Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2019-Q3

[Operator]

Good afternoon. My name is Julianne, 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 third quarter of 2019. [Operator Instructions] As a reminder, this conference call is recorded. [Operator Instructions] Thank you. I will now turn the conference over to Ms. Mariem Elsayed, Director of Investor Relations and Public Affairs. Ms. Elsayed, you may begin your conference.

[Mariem Elsayed, Director of Investor Relations & Public Affairs]

Thank you. [Foreign Language] Good morning. [Foreign Language] Welcome to the Fiera Capital conference call to discuss our financial results for the third quarter of 2019. On the call with me today are Vincent Duhamel, Global President and Chief Operating Officer; and Lucas Pontillo, Executive Vice President and Global Chief Financial Officer. 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 fiera.com. Note that 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 our actual results to differ from expectations. I'll ask you to take a moment to read the forward-looking statements on Page 2 of the presentation. I will now turn the call over to Mr. Duhamel.

[Vincent Duhamel, Global President & COO]

Good morning, everyone, and thank you for joining us today. I am on Slide 3. We had a solid third quarter, and I'm very pleased with our results. We generated adjusted EBITDA of $46.6 million during the third quarter, the highest on record in the company's history. While IFRS 16 had an impact, the corresponding margin of 29.1% reflects the progress we are making on several fronts. We are seeing the yields from our efficiency improvement initiatives starting to flow through as well as the initial contributions of our recently closed acquisitions of Foresters, IAM and Natixis Canada, now Fiera Investments. Yesterday, we declared a quarterly dividend of $0.21 per share. 2019 was an instrumental year for Fiera Capital as we seized on 4 opportunistic transactions, transactions intended to build out our private alternative capabilities, scale-up of LDR platform and establish a presence in the European real estate space for the dual benefit to clients and shareholders. Our integration efforts remain underway with [ different ] acquisitions at various stage of the process. We are particularly pleased with the progress made on Foresters. Most of the work was done upfront in order for full integration and closing to occur at the same time. As such, by the time we completed the closing of the acquisition on August 16, the different components of integration, technology, operations and human resources had all been successful and seamlessly meshed with our organization. This is a first for the company and a testament to some of the efficiencies gained by rolling out our global operations and IT and structure platform. For IAM, which added longer-term private debt strategies and diversified our real estate investment strategies, integration is moving ahead on schedule. The teams are fully integrated and now in the same space. The funds are performing well and proving to be complementary. The integration of Natixis Canada, which has been rebranded to Fiera Investments, is also tracking on schedule. We are proactively engaging with Natixis affiliates to create partnerships and offer new strategies to our clients. And finally, with regards to Palmer Capital, the U.K.-based real estate investment manager acquired in April, we are pleased to announce that the integration is complete. We continue to actively move forward on different streamlining initiatives and technology enhancements. In the coming quarters, we will be rolling out a global CRM tool across all divisions, setting up data and analytics capabilities to enable our people to differentiate Fiera Capital while also delivering savings and securing our technology infrastructure. These initiatives will typically set us apart in our commitment to continue to deliver exceptional client service. I will now turn to Slide 4 for a review of our assets under management. Assets under management as at September 30 was $164.7 billion, below the preliminary figure of $166.1 billion previously reported as a result of a late month-end withdrawal in short-term fixed income. We added $15.2 billion of AUM, with $15 billion stemming from transactions we closed in Q3. Equity markets maintained over the significant momentum seen since the beginning of the year and on a foreign exchange adjusted basis, drove up AUM by $1.5 billion this quarter. New mandates totaled $3.8 billion during the quarter, mostly in fixed income, but also in global equities and private alternative strategies, some of which were from new international clients. Total third quarter outflows of $5.1 billion were mainly in Canadian fixed income and largely reflect client consolidating investment service providers who were taking mandates in-house. Although net flows were negative during the quarter, new mandates won and new contributions from existing clients carried, on average, higher basis points than the outflows. And now on to the view of our operations on Slide 5. In our Canadian division, we added $13 billion of AUM from the acquisitions of Foresters and Fiera Investments. Our teams once again delivered strong investment performance. In the U.S., we delivered strong investment performance during the third quarter, with most fixed income strategies beating their respective benchmarks. In equities, the Fiera Capital Emerging Markets fund, which specializes in Asia's emerging markets, recently crossed the $2 billion mark, also continued to deliver strong performance. Moving on to Bel Air. This segment had another great quarter, adding close to $200 million in AUM from new mandates from high net worth clients. In our European division, we funded approximately $400 million in new mandates in the third quarter, and won close to $1.5 billion that we expect to fund in the fourth quarter, notably in institutional and retail, and many of our strategies continue to outperform. Following our acquisition of Farmer Capital in April, we will consolidate our teams into 1 location in February 2020. We expect to generate synergies while also aiming to drive collaboration and innovation, values that are core to the organization. Turning on to private alternative strategies on Slide 6. We continue to increase the proportion of alternative assets relative to total AUM. As of September 30, alternative assets represented $14.9 billion or 9% of the firm's total AUM, on track to achieve the 10% target set out in our 2022 strategic plan. Private Alternative Investments reached $12.1 billion in AUM at the end of the third quarter. Our private alternative platform has grown significantly since the first ideas were introduced in 2008. In just 11 years, we transformed the Montréal-based single asset class business into one that spans the globe with operations from Canada to the U.K. to Asia, and that offers a wide range of investment strategies. We are seeing growing demand from investors to these accessible solution-oriented strategies, and the platform is in solid shape to meet their current and future needs. The acquisition of Integrated Asset Management, both in July, added $1.2 billion AUM to Fiera private debt and another $800 million to Fiera real estate. In private debt, IAM at long-term -- longer-term loans of 5, 10 and 15 years to our existing offering of shorter-term loans, while concurrently transforming Fiera private debt into a leading Canadian nonbank private lending platform. In addition, with the acquisition of IAM, we've obtained over $800 million of committed undeployed capital for the private debt business, once set, when deployed, will begin generating management fees. In real estate, IAM provides us with diversification into the industrial space and the addition of a unique client base. As of September 30, Fiera real estate had $400 million at its disposal to invest in or bid on projects. Total committed capital across the private alternative strategies stood at over $1.5 billion as of September 30. We are very pleased with our third quarter performance and the new partnership supports since the beginning of the year. These create opportunities for us to better serve our clients by building and offering solutions specific to their objectives. Since the founding of Fiera Capital 16 years ago, we have been allocating capital to develop and grow our investment platform. Over the past 3 years, we have concentrated our efforts on developing and diversifying our offering. Adding strategies in new geographies and asset classes provides revenue stream diversification. That is core to strengthening and stabilizing the firm's revenue base. Today, we have the wide range of successful and competitive investment strategies, positioning us better than ever before to differentiate ourselves and serve our clients globally. Going forward, our capital allocation priorities for our next phase of growth will be threefold: first, we will focus on improving our distribution capabilities to leverage a robust suite of investment strategies now in place; second, we will invest in further strengthening our technology infrastructure; and finally, we will continue to effectively manage our financial leverage. I will now turn it over to Lucas for a review of our financial performance.

[Lucas Pontillo, Executive VP & Global CFO]

Thank you, Vincent. Turning to Slide 7. Total revenues for the last 12-month period ended September 30, 2019, were $609.7 million, it was up $84.3 million or 16% compared to Q3 2018 last 12-month revenues of $525 million. This was due to a combination of acquisitions, a shift in asset mix to higher fee investment strategies, market appreciation and organic growth. Year-over-year, we also experienced strong revenue growth with third quarter revenues reaching $160 million, an increase of almost $23 million or 17% from the same period last year. When compared to Q2 2019, revenues were also up $10.1 million or 7%, but mainly as a result of increases in institutional and retail channel revenues. Institutional revenues were up $8.9 million from the second quarter or 13% as a result of higher base management fees following the acquisitions of IAM and Forester as well as higher revenues from private alternative strategies. In retail, revenues increased $5.7 million or 18%, reflecting recently added Fiera Investments, which was created following the acquisition of Natixis Canada. This was partly offset by a $4.7 million decrease in other revenues, which were exceptionally higher in the previous quarter. Performance fees and private wealth revenues were relatively unchanged from the second quarter. On Slide 8, you can see that at 37 basis points, our average basis points earned over AUM continues to trend upwards on an LTM basis. Q3 2019 LTM levels are 2.2 basis points higher than the comparable 2018 period and 5.5 basis points higher than the comparable 2017 period. This is mainly driven by our continued expansion and the diversification into private alternative investment strategies as well as our ability to exercise increased pricing power on high-performing traditional investment strategies. Over the last few years, we have focused on bringing new sources of alpha onto our investment platform in order to improve the robustness of our revenue streams. This also allows us to better serve our clients with a more varied and tailored solutions offering. This increasing basis point trend on the slide is a testament to our success of our approach. On Slide 9, adjusted EBITDA for the quarter was $46.6 million. Adjusted EBITDA margin was 29.1% for the quarter as we continue to focus on integrating our recently closed acquisitions. We are very pleased with these results and expect to have most integration activities completed within the next 2 quarters. These initiatives are part of our strategic plan and are aimed at expanding our margins going forward. We aim for profitable organic growth by diversifying our revenue mix, notably by growing our private alternatives business, focusing on distribution and by realizing operating efficiencies and scalability across our platform. The partnerships and accretive acquisitions that we have established and the added diversification they provide are also expected to contribute positively to our margins on a go-forward basis. Moving to Slide 10. As we stated, we closed the acquisitions of Foresters, IAM and Natixis Canada during the third quarter. As a result, we incurred $2.3 million in acquisition costs, an additional $3.1 million in restructuring and integration activities. Depreciation and amortization expenses were also almost $20 million during the quarter. Adjusting for these items as well as share-based comp, the accretion in our purchase price obligations, some additional interest charges and income taxes leads to an adjusted net earnings that was $32.6 million for the third quarter. Moving to Slide 11. We generated cash flows from operating activities of $74.3 million during the first 9 months of the year. We ended the third quarter with a strong cash position of almost $90 million, up $35 million from the end of the second quarter. We remain committed to optimizing our capital structure and will continue to effectively manage our leverage. For example, the hybrid debentures we issued early in the third quarter allowed us to diversify our sources of capital and spread out our term structure. Given the strong operating results and our solid capital position, we are pleased to declare a dividend of $0.21 per share. I will now turn the call back to Vincent to discuss our investment performance.

[Vincent Duhamel, Global President & COO]

Thank you, Lucas. Markets were mixed during the third quarter. While fixed income in U.S. and U.S. and Canadian equities performed well, emerging markets and international equities softened. The relative performance of our strategies was solid, allowing us to maintain the strong long-term performance we've had to date. Fixed income results were similar to those of the benchmark, despite the significant volatility during the quarter. In our balanced mandate strategies, the quarter was slightly negative as a result of an underweighting in bonds. In equities, the Canadian and emerging markets teams had a strong growth report. The global equity strategy continues to outperform its benchmark and ranks very high with consultants. In alternatives, positive results persisted. Our alternative platform has grown significantly since 2008. To date, we have quality offering in the most attractive segments of this market and are well positioned to capitalize on the current investment environment. What's more, we're always looking to enhance our alternative capabilities lineup by developing new offerings that will meet future needs. Impact investing is but 1 example of a competitive hedge offer that is currently being built in-house and where we expect to see positive gains in the future. We expect these strategies to play a significant role in investment portfolios and be an important contributor to our long-term growth. Turning to the next slide and to conclude. The last several months have been dominated by financial market fragility as nervous investors digest worrisome developments on the micro front, most notably, trade anxieties that have fueled fears of a global slowdown. Concurrently, we have seen some signs that uncertainties pertaining to both economic and political backdrop are receding. On the economic front, we are seeing increased evidence that recession fears are largely misplaced. The slowdown in the global factory sector has been contained thus far and has yet to spill over to the larger, more prominent service side of the economy. Instead, the consumer has maintained its resilience, given solid employment trends that have encouraged confidence and spending, sheltering the global economy from the storm. On the political front, the U.S.-China trade debacle is beginning to subside amid some conciliatory signals from both sides and a willingness to come to some sort of a near-term truce, though policymakers are likely to fall short of reaching an all-encompassing deal, given the wide array of structural issues that require resolution. While politics are always entertaining, they do not distract us from our long-term strategy. Looking ahead, we will continue executing on our 2022 strategic plan initiatives. Our goal of becoming 1 of the top 100 asset managers in the world remains intact as we continue building on the solid foundations we have built since the firm's creation in 2003. As part of our strategic plan and in line with our capital option priorities, we are increasing efforts to improve global distribution capabilities, while also ensuring that we devote proper resources to the strategies that add value to our clients and our firm. We continuously monitor the evolution, relevance and performance of all of our strategies. This is fundamental to providing clients with the customized alpha-generating solutions that they require, while eliminating underperforming and unprofitable strategies. We have devoted significant resources to building out our suite of competitive investment strategies over the past 1.5 decades and are very proud of the geographic asset class and market diversification Fiera Capital has today. Leveraging this competitive advantage by bringing the right strategies to our existing and future global clients' portfolios is at the heart of our next phase of growth. Cost discipline and organic growth will be key in achieving our stated objectives. As I mentioned earlier, our capital allocation priorities going forward will be threefold: first, we will invest in improving our distribution capabilities to leverage a robust suite of investment strategies now in place. As our global footprint continues to grow, we will leverage the expertise we have acquired through our distribution channels to be more in tune with our clients, offering the best strategies and solutions for their needs. Second, we will continue deploying capital to further strengthen our technology infrastructure. We believe the resilience and data capabilities of our foundation will allow us to differentiate ourselves further. And finally, we will continue to effectively manage our financial leverage. While we remain optimistic on the state of the economy in the near-term and believe fears of a looming recession to be inflated, sound capital management will always remain top of mind for the organization as we focus on delivering shareholder value. We will continue looking to add more profitable strategies and 100 basis points mandates into our portfolio while at the same time, seeking to create alpha for our clients. To that effect, strengthening our leadership position in probable alternative strategies is an ongoing priority. There is continued investor appetite for this asset class as well as steady stream of returns associated with it. This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator]

[Operator Instructions] Your first question comes from Nik Priebe from BMO Capital Markets.

[Nikolaus Priebe, Analyst]

Okay. I just wanted to go back to where you were talking about the recent growth of the alternatives platform. And I think you alluded to a significant amount of committed but undeployed capital there. I was wondering if you could just quantify for us how much of that -- how much capital has been committed, but is not currently drawing management fees.

[Vincent Duhamel, Global President & COO]

Yes, it's over $1 billion. It's $1.4 billion.

[Nikolaus Priebe, Analyst]

$1.4 billion. Okay, got it. And then just as we're kind of approaching year-end here, I also wanted to ask about how the performance fee outlook is starting to shape up. We've clearly had a very strong year in terms of equity and credit performance. I'm wondering if you have -- you're kind of obtaining better visibility into that now as we approach December 31.

[Vincent Duhamel, Global President & COO]

I would treat -- well, we treat that as a Christmas gift. So we wait until Santa Claus shows up to unwrap the gift. The reality is with performance fees is that until they crystallize, we try not to be public about it and really we wait until they are crystallized completely because it's too difficult, it's too volatile. We could have a fourth quarter like we had last year, and suddenly, it changes the whole -- the equation. So we don't comment on performance fees.

[Lucas Pontillo, Executive VP & Global CFO]

Yes. I just want to reiterate, I mean, it's a comment I made. But again, we don't manage the business on the basis of our performance fees either. We're focused on our base management fees; that's how we do our budgeting, that's how we do our planning. And so as Vincent has sort of what comes in from a performance fee basis is up and above the way we manage the business to allocate capital.

[Nikolaus Priebe, Analyst]

Okay, that makes sense. And then I also want to go back to -- I was looking at Slide 10 of the presentation just on adjusted earnings. And I was just trying to do a little bit of rough math. I was looking -- I think there's about $40 million or so of add-backs to earnings, but I noticed the related tax impact is only $3 million. I think that works out to a pretty low effective tax rate. I guess, I was just wondering why is that figure so low? Are there large number of expense items that are kind of included in those add backs that wouldn't have been deductible for income tax purposes?

[Lucas Pontillo, Executive VP & Global CFO]

So you have that element. And then you actually just have the change quarter-over-quarter as well. So you'll see that our tax position also did change over the quarter as we're gaining scale in some other markets where we're operating, we're incurring tax liabilities point, which wouldn't have been -- previously been the case.

[Operator]

Your next question comes from Gary Ho from Desjardins Capital Markets.

[Gary Ho, Analyst]

Just in your prepared remarks, you mentioned managing leverage a few times, seems like a priority for management. Can you explain kind of what initiatives you have in place to perhaps kind of mention that or bring that down and update us on your funded debt-to-EBITDA at quarter end.

[Lucas Pontillo, Executive VP & Global CFO]

Sure. So I mean a few things. I mean we started off the year with a sort of prolonged approach in terms of how we were looking at our overall capital structure and not just leverage. So the issuance of the hybrids were one of the first actions that we took, really with the intent there, again, to diversify our term structure, just provide some overall diversity in the capital instruments as well, so that was the first aspect. I think the second aspect, as you can appreciate, is that we've been holding the dividend constant at this point where traditionally, we would have increased every other quarter. We've, at this point, holding the dividend costs, and we feel quite comfortable with the payout ratio of the dividend and where it's at right now. And then finally, we're just focusing on, I think, as Vincent talked about, our focus on distribution and integration really just improving the overall margin and operating leverage of the clinic. And by such, freeing up more cash flow to be able to pay down leverage as we go forward. With regards to where we stand with the ratios relative to our banking covenants. We expect to finish the quarter just under 3x on a net debt-to-EBITDA ratio.

[Gary Ho, Analyst]

Okay. And if I can kind of read between the lines then, it sounds like you're planning to reduce, if I look at the ratio, reduce the debt as well as growing the EBITDA like you want to do kind of both on the numerator and denominator to reduce the overall ratio. Is that -- am I reading that correctly?

[Lucas Pontillo, Executive VP & Global CFO]

Correct. And I think also, one thing that's important to point out. If you look at our balance sheet at this part of this quarter, traditionally, our cash balances have hovered around $50 million. We actually finished the quarter with a very strong cash balance as well of almost $90 million. Much of that is twofold. There was obviously the increase in operating cash flow. But also, we acquired a fair bit of cash through the acquisitions that we've acquired. So again, the balance sheet is quite robust at this point with excess cash. And we've got plans underway to effectively repatriate that capital on a global basis to further pay down leverage.

[Gary Ho, Analyst]

Okay. Got it. That's good. And then the other question, maybe the other way to tackle the performance fee question. Can you maybe help us understand kind of what funds drive performance fees? Or which ones are the most meaningful. I think in the past, one of the Charlemagne funds was the key driver. What are the other ones that's high up on that list?

[Vincent Duhamel, Global President & COO]

There's probably $1 billion spread over 2 funds that have 2 and 20 type of fee structure attached to them. And those would be the hedge funds in the U.K., plus we have a multi -- a number of other, smaller funds here in Canada. But those would be the main contributors.

[Gary Ho, Analyst]

Okay. Got it. And then yes, just lastly, just on the private alts. Thanks for disclosing the committed on the port pipeline. Maybe can you give us an update on that segment in terms of outlook over the next year or so?

[Vincent Duhamel, Global President & COO]

Well, there's a number of businesses in there. So each and every one of them has their own dynamics and particularities. In terms of the outlook, clearly, from the manufacturing, so manufacturing and also finding investment opportunities, that remains a big challenge for investment teams. We are seeing, as we grow in size and as we grow in prominence, we are seeing more and more flows coming our way. So I'm quite enthused about some of the potential to find the proper investment opportunities for our clients. From a distribution standpoint, it is a big focus now to get the distribution teams more geared up towards alternative. So I suspect we will start to see some major progress being done in that space.

[Gary Ho, Analyst]

Okay. Great. And then just maybe last, maybe if I can sneak one more in. Lucas, just wondering a numbers question. The external manager's expense line picked up in the quarter over 2.18 million. Just assuming that's related to Natixis, is that a good run rate to model out?

[Lucas Pontillo, Executive VP & Global CFO]

I mean that's what we've picked up at this point. When I talk about the fact that we still have unknown quarters of integration that we're looking at, we're in the process of evaluating all the managers on the platform right now, and we're going to make sure we do the right thing by our clients in terms of ensuring that we're fulfilling our fiduciary responsibility to give them the best investment solutions possible on our platform. So more to come there.

[Operator]

Your next question comes from Marco Giurleo from CIBC.

[Marco Giurleo, Associate]

My first question is with respect to the net sales pipeline. I believe you mentioned that you have about $1.5 billion of funded flows coming up next quarter out of Europe. In the -- on the institutional side of your business, flows have been quite lumpy from quarter-to-quarter. I'm just wondering if you have -- could provide a bit of visibility there on to what's coming?

[Vincent Duhamel, Global President & COO]

Yes. Well, we -- things -- the difficulty is that some of those big mandates, it takes time to negotiate and to get all the legal agreements in place and all those discussions. So what I tried to refer to is the mandates that have been won but not funded, but to take -- we have some that we've been talking for a while, but they've been won 6 months ago, and we're still negotiating some of the fine-tuning as you deal with a lot of those big state pension funds. So at this point in time, in terms of visibility that I have of mandates that are won but not funded, you're probably talking in the range of about $3 billion of assets.

[Marco Giurleo, Associate]

All right. And just so that we have an idea, like, consistently, it sounds as though the larger mandates that you're winning on the institutional side are geared more towards your -- like on the higher basis points strategies, such as your alternatives and some of your traditional equity strategy. So is that the ones that are falling off? Or is that mainly your fixed income strategies or...

[Vincent Duhamel, Global President & COO]

Yes. So the ones -- in terms of the losses that we've had in Q3 were only mainly in relatively low-margin fixed income strategy. That's why we've been able to continue increasing the average basis points that we provide.

[Lucas Pontillo, Executive VP & Global CFO]

Just -- I mean just to give you an idea that with regards to the average loss business probably came off at about 26 basis points. And the average new business was coming on at about 34, so it was a healthy spread there between new and loss.

[Marco Giurleo, Associate]

Sorry, you said 26 loss and 34 on the win side?

[Lucas Pontillo, Executive VP & Global CFO]

Yes.

[Marco Giurleo, Associate]

Okay. Got you. And then I just had another question on your acquisition priorities. You mentioned integration of your recent acquisitions are going to be done within the next 2 quarters. So just curious what the acquisition appetite is. And is it going to be more towards -- is it going to be more focused on your alternative strategies?

[Vincent Duhamel, Global President & COO]

Not necessarily. It's really -- first of all, at this point, we are doing the integration now. As we said, the priorities were mostly to focus on distribution, focus on our technology, our platform, IT and ops, so that will keep us busy for the next few quarters at the very least, if it's not for next year or 2. Clearly, we have to be opportunistic. We will continue to look at if there is something that would add -- will be accretive for shareholders, will be attractive for us, we will look at. But the reality is, with over 100 different type of strategies, it's not as easy to find something that will be complementary to the offering that we have as an asset management company. So really, the focus is on growing organically those assets now.

[Operator]

Your next question comes from Scott Chan from Canaccord Genuity.

[Scott Chan]

Just on the flip side, it seems like the 1 constant is how private wealth continues to be in net sales every quarter, and I suspect a lot of it is Bel Air. If you kind of exclude Bel Air, can you give us an update of your other private wealth businesses on that front?

[Lucas Pontillo, Executive VP & Global CFO]

I mean you're right, Bel Air certainly did have a very strong quarter again for us. Canada is trending positively. But I will say that, again, Bel Air was the biggest standout for us this quarter.

[Scott Chan]

Okay. And just on the average fees, just with the 3 acquisitions and then I think Foresters was half the quarter. If you kind of isolate those 3 acquisitions, would it be a net reduction in your average fees or a net benefit? I was suspecting this was supposed to be a net reduction, but your fees were nicely increased sequentially in this quarter.

[Vincent Duhamel, Global President & COO]

Oh, you mean with the various positions there? Because Forester is a very -- you have to be careful because Forester is a low basis point business with a high-margin business. What I mean by this is that it's a cost-efficient way of running money and with them for scalability. So yes, I think it was -- I don't have a number off the top of my head, but intuitively, it face -- the average fees that we earn from those acquisitions is probably slightly lower but we've offset that by new business that was higher.

[Lucas Pontillo, Executive VP & Global CFO]

And then again, to my earlier comments, you have to think not only about what's coming on, but also what's coming off. And so the stuff that's coming off is much lower basis points fees. Again, that just the average itself will lend itself upward.

[Scott Chan]

So Luc, if the trajectory on the fee, you should be still going a bit higher every quarter, I guess, is the message.

[Vincent Duhamel, Global President & COO]

Well, we're aiming for that. I think it's going to be -- the law of numbers is going to play against us at some point is going to become harder and harder.

[Scott Chan]

Yes, it's true. Okay, fair enough. And maybe just lastly, Vincent, you talked about one of your organic strategies to improve the distribution capabilities. Can you expand on that? Is it more on a geographic basis or more on a clientele segment basis. Just some good color just because, obviously, distribution is important. You've got a wide, varied product shelf and it just doesn't seem like it's really flowing into the flows.

[Vincent Duhamel, Global President & COO]

Yes. And I think the reality is that we probably have under-invested in our distribution over the last 3 years. And I think now we have a little bit of a catch-up. We've built a really, really good investment capabilities across the organization. I spent a lot of time bridging the gaps for our clients and addressing the needs that they had for specific alphas across the investment spectrum. What we might have under-invested is in terms of gearing up by the number of individuals, but also education with the distribution to really equip them better, to be more effective with our clients. And that ranges from education of the sales force. It's also ranges from the information and the data that we can provide to them. And I think the CRM will be a tremendous asset for us to make us much more efficient. We've also have not been investing as much in new markets. We've started doing that now mostly in Asia, where we've asked some of our best client-facing or salespeople to go out there and to really push and start spreading the message of the organization and what we had to offer. But the reality is it takes about 2 years to get ourselves known in those markets. So Europe and Asia a lot more missionary work, I guess, being done at the present time. That will pay probably in a year or 2 from now. U.S. is how do we better equip ourselves, team distribution, team to be more effective with some of the key clients and increasing the number of people that are -- the touch points with the clients. And in Canada, it's a different matter. In Canada, it's a much more mature business and really here is about how do we engage with our clients to develop better solutions for them.

[Operator]

Your next question comes from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Can you hear me okay? Good. Great. You're rolling -- you made a comment that you either have or are in the process of rolling out a global ops and IT platform. Could you just maybe provide a little bit more detail on exactly what that involves?

[Vincent Duhamel, Global President & COO]

Well, not completely, but I will give you as much as I can for now. So where we are creating is a global standard across the whole organization that everyone is going to be operating on the same platform. Some decisions have been taken. The reason I can't say is because we are still debating with some of the others and discussing commercial terms with some providers for other potential alternatives. But things that we've already decided will be a platform, Charles River, for example, across the whole organization. We're moving some trading activities, putting in place a really a passive book approach for the overall organization. So there's a number of CRM being 1 of them, sales force, where we've applied 1 platform where we used to have 7. So that brings us to be a little more consistent across the organization more effective, efficient and also decreases the cost. Sales force, the sales force basically going across the whole organization means it's costing us 1/3 of what it was supposed to cost us initially. But then there's more to come. It's a complex organization. When you run 100 different type of strategies around the world, ranging from hedge funds to alternative to fixed income, it's a very complex approach to IT and ops.

[Graham Ryding, Research Analyst of Financial Services]

Okay. So it's a continuation of your process that you all had previously?

[Vincent Duhamel, Global President & COO]

Absolutely.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. The cash level that you, Lucas, that you spoke about earlier, close to $90 million on your balance sheet. I think, historically, you've held about $40 million to $50 million a quarter in that range. Is that still a reasonable level of sort of cash to think that you need or like to have on the balance sheet? And does that imply approximately $40 million in debt repay potential?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, absolutely. I would say it's just the timing with which that we get there. So as I mentioned, some of that cash came on board as a result of foreign acquisition. So it's not just a question of liquidity and cash management, but it's actually a fungibility of capital from a subsidiary perspective. So we're in the midst of rolling out plans to how do we make sure we do that on a tax-efficient and local regulatory capital basis. As I say, so we target early next year to getting back down to those -- that sort of $50 million level.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. Part of that, I guess, I thought I'd see. You do have some purchase price obligations that I think some come due in 2020 and some in 2021. It's $135 million right now on your balance sheet. What is the planned in terms of paying those off? Is it a combination of equity and cash or debt? Or do you have a thought process there now?

[Lucas Pontillo, Executive VP & Global CFO]

I mean I think -- again, we have the discretion to settle them accordingly in either, and we're just going to sort of see where we are at that point in time when we're at. Obviously, the stock price plays a factor on sort of what your cost of capital is and then cash may be another option, but it's too soon to tell at this point relative to where we're going to be when those obligations come due. But we do have the flexibility to go either way at that point.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And what's coming due in 2020, what's the timing there?

[Lucas Pontillo, Executive VP & Global CFO]

There is 1 amount due in Q1 still remaining due from our Charlemagne transaction.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And that's it next year? Just Q1?

[Lucas Pontillo, Executive VP & Global CFO]

There's some smaller amounts as they roll through the rest of the year, but they won't be as material.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. And just my last question, if I could. Just looking at your EBITDA margin. What was the IFRS 16 impact on your SG&A in the quarter?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, it's -- look, it's hard to tell, and I say, I'm reluctant to give you a number for the quarter, just because our quarters have been changing quarter-over-quarter. If you can appreciate that having done or gone through 4 acquisitions, that means 4 new leases that we've added on. We've actually also changed our corporate headquarters as well here in Montréal. And as Vincent alluded to, we are, you have other things in the pipeline relative to consolidating locations in our U.K. operation as well as potentially consolidating operations in Toronto now that we've brought on board these 4 acquisitions. So the question still becomes that our lease portfolio is in and of itself sort of not stable quarter-to-quarter as a result of all our activity.I will say that if you're looking at, however, the amortization amount and the implied interest amount that are being generated from IFRS 16 on -- when you look at our adjusted earnings, those numbers are significantly higher than what our actual rent obligations are.

[Operator]

[Operator Instructions] Your next question comes from Cihan Tuncay from GMP Securities.

[Cihan Tuncay, Analyst]

Just first on the committed capital in the private wealth business and the private alternatives business, the $1.5 billion. Do you have any sense on the timing of when that will be deployed?

[Vincent Duhamel, Global President & COO]

No. That -- it's impossible to -- it's possible because you don't want to put pressure on the investment teams to do that. They will do it when they find the right opportunities for their clients. So that is when we find the right opportunity.

[Cihan Tuncay, Analyst]

Okay. And just -- and I know you alluded to this a little bit in the prepared remarks, but just on the integration with Natixis, which of their funds are on board right now? And what is -- what's been the uptake or flows into those funds and vice versa with them offering your funds? Or have they started offering your funds yet at this point?

[Vincent Duhamel, Global President & COO]

As of the end of the third quarter, we had just on-boarded all the funds, and that's why you saw the expense of external managers then and now we're just going through the process with them and going through the fiduciary research for each and every one of the funds to make sure that they meet the -- our standards that we have for our clients.

[Cihan Tuncay, Analyst]

So has there been any flows into those funds yet? Or is that still...

[Vincent Duhamel, Global President & COO]

It's been neutral, I guess, no flows in or out, nothing material, let's put it that way.

[Cihan Tuncay, Analyst]

Right. Okay. And then just on the commentary around investing in the technology with the 3 pillars, the 3 objectives for the near term and building out the deployment capabilities, should we expect to see as you invest in those opportunities, should we expect to see any volatility in the EBITDA margins over the next couple of quarters as you build out those capabilities? Or should we expect to see kind of in and around trending in the same direction?

[Lucas Pontillo, Executive VP & Global CFO]

No. Yes, it will depend on how much of that could be capitalized. And our expectation is that a large portion of it should be, given that we're talking about longer-term projects and then the restructurings of systems and processes. But we're still in the process, as Vincent mentioned, of scoping all of that out. So it's hard to give some guidance at this point as to what that's going to look like.

[Vincent Duhamel, Global President & COO]

And in regards to distribution, if that is also part of the question there. The -- a lot of that cost is very low cost-based on the increase of revenues that they generate. So I don't think it will be -- it would have a big effect on margins.

[Cihan Tuncay, Analyst]

Okay. And then just lastly, there was some commentary in the MD&A just about, I mean we alluded to this a little bit with the funds that were flowing out of fixed income, the lower basis point earning funds. And the commentary was that investors are looking to bring cost down and bring a lot of those operations in-house. Thinking about it from a little bit higher level, do you see this more as is it just a function of cost control? Or do you see a shift in desired asset mix to say private investments versus public? And how do you position yourselves in that kind of environment going forward?

[Vincent Duhamel, Global President & COO]

Well, from what we've seen from those redemptions in the last quarter, the reality is that those institutions that had a fair amount of assets with us at low margins -- first of all, it's a low value-added product. So in a nutshell, they kind of decided both those institutions have their own internal expertise and their own management teams in place. So they've decided it was probably more effective to be able to do that themselves internally. And then just have us focus on the high value-added type of strategies. So I'm not sure for those specific ones, they tend -- those are institutions that have their own teams, so I don't see that in a lot of places. So I don't think it's a trend per se. It's really just coincidence that it happened to both of them in the same quarter.

[Cihan Tuncay, Analyst]

So then the cost control versus shift in desired asset mix.

[Vincent Duhamel, Global President & COO]

Yes, I think it's more cost control for themselves. Yes.

[Operator]

Your next question comes from Jaeme Gloyn from National Bank Financial.

[Jaeme Gloyn, Analyst]

Yes. First question, just related to the capital priorities. You did institute a DRIP I think in May. Can you talk about how you're looking to use the DRIP as a source of capital? Right now, there's no discount on the shares, but is that something you would look to in the near future?

[Lucas Pontillo, Executive VP & Global CFO]

Sure. So I mean yes, obviously, the DRIP would enhance our cash redeployment opportunity should certain investors decide to reinvest. I mean when you look at how our stock is held, we do have investors that invest both for the dividend itself from a liquidity perspective as well as being held by some growth funds. So the expectation is that those that are investing for growth would find the DRIP attractive. To that extent, we don't feel that a discount is warranted at this point. We frankly feel that the share is undervalued as is. So we don't feel we have to offer any additional discount. In terms of the take-up so far, just to give you some stats on that. We had about 500,000 shares that have enrolled so far. This is really the first quarter where the program has been out there. And that's -- it's a marginal amount of just over 100,000 effectively that's been reinvested at that point from a cash perspective. So we'll monitor the program as we go forward but at this point, as I say, there's no intention to offer any discount on it.

[Jaeme Gloyn, Analyst]

Okay. In terms of SG&A growth, in IAM and Foresters. I think the comment was that there would be some reduction in Forester staff or something along those lines. Has that process started at this point? Or is that something that would hit in Q4 and 2020?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. So in terms of how each of those, let's say, that are all unique situations, Foresters was actually the one where, for the first time, we were actually to do a full integration prior to closing and effectively line that all up as of the closing date. So there's really nothing left to do there. It's actually a testament to the team that we brought on from an ops and IT perspective, which will be leading our global standardization of our platform to have had them project manage this first integration and really do it as seamlessly as they did. The ones that are outstanding still, where I sort of referred to a couple of more quarters where we're looking at optimizing both revenue and expenses, would really be the Natixis Canada transaction as well as IAM. So while there was a first wave of restructuring that went on with IAM at sort of the corporate level, there's still some work that's being done on an integration basis with each of the business units themselves, both on the private debt and real estate side. So as I say, probably about 2 more quarters there before we get to a run rate that we're happy with.

[Jaeme Gloyn, Analyst]

Okay. And then with respect to external managers, I just want to sort of balance the 2 comments. One that I think I understood that maybe there were some onetime-y stuff in terms of evaluating your existing external managers. But then also, again, by adding in the Natixis fund, we should see an uptick there. So just wanted to get a sense, like, if I look at 2018, external manager fees, it was about $1.8 billion, and that's what we had this quarter -- or sorry, million. And that's what we had this quarter alone.

[Lucas Pontillo, Executive VP & Global CFO]

Correct. So I guess that's actually -- you raised a good point because there is a bifurcation to be made there, which is the increase in the fees that you're seeing now are really as a result of the existing Natixis platform that was onboarded. You're quite right in pointing out is that as we look to develop our future distribution relationship with Natixis, that number might also trend up. Again, it will come back down to doing what's right for our clients. But with regards to that existing 1.8. It's sort of, again, a discussion about now looking at what we've inherited on that platform and are there any opportunities there for potential internalization. So we'll have to see, as I say. Our clients' interests will drive that.

[Jaeme Gloyn, Analyst]

Okay. And still on the investment side, if we're thinking about the reshoring costs and acquisition costs. The amount that's being expensed today, that should largely be gone by the, I guess, maybe for Q2 earnings. Otherwise, it should sort of run at similar levels that we saw in Q2, Q3?

[Lucas Pontillo, Executive VP & Global CFO]

Agreed. I would -- so I think it's important to break those 2 out. So again, you'll have the restructuring and integration charges and then the acquisition costs themselves. So certainly with -- if there are no more deal activity, then you shouldn't expect to see any acquisition charges that may be a little more lingering in this next quarter as we close out some mandates, but that will be the end of it. With regards to the restructuring and integration charges, however, as we continue to work towards sort of streamlining and the standardization of our global operating platform, there might be some additional charges there in the future going forward as well. But as we say, that's all under review at this point.

[Jaeme Gloyn, Analyst]

Okay. And then just a clarification on the net flows comment of $3 billion of assets that you have won, but not yet managing. What is the usual lag between won and managing? If you can just sort of clarify that around the $3 billion...

[Vincent Duhamel, Global President & COO]

It goes with an efficiency. Some clients where they will take 2, 3 weeks, and some other clients will take 6 months. It really depends. It really depends on typically the structure and the process within those organizations to be able to get through all of the legal agreements that needs to be put through.

[Jaeme Gloyn, Analyst]

Okay. And maybe if I just ask differently, how long has this $3 billion been won?

[Vincent Duhamel, Global President & COO]

No, there's, I'd say, some came in Q2, some came beginning Q1 -- Q3, some came at the end of Q3.

[Jaeme Gloyn, Analyst]

Okay. Fair enough. And then last one for me, just kind of around the comment of Lucas saying that the shares are undervalued today. There was an article a few months ago, I just want to get maybe a little bit of color around what was driving some of those comments around potential takeover and things like that. Has there been -- what are the views on that going forward, if the share price doesn't start to respond to any of your strategic initiatives here?

[Vincent Duhamel, Global President & COO]

I don't think there was any comments. I think that we're done out of the frustrations as a shareholder to see the price of their shares at where they were and thinking that there's a lot more value in the company than it's been reflected in the market prices now. There's nothing else to read into that.

[Operator]

There are no further questions at this time. Ms. Elsayed, I'll hand the call back over to you.

[Mariem Elsayed, Director of Investor Relations & Public Affairs]

Thank you. Thank you for joining us. That concludes the call.