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AGF Management Ltd
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Welcome to the Second Quarter 2019 AGF Management Limited Earnings Conference Call. My name is Hilda, and I will be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Adrian Basaraba. Mr. Basaraba, you may begin.
Thank you, operator, and good morning, everyone. I'm Adrian Basaraba, Senior Vice President and Chief Financial Officer of AGF Management Limited. Today, we'll be discussing our financial results for the second quarter of fiscal 2019. Slides supporting today's call and webcast can be found in the Investor Relations section of agf.com.Also speaking on the call today will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer. For the question-and-answer period for investment analysts following the presentation, Judy Goldring, President and Chief Administration Officer, will also be available to address questions. Turning to Slide 4. I'll provide the agenda for today's call. We will discuss the highlights of Q2 2019, provide an update on the key segments of our business, review our financial results, discuss our capital and liquidity position and finally close by outlining our focus for the remainder of 2019. After the prepared remarks, we'll be happy to take questions. And with that, I'll turn the call over to Kevin.
Thank you, Adrian, and thank you, everyone, for joining us on today's call. During Q2 of 2019, we continued to execute against our strategy and stated goals. I'll begin today with some highlights. We made a number of enhancements to our product suite. In April, we repositioned 2 of our existing funds to launch the AGF Global Real Asset Class and Fund. And in May, we introduced 2 U.S.-listed AGFiQ ETFs. Our private alternatives AUM reached $2.2 billion, which is solid progress toward our goal of reaching $5 billion by 2022. We remain on track to meet our SG&A guidelines of $190 million in 2019 even as we invest in growth areas. AGF was a finalist at the annual Wealth Professional Awards in 4 categories this year: CEO of the Year, Fund Provider of the Year, Employer of Choice and Advertising Campaign of the Year. And we reported dilutive adjusted earnings per share of $0.14, which is 17% higher than the prior year after adjusting for IFRS 15. The Board also confirmed a quarterly dividend of $0.08 per share for the second quarter. Turning on Slide 6. We will provide updates on our business performance. On this slide, we break down our total AUM into categories disclosed in our MD&A and show comparisons to the prior year. AUM ended the quarter at $38.3 billion, which is flat to the prior year. Institutional, sub-advisory and ETF AUM decreased by 9% compared to prior year driven by the committed redemption which was previously announced. Private alternatives AUM reached $2.2 billion driven by our latest funds, which raised considerable capital from institutional investors in Canada, the United States, Europe and Asia. This fund will add more commitments later in the year and is expected to reach final close sometime in 2019. We are pleased with the progress and growth of AGF's private alternatives business. The growth in infrastructure AUM reflects strong investor appetite from middle-market energy, utilities and civil infrastructure opportunities in North America.Turning to Slide 7. I'll provide some details on retail business. Consistent with the last few quarters, retail industry conditions have remained challenging. For the past 12 months ending May, the Canadian mutual fund industry reported net redemption of $12 billion compared to net sales of $32 billion in the prior 12 months. Retail investors are largely remaining on the sidelines in anticipation of further market volatility.For the recent RRSP season, deposits and GICs gathered $23 billion of assets, which is more than double the amount of assets gathered by long-term investment funds. In this challenging backdrop, AGF's retail fund business, which excludes net flows from institutional clients invested in mutual funds, reported net redemptions of $169 million for the quarter compared to net sales of $85 million last year.AGF's reported mutual fund net redemption in Q2 were $498 million, which includes net redemptions of $329 million from an institutional client invested in our retail mutual fund series. This client made an asset allocation decision based on the current interest rate environment, which resulted in a redemption. We note AGF remains the client's preferred vendor for this specific strategy. Over time, mutual fund industry sales ebb and flow, and we don't believe the current industry weakness is necessarily a secular trend. We would anticipate that industry sales bounce back with investor sentiment, particularly with significant cash sitting on the sidelines. Over the short term, however, we are cautious about the sales trajectory until we see sentiment becoming more positive heading into the fall.ETF industry sales have been strong. As we anticipate further growth, we have developed products to suit investors' future needs. We launched 2 new U.S.-listed ETFs to expand our presence in the U.S. Both funds leverage AGFiQ, our quantitative and factor-based investment platform, and provide investors with access to alternative asset classes and investment strategies.We will continue to focus on executing our retail strategic priorities, which include developing new strategic relationships and capitalizing on our existing partners, supporting advisers in both the IIROC and MFDA accounts and providing innovative products and solutions around specific needs.Turning to Slide 8. I will provide some details on investment performance. As I stated previously, our long-term target is to have 50% of our AUM above median in any 1 year and 60% of our AUM above median over 3 years. As of May 31, our AUM above median was 49% over 1 year and 21% over the trailing 3. The 1-year performance number has significantly improved due to our quality bias, which is the result of our disciplined risk management processes. For much of 2018, such investments underperformed relative to securities with strong momentum characteristics. This negatively impacted our 3-year performance target. We are comfortable with our positioning, and I believe the quality inherent in our portfolios is appropriate for investors over the long term.As of May 31, 71% of our Canadian ETFs with 2-year track records are ranked above the median. And as a reminder, we entered the Canadian ETF marketplace in January of 2017. In the U.S., where we now have a lineup of 7 ETFs, our Anti-Beta ETF is ranked in the first percentile on a 1-year basis. We are seeing increased interest in liquid alternative products, and our sales team is focusing their efforts on educating investors on effective ways to use these tools in their portfolios. With our 7-year track record in the U.S., we are very optimistic about impending -- our impending launch of these strategies in Canada as a way to manage portfolio risk. Moving on to the institutional side of the business. Not including retail sub-advisory and ETFs, those were essentially flat for the quarter. As was disclosed in our MD&A, we have $1.4 billion in committed redemptions for Q3. The redemptions were largely a result of a partner's repositioning their platforms and internalizing investment management capabilities. Although we are disappointed by these redemptions, we continue to focus on developing new strategic relationships and partnering with organizations that have open platforms. RFP and related activities have remained strong with interest in our AGFiQ, global equity, Global Sustainable Growth Equity and emerging market strategies. We feel confident in our ability to continue to generate gross sales. With that, I'll turn the call back over to Adrian.
Thank you, Kevin. Slide 9 reflects the summary of our financial results for the second quarter with sequential quarter and year-over-year comparisons. For ease of comparison, we have included adjusted numbers and also restated prior period results for IFRS 15 throughout the remainder of this presentation. We recorded total revenue of $110 million in Q2 2019, which is a 5% increase compared to Q1. The increase is mainly due to the following: Higher management fees, which were driven by higher average AUM. We record management fees based on total AUM, excluding the private alternatives business, higher profit from associates and joint ventures. This includes our proportionate share of the net income of Smith & Williamson and net income from our share of management fees earned in the private alternatives business. As our alternatives platform gains scale, including the final close of our latest fund, more significant management fee earnings will be recorded. These revenue increases were partly offset by lower fair value and other income. This includes income from -- related to mutual fund seed investments and alternative LPs. Income from these LPs such as Stream and the Essential Infrastructure Fund includes cash earned from monetization of assets, ongoing cash distributions, noncash increases or decreases in value and accruals for payment of carry. As a result, fair value and other income can vary quarter to quarter.Moving on to SG&A. Adjusting for IFRS 15, our expense guidance for 2019 is $190 million, and we remain comfortable with that guidance. Q2 SG&A was -- $48.6 million was roughly in line. We have not provided formal guidance for 2020, but we have indicated that we anticipate a further expense decrease in 2020, which could see expenses coming in closer to the $180 million range. More work is required by management to position ourselves to execute on the 2020 expense efficiency program.EBITDA before commissions margin is 26.6% for the current quarter, which has improved compared to 23.1% in Q2 2018. Turning to Slide 10. I'll walk through the yield in our business in terms of basis points. Slide shows our revenue, operating expenses and EBITDA before commissions as a percentage of average AUM in current quarter as well as trailing 12-month view. Note that AUM and results from Smith & Williamson, private alternatives platform, onetime items and other income are excluded. The revenue yield in Q2 2019 is 111 basis points, 2 basis points higher than the trailing 12 months. The improvement has been partly driven by shift in sales towards our stand-alone products. Our international equity funds such as AGF Global Select and AGF Global Dividend have long track records and are gaining close.Going forward, assuming normal business structure resumes, we expect net revenues to decline approximately 2 basis points per year on total AUM, excluding private alternatives, simply because sales generally go into funds with lower fees as compared to redemptions, which tend to be in funds with relatively higher fees. We'll continue to monitor this. EBIT before commissions yield was 22 basis points and that's 1 basis point higher compared to the trailing 12 months. Turning to Slide 11. I'll discuss free cash flow and capital uses. This slide represents the last 5 quarters of consolidated free cash flow on a trailing 12-month basis, adjusted for onetime items, as shown by the orange bars in the chart. The black line represents the percentage of free cash flow that was paid out as dividend.Our trailing 12-month free cash flow was $54 million, and our dividend payout ratio was 46%. Taking into account both Stream and the Essential Infrastructure Fund as well as our additional $75 million committed to the alternatives platform announced in January, our total remaining capital commitment to the alternatives platform is approximately $89 million.Capital commitments may be funded from excess free cash flow, but keep in mind there's also going to be further recycling of capital as monetizations occur, which will help fund future commitments. We also have our credit facility available, which provides credit to a maximum of $320 million. The total amount drawn now stands at $166 million. Turning to Slide 12. I'll pass it over to Kevin to wrap up today's call.
Thanks, Adrian. During Q2, we continued to make progress against our stated objectives. Our profitability margin has improved, and going forward, continued growth and further efficiency initiatives will contribute to working further toward our targets. We made enhancements to our product lines to meet investor demands for our alternative asset classes and investment strategies. Our private alternatives AUM reached $2.2 billion, furthering our goal of reaching scale on this platform. Along those lines, I'd like to reiterate our primary goals for the remainder of 2019. First, we continue to target above-median investment performance. In addition, we want to improve the trajectory in retail and institutional flows while continuing to leverage the AGFiQ platform to establish this unique capability in the areas of quantitative investment, ETF and liquid alternatives. Additionally, we'd like to position the firm to reach $5 billion in private alternatives by 2022 and meet our SG&A guidance for 2019.I want to thank everyone on the AGF team for their hard work. We will now take your questions.
[Operator Instructions] We have a question from Geoff Kwan from RBC Capital Markets.
I just had a few questions relating to the Smith & Williamson investment. And I just want to understand, I guess you'd be buying it from another shareholder. And then do you have a rough timing on when the purchase would close?
Yes. So Jeff, it's Adrian. In the runoff to the IPO, there could be some events that effectively dilute our ownership. And we have certain protections in that regard, and we've chosen to exercise them. And we don't have a specific date for when that transaction will occur.
Okay. But is this like an issue of new shares that you're buying to keep your pro rata ownership? Or is this another shareholder that's selling?
It's basically treasury shares to keep our -- to potentially keep our ownership stable.
Okay. And then my second question was just on the valuation. It looks like FX adjustment was around GBP 7.85 per share. And if you can kind of confirm if that's the right number. If it's not, what the right number might be because I think last year, the valuation at the end of April was around GBP 8.3, I think.
Yes. I'm not sure precisely what numbers you're looking at. Was there a specific page in our MD&A that you can refer us to?
Well, I was seeking the $12 million that you're paying. And I was just trying to do it. I could say it seemed that you were buying it from another shareholder. Maybe that's the issue because I was going off of what was in the Smith & Williamson report last year in terms of shares outstanding in last year's valuation.
Yes. Geoff, it's Kevin. So what you get -- you have a fair amount of employee vesting that often dilutes a little bit. And so this is just a provision to allow us to keep our stake flat at given times. There's no external shareholder involved in this. And you maybe -- the difference you're maybe looking at might have to do with we converted that at what FX rate, et cetera. But we can get back on details for you if you want.
Yes. Let me add just like what...
No external shareholders were involved in the transaction. It's really employee vesting.
Okay. And then I guess, yes, if you can get back to me on what the implied valuation per share would have been on the transaction.
Yes, we will.
The next question comes from Graham Ryding from TD Securities.
Just a follow-on on that. I guess I thought you'd sort of determined this is a noncore holding, your investments in Smith & Williamson. So why are you trying to keep your ownership position flat and investing a further $12 million?
Yes. Graham, it's just basically -- think of it this way. We think there's significant value in S&W as it heads toward its public offering. As we talked about in the past, the business continues to operate at a pretty high level. And I know people are frustrated a little bit with the time line to that public offering. But we think there's actually a fair amount of value that can be realized there, so the opportunity to leaving our stake holding flat, actually, I think, is a pretty good choice for us right now.
Okay. Got it. And is there any update on timing? Or is it still just 2020 as a target but not sure exactly when?
Yes. I mean as we talked before, I think 2020 is the right time frame. There are obviously regulatory approvals that have to happen. The U.K. right now is also dealing with Brexit and some other issues, some of the regulators. So timing is really going to be dependent upon getting all that done. But as I said, for what's been publicly disclosed by both S&W and us, it should say that 2020 as the time line.
Okay. And shifting to your alternatives business. Can you just remind us what the -- I guess your outlook for actual AUM is in 2019? Because I know there's a bit of a dynamic between what you've committed in deploying capital. I just want to get some confirmation on how you actually anticipate that alternatives AUM trending this year.
Yes. So we're about $2.2 billion right now. We've got 3 funds that make up that $2.2 billion. The third fund is in a marketing phase right now, and that is about roughly USD 1 billion, just shy of that today. We'll finish out the fundraising on that probably by the end of the year, and that looks to cap out at somewhere about USD 1.2 billion, USD 1.3 billion. And then as we've talked before, our goal is to have a fund in the market over the year, 1.5 years, maybe 2. So I'd say if you look at the back end of the year, just saying that you get to the $1.2 billion, you're probably looking at AUM that looks at $2.6 billion to end the year. But as we've discussed, once we sort of get to the back end of the year, you'll start to pick some management fees here for the first time as the platform probably starts to scale. But if we end the year at $2.6 billion without doing a fourth fund, you're probably in a pretty good place to get to the $5 billion by 2022, now recognizing that some of these funds start to recycle capital. So there'll have to be new funds launched along the way to keep pace with that.
Okay. That's helpful. And the management fees as you exit 2019, any visibility on sort of what sort of level we can expect at that point?
Graham, you're talking about management fees for our investment management business?
No. In alternatives, I think.
Well, just from the alternative because I know it flows through a different line, right? Just for the alternatives business.
Yes. So basically, the way the management fee earnings work are when you are raising a fund, you don't call management fees effectively until the fundraising is complete. So for the subsequent fund that we've been talking about and that Kevin gave you the update on, there will be sort of a large, call it, management fees when the fund does its final close, which we anticipate will happen in Q4. At that point in time, you'll see the scale of the platform come through, and you'll see us start to record fairly significant amount of management fees. I would say you can probably count on $2 million to $3 million a year worth of management fee profits coming from our alternatives business once this fund does its final close.
Okay. Okay. That's helpful. As then just my last question would be on the ETFs in the U.S. Can you give us a little bit of color on sort of what is the distribution strategy there? I think you've got 2 new ones and 7 in total. So how do you get those out to the market?
Yes. Thanks, Graham. It's Kevin. So we've had -- again, the platform we have in the U.S. will start to look a little bit more like our Canadian platform. So the 2 ETFs we brought into the U.S. are essentially one of our successful ones here in Canada, which is infrastructure ETF, multifactor. And the second is really a sector rotation strategy. We've adopted a little bit, put a hedge in it for the U.S. market. But in the U.S., the base platform really has about a 7-year track record, and they're essentially market-neutral strategies for different factors. So we talk about Anti-Beta. We can talk about the momentum market-neutral strategy, size market-neutral strategy. And the distribution for those is really to gatekeepers, model makers as they plug into a portfolio in terms of how portfolio construction will work for someone using these ETFs. So if you think about an Anti-Beta ETF, if the market is up a lot, it's going to be up a little bit. If the market's down, it will be up. So that's an uncorrelated component to a portfolio.So the idea is to distribute them to, again, model makers, large strat partners. It's really not going to be, at that level, a ground-up adviser sale. It's really going to be a head office down sale by getting them built into a product that is being pushed down from a dealer.In terms of distribution strategy, we're actually reworking that right now. Maybe, Judy, you want to have some comment on that because you're working on that.
Yes. I think as Kevin's outlined, we see tremendous growth in the U.S. And so we will be looking to add some hires in the U.S. to support the distribution strategy.
The next question comes from Paul Holden from CIBC.
So I want to start with a couple of questions on Smith & Williamson as well. First off, if I look at the increase in earnings year-over-year, your proportionate share relative to the very modest increase in AUM tells me there's probably some efficiencies maybe coming from that business or some operating leverage. Maybe you can speak to that a little bit.
Yes. Thanks for the question, Paul. Yes, the Smith & Williamson business is performing quite well. And if you look at the time series on the amount that we record through share of profits associated with joint ventures, there is a little bit of variability to it, and some of that just has to do with how we record it from an accounting perspective. But you're quite accurate in pointing out that the business is doing well. It's profitable. And we're quite happy with the performance of that business.
Okay. And then second question goes back to what Geoff Kwan was asking about in terms of the valuation behind the additional shares you're purchasing. And my question is more along the lines of what is the basis of value. What's kind of -- not what is the price, but what determines the price which you are able to buy additional shares?
Yes. So I don't want to talk -- we can't really give too many details about the ins and outs of those sorts of transactions because Smith & Williamson is a public company. But what I can tell you is that -- or sorry, it's a private company. So because of that, we don't want to get into too many details. But I can tell you that there is an internal valuation that gets done, and any shares that change hands between shareholders is done at that price. But we can't give you specifics on that because, again, Smith & Williamson is a private company.
Okay. And then a final question on this topic. So I mean you've made it pretty clear and Smith & Williamson has made it pretty clear that you're driving towards the 2020 IPO. Is there any thoughts or possibility that it could take a different route before then, i.e., kind of return to a previous strategy of trying to merge Smith & Williamson with a comparable firm?
Yes. Paul, it's Kevin. I mean as we've said all along, I mean, there are multiple paths here. And we've stated for a long time now that this asset is noncore, so as you'd expect, that brings in a lot of different conversations at various points in time with, again, as I've said, an end goal being an IPO. But there could be things that could happen along the way, for sure. And we're obviously open to those conversations. But right now, we're tracking toward the IPO in '20.
Got it. Okay. One question on SG&A. In prior years, we've typically seen Q2 be a seasonally higher quarter for SG&A expense. It looks like that won't necessarily be the case in 2019. Is there anything -- so what explains that? And should we assume seasonality in SG&A going forward? Or has that been removed from how you think about expenses?
Yes. Thanks, Paul. It's Adrian. I think it's probably accurate to point out that Q2 can be a seasonally high quarter for SG&A simply because it's capturing a lot of the expenses that come in at the tail end of the RFP season in retail. But I think there's a bunch of different trends influencing the quarter-to-quarter SG&A amounts, including the actions we're taking on the efficiency side. So I think that's sort of masking the seasonality that you may have noted in previous quarters. And particularly, as we move down this path of our efficiency and SG&A reduction, there is going to be some variability quarter to quarter. But again, as I mentioned in my remarks, we're comfortable with our guidance of $190 million, and we're working expenses down over time.
Okay. But if I think about future years, I should assume seasonality reverts kind of how it's looked historically?
Yes. I think those trends will still be there.
Okay. Okay. And then one final question I'll sneak in. Just wanted to understand, when you talk about the retail mutual fund flows and the impact from institutional investors in the past, you've talked about the impact from strategic partners, so I want to understand a little bit better what distinguishes between strategic accounts that you've referenced and institutional flows that you referenced this quarter. Is there a difference or...
Well, I mean if you think about -- we do have this definition that we're calling retail mutual funds. And the reason that we have that definition, Paul, is that we're trying to give people some insight into the underlying trends in the adviser channel. And so within our mutual funds, we do have institutions that will buy our mutual funds on a Series O basis. And so by definition that I just mentioned, if there's flows above $5 million, we remove those to show that underlying trend. But the legal structure is sometimes not indicative of what the client is, so we're basically just trying to give you a bit more insight on that.
Yes. Paul, it's Kevin. Think of it this way. We're trying to give you a clean look at what a true retail adviser would be by stripping out those, which are true institutional guys.
Understand. So in fiscal 2018, you benefited from a lot of positive flows from what you referred to as strategic accounts. Are you telling me those were in a different series, those weren't Series O funds? That's just what I'm looking to clarify.
No. I don't think that we're saying that. That definition that I mentioned has been applied consistently over time.
Okay. So institutional investors and Series O could be the same as strategic investors or strategic accounts?
Yes. Yes. If we had -- we classify it as a strategic account client that put in a few hundred million or took out a few hundred million, it would not be the definition of retail mutual funds.
[Operator Instructions] The next question comes from Tom MacKinnon from BMO Capital.
Just a question with respect to flows. I'm just trying to look at where does the -- where the -- all these AGFiQ ETFs that you've got, where are the flows for those going into on Page 10 on your MD&A? And then where are those flows on Page 7 of your slideshow as well? Presumably, these are all -- these should be positive, but I'm just trying to figure out how you categorize them on both Page 10 of the MD&A and what you've done with them on Page 7 of the -- of your slideshow.
Yes. So Tom, the ETFs, it's probably easiest to look at Page 8 from our MD&A. They're basically included on one line that's called institutional, sub-advisory and ETF account AUM. And we don't break out the sales for institutional, sub-advisory, ETF separately. They are effectively factored into the change in AUM from period to period.
So they're -- are they sold at all to retail?
Yes.
And then -- but you don't put them in retail flows? And do you put them in your retail flows on Slide 7?
No. No, we don't. So if you look at -- again, referring back to Slide 8, we have pretty consistent definitions and the sales that you see on that -- the upper part of that table are mutual funds, the legal structure of mutual funds.
81-102.
81-102 mutual funds.
Okay. So you -- but there's no way we can keep track of the net creations you're getting in ETFs here. As you keep launching these new ETFs, we don't have an idea in terms of net creations you're getting on them.
Yes. At this point, we haven't disclosed them separately, Tom. But I think we'd probably take that as some feedback that, perhaps, we can expand our exposure in that area.
And how much would be going to retail versus how much would be going to institutional flows?
Our ETFs are primarily sold to retail clients. The U.S. -- Tom, let me just clarify. It may be sold to a dealer who is building into a model that is sold to retail client, right? So that may be just jiving back to what I said earlier about the U.S. distribution. That is a little bit different. We don't have a wholesale sales force like we do in Canada, whereas Canada is primarily on the retail side.
And what percent -- I think -- is it $7.4 billion you have in these now? Is that correct?
No. We're probably, between the 2 platforms, $1.5 billion, $1.6-ish billion. In AGFiQ, which manages the quantitative strategies, it's probably closing north of $6 billion. So that may be the number you're referencing.
Yes. I mean there's a $7.4 billion that talks about AGFiQ in the MD&A.
Yes.
Okay. And in retail -- and yes, just then as a follow-up or -- yes, maybe I'll just take a little bit more of that off-line. But any further disclosure with respect to this growing business would be great. I think, Adrian, you talked about 2 points annual decompression, if you will, going forward. And yet it was up 2 points in this quarter over the last 12 months. Can you just reiterate what happened in this and why you still stand by the 2-point compression guidance?
Yes. Thanks for that question, Tom, because it probably does warrant some clarification. So you noted the 2 basis points versus the last 12 months. But if you look at it, Q2 2019 versus Q1, we actually had an increase of 4 basis points. And as I mentioned, that's driven by increased sales in stand-alone funds. And if you look at Q4 to Q1, the revenue rate was flat. And I guess one other thing I'll mention is that if you look at the redemptions that we've noted in our pipeline, those are coming in at a much lower revenue rate than our average. So you're actually probably going to see, over the next quarter or 2, our revenue rate tick up a couple of basis points. But we're going to continue to monitor this, but we still do believe that over a bit longer period of time, the secular trend for management fees is down. And that's why we sort of caution that our fees could go down a couple of basis points. But again, similar to SG&A, our revenue rate does not behave quarter to quarter. It behaves over a longer period of time. So we're trying to give you some color in terms of what's happening over the last couple of quarters but reiterating that, over a longer period of time, the trend for management fees probably is down a couple of basis points a year.
Yes. And Tom, this is Kevin. The other thing I'd add to that is if you look at the industry this year, this is more anecdotal, but usually, you see a lot of announced fee cuts, and market still is soft. When we look around the industry, it felt like there's a lot less this year. And as you know, we've been very disciplined over the last 3 years about building a pretty significant amount of discipline. But year-over-year, fee cuts end. I think now we're at a level we feel pretty comfortable with. But I think to Adrian's point, we conservatively think it's 1 or 2 a year from here.
And what's driving the secular trend then? Everything you seem to suggest is, well, we bucked that trend here, and we're conservative going forward. And we don't see as many fee cuts going forward. Is it just changing mix? Is it just as these ETFs grow as a bigger portion? What's driving this secular trend?
So Tom, within our mutual funds, you still have this phenomenon of newer funds that we launch and are selling, tend to come out with lower fees. And we still do have some legacy-type products on our books that were sold in previous periods that might have slightly higher management fees than newer funds that we're launching. And so it's just a better recycling of newer funds versus older funds.
Understood. Okay. And then finally, I think May might have been a reasonably good month or -- and I'm not sure how your flows have been sort of trending just of late.
Yes. Tom, when I, again, go back to the comments in the earlier prepared remarks, if you strip out the large institutional nonretail stuff, our retail business, our pure retail funds business actually looks a little bit like the industry is better right now. So we're tracking -- I think what I have said is we're not going to be able to -- the industry is having in a tough slot. We're going to see that as well. But we're not doing anything worse, we're actually probably aligned it better. I'd say looking at just June is flattish right now, which tells me that the industry to your May data point is improving a little bit. And so we should see some of that as well.
We have a follow-up question from Graham Ryding from TD Securities.
Just the $1.4 billion institutional redemption. Was that one client? Or is it several clients? And just any color on what was behind those redemptions?
Yes. The majority was one client, Graham. And we've talked about this with folks, which is, over time, as large strat partners acquire capabilities in this compressing margin world, you're going to see them try to in-source those capabilities to the extent they can. And we recognize that phenomenon. To the extent that we've had a heightened M&A activity around this sector, you're going to probably see that. In terms of what's our strategy with the strat account, there has been to move away from selling things that can be easily replaced into more sophisticated, next-generation things in our AGFiQ toolkit, where things such as global, sustainable -- or things are differentiated. And so we're trying to move away from that place, where someone could just floss us out, and frankly, there's not much of that. But the majority of that was exactly what you just described. And there are going to be other times where a strategic partner will make a tactical trade so somebody who was in a floating-rate product whose rate is about to be cut is going to want to make a change out of that. That doesn't mean we're not going to be their floating rate managers. They're just going to reduce their asset allocation to that. But the middle one, what I think about with that strategic one, that is going to occur when you have this kind of M&A activity and in a world where everyone's margins are a bit compressed. So we try to move our strategy away from that. But that is the majority of that $1.4 billion.
We have a follow-up question from Geoff Kwan from RBC Capital Markets.
Yes. A quick question. I apologize if I missed this earlier. But did you -- if you didn't disclose it, what was the institutional/sub-advisory net sales number in the Q2?
Yes. Pure institutional stuff was flat. That was flat, yes.
Flat. Okay. Would sub-advisory have much in the quarter? Obviously, there's disclosure on the pipeline, but in the Q2 number, was it with the sub-advisory? Or were you talking about institutional and the sub-advisory?
Yes. We had -- in pure institutional, so think again -- think of those as sponsors, sovereign, et cetera, was roughly flat in the quarter. On the sub-advisory, we talked about it last time. There was quite a bit of tactical trade on us and that was in those series. So that was -- again, they still like us, brought you some floating rate examples. That's what it was. With the large redemption now, that is a repositioning in the longer-dated fixed income, which made sense given where we're in a environment. So that was roughly $300-ish million in the quarter, maybe a little less than that. But that we disclosed last quarter, but that did come out in this quarter.
Okay. And then it would have been nothing additional. In other words, the $300 million is kind of what was happening for the rest of the quarter within the other sub-advisory relationships. Is that correct?
Yes. That's pretty correct.
We have no further questions at this time. I will now turn the call back to Mr. Basaraba for closing remarks.
Thank you very much for joining us today. Our next earnings call will take place on September 25, 2019, when we review our results for Q3 2019. Details of the call will be posted on our website. Finally, an archive of the audio webcast of today's call with supporting materials will be available in the Investor Relations section of our website as well. Good day, everyone.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.