Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2018-Q1

[Operator]

Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's earnings call to discuss financial results for the first quarter of 2018. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] Thank you. I will now turn the conference over to Mr. Daniel Richard, Senior Vice President of Corporate Communications and Investor Relations. Mr. Richard, you may begin your conference.

[Daniel Richard]

Thank you, Jessa. [Foreign Language] Good morning. [Foreign Language] Welcome to the Fiera Capital Corporation conference call to discuss our financial results for the first quarter of 2018. On the call with me today are Vincent Duhamel, Global President and Chief Operating Officer; and John Valentini, Executive Vice President, Global CFO and President of the Private Alternative Investments Division.Before we begin, I would like to invite you to download a copy of today's presentation, which can be found in the Investors section of our website at fieracapital.com.Also, the comments made on today's call and some of our reply to analysts' questions may deal with forward-looking statements, which are subject to risks and uncertainties. Factors that may cause our actual results could differ from expectations.I would like to ask you to take a moment to read the forward-looking statements on Page 2 of the presentation.I will now hand over the call to Mr. Vincent Duhamel.

[Vincent Duhamel, Global President & COO]

Good morning, everyone. Thank you for joining us today. Let me begin on Slide 3 with the overview of the last few months. We're pleased with our performance in the first quarter. We won $2 billion in gross new assets from our clients. Our positive client inflows were primarily driven by the private wealth and institutional clientele as well as our private alternative investment strategies. Such varied sources of inflows demonstrate the soundness of our increasingly diversified and resilient business model.We are actively working with the teams of Clearwater Capital Partners and CGOV Asset Management to prepare for the integration of these acquisitions, both of which were announced early in the quarter. The acquisition of CGOV positions us amongst the largest private wealth investment managers in Canada and increases our institutional client base. Clearwater will establish for the first time, Fiera Capital's presence in Asia-Pacific with a focus on the fast-growing segment of alternative strategies. We expect to close the CGOV acquisitions before the end of this month, while the Clearwater transaction should be completed by the end of June.Let me now take a moment to review our operations. In our Canadian division, we continue to grow our assets under management, notably in the private wealth. Our investment teams are producing strong performance for our long/short and market-neutral strategies. And on the fixed income side, the new team that joined us earlier last year has been a positive addition to our firm and is solidly contributing to our results. Furthermore, we are putting in place a multi-asset class portfolio solutions group that will help provide a more complete solution for our clients.Turning to the U.S. division. Our pipeline remains healthy, and we continue to execute on our strategy to gain greater scale in this market. Our equity strategies are largely outperforming year-to-date, and from an operational standpoint, initiatives across divisions are helping to streamline our processes and facilitate cross-selling of strategies.Our Bel Air division posted the strongest start of the year in recent history and in the last 12 months alone, they've added $1 billion in AUM, reflecting an annual growth of 15%. Revenues also increased, and they are ahead of their budget after Q1 in terms of adjusted EBITDA. The current pipeline is solid, and we expect to continue -- it to continue in Q2.In our European division, we've expanded our range of funds, with the launch of 2 new equity strategies as noted last March. We have [ strengthened ] our capabilities in emerging markets, which helped us win a significant [ converging ] mandate in Europe this quarter. Indeed, our emerging and frontier market strategies continue to outperform their benchmark. Our European division is also pursuing its push into Asia-Pacific to offer a diversified product portfolio.Turning to our private alternative strategies, a fast-growing segment for us. In infrastructure, we're seeing a global need for these solutions, as investors are looking for investments that generate predictable cash flows. We are currently pursuing opportunities with total equity value of $500 million to $700 million, representing part of a broader pipeline of about $1 billion. Funds are being deployed in a variety of residential and commercial projects, as we continue to attract investors from the U.K., Korea and other markets and to put processes in place to market these strategies in Europe. At Fiera Properties, our CORE Mortgage Fund launched last quarter, attracted solid AUM. We are pursuing our strategy with the aim of better serving non-Canadian markets with these strategies in direct response to sustained interest from international investors.Fiera Private Lending saw an increase of 10% of our -- in our AUM in the quarter across its lending strategies and generated significantly higher-than-expected EBITDA. This business is also benefiting from a pipeline of more than $300 million in real estate and business financing. We continue to roll out our private lending activities across Canada, with close to $100 million in dispersed transactions.Turning to our Fiera Comox joint venture. The agriculture team is pursuing a strong pipeline of investment opportunities with an additional round of funding planned for the spring. Recent capital deployments include the largest maple syrup produced in the world and the majority of position in one of New Zealand's largest dairy farms. Our private equity fund will be launched this quarter.Overall, the proportions of total alternative assets relative to our total AUM continues to increase, accounting for 5% or $7.1 billion and representing approximately 12% of our annualized revenues. Our financial position remain solid, enabling us to pursue additional growth opportunities and return capital to our shareholders. Yesterday, the Board of Directors declared a quarterly dividend of $0.19 per share.As you can see by our results in the quarter, our people are the driving force of our performance. We are seeing the effectiveness of our business development efforts drive scale in various divisions. Our investment teams create innovative and diversified traditional and private market strategies for our clients, which continues to further differentiate us from our peers.As a firm, we are also committed to ensuring that environmental, social and governance considerations are integrated into our investment process and reflected in how we do business. Our global responsible investment policy demonstrates to our clients that we have a concern for sustainability when it comes to managing their assets. Our corporate social responsibility approach, merging our commitment as an investment manager and as a firm, is now combined in the Responsibility section of our website.2018 is clearly off to a good start. We are focused on executing on our strategy for profitable growth and providing winning solutions for our clients' with investment needs.I would now like to turn it to John for our financial highlights.

[John Valentini]

Thank you, Vincent. I will now provide you with a brief overview of this quarter's highlights. You may now turn to Slide 4. At $131.4 billion, assets under management grew 2% over the last quarter of 2017. The sequential increase is attributable to the fluctuation in foreign exchange, net client inflows and positive market performance. Base management fees rate reached $112.2 million, up 7% compared to Q4 last year. Adjusted EBITDA stood at $28.8 million down from the past quarter. Finally, adjusted net earnings per share stood at $0.24 compared to $0.35 in Q4 '17. On a net basis, we posted a loss of $0.02 per share.Over to Slide 5 for a look at the quarter-over-quarter comparison. Our base management fees were sequentially higher. Total revenues panned out lower because of performance fees recorded in Q2 and Q4, generally of each year. Adjusted EBITDA is lower due to the inclusion of performance fees realized in Q4, offset by the higher base management fees.Looking at Slide 6 for the year-over-year comparison. Revenues are up 19% due mainly to organic growth in the institutional and private wealth segments. Private alternative investment strategies and positive contribution of CNR's Emerging Markets' U.S. mutual fund acquisition. We are particularly pleased with the revenue growth on a year-over-year basis stemming from our diversified business model. Our adjusted EBITDA margins stabilized at 24%. Adjusted net earnings were $0.24 per share, slightly below previous year.Turning to Slide 7. On the last 12-month basis, our revenues grew 26% year-over-year. This increase was driven mainly by our institutional and private wealth segments and growth in our private alternative investment strategies as well as our acquisition of CNR's Emerging Markets' U.S. mutual fund.Turning to Slide 8. Our quarterly adjusted EBITDA posted a year-over-year increase of 14%. This is the result of market and organic growth, but also the successful deployment of private alternative investment strategies. We continue to support our firm's growth and are encouraged by the scale we are gaining organically in our U.S. division.On Slide 9, we see average basis points earned over AUM, which continues to trend upwards. In Q1, the average basis points earned in base management fees was 35.5 basis points, up from 33 basis points in the previous quarter. Our focus on acquiring and developing higher revenue-generating strategies on the types of mandates we pursue will continue to guide our approach to profitable growth. We are already seeing the fruits of these efforts with many of our strategies.Looking at Slide 10, our rolling last 12 months' adjusted EBITDA is trending positively. As part of our disciplined approach to growth, we are maintaining our focus on optimizing our operations. But above all, in gaining scale, especially in the U.S. and combined with the private alternative investment strategies. Our teams are working effectively towards our shared goals as we expand our platform, attract top talent and create value for our shareholders.Turning to Slide 12 for the last 12 months' adjusted in earnings per share attributable to shareholders. Since becoming public in the fourth quarter of 2010, our last 12 months' adjusted earnings per share has increased by an average of 16.5% per year on a compounded annual basis. As mentioned last quarter, our strategic plan is premised on organic growth and accretive acquisitions. CNR's mutual fund acquired in Q4 already contributed to earnings in the first quarter of 2018, while the acquisitions of CGOV and Clearwater are expected to be accretive to earnings in 2018 and '19, respectively. I would note that net earnings in Q1 2018 were negatively impacted, principally, by accretion in the fair value of certain acquisitions related to CNR and others of an amount of about $4.8 million, which is a noncash item, and also due to some transaction costs and noncash compensation of approximately $2.7 million related to a onetime charge related to an acquisition.Turning to our next slide, you can see our geographic mix. The combined AUM of our U.S. division now totals $42 billion, amounting to 38% of our firm's revenues for the first quarter. Europe and other jurisdictions now account for some $12 billion in AUM and 13% of our first quarter revenues. As we extend our global reach to various international geographies, we are seeing our firm gain more direct access to attractive segments and get closer to our clients. We expect the acquisition of Clearwater to generate new business opportunities for us in Asia-Pacific through higher visibility as well as cross-selling on private alternative strategies. We are -- we have experienced similar gains with our presence in the European market.I now turn the presentation back to Vincent to discuss our investment performance.

[Vincent Duhamel, Global President & COO]

Looking at Slide 13, our fixed income performance. The new active and strategic fixed income team in Canada capped up a very good first quarter with us, posting 21 basis points of value added driven by effective duration management. We are very pleased with this very positive start for the team. Our Integrated fixed income team also added value in the quarter through optimal credit allocation, continuing its strong performance from last year. Similarly, our tactical fixed income strategies are showing very good returns year-to-date, stemming notably from good curve positioning. Our tactical asset allocation team pursued its winning strategy for a balanced mandate of being underweight in bonds and overweight in emerging markets. Value was, however, slightly detracted year-to-date, because of the overweight in Canadian equities and underweight in the U.S. and international. The team used this as a temporary variation and believes in the long-term soundness of the overweight in Canadian equities.Turning to equity solutions on Slide 14. Our Canadian equity strategies continue to outperform their indices, and most of the strategies added significant value this quarter. Performance is positive across the board in the short, medium and long-term horizon. Our low-beta strategies recently launched by our systematic investment strategies team added more than 300 basis points and offered a good capital protection, while equity markets started to fall.In terms of our Canadian small-cap equity strategies, the Canadian small-cap core team added a solid 600 basis points of value added in the quarter from optimal stock selections, most notably in the material and consumer goods sector.As for our U.S. and international strategies, after delivering one of their best years ever, the global equity team continues to post very good performance this quarter. These strategies are maintaining top quartile returns, both short and long term. The team is delivering strong value added, especially in the global equity mandate from optimal stock selections, particularly in the financial sector.Turning to alternative investment strategies on Slide 15. Our growing array of solution is drawing increasing attentions from the investors seeking to diversify their portfolios while offering the potential for higher growth, higher yield, [ absolute ] returns and less volatility. In the quarter, our long/short and market-neutral strategies continues to deliver positive returns under the new team -- the new management team. It is also worth noting that our market-neutral long/short strategy teams posted positive returns in and down Canadian markets. In February, we launched a focus market-neutral strategy, which is already adding value in the first quarter using a strategy of diversification through a portfolio with low correlations to traditional asset classes. We also launched a new alternate marketplace lending strategy for Canadian investors.Turning to Slide 16 and to conclude. The favorable conditions that underpin the equity markets in 2017 remain largely intact for 2018. The stronger and more synchronized global expansion continues, while corporate earnings remain in acceleration mode. These developments should outweigh the uncertain geopolitical backdrop at hand. And it is unlikely that the protections cloud looming over the marketplace will translate into economic weakness in our view.Moreover, while central banks around the world have responded to this economic resilience and begun reeling in their ultra-accommodative policies, this shift towards expansionary fiscal policies should provide an offset and allow the global acceleration to continue uninterrupted through 2018, lending further support to equity valuation in the coming year.As we look ahead, our 2022 strategic plan will be finalized in Q3, and it will serve as a roadmap for the next 5 years. This plan factors in our view of attractive opportunities, shareholder expectations, a changing market and technology environment to name a few. Across the firm, we are fully committed to its successful execution. As we move from a North American asset management firm to a global firm, we are delivering on our strategies through a combination of organic growth and acquisitions. Our pipeline of opportunities is solid, particularly in the institutional and private wealth segments, and our visibility continues to grow as our brand receives increasing recognitions from a global pool of clients worldwide. The U.S. market is especially attractive to us, with about USD 29 million (sic) [ 29 billion ] in AUM and an appetite for our solutions, we are aiming to grow this division to USD 50 billion in the next few years.From an investment perspective, being innovative and responsive has enabled us to offer creative, performance-driven strategies for our clients. At the forefront of these innovations are our private alternative investment strategies. We will continue to enhance our offering of these strategies, which can help reduce portfolio volatility, protect against inflation and generate a steady stream of returns. We see continued investor demand for alternative strategies and we're rapidly becoming an industry leader in this segment across our markets.Our Strategic Development Committee continues to pursue accretive transactions through a disciplined approach, based on rigorous financial criteria and a strong cultural fit with our performance and client-centered firm. We look for strategies that can enhance our offering and our distribution capabilities. However, transactions that add value will be particularly attractive to us, especially in the U.S.We have an active pipeline of 12 to 15 targets, reaffirming our commitment to achieving our ambitious growth plans through acquisitions. Our pursuit of profitable growth underlines every action we take.We are growing as a firm, and we are continuing to add scale and expand our capabilities. We are focused on driving efficiencies within the organization. Furthermore, the investment we've made in seeding new strategies are beginning to contribute to our performance in a more significant way, notably in our alternative platforms. With growing volume, both organic and through acquisition, we expect to leverage these investments towards the bottom line. We are, therefore, reiterating our adjusted margin target of 30% by the end of 2019. Ultimately, our talented people are propelling us to the highest spheres in asset management. It is this performance and client-focused culture that adds value to the management of our portfolios and creates sustainable returns for both our clients and shareholders. We will continue to capitalize on our strength in a sustainable manner as we pursue our goal.This concludes our prepared remarks. Thank you for listening in today, and I will now turn the call back to the operator so that we can may -- we may take questions from financial analysts.

[Operator]

[Operator Instructions] Your first question comes from the line of Gary Ho from Desjardins Capital Markets.

[Gary Ho, Analyst]

Vincent, just -- maybe just to start off, can you give us what you're working on, on the 5-year strategic plan? I don't want to steal the thunder, but maybe a preview of, kind of, what investors could expect? As well operationally, you think you've been -- you've noted in the past, you're assessing redundant systems, CRMs, custodians, whatnot. Wondering if you can give us an update on where you stand with that and what opportunities you see?

[Vincent Duhamel, Global President & COO]

Yes. So on the strategic plan, it's wider than just processes. I think what we're trying to do here with this plan is to transition the firm from being Canadian, North American firm and to becoming a global one. And that covers 5 main spectrum of work that needs to be done. One is, in regards to our people, again, we mentioned before, especially the Asset Management, it is an organization that performs because of the people that it has onboard, and we have to ensure that we have an environment that will allow this as a global organization, which is quite different than being a Canadian organization, to motivate our people and keep them and continue to have them engaged within the organization. So that's one of the [indiscernible] things that we're spending a lot of time on. The second one is on processes. We've talked about this before. Processes, looking at a firm 5 years out, what is the required architecture that we need to have to be able to deliver efficiently at the scale -- at a much larger scale than what we have now? And that means OMS, fund accounting, custodian, rationalization and trying to build that architecture that will allow us to have a plug-and-play across the world whenever we make an acquisition or wherever you deal with Fiera, either in Hong Kong, in London or in Montréal. The third one is in regards to our products, and how do we structure the products so that they are effectively available easily anywhere for any clients, for any strategies across the globe. It sounds easy to say it like that, but it's much more complicated when you think about all the different regulatory environments that we have to operate in and the different teams that we'll need to engage to be able to pursue that. And also, to develop a discipline to -- if we have a strategy that is not working, the strategy is not effective to decide that we need to move on and to rationalize some of those strategies. And finally, the last one, I would say, that is quite important to us is distribution and how do we revamp the redistribution in order to make sure that we align the distributions with the objectives -- the [ stated ] objectives of the corporate -- of the organization on a global basis and make sure that distributions delivers where we need to have them to deliver. So this is progressing quite well. Just in Canada, for example, we are rationalizing from 6 custodian down to 1. That should be done by the end of the year. In the U.S., we went from having 3 OMS system down to 1, and we'll continue moving forward with this.

[Gary Ho, Analyst]

That's very helpful. Second question, maybe for John. Just going back to the SG&A. I guess, this quarter would be kind of -- the performance fees relatively muted. Can I think of, kind of, this quarter's $98 million a good SG&A run rate to use, excluding performance fees related cost for the balance of the year? Or are there other SG&A spend that we should be looking out for in the next 3 quarters?

[John Valentini]

Well, I'd -- couple of comments I'll make. On this quarter, there is 3 items which I would characterize as causing a variance maybe to the previous quarter. On Q4, when we looked at Q4, excluding the impact of performance fees on SG&A, we would've been at approximately $95 million. We're sitting this quarter at $97 million. So that's a couple of million dollars above the previous quarter. However, I would draw your attention to 3 items that basically account for that net increase. One is CNR, which is $1 million. So that would be considered embedded as part of your SG&A going forward. However, there are 2 items that are just -- for our Q1 impact, I would say, not going forward. There was a PSU catch-up, a performance stock unit catch-up related to a transaction we've done several years ago, and there's a $3 million charge related to that in noncash comp, which won't reoccur. And we also have in Q1, as you're aware, payroll costs are generally higher, because we basically pay for all fringes, and that's about $1 million. So just in the PSUs and fringes, you've got about $4 million there, Gary. And I would say, going forward, on a normalized basis, if you take both of those items, I would [ put it at ] about $93 million. But I would say, going forward, you're anywhere as low to $90 million to as high as $92 million.

[Gary Ho, Analyst]

$90 million to $92 million, is that what you said?

[John Valentini]

Yes.

[Gary Ho, Analyst]

Okay, that's very helpful. And then maybe just lastly, on the dividend, I know you have historically increased by $0.01 every other quarter. But with the stock, given where it at 6.4% and I'm not sure Jean-Guy is there on the call. But what is the board thinking for this next quarter, and how should I model this out?

[John Valentini]

Well, we establish -- the firm established a strategy, a dividend strategy several years ago of increasing the dividend twice a year. It is reviewed at every time with our board. So decisions are made as to how we want to use capital, and is that the most appropriate use of capital, whether it's paying dividends, paying down your debt, using it for strategic acquisitions, buying back your stock. When it comes to the dividend, we established a strategy. And I think when you establish a dividend strategy, it requires a discipline to stick to that strategy. And I think that, that's -- we're going to continue to pursue and maintain a discipline on continuing that. Now that doesn't mean that it's not reviewed. It is reviewed on an ongoing basis with our board. We feel confident, I think, on an adjusted net earnings basis, our payout ratio is above 60%, it's about 63%, 64%. Our targeted threshold is 60%, is to really be below that, on a longer-term basis, it's maybe to be around 50% We're confident that we're going to get there. I mean, we're not far off our threshold. Therefore, we -- our expectation at this time is that we'll maintain our strategy.

[Gary Ho, Analyst]

Okay. That's helpful. And maybe John, sorry, I might sneak one more in, just on the other revenue line, it was quite lumpy this quarter. Maybe you can walk us through some of the items there and the sustainability of that going forward?

[John Valentini]

Yes. Well, a bigger item in other revenue was a fee -- a penalty fee on a strategic partnership we have with one of our major clients. That's $3 million. We should get some of that in Q2 as well. I would say, slightly maybe above $1 million. But what we have in other revenue as well as commitment fees and transaction fees. Those should be ongoing, because your commitment fees are going to translate actually into base management fees. Those 2 items alone are $1 million. And also, what's noteworthy in our other revenues, is we have a negative FX impact of $1.2 million. We hedge our U.S. dollar cash flows from operations on a rolling 12-month basis. And due to the impact of the Canadian dollar, there was a loss of $1.2 million this quarter. Actually, if we didn't have that FX loss, that $1.2 million would have flowed all the way down to our adjusted EBITDA and earnings. So it's almost as if you didn't have that impact, Gary, you could have almost had EBITDA as high as $30 million. Typically, that's the lumpiness that will happen on a quarter-to-quarter. Sometimes, you'll have a positive $1 million or $2 million and sometimes, it could be negative. This quarter was a negative. I would say, going forward, we should typically have -- our expectation is -- again, these are lumpiness, and FX is -- could be lumpy and unpredictable. But $3 million plus or minus $1 million is what we would expect.

[Gary Ho, Analyst]

Okay. And would you think about backing that FX out going forward in your adjusted EBITDA? Because that's not really, kind of, part of your operating business. It's more hedges.

[John Valentini]

It's what, sorry?

[Gary Ho, Analyst]

Like, would you consider, kind of, adjusting your adjusted EBITDA to, kind of, exclude the FX [ gain ]?

[John Valentini]

No, because it's a cash item. What we typically adjust for are permanent, and I'd say, permanent noncash items with the exception of transaction and -- with transaction cost and restructuring, which are clearly nonrecurring. The only other items we would like -- we do adjust, because we want to, basically, translate our earnings into a cash basis, and that would not be the case with the FX. Because the FX, while it may not be realized, it does translate into a cash expense.

[Operator]

Your next question comes from the line of Marco Giurleo from CIBC.

[Marco Giurleo, Associate]

My first question is for Vincent. Earlier this month, one of your peers announced that it would be first to market with an alternative fund for retail investors, this -- that's based on the regulators' alternative framework. So in light of Fiera's strong alternative offering, are liquid alts in Canada an avenue growth the firm is looking to pursue? And would such a product make sense to sell in your National Bank and Desjardins channels?

[Vincent Duhamel, Global President & COO]

Yes. Clearly, we would have the expertise for developing the strategy. I believe Mackenzie had it with a special exemption for regulations that will come into place in September, if I'm not mistaken. Two things where we are, maybe, it's not going to be an avenue for growth for us is, one, this is going to be very much a retail product, and we are not exactly -- no, this is not our strength. We focus mostly on the high net worth and on institutional clients. It might be with some of our partners, and there's a number of them that might have an interest for us to manufacture such a product. For them, we will look at that. The second point is, also, keep in mind that most of our -- a big part of our alternative business is mostly focused on private alternative, which is not -- does not fit in within this new regulations that's being put in place. You cannot yet do an infrastructure or real estate or alternative credit type of platform with this.

[Marco Giurleo, Associate]

All right. And just on the private alternatives, you mentioned that there's going to be some fundraising that's going to take place, I believe, you said this summer. Is there a -- do you have a target for the amount you're looking to raise?

[Vincent Duhamel, Global President & COO]

Well, John, you want to take that one?

[John Valentini]

No, I mean, raising, we are constantly having inflows, yes, we're constantly raising. I mean, this quarter was about a $300 million inflow on the private alts. I would expect we're going to continue to maintain that momentum over the year.

[Vincent Duhamel, Global President & COO]

Marco, to give you an idea. On the alternative business, we see now a flow that we see coming in, it's probably $0.5 billion in the next few quarters and is probably about $1 billion of pipeline within the alternative. So the -- all of the different units in the alternative are constantly in the fundraising mode, which is the proper way of trying to manage that.

[Marco Giurleo, Associate]

Okay. And could you provide some additional color on your fund flows in institutional this quarter? They turned negative. I believe you said that there was some strength in alternative. So where did the attrition come from?

[Vincent Duhamel, Global President & COO]

Well, we've had some redemptions in Canada on the low-margin business and the LDI. One large one that at beginning of the quarter. Looking forward, in the quarter, what we had that was very strong was the private wealth. I think looking forward, what you're going to see is a bit of a reverse on this. In the U.S., we're very comfortable. We have about, I'd say, $900 million of won, but not funded business, and a pipeline that supports at approximately an additional CAD 3 billion. Here, I'm talking Canadian dollars, all in Canadian dollars. In Canada, in the institutional business, we have won but not funded probably around $850 million and about $2 billion pipeline following this. And even in Europe, we are much smaller in Europe and less present. I'd say we have about $300 million of won but not funded business [ emerging ] markets and again, a pipeline of about $800 million supporting that.

[Operator]

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

[Jaeme Gloyn, Analyst]

Just wanted to, first, let's go back on that last -- those last figures. Given the pipeline -- or sorry, the won and not funded in the U.S. was how much? Can you just repeat that?

[Vincent Duhamel, Global President & COO]

$900 million.

[Jaeme Gloyn, Analyst]

$900 million and then CAD 3 billion in the pipeline.

[Vincent Duhamel, Global President & COO]

Yes.

[Jaeme Gloyn, Analyst]

Okay, great. So shifting from that then. First question is related to the renegotiation of the existing credit agreement. Can you give us a little bit of color as to what will be renegotiated, the size, covenants? Little bit of color around that?

[Vincent Duhamel, Global President & COO]

John, you want to take that?

[John Valentini]

Yes. Well, there is a -- I mean, the renegotiation touches all of those items. I mean, in terms of credit facility, given the size of the organization, we'll have -- we'll increase the availability of credit for the firm and in terms of covenants, they would be similar to what we had before in terms of the principal ratios that we were tracking in terms of coverage ratios, funded debt ratios, so not major change there. I would say the most significant change is really going to be the capacity of credit that we will have available, which is sort of consistent given the fact that the size of the organization relative to when we negotiated the previous one. So we will still benefit from what we felt were pretty good covenants. So we -- there will be no significant changes.

[Jaeme Gloyn, Analyst]

Okay. And can you remind me, is there any standby fees on the credit facility, or will there be standby fees on this larger facility?

[John Valentini]

No.

[Jaeme Gloyn, Analyst]

No, okay. With respect to average management fee rates, quite a significant uptick in the retail portfolio probably, I assume, is largely related to the CNR. Is that -- 39 basis points, is that something that's sustainable? Or is there some one-timing type stuff that might be included in that number?

[Vincent Duhamel, Global President & COO]

I don't believe there's any onetime item in that number.

[John Valentini]

No.

[Vincent Duhamel, Global President & COO]

It is -- I think it's part of the strategy. To say we're going to maintain 39 every quarter, I'm not sure, but the direction is correct. CNR clearly have had an impact. Most of the acquisitions that we're looking at are trending in that direction. It's clearly a strategic priorities for -- priority for us, also at the same time we do win business and we won't turn away business at 10 or 15 basis points, which will become -- will be at that level, because of size, because it's fixed income or because it's money market, but we will still take that business.

[Jaeme Gloyn, Analyst]

Okay. So 39 plus or minus 1 bp or so is well within reach?

[Vincent Duhamel, Global President & COO]

Yes.

[Jaeme Gloyn, Analyst]

Okay, so next question then is just related to, John, your SG&A guidance around $90 million to $92 million going forward relative to let's say, I guess, if you exclude all these $4 million in charges, so $93 million this quarter. How much of that $90 million and $92 million is related to some of the initiatives that Vincent talked about in terms of bringing custodians down? Does some of that trickle in, in Q2, Q3 in Canada and the same thing with OMS systems in the U.S.? Is that what's driving the $90 million to $92 million, or is there something else?

[John Valentini]

No, I -- those are initiatives are going to have an impact, I'd say that over a period of the next 4 to 6 quarters, and it's going to be one of the initiatives that is going to again contribute to the margin growth that we expect to see over the next 4 to 6 quarters, but it's just continued, I guess, cost containment initiative on our part. We do like to note, again, that starting in Q3, Q4, we are going to have 2 acquisitions to account for. So that number will change.

[Jaeme Gloyn, Analyst]

Right. And any early indication as to what kind of a step-up in OpEx related to those acquisitions in Q3, Q4 from the $90 million, $92 billion base?

[John Valentini]

No. I think we will be able to give some color on that once we close the transactions. I mean, with the -- as we said, we expect to close CGOV in May and Clearwater in June by end of June and I think upon announcement, we'll be able to give more clarity on that.

[Jaeme Gloyn, Analyst]

Right. And maybe I'll just ask differently, I guess, in terms of a percentage of base fees, would you expect a material difference with those portfolios relative to the existing Fiera platform?

[Vincent Duhamel, Global President & COO]

No.

[Jaeme Gloyn, Analyst]

No, okay. And then lastly, Vincent, just, I hate to go back on this, but you mentioned 5 factors driving the strategic plan. I counted 4, people, processes, product and distribution. Was there -- what was the fifth one? I may have missed it.

[Vincent Duhamel, Global President & COO]

No, I think you know what, you know how to count, because I might have -- I forgot about it. One of them is that we are talking -- spending a fair amount of time on is innovation and it's trying to bring in to push the organization into different areas in the way we look at both form an employee engagement standpoint, from a processes standpoint to try to get ourselves to embrace in a better way innovation and how we do that.

[Operator]

[Operator Instructions] Your next question comes from the line of Scott Chan from Canaccord Genuity.

[Scott Chan]

Vincent, you talked about, I think in your opening remarks, something about opening up a multi-solutions group. Can you give us maybe kind of a sense of what that might entail? And is that kind of catered to the private wealth segment?

[Vincent Duhamel, Global President & COO]

Well, I think we're trying to -- basically with this, it's -- the team is building a structured offering, a structuring and offering that is relies much better on the strength of the organization and different solutions that we have as an organization. So when you think about high net worth or even institutional investors, most of our competitors tend to focus on a relatively limited offering in order to deliver products that will have the proper risk and return characteristics or very competitive risk and return characteristics. I think one of the strength of Fiera is the fact that because of the alternative business, we're able to embed that within the multi-asset class offering, which makes a big difference in terms of the stability of the returns or robustness of the portfolios that we provide to the clients and that's basically what the team has been working on is putting an offering in place that is better structured in how it's being brought to the market. And I think it's been a key differentiator for us in winning some business. Because what we see in [ finals ] is most of our competitors will not have in-house capabilities that we do, which gives us a major advantage, because of the -- with the alternative business.

[Scott Chan]

Okay. And then just on the U.S. platform, you mentioned $29 billion now looking to scale up to $50 billion in a few years. What's the adjusted EBITDA margin on the platform right now? And in that $50 billion, what margins can you attain?

[Vincent Duhamel, Global President & COO]

The EBITDA margin for the U.S.?

[John Valentini]

For the U.S., the U.S. business today, I would say, we're slightly -- we're below $30 billion and the expectation is that business should be in the mid-$30s and should get there, I'd say within the next 12, maximum 18 months. One of the things the U.S. business, again, we continue to iterate, it's a question of scale. We're managing approximately $30 billion of AUM there. We've always said the sort of threshold would be $50 billion. We're highly confident we're going to get there within the next 24 months through a combination of organic growth. It is a division that has been growing probably the most substantially in terms of its organic growth and it also is the priority market for our acquisitions, because we feel that by adding assets on that platform, we'll get significant margin synergy. So we're confident that over the next -- within the next 24 months we'll be able to realize that.

[Scott Chan]

And then when you talk about the organic growth, is that Bel Air mainly?

[John Valentini]

No, principally the U.S. division that would be -- you'd have global equity, U.S. equity, small cap, mid equities and you have fixed income. Those are the principal strategies.

[Scott Chan]

Okay, the Bel Air, kind of, separately just on Bel Air. You talked about it having the strongest year-to-date traction. What's driving that and perhaps maybe an update on the San Fran offices, if that has any benefit [ for that asset ]?

[Vincent Duhamel, Global President & COO]

Well, Bel Air, I think it's a number of the components. We have, David Sadkin, new President who is taking over there, he's building the succession, has put in place a very effective, I think there's a second generation producer that have been quite engaged and very effective for us in growing the business. I think it's just in general, all the pieces have wrapped together in that business. There is nothing specific. Performance is good, performance is solid. In general, if you have performance solid, if you have a strong generation, second generation coming in because you have the producers that have been there for a while, that are large, very important, do well, but the younger ones, you need to be able to engage the younger ones to come and to grow the business further, and David has been able to put in place a pretty good team at doing this.

[Operator]

There are no further questions at this time Mr. Richard, I turn the call back over to you.

[Daniel Richard]

So again, thank you for joining the call today for our Q1 results. And this concludes our remarks and Q&A period and next time, we'll see you in August for the Q2 results. Thank you very much, and have a nice day.

[Vincent Duhamel, Global President & COO]

Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.