AGF Management Ltd

TSX:AGF.B

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the Q3 2020 AGF Management Limited Earnings Call. My name is Richard, and I'll be your operator for today's call. [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.

[Adrian Dmitro Basaraba, Senior VP & CFO]

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 the financial results for the third quarter of fiscal 2020. Slides supporting today's call and webcast can be found in the Investor Relations section of agf.com. Also speaking today will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer. For the live question-and-answer period with investment analysts following the presentation, Judy Goldring, President and Head of Global Distribution, will also be available to address your questions. Turning to Slide 4. I'll provide an agenda for today's call. We will discuss the highlights of Q3 2020, 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 2020. After their prepared remarks, we'll be happy to take questions. And with that, I'll now turn the call over to Kevin.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Thank you, Adrian, and thank you, everyone, for joining us today. On September 1, the merger between Smith & Williamson and Tilney to create one of the U.K.'s leading integrated wealth management and professional services groups closed. Completing this transaction, particularly in the current environment, is a notable achievement and marks an important step forward. AGF received net cash proceeds of $277 million and will recognize a gain of approximately $96 million next quarter. With our strong balance sheet and liquidity, we are well positioned to return value to shareholders, service debt repayment and pursue growth initiatives. We have announced today our intention to launch a substantial issuer bid or SIB. Our Board has authorized AGF to use up to $40 million of the S&W proceeds to return capital to our Class B shareholders through the SIB. Subject to market and other conditions, we expect the terms of the SIB to be finalized by month end and the SIB to be completed by the end of November. Also earlier today, we announced as we will be expanding our partnership with SAF Group, one of Canada's leading alternative providers. In the coming months, AGF and SAF Group will work together to launch a series of innovative private credit products for institutional and high net worth investors. In addition, we have the right to increase our ownership interest in the management fee partnerships of select SAF Group funds at any time in a 12-month period. The option agreement creates a path toward forming an internal private credit capability and positions us to capitalize on the expected growth in private debt investments. Adrian will provide more color on this initiative later in the call. We view alternatives as a spectrum, ranging from liquid alternatives at one end to private alternatives at the other. Our liquid alternative funds, which include long, short, market neutral and derivative-based strategies have track records dating back to 2011. Our private alternatives business has strong capabilities in private infrastructure and private credit. Focused on driving growth in our alternatives business, we have established the AGF Alternatives advisory committee to provide strategic insight and advice to the executive management team. The committee will be compromised of individuals who have made a significant impact in investment or leadership role in organizations noteworthy for their success in the alternative sector. I'm excited to announce Ron Mock, former President and CEO at the Ontario Teacher's Pension Plan, and Michael Latimer, former President and CEO of OMERS, have joined the newly established alternatives advisory board. I have these 2 tenured industry leaders with substantial knowledge and experience at the table with us will be invaluable as we seek to deploy capital for our growth initiatives and look to grow our alternatives capabilities and partnerships. We recently established AGFWave Asset Management Inc., a new joint venture with WaveFront Global Asset Management Corporation that will provide asset management services and products in China and South Korea. The new entity will combine AGF's investment capabilities and global brand strength with WaveFront's existing distribution capabilities in China and South Korea. AGF will gain direct access to these rapidly growing markets by leveraging the robust distribution channels and sales capabilities of WaveFront's local strategic partners. In terms of other highlights for the quarter, AGF is committed to responsible and sustainable investing practices across the organization. We are a signatory to the United Nations supported Principles for Responsible Investment or UNPRI. In our 2020 Assessment Report, AGF either maintained or exceeded the median score in all 6 modules. We will be launching 2 ETFs and 2 mutual funds next month to expand the distribution reach of our strategies through a variety of investment vehicles. We recognize that our clients want choice in the way they access our strategies to best suit their respective business models and investor portfolios. We reported adjusted diluted EPS of $0.19 a share for the current quarter, which is 6% higher than the third quarter of last year. We remain on track to meet our SG&A guidance of $180 million with the potential for further savings due to additional expense efficiencies. The Board confirmed a quarterly dividend of $0.08 per share for the third quarter. Starting on Slide 6, we will provide updates on our business performance. On this slide, we break down our total AUM in the categories disclosed in our MD&A and show comparisons to the prior year. AUM ended the quarter at $37 billion. Mutual fund AUM increased by 2%. And I'll provide more color on our fund business in a moment. Institutional, sub-advisory and ETF AUM decreased compared to prior year, mainly due to the redemptions that we addressed in previous quarters. At the end of Q3, we have a committed sales of approximately $125 million, including an allocation from an existing strategic partner. With the COVID-19 lockdown now past the 6-month mark, most institutions have adapted to the new normal, and many are assessing the impact of the recent market volatility on their portfolios. Not surprisingly, we have seen an increase in RFP and RFI activity with strong interest in several of our global strategies. Our global sustainable growth equity strategy is one of the longest tenured in Canada, and performance has been stellar, exceeding the benchmark by well over 300 basis points on a 1, 3 and 5-year basis. We're seeing appetite for the strategy from investors globally. Under Regina Chi's leadership, performance for our emerging markets equity strategy has also improved and will approach 3-year mark this fall, which is key for the institutional channel. For our ETF business, our suite of liquid alternative funds continues to attract interest. Our market neutral anti-beta strategy has the potential to generate positive returns regardless of the direction of general market as amply demonstrated during the market correction in March. This strategy has gained over $100 million in AUM this quarter. As COVID-19 continues to cast uncertainty of our markets, we have seen interest in this strategy from both retail and institutional investors in the U.S. and in Canada, who are looking for strategic or tactical hedges for their equity portfolio. Finally, AGF was recently nominated for 2 ETF Express U.S. awards, best Smart Beta ETF issuer and Best Thematic ETF issuer. Winners will be announced in October. Our private alternatives AUM was $2.8 billion at the end of the quarter, which is solid progress toward our goal of reaching $5 billion by 2022. Turning to Slide 7, I'll provide some detail on the mutual fund business. Aided by the market recovery since March, the Canadian mutual fund industry bounced back in our latest fiscal quarter, reporting net sales of $10.8 billion compared to net sales of $3.5 billion for the same period last year. Similar to industry trends, AGF's retail mutual fund business also demonstrated encouraging results, reporting net redemptions of $4 million in the quarter compared to net redemptions of $103 million in Q3 of last year. Within the quarter, in July, we recorded net sales of $11 million, and August was essentially flat. We are also seeing days of positive net sales in September. To maintain momentum for our retail business, which includes both mutual funds and ETFs, we will be launching several new funds next month and as we look to expand the distribution reach of our products. Included in the launches are the mutual fund version of AGFiQ Global Income ETF Portfolio, which won a FunGrade A+ Award last year and the ETF version of our global sustainable growth equity fund. Retail demand for ESG is quickly gaining pace. And as mentioned earlier, performance for our global sustainable growth equity strategy has been stellar. Before I return the call back to Adrian, I want to give a quick update on performance. AGF measures mutual fund performance by comparing gross returns before fees relative to peers within the same category, with the first percentile being the best possible performance. We target an average percentile out ranking versus peers of 50% over 1 year and 40% over 3 years. For our mutual funds, our average percentile ranking over the past 1 and 3 years improved from 49% and 56%, respectively, at the end of Q2 to 42% and 51%, respectively, at the end of Q3. In the last several years, we have invested heavily in our global investment capabilities, which is reflected in our performance figures. Our top-performing funds within the first quartile include global convertible bond, Global Select, Global Sustainable Growth Equity, U.S. small mid-cap equities and our large American Growth Fund, just to name a few. As investors continue to move away from domestic strategies toward global and international opportunities, AGF is well positioned to capture this trend. With respect to our ETFs, 83% of our Canadian-listed ETFs have outperformed their peers year-to-date and 67% of our U.S.-listed ETFs have outperformed their peers year-to-date. With that, I will turn the call back over to Adrian.

[Adrian Dmitro Basaraba, Senior VP & CFO]

Thank you, Kevin. Slide 8 reflects a summary of our financial results for the third quarter with sequential quarter and year-over-year comparisons. For ease of comparison, we have included adjusted numbers and restated prior period results for IFRS 16 throughout the remainder of this presentation. We've also included a section of the table showing results, excluding Smith & Williamson. During the quarter, we recorded $8.8 million of dividend income from Smith & Williamson. This compares to the $5.8 million of equity income recorded in Q3 2019. We recorded no income from Smith & Williamson in Q2. Excluding Smith & Williamson from current and prior period results, EBITDA before commissions for the current quarter is $21.3 million, which is comparable to Q2 2020. Markets recovered since last quarter. The results were impacted by higher SG&A, primarily due to an increase in stock-based compensation relating to an increase in our share price during the quarter. Compared to prior year, EBITDA before commissions was $3.1 million lower due to lower earnings from our wealth management business and private LP investments. Last quarter, we indicated that we could see further savings of up to $5 million compared to our 2020 SG&A guidance of $180 million. We remain comfortable with that position as we continue to see a reduction in activities, including meals and entertainment due to COVID-19. Turning to Slide 9, I'll walk you through the yield on our business in terms of basis points. This slide shows our revenue, operating expenses and EBITDA before commissions as a percentage of average AUM on the current quarter as well as trailing 12-month view. Note that AUM and related results from Smith & Williamson, the private alt business, onetime items and other income are excluded. The Q3 revenue yield is 111 basis points, which is 1 bps higher than the trailing 12 months. The increase is mainly due to a shift toward our mutual fund products with relatively higher fees. Q3 SG&A as a percentage of AUM was 54 basis points, which is 3 basis points higher compared to the trailing 12 months. The increase in SG&A basis points is due to the increased share price as previously mentioned, which resulted in an EBITDA yield of 22 basis points. Turning to Slide 10, I will 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 as shown by the orange bars on the chart. The black line represents the percentage of free cash flow that was paid out as a dividend. Our trailing 12-month free cash flow was $55 million and our dividend payout ratio was 45%. Excluding Smith & Williamson dividends, our trailing 12-month free cash flow was $34 million and dividend payout ratio was 72%. This is an acceptable payout and obviously does not include incremental free cash flow from reinvested proceeds. As we have discussed on previous calls, we intend to use the $277 million from the sale of Smith & Williamson in a balanced way, including debt reduction, return to shareholders and investing in the business to generate growth. We have fully repaid our long-term credit facility, which stood at $195 million at the end of the quarter. During the quarter, we also repurchased 1 million shares for total consideration of $5.1 million. As Kevin mentioned earlier, we'll be launching a substantial issuer bid of up to $40 million to return capital to shareholders. Given our current share price, we believe that buying back our own shares is an attractive option. In addition to the progress on the first 2 capital objectives, we also announced an investment for growth with our expanded partnership with SAF Group. This is an opportune time to launch a private credit fund. The disruption caused by COVID-19 has created unique borrowing needs from companies and traditional lenders to show our credit losses have reduced lending to certain companies and industries. We last saw this during the 2008 global financial crisis with funds launched shortly afterward tended to have strong returns and form the basis for future fund launches. Similarly, post-COVID-19 has created another once-in-a-decade opportunity to invest in private loans, particularly with interest rates going even lower for longer. Together with SAF Group, we will be launching a direct lending private credit strategy aimed at institutional and high net worth investors later this year. Subsequently, we will work on introducing market offerings with varying liquidity and return profiles, which are designed to meet the needs of a lighter audience and different segments of the investor market. The partnership has committed $50 million in capital to the new funds. As part of the agreement, AGF has the right to acquire additional staff ownership interest any time in a 12-month period. The option arrangement creates a path for AGF to establish a leading internal private credit capability. When the option is exercised, AGF will make a more substantial commitment to the private credit business, and further details and terms will be disclosed at that time. An objective for our private alternatives business, since its inception back in 2014 has been to generate recurring income. Most importantly, management fee profits for our shareholders. This is more consistent and predictable than earnings from our LP investments, which can be lumpy. Back in 2014, recall that we committed $50 million to SAF1, which was the inaugural SAF fund in partnership with AGF. This fund has produced gross IRRs in excess of our 12% hurdle. It's also returned substantially all of AGF's capital invested when considering LP and GP ownership distributions along with monetizations. In partnership with SAF Group, we'll be able to accelerate this objective while also delivering against the needs of our clients who are demanding access to uncorrelated asset classes to face of changing market dynamics. Turning to Slide 11. I'll turn it over to Kevin to wrap up today's call.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Thanks, Adrian. Q3 was a solid quarter. Despite the challenges posed by COVID-19, we continue to make progress against our stated objectives. With the merger of Smith & Williamson and Tilney now complete, we are focused on deploying the proceeds to return capital to shareholders and invest in growth initiatives. Our retail and institutional distribution teams remain focused on driving the organization to sustainable net inflows. We are well positioned to capture flows given our strong capabilities in global ESG, quantitative and alternative investments. We remain on track to meet our 2020 SG&A guidance with the potential for further savings due to the impact of COVID-19. Along those lines, I'd like to reiterate our strategic priorities, which are to: one, deliver consistent and repeatable investment performance; second, drive the organization to sustainable net inflows; third, position the firm to reach $5 billion in private alternative assets by 2022; and finally, meet our expense guidance while continuing to invest in key growth areas. I want to thank everyone on the AGF team for all of their hard work in these challenging times. We will now take your questions.

[Operator]

[Operator Instructions] And our first question line comes from Mr. Gary Ho from Desjardins.

[Gary Ho, Analyst]

Maybe just to start off on the capital deployment side. Adrian, you mentioned you paid down debt. You announced the SIB. I'm just curious on the third pillar here, which is your growth initiatives. How should we think about when you look at possible initiatives or transactions, what's the return profile you're looking for maybe IRR expectations? Maybe share it with us, are you still favoring the JV structure? Looks that way with the AGF wave announcement recently?

[Adrian Dmitro Basaraba, Senior VP & CFO]

Yes. Thanks for the question, Gary. Absolutely. I mean, we -- when we look at acquisitions. We have an absolute minimum expected IRR of 12%. That's our approximate cost of capital. We target deals that are much higher than that just because we want to make sure that we're able to meet that return hurdle. And as far as the structure of the deals, I think we've said on previous calls that we're not looking to do transformational type deals. We like the idea of seeding capabilities and are using our capital to get funds off the ground. We've done that successfully now with a number of private asset funds. And I think this is a good example that we're announcing today, where it's not purchasing a firm to do a transformational kind of deal, it's more so using our capital to see capabilities and set the organization up for growth.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Gary, this is Kevin. If I can follow on that, which is we've always said it's going to be a balanced approach. So do the buyback, paying down the debt in our future. And what we've talked about is this is going to take us 18 to 24 months to deploy it prudently a bit on strategy, and these are the first 2 legs of that. We think the alternatives component of our business for all investors is going to be larger in the future. And it will obviously round out and complement our existing businesses. So it's going to take us a bit, but it's going to be a disciplined approach to it.

[Gary Ho, Analyst]

Yes. And then on the private alt side, I know you're still targeting that $5 billion by 2022 versus $2.8 billion today. Can you help us connect the $2.2 billion delta, how much do you think that's from organic growth, new fund launches versus perhaps acquisitions? We've seen the space being quite active as of late.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes. Gary, maybe I'll take that first, and then I'll give it to Adrian, but I think it's going to be a combination of both with existing partners in terms of incremental funds as well as new ventures into new asset classes. So -- and that number, frankly, doesn't give us any pause. I think we can achieve that because it's a combination of things.

[Adrian Dmitro Basaraba, Senior VP & CFO]

Yes. The only thing I'll add, Gary, I think if you have a look at the transaction that we announced today along with our internal plans for growth in that area, we're on track to meet that a target that we set.

[Gary Ho, Analyst]

Okay. Great. And then my second quick question is, I guess, related to DSC, maybe for Judy, if she's on the line. I just want to explore the DSC ban in fiscal '22 a bit. I get the mechanics and all. The risk, in my view, is the impact on sales. My understanding is that majority of the sales is going through your strategic partner, how confident are you that you'll be able to convert that DSC sales into other products like other novel products, given the changes in how the advisers are compensated? And I have a follow-up.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes, Gary, it's Kevin. I'll hand it to Judy in a second. But for a long time, we've stated, we remain committed to the value of advice, right? And we've been through various changes to business models and regulations over time, and we've always worked with our advisers and the dealer community to adapt to that change. I don't see this one as any differently. I think we will all, as an industry, adapt to it. And support our partners in that change. So maybe, Judy, I don't know if you have any thoughts on that as well?

[Judith Gail Goldring]

Yes. I mean, I think certainly, the DSC ban is just one of so many regulatory changes that are happening for the dealer community. And I think as we have worked with our partners, we've launched different products with different fee schedules and fee arrangements, ETFs. We've obviously got our fee series for fee-based accounts, S series, I should say, Q series, et cetera. I mean, it goes on. And we're working very hard at making sure we're vehicle agnostic. And so we do anticipate to work with our partners and just transition their business alongside with them.

[Gary Ho, Analyst]

Okay. Great. Maybe the other -- the second part of that question is maybe for Adrian. So when I look at the earnings and cash flow impact, give or take, roughly $40 million of expenses and cash flow related to the upfront DSC commissions. Once this is implemented in mid -- I think it's 2022, that cash expense is essentially gone. I know it winds down over a 7-year schedule, but is that how we should think about the financial impact and the cash flow impact starting in 2022?

[Adrian Dmitro Basaraba, Senior VP & CFO]

Yes, absolutely. You'll notice that on our income statement. Year-to-date, we've got about $32 million of DSC payments. It's about $40 million annually. If we stop paying that, obviously, that's going to bolster our EPS and free cash flow. And as you correctly noted, it will reverse over 7-year times, trailers kind of migrate back to the level of front end.

[Operator]

Our next question on the line comes from Mr. Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Just had a question on the WaveFront news from earlier this week. Just wondering if there's any numbers or where did you like to kind of quantify the growth opportunity with respect to this relationship?

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Geoff, it's Kevin. It's -- yes, the WaveFront is -- Asia is probably one of the last growth markets, right, when you think about the sizing of China's economy, the middle-[ classation ] of China, so -- and as well as Korea. So for us, it's a small transaction that allows us to have some headway or I should say, lead into an established distribution that our partners have. So it's a small transaction. We're not disclosing the terms of it right now. But I think of it as optionality into the future. It's something that will take us a couple of years. But I think into a longer term, larger growth opportunity. And again, it helped out in our AGFiQ suite where there's a growing interest in quant and in the ability to see the ETF business, certainly if both of those countries start to pick up. So low-cost way to enter with our manufacturing into what is established distribution.

[Geoffrey Kwan, Analyst]

Okay. And then on the SAF news, is there more detail you can provide, like if you do decide to exercise the option, like how much in capital might that consume? And if -- it sounds like you're going to be acquiring, if you do, do it like the -- a number of the funds as opposed to the entity itself. And if that is correct, anything you can kind of talk about in terms of number of funds, AUM, that sort of thing?

[Adrian Dmitro Basaraba, Senior VP & CFO]

Yes. Sure, Geoff. So yes, we're not going to disclose the terms once on exercise. But I can tell you that SAF today has about $600 million worth of AUM, so that will be part of the partnership. And they have a pretty strong pipeline right now for capital raising and also a very active deal pipeline. So we're pretty excited about that. And the other thing to think about is that in our alternatives business, we will make net new commitments to support growth opportunities such as SAF. But also keep in mind that with SAF, we were the cornerstone investment in their first fund. We committed $50 million in that fund. That fund has got a $20 million NAV, and we've actually already received all of our capital back through distributions and monetizations. And we have an interest in the carry. And obviously, we'll get further distributions as there's more monetization. So think about it as more of a recycling of capital. And that's kind of an interesting aspect of our alternatives business in the sense that as we -- the platform gets bigger, as the funds get larger in size, it takes a little bit less of our own capital to get them off the ground. And step back even further from that, our -- the objective for this business really is to earn a higher ratio of management fee profits relative to the earnings and capital committee on the LP side.

[Geoffrey Kwan, Analyst]

Okay. And just my last question is you're making -- seem to be making good progress on the retail front on net flows. Obviously, the industry has done well. But is there any numbers you're able to give on what September looks so far this month?

[Judith Gail Goldring]

Yes. Thanks. I'll take that one, Geoff. Yes. I mean, certainly, the trajectory that we've been seeing through Q3, which was very positive, we had saw an improvement of about 95%. As Kevin referenced in his opening comments, quarter-over-quarter from 2020 to 2019 and so it's been very encouraging, and we're seeing the same trajectory going into September. Obviously, we feel pretty confident with respect to our performance numbers in the key categories being global fixed income, sustainable, great performance there. And we're seeing a high degree of activity and engagement with our advisers. And so being in a pandemic, of course, is making us somewhat cautious as we see the numbers rise, but we're cautiously optimistic going to the coming last quarter of the year.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes. And I think -- Geoff, it's Kevin. I think September is back into what we saw in the last 2 months.

[Geoffrey Kwan, Analyst]

So I guess, in the last 2 months, does that mean it's been positive since month-to-date then? Or...

[Judith Gail Goldring]

We've been basically flat over the last few months. Positive in July, generally flat in August. And same trajectory is what we're seeing in September.

[Operator]

Our next question alone comes from Mr. Tom MacKinnon from BMO Capital.

[Tom MacKinnon, MD & Analyst]

Yes. Just with respect to the private alts, I think you've still mentioned you've got another $61 million remaining to be committed in terms of capital to be invested in these. What's the timing on that? And I assume you're going to be funding that with debt. Would that be the way to think of that as well?

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes. Tom, it's Kevin. So Adrian, I'll take maybe the first part of that...

[Adrian Dmitro Basaraba, Senior VP & CFO]

Okay. Sure.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes, Tom, that's right. Those are committed into a bunch of funds. Expect them to be drawn over time. And over time, probably, I'd say, in the next 2-ish kind of year frame on that remaining $60 million, maybe a little longer. But as Adrian said in the earlier call, what happens is recycle things monetize along the way from the -- from those funds as well, especially the ones that are already invested and have been invested for a fair bit. So it's sort of -- some come in, some come out issues. So I'm not sure there's a big draw on the debt to fund that at this point. Maybe, Adrian, maybe you've got thoughts on that?

[Adrian Dmitro Basaraba, Senior VP & CFO]

No, that's precisely. I mean we have $146 million invested in LPs. And as Kevin really pointed out, that comes back to us over time, including some distributions and as these funds mature, we also have an interest in the carry for the funds as well. So again, just reiterating the point that both Kevin and I have made now that any kind of depends on timing as to whether we need to use debt, but we're at a pretty good spot now with recycling of capital in that business.

[Tom MacKinnon, MD & Analyst]

Okay. And maybe you can -- you always talk about EBITDA before commissions. Do you think that's the best way of looking at the value of AGF? I mean you've paid down all your debt, so it really doesn't do to anything to the EBITDA before commissions. There's going to be a lot of noise associated with DSC ban coming as well. So in your opinion, is EBITDA before commissions, the best way of looking at AGF?

[Adrian Dmitro Basaraba, Senior VP & CFO]

Tom, I guess I'll start. My answer is yes. That's going to be the line that has the least noise. So it's going to give you the truest picture, but I'll let Kevin clean up a bit on that.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

I think that's the earlier question that Gary raised, right? Some of you guys value us on that, Tom, EBITDA before commissions. I mean because of DSC today, that's probably right. Some of you guys are using EPS. And as DSC goes away, that may be cleaner. And so I think that's something we're -- you guys are going to have to grapple with it, right? We've looked at it as EBITDA before commissions today, but that's going to be a big number when that rolls off, right, the DSC headwind. So yes, I defer to you guys how you want to think about it, but we are going to be in transition about how to value it, though.

[Operator]

[Operator Instructions] Our next question on the line comes from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

On the private credit fund, SAF traditionally had a focus on energy, and I see they also have metals and mining fund as well. Is the private credit going to be on those 2 sectors, the fund that you're launching with them? Or is it going to be more diversified across a bunch of different industries?

[Adrian Dmitro Basaraba, Senior VP & CFO]

So thanks, Graham, I'll start out here. Yes, that was the genesis of the firm ability was in energy, and they've done some mining deals. They've also done deals in financial services and they have diversified that into other industries. So over time, their capabilities have expanded, the teams expanded, and I think you'll continue to see that because we do anticipate a fairly brisk demand from our clients for this type of product. So they'll continue to expand their capabilities over time and increase their capacity as an investment team.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And then just broadly speaking, with your alternatives platform as you sort of target $5 billion by the -- by 2022. Like are -- is Instar and SAF, are these 2 partners that you're going to do -- you're going to grow with? Or if you launch further products, is it potential that you bring in other alternative managers and do JVs or partnerships beyond these 2?

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes. Graham, it's Kevin. So I think it's a combination of our existing partners and new as we broaden out asset classes. I think of the whole alternatives place as a spectrum, right? The private piece has been traditionally large institutions, very significant institutions and some family offices. Our liquid alts will play into that, things that are daily value that hedge portfolios, and we've had an enormous amount of success with that launch between the U.S. and Canada. I think our liquid alts today are north of, probably, closing out $600 million now in the last year -- 1.5 years. So I think of it, we have to broaden out that definition and think about it really a spectrum of investors and products. And so I think it's a combination of the existing partners and new partners and asset classes and a delivery that is not just private, but also liquid and maybe something in the middle that serves that private kind of investment with a liquidity buffer. So -- but to take advantage of that distribution and I think also the growing need for different types of asset classes for investors across that spectrum.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. And that's $600 million in liquid alts. Is that primarily your anti-beta product? Or what would make up that $600 million? And just to be clear, that's not within your $2.8 billion of private alts, correct?

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

That's correct. That's primarily anti-beta and a couple of other liquid alts in here, but primarily anti-beta, which, as you know, tries to give a negative correlation to the market. So with the big drawdown that we saw earlier in the year with that being market down 30-odd-percent and that was up in the high teens, it has gotten a lot of good feedback from investors. So -- but the $2.8 million does not include the liquid alt number.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And the $5 billion that you talk about, that's -- you're not including liquid alts in there, are you?

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

That's correct.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. My last question, if I could, just ETF flows in the quarter. Any color there?

[Judith Gail Goldring]

Well, we've seen certainly year -- quarter-over-quarter, Q3 2019 were from that time period, we're about 50% higher. So we now have -- our total suite is about $1.6 billion of AUM. The flows certainly, I think we've seen and we are sharing in the trend of flows going into ETFs as they're coming back into the market as money is coming back into the market. So we are participating in that trend as well. And as I've mentioned, we netted about $1.6 billion in our suite.

[Kevin Andrew McCreadie, CEO, Chief Investment Officer & Director]

Yes. I think it's important, Graham, what Judy just said. What we saw in the market, this okay in March, we saw a lot of money come out of funds broadly. And when it came back, disproportionately came back into funds, we saw -- the industry saw a decent couple of months in that June kind of time frame. But if you look at ETF creations in the industry, way outpaced it. So I think you're going to see probably the ETF industry. Whatever happened in March has picked back up faster than the fund side as I think maybe advisers are starting to get more as we look at it, vehicle agnostic, here's the capability, how do I access it. It's not -- may not be a fund in the future, it could be an ETF. It could be a separate account. So the ETF business, I think, becomes more important as we think about it.

[Operator]

And we have no further questions at this time. I will now turn the call back to Mr. Basaraba for closing remarks.

[Adrian Dmitro Basaraba, Senior VP & CFO]

Thank you very much for joining us today. Our next earnings conference call will take place on January 27, 2021, when we review our results for Q4 2020. Details on the call posted will be on our website. Finally, an archive of the audio webcast of today's Q&A with supporting materials will be available in the Investor Relations section of our website. Good day, everyone.

[Operator]

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.