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Edited Transcript of FSZ.TO earnings conference call or presentation 19-Mar-20 2:30pm GMT

Q4 2019 Fiera Capital Corp Earnings Call

TORONTO Apr 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Fiera Capital Corp earnings conference call or presentation Thursday, March 19, 2020 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jean-Guy Desjardins

Fiera Capital Corporation - Chairman & CEO

* Jean-Philippe Lemay

Fiera Capital Corporation - Global President & COO

* John Valentini

Fiera Capital Corporation - President & CEO of Private Alternative Investments

* Lucas Pontillo

Fiera Capital Corporation - Executive VP & Global CFO

* Mariem Elsayed

Fiera Capital Corporation - Director of IR & Public Affairs

* Vincent Duhamel

Fiera Capital Corporation - Vice Chairman of the Board

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Conference Call Participants

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* Cihan Tuncay

Stifel Nicolaus Canada Inc., Research Division - Analyst

* Gary Ho

Desjardins Securities Inc., Research Division - Analyst

* Geoffrey Kwan

RBC Capital Markets, Research Division - Analyst

* Graham Ryding

TD Securities Equity Research - Research Analyst of Financial Services

* Jaeme Gloyn

National Bank Financial, Inc., Research Division - Analyst

* Nikolaus Priebe

BMO Capital Markets Equity Research - Analyst

* Scott Chan

Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst

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Presentation

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Operator [1]

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Good morning. My name is Julie, and I will be your conference operator today. At this time, I will like to welcome everyone to the Fiera Capital's Earnings Call to discuss financial results for the Fourth Quarter and 2019 Fiscal Year. (Operator Instructions) As a reminder this conference call is being recorded. (Operator Instructions) I will now turn the conference over to Ms. Mariem Elsayed, Director of Investor Relations and Public Affair. Please go ahead.

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Mariem Elsayed, Fiera Capital Corporation - Director of IR & Public Affairs [2]

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(foreign language) Good morning. (foreign language) Welcome to the Fiera Capital conference call to discuss our financial results for the fourth quarter and 2019 fiscal year. On the call with me today are: Mr. Jean-Guy Desjardins, Chairman of the Board and Chief Executive Officer; Mr. Vincent Duhamel, Vice Chairman of the Board; Mr. Jean-Philippe Lemay, Global President and Chief Operating Officer and Chair of the Global Management Committee; Mr. Lucas Pontillo, Executive Vice President and Global Chief Financial Officer; and Mr. John Valentini, President and Chief Executive Officer of Fiera Private Alternative Investments.

Before we begin, I invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at fiera.com. Note that the comments made on today's call, including replies to certain questions may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on Page 2 of the presentation. I will now turn the call over to Vincent Duhamel. Mr. Duhamel?

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Vincent Duhamel, Fiera Capital Corporation - Vice Chairman of the Board [3]

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Good morning, everyone, and thank you for joining us today. There's certainly a lot going on right now in the market and at Fiera Capital.

For my part, I'll be joining the company's Board of Directors, as the Vice Chairman effective today. Fiera Capital is entering into a new phase of the development of our strategic plan that we initiated on my arrival in November 2017. This plan was structured and disciplined to transform Fiera Capital, in a truly global provider of investment management services, attractive to people and increase efficiencies. A lot has been done during this period by a fantastic team of close to 850 employees around the globe and more needs to be done. The management team today on this call led by Mr. Desjardins, John Valentini, Lucas Pontillo, Jean-Philippe Lemay are best-in-class to manage this firm in these difficult times. As part of this team, Jean-Guy has demonstrated great leadership and management skills in leading the firm's Canadian division since 2017, skills that will allow the firm to accelerate the execution of our plan as it succeeds me as the Board President and Chief Operating Officer. I am excited and honored to continue to contribute to the success of the organization at the Executive Management Committee and Board levels, alongside Jean-Guy Desjardins.

Before I cover the results of the fourth quarter, I want to comment on the volatility that has deflected the markets in recent weeks. Heightened anxiety around COVID-19, as part with consistent uncertainty and done market gains across industries and halted stock exchanges. While the correction is affected in all investors, we have now experienced unusually elevated flows. Furthermore, the volatility that has affected fixed income and equity markets in recent weeks has not impacted our private alternative platforms in a significant way. The revenue base remains sound, demonstrating the value of owning these defensive assets in diversified portfolio. With the majority of our strategies, we continue to outperform in these markets.

I am now on Slide 3. We are very pleased with our financial and operational results for the fourth quarter and the fiscal year. We generated earnings per share of $0.03 for the fourth quarter of 2019 compared to a net loss per share of $0.02 in Q4 of last year. Adjusted EPS was $0.42 basic or $0.41 diluted for Q4 2019 compared to $0.29 in Q4 of 2018. 2019 results confirm that Fiera Capital's growth strategy is proving effective. Through acquisitions, we expanded our suite of investment strategies to better serve our clients. We organically grew AUM in both 2019 and the fourth quarter in a market environment, weighted down by outflow and curtailed the impact of redemptions by funding strategies and more profitable asset classes.

In private alternatives and asset class, we are intently focused on growing. We grew AUM to $12 billion at the end of 2019, up $3.6 billion or 43% for 2019. We grew AUM to $169.7 billion at the end of 2019, an increase of $33 billion or 24% compared to the end of 2018.

In the fourth quarter, AUM grew by $5 billion or 3% compared to the end of Q3 2019. We generated adjusted EBITDA of $61.8 million during the fourth quarter, beating the height set in the previous quarter by $15.2 million or 33% compared to adjusted EBITDA of $39.3 million in Q4 of last year. That's a 57% increase. And while IFRS 16 had an impact, their corresponding Q4 2019 margin of 30.2% and last 12 months margin of 29.4% reflect the progress we are making on several fronts. We significantly enhanced our global operations and IT infrastructure and began building on our existing distribution model in 2019, in line with our 2022 strategic plan.

We are seeing the benefits from those initiatives as well as contributions for 2019 acquisitions flow through our margins. These transactions allowed us to build out our private alternative investment capabilities, scale-up LDR platform and grow our footprint in the U.K. for the dual benefit of our clients and our shareholders.

I will now turn to Slide 4, for a review of our AUM. The increase in Q4 AUM was primarily due to market appreciation and new mandates, which had a favorable impact of $4.8 billion and $4.7 billion, respectively. New mandates funded in the fourth quarter included new institutional global equipment, one in Europe, and in the United States, which contributed $2.8 billion. These increases were partly offset by lost mandates and net outflows of to $3.1 billion and the unfavorable impact of foreign exchange rate fluctuations of $1.4 billion. For the year-ended 2019, we grew AUM by $33 billion. $15.7 billion of this increase was a result of the acquisitions completed during this -- the year and $12.5 billion consisted of growths, new mandates, with increased demand for fixed income, global equity private alternative investment strategies from both local and international clients. The momentum experienced in equity markets in 2019, drove up AUM by $16.4 billion on a foreign exchange adjusted basis. Total outflows of $11.7 billion were mainly in Canada with our Canadian fixed income.

With the strategy offering diversified across markets and asset classes above benchmark performance and the rapidly growing ability to offer our strategies to clients all over the world, we expect organic growth to become a core component of AUM growth going forward. We have also begun remodeling our distribution capabilities and are already seeing the initial gains from that initiative. Overall, we are winning new mandates, that generate on average, higher base management fees per AUM than the redemptions experienced during the same period. This pattern has been recurring in a significant way over the last several quarters and has indicated of the strides that we've made in implementing the different initiatives of our 2022 strategic plan and our goal of becoming part of the top 100 asset managers globally.

And now on to the review for our operations on Slide 5. In Canada, our largest division, our teams continued to deliver strong investment performance, during the fourth quarter across fixed income and equity strategies with global and international equity as well as small-cap strategy performing exceptionally well.

What's more, we intensify efforts around evolving our institutional group model in order to enhance our distribution capabilities and leverage our investment solutions capabilities and high-quality investment platform.

In the U.S., we delivered strong investment performance during the fourth quarter with most fixed income strategies beating their respective benchmarks. In equities, the Fiera Capital Emerging Markets Fund also continued to deliver strong performance.

Moving on to Bel Air, Los Angeles. This segment had another great quarter and continues to focus on alternative strategies. In our European division, we funded a $1.4 billion global equity mandate from a local government pension scheme in the U.K. Most of our emerging markets strategies continue to outperform with many also ranking the top quartile of their Morningstar peer groups.

Finally, I'm pleased to confirm that as planned, our different U.K. teams completed their office move in February. Our Palmer Capital, infrastructure and general Europe teams are now in one location, which we expect will foster collaboration and innovation as well as generate synergies.

Over the past 3 years, we have concentrated our efforts on developing, diversifying our offerings. 2019 was an instrumental year that we booked. We successfully integrated 4 acquisitions, significantly enhancing our suite of competitive investment strategies in new geographies and asset classes. Not only are we improving our client offering, but we're also creating revenue stream diversification that is core to strengthening and stabilizing the firm's revenue base. We are very proud of Fiera Capital's international footprints and diversification today. Leveraging this competitive advantage by bringing the right strategies to our global clients' portfolio will be at the heart of our next phase of growth.

I will now turn it over to Lucas for a review of our financial performance.

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [4]

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Thank you, Vincent. Turning to Slide 6. Total revenues for 2019 were $657.2 million, up $116.9 million or 22% compared to 2018. This increase was mainly a result of acquisitions closed in 2019 and market appreciation. We also benefited from organic growth, as a result of continued enhancements to our distribution capabilities and a higher fee-base due to investment strategy mix. Finally, we also earned higher performance fee revenues.

For the quarter, revenues also experienced strong year-over-year growth. Q4 2019 revenues reached $204.5 million, an increase of $47.5 million or 30% compared to Q4 2018.

Base management fees increased by $26.7 million or 21% year-over-year.

The attribution of that increase based on our client segments was as follows: institutional base management fees were $18.3 million or 30% compared to Q4 of 2018. This was largely a result of 2019 acquisitions of Palmer Capital, IAM, Foresters as well as organic growth in our Private Alternative Investments and our global equity strategies.

In retail, revenues increased $6 million or 18%, reflecting recently added Fiera Investments, created following the acquisition of Natixis Canada as well as increased activity in the U.S. And in private wealth, revenues increased $2.5 million or 7% compared to Q4 of last year due to strong sales in Bel Air. Performance fees were $29.9 million in Q4 compared to $17.8 million in Q4 of last year. Performance fees in traditional assets were $16.1 million with a $13.8 million balance coming from our alternative assets.

In other revenues, we generated $13.3 million during the fourth quarter, a $2.7 million increase from Q4 2018. The increase was mainly the result of a gain on foreign exchange hedging compared to a loss, recorded in the prior year. Share of earnings and joint ventures and associates is a new line item that was introduced in the consolidated statement of earnings and relates mainly to the share of Palmer Capital's share of earnings from joint ventures and which is a minority shareholder.

We record $6 million in this line item in Q4 of 2019. Given the long-term nature of these types of projects, these amounts can vary significantly from one quarter to the next.

Moving to Slide 7. We earned an average of 37 basis points per AUM in 2019. When calculated as a function of base management fees, this compares positively to 36 basis points for 2018 and 32.6 basis points for 2017. This is mainly driven by our continued expansion and diversification into private alternative investment strategies as well as our ability to exercise increased pricing power on high-performing traditional investment strategies, such as global equity. Over the last few years, we are focused on bringing new sources of alpha onto our investment platform, in order to provide our clients with a more varied and tailored investment solutions offering. This allows us to better serve our clients, especially in the type of challenging market environments that we find ourselves as a fit. As a result, we have a more diversified revenue stream. The increasing basis point trend on this slide is a testament to the expense of our approach.

On to Slide 8. Adjusted EBITDA for the quarter was $61.8 million, generating adjusted EBITDA margin of 30.2%. This represents a 33% relative increase in adjusted EBITDA from the prior quarter and an absolute increase in margin of 1.1%. For the year, we grew adjusted EBITDA to $193 million.

Moving to Slide 9. IFRS net earnings were $5.3 million in Q4 of 2019 compared to a net loss of $1.6 million in Q4 of last year. Net earnings attributable to company shareholders was $3.4 million in Q4 2019 compared to a net loss of $1.7 million in Q4 of 2018.

During the quarter, depreciation and amortization expenses were $21.3 million, and we incurred $6.8 million in restructuring and integration costs related to acquisition and transformation activities. Adjusting for these items, as well as share-based compensation, the accretion of our purchase price obligations and income taxes, adjusted net earnings were $42.7 million for the quarter. We are very pleased with our 2019 results and the underlying strategic initiatives that we undertook during the year.

Moving to Slide 10. Measures taken during 2019 to optimize the capital structure, improved the resiliency of our balance sheet. We ended the year with cash and cash equivalents of $96.2 million, while reducing the drawn portion of our revolving credit facility by over $30 million during the quarter. The total drawn amount on the $600 million credit facility stood below $450 million as of December 31, 2019, and consequently improved our banking covenant ratios.

We generated cash flow from operating activities of $149.8 million in 2019 or $139.4 million when adjusting for net lease payments. This compares very favorably to $106.3 million in cash flow from operating activities in 2018 and represents a 31% increase.

Finally, we are pleased to declare a dividend of $0.21 per share for the fourth quarter of 2019, which will be paid on April 28, 2020.

I will now hand the call over to John for a review of our alternative strategies.

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [5]

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Thank you, Lucas. I'm on Slide 11. As of December 31, total alternative assets, including private and liquid strategies, represented $14.8 billion in AUM or 9% of firm-wide AUM, and we remain on track to achieve our 10% target AUM for our 2022 strategic plan. Private Alternative Investments totaled $12 billion in AUM at the end of the fourth quarter, relatively unchanged from the end of September.

Accordingly, we had net inflows of approximately $200 million across our private market platforms during the quarter. Our Private Alternatives platform has grown significantly since the first strategies were introduced in 2008. In just 12 years, we transformed the Montréal-based single asset class business into one that spans the globe with operations in Canada, the U.K. and Asia, that offers a wide range of investment strategies. We are seeing growing demand from investors for these strategies and the platform is in solid shape to meet current and future needs.

Total committed undeployed capital, which is an indication of our ability to bid on projects and fund investments across our private alternative strategies sit at $1.4 billion as of December 31. 2019 performance across all alternative businesses was solid. Most of our hedge funds and private debt strategies generated positive returns for the last 12 months. Our global agriculture and infrastructure platform performed according to expectations, beating benchmarks and deploying capital rapidly, and our real estate platform delivered attractive returns and Canadian -- and our Canadian industrial real estate, core real estate strategies have been top performers compared to peers over the last 5 years.

Year-to-date, the relative performance of our private market strategies across the board has been strong compared to equities. Our investment teams are closely monitoring their investments, partners and borrowers to ensure they have proper business continuity plans in place and we'll continue to work intensively to assess any impact for the downturn or potential recession.

Our Private Alternative teams manage their mandates with a long-term outlook and have built portfolios that are capable of withstanding temporary market dislocations. With the thorough experience, trusted relationships and disciplined monitoring, Fiera Private Alternative Investments has become a leading supplier of Private Alternative strategies in the market. Moving forward, we expect that institutional and high net worth investors will continue to allocate capital to private investments that offer significantly less volatility and less correlation to traditional markets, and in turn, a compelling risk-return profile.

I will now turn the call to Jean-Philippe to discuss our investment performance.

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [6]

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Thank you, John. On to Slide 12. I'm very pleased to report that for the 5-year period ended December 31, 2019, 93% of our fixed-income strategies and 82% of our equity strategies, beat their respective benchmarks. For the 12-month period ended December 31, 2019, the company's fixed-income strategy has generated positive absolute returns with the majority of our fixed-income teams generally exceeding the returns of their respective benchmarks.

Our activities in municipal bonds and our strategies focused on credit performed very well. In equities, most strategies outperformed their benchmarks in 2019. Our global equity team, again, generated exceptional results and has built a remarkable track record over the last 10 years. Our flagship Canadian equity team has also built a strong track record, ranking first quartile over 1 and 3 years.

Finally, on the Emerging Markets front, our strategies outperformed their respective benchmarks in 2019. With regard to the current economic environment, affected by extreme concern over the extent of COVID-19 repercussion, I'm very pleased to report that as of March 16, approximately 70% of the assets we manage were performing better than their respective benchmarks. Our diversified and risk-controlled active management approach in fixed income, our item -- and quality buyers in equity and our diversified investment platform are providing our clients with customized investment outcomes. This focus on quality and risk management is resulting in low downside capture, which is welcomed in this environment. This is a testimony of the work that we've accomplished since Fiera Capital was founded in 2003.

Our efforts have been focused on building a resilient company as impervious as possible to changing economic cycles. Thanks to the diversity of our investment strategies and consequently, our sources of revenues.

In the face of this uncharted economic and social context, each of our investment teams is constantly reviewing their assumptions and monitoring new information as the spread of the coronavirus continues to be highly uncertain. The depth and length of the economic impact is constantly being reviewed, with new information being incorporated on a daily basis to our research-focused investment processes.

On the macro level, the volatility observed in the financial markets reflect this high level of uncertainty. While in the credit market, this is reflected through liquidity pressures and increase the process.

On the security level, opportunities and equities continue to be evaluated and scrutinized in order to understand the full extent of this environment. From a debt perspective, our credit teams are exercising heightened vigilance to applying their extensive research process. In order to properly conduct our investment management activities, we've taken measures to ensure that sufficient transaction execution can happen at all times. Our trading function operates from 5 different locations, which provides us with additional flexibility and resiliency.

Furthermore, our contingency plans include an ability to function remotely that has proven extremely effective in recent days. There has been no disruption to any investment activity. We are continuously testing to ensure that we can operate effectively and for a sustained period of time. Our investment teams in Hong Kong, for example, have been able to operate working remotely for the past year.

With employees, clients and offices across key continents, our primary commitment remains to the health, safety and well-being of our 850 employees, while also ensuring a 100% business continuity, starting from our investment operations, all the way to the client engagement and support. To date, we have implemented a number of preventive measures to remain in a safe work environment, while sustaining our business operations. Notably, our IT and operations teams have done a tremendous job in efficiently accelerating the deployment of our contingency plans. This is a fast moving, constantly evolving situation. All our teams are mobilized and well equipped to respond. We are monitoring the situation closely, taking appropriate actions when necessary for the benefits of our employees, our clients and our shareholders.

I will now turn the call over to Mr. Desjardins.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [7]

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Good morning to all of you. Thank you for being on the line. What I'll do in the next few minutes is cover the macro environment, which is the background against which we have been stress testing our company looking over the next 18 months. And I'm sure you will be asking questions on that subject later on.

One assumption that we have is that coming back to a normal economic environment. And rebuilding positive, solid sentiment in the population and in the marketplace, we'll require 1 or 2 days. One is that a vaccine has been approved or very cure -- medical cure has been approved or one that is already existent will be discovered as being efficient.

Now we know that if it's a vaccine, it's going to be 12 to 18 months. If it's a cure coming from a new drug, it's going to be 12 to 18 months. If it's a cure coming from an existing drug, it could be next month, 2 months, 4 months, could be anywhere, but more short term. So the way we see these scenarios evolving. The first scenario that we see, which, to us, is the most likely, is that nothing will be -- will come to us as a definite permanent solution to this virus before the middle of next year.

Meanwhile, we also expect that the second quarter will be the worst. We're going to hit the peak, and people that have the disease globally, especially in the U.S. And as a consequence, we sort of think that the second quarter should show negative GDP in the U.S., Canada should be around the same thing. You're going to see that in most industrial economies in the second quarter, which would be something like minus 5% -- minus 4%, minus 5%, minus 6%.

Following the second quarter, we think there will be an appeasement with the statistics demonstrating that more and more people are sick. And in fact, there should be a tapering up from the peak period about the extent to which the disease is growing. And as a result, should bring about the certain degree of confidence that we are slowly and gradually regaining control over the growth of the disease and its potential impact.

The consequence of that is that some of the constraints that we live today will be relaxed. I'd like to say that kids will go back to school, but it's going to be summertime. So fortunately or unfortunately, we still have them at home for a while, the young ones. And then the second quarter should -- in that environment, we think, produce something like 0%. No big negative quarter, but certainly not an economic snapback. And we should just carry on around that 0% growth until a definitive solution comes about. So there will be ups and downs. Psychology will get sometimes a little bit better, sometimes a little bit worse. But on average, we should be floating somewhere around that 0%.

The other scenario -- and I'll come back to market implications of that. The other scenario that we have is the more optimistic one. And the more optimistic one is, cure is found, something pops up. And an existing drug is identified and proven, as being effective, where the -- obviously, the delay for the market to commercialize that drug is a lot shorter because it's already been approved. And then that -- if that happens, we then put experience in that environment, a pretty dramatic snapback in the economy in the third and fourth quarter of this year. That, to me, would be the optimistic scenario, and it's not the highest probability scenario against which we're running our business. From a market point of view, we have been stress testing against the possibility that markets will be going down 40% for an extended period of time. So 40% is -- the markets would be down 40% for the second quarter, third quarter and fourth quarter of this year and possibly carry on for the first and second quarter of the following year. So that would be what we stress tested as the worst-case scenario. We stress tested another scenario, which is more comfortable, where we have the first quarter at 20% down, second quarter at 40%. And then the third quarter at 20% and fourth quarter at 20%. Within this scenario, where we will have passed the peak and the consequences of that disease and things will, although will not be fully taken care of because there's no drug available in that scenario in the third quarter, but there will be a tapering out of the growth in new people catching the disease. So markets should be somewhat encouraged by that. And we have in our forecast markets down 20%. But 20% in the third and 20% in the fourth and we carry on until the middle of 2021.

So that's the general macro background against which we have been planning and stress testing and running the business in the context of these letters. Something that I'd like to mention here by experience, although I'm still a young guy, the -- every crisis is an opportunity. And I think you should never forget that.

Even if this crisis goes on for 18 months, it's a great opportunity for anybody from a business standpoint, anybody who -- any business that has the backbone, has the strength and the capability of see through the crisis. And there is -- and I remember, other circumstances where we have to go through crisis. Currently, there's a humongous amount, I remember in 2008. But right now, there's a humongous amount, which is greater than what we experienced in 2008, in terms of stimulus in the pipeline. It's as much as it may be monetary stimulus or fiscal stimulus, it is absolutely huge, okay? All the monetary stimulus is like, right now jammed up in the pipeline because the pipeline is closed. Okay?

And I remember we saw that also in 2008. The fiscal stimulus, fortunately, this time around, comes with -- there's more of it. It has a much shorter impact. But the combination of this monetary and fiscal stimulus, when continents comes back, as a result of this virus situation being under control, which could be, like I said before, middle of 2021, the economic snapback that will come as a result of that, which will last a number of years, it's going to be a long period of economic growth because a significant GDP gap will have been created. So if you take our scenario, where the second quarter goes down just -- at least just 5%, okay?

You're getting a gap of 5% -- minus 5% on an annual basis, but you're also creating the gap of potential growth, which in U.S. is 2.5%. So you're creating on an annual basis, a gap of 7.5%. And if we have the third quarter and the fourth quarter at 0% and the first and second at 0%. At 0% you did -- you do create a gap because you're not achieving the potential growth of 2.5%. So if you add up all those numbers, by the middle of 2021, the GDP gap will be significantly greater than what we experienced in 2018. And what that means, it means that the fiscal and monetary policy that we have been informed, will finally start getting traction and there will be more and more of it. And more and more of it, because the gap is bigger, and they'll be more than anxious to create an economic environment where there will be absolutely no inflation pressures to close that gap. So we could be in for another extended period of economic expansion and economic growth.

So if a business that can survive the crisis and if that crisis goes on for the next 18 months and the business -- and we think that our business will survive, the opportunities that will follow will be very significant. Now on top of that, you have heard my partners, highlight the fact that it is an opportunity for us because our strategy -- 70% of our strategies are outperforming their benchmark. So our relative competitive position in the marketplace is improving. And if we can continue to do that, no guarantee we'll do it in the next 6 to 9 months. But if our managers continue to outperform in the next 6 to 9 months, our competitive position in the marketplace, when this thing turns around will be significantly improved from where it's been in the past. And honestly, it's been pretty good in the past.

So like I said, every crisis is an opportunity. And for us, we think that this one is going to be a very, very exciting opportunity down the road. Now meanwhile, obviously, on a daily basis, we work hard, we get together, we review latest events we're on top of what's going on and we're ready to react to any important changes that would trigger a different macro environment against which we're running our business right now than the ones that I described.

So I'll complete with this. So just in closing, notwithstanding the current state of market. We're not only very pleased with our '19 performance and believe that we're well positioned to weather the storm. In today's environment, risk management, liquidity, cost discipline are our chief priorities. Organic growth is and will be key for our expansion in the coming years as well. So from this, I'll close my remarks on this, and we'll open it up for questions, which I'm sure you will have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Nik Priebe with BMO.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [2]

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Okay. I just want to start with the question this morning on the range of potential responses to persistent market volatility. So if we see this market environment persists and equities remain lower or move lower, I'm just wondering if you could give us a bit of color on what adjustments you might be able to make to your cost structure. How much of operating expenditure would be considered discretionary marketing, nonessential travel, that sort of thing? I'm just looking to get a sense of what extent you might be able to mitigate the impact of lower equity values on earnings by tightening spending?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [3]

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Lucas, do you want to take this up?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [4]

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So I mean, with their -- obviously, as part of all the stress testing that Jean-Guy has been referring to, and I can tell you that this is something -- it's not something new for us. We've been stress testing even before my arrival to the company. I'd say probably in the last week, we've added more stress to the stress testing, but we've certainly been looking at all the various scenarios. We have a range of things that we can do, in terms of managing. What we don't want to do is sort of knee-jerk react. And as Jean-Guy said, I think, we're trying to see how this situation evolves. And we have a step plan to then respond, as required to any changes that we foresee in our own internal forecasting. Certainly, there are a couple of opportunities which we're -- are going to be automatic, which frankly don't even require much activity on our part. As we've said all the time our revenue-sharing arrangement with our portfolio managers, that provides some automatic stabilizers in our cost structure because it is a revenue share arrangement of 30%. So as revenues go down, that portion of the savings also goes down.

So that's one benefit. With regards to marketing, our budget for travel and marketing at this point is close to $20 million. Again, obviously, the travel side of that will be restricted just by virtue of the environment that we're living in right now, but we also want to be mindful again to continue to spend on the marketing side to continue to enhance our distribution capability. So we're watching that area closely. And other key areas are investment in infrastructure that we've been talking about. Thankfully, we have made significant investments over the course of 2019. We have more in the pipeline for 2020. But the reality is with that situation as well, in terms of how we're working at this stage, there's going to be a natural slowdown of how quickly we can implement systems and changes across the organization just as a result of dealing with the situation that we're in. So that will put some slack and relief on that as well.

Again, we remain committed to pushing out these types of restructurings from an efficiency standpoint to our platforms. But there's a realistic assumption that we're going to have to slow some of it down in 2020. So everything I've just described is effectively almost automatic without having to take any additional management actions. We also are actively reviewing plans in terms of if we have to take additional measures. But at this point, given where we're at, we feel quite comfortable with the stress testing that we have done.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [5]

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Okay. That's very helpful. And then maybe just following along the same vein of flexibility in preserving your pretty strong cash balance. What -- could you give me a sense of like what proportion of the purchase price obligations that you have out in front of you could be settled in shares in lieu of cash?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [6]

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Lucas?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [7]

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The largest proportion of our purchase price obligation actually relates to the City National Rochdale fund that we have, so CNR. And that mechanism is effectively a revenue-sharing mechanism. So again, there's an implicit natural stabilizer there and that PPO materializes with revenue. So if there's a decrease in revenue, that will decrease, but it's a flow-through. We effectively revenue share on that arrangement in the order of, call it, $0.80. We give back $0.80 on the dollar that we collect on that. So again, that purchase price obligation is not a concern for us because it is based on a revenue share arrangement. We have a much smaller portion of remaining PPOs related to some of our acquisitions. And in those cases, we have the absolute discretion to settle in shares if required.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [8]

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Okay. Okay, that's very helpful. And then one last one for me before I requeue. I think you had called this out in the quarter. I think the global equity team continued to have pretty strong flows in the fourth quarter, nearly $3 billion in new mandates. I think you'd kind of indicated that -- those strategies were becoming a bit capacity constrained. I was wondering if you could give a sense of how that compares to the churn there. Is there still some runway ahead of them, in terms of scaling those strategies? Just looking for a bit of a status update on that strong global equity team.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [9]

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I can help you on that because I spoke Nessim today for a matter of fact. But Jean-Philippe, maybe you can add to my comments. We have experienced in the first quarter net new client flows in those strategies. And listen, I'm just asking to add a comment that -- for what it's worth -- maybe I'm doing something illegal here, but don't send me to prison, please. Nessim mentioned to me, that Jean-Guy, we're getting a request for a new mandate on a daily basis. And one of the reason is you guys, the extent to which that strategy is compelling from a performance, people, process point of view. And also the fact that in -- this market is outperforming its indices by 4%, 5%. So just like we're doing in our Canadian equity strategy. So it's one way to express the fact that the flow of interest from potential new clients and those strategies doesn't seem to have decelerated from the comment that I received from Nessim.

JP, you want to add to that?

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [10]

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Sure. Obviously, the success that we've had on the strategy in terms of attracting institutional and high net worth investors has been tremendous. We've saw an acceleration of AUM inflows over the past year, as you also observed. So it's a matter of balancing the decrease in market and potential opportunities to receive flows, but also to keep and maintain our promises from an investment objective to our clients. So we're discussing that on an ongoing basis with Nadim, but definitely a strong pickup in interest given the reaction of this performance in the context.

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Operator [11]

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Your next question comes from the line of Gary Ho with Desjardins.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [12]

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Maybe just very topical, just a quick question. Can you provide an update on kind of where your AUM stands today given the short downturn over the past month or so?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [13]

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There's 2 aspects to that. There's a market impact and net flows. Market impact, I think anybody can do these numbers. I'll just give you a little bit of the insights on making sure that you push the numbers in detail. If you want to measure the market impact on our asset base as of -- from December 31, you're going to look at what percentage of our assets are equity market assets. And what you have to keep in mind is about 80% of those assets, equity assets are global equity, U.S. and EC equities. And when you roll them into Canadian dollars because of the weakness of the Canadian dollar, which can be bad in some ways, but very good in that sense. Our market value impact is reduced by a meaningful amount from declining foreign markets because of the currency impact. Relative to the S&P 500, it's almost a 10% difference in Canadian dollars. And on top of that, keep in mind that our managers are creating and generating alpha. So if you have the S&P 500, for example, down, I'm just -- I don't know what it is exactly now, they're down to 35%. In Canadian dollars it's 25%. And we're generating 5% alpha. So the market impact for us, not 35%. I must say that we did our stress test using the performance of the indices, so we know that we've created a little cushion in our stress test. But Lucas decided when he has some of those cushions anyway. So if you look -- if you want to measure the market impact on our asset base, you have to take into account all these little variables. So we're talking about 35% down in the S&P 500, it's 20% in Canadian dollars for us because of currency and alpha aspect -- positive alpha aspect. As far as flows, I cannot tell you exactly what the number is, but in the first quarter, our expectation is that our flow is -- net flow will be positive. And in fact, we have won.

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [14]

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Yes. We won some mandates.

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [15]

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Yes. We won a huge -- a big $1 billion mandate in the first quarter. And it will be, fortunately or unfortunately, but it will be registered in the month of April. So the clients will fund the $1 billion mandate in April. So we're doing fine.

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [16]

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And just to add, we've seen in the emerging markets, for example, we've seen some positive flows coming into our emerging market strategies, which I think is very -- it's a type of client that are risk takers and think to put some risk on those strategies.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [17]

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I think -- because I know the question will probably come up. When we run all those stress tests, like I said, we have some cushions embedded in the stress test that we run. But our expectation -- and we did pay a dividend in the first quarter and the Board was very comfortable and unanimous in approving the payments of the dividend. And I think you should assume that they gave us a good rate about all that. They asked all the questions and looked at all the numbers and had to develop a very high degree of comfort that our dividend policy, which, obviously, we intend to support and sustain, was responsible and appropriate to approve the dividend this quarter. So just and -- if the question doesn't come up, I want to make sure that I do make that comment, okay? Because well we did notice that a certain set of expectations was built in the marketplace about what we will be doing with our dividend. And we are very excited to meet the market expectation when it's about margins and profits and AUM and revenues. So we're not unhappy going against market expectations, but it's about the possibility that we will drive our dividend.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [18]

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Okay, great. And then thanks for the color on the equity market side. Can you provide a little bit color on your fixed-income portfolio in terms of market performance so far? I know that's roughly kind of half your AUM.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [19]

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So the -- I can pick this one. So the performance on a relative basis across our fixed-income platform is quite good on the core strategy. So we're seeing 25 to 40 basis points of added value there on the index. So that's positive. Obviously, our strategies that are more credit-oriented and a disposition of a long credit in more of a systematic fashion are more negative, maybe to the tune of 35 to 40 basis points, but -- at this point. But I would say that it's not unexpected given the credit context that we are seeing right now. So nothing unexpected there. So overall, we're pretty -- we feel pretty strong about the fixed-income platform and performance at this point.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [20]

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Okay. Great. And then my next question, maybe perhaps for Jean-Guy, again. Just in your scenario analysis that you mentioned, whether it's the worst case or the base case, how does your leverage look? And you also mentioned about your dividend level, like how does your dividend level look under those stress scenarios?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [21]

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Well, like I just said, our policy to maintain our dividend. And I -- okay, to maintain our dividend. The debt level, Lucas may pick that up, but we have a small increase in the first quarter because it's a typical quarter where we pay 2019 bonuses, and so that -- there's a big draw coming from those bonuses, which is a cyclical thing in the first quarter. Well, I know in our worst-case stress test, we started -- we payback our -- we have a debt reduction forecast in the third and fourth quarter. So we pay back debt in the third and fourth quarter.

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [22]

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Yes. And if I can just add, again, we've ran multiple scenarios. As I say, we have a host of initiatives that we can put in place. And obviously, we put a lot of focus on ensuring we maintain our debt covenants and keeping within our ratios. And by the same token, as I say, we're going to put measures in place on a lockstep basis depending on how this situation keeps playing out over the course of the year. We were very proactive in addressing this early on in terms of making sure we had action steps identified. And the idea being that we will put them in place as necessary or if not, we don't need to take those types of actions. But with the end goal always being, as I say, to preserve our leverage positions and making sure that we're in line with all our ratios.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [23]

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Okay. Lucas, just want to be clear then. So under those scenarios, you guys will still be on side with your, I think, 4x covenant ratios?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [24]

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Again, every ratio that we are analyzing, we're making sure that we're able to meet that. And I will say, Gary, it's actually better than all times because as we move forward, our ratio -- we now enjoy a 4x ratio up until the end of June. Moving forward, our ratio will be 3.5. And we've actually stress test all our scenarios to meeting that 3.5 scenario, not a 4 scenario.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [25]

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Perfect. Perfect. Okay. And then just lastly for me, just a numbers question, Lucas. I see that you've paid down -- No, just on the SG&A, can you disclose how much of the SG&A spend was performance-fees related? Just want to get to kind of run rate kind of base SG&A.

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [26]

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For the quarter, I mean, not all our performance fees are created equal. So again, it -- which is why I've highlighted the split between our alternatives performance fees versus our more traditional performance fees. We end up somewhere around 40% in terms of the margin on that -- on those performance fees, depending on the mix. So again, but that can vary year-over-year.

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Operator [27]

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Your next question comes from the line of Geoff Kwan with RBC.

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Geoffrey Kwan, RBC Capital Markets, Research Division - Analyst [28]

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Jean-Guy, you were talking a lot about kind of stress testing the business. But also, I got the sense you're also talking about how the portfolio is positioned. And that's where my question is. It doesn't sound like if there's still some, I guess, overall investment strategy that it's going towards the stress scenario, but is there a way you describe for your active strategies, how they're positioning in this environment? Is it more defensive? Or is it trying to be opportunistic? Or is it kind of playing it for -- it could be this 18-month scenario you're talking about?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [29]

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The -- no, the only -- well, it's hard for me to speak for every single portfolio manager responsible for a strategy. But I certainly can speak for what I'm involved in, which is our tactical asset allocation process, and we are definitely positioning ourselves right now to be -- to take advantage of this market environment. So it's a question of trying to time it as well as possible. And I -- we're not -- I can tell you that we will not, from an opportunistic point of view, move to an overweighed position in our diversified portfolios at this stage. I cannot tell you if it's going to happen next week or next month or 2 months from now. But what I can tell you is, at some point, it will go in that direction, depending on how events unfold. Okay?

If I can speak, maybe JP can -- it's closer to the specifics of all that, for the -- for all of the other strategies that we have. But I personally don't think that our -- the managers of our strategies are changing in a meaningful way their process or their approach in the management of their portfolios, which is interesting because you got a portfolio that has outperformed in the bull market, in a great bid bull market and -- which are outperforming in a serious market dislocation. That's quite interesting. And I think it has a lot to do with the quality of the research and the quality of the portfolio management skills that these guys have and the management of those strategies.

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Geoffrey Kwan, RBC Capital Markets, Research Division - Analyst [30]

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Lucas, on the -- with the markets being down as they are, and you talking about these different levers you have to try and mitigate the margin impact. Do you feel comfortable where we stand right now that you'll be able to sustain the adjusted EBITDA margin north of 30% over the course of this year?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [31]

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I mean, at this stage, what we're focusing on is maintaining our balance sheet, maintaining our operations. The idea of maintaining a 30% margin at this stage in this market with all this volatility is not, frankly, something we can opine on at this point. I think, again, what we've been focused on is making sure that we've got a resilient business, that we make it through the storm, that we're focused on our clients and developing investment -- generating investment alpha for our clients. But with regards to the margin at this point, we're going to do all our best to manage our expenses prudently, as Jean-Guy said, but we're not going to do that to the cost of doing a long-term damage to this business. I think, as we've pointed out here, we're trying to see to the other side of what we're dealing with right now. And in that regard, we need to make the right decisions and not knee-jerk react simply to make quarterly expectations.

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Operator [32]

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Your next question comes from the line of Scott Chan with Canaccord.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [33]

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Lucas, I just want to go back to the balance sheet and the leverage because I think that's one of the primary concerns from investors. So I just want to double check a few points. So you stated, at mid-time this year, the covenants go down from 4x net-debt-to-EBITDA down to 3.5x?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [34]

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Correct. And that's -- the standard has always been 3.5. But after our acquisitions, we get a, really get a 1-year grace period to go up to 4, and that will be falling off as of Q2 of this year.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [35]

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Okay, it's 3 now. And can you remind me what the net debt to EBITDA, I guess, was for, I guess, Q4? And then perhaps maybe any thoughts on a pro forma as of right now?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [36]

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So as of Q4, our banking ratio stood at 2.65. So as you can appreciate, well below our requirement of 3.5. And as I say, we're modeling all scenarios to ensure that we're consistent and compliant with our requirements going forward.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [37]

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And then, I guess, Q1 today, I guess, is, I guess, you can kind of look at it. And the 2.65 does not include the hybrids, right?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [38]

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No. Those are excluded from our calculation, but I can tell you, even on a fully loaded basis, if you will, and this is not something the banks look at in their calculation, when you look at our net debt-to-EBITDA position. So that's when you factor in our total debt less our cash, we're actually sitting at 3.4x. So even on a fully levered basis, we're actually making -- meeting the bank ratio, which is below that. And just to put that into context, that 3.4x number is the same level that it was at back in December of 2018. So our overall leverage position is exactly where it was over a year ago and that's despite having gone through a cycle where we were very acquisitive over the course of 2019.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [39]

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Okay. That's great. And I just want to go back to the fixed-income question in terms of the impact on the AUM year-to-date. Because you talked about the relative performance, but is there any kind of range on how to think about the absolute kind of performance that help us model similar to what you did with the equities?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [40]

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JP?

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [41]

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Yes. Well, our exposure on the fixed income side, as you know, is a significant amount. The universe return as it stands right now is probably around 1% to 2% realized year-to-date as of March 16, so low digit in absolute return. So pretty stable on the AUM side, but we also have a very important exposure as well to longer duration assets, which are more LDI related on both the pension and the insurance side. Which also can give even higher returns than that, probably to the tune of 10-plus percent on that side in terms of the benchmark. So on the stability of the AUM on the fixed income side, we're pretty confident. On the other hand, there's some credit exposure as well. And as you know, this also has a negative headwind on that side. So we could eventually provide more color, but at this point, these are my comments.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [42]

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So on an absolute basis, overall, it's probably up a bit modestly year-to-date. Is that fair to say?

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [43]

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Yes. Yes, fair to say. Up modestly is a fair statement.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [44]

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Okay, excellent. That is very helpful. And just a last question, just on performance fees. The traditional amounts, are those based mostly on relative performance and not absolute performance?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [45]

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Yes, JP?

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Jean-Philippe Lemay, Fiera Capital Corporation - Global President & COO [46]

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Yes. So the performance fees on the liquid alternative strategies are all based on the absolute performance of the fund above the benchmark, which could be 0 or kind of cash returns. And that's the same thing depending on the different types of fee structure on the alternative side, but John can also comment on that. We also have on that number, a contractual performance fees as well that maybe Lucas can comment on as well, which are not necessarily directly linked to specific return performance.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [47]

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John, what else?

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [48]

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Performance fees principally last year came in from our real estate strategies, we had in infrastructure and in credit. So they've been delivering. These are more mature strategies. We do expect and it has been trending up over the last several years. For instance, our ag fund will only start because contractually getting performance fees next year. So we do see it continuing trending upwards of the performance fees in our private alternatives as we grow our AUM and as the strategies become more mature. Okay? I'll take the opportunity, also at this time, maybe to make reference to a document that was published on our website. And I'd invite the analysts to go pick it up. It's called private alternatives, strategies responding to market irregularities. It's dated as of yesterday. And it provides a pretty good overview of our private alternative strategies and portfolio. So you'll get a snapshot of each one of our portfolio strategies in that document. And it is quite detailed as to the positions we hold and how those positions are holding up to the current market environment. So I'd invite you to go reference that document. It provides pretty good information. It's quite transparent on the portfolios that we're managing.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [49]

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And -- sorry, is there still like a large portion of this traditional performance fees garnered from the national bank distribution agreement and the relative performance there? That's what I'm trying to get at.

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [50]

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Lucas?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [51]

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We do have a portion of those related to that. And so again, that keeps on going and that -- we view that book as being quite solid in terms of where we're managing to it. Really, what -- the way those fees are structured, is that there's a discount in the upfront fee that's being charged on the funds, and then effectively, we make up the difference on the back end when we outperform on a relative basis. And I think, again, that should give you comfort based on the fact that when we've talked about how our strategies are outperforming even on a year-to-date basis in this market.

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Operator [52]

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Your next question comes from the line of Jaeme Gloyn with National Bank Financial.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [53]

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Yes. First question, just related to the earnings from a share of joint ventures & associates. Can you give us a little bit more visibility on whether that should occur quarterly? Or is that something that just accrues and is going to be booked in Q4s going forward?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [54]

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The projects themselves will vary from a time line perspective, which is why I wanted to point out that, indeed, this could be lumpy for a lack of a better time. These relate to value-add type projects that our Palmer affiliate is engaged in.

John, I'll let you speak a bit more if you have a sense of the pipeline or how things are looking. But I mean, we'll add, these are longer-term projects in nature. So you can imagine them as effectively construction projects that get undertaken over a 12- or 18-month period. So it will depend on the pipeline and delivery as to, frankly, how they're recorded in the quarter.

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [55]

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Yes. I mean, they're not -- I would characterize those revenues as sort of a value-add strategies. So you will not have a steady stream on a quarterly basis. But every year, you will have earnings. I mean there is -- the amount of projects and activity ongoing today is similar as it was last year. And what these are, think of it, they're almost like SMA accounts. They're specific projects where we own platforms in the U.K. with -- joint venture platforms where investors invest on specific projects with us, and we're the asset manager. And basically, you get the games and you crystallize once the products are complete. And you realize your profit. And these are ongoing. So that's the type of activity, that's the type of revenue that's generated. So you won't get it on a quarterly basis. But on a yearly basis, it should be a consistent amount of revenue that we recognize.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [56]

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Okay. That's helpful. And you've talked about the potential movements in AUM. Can you give us a little bit of an indication as to how you expect that to impact the average management fee rates as equity's share of AUM declines and fixed income sort of maintains stable levels?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [57]

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Lucas?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [58]

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I mean, certainly, it will have an impact. At this point, to what degree, it's still early to tell. I think as we've pointed out, you take some of our other strategies that we're also collecting in U.S. dollar or receiving in U.S. dollar. While you might have the downside of the market, you are getting the upside of the currency in regards to that. So again, we'll have to see -- we'll see that more from a perspective once we actually get the billing cycles and how that's coming through.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [59]

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Okay. In terms of the downside scenario, the worst-case scenario, 40% down and that continuing for an extended period of time through early 2021. I just want to make sure I understand the commentary that you're providing around those -- that particular stress test. In that stress test, there is no breach of covenants and there is no dividend cut. Is that correct?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [60]

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Yes.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [61]

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Great. And last one for me, just given the market backdrop, perhaps, maybe not the best timing today, but over the next couple of months, there could be some opportunities. How are you thinking about M&A in this environment?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [62]

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I think the best M&A you could look at right now would be to buy Fiera share. That's how it is.

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Operator [63]

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Your next question comes from the line of Graham Ryding with TD Securities.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [64]

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You mentioned you had some levers that you could pull on managing debt loans and covenants if you had to. Can you elaborate a little bit more on what those potential levers are that you would look at? Because it sounds like the dividend is not one of those levers.

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [65]

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Well, I think as I've highlighted, I mean, there's a host of expense initiatives that we can look at, again, if required. The approach we've taken is to lockstep them in terms of different scenarios. And as we go through time and as we get better clarity on how the situation unfolds. As I say, there's some automatic stabilizers that are already embedded in our cost structure, which, frankly, have already kicked in and are helping us and will benefit us. And we will continue to monitor that situation and deal with it appropriately. As I said, I want to send the message that, again, this is not going to be an exercise and just knee-jerk reactions. I think if you look at this management team, there's a significant amount of experience around this table and people have lived through several of these types of crises in the past. And I think what we've all learned is that remain calm, don't panic, have a plan in place and then deal with it as appropriate.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [66]

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Makes sense. The contingent payments, $37 million in 2020. What's the timing on that? And it sounds like there is room for that to be lower if given it is in the market sort of volatility and pullback here, is that accurate?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [67]

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The contingent payments relative to our purchase price obligations you mean?

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [68]

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Yes. I think there's $37 million due in 2020. Is that correct?

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Lucas Pontillo, Fiera Capital Corporation - Executive VP & Global CFO [69]

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Yes. So again, a good -- I mean well, a majority of that, as I say, is C&R. So as we've talked about that. That is selectively a flow-through where we collect first and pay back later. So again, that's -- it will be what it will be over the course of the time. And then a smaller portion of that is related to some of our acquisitions. And most of those will be happening in Q2 of this year, which, again, and we have factored those into our stress testing models and our cash flow balances.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [70]

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Okay. The other area that I was interested in is just the announcement today that had been since moving on to the Board level. And there's a succession happening at the present level. Can you just provide some color on what was behind that move?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [71]

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The -- I'd say a couple of reasons. You mentioned one. There's succession planning, clearly in there. The other one is, I would say, to have the strongest people at the right place. I felt that it was appropriate to capitalize on Jean-Philippe's greatest strength. And he was ready to move to a global COO position and deal with the operations of the business, which I was, in fact, sharing with Vincent. And by giving it to Jean-Philippe, we're, Vincent and I are moving away from the operational responsibilities of overseeing the divisions because we were sharing that job. He was doing a better job than I was doing as well on that. And it's to capitalize on Vincent's greatest strength. And I hope some of mine at a more macro level of the firm, which is strategic, which is a relationship with our clients, relationship with our investors, distribution and also have the ability and the agility to have resources to address a specific issues or problems that may arise within the organization. And when an opportunity comes up to have the resource or resources to allocate to focus on an opportunity. And I'll just give you -- I could give you 3, 4, 5 as an example. Because I had this more than a feeling, I had a conviction that although we were doing very well as an organization, that there was so much in terms of opportunities that we were not capitalizing on due to resource shortfall. And a good example of that is our partnership with Natixis. And we think that there's a very significant business opportunity by putting resources into capitalizing on the Natixis distribution potential opportunities, which means positioning our highly competitive strategies within their global distribution network through their partnerships and through their in-house distribution capabilities. And it's something that -- we've had that partnership for a while. And we haven't capitalized on it as much as we should have. So those are specific opportunities where, in fact, Rick Nino, who was our global distribution person will be moving into specific projects of that nature. And Natixis happens to be one where Vince and I will be focusing for a little period of time. So over and above, the specific responsibilities that Vince and I will be assuming at the macro level, be it strategic and distribution and sharing with me those macro responsibilities, he will be available just like Rick is available to capitalize on something like the Natixis opportunity. So that -- no, we're capitalizing on the great strengths of Jean-Philippe, which we have all observed and appreciated and seen in the past. And at the same time, freeing up talent and resource to maximize opportunities that we have within the firm, which I think we haven't maximized in the past.

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Operator [72]

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(Operator Instructions) Your next question comes from the line of Cihan Tuncay with Stifel.

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Cihan Tuncay, Stifel Nicolaus Canada Inc., Research Division - Analyst [73]

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Jean-Guy, just quickly first on your commentary around M&A. You've been pretty clear about what the outlook for the dividend policy is. But I'm just wondering at what point do you start to think more about, well, could we go for buybacks versus dividend? Or has that passed your mind at all? Or at what point do you think that becomes kind of a more meaningful conversation?

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Jean-Guy Desjardins, Fiera Capital Corporation - Chairman & CEO [74]

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That's very high on how our list right now. I think about it every time when I go to bed. Our stock is to net $5. If you have a high degree of confidence, which honestly I have, that we will be maintaining our dividend at $0.82 per share per year. You know what's the payback? 6 years. In 6 years, the dividend will have paid your -- the cost, your book cost for acquiring a share of Fiera Capital. And then after that, you have a free right, you get the dividend and you get whatever the stock will do. So if you're a long-term investor, if you're a long-term -- a long-term is not 10 years. If you have a 2-year time horizon, and you put an act of fate, okay, an act of fate that they will have found vaccine or a cure for this virus phenomenon. And you trust that we know what we're doing it, that we're running a sharp business. I think we've proven some of that in the past. And that we have a very competitive and compelling investor management capability. When we talk about M&A, my answer, which was, the best M&A opportunity we have is the Fiera shares. That's what I'm saying, okay?

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Cihan Tuncay, Stifel Nicolaus Canada Inc., Research Division - Analyst [75]

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Okay. And then maybe just going back to -- you spoke just briefly about it a minute ago. On the strategic opportunities with Natixis, can you give us a sense of where some of those synergies and global distribution agreements stand today? Or what's been achieved so far and what you think can be achieved kind of in the next 6, 12 months?

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [76]

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Well, we first worked on integrating the Canadian business into our platform and dealing and streamlining this to make it an efficient business on its own. On the global basis, we have started to engage with a number of the teams of Natixis to start developing a strategy. But we have to realize that Natixis is a huge organization. And what we found is that there's a lot of moving parts within that organization that almost required to have a dedicated effort just to try to deal with all the different opportunities that arises in there. I think what you'll see over the course of the next few quarters, is clearly some opportunities arising, especially in Asia. We found that Natixis in Hong Kong had clearly a lot of firepower that we can use for our strategies, a lot of appeal for some of our strategies. And in Europe, not as much in the U.K., but mostly with Continental Europe. So this is a work in progress. And I think what you'll see over the course of the next few quarters, as we come out of those turbulent markets, is probably -- and we can start to travel and to engage a little bit more with them is probably a pickup in activity with them.

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Cihan Tuncay, Stifel Nicolaus Canada Inc., Research Division - Analyst [77]

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And then just one last question for me. With regards to the shareholder agreement that was in place with Natixis when the transaction first happened. Surrounding the put and call optionality, I'm just wondering if there's been any discussions that are triggering any of that put and call optionality given where the current share price is or has there been any interest or discussions at all of Natixis? How they view the current share price, and if they would be interested in buying additional stakes in the company?

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John Valentini, Fiera Capital Corporation - President & CEO of Private Alternative Investments [78]

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Well, clearly, like all shareholders, including most of the -- all the management team, we're not happy as shareholders at $5. And I'm pretty certain that Natixis will be in the same boat on this. We have had no discussions as to reviewing or negotiating or triggering any of the protocol options that are associated with the transaction at a time. It's a long-term investment on part of Natixis. And I think they're probably sticking to their guns at this point in time because nothing has changed with the fundamentals of the business. Clearly, the markets are a bit rocky, but we're still running a pretty efficient and very attractive business.

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Operator [79]

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There are no further questions at this time. Ms. Elsayed, I'll turn the call back over to you.

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Mariem Elsayed, Fiera Capital Corporation - Director of IR & Public Affairs [80]

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That concludes the call for today. Thank you for joining us.

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Operator [81]

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You may now disconnect.