items and other income are excluded. Q4 revenue yield is a 114 basis points, which is one basis point higher compared to the trailing 12 months.

Q4 SG&A as a percentage of AUM was 50 basis points, which is one basis point lower compared to the trailing 12 months. This resulted in EBITDA yield of 28 basis points, which is one basis point higher compared to the trailing 12 months.

Turning to Slide 10, I'll discuss free cash flow and capital uses. This slide represents the last five quarters of our consolidated free cash flow on a trailing 12-month basis as shown by the orange buyers on the chart.

The black line represents the percentage of free cash flow that was paid out as a dividend. Our trailing 12-month free cash flow was $55 million and our dividend payout ratio was 43%.

In addition to dividend payments, we were also active on the NCIB repurchasing 700,000 shares at a cost of $5.6 million. Our cash balance at the end of November was $86 million.

We have a $184 million in short and long term investments and no debt. We also have a credit facility available which provides credit up to a maximum of $150 million.

While we currently have no debt, we're comfortable increasing our net debt to EBITDA up to 1.5 times, should the right opportunities arise. The remaining capital commitment to the Private Alternatives business is $71 million not included in that is a $50 million U.S.

commitment for an upcoming third fund managed by Instar. And please note, capital commitments may be funded from excess free cash flow, but there will also be further recycling of capital as monitored issues occur, which will help us fund future commitments.

Taking all that into account, we currently have excess capital available. And our dividend to free cash flow ratio was 43% and the trailing four months, and in June 2022, deferred selling commissions will no longer be paid, which will further increase our free cash flow.

In 2021, we paid $62.6 million in DSC payments. While the DSC band is advantageous to in just free cash flow in the short-term, it reverses over time.

As our business and resulting free cash flow grows, our future capital allocation will be balanced, and include returning capital to shareholders in the form of dividends and share buybacks, as well as investing in areas of growth. These growth areas include investing in our Private Alternatives business, as well as opportunities outside of Private Alternatives that are strategically in line with our priorities.

Redeploying our excess capital to generate recurring earnings, is a key strategic priority. Over the past few months, we've made significant progress to begin and deploying our capital and have generated a robust pipeline of corporate development opportunities.

Executing on this priority will be catalyst for EBITDA growth and value creation. Turning to Slide 11, I will turn it over to Kevin to wrap up today's call.

Thanks, Adrian. 2021 was a solid year.

Our AUM and fee earning assets continue to climb. We recorded another quarter of positive mutual fund net flows, marking the fifth consecutive quarter of net sales, and the best year of mutual fund net flows since 2007.

Our strong business momentum translated into strong financial results. Excluding Smith & Williamson and one-time items from prior period results, EBITDA before commissions was a $127.7 million, 28% higher than last year.

Adjusted diluted EPS for the year was $0.55, 31% higher than the last year on an adjusted basis. The progress we have made in our alternatives business positions us well to achieve our stated goal of $5 billion in assets by the end of 2022.

We are focused on building on the momentum from the past few years and creating value for our shareholders over the long term. With $86 million in cash, $180 million in short - and long-term investments, and no debt, we have a strong balance sheet to strategically invest and redeploy excess capital to generate recurring earnings.

At AGF, responsible and sustainable practices have been shaping our organizations at all levels for a long time. We are committed to forward-thinking practices related to environmental, social, and governance factors focused on creating a positive impact for our shareholders, clients, employees, and the communities in which we operate.

For our clients, our global sustainable growth equity strategy is one of our longest tenured in Canada, and performance has been stellar, exceeding the benchmark by well over 400 basis points on a one, three, and five-year basis. We are also a signatory to a number of ESG related initiatives.

We have been a signatory to the PRI since 2015 and AGF International Advisors Company Limited has been successfully named as a signatory to the UK Stewardship Code. We will continue to evaluate and participate in opportunities that align to our priorities as a firm.

Internally, we have a number of committees to evaluate our corporate sustainability matters, and involvement in global initiatives related to ESG, including a sustainability counsel shared by our president, Judy Goldring, a long-standing ESG committee dedicated to evaluating and establishing ESG policies across our investment platforms. And a diversity, equity and inclusion committee to promote best practices related to diversity and inclusion across the Company.

Externally, we give back to the communities by partnering with various organizations to foster educational development, diversity, and promote sustainability of the environment. Most recently, we signed on as the founding partner of climate engagement Canada, a financial led initiative that aims to drive dialogue between the financial community and Canadian corporations to promote, adjust, transition to a net zero economy.

We also joined CDP's 2021, science-based targets campaign to promote emissions reduction, and we are corporate sponsored 100 women finance advocating for gender equality. Looking forward, we will further our sustainability programs through the integration of ESG into ongoing business strategy and Board oversight, and enhance the integration of Stewardship and sustainable investing practices across all aspects of investment management.

Along those lines, I'd like to state our strategic priorities, which are one to deliver consistent and repeatable investment performance, maintain sales momentum, and generate net inflows. Build a diversified Private Alternatives business with 5 billion in assets by the end of 2022, meeting our expense guidance, while continuing to invest in key growth areas.

And finally, enhance our corporate sustainability programs. I want to thank everyone at the AGF team for all their hard work.

We will now take your questions.

Thanks. Good morning.

First question is for Adrian. Can you talk a little bit about your 180 -- 198 million SG&A expense guidance for the year?

Seeing that that's only 1.5% increase versus your 195 that you did for 2021. Just want to dig through your assumptions in the area.

What are you expecting in terms of variable sales comp or stock compensation? These were the outliers that drove the expense higher in fiscal '21.

Thanks for the question, Gary. Yes, we'll try to provide a bit more color on what we've baked into that 198.

As far as mutual fund sales, the assumption within that 198 is that net sales are comparable in 2022 compared to 2021, so $1.4 billion in net sales would be about right. The 198 does include or already includes inflation adjustments for salaries for our staff, so that's already baked in.

There is no assumption baked into that 198 as far as further expense savings initiatives. Some other things to keep in mind, if our stock goes up $1 from the levels that we're at now, that would translate into a $1.5 million additional expense because of our stock-based compensation.

When you think about meals and entertainment that can move that number a bit and we've assumed that -- There's a full reopening in June and we get back to pre -COVID levels for meals, and entertainment in the second half of the year. But keep in mind there's a couple of things that could cause the expenses to exceed the 198.

One would be a further acceleration in our sales. So, if we start to achieve a run rate higher than the $1.4 billion on mutual fund sales, that could have an impact.

Further acceleration in the improvement in investment performance would have a similar impact. And then we were talking a little bit about deploying our capital.

If we get into executing on one of those opportunities in our corporate development pipeline, expenses relating to that could also cause the expenses to go higher than 198. But of course, the implications that we'd be getting revenue from a deal as well.

So hopefully, that provides some color Gary, to help you as we move through 2022.

Hey Gary, it's Kevin.

Yeah.

Kevin I'll add one piece of color. Yeah, I remember a lot of our bonus plans, not sales comp, etc.

are [Indiscernible] performance, but a lot of our staff and exact plans reset back. So that's a big delta there too.

So there's some room there to fill into where you need to set up about our initiatives spend.

Okay. And just a follow-up, Adrian, you said that dollar increase in the share price equals $101.5 million in expenses.

That's relative to November share price?

I would say relative to around where we're trading right now, okay?

Okay. Got it.

And then next question. Maybe this is for Judy if she's on.

We've seen a lot of volatility in the market last week or so, can you shed some light in terms of net flows, what you're seeing out there? And also any commentary in to important RFP season.

I'm not sure if you can elaborate on the institutional side as well what you're seeing there in terms of pipeline?

Thanks, Gary. Appreciate it.

Yeah. So obviously, we were really pleased with the year-end.

Certainly, year-over-year last quarter, we saw our AGF gross sales pace. We outpaced the industry and you've seen that in the numbers.

Q4 over Q3, we saw 23% growth in our net sales. So we're again very pleased the way the year ended.

We continue to see that momentum carried forward into the first quarter. At this point, year-to-date sales are tracking at the same level year-over-year.

So we're sitting right now at about a 118 million year-to-date. So we're not yet seeing any significant slowdown in the face of this volatility that's in the marketplace.

And so we're still quite optimistic and forward-looking, very pleased about the trends that we're seeing. I guess what we are seeing depend upon the channel we're looking at.

We're seeing movement out of fixed income. We do have other products that can replace that traditional fixed income products.

But we're seeing some movement of money in those funds specifically, again, depend upon the channel you're looking at, but again, we've got Total Return Bond Fund elements yields. We've got B12 as other products that we can hedge against some of this volatility.

So we're looking very optimistically at the way that our product line-up lines up to support the volatility or to manage through the volatility. And overall, but for a major correction, I don't see that roll see a major shift from the trend that we're seeing so far year-to-date.

Did you want to comment Kevin on the B12?

Yeah. [Indiscernible] I think if you were a house that had a lot more fixed income, you're going to see it at the industry level, where fixing has been a big seller over the last several years within the industry.

You're going to see those flows certainly soften. We've had a broad and diverse sales effort, so we're not seeing it.

I think the worry would be if we had a deep correction that was sustained here, which was not our forecast and what we don't see. At this point we're not seeing a big shift in investor sentiment.

But from the volatility standpoint, you know we have an anti-beta ETF that we use, that has picked up a lot in terms of demand. There are offsets to people as we pick up volatility on other products our shop as Judy mentioned.

But at this point, we feel pretty comfortable where we are.

Any comments on the institutional pipeline?

Yeah. On the institutional side, I mean, we're seeing movement of the institutional clients being more interested or -- first of all, fundamentally, they are interested in the global U.S.

and global sustainable strategies that we offer. In our particular case, those strategies are all outperforming benchmark on a 1 - and 3-year basis, so there very appealing and attractive.

We're for seeing a movement of the institutional interest towards alternatives with a higher weighting in their respective portfolio. So again, we're being well-positioned as we grow that part of our business.

We are also seeing the highest level of RFP and RFI activity that we've seen in many years. Alongside of that, we've placed a number of our strategies, particularly in the U.S.

on the SMA platforms, particularly with two large institutions, one that I think we've mentioned in the past, Northern Trust. So these are going to grow over time, but we're again, very encouraged and optimistic about those relationships and their potential.

So overall, we're encouraged to as well in the U.S. have gotten onto to platforms in [Indiscernible] invest mark.

And what those really essentially do is just make it very easy for clients that use those platforms to access our SMA. So, positioning ourselves extremely well, very encouraged by the activity level, and overall, remaining quite positive because of our great performance on the mandates and strategies that are in favor.

Okay. Perfect.

And then last question for me, Kevin, you still targeting $5 billion by the end of this year. So we're one-year away for the private old side.

Sounds like you have the capital to invest and you hired, Ash, to head up the group here. Are you still confident in hitting that number?

Can you remind us what you looking at? And I know this is a little bit tricky on a quarterly basis, but what should we model in for revenue and EBITDA contribution from your private old school in your current AUM?

In terms of the target care, we are pretty still comfortable with the $5 billion. In fact, that we do have Ash coming on board in February.

We've got a real deep pipeline as we've been looking at that we can't wait to get in front of him. And so that should accelerate that.

Yeah, we are pretty comfortable on the $5 billion. In terms of the earnings and contribution, remember we get sources here from primarily three things.

One which is again, when we see a strategy for someone, those LP earnings like any other investor. But the real interest for us is getting the management fee component as well as the care and you put those together.

Obviously, we try to earn a number that is higher than our cost of capital. So I think about that as, can we put that stack together and earn 12 or higher?

I think so. 12 or higher percent.

I can add a little bit of color to that as well Gary, if you'd like. When you think about our Alternatives ' earnings going forward, based on what we have in place today, we've got a $160 million invested in LP funds and we target 8% to 10%.

So call it 10% to make it easy math, 4 million a quarter. We, if you look at the management fee earnings or fee arrangements we have as well.

You're probably looking at about a million-and-quarter. And then carry is difficult to predict.

You know, that in Q3, we recorded $2.2 million carry. That would be additive if that were to materialize.

So you're talking 15 to $20 million from what we have currently have in place. Keep in mind, as Kevin mentioned, we've got a pretty attractive pipeline and expecting new initiatives that could start to yield more as well.

And then, Adrian, that's the EBITDA number?

That's right. Yeah.

Okay. Got it.

Those are my questions. Thank you.

Okay. Thanks.

I was wondering if I could ask you to expand a little bit on what the evolution of the Primerica relationship entails? I think I read that you're introducing a new fund lineup.

Should we interpret that to mean an expansion of your investment capabilities offered on that platform? And I'm also just wondering how the margins on the new fund lineup may compare to the previous one?

Just any additional detail that helps us understand those changes would be helpful.

Yeah, Adrian, I think maybe the first half of that on the product side, and then maybe we can talk about margins. So yes, Nick, thanks for the question.

As we announced earlier or later in the fall that we've evolved our relationship with Primerica. And we're moving to a principal distributorship model with viable distributor and exclusive set of products that we're going to create just for them, that you can only get off of their self.

And so that lineup will be available in time for June when DSC ends. So I would not say that these are a new set of capabilities, they are similar to capabilities that we have had, an extension of things that we do today, but they will be unique to Primerica.

So you shouldn't see an incremental build or cost structure that's related to that of any shape or size on the investment engine. It really will be an extension of the things that we do and do well today.

And then, if you think about it, you're removing a number of participants who were selling into that channel, and you also remember Primerica is I think one of the fastest-growing dealers in the country. So you’re moving a bunch of [Indiscernible] that could sell to them and bring that down to just ourselves AND one other.

So the pie will get a little bit bigger. So the trade-off would be obviously, again, a little bit of our margin in the near-term, but to open the shop in a much larger place.

I don't know Adrian, if you want to follow on that.

Yes. Thanks, Kevin, on the margin side, a couple of things to keep in mind.

Number 1, is that this arrangement will be for new sales. And so the existing asset base will continue to be in place and will earn the identical margin than we did in the past.

And then when you look at the new sales of these new products that you referenced, it's just going to be -- I think the difference will be geography. So these new products are designed such that we will earn a net revenue.

So you won't see the revenue amounts and trailer and DSC, instead, you'll see the net amount. So from a net income perspective, you can expect to be comparable, then it'll just be a little bit different over time in terms of how it shows up on our income statement.

And then the last thing I'd point out is that as far as our IOR or capital effect these new funds will not be sold on a DSC basis so we won't have the burn methane DSC. So I think those are probably the three things that I would highlight about the economics of this arrangement.

Okay. Got it.

That's very helpful.

If I could just reemphasize, we've had this relationship for 25 years and I think it's really an important relationship that we've continued to now, it's been solidified to go forward. And as the fastest growing dealer, I think we're really excited to work with them as they transition to post DSC world.

So very encouraged by that agreement that we announced in November?

Okay. Very good.

And then I think most of my other questions have been either entered or addressed, but just one point of clarification. The fair value adjustments line item can display a little bit of variability on a quarter-to-quarter basis.

I think it was higher than normal again, in the fourth quarter. Does that just largely reflect the mark-to-market gains on seed capital invested in the private platform.

Am I thinking about that correctly? And I guess the flipside of that is, we expect that number to flip negative in Q1, depending on the trajectory of equity markets between now and the end of March?

So I can comment on that. First part of your question, answer is absolutely yes.

That's precisely what it is. And for your second question, the lovely part about the Private Alternatives Businesses is that the answer to your second question is no.

As equity markets are volatile, the private markets tend to be more consistent. And that's part of the rationale for why we're expanding into the Private Alts business.

Obviously, there's some correlation over longer periods of time if the stock market changes are due to economic conditions. And the last thing I mentioned on that is, as the Private Alternatives business gets bigger as we planned for it, you'll see some of that variability coming down.

So as the platform gets bigger, you'll see more regular returns from LP investments. Carrier will become more regular, and obviously, management PA earnings will become larger and more predictable.

So I think what you're seeing is just the high growth relative to the existing size of the business.

Understood. Okay.

Thanks very much for taking my questions.

Hi, good morning. I think you've talked before about getting to 30% EBITDA margin.

And just in terms of achieving that, can you remind me like what time horizon you're thinking about doing that and what are the key drivers that are going to be getting you to that level? And also if you can just reconfirm with that kind of target that you had it was the margin excluding the DSC commission.

Hey, Jeff, it's Adrian. Yeah, absolutely.

It's a great question, and of course that's -- it's EBITDA before commissions is what we were referring to. You'll note that in the quarter we are around 25%, and frankly, to get to the 30%, we feel like we can do that within our plan horizon, which we usually plan in three-year periods.

And really it's continuing to grow holding our expenses relatively in check and benefiting from the operating margin that is inherent in the business. And I think if you just look at the progress we've made over the past couple of years.

We've continued growth, we absolutely see you're achieving that margin within our planning horizon, which is three years. And I think maybe Kevin might want to make a comment on that as well.

Yeah. Thanks, Jeff.

You maybe think about the amount of capital we can put back to work to drive earnings here. And savings point, we start to scale on, we don't need a lot more and to do that drive in terms of, I think we have investments, we're going to make, certainly on the alternative side, but as you can see the sales momentum if it continues, right?

And that clearly is outpacing the cost growth. You're going to see the margins start to grow pretty decently.

So we feel pretty comfortable in that guidance.

And just my second question is, in the wealth space, it's been a pretty popular area for M&A for your private client business. Are there circumstances that would have you think about the strategic importance of that business or essentially how do you view that part of your business in terms of being a part of the core strategy?

Hey, Geoff, it's Kevin again. Yeah, I mean, that business has been great and it has built $7.5 billion of our AUM today.

As you know, it's sticky business, and it's something that we like having as a diversifier to our -- again, it's a point of distribution at some points. I would say in the industry though, you've seen multiples out there for these businesses that are -- some of them in some jurisdictions they're a bit of a head - scratcher about how people are claiming the margins are driving off them.

So I don't see us dipping in and doing something in the acquisition side to drive there, but we like what we have for sure. I don't think you're going to see us start to run out and chase that game.

Okay. Thank you.

Hi, good morning. On the PFS sell agreement, do you anticipate them adding any further managers to their shelf over time, or have they given you any indication that the funds and the managers that they're going to have on their shelf are going to be smaller, more limited going forward?

Hey, Graham, it's Kevin, I'll start I mean, ambulance may want to add to that, but at this point, it's one of two. We don't know what their plans are in the future.

Obviously, the more shelf you create, the more complicated it's going to get. But I think for the near-term and I'd say near-term, maybe one to three years, I can't see that horizon expanding, but I don't know what beyond that looks like, but I'd say one to two today.

But again, I think the way the structure is set up, it's going to be hard to see this being replicated to a dozen managers or something. So I think it's going to be fairly limited.

But we don't have deep line of sight into what the next five or ten years look like.

Okay. Fair enough.

You mentioned on your comments there that in terms of investing excess capital, you would - I think you mentioned that you'd be also interested in areas outside of Private Alts, is there anything you could expand around that? What would you be interested in?

I think we've got a lot of the capabilities that we need. Something which we've always said, the things that we don't have, for instance, a U.S.

fixed income presence. I'm not sure I'd want it right now given where rates are going to go.

But things yes -- things that would be complementary to what we do today. We have been a leader in the ESG space.

We have the longest tenured sustainable products, I think north of 30 years. If there's things that helped bolster that team and that capability that was different than what we had today, that maybe of interest.

But it's really going to be around the Alternatives business where we see growing asset allocations from our client base across the spectrum, whether it be IIROC brokers, whether it be large institutions, family offices, et c. So as they grow that pie by how much they want to put to work, we're going to need to have product there.

So I think you're going to see more of the capability there. And again, anything outside of that would have to be on strategy and related to where we see growth.

So I think ESG could be things that bolster current capabilities, but you wouldn't see us going into something that I think it -- would be new to us.

Okay. Understood.

The two SMA, so I guess just be for Judy, but the two SMA platforms that you're on, can you just confirm those flows? Do they come into your retail AUM?

And are you seeing any material flows to date from those platforms, anything you can quantify for us?

Yes, sir, they come in through the institutional line. And this is an -- it's starting from basically, $0, but we're seeing some good flows between the two.

We've seen about quarter of a billion so far and I think it's going to continue to grow. As I said, it's just a steady flow that comes in on a monthly basis and we're encouraged by the trend that we've seen over 10 months of being open on those platforms.

Okay. Understood.

And then on the private credit side, with the SAF group, can you give us any update on how that's going both with institutional fund raising and also your push without product into the retail channel?

Yes. It's a great product.

I'm just going to not be shy about that. I think it's a fantastic product.

It's going to have a ton of likes. As you know, on the retail space, it's critical to get onto the bank platforms and so we've been successful, we're on about four platforms right now, not just banks but other dealer platforms.

And we are continuing to work through the various channels to get that presence on the platform. As a result, it's been a little more tepid in the early first two closes I guess.

But we're not -- that was not unexpected. So we do see amazing pickup as we get more and more exposure on the different platforms, which we do believe will come in the next two quarters.

We're anticipating some good flows through the year. And then institutionally again, it depends.

We're targeting more the family offices in that space, and again, it's just getting familiarity of the product, getting the name and the brand out there. And again, we have positive view and optimistic about the flows coming.

Yet I think for me. It's Kevin.

If you think about where the fixed income markets are right today, classical fixed income markets, you look at where bank lending has been, and that's not going to be a typical source of funds for folks who need to borrow. So there's a demand function there as investors look to diversify away from just straight duration that they get off a sovereign bond.

And then as well, I think a problem with financing folks. So I think this is one of those places where capital meets investor needs and I think it's going to be a pretty attractive space for a long time.

I think market volatility is going to be with us. So you're going to see a shakeout, I think potentially of people as it picks up.

I don't know if it's five rate hikes in the U.S. or six in Canada.

But you're going to shake some people a bit on that. So with that, I'd say products like this are going to start to green a lot more relevance period.

It's early days, we expect a lot of that product set.

Okay, great. And I'll go for one more question, just given that the no line-up here, hope that's okay.

But looks like there was some development there with First Ascent, the private equity tech manager that you are partnering with, am I reading that correctly? That you've now established some distribution or are you having agreement whereby you're now earning some fees on commitment and invest it in AUM?

Yes, that is correct. We have broadened our relationship with them, so we're a fee investor in the second fund.

And hope what to do a lot more with them. We think these are one leading early-stage investment firms in Canada.

So again, it will be part of our broadening of the alternatives platform, for sure.

Okay. That's it from me.

Thank you.

Sorry about that. So just a quick follow-up maybe for Kevin, when I look at your free cash flow last year, 2021 $55 million.

And when I think about your after-tax expense on the DSC, that gets me to roughly $100 million run rate free cash flow. First-part, am I calculating that correctly?

And the second, you talked about investment in private alts. How should we think about your other free cash flow deployment priorities, whether it's dividend, whether it's buybacks?

How should we think about that?

Hey, Gary. First one on the first part of your question, you are right on that, so that's about right in terms of free cash flow.

The way I think about it at post DSC. We also have to admit we have that $86 million on our balance sheet to cash, no debt, we have capacity on the debt side, that's pretty significant as we drive earnings.

So we've always taken a pretty balanced approach to our capital, right? Which is whether it'd be buybacks, dividend, and really now investing in the future.

If you think back to 2020, I think between the [Indiscernible] that we did and the dividends, we probably give back $70 million to shareholders. So you're going to see us take that balanced approach at different times, it's going to tilt different ways.

This year will be an investment year. But having said that, when we look at the fortress on our balance sheet, with cash and no debt and gives us a lot of flexibility that others may not have.

So we -- just as an aside we will -- we'll see this over the next month, but our board yesterday approved basically a dividend increase for the first quarter, which will be issued and paid in the March period. But -- that tells you that we feel pretty comfortable in the path and the balance that we're going to have between again, buyback dividends as well as investment period that's in front of us.

Okay. Got it.

That's it for me.