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Fiera Capital Corp
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Good morning. My name is Simon, 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 to the third quarter of 2018. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] Thank you.I will now turn over the conference call to Mr. Daniel Richard, Senior Vice President of Global Human Resources and Corporate Communications. Mr. Richard, you may begin your conference.
[Foreign Language] Good morning, everyone. [Foreign Language] Welcome to the Fiera Capital Corporation's Conference Call to discuss our financial results for the third quarter of 2018.On the call with me today are Vincent Duhamel, Global president and Chief Operating Officer; and John Valentini, President and Chief Executive Officer of Fiera Private Alternative Investments. Lucas Pontillo, Executive Vice President and Global Chief Financial Officer, is with us on the call and will be available during the Q&A session. In addition, I would like to introduce Mariem Elsayed, Director of Investor Relations and Public Affairs. Welcome to both of you.Before we begin, I would like to invite participants to download a copy of today's presentation, which can be found in the Investor Relations section of our website at www.fieracapital.com. Also, the comments made on today's call and some of our replies to analyst 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 now ask you to take a moment to read the forward-looking statements on Page 2 of our presentation.I will now hand over the call to Vincent Duhamel. Mr. Duhamel.
Good morning, everyone, and thank you for joining us today. Let me begin on Slide 3 with the overview of the last few months. We're very pleased with our third quarter results. Our assets under management, revenues and adjusted EBITDA posted solid year-over-year growth driven by positive client inflows, our focus on margin improvement and continued integration of acquisition. We won $4.1 billion in gross new assets fueled by strong momentum in the institutional sector and the contribution of retail AUM. In our Canadian division, we continue to deliver strong investment performance. We grew our assets under management notably through multi assets, global equity and private alternative strategies in the institutional and private wealth segments. The integration of CGOV Asset Management is underway, an acquisition that positions us more prominently in the high-net-worth segment and is already contributing to our cash flows. In October, we announced the sale of Fiera Capital's retail mutual funds to Canoe Financial. This transaction allows us to better focus on our core strength, serving both institutional markets and private wealth clients as well as our sub-adviser business, which totals close to $35 billion in AUM via strategic partnerships.Turning to the U.S. division. We are pleased with our momentum and performance. We won and funded the number of large institutional mandates with state-level pension funds across the U.S., each totaling several hundreds of millions of dollars in AUM for global and international equity, emerging markets and fixed income strategies. These wins underscore the value of our solutions and the trust our clients put in our firm. Our pipeline of opportunities in this market remains strong. We also continue to standardize our processes across the full U.S. platform in order management, compliance and CRM, so as to leverage the scalability of our operations.Moving on to Bel Air. This segment posted positive inflows though not at -- though at a lesser pace than the record level of new assets achieved in the first half of the year. With almost $11 billion in AUM compared to the $9 billion for the same period last year, Bel Air is delivering very solid growth on a year-to-date basis. And in keeping with this trend, this quarter, we will be launching a new allocation fund that will tap into small accounts in the private wealth segment. Our European division is delivering steady performance. We continue to develop this business through an ambitious plan to grow Fiera Capital's presence and offering in this market. While our mix is somewhat focused on emerging markets, we're steadily introducing our U.S. strategies through cross-selling efforts.Turning to our private alternative strategies. This is an asset class where we're seeing organic growth and we're dedicating the necessary resources to support it. We have deployed significant capital in real estate in other projects and one new agricultural mandate among others. To build on this, sustainable efforts are being deployed to better grow the knowledge-base of our distribution channel in this investment category. Our Clearwater acquisition, which we closed during the third quarter, was a significant contributor to AUM, adding $1.8 billion, including an additional $200 million since the closing of the transaction. Clearwater gave us an established presence in the Asia credit space, a market which today represents USD 50 trillion in the investment opportunities. Overall, the proportion of alternative assets relative to our total AUM continues to grow, representing 8% for $11.4 billion and accounting for approximately 15% of our estimated annualized revenue compared to 6% of the total AUM, 11% of estimated annualized revenues in Q3 2017.Turning to capital allocation. We have a solid financial position, which enables us to execute on our growth plan and return capital to shareholders. Yesterday, the Board of Directors declared a quarterly dividend of $0.20 per share. We also renewed our assets under management agreements with National Bank, our long-standing partner.Moving on to Slide 4. In September, we officially launched our 2022 Strategic Plan after receiving the full support of our Board of Directors. Since then, the plan has been presented to our employees and to the investment community. The level of engagement we're seeing is strong and bodes well for its upcoming execution. Developed internally, this is a road map for achieving our goal of becoming one of the top 100 asset managers in the world. To illustrate this more concretely, one of the major initiatives of the plan is to amortize our global structure. To that end, we're bringing together our technology and operations group to create a new unified information and business solutions team. Driving process improvement such as this one is one of the 4 pillars of our 2022 strategic plan, along with performance, partners and people. Talent has always driven our performance, which is why people is a core pillar of this strategic plan. On that note, I'm very pleased to welcome Kanesh Lakhani and Lucas Pontillo who joined our firm last month.Kanesh takes on the role of President and Chief Executive Officer of the European Division and comes to us with a vast global financial experience. He will play a key role in deepening our reach, reputation and brand in Europe over the coming years. Lucas was named Executive Vice President and Global Chief Financial Officer in October. He brings in-depth expertise in the investment management sector as well as international experience, which makes him a great fit for Fiera. Lucas takes over from John Valentini who has served as Chief Financial Officer since September 2015. John will focus on his role as President and Chief Executive Officer of Fiera Private Alternative Investments. We wish all 3 of them much success in their respective roles.In summary, it's been a strong quarter and we're pleased with our results. We're also well positioned to execute and move forward on our strategic plan and provide the best solutions to our clients. I would now like to turn it over to John for our financial highlights.
Thank you, Vincent. Turning to Slide 6. Assets under management grew 3% to $143.5 billion versus the previous quarter. The sequential increase is attributable to new mandate from the institutional and retail sectors, the acquisition of Clearwater and positive market performance. Base management fees grew 8% to reach $127 million compared to Q2 of 2018. Adjusted EBITDA was up 12% from the previous quarter. Finally, adjusted net earnings per share were $0.29 compared to $0.26 in Q2 '18.On an unadjusted basis, we posted net earnings of $0.01 per share.On Slide 7, for a look at the quarter-over-quarter comparison, revenues increased 9% sequentially mainly due to higher base management fees, primarily in our institutional and private wealth segments as well as growth in private alternatives and the addition of CGOV and Clearwater acquisitions. The sequential increase in adjusted EBITDA is mainly driven by higher revenues and the acquisition of CGOV.On Slide 8, review of the year-over-year comparison. Revenues increased 26%, mainly due to organic growth combined with market appreciation, particularly in the institutional and private wealth sector. Private Alternative Investment strategies and additional revenues from the CGOV and Clearwater acquisitions as well as the Fiera Capital Emerging Markets Fund stemming from the CNR acquisition. We are pleased with the impact that our strategy of organic and acquisitive growth has had on our top line. Our adjusted net earnings were $0.29 per share in the third quarter up from $0.28 the previous year.Turning to Slide 9, on the last 12 months, our revenues grew 20% year-over-year due to continued -- contributing elements just mentioned.Turning to Slide 10, our quarterly adjusted EBITDA posted a strong year-over-year increase to 36%, primarily due to acquisitions of CNR and CGOV combined with revenues from our Private Alternative Investment strategies.During the quarter, we continued our diligent focus on improving our markets and benefiting in part from better allocation of professional fees as well as cost containment efforts in terms of business development expenses. We also continue to support our firm's growth expansion through enhanced scalability of our operations on a global level. On Slide 11, we can see the lift effect from the profitable strategies we are adding for our portfolio. These higher revenue-generating solutions continue to yield positive results as the average basis points earned over AUM continues to trend upwards. In Q3, the average basis points earned in base management fees was 36.2 basis points compared to the 35.2 from the previous quarter. Looking at Slide 12. Our rolling last 12 months adjusted EBITDA is now trending positively. As Vincent noted in his remarks, we are bringing certain functions together to streamline our operations and have common platforms. This focus on efficiency and leveraging shared resources at the heart of our strategic plan over the next few years, and we intend to implement more of these initiatives to reach our profitability objectives. Turning to Slide 13. For the last 12 months, adjusted net earnings per share attributable to shareholders. Since becoming public in the fourth quarter of 2010, our last 12-month adjusted earnings per share have increased by an average of 14.8% per year on a compounded annual basis. Our results have demonstrated solid organic growth, and we are making accretive acquisitions supporting our strong earnings track record. The Clearwater acquisition should be accretive in 2019 as previously mentioned, and the CGOV acquisition is already contributing to earnings into low to mid-single digits.Turning to the next slide. You can see our geographic mix. The combined AUM of our U.S. division now totals 32% of AUM accounting for 38% of our firm's revenues for the third quarter. Europe and other jurisdictions now account for 9% of AUM and 12% of our third quarter revenues. With a strong leadership team in place in each of our markets, we are doubling our efforts toward increasing our visibility among our client base. The global approach we are taking to harmonize our platform will help us strengthen our foothold in our various geographies. We are already sharing many of the best practices we have in our Canadian and U.S. divisions to bolster our presence in Europe and Asia.I will now turn the presentation back to Vincent to discuss our investment performance.
Thank you, John. Looking at Slide 15 for our fixed income strategies. The performance of our active and strategic fixed income team continues to be positive year-to-date, thanks to the effective duration management. We are pleased with the value that this team is contributing to our firm.Our integrated fixed income team maintained its strong performance and once again added value in the quarter through strategic credit allocation. Similarly, our tactical fixed income strategies are producing very attractive returns year-to-date, driven by active duration and curve management. On a year-to-date basis, our tactical allocation team slightly detracted value because of its overweight position in emerging markets and Canadian equities. The team however remains of the view that there is still value to begin emerging markets, and as such, maintained its overweight position during the third quarter.Turning to equity solutions on Slide 16. Once again, this quarter and year-to-date most of our Canadian equity strategies contributed significant value and outperformed their benchmarks. We're seeing positive performance in general in the medium and long-term horizons. Our low-beta strategy launched earlier this year by our systematic investment strategies team, continues to create demonstrated value year-to-date for investors and perform as expected through volatility strength in October. This is an example of solutions created by our team to help clients and protect their capital. Given the effectiveness of these defensive strategies, we are looking at extending this suite of investment strategies on a more global scale. In terms of our small-cap Canadian equity strategies, the Canadian small-cap core team has delivered considerable value this year and its outperformance persisted throughout the third quarter driven most notably by the underweighting in materials and overweighting in industrials. Turning to our U.S. international strategy, the global equity team delivered top-quartile returns for both short-term and long-term horizons, driving significant value added through optimal stock selections during the quarter, particularly in the consumer and IT sectors. Turning to alternative investments on Slide 17. We continue to develop solutions to respond -- to reflect increasing demand for these strategies that offer attractive returns with the lower degree of volatility and low correlations to traditional asset classes. In terms of newer solutions, the focused market-neutral strategy launched in Q1 is experiencing positive returns year-to-date. Our private alternative strategies are gaining more and more traction and generated steady stream of returns through investments in real estate, infrastructure, private lending and agriculture. Through focused product development, our teams are accelerating their push to facilitate access of these relapses to avoid a range of investors, providing an opportunity to tap into these otherwise privately traded investments.Turning to Slide 18, and to conclude. Investors had plenty to contemplate during the third quarter, including an escalation of President Trump's protectionist agenda, turmoil in emerging markets and politically charged environments in Europe. The good news is that the direct economic impact from these geopolitical tensions is likely to be manageable. Despite the hostile trading environment and despite the market correction experienced in October, we expect the global economy to continue continually driven. Encouragingly, economic momentum remains fairly healthy in general, allowing the economy to absorb higher interest rates. Furthermore, the fiscal stimulus for both the U.S. and China is set to expand the economic upturn well into 2019 and provide a buffer as major central banks take coordinated steps towards monetary policy normalization.Taken together, narrative for the -- of a synchronized global expansion remains firmly intact, while the accommodative monetary and fiscal impulse should allow the expansions to continue uninterrupted in the coming year, helping to overcome the uncertain geopolitical backdrop at hand.Looking ahead, we are enthusiastic about our 2022 strategic plan, which aims to establish Fiera Capital as a top-tier multi-strategy asset manager recognized for providing the best solutions to our clients globally. But simply, we want to be one of the top 100 in the world. Why? For diversification and scalability.From a strategic perspective, this means expanding our capacity to offer our clients diverse and attractive investment solutions. It also means the ability to grow geographically and attract global clients. Being diversified acts as an effective hedge and benefits both our clients' portfolios and our firm. Being a top-tier firm also means ensuring we have the tools, processes and resources in place to keep and attract top talent. And we are way on -- we are well on our way to achieving our objectives. The many initiatives we've taken over the past few years have positioned us well for this evolution towards an harmonized global platform. The acquisition, business development, innovation and talent we have fostered have enabled us to establish ourselves and build a solid reputation in each of our markets.This global presence has brought us closer to our clients and increased our brand visibility. At its core, however, our strategy remained the same. We will continue to pursue organic growth, acquisition and increased efficiencies. Our pipeline of opportunities in the U.S. market, which adds significant growth potential for us, is very strong, notably in the institutional and private wealth segments. The type of clients and mandates we are winning speaks for themselves and our testament to the performance of our investment teams. Our Strategic Development Committee is actively evaluating potential target, which would add complementary strategies and volume, while meeting our stringent financial criteria and being a good cultural fit for our firm. From a product standpoint, our ability to create customized solutions that deliver alpha is a competitive advantage for us. We will continue to innovate with new strategies and bring our solutions to clients across our markets.Our European emerging market solutions are now being distributed in the U.S. And Private Alternatives, a major growth refill for our firm, we're in the process of putting in place the structure to offer clients these real asset solutions in U.S. Similar initiatives are happening across our suites of solution.From a profitability standpoint, our efforts are producing the results, with each acquisition, we are also gaining valuable insight and improving integration approach. We're seeing this in the U.S. with the efficiencies yielded from our consolidation project. As we achieved increase synergies across divisions, drive growth in alternative investments and other profitable strategies, pursue more creative acquisitions, the effect will be even great. One of the measures of success of our 2022 plan is achieving improved profitability and scale. We are trending in the right direction and are on track to reach our adjusted EBITDA margin target of 30% by the end of 2019. We're also excited about the strength of our leadership and the talent of our investment professionals. They are the primary engine of our growth. We'll continue to work closely with our teams around the world to implement a global brand strategy and best practices to deliver an optimal client experience. As we evolve as an organization, we remain focused on creating value for our clients, our shareholders and our firm. This conclude our prepared remarks. Thank you for listening in today. And I will now turn back the call to the operator, so that we may take questions from financial analysts.
[Operator Instructions] Your first question comes from the line of Nik Priebe with BMO Capital Markets.
I was wondering if you could start on the -- just on the performance outlook, given that we're kind of heading into year-end here. I know that you don't have really complete visibility on how that's going to be crystalized in December, but can you just give us a sense of how that shaping up relative to the prior year?
Well, the market volatility that we've experienced clearly will have an impact on either performance. So we think so far -- so we haven't crystallized anything because there is still volatility in number that we are seeing year-to-date. What we are focusing more is on the base management fee ensuring that this is increasing at steady pace. We suspect that the performance fees will come in below -- definitely below last year, but we think there'll be a relatively solid number still to manage, but below last year.
Okay, that's helpful. And then, I was wondering on the flows, obviously, another quarter of acceleration in terms of net inflows. I'm just wondering what sort of strategies are kind of the biggest contributors with respect to winning mandates as opposed to the various clients' buckets. I see more on the fixed income side versus global equities versus alternatives. Just wondering if you could provide a little bit of color around that.
Well, from an AUM standpoint, clearly, I think the biggest winner will be fixed income, but those tends to be strategy of those margins. We had -- we continue to have steady inflows in global equity. We've had very good inflows in alternative. Although the size of the mandate tend to be lower just because of nature of the strategies, but the fees collected -- the revenues generated from those strategies tend to be much higher than some of the other strategies. So I would say, it's a pretty large mix between the fixed income, global equity and alternative.
Okay, that's helpful. One last one from me. I just noticed that the other revenue line item picked up a little bit. Apologies, if this is discussed in the MD&A. But I was just wondering if you could speak to that and what's driven that step-up?
One of the elements in other revenues is our FX. As mentioned, we hedge our U.S. dollar cash flows exposures on a rolling 12 months. So we benefited this quarter relative to the last 2 quarters where it was negative. So that's the most significant element in that.
Okay. So I guess, on a run rate basis, it would be somewhere in between $9 million you experienced this quarter and then to call at $6 million over the past 2?
Yes.
Your next question comes from the line of Gary Ho with Desjardins Capital.
Maybe just to start off with an AUM update. I know you have a higher fixed income mix and higher coverage of alt assets. I think it'd be helpful to know where AUM stand today, given the volatility we saw in October? I think some of your retail peers have -- disclose it on a monthly basis. They're down kind of 4% to 5%, any commentary there would be helpful.
We don't have the -- any data to that regard at this time, Gary. And again, you see the volatility in the markets and markets have picked up since then. Obviously, it's -- there has -- it's going to have an impact, as Vincent mentioned, particularly maybe on performance fees, but on the base business, we don't have any visibility on that, don't see much of it impact and we don't have that figure today on October to provide.
Yes. And then, just second -- just on the 30% EBITDA margin target for 2019. Can you remind me, does that target assume like you guys do a scale deal that would improve margin in the U.S. or that would be kind of on top of that?
No, we stated that the target is, we should be able to -- our target is to get a Q4 2019 to hit the 30% margin, and that's where we're working towards. I mean, if there'd be an acquisition or vertical acquisition that could further contribute to that, it could possibly accelerate it, but our plan is always to deliver it on our base business by Q4 next year.
Okay. So that 30% assumes no acquisition in there? Okay. And then, just last question from me. Just on the dividends. I know you guys look at it in Q4, stocks yielding over 6%. Any thoughts on that? Or kind of no change to your dividend increase policy there?
I mean, we're sticking to our policy with respect to our dividend. We do have a target ratio. Our target ratio long-term is 60% below. We acknowledge we were slightly above that, but confident again that we're going to be able to manage that down. We basically are maintaining our dividend policy as we think it's important to do so. And that's basically where we are. We review this twice a year with our board. So it is a subject matter that does get reviewed on a regular basis. And there is going to be an upcoming review in Q1 first quarter of 2019.
Your next question comes from the line of Marco Giurleo with CIBC.
My first question is with respect to the recent acquisitions. I was wondering if you could give us an update on the progress from the integration of Clearwater and CGOV. And how much, just wondering how much EBITDA margin expansion you think you have left as a result of these acquisitions?
Well, CGOV is -- we closed it for several months. I mean, it is being integrated. It will contribute to margin improvement. Heading even into next year, it'll be a factor. Clearwater, as we've mentioned, when we announced the transaction it was going to be mutual and yearly acquisition, but it will be slightly accretive next year. I think on the Clearwater, it'll be a minimal impact. It was what we've characterized more as a horizontal transaction establishing the platform in Asia. But we know we would see -- on the whole Asian business, we would see incremental margin probably happening in the latter part of 2019 heading into 2020 where we are forecasting a more significant lift from the margins.
CGOV itself probably also going to contribute just like a simple fact of being able to offer to the CGOV clients at the time and more -- and expanded menu of different investment solutions, especially with the alternative, which was not -- did not exist before for CGOV. So I think that will contribute to the bottom line.
Yes. I think one of the metrics to measure also, Clearwater is a metric that you should follow, because it is one of our objectives, is the amount of sales that we'll be able to generate in Asia. I mean, part of the strategic rationale for the Clearwater transaction was really to have a physical presence in a market where we already had success in selling into that market. And one of the strategic rationales for that transaction was really leveraging and selling all of Fiera's strategies in Asia. And I think it's going to be important to note and to track how our success rate in that because we think we're going to be successful in doing that, and over the next year, we'll be able to hopefully demonstrate that.
All right. And just on your comments with respect to the 30% margin target in 2019, did I hear correctly you said getting there -- you can get there without the help of acquisitions, so mainly via organic growth and cost containment? Is that correct?
It's our objective. I think in Q4, our objective is to deliver -- we are aiming to deliver at that margin by Q4 2019.
Okay. My next question is with regards to your flows pipeline. Could you just provide us with an update on what you're seeing thus far this quarter?
Well, this quarter, October flow was a bit slower. We're not maintaining the pace that we had in July and in August. October was -- is -- appears to be a bit slow, which will become normal with the kind of market conditions that we're seeing. The pipeline for looking forward continues to be relatively healthy. I think it'd be in the same kind of level that what we've experienced before. We think there is probably a pipeline of -- our estimate is around $4 billion, $4.2 billion, but where we had some clarity broken down by most of that being institutional and also financial intermediaries in the U.S. and some high-net-worth business.
Okay. And last question from me, just on your overall asset mix. Could you provide us with an updated split on -- split between equity, fixed income and alternatives?
Equity is about 50%, fixed income would be -- no, fixed income would be 50%, equity would be about 4 -- 38% in terms of AUM and the rest would be alternative at 8%. So around that -- am I adding up to 100% now? I think it's above.
No.
I know it's 8%. 8% on the alternative. It's 42% on equity and 50% on the fixed income.
In the AUM.
in the AUM. Yes, but on a revenue level, we -- equities are over 60%. So with [indiscernible] it is on an AUM level, but on a revenue level, our equities are sitting over 60% and fixed income and alternatives, the rest.
Your next question comes from the line of Cihan Tuncay with GMP Securities.
Vincent, I know you mentioned on the call in your prepared remarks about some of the initiatives you're looking at consolidating your back office systems. You mentioned the formation of new business solutions team. Could you talk a little bit more in detail about what some of your strategic objectives are in regards to that goal over the next 3 to 6 months, just some operational objectives?
Well, we've talked about this before. It's really -- when you think about the infrastructure that exist we make sure that we've a multitude of different systems that are being basically part of legacy from acquisitions. So we've done quite a successful job in the U.S. in streamlining all of that. It was called -- project called fusion where we went from having 3 OMS, having 1 FrontAccounting platform back down to 1, et cetera. In -- now we're -- basically what we're doing is implementing the same strategy on the global basis where we will be -- and we're going through the structuring now. So we have RFPs out. We have different alternatives that we're looking at and really building something that will bring in the U.S., the U.K., Asia and Canada to one same platform, both from an OMS, FrontAccounting, CRM, any of these systems that you can think of. And also bring down the number of custodians that we are using on a global basis to make it more efficient. The additional point that we're also trying to do is to build centers of excellence. So there is a number of functions that are being done across the group that are duplicated just because of the nature and how it was done before and now we're trying to create centers of excellence where we have the most value for the investments that we have to make where we had to find the right talent at the right cost and then try to leverage as much as possible for the whole group within those centers of excellence.
Okay, great. And then, just on the alternative business, you mentioned like there was some good flows there in the quarter with respect to -- there was a mention about the agriculture platform and the real estate platform. Could you talk a little bit about what's driving those flows? And how you see flows in that asset class over the next 3 to 6 months as well, please?
Well, I think we're invested during the reorganization. So first and foremost, a lot of the flows will be -- because we think it's attractive and as that we're being a solution provider with some of the clients, clearly, something that we're going to come -- we're going to be upfront with them in trying to explain, trying to support that -- support the investment argument as to why it's important to be in those nontraditional asset classes, especially when you're in late cycle like we are now in the markets and you tend to have that kind of volatility. One, we think it is a very attractive asset class in general to have. I think the clients are demanding this in an environment with very low rates. And then, what we've done is training based on our distribution platforms to be able to be -- to become more efficient at explaining this properly to our clients and frankly having good products and good investment teams. So if you combine all those pieces together, it takes a while to get an attraction, but when you have all those pieces together, you start to see the results coming through as we're seeing now.
Great. So then, I guess, the outlook then over the next couple of quarters you expect to maintain that same level of pace than with adoption of those nontraditional strategies?
Yes.
Great. And then, just one last question from me. If we can just get an update on where your funded debt to EBITDA calculation as per the covenants?
Yes. It's sitting at around -- sitting around 3x right now.
Your next question comes from the line of Jaeme Gloyn with National Bank Financial.
Just want to actually first follow-up on that funded debt covenant ratio. If I'm looking at the debt ratios on a trailing basis, we can calculate the financial statements. It looks like they've declined. And I think from the last disclosure around that funding covenant, it was around 2.8. So did something happen to have an increase, I'm just a little bit confused by that?
We funded from the previous -- I mean, we funded some acquisitions, one to Clearwater. So that's one of the factors. I think that was the major one, that's right.
Okay. So those closed in funding...
There was also a payment -- Jaeme, there was also a payment you'll see to National Bank. We had the -- there is a payment that -- every Q3, there was an $8 million payment as part of our original deal with National Bank. So those are the 2 only factors that contributed or impacted that debt ratio.
Okay. So just on the 30% EBITDA margin, I guess, we obviously want to make sure we all have this nailed down. The exit or, I guess, the Q4 2019 to hit 30% margin, is that -- that's on an LTM basis or is that on a forward run-rate basis?
No. We've always -- our target is to gradually built up and improve as we started at the beginning of the year, we're focused on it. And if they continue to deliver an upward trend on that margin, we think we'll be able -- our objective is to hit that by Q4 2019. There could be opportunities where it could accelerate, I mean, doing an important vertical of transaction, for instance, we looked at opportunities in our U.S. business where there is significant operational synergies in some opportunities we've looked at. I mean, that could be a catalyst to accelerating that or facilitating that. So there is possibility. It's our objective and that's what we're working towards.
Yes. So if everything goes to plan, the LT -- the last 12 months EBITDA margin, adjusted EBITDA margin in Q4 2019 will be 30%?
That's the objective.
That's the objective. Yes.
Okay. And performance fees, more or less flat to, let's say, 2016, 2017. Obviously, a little bit down here in '18 as guided, but more or less flat to those levels is what's baked in?
Yes. I think we've assumed historical basis.
Okay. Perfect. In terms of the cost containment and issues, obviously, EBITDA margin is the big target, big goal. Are there any other, let's say, expense specific targets that you're tracking internally that you'll be able to share with us?
I mean, on the cost containment initiative, it's not so much rationalizing or cutting expenses, it's more cost containment. I mean, if we're going to basically increase, we're projecting to continue to have positive flows, positive revenue increase and really to contain the increase in expenses. I mean, it's going to come from that area and also some functions as we are standardizing and some of our operations that will contribute to it as well. So it's a variety of initiatives. We're just going to make sure it's a variety of factors that will contribute for it. We'll continue to have optimizing our business proceeds, consolidation of our custodians, which we've realized, consolidating our platforms -- our IT platforms, which we're continuing to do. Looking at a lot of our infrastructure where we're trying to basically rationalize our infrastructure on our information technology. So there is several initiatives in course as part of our strategic plan. And it's a variety of factors that will contribute to it. So we're very, very much focused on containing our expense structure.
We can't maintain the growth path that we presently have by cutting expenses. So just to reinforce that point, what we're trying to do is really to ensure that we are not growing expenses as quickly as we're growing our revenues, but it's not about cutting costs.
Understood. In terms of the expenses, and forgive me if this has already been disclosed in the last calls, but the -- have you -- are you able to disclose what's the breakdown between salaries versus technology costs versus properties, just, I guess, regular G&A expenses?
Well, we give the breakdown of expenses in our financial statements in our MD&A. The compensation is...
It's all in there. The compensation is a biggest part and compensation -- there is a big part of compensation, which is a variable, which based on the group perform, we do well, it's -- if we don't perform, it's lower. And yes, it'll be somewhere in the MD&A.
Okay, great. And then last one from me just in terms of -- actually 2 more, sorry. In terms of the rising rate environment, it was previously disclosed, I believe, last year, I believe, 1.5 years ago, 100 basis point increase in rising from rates would have less than 1% or about 1% impact on revenues. Is that still the case?
Yes.
Okay, great. And last one is just around the emerging markets experience. Obviously, a little bit turbulent at this time. How much AUM exposure is there in the emerging markets? And if I look at the performance of at least one of the funds, the emerging markets and growth and income fund that performed really well from one quarter to the next quarter. I'm just wondering what actions may have been taking in that fund to drive that?
Yes. Well, emerging markets exposure, I would say, it's probably around $5 billion in the equity, the equity exposure in the emerging markets. So it's a market that's been really tough this year. I'm going to say $5 billion -- $10 billion -- it's a -- sorry, $10 billion allocation. We don't -- the beta in the markets have been very tough. It's been a tough environment. Our strategies have performed like they were supposed to perform there. Clearly, they are long term. We feel very profitable. I think our investment team asset allocators continue to be attractive to the evaluations of emerging markets and the long-term growth prospects. So for us, from the business standpoint, it's an important asset class to have. And for our clients, we think it's still a great place to be invested.
Your next question comes from the line of Graham Ryding with TD Securities.
In Clearwater and CGOV, just a little bit of color given they're new platforms added on to your business. Any color on flows, how those have tracked to date?
Sorry. Can you repeat the question, again?
Net flows at Clearwater and CGOV, how those have been tracking since they've been recently?
Net flows at Clearwater and CGOV?
Correct.
Yes, there -- I mean, flows in Clearwater has been up from the date of announcement closing flows were up and they continue to be and continue to have -- Again, in the last 3 years, in all M&A yields we've done, we've realized positive flows from the date of announcement of closing and subsequent to closing, except for one strategy where it was really a performance issue. So we continue to get perhaps success in drawing flows from our acquisitions.
And CGOV?
So CGOV has been consolidated in the overall high-net-worth business and institutional. The institutional side, we haven't seen much flows since Canoe equities. We saw an asset class that we're seeing now a large amount of flows coming through. And the high-net-worth is being consolidated with the team and that has been stable, and yes. It -- typically, it takes a little while for the business like that, like, getting integrated to a larger business client-stabilized, you want to make sure that you maintain the clientele and client base. But I think overall we're very satisfied with the results.
Okay, great. And just a reminder, the CGOVs, the margins are quite attractive in that platform, is that correct?
Yes.
Liquid alts is an area that's getting some attention. Is that something that you're paying attention to? Are you thinking of launching a new product? Are you getting any inbounds in that respect?
We haven't seen, liquid alts is an attractive solution, I think, for a lot of retail clients. And at this point in time, our exposure to retail clients is relatively limited. And that's basically because we can provide the real alternative. And we haven't seen -- from sub-advisory, we haven't seen any demand coming out of that in that space.
Okay. And then, interest cost. Can you just confirm that you are -- that you had your interest exposure that we shouldn't expect any sensitivity on your part from rising rates on your interest expense?
Yes. That's a safe assumption. We hedge our interest rate cost.
[Operator Instructions] Your next question comes from the line of Scott Chan with Canaccord Genuity.
Just going back to the performance fees and appreciate the guidance for this year. But if I look -- if I take into context the extension of the Nat Bank distribution agreement where, correct me if I'm wrong, there is no performance fees going forward. Does that mean the traditional performance fees component kind of maybe drops off in future years up to 2022?
You mean, going forward into 2023, the National Bank performance fees?
Yes, like the performance fees from National Bank and you guys classified that as traditional. Does that -- like, does that include this year, but does that drop off in subsequent years up until 2022?
The performance fees on traditional will not drop off. What could drop off, I think, it's post '19 would be some of the penalty fees we had in that contract. So the performance fees on a traditional business will not drop off.
Okay. Very helpful. And with the SG&A, John, this quarter is, I guess, it reflects the 2 acquisitions. Is that a good run rate near term kind of looking at over the next few quarters?
Yes. And on a quarter-over-quarter increase, it's been 2 factors that have contributed to the increase. One is the acquisitions, and one is the accrual of incentives in the Q3. There has been a larger accrual of incentive compensation in Q3 than there has been in the previous quarters.
Okay. That's fair. And just on the announcement with Canoe selling your legacy retail business, is there any perhaps price or valuation metrics that you can provide us?
No, we didn't disclose any of the pricing there.
Okay. And then just last...
But what's important there is, for us, there was a focus from a strategic stand point. What we're trying to do is so we continue to be sub-adviser to Canoe and some of the funds being managed, but in institutions like Canoe is much better positioned to better distribute and better address the needs of the retail investors than we were and that's the reason why we decided to go down this path.
Okay. Good. And just lastly, the retail flows were good in the quarter. In your opening remarks, you talked about kind of getting some mandates in that clientele segment. Can you just expand on the type of mandates that are in demand there?
Mandates in which one, Scott, in the retail?
Just on the other retail segment.
Well, we've seen -- I think, what you might be referring to, we've seen some inflow. For example, we've launched UCITS in Europe, and we've seen through intermediaries some flows coming through with some of our strategies, both in the U.S. and in the UCITS market in Europe. So this is -- a lot of it is being driven by the performance and I guess, the effectiveness of the distribution with the wholesalers.
There are no further questions at this time. Mr. Richard, I'll turn the call back over to you.
There is one more, Stephen Boland on the line. So if we can take questions from Stephen, that would be nice.
Certainly. Mr. Stephen Boland with INFOR Financial.
Just one quick question on the National Bank agreement. I see it's been pushed out to 2022. Was there any contemplation in changing the provision for board representation?
None at this point in time. That is, I guess, for the -- I guess, the chairman and the shareholders to decide, but there is no -- I think this one has nothing to do with the agreement with National Bank. The board representation is by the shareholding of National Bank in Fiera. As a reflection of their reported shareholding, the -- but the agreement is a commercial agreement between the 2 organizations.
Okay. So that's a separate negotiation that occurred?
Yes.
And there are no further questions at this time. And Mr. Richard, I now turn the call back over to you.
All right. So again, thank you very much everyone for joining our call this quarter. And wish you all the good rest of the year, and we'll see you for Q4 in March. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.