Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2024-Q2

[Operator]

Good morning. My name is Sylvie, 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 of the second quarter 2024. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] Thank you. I will now turn the conference over to Ms. Marie-France Guay, Senior Vice President, Treasury and Investor Relations. Please go ahead.

[Marie-France Guay, executive]

Thank you, Sylvie. Good morning, everyone. [Foreign Language] Welcome to the Fiera Capital conference call to discuss our financial results for the second quarter of 2024. Note that today's call will be held in English. Before we begin, I invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at ir.fieracapital.com. Also note that today's comments -- that the comments made on today's call, including replies to certain questions may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on Page 2 of the presentation. On today's call, we will discuss our Q2 2024 results, starting with an update on our AUM flows, followed by highlights of our public and private markets platforms as well as our private wealth business. We will then review our financial performance. Our speakers today are Mr. Jean-Guy Desjardins, Chairman of the Board and Global CEO; and Mr. Lucas Pontillo, Executive Director and Global CFO. Also available to answer questions following the prepared remarks will be John Valentini, President and CEO, Private Markets; and Maxime Ménard, President and CEO of Fiera Canada and Global Private Wealth. With that, I will now turn the call over to Jean.

[Jean-Guy Desjardins, executive]

Thank you, Marie-France. Good morning, everyone, and thank you for joining us today. The second quarter saw economic and inflation data that increases the likelihood of a soft landing. The U.S. economy has cooled to below trend pace with the latest consumer price index coming in on the soft side for both headline and core inflation and there are tentative signs that the labor market is finally coming into better balance. Still, the federal reserve has reinforced that officials would like to see further evidence that the disinflationary trend is intact before pivoting. In Canada, the economy continues to run at a slower pace. The growth slowing to below the economics potential rate as the impact of cumulative rate hikes weights on heavily embedded households. Inflation continues to slow at a faster rate compared to the U.S., allowing the Bank of Canada to carry on a lower rate policy. Equity markets rallied in the second quarter with many global indices reaching new heights. Temporarily has been narrowing breadth with a limited number of technology stocks driving a majority of returns. As we have seen over the last week, global equity markets sold up sharply as fears over the health of the U.S. economy deepened, while concerns over valuations and waning enthusiasm for artificial intelligence dampened the outlook for technology companies. Fixed income markets generated mostly positive returns in the second quarter. Treasury yields pushed higher as investors reduced expectations for rate cuts from the Federal reserve, but Canadian bond yields were restrained by softer inflation, supporting the likelihood of further parts from the Bank of Canada. Over the last couple of weeks, fixed income markets rallied strongly as the latest string of softer-than-expected economic data was seen as cementing the case for more aggressive rate cuts from the Federal reserve this year. Against this backdrop, we reported assets under management of $158.9 billion, which was down 3.8% over the quarter, reflecting market appreciation across both of our investment platforms and positive net organic growth in private markets. This was offset by outflows, largely related to the now complete, previously mentioned outflows in PinsStone from a large Canadian financial internal GRA as well as outflows in fixed income from the same client. Assets under management in our private market division grew $300 million or 2% from the prior quarter to $19.1 billion, driven by new contributions of $400 million and modest market appreciation. In our Public Markets division, assets under management declined $6.6 billion or 4.5% as positive market impact of $1.5 billion was offset by $8 billion in negative net organic growth. Public Markets net outflows included $5 billion from PineStone sub-advised assets under management, of which $3.4 billion were preannounced the large Canadian financial internal GRA client and transferred directly to PineStone. Excluding PineStone, public market assets under management declined 2.5% from the prior quarter, reflecting net outflows of $3 billion, partly offset by positive market impact of $500 million. Now, as mentioned in our preliminary press release, outflows were largely due to $2.2 billion in rebalancing of an existing fixed income mandate from the large Canadian financial internal GRA client. These were lower fee flows and their departure has resulted in an increase in our average fee rate. Excluding these rebalancings, public market assets under management, excluding PineStone were essentially flat over the quarter. I will now turn to highlights of our commercial and investment performance across our asset classes in the second quarter. Starting with our public market asset class. During the quarter, we were pleased to announce that Fiera was selected to manage fixed income investments on behalf of Investee Fund led by Innocap, a global leader in managed account platforms and Finance Montréal. Funds will be invested in our Global Sustainable and Impact Bond Strategy, which has outperformed its annualized benchmark and is ranked in the first quartile within the global fixed income sustainability and impact investing universe since its inception in 2020. Fiera was also awarded a mandate to manage a new Canadian core fixed income solution for Lloyd's, the world's leading marketplace for insurance and reinsurance. An initial investment of around $90 million was made in the quarter with significant further inflows expected going forward to potentially reaching billion-dollar levels. This is the second public asset fund on Lloyd's investment platform from which it seeks to provide broader access to investment opportunities and operational efficiencies through collective investing. Now this new mandate is a reflection of our ability to generate consistent positive outflow in Canadian fixed income and a testament to how seriously we take our tributary duty to clients and their capital across our product suite. Turning to investment performance in public markets. Performance in equities was mixed in the quarter. Canadian large cap strategies posted positive results for a second consecutive quarter with the flagship strategy continuing to rank among the top of its peer group. Meanwhile, the U.S. equity core strategy did not outperform its benchmark after 3 consecutive quarters of outperformance. Global equity strategies underperformed their benchmarks in the second quarter, largely due to security selection in the information technology and health care sectors. The strategies continued to rank in the top quartile versus peers and outperformed their respective benchmarks over the longer term. The Frontier Markets and Emerging Market strategies maintain their record of outperformance. These strategies continue to outperform their benchmarks by a significant margin since their inception. We were also pleased to announce that the portfolio managers of these emerging market strategies were ranked in the top 10 fund managers in Europe, in Citywire Selector's Annual Euro Stars Report. This is a fantastic achievement and positions Fiera among industry leaders in the emerging and frontier market space. Fiera's flagship Canadian Fixed Income Strategies generated positive results relative to their benchmarks and continue to consistently outperform their benchmarks over the longer term and since inception. Now turning to our private market platform. Private markets delivered positive net organic growth of nearly $300 million in the second quarter after returning capital of $150 million to investors. Growth was driven by new mandates of close to $400 million, primarily from Canadian clients into agricultural mandate and EMEA clients into infrastructure. In addition to the $400 million in new mandates in the quarter, $500 million was deployed, and we maintained a pipeline with $1.3 billion available for deployment into future opportunities. With respect to investment performance for private markets in real estate, valuations have begun to recover as liquidity returns to the market and rate cuts take hold, particularly in Canada. Strong operating and rental fundamentals have reemerged, slightly earlier in Canada than in the U.K. to date and portfolios with heavier allocations to the industrial and multiresidential sectors, such as our Canadian and U.K. strategies managed by Fiera Real Estate, are expected to be well positioned to outperform going forward as the recovery begins to gain momentum. The majority of our private credit strategies generated positive performance during the quarter as they continued to benefit from strong yields. Our real estate financing and infrastructure debt strategies continue to post a strong performance in our European debt strategy, deployed its first capital in the quarter. Corporate credit strategies also generated positive performance across North America and Europe. These strategies continue to be positioned well because of prudent credit selection and conservative loan structuring. Our global agricultural strategy delivered solid returns in the second quarter. Each of the strategies recently added partnerships continue to be integrated into the portfolio and have generally performed well through their initial periods. During the quarter, Fiera Comox announced an agreement to acquire an 85% interest in a sustainably managed forest plantation in New Zealand. This investment marks the initial acquisition by our Global Sustainable and Impact Bond Strategy which invests in high-quality private forests globally. Now lastly, our Private Equity strategy generated positive return as well in the quarter and is in final stages of closing a new direct investment in the U.S. Healthcare Service sector. Moving on to private wealth. Our private wealth assets under management decreased slightly in the second quarter to close at $14.1 billion. Efforts into building deeper relationships are already beginning to bear fruit with over $125 million in new loans generated from first nations, further opportunities at -- in the near term. The second quarter was, however, impacted by negative contributions driven in part by the change in the Canadian capital gains included in the rate, which occurred in June. With that, I will turn it over to Lucas for a review of our financial performance.

[Lucas Pontillo, executive]

Thank you, Jean-Guy. Good morning, everyone. I will now review the financial results for the second quarter of 2024. Overall, we are very pleased with our second quarter financial performance, which helped drive year-over-year revenue growth on a year-to-date basis across almost every revenue channel despite a reduction in assets under management. This was largely driven by growth in private market revenues with total public market revenues remaining essentially flat over the period. We also generated strong free cash flow, surpassing the last 12-month range indicated on our last earnings call. Starting with total revenues. Across our investment platforms, total revenues of $165 million in the second quarter were up by $5 million or 3% year-over-year, and on a year-to-date basis, total revenues were up $16 million or 5%. Year-over-year increases reflect strong private market revenue growth of 11% in the quarter and 15% on a year-to-date basis. Base management fees were flat year-over-year as revenue growth in private markets AUM effectively offset the decline in public markets. On a year-to-date basis, base management fees were up 1% year-over-year despite the 3% decline in AUM as higher base fees from private markets and change in asset mix continue to contribute to an increase in the fee rates. Turning to public market revenues. Base management fees in the quarter declined $3 million or 3% year-over-year. And on a year-to-date basis, base management fees were down $4 million or 2%. This year-over-year decline was driven by outflows related to PineStone's strategies partly offset by an increase in revenues from financial intermediaries from a shifting asset mix toward equity strategies, resulting in an improved average fee rate. Other revenues of $4 million in the second quarter increased by $2 million year-over-year and on a year-to-date basis, increased by $4 million. Year-over-year growth reflects higher administration fee revenues as part of our private wealth fee initiatives. On a year-to-date basis, higher administration fees, revenues from private wealth and higher interest income accounted for the increase. Turning to private markets. Base management fees in the quarter increased by $3 million or 7% year-over-year. On a year-to-date basis, fees were up by $7 million or 9% year-over-year, primarily from institutional clients in Canada, the U.S. and EMEA, investing in our agriculture and diversified private market solution strategies, along with higher average assets under management from new subscriptions. Performance fees in Q2 increased by $1 million year-over-year and were up slightly on a year-to-date basis, largely reflecting accrued performance fees in transactions in private markets in Asia. Year-over-year, commitment and transaction fees declined by $2 million for the quarter and $3 million on a year-to-date basis, largely reflecting less deal activity from private debt and infrastructure funds in Canada. Earnings in joint ventures and associates in the second quarter increased $2 million year-over-year and $8 million on a year-to-date basis. Growth reflected the income earned on the completion of several large construction projects in Fiera Real Estate U.K. Year-to-date, our private market businesses has contributed revenues of $113 million or 34% of Fiera Capital's total revenue despite making up only 12% of total assets under management. This revenue contribution is up from 31% for the same period last year when private markets comprised 12% of assets under management and up 27%, 3 years ago when private markets was 11% of total assets under management. The growth in revenue contribution relative to share of assets under management demonstrates the scalability and revenue-generating power of our private markets business. Turning to SG&A in the quarter. Excluding share-based compensation, increased by $5 million or 4% year-over-year and were up $10 million or 4% on a year-to-date basis. Expense growth was largely due to higher variable compensation costs and travel and marketing, partly offset by lower sub-advisory fees. We continue to focus on prudent expense management with year-to-date SG&A expenses, excluding share-based comp, up less than revenue growth. Restructuring costs were also slightly higher year-over-year related to our regional expansion efforts and the realignment of our distribution model. Turning to adjusted EBITDA and adjusted EBITDA margin. Adjusted EBITDA was flat year-over-year, reflecting the increase in revenues, offset by higher SG&A. Year-to-date, adjusted EBITDA increased by $6 million or 8% and EBITDA margin improved 60 basis points to 27.2%. On a last 12-month basis, EBITDA margin remains above 30%. Now looking at earnings. Adjusted net earnings were $25 million or $0.23 per diluted share. On a trailing 12-month basis, adjusted EPS was $1.17, up from $1.06 in the same quarter last year. Turning to our financial leverage. Net debt was $669 million at the end of the second quarter, up $12 million from the end of Q1. As a reminder, historically, our net debt is higher in Q2, reflecting the 2 dividend payments made during the quarter. Our net debt ratio increased to 3.15% from 3.09x in the prior quarter, but improved meaningfully from the 3.6x in the same quarter last year. Funded debt-to-EBITDA ratio, as defined by our credit facility agreement increased to 2.97x from 2.9% in Q1, reflecting the inclusion of the $20 million guarantee on the loan to senior management to finance part of the purchase of the Desjardins. Excluding this financing, our funded debt ratio declined quarter-over-quarter. Year-over-year, our funded debt ratio increased, reflecting an unusually low ratio in the comparable quarter. As cash proceeds on the new debt issuance had not yet been applied towards the redemption of the refinanced hybrid debenture, which was deployed subsequently to the end of the second quarter of 2023. Turning to free cash flow. Last 12 months free cash flow of $121 million is a significant increase from $45 million in the same quarter last year. The increase is due to higher cash generated from operating activities and a positive impact from changes in noncash working capital, which included the collection of certain performance fees and accounts receivables that were delayed from the prior quarter. We remain committed to delivering value to our shareholders as a fundamental pillar of our strategy. And as such, I am pleased to announce that the Board has declared a quarterly dividend of $0.215 per share, payable on September 19 to holders of record on August 19, 2024. This maintains our trailing 12-month dividend of $0.86 per share. In addition, subsequent to quarter end, we renewed our NCIB to purchase up to 4 million Class A shares over the 12-month period commencing August 16 2024 and ending no later than August 15, 2025. I'll now turn the call back to Jean Guy for his closing remarks.

[Jean-Guy Desjardins, executive]

Thank you, Lucas. As we closed out the second quarter, we were very pleased with the smooth execution of the Desjardins transaction, where senior management and a number of Board members acquired all equity of the company previously held by Desjardins. The transaction is a testament to senior management's strong confidence in our strategic vision and commitment to executing on our growth plans, aligning our interest and long-term incentives to increase ownership fix. Importantly, our ownership structure remains unchanged, allowing us to continue to execute our growth plans seamlessly. Finally, as we make our way through the third quarter, we are closely monitoring the market volatility that we have experienced over the last week. The evolution of both the economic and inflation data have raised the likelihood the Federal Reserve will successfully engineer soft lending. This may prompt the February reserve to cut interest rates by more than widely anticipated. So indeed, our closely monitoring key policy variables that dictate the path for monetary policies support this narrative. Notably, the U.S. economy has cooled to below trend pace. There are also some tentative signs that the labor market is coming into better balance. Long-term inflation expectations remain well anchored and are stable enough to enable the federal reserve to cut interest rates soon. As such, it would appear that achieving a soft lending for the U.S. economy seems much more considerable. Our high-probability scenario assumes that the disinflationary trend reassumes itself in the coming 18 months with little in the way of damage to the economy. The combination of synchronized lower interest rates and positive earnings momentum bodes particularly well for risk assets and a moderate overweight allocation to stocks over our cyclical time horizon as central banks globally gradually moved to a neutral stance on monetary policy, which in North America is a 3% Central Bank target rate for the U.S. and Canada by the end of 2025. And that certainly supports our overweighted allocation to stocks over that time horizon. This economic backdrop, coupled with our pipeline of sales activity, resulting from our new regional distribution model has us optimistic about the prospect of positive net organic growth as we add into the second half of 2024. So I will now turn the call back to the operator for the question period.

[Operator]

[Operator Instructions] Your first question will be from Nik Priebe at CIBC.

[Nik Priebe, analyst]

Just want to start with a question on flows in the quarter. You had called out about $4.4 billion of leakage associated with the PineStone relationship. I think most of that was anticipated, but the scale of leakage, I think, was a little bit larger than you had initially expected. Was all of that from the same client? Or was there another client outside of National Bank that had redeemed specifically for the purpose of investing directly?

[Lucas Pontillo, executive]

Yes. Maybe I'll give the breakdown in sort of particular on a year-to-date basis. We've seen in total for the year, $7.1 billion of leakage to PineStone, the bank portion that we talked about, the $3.4 billion as was previously indicated. So that leaves about $3.7 million, and that's totally in line with the guidance that we gave of $3 billion to $4 billion sort of ex the bank, if you will. And so again, we had 2 institutionals that we talked about in Q1 that were redeemed in Q1. So there were 2 smaller institutionals during the quarter, and collectively, those 2 made up about $1 billion. So I think that's the excess piece that you're looking for. But even when you include that, as I say, we're up to 3.7% ex the bank. I'd say that's in line with the guidance that we gave of $3 billion to $4 billion.

[Nik Priebe, analyst]

Got it. Okay. And those 2 smaller institutions that were deemed in the quarter, do they have any additional assets that remain invested in Fiera sponsored funds that are sub-advised by PineStone? Or was that the entirety of their assets?

[Lucas Pontillo, executive]

That was the entirety of their assets.

[Nik Priebe, analyst]

Okay. Got it. And then it looks like the average fee rate ticked up in the quarter. And I think you had alluded to the loss of a $2.2 billion fixed income, Mandy, that had a pretty low fee rate attached to it. But you also experienced $5 billion of outflows from the PineStone's relationship, which I would have thought had a higher fee rate associated with it. So what, in your view, explains the higher weighted average fee rate in the quarter? I guess is it partly the shrinking public markets AUM versus private? Or is there something else that explains it?

[Lucas Pontillo, executive]

Yes. No, thanks for the question. I think that's great. And to really just get away from any noise or volatility for 1 quarter, we prefer to look at the year-to-date numbers. So if you look at the first 6 months of last year for 2023, our average free rate was sitting at 36.2% and if you look at where we're sitting now, that's materially better at 37.2%. So yes, you're absolutely right in the trail off of fixed income helps. But really, what's buttressing are offsetting the PineStone is the organic growth that we're seeing in private markets. And as you can appreciate, those fees are even healthier than what we would be getting on global equity. So there is definitely a positive shift here happening in asset mix. As I say, you're seeing that compensate not only in the total base management fee, but the actual average fee that we're collecting.

[Operator]

Next question will be from Jeff Kwan at RBC.

[Geoffrey Kwan, analyst]

A question on the $600 million commitment on commitment from CDP. I know it was referenced, I think it was on Slide 5. So was that all included in the Q2 numbers? Or is there going to be some portion that's going to go into Q3? And would that have been -- or did it already go into the Institutional Segment? Or would it be somewhere else?

[Lucas Pontillo, executive]

No, that all came in during the quarter. There was a delay between the time we press released that versus our own AUM press release. And it really just had to do with coordinating the marketing on both sides. But as I said, that was all included in the quarter.

[Geoffrey Kwan, analyst]

Okay. I just want to make sure I heard earlier, I think Jean-Guy, you were talking about the Lloyds mandate. If I heard it right, it was $90 million was made in Q2 and then there could be significant further inflows in future quarters. And was that number that it could reach like $1 billion levels? Or did I hear that incorrectly?

[Jean-Guy Desjardins, executive]

You heard that correctly and the indications that we're receiving from the sponsor, the which reflects their enthusiasm about the attractiveness of that strategy to to their long list of members in the consortium, their expectation is that, that strategy should grow to be a multibillion-dollar strategy over the next few years.

[Geoffrey Kwan, analyst]

Okay. And just maybe if I can sneak in one last question is -- when I think about it like from a net sales perspective, to get back into more consistent positive quarter in net sales, and that's including net of any sort of redemption out of PineStone. How do you envisage -- what are the kind of the key drivers and the conditions that would get you there?

[Jean-Guy Desjardins, executive]

I think there's 2 things. I think you mentioned the PineStone thing and as you know, we do expect that there will be a significant deceleration on that front in the future coming from now, in fact. And the second thing is the impact of our -- the change in our the decentralization of our business at the regional level with a very senior experienced regional CEOs. And if you take the time to look at the background of those 4 CEOs, the Americas, Canada, EMEA, Asia and U.S., you will notice that the background of those 4 CEOs is a background of individuals that have been very successful for every single one of them for more than 15 years each, each one of them primarily assuming distribution leadership and distribution responsibilities. So what we've done in 2023 is implement a strategy where, honestly, probably for the first time in the history of Fiera, we made a significant commitment and put a big priority on our weakness and getting the market share that we felt we should be receiving from our platform of investment strategies, which is very broad, which is very deep and very competitive from a performance point of view. So I think that's what you're going to see in the -- I think in the second half of this year, we're very optimistic about that. But hopefully, we will see the impact of that in 2025 where the combination of the deceleration of leakage in the PineStone side and the acceleration of our distribution capabilities as a result of what I just explained, will have a meaningful impact in 2025. So that's our strategy. That's our game plan. And 2025 will -- for the next couple of quarters in 2025 will prove us right or wrong on what we basically put in place in the last -- primarily mostly in 2023.

[Operator]

Next question will be from Etienne Ricard at BMO Capital Markets.

[Etienne Ricard, analyst]

On private markets, what appetite are you seeing from limited partners to invest more into alternatives relative to, let's say, a year ago as interest rate cuts are becoming more visible?

[Jean-Guy Desjardins, executive]

So your question is are we seeing more interest or explaining why there is more interest. Is that your question?

[Etienne Ricard, analyst]

Correct. So what change in appetite have you seen from limited partners to invest more capital into alternatives versus a year ago?

[Jean-Guy Desjardins, executive]

I think that I would not agree with the change in appetite. I think what we have noticed is a shift in and their appetite from certain strategies to other strategies. So we haven't noticed a change in appetite for our strategies in agriculture, for example, our infrastructure for that matter, but we have seen a change in appetite in private equity and real estate, and I think we understand why. But in aggregate, there is an indication that there is a change in appetite, but it's all related to, I'd say, those 2 strategies that have been more importantly influenced by higher interest rates, which is, in this case, private equity and real estate. But other than that, we have not seen or noticed a slowdown in the general interest and activity. In fact, what we're seeing is substantial interest and activity in the opportunities that are coming to fruit over the next -- in fact, we know that over the next couple of quarters, a lot of those opportunities will come to decisions. And the activity is on those strategies that I've mentioned has not changed that much. In our case, it's accelerated, like I've mentioned, because we have a much, much stronger and adaptive presence in our -- from a distribution point of view in the 4 regions that I referred to. But what we are seeing is the reappearance of an acceleration in the interest of potential investors and institutions back into real estate and private equity. So it's not something that as that's -- I'd say that where the money is already coming in, but there's increased opportunities from request for information and from, as you know, RFP's questionnaires coming in, and so we have an acceleration in the number of opportunities for new clients investing in our real estate and private equity strategies. And there is a continuation in our case and acceleration and the other strategies, but I think I explained why the acceleration. That's the way I would answer your question.

[Etienne Ricard, analyst]

And do you still see a path for doubling AUM over the next 5 years, even if private equity and real estate interest remains a bit more muted?

[Jean-Guy Desjardins, executive]

Yes. Conservatively, yes.

[Etienne Ricard, analyst]

Okay. And a question for Lucas on capital allocation. It's good to see stock buybacks resuming to the extent you generate free cash flow in excess of the dividend, do you see buybacks as the best use of your capital at this point?

[Lucas Pontillo, executive]

Yes, indeed. I mean, in the view we still view the stock on an intrinsic basis, not being in line with where it's trading. We're mindful of dilution as well. So absolutely, to the extent that we have excess free cash flow with the dividend, we do intend to deploy a part of that towards the NCIB.

[Operator]

Next question will be from Gary Ho at Desjardins.

[Gary Ho, analyst]

Lucas, maybe just circle back on next question. I think I heard your comments, there was $3.7 billion the National Bank, and that was in line with your $3 billion to $4 billion. But I think that's on a year-to-date basis. So are you assuming there's no meaningful leakage in the back half of this year?

[Lucas Pontillo, executive]

Correct. That's the assumption.

[Gary Ho, analyst]

Got it. Okay. And then while I have you, just on the EBITDA margin, the 27.5% this quarter and then 27% in Q1. How should we think about margins and maybe SG&A overall? Is 30% still a target you hope to achieve on a full year basis for '24 and beyond?

[Lucas Pontillo, executive]

Yes, absolutely. I mean I think you'll see in the quarter some of the uptick in SG&A year-over-year was really related to travel, marketing and some systems upgrades, okay? But we're also being very mindful on the one hand of managing the expenses on the other hand of making sure we're putting the right investment in the organic growth that's required. So we continue to keep an eye on the margin target, but we also don't want to hold back the necessary business development activities that need to happen as part of our new distribution model.

[Gary Ho, analyst]

Got it. Okay. And then on your last comment, Lucas, you mentioned NCIB and how the stock is undervalued here. But I did see the 1.3 million shares that was issued to Clearwater after the quarter. Just wanted connected to why not --I guess, pay that out in cash and avoid the dilution?

[Lucas Pontillo, executive]

Yes. No, that's a great question. And I think one of the trends that you're seeing is in terms of not only the executive team, but the management team being well aligned from a shareholder base perspective. And if you look at the 2 individuals in question on the Clearwater PPO, Rob and Amit absolutely embody sort of some of the key values that we hold dear here, which is commitment to investment management excellence. And then on top of that, an entrepreneurial spirit. So with Rob taking over his role as Head of Asia, and Amit taking over in terms of our U.S. private debt credit strategy, it became very important to just keep those individuals aligned. And I think you'll be seeing more of that in the future. We are talking about ways to create additional alignment, not only at the senior management level, but looking to find through employee stock plans to drive that through the rest of the organization. So that was really the driver there.

[Gary Ho, analyst]

Got it. Okay. And just my last question. I just wanted to revisit Slide 14. I think your fund performance continues to track well, especially your fixed income side, but we've seen some deterioration on the equity strategies more so in the 3-year. Can you provide some additional color what drove that? And when do you expect that to recover?

[Jean-Guy Desjardins, executive]

Do you want me to take that, Lucas?

[Lucas Pontillo, executive]

Sure. Go ahead, Jean.

[Jean-Guy Desjardins, executive]

Well, the deterioration and it's primarily like retlated to the global equity side and it covers all our global equity coverage, and it's primarily related to an under-weighted position on the technology side. And what will turn that around is clearly related to an adjustment in the valuation of those technology stocks relative to the rest of the market. So when you look at the performance of the S&P 500, which is obviously the primary example of that globally, if you look at the performance of the SMP 500, if you exclude the major 7, the performance of the S&P 500 is an evaluation in fact, of the S&P 500 changes quite dramatically from the aggregate industry. So we think that somewhere, maybe it's happening now, I don't know. Maybe it will happen next month, but we think that in the course of the next 18 months that we're going to see a realignment of valuations within the equity markets. And I said primarily because it's the -- I'd say, the most excessive example of that, primarily the U.S. market.

[Gary Ho, analyst]

And Jean-Guy, those funds are they primarily PineStone managed?

[Jean-Guy Desjardins, executive]

Listen, I did say that it covers the aggregate of our global equity strategies.

[Operator]

Next question will be from Graham Ryding at TD Securities.

[Graham Ryding, analyst]

I just wanted to just follow up on the -- your constructive outlook for the second half in terms of organic growth. It sounds like you don't feel like there's any more PineStone redemptions to come through. What are you seeing that you think is going to drive positive flows -- do you have visibility on Lloyd's? Are there any other sort of mandates and visibility to have that would be driving organic growth?

[Jean-Guy Desjardins, executive]

Well, we had long list, a very constructive strategies -- Canadian equities is a very competitive strategy. And in fact, we are right now very, very successful in gaining market share in Canadian equity management in Canada, okay? We also are gaining traction on our fixed income strategies, not all of them, but some of our fixed income strategies. We're winning -- we are winning new clients and new business currently on that front. So those strategies are also competitive and attractive to potential clients. And I could talk about our SMID strategy, Small Mid-cap strategy in the U.S., especially through the distribution of the New York Life network that are very active and supportive and quite aggressive in fact, in distributing into their network, our SMID -- our U.S. SMID strategy, we are also very active at increasing our market share and winning business in our emerging market group of strategies where we have 3 strategies there. And then the one that's generating most attraction right now is the Emerging Market Select Strategy. which is 1 of the 3. So no, that's on the public market side. On the private market side, we're seeing a lot of interest, especially in the Middle East on our ag strategy, agricultural strategy, increasing interest on the combination of our ag and timber strategy on the private market side. Like I said, there is, I'd say, a return of interest in our real estate strategies against the background of expectations about interest rates coming down in the next 18 months. And we are right now very successful in growing our infrastructure assets under management. So we have opportunities there and we are winning business in the infrastructure fund in Canada as well as in the EMEA market. So I'm sure I'm forgetting a few. So maybe, Max, you want to add to this to complete the answer to the question?

[Maxime Menard, executive]

Yes. Thank you, Jean-Guy. So a number of things. And so one of the things that we did to accelerate growth in the Canadian market as we have redefined slightly our go-to-market strategy by having dedicated salespeople in the private markets and in the public market, which from my early observation, will accelerate our coverage from a consulting standpoint, we have seen an uptick in the number of RFPs almost doubled from previous quarter in terms of what we've been getting. To Jean Guy's point, mainly around in the public markets. We've seen lots of appetite for our Canadian equity mandates, which we have for the second half of the year, a very strong pipeline of finalists and also strong commitment coming in and around multi-solutions and balanced mandates as well. So that is very promising. On the private side, we already have a significant win that, unfortunately, I can't announce, but is a significant a few hundred million dollars that we have received a positive feedback and then we also have a very strong pipeline for the second half of the year. So a number of things that are very encouraging is these are not anecdotal wins. It is a result of a systematic new process that we have in place in terms of how we cover consultants, how we fill out RFPs and how we are winning additional business. So I've seen an increase in the percentage of closing when we get to the finals. That is encouraging us for the second half of the year and certainly for the year to come after. So strong pipelines in both private and public and also lots of initiatives around cross-selling of our existing book of business, which is very significant. So I think the second half of the year is looking promising and certainly when we look for 2025 for private markets as well.

[Graham Ryding, analyst]

Okay. My last question would be just, Lucas, just on the outlook for free cash flow is obviously a very positive trend this quarter on an LTM basis. Is this a reasonable run rate? Or is there anything sort of in the quarter that would maybe be pushing free cash flow higher than what you would sort of expect on a run rate basis?

[Lucas Pontillo, executive]

No. And thanks for the question. I mean it's really -- it's meant to reiterate the fact that in Q1, I did highlight the fact that the reason we were lower than we expected and that you all expected, was really working capital driven. If you look at our cash flow from ops preworking cap, we've effectively been consistent quarter-over-quarter and so the outsized performance that you're seeing now is really just the reversal of that working cap in the second quarter. And we do expect that to moderate back to normal levels for the end of the year. And by that, I mean that we're comfortable that we'll be in a range to cover the dividend, but we shouldn't expect it to be at this excess level.

[Operator]

[Operator Instructions] Your next question will be from James Brown at National Bank.

[James Brown, analyst]

Yes. Thank you. Appreciate the extra color on the Canadian markets and change in some of the strategies there. Can you also talk to the U.S. a little bit? Some of the impacts in the quarter and over the course of the last year seemed to be also coming from the institutional channel in the U.S. with PrimeStone taking some of those clients. Maybe talk through some of what you're seeing there and what gives you some confidence on the U.S. side.

[Jean-Guy Desjardins, executive]

Two things,. On the U.S. side, we're -- well, first, we're very, very happy with the leader that we've chosen and who is executing our plan in the U.S., Eric Roberts, who's a 15-year veteran from Aberdeen who joined us to be the U.S. CEO. There's a lot of activity in the U.S. on the big market and private market side. I think you're probably aware that we have a significant franchise in the municipal bond business in the U.S., the munis. And we're seeing -- well, we've made a distribution commitment where we've added a couple of professionals and that distribution lag, and we're seeing some significant impact as a result of that. So there's a lot of growth opportunities occurring and prospect as well in that segment. They're very active, like I mentioned, in combination with New York Life, in distributing our U.S. business strategy, which is very competitive. And if you look at this in the context of the potential rebalancing of markets I referred a little bit earlier, there is a significant acceleration of interest by clients and that strategy relative to a typical large cap S&P 500 type approach. And we're seeing also quite a bit of activity in the U.S. and the distribution of our private market strategies. And there, again, the ones where we're seeing the most activities is on the agricultural side. So that's what's happening in the U.S. We just brought into the organization a new leader to lead our consultant coverage relationship work. We have 3 people there doing that in the U.S., and we have a new leader who we think will have a significant impact in our penetration of acquiring support from the consulting community in the U.S., as you know, which is a very, very important channel to access institutional business in that market. So -- in summary, I'd say those are the key points.

[Maxime Menard, executive]

Happy to add just a number of things here because we're doing a few cross-border initiatives with the U.S., where having a strong footprint in Canada and being able to export this to the U.S. through our strong relationship in the consulting business. As Jean-Guy mentioned, we've hired a new person who's developing a very aggressive strategy to go to market in the consulting market in the U.S. where we want to get additional rating of our products. Obviously, the number of solutions that are being offered in the U.S. versus Canada on the rated for the consultant needs to be improved, and we're working actively on this. I think our ability to respond to RFPs in a more effective manner is improving day by day, and we're going to see early success there as well. And then when we look for immediate response in terms of our ability to have success through the intermediaries market, where we have strategic relationships, Eric and his team are are really doubling down in order to have some of those solutions on the platforms and see immediate flows. We currently have strong relationship with some very strategic partners down there, including Goldman Sachs, where I think we have an ability to cross-sell some of our other solutions on our platform. So when we look -- when you try to figure out what are the immediate success that we could have in the U.S. is through our existing relationship in the consulting market through our existing relationship into the intermediary market. And over, I would say, mid- to long-term solutions and increasing our ratings in the consulting and making sure we double down on our ability to respond to RFPs in the U.S. market.

[Operator]

There are no further questions at this time. Ms. Guay, I will now turn the call back over to you.

[Marie-France Guay, executive]

Thank you, Sylvie. That concludes today's call. For more information, please take advantage of our website at ir.fieracapital.com. Thank you for joining us. merci.

[Operator]

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. [Foreign Language]