AGF Management (TSX:AGF.B) Q2 2026 Earnings Call

0:01 Thank you for standing by and welcome to the Q2 twenty twenty six AGF Management Limited Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press 11 on your telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Zane. Sir, please begin.

0:30 Thank you, operator, and good morning, everyone. I'm Ken Zane, Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the second quarter of twenty twenty six. Slides supporting today's call and webcast can be found in the Investor Relations section of ajf.com. Also speaking on the call today will be Judy Goldring, Chief Executive Officer and Ash Lawrence, Head of AGF Capital Partners. For the question and answer period following the presentation, John Porter, Chief Investment Officer, will also be available to address questions. Slide four 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.

1:16 Q2 was a strong quarter for AGF. At the end of May, we made a subsequent investment in New Holland Capital, where AGF now owns a 50% economic interest in the company. We are pleased with New Holland Capital's organic growth with AUM increasing 44% to $11,000,000,000 since our initial investment two years ago. With the inclusion of New Holland's AUM of $11,000,000,000 our AUM and fee earning assets were $75,000,000,000 at the end of Q2, up 40% from a year ago. AGF Investment's Canadian retail mutual funds reported the eighth consecutive quarter of positive retail mutual fund net sales with net sales of $6,000,000

1:58 in the quarter. Our SMA and ETF business remained strong with AUM increasing by 74% year over year to $4,800,000,000 Our Canadian SMA and ETF net flows were $155,000,000 in the quarter. We reported adjusted diluted EPS of $0.72 and generated $36,000,000 of free cash flow in the quarter. Our balance sheet remains strong with $435,000,000 in the short and long term investments, net debt at $51,000,000 with $145,000,000 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. During the quarter, AGF was added to the Nasdaq Broad Canadian Dividend Achievers Index.

2:48 This is a testament to our track record of consistent dividend growth and our ongoing focus on returning capital to shareholders. Starting on Slide six, 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 and A and show comparisons to the prior year. AGF Investment's mutual fund AUM was $38,000,000,000 up 23% year over year, outpacing the industry increase of 20%. The growth of our ETF and SMA AUM globally remained strong, up 74% year over year. I'll provide more color on our mutual fund, ETFs and SMA sales in a moment. Segregated accounts and sub advisory AUM increased by 3% compared to the prior year.

3:39 We are expecting $150,000,000 redemption in the pipeline, which is expected to occur in Q3. The redemption is not performance related. It was driven by the relative outperformance of our strategy causing the client to rebalance the allocation back to target weight. Our private wealth AUM increased by 16% compared to prior year reaching $10,000,000,000 AGF Capital Partners AUM and fee earning assets were $15,300,000,000 at the end of the quarter, which included $11,000,000,000 from New Holland Capital. Turning to Slide seven, I'll provide some details on mutual fund sales. The Canadian mutual fund industry saw positive net sales of approximately $7,000,000,000 in the quarter, substantially driven by net flows into fixed income and specialty funds, which included liquid alternatives, crypto and commodities products.

4:32 AGF Investment's Canadian Retail Mutual Fund delivered its eighth consecutive quarter of positive net sales of $6,000,000 As previously highlighted, we also continue to see strong flows in our Canadian ETF and SMAs as retail clients look to utilize different investment vehicles to access our investment capabilities. Many of our leading mutual funds are also available via SMAs and ETFs. Accordingly, we are introducing a new view this quarter, combining our Canadian retail mutual fund and ETF and SMA flows to better reflect this overall trend. As can be seen, our Canadian ETF and SMA saw positive net flows over the past eight quarters and we have seen consistent year over year growth over the last two years.

5:19 Turning to Slide eight, you can see how the strong sales momentum has driven our ETF and SMA AUM. Our ETF and SMA products globally have grown at 64% on a compounded basis over the last two years, now reaching $4,800,000,000 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 one year performance is in the forty second percentile, our three year performance is in the forty third percentile, and our five year performance is in the fortieth percentile, and approximately 60% of our funds outperformed our peers on a three and five year basis.

6:17 I will now pass it over to Ash Lawrence to provide an update on the AGF Capital Partners business. Thank you, Judy. Building a diversified alternatives and private markets business remains a strategic imperative and is key for the long term success of AGF. Over time, AGF Capital Partners will be a driver of growth and contribute to a greater diversification of AGF's assets and client base. AGF formally established AGF Capital Partners as our multi boutique alternatives business in 2022. Since then, we have made significant progress in the build out of the business and want to share some key highlights and initiatives from the past year, as well as an overview of the current business profile. In early twenty twenty four, we acquired a 51% stake in Kensington Capital Partners, a leading private equity and venture capital manager.

7:11 And we've made our initial investment in New Holland, a multi strategy hedge fund and specialized credit manager.

7:18 Over the last year, the business has seen tangible growth and a number of business highlights. This quarter, we increased our interest in New Holland from 24.9% to 50% with rights to further increase our stake in subsequent periods. At the beginning of 2026, New Holland launched a specialty finance focused fund for institutional investors. Additionally, Holland has also onboarded new institutional investors to its flagship multi strategy hedge fund, which now has almost $3,000,000,000 in assets. Early last year, AGF and New Holland jointly launched the AGF NHC Tactical Alpha Fund, giving eligible Canadian investors access to their flagship mandate. Additionally, New Holland's total AUM is up by 44% since our initial investment in 2024, reaching $11,000,000,000 In the midst of a very difficult private equity environment, Kensington Capital Partners successfully updated the terms of its flagship $1,200,000,000 Kensington private equity fund to modernize the fund structure and better align the fund terms to the liquidity profile of the underlying investments.

8:31 This resulted in the lifting of the suspension of redemptions in March of this year. Additionally, Kensington acquired a strategic interest in One9, a venture capital firm focused on the defense and security sector. Kensington has since launched a sector specific strategy and grown the team focused on what is quickly becoming a major investment theme with institutional clients. And finally, the AUM of the AGF. SAT private credit strategy crossed $250,000,000 with steady growth driven by both strong performance and flows throughout the past year. As a reminder, our Canadian private debt strategy is focused on non sponsor backed borrowers in the lower mid market and mid market within Canada. A contributing factor in the future to accelerating the growth of Kensington New Holland and the AGF SAF private credit strategy, as well as new managers, is our ability to leverage the organizational support and breadth of the resources at AGF.

9:32 To that end, over the last few years, we have developed internal infrastructure to strengthen the support for our affiliate managers. We've established a dedicated sales team to market our private market strategies to Canadian investors, both retail and institutional. We've built other dedicated functions within AGF to support the business and our affiliates, such as marketing and legal resources. And we provided capital to grow the business alongside investing in numerous funds managed by our affiliate managers. Finally, we remain disciplined in our origination process as we look to grow the platform further with new manager relationships and alternative investment strategies. Over the past three years, we have screened approximately 70 managers and continue to build our presence and relationships to benefit our pipeline.

10:24 It is crucial for us to maintain rigor around our preferred manager profile as we seek the right long term partnerships that provide us with specialized investment capabilities and marketable track records. AGF Capital Partners now has over $15,000,000,000 of AUM and fee earning assets, spanning across various investment strategies, including absolute return, venture capital, private credit, and private equity, both in Canada and The United States. Going forward, we will continue to grow AGF Capital Partners by supporting the growth of our affiliate managers while continuing to look for targeted acquisition opportunities. With that, I will now pass it over to Ken to discuss our financial results. Thanks, Ash. Slide 10 reflects the summary of our financial results with sequential quarter and year over year comparisons.

11:15 Our financial results in this period are adjusted to exclude severance, corporate development, non cash acquisition related expenses, as well as other adjustments as noted in our MD and A. Adjusted EBITDA for the quarter was $64,000,000 up $34,000,000 from the prior quarter and $25,000,000 from the prior year, mainly driven by higher top line revenues, which I'll get to in a minute. SG and A was $63,000,000 down $2,000,000 from the prior quarter and up $3,000,000 from the prior year.

11:48 The decrease from the prior quarter was attributable to seasonally higher expenses reported last quarter. The increase from the prior year was mainly due to higher performance related and AUM driven expenses. Adjusted net income attributable to equity owners for the current quarter was $47,000,000 and adjusted diluted EPS was 72¢. Free cash flows for the quarter was $36,000,000 which is largely flat to the prior quarter and $12,000,000 higher than a prior year, mainly due to higher EBITDA from our AGF investments and AGF private wealth businesses. Slide 11 provides a further breakdown of our net revenues. Within AGF Investments and AGF Private Wealth, net management fees were $97,000,000 for the quarter, which is $4,000,000 higher than the prior quarter, driven by higher average AUM and two additional days in the quarter, and $13,000,000 higher than the prior year, driven mainly by higher average AUM.

12:50 Revenues from AGF Capital Partners was $27,000,000 this quarter, representing a significant increase from the prior quarter and prior year. The increase versus both comparative periods was mainly due to the $15,000,000 gain on our New Holland transaction, where we exercised certain of our option rights to increase our interest from 25% to 50%. The increase in revenues from our long term investments this quarter also contributed to the sequential order increase. As we have seen in prior quarters, fair value adjustments can be lumpy, but we remain pleased with the long term performance of these investments. Since inception, these investments have generated returns of over 11% per annum, exceeding our long term target return of eight to 10%.

13:40 I would also like to note that with the conversion of our convertible note to equity and subsequent investments in New Holland, we will be accounting for New Holland on an equity accounting basis going forward. We expect the New Holland transaction to be modestly accretive to earnings in the near term, after accounting for performance fees and amortization expenses. The expansion of New Holland's operating leverage is expected to further contribute to earnings growth over time. On slide 12, we outlined adjustments to our EBITDA. As you might recall, M and A transactions in the AGF Capital Partners business gives rise to various liabilities. These liabilities are fair value each quarter with the difference flowing through to the P and L.

14:26 These accruals and fair value adjustments have no immediate cash impact, which is why we've adjusted for these items to facilitate easier comparison of quarterly results. Adjusting for these items, along with severance and other adjustments, our adjusted EBITDA for this quarter is $64,000,000 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 and A, and EBITDA as basis points on our average AUM in the current quarter, previous quarter, and trailing twelve months. This view excludes AUM and related results from AGF Capital Partners, as well as the DSC revenues, other income, and any other one time adjustments.

15:18 The EBITDA yield this quarter was 28 basis points, which is three to four basis points higher than the prior quarter and the trailing twelve months, highlighting the operating leverage of our business as AUM grows. Turning to slide 14, I will discuss our free cash flows and capital uses. This slide represents the last five quarters of consolidated free cash flows on a trailing twelve 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 twelve month free cash flows was $134,000,000 and our dividends paid as a percentage of free cash flows was 24%. In the same period, we returned $80,000,000 to shareholders, consisting of 32,000,000 in dividends and $47,000,000 in share buybacks.

16:11 During the quarter, we repurchased over $05,000,000 shares under our NCIB. We ended the quarter with net debt of $51,000,000 We also have $435,000,000 in short term and long term investments and have $145,000,000 remaining on our credit facility, which provides credit to a maximum of $250,000,000 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 twelve month adjusted EBITDA of $193,000,000 and our enterprise value of approximately $1,300,000,000 at a 6.9 times EV to EBITDA multiple.

17:06 At 6.9 times, our long term investments are valued at $124,000,000 a 70% discount against the balance sheet value of $418,000,000 as of Q2, and the rest of the business continues to trade at a two turn discount against other traditional asset managers. These suggest further potential upside to our valuation despite the strong share price movement over last few years. When we do 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.

17:55 AGF investments in AGF Private Wealth businesses remained strong. Our AUM and fee earning assets continued to climb, reaching nearly $75,000,000,000 40% higher from prior year. Our investment performance remains solid and our sales momentum remains strong. We are excited about the opportunities ahead for New Holland Capital and the continued growth of the AGF Capital Partners business. 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 entire AGF team for all their hard work. We will now take your questions.

19:02 Thank you. And our first question comes from Graham Ryding of TD Securities. Your line is open.

19:50 Hello, good morning. Good morning. Could we maybe start with just New Holland Capital? Can you give us a feel for the organic growth profile there in terms of sort of net new assets, maybe how that's looked over the last few years?

20:09 Sure, Graham. We'll let Ash, why don't you take that? Hi, Graham. Yeah, for sure I can answer that. So they've seen significant growth from an AUM perspective since we closed our transaction. I think as mentioned in the commentary at the beginning of this call,

20:26 40 plus percent growth, they're now sitting around CAD 11,000,000,000. In USD that was about 5,500,000,000 to about 8,000,000,000. Largely that is coming from two sources, new fundraising as well as profits that are reinvested within some of their core strategies, namely their flagship multi strategy that they run as well, which has now reached about $3,000,000,000 in CAD dollars as well.

20:56 So we're seeing quite a bit of organic growth in their existing portfolio. And then also as mentioned, they did launch a specialty finance vehicle at the beginning of this year. There's still early days in that, but seeing interest on the investor side for that product as well.

21:16 Okay, and how much of that organic growth is coming from the Dutch pension funds versus North American clients?

21:26 The Dutch SMA is largely related to profits that are being reinvested. So I don't have the number exactly in front of me, but it is part of it, but not the majority of it. The majority of that capital is fundraising capital from new sources, both in North America and in Europe as well. Okay, great. On the SMA flows, thank you for breaking those out.

21:57 Do those include SMA flows from US and international or just Canada? And then,

22:06 know, how if not, how do those flows from The US and international sort of compare to the $150,000,000 that you're sort of averaging over the last four quarters?

22:18 Sure. Thanks, Graeme. I'll take that. We don't break out the first of all, the number reflects only the Canadian SME number at this time. And the we don't break out jurisdictionally whether they're from The U. S. Or Canada. We show them in a combined way. We're always open to greater disclosure so we are, you know, taking some feedback if that number should be broken out. And I guess if you just look at the total AUM number we do show between the SMA and ETF it's probably equally weighted between

22:49 Canada and globally outside of Canada. So we continue to see some very strong flows in The U. S. As well in particular as we sit on about 10 different platforms and we continue to pursue that strategy. Okay, great. So, Ken, this is Pat. I'm sorry. Ken, for this added clarity. The AUM that we are showing for ETFs and SMAs, that is an aggregated number. So, that $4,800,000,000 represents both Canadian and U. S.

23:22 SMAs and ETFs. And I guess, with respect to the flows, the $155,000,000 of SMA flows and ETF flows are strictly on the Canadian side. But we have also seen some very strong flows on The US side as well. Okay, understood. And that 4,800,000,000 can you break out for us how much of that is SMA versus ETF?

23:49 Or could you if you don't want to give us specifics, can you sort of give us directionally how Yes. You should think about We don't break that detail out as well. The majority is SMAs as we continue to evolve our ETF platform. As you may know, we've launched a few more products in ETFs and so we continue to focus on growth in that area, but we don't break out the SMA and ETF split. Okay, that's it for me. Thank you. Thank you. And one moment for our next question.

24:23 Our next question will come from the line of Ramil Sabat with Jefferies. Your line is open. Please go ahead. Hi, thank you for taking the questions. So my first question is on New Holland as well. Can you just explain what are the remaining options and warrants that you have and if you're expected to exercise them this year? Sure, it's Ash here. Happy to answer that. So post transaction, we have two warrants, essentially options that are still available to us. One that will take us to a majority ownership, so a small amount just to flip us into majority, and then another 15% option that will take our ownership up into the 65% range.

25:08 The first warrant I mentioned, that is exercisable by us at any time. It will trigger

25:15 certain consent rights that we will need to get in The U. S. Before we actually get to our 50.01%. And then the second warrant is exercisable by us twenty four months from now within a window of time.

25:33 Okay, and if you're just exercising the first option, would that change to consolidation instead of equity the equity method? Yes. It would. Yeah. Okay. Got it. And my other question was I wanted to know if you could provide a little bit of more color on the operations of New Holland, like the base management fee rates and the profit margins that you're seeing.

26:03 So at the moment, over the last couple of years, NHC overall has undertaken a bunch of meaningful growth investments into their business. So they've largely been adding and upgrading skill sets and people, as well as building out a trading affiliate. So as a result, their fee related earnings right now are roughly breakeven.

26:26 Our expectation and the reason for the exercise of our option is with the bulk of that retooling now complete, we do expect those fee related earnings to pick up over the next twelve to twenty four months. We feel the platform is now positioned for growth with the investments, both as a result of our capital investment as well as in reinvesting into the business over the last few years. As a reminder, when we talk about the fee related earnings, we're typically excluding performance fees. They do generate performance fees in almost all of their strategies. So I mean one way to look at this is on a look back basis when we were still in our loan arrangement, we did have a participating interest as part of that structure. And earlier this year that generated about 4,500,000 to AGF at our 25% special interest. Again, this was inclusive of performance fees earned over 2025.

27:23 Yeah, okay, makes sense. Thank you.

27:30 Thank you. And as a reminder, to ask a question, please press 11 on your telephone. And we have a follow-up question from the line of Gary Ho with Dart G Capital. Please go ahead.

27:53 Okay, great. Maybe just going back to maybe Graham's question on the SMA and ETF flow side. So, good momentum. Just wondering if you can elaborate. You said there's 10 partners. Wondering if any of those were added or thoughts on adding new partners onto the platform and which products are you seeing the best flows? And then maybe just on the flip side a bit surprised by the mutual fund net sales of $6,000,000 in the quarter. Just given I think on the last call you had mentioned kind of quarter to date a

28:25 $40,000,000 number. Were there outflows in May and how does this June number kind of look?

28:34 Thanks Gary. I'll start with the mutual fund side. We did see some softening in our sales as did the industry I think quarter over quarter, but I would attribute that mostly to seasonality. Year over year despite the strong equity markets we did see a softening in our sales relative to last year, but we think that that was mostly due to the fact that you saw a softening of the economy. There was a higher cost of living.

28:59 Inflation was certainly in play. We do service a certain segment of the Canadian retail investor base that would be most impacted by that sort of reality and that economic sort of situation. And so we saw some softening from that. As well when we looked at the underlying flows, industry saw strong flows in the balance and specialty categories where we have less exposure. And, you know, we're talking things like gold, high yield or crypto. And so to the extent that we do have specialty mandates where

29:30 we do have a couple in high yield space, we did see strong flows, which was consistent with industry. We just don't have as much exposure more broadly speaking on that. Month to date has been solid with $25,000,000 in net sales through to the end of yesterday. And speaking to the SMA flows in the industry, you know, we are seeing that that is directionally where the industry is going. And so we have positioned ourselves working with the head office. Our national accounts team has done a great job in Canada getting on about 10 or 11 different platforms. And on those platforms we're seeing mostly our growth suite of products, whether it be U. S. Growth, Global Select, SMID. We have energy transition in play as well in certain jurisdictions. And so we continue to evolve that platform and I think that that's a direction where the industry is going to go.

30:21 Okay, great. No, thanks for that. My next question just on maybe for Ash, just on the fair value distribution line. So, we back out New Holland Capital right up, let's call it. I get you a number that's just under 2% return on your long term investments. I know it's small, but just wondering if the 5% to 6% return that you highlighted last quarter for this fiscal year, Is that still a good number to use for the balance of this year?

30:54 Hi, Gary. Yeah, we are still looking on an annualized basis for 2026, something in that five to 6% range, taking into account the 2.5% markdown we had last quarter. We do expect that over the course of the year, while in certain private markets that may not be the strongest year that we still will get to that 5% to 6% level. And anything to call out from the infrastructure assets that drove the fair value loss last quarter? Anything that you've seen in the last couple of months? No, that portfolio, at least for the quarter stabilized from a valuation perspective. We do expect in that portfolio some monetizations to be coming in the next few years. That is a good chunk of that portfolio, not the entire holdings for us is across two funds, one of which has now hit the 10 mark.

31:47 So we do expect some monetizations there. And I think we should expect, given that some of those assets are now mature, that they won't be yielding the same returns they were earlier in the J curve. So between the time of now and monetization, we would expect some decrease in performance from a return perspective. We just need to make sure we don't misinterpret that as erosion of performance. It's more just that the assets are mature. Yeah, okay, makes sense. And then just if I can sneak one more in. John, I believe you're on the call. So good to have you on. Just curious to hear your original thoughts here. What attracted you to the role and things that you can leverage from your prior experience?

32:36 Thanks, Gary. Appreciate the chance to be here today and good question. Look, I've been here a bit less than two months and my focus right now continues to be as you would expect on building relationships across the organization. This is a great investment team. It's a great platform and we're really operating from position of strength. The question about why I joined, I guess I would give you three main reasons. One is our commitment to investment excellence. The second is the culture of collaboration that has long been emphasized here. And third is the continuous improvement mindset. As I move forward, I think the continuous improvement mindset is something I'm really going to lean into. We're going to pursue every avenue we can to be even better at delivering world class risk adjusted returns for our clients, and I couldn't be more excited to be part of that.

33:30 Okay, great. No, thanks for those comments. Thank you. I am not showing any further questions at this time. Okay, thank you. Thank you for your questions. This was another strong quarter for AGF. Our investment performance and sales momentum remained strong. Our strong balance sheet and strong cash flow position provides the flexibility to return capital to shareholders, continue investing in long term growth and remain resilient through market conditions. We look forward to our Q3 earnings call on 09/23/2026.

34:27 Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.