Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2020-Q3

[Operator]

Good morning. My name is Takkan, 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 2010. [Operator Instructions]. As A reminder, this call is being recorded. [Operator Instructions]I will now turn over the conference to Ms. Mariem Elsayed, Director of Investor Relations. Ms. Elsayed, you may begin your conference.

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

Thank you, Takkan. [Foreign Language] Good morning. [Foreign Language] Welcome to the Fiera Capital conference call to discuss our financial results for the third quarter of 2020.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 sierra.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 actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on Page 2 of the presentation.Turning to Page 3. Our speakers today are Jean-Philippe Lemay, Global President and Chief Operating Officer; and Lucas Pontillo, Executive Vice President and Global Chief Financial Officer. Following their prepared remarks, they and Jean-Guy Desjardins, Chairman of the Board, Chief Executive Officer and Lead Portfolio Manager of Global Tactical Asset Allocation, will take your questions. We have also invited our employees to listen in on today's call. Welcome to those of you currently logged on.Turning to Slide 4. I will provide the agenda for today's call. We will begin by providing highlights from the third quarter, followed by a discussion on AUM and flow and a review of third quarter financial results. We will conclude by sharing a strategic update before opening the line for questions.With that, I will now turn the call over to Jean-Philippe Lemay.

[Jean-Guy Desjardins]

Good morning, everyone, and thank you for joining us today. I'm on Slide 5. I'm very pleased to report strong operational and financial results for the third quarter of 2020. The firm delivered sequential and annual growth on many fronts. And this, despite the ongoing uncertainty caused by the COVID-19 pandemic. Assets under management reached $177.7 billion as of September 30, a $13 billion or 8% increase over the last 12-month period. During the third quarter of 2020, AUM increased by $6.7 billion or 4%, driven by market returns and alpha generation.Financial performance was strong as well. We generated basic adjusted EPS of $0.36 per share, up from $0.32 per share in the year ago period. Adjusted EBITDA was $53.4 million for Q3 2020 with a corresponding margin of 31.3%.With regards to investment performance, the positive trend and relative performance continued during the third quarter. The company's strategies delivered strong relative performance over the short and medium term. Longer term, investment performance has been truly exceptional. On a trailing 3-year basis, 95% of our equity AUM and 87% of our fixed income AUM outperformed their benchmarks. I am very pleased with our investment team's performance.Finally, on July 1, we began the implementation of our new global operating model discussed last quarter. This model better aligns the focus of our global public and private markets operations as we continue to leverage the expertise of the globally integrated distribution model we continue to roll out. Accordingly, it is with great pleasure that we welcome the newest member of our global leadership team, Anik Lanthier, who takes on the role of President, Public Markets. Anik joined us in October and brings more than 20 years of investment management industry experience to the firm. In her most recent role as Senior Vice President and Global Head of Capital Markets at PSP Investments, she oversaw PSP's internal and external managers platform. She brings strong investment leadership and deep capital markets expertise across asset classes and has an outstanding track record of building, leading and developing high-performing active investment teams. And we're thrilled that she's joining Fiera Capital to lead the evolution of our global public markets platform.On to Slide 6 to discuss our AUM. Q3 saw equity markets rally in July and August after a volatile 6-month start to 2020, supported by monetary and fiscal policy stimulus and signs of a global economic rebound but lost momentum in September with the resurgence in COVID-19 cases. Consequently, market appreciation and value-added generation contributed $7.4 billion to AUM growth on an FX-adjusted basis between June 30 and September 30, with 100% of our active public market strategies managed in Canada beating their benchmark during the quarter.We recorded net outflows of $660 million, which I will now discuss in more details on Slide 7. Net outflows during the third quarter were a combination of strong net inflows of $1.3 billion in our institutional channel and net outflows of $1.8 billion in private wealth, with retail holding relatively flat. In our institutional business, operating results were truly exceptional during the third quarter and are reflective of the work that has gone into refining our client interaction model over the last few quarters. Sourcing new sales all the while remaining acutely attentive to client retention is fundamental to this model. I am very pleased to say that we continue to win specialized mandates across equity, fixed income and private market strategies as well as multi-asset mandates ranging from $60 million to $600 million in Q3.We won mandates in South Africa, Finland, Canada and the U.S. in both public and private market strategies, and new mandates of $1.4 billion contributed accretively to institutional revenues in that they carried an average fee rate that was greater than the rate associated with lost mandates. And what's more, revenue retention in Canada was truly outstanding, coming in at over 97% for the quarter.In retail, gross sales of $550 million consisted mainly of $300 million of new sub-advisory mandates in Canada as well as some wins in our European managed emerging markets and frontier strategies. Third quarter wins in retail were offset by redemptions in liquid alternative mandates in Europe and low basis point fixed income mandates in Canada.In private wealth, we recorded gross new flows of $400 million, mainly in U.S. tax-efficient fixed income strategies. However, despite winning new mandates, outflows were elevated. In the U.S., redemptions of $800 million were mainly a result of financial intermediaries withdrawing from lower fixed income mandates as part of the normal cycle of flows in the specific market.In Bel Air, our open architecture, ultra-high net worth platform, we recorded $1.2 billion of redemptions following the departure of an advisory team in late September. All in all, if we exclude the unfortunate event in Bel Air, the net organic flows of the overall business across channels and asset classes during the quarter are north of $500 million.On to Slide 8. In private market strategies, AUM as at the end of the third quarter was $13.6 billion, and we had an additional $1.5 billion of undeployed, committed capital, up from $1.3 billion as of the end of June. Committed capital increased during the quarter as capital deployed into our ag and private debt strategies was more than offset by over $500 million in new subscriptions from investors, particularly in infrastructure and agriculture. Our global infrastructure and agriculture strategies, among others, are ready for institutional commercialization and constitute the tip of the spear of our distribution strategy internationally. They have established a solid track record of performance, supported by seasoned teams and solid investment processes. Both strategies are global and invest in high-quality assets only making them suitable for international investors seeking asset class and regional diversification. These asset classes provide very attractive risk/reward profile. As such, in light of the current macroeconomic outlook and evolving investor needs, we expect growth in this space to continue.I will now turn it over to Lucas for a review of our financial performance.

[Lucas Pontillo, Executive VP & Global CFO]

Thank you, Jean-Philippe, and good morning, everyone. Let me take you to Slide 9 to discuss our revenues. I am pleased to report that the firm's third quarter revenues of $170.7 million were up $3.8 million or 2.3% compared to Q2 2020. Compared to Q3 of last year, revenues increased $10.7 million or 6.7%, thanks mainly to organic growth from our institutional markets across geographies in Canada, U.S. and Europe.Breaking this down further, our base management fees, which account for 94% of our total revenues, were $159.7 million, an increase of $9.4 million year-over-year or 6.3%. From a client category perspective, institutional base management fees increased $12.2 million or 16%. This is thanks both to AUM volume as well as higher fee mandates in equity, private market and multi-asset strategies. Base management fees from private wealth increased $2.2 million or 6% as a result of increased AUM. And in retail, base management fees decreased $5 million year-over-year, but this was mainly because of the sale of Fiera Investments retail mutual funds to Canoe back in June, as revenues of Q3 of last year included $4.4 million related to these funds.We also generated close to $1 million in performance fees during the quarter compared to $1.6 million in Q3 of last year. The decrease was mainly attributable to some of our private market strategies. However, we also recorded $2.1 million in share of earnings and joint ventures in Q3 of 2020, which compared very favorably to Q3 of last year, or we do not record any such revenue. This stemmed mainly from incremental revenue from Fiera Real Estate U.K.'s joint venture project.Other revenue of $8 million were in line with Q3 of last year and mainly attributable to revenue from transaction and commitment fees in our private market asset classes and service fee revenue related to our Emerging Markets Select Fund in the U.S.Looking at revenues on an LTM basis, you can see that they've reached over $700 million for the same period ended December 30, 2020. That's a $94 million increase or 15% year-over-year. As we have added to our competitive suite of public and private market investment strategies over the years and have continued to build international distribution capabilities for strategies like our Global Equity team, we have, without a doubt, been able to grow and diversify our revenue streams. In addition to allowing us to better serve our clients, this has also allowed us to build a more resilient business model in the face of ongoing market volatility.Turning to Slide 10. Selling, general and administrative expenses were $122.6 million during the third quarter of 2020, up $3.8 million or 3% from last year. This compares favorably with an increase in base management fees of 6% year-over-year. The year-over-year dollar increase in SG&A was primarily driven by higher compensation expense of approximately $7 million and an increase in fund-related expenses of $1 million. These were partially offset by a $2.7 million reduction in SG&A as a result of ongoing containment efforts in place in response of market pressures from the effects of COVID-19 and $1.7 million in lower revenue-related expenses following the sale of Fiera Investment retail mutual funds to Canoe earlier this year.In addition, the new global model we announced in June has begun yielding results. We realized cost savings of approximately $3 million during the third quarter, savings that were redeployed in certain key functions in order to help us keep growing.Note that in the third quarter of 2020, SG&A to base management fees was 76.8%, down from 79% in Q3 of last year. The continued improvement in relative SG&A was mainly attributable to continued cost management efforts that we have in place. Our disciplined approach to managing our cost structure also helps ensure that we continue to focus on our operating leverage with the intent of reducing our financial leverage.Turning to Slide 11. We generated net earnings attributable to company shareholders of $4.7 million or $0.05 per share during the third quarter of 2020. This compared to a net loss of $4.7 million or $0.05 per share in the third quarter of last year. Adjusting for acquisitions, restructuring, integration and other costs as well as noncash items, we generated adjusted net earnings of $37.6 million in Q3 2020 compared to $32.5 million in the year ago period, an increase of $5.1 million or 16%. This translates to an adjusted EPS of $0.36 in Q3 2020 compared to $0.32 in Q3 of 2019.I'm now on Slide 11 (sic) [ Slide 12 ]. I am very pleased to announce that the adjusted EBITDA was $53.4 million in the current quarter, an increase of $6.8 million or 15% from $46.6 million in the third quarter of last year. Adjusted EBITDA margin for the quarter was 31.3% and again, compared very favorably to 29.1% in Q3 of last year. On an LTM basis, adjusted EBITDA continues to trend upwards and reached a new high of $210.6 million in Q3 of this year. We are very pleased with our third quarter results. We continue to demonstrate the value of the acquisitions we undertook in 2019 as well as their successful integration, the ongoing improvements to our client interaction model and the operation streamlining initiatives we continue to implement to add scale to the business.Turning to Slide 13. As of September 30, our funded debt-to-EBITDA ratio for our credit facility was down to 2.89x, a decrease from the 2.97x at the end of June and a 3.15 ratio at the end of March. We continue to monitor our leverage closely and look for ways to optimally manage our capital.We ended the third quarter with $45.8 million in cash and cash equivalents after returning $21.8 million to shareholders in the form of dividends. On that note, I'm pleased to announce that the Board once again approved a quarterly dividend of $0.21 per share, unchanged from the previous quarter and payable in December.Furthermore, on July 13, the company announced its attention to make a normal course issuer bid for its shares through the facilities of the TSX. Under its NCIB, the company may purchase for cancellation up to 2 million Class A shares from July 15, 2020, until July 14, 2021. In Q3, the company did repurchase 81,200 Class A shares for total consideration of roughly $800,000. The NCIB represents another means at our disposal by which we can return value to our shareholders.I will now turn the call back to Jean-Philippe for a review of our investment performance and a strategic update.

[Jean-Philippe Lemay]

Thank you, Lucas. On to Slide 14. The relative performance of most of our strategies remained strong during the first 9 months of 2020. Let me share some highlights. In equities, our global and Canadian equity strategies generated strong added value of 3.8% and 3.6%, respectively, during the third quarter, elevating their year-to-date alphas to 6.2% and 6%. Our Canadian equity strategy is seeing increased demand from current and prospective clients, which should continue to contribute to organic flows in the future.Our U.S. small and mid-cap growth strategy outperformed its benchmark, driven primarily by strong selection in the health care sector, resulting in a significantly improved long-term track record for the team. It delivered added value of 5% and 6.2% in Q3 and year-to-date. In fixed income, our active core and strategic core strategies beat their benchmarks by 1.6% and 1.8%, respectively, during the first 9 months of the year and continue to rank first quartile year-to-date. Strategic core ranks sixth percentile year-to-date. The outperformance within the active universe strategy was driven primarily by curve positioning and tactical allocation to credit.Turning to Slide 15 for a review of our select private market strategies. Real estate strategies in Canada and the U.K. delivered strong income and total returns during the third quarter with rent collections above 95% in Canada and occupancy remaining high throughout. Our strategies are positively biased towards industrials and logistics properties, which continue to perform exceptionally well. Accordingly, a few of our real estate industrial fund generated over 3% in Q3 2020. The infrastructure strategy generated positive returns during the third quarter, and its internal rate of return since inception is currently sitting at 9.6%.The global agriculture strategy generated a positive return of 180 basis points in the third quarter, continuing a string of successive positive return quarters through the COVID crisis and highlighting resiliency of the asset class and the quality of our agriculture portfolio. I'm extremely pleased with the work of our private markets' teams during what has been an extraordinary year thus far. To prove successful in producing sound returns in the private market space, proficiency, incredibility in origination, underwriting and asset management are extremely important. This last piece has been the defining hallmark of 2020 with the teams on the private market side being extremely proactive in managing the assets, jointly with our portfolio companies, platforms, borrowers and partners.I am now on Slide 16. In line with the firm's new global model, we will be introducing new AUM and revenue categories beginning Jan 1 that align more closely with how management views and manages the business. Although these categories are not yet in effect, here, we have provided the details of what those changes would have looked like for September 30 AUM. These slides are presented for illustrative purposes only and may be subject to change. First, we will be introducing the concept of AUA or assets under advisory. These are assets managed by third parties and will, therefore, include strategies managed by Bel Air third parties as well as those distributed in Canada in connection with the Natixis Investment Managers distribution agreement. AUA as at September 30, 2020, would have been $5.5 billion.In institutional, we will remove strategic partnerships and sub-advisory mandates and group them in our newly labeled Financial Intermediaries channel. AUM in this segment would have been $82.9 billion on September 30. Retail is being renamed the Financial Intermediaries to provide a more accurate description of how we access different clientele. In the case of retail, we typically access the end client through distribution partnerships and retail platforms. In some cases, this distribution approach is also used for smaller institutional clients as well as private wealth clients. Financial Intermediaries AUM would have been $69.2 billion on September 30.In private wealth, we will be making the following modifications. First, we are moving certain Bel Air strategies into AUA; and second, certain relationships previously classified as private wealth, which are actually financial intermediaries, such as multifamily offices, will be reclassified into the newly renamed and more comprehensive Financial Intermediaries channel.On Slide 17, we highlight how these changes would modify the presentation of our AUM by asset class. Public equities and public fixed income will be grouped under public markets and will include their respective allocation within certain balance mandates, which were previously shown under alternatives and other. Alternatives and other previously composed of private alternative investments, liquid alternative investments and balance mandates will be replaced by private markets and will include only private market strategies. Liquid alternative strategies will be presented on a stand-alone basis and make up part of our public markets AUM. And balanced mandates will be reallocated into equities and fixed income in public markets. Total public markets AUM as of September 30 would have been $160.5 billion.As you will see on the left side -- left-hand side -- sorry, of Slide 18, private markets fee-earning AUM would have total $11.7 billion as at September 30. this is lower than the $13.6 billion presented on Slide 8 because we will be removing public infrastructure bonds from private markets and presenting them within public fixed income assets going forward. Furthermore, we will be adding back committed, undeployed capital to get to total AUM in private markets. As of September 30, adding back $1.5 billion in committed, undeployed capital, total private markets AUM would have been $13.2 billion.We believe these disclosure enhancements will provide you with a better understanding of our business going forward. Note that I have discussed AUM, but as of Q1 2021, you will see the equivalent changes to our revenue breakdown as well. In order to assist you with your analysis, when we report Q1 results next May, we will also provide supplemental information, bridging previously reported AUM and revenue numbers.I am now on Slide 19. We continue to execute on our strategic priorities, and the global operating model announced this summer was an important step in the firm's evolution. It aims to drive increased collaboration and partnership between our investment and distribution teams in order to fully deploy our extensive suite of capabilities. It provides the global leadership team with better line of sight on key business opportunities and challenges, and it increases focus on investment excellence and client interactions.We've made significant headway in advancing this model during the third quarter. We appointed Anik Lanthier to the role of President, Public Markets, as I mentioned at the start of the call. We continue to make strides on our new global distribution model by rolling out our Canadian model to other regions. With quality and depth of expertise at the core of the client experience, we are better positioned to offer investors comprehensive investment solutions that are tailored to their needs and targeted outcomes.On the business operations side, we are continuing to invest in integrating and consolidating our platforms globally. We have begun the process of streamlining a number of private wealth back-office platforms to enable agility and affect scale. We are introducing new AUM categories to provide a more accurate picture of the business, and we introduced a normal course issuer bid to return value to our shareholders.These initiatives will allow us to become more competitive on a global scale. These past 8 months have proven that whether we work from an office or work from home, our drive and our ability to get things done remain unaltered. Technology has been central to our achievements in 2020. It has kept us operational, kept us connected and kept us safe. For this reason, there is no doubt in my mind that we will continue to weather the storm effectively and successfully. And for now, that means continuing to weather it, for the most part, remotely. The utmost safety of our teams is our #1 focus right now. And I once again thank our employees for their continued dedication and professionalism during these times. They have proved exceptionally resilient and proactive over the course of the last few months.This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator]

[Operator Instructions] Your first question comes from Geoff Kwan of RBC Capital Markets.

[Geoffrey Kwan, Analyst]

I'm just wondering with the private client, the adviser team that had left, is there any color you can provide around the departure? And then also too, if you're able to provide some color in terms of the number of adviser teams you have and where would that team have ranked in terms of size.

[Lucas Pontillo, Executive VP & Global CFO]

I mean I can tell you that sort of the genesis behind the departure is that there was some discussion for a while in terms of just the strategic path that, that team wanted to take. At the end of the day, they decided to go their own way. The remaining advisers are very committed to the operation. In fact, they've been absolutely instrumental in trying to retain the assets of that departed team. And we are going to continue to actually look at the implications on sort of operating impact going forward.I should note that for the quarter, there was really no revenue or margin impact by virtue of the fact that the assets left within the last week of September. And actions are already underway to ensure that we can manage the cost structure with the intent to really minimize the impact on the overall margin going forward.

[Geoffrey Kwan, Analyst]

And sorry, are you expecting any further outflows from the money that, that team had managed?

[Lucas Pontillo, Executive VP & Global CFO]

There may be. But as I say, at this point, the team is doing -- the remaining teams are doing a very effective job of managing that, and we'll know better at the end of the quarter in terms of where those flows stand.

[Geoffrey Kwan, Analyst]

Are you able to kind of mention how much might still be, call it, at risk or?

[Lucas Pontillo, Executive VP & Global CFO]

As I said, I think at this point, we want to keep the teams focused on retaining those assets, so I'd rather not speculate.

[Geoffrey Kwan, Analyst]

Okay. Okay. Just my other question was on the management fee percentage. It was down quarter-over-quarter, I think, in all the segments. I know there was a bit of an explanation in the MD&A, but just wanted to see if there's any additional color and how to think about what was the number in Q3 as being representative on a run rate basis or what would drive sequential changes looking ahead.

[Lucas Pontillo, Executive VP & Global CFO]

Are you referring specifically to the beeps? Is that what you're...

[Geoffrey Kwan, Analyst]

Yes. Correct. Yes. Yes, the management fee rate in beeps.

[Lucas Pontillo, Executive VP & Global CFO]

Yes. I mean I think, again, thematically, as JP spoke about in the asset mix as well, we're continuing to win mandates and higher fee mandates, such as our Global Equity strategy, our private alternatives, our multi-asset strategies. And even while we're seeing redemptions, it's in lower-fee fixed income. We have no reason to believe that, that structural trend won't continue going forward just in terms of where the attractive returns are as we come out of this crisis. And as a result, we think our product shelf is well suited to respond to that. So we see no reason for that trend not to continue.

[Operator]

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

[Gary Ho, Analyst]

My first question maybe for Lucas. I know that the leverage slightly improved sequentially, but there was also a small draw on the debt. Is that for working capital needs? I guess I just want to confirm, we should see both a decline in the leverage ratio as well as the absolute net debt going down over time. Maybe and then as a follow-on, when you look at the cash flow-generating power of the firm right now and the dividend commitments, where can you take that ratio down 12 months out from now, assuming flat AUM?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. So thank you, Gary. And you put your finger on it. It really was a working capital issue for the quarter. And if you go to our statement of financial position, when you look at cash from operations, if you look at it before, working capital adjustments, you'll notice that it's actually up quarter-over-quarter and year-over-year. Really, the impact was on working capital. And what normally ought to have been a positive working capital churn quarter for us was a negative one. And it's about $15 million, and that's effectively the amount that was on the draw -- extra draw for the line.It really is twofold. As part of our globalization of our platforms, we are onboarding everybody into a centralized payment system. We stood up a global treasury function. So ironically, we've become very good at paying our suppliers in a timely and efficient manner. Over the same time, as we've been working on the receivables and billings side in terms of consolidating that, we slipped a bit during the quarter. And so you actually had the worst of 2 divergence, which is we sped up the payments on the payment side, and we slowed down on the receivables. Most of that is already reversed through in October. So we're expecting a good churn for Q4 from a cash flow perspective.As highlighted on our last call, we're targeting 2.8x as the ratio for year-end. And in terms of as we go out next year, at this stage, we're right in the process -- in the middle of our annual budgeting process. And we're going to do a more fulsome sort of capital allocation discussion at that point and review then.

[Gary Ho, Analyst]

Okay. Perfect. And then just wanted to also get an update on the Natixis relationship. I think one of the strategy is to cross-sell with that strategic partner, both offering your products on to their boutique partners and vice versa. Just wondering how that's progressing.

[Jean-Philippe Lemay]

Thank you, Gary. This is JP. So I can provide an update on both sides. So on Natixis supporting us, distributing internationally, we've continued to progress there concretely. On a few fronts, namely the -- our infrastructure OECD strategy is now available through their wholesaling platform in the U.S. So that's something that is of great progress and, well, like I mentioned earlier in my address, will likely drive growth as well on that side.And from a Canadian standpoint, distribution initiatives from their products and their affiliates into Canada, we've also structured that effort into an even more focused sales representative or sales function and team to really be able to leverage as much as possible our institutional relationship to further support our partner and then continue to progress on the distribution activity there. So good progress, great collaboration and great strategic support as well from Natixis in general and specifically as well from Jean Raby, their CEO, who's present on our Board as well. So I know it's going very well.

[Gary Ho, Analyst]

Okay. And then maybe as a follow-on, I believe Jean-Guy is also on the phone. Maybe just staying with Natixis. If I remember correctly, there's a put call option with that partner. I forgot when that was either fiscal '21 or '22. Any update on that topic and intentions from Natixis from that end?

[Jean-Guy Desjardins]

Listen, you're taking me by surprise because it's something that I'm not thinking about at all. So if you ask me the specifics of what the put is, I don't think I could give you full details. So is it '21 or '22? I'm not even sure. Do you know? The put, I don't know. So I'm not in -- obviously, I'm not in a mood where I'm thinking about exercising it. I don't -- which doesn't mean I won't, but it's not on my agenda right now. And as far as Natixis is concerned, it's my choice. So if I decide to exercise the put, then Natixis, as long as I meet the conditions, the conditions are related to, what was it, a 5-year forecast that we had, and if we achieve the targets, then the put is alive, and I could exercise it. So I'm not thinking about that right now. And if the conditions are met and I decide to exercise the put, then we have an obligation to take it. So -- but it's definitely not on my agenda right now.

[Operator]

Your next question comes from Cihan Tuncay of Stifel.

[Cihan Tuncay, Director]

Just a couple of questions. In the disclosures, there was reference to some significant milestones achieved on the consolidation of the global operating model and implementation. Wondering if you could give us some more granular detail on what was achieved, what the margin impact was and what can we expect on that front over the next couple of quarters for further intervention.

[Jean-Philippe Lemay]

Cihan, thank you for your question. I'll let Lucas comment on the extent and timing around margin improvement in dollars. From an initiative standpoint, we've announced the global operating model structurally late June. So the last quarter was really a quarter -- a very busy quarter from a management standpoint to consolidate that new operating model, rallying the team around the direction and objectives and strategic direction. So that was an important part of our work in Q3.But from a transformation and operational -- business operation transformation, obviously, we've continued to progress on various initiatives, whether it's consolidating technological infrastructure on all of our sites and whether it is progressing and advancing very strongly in the consolidation of our private wealth operating platforms, all of these initiatives are very well tracking on budget and on time. So that's also very encouraging amongst the other initiatives I've already mentioned during the call. So we're feeling good about it.Lucas?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. And I think, Cihan, thanks for the question, and it's obviously an evolution in terms of how we're going forward with that restructuring. Sometimes, it's not a dollar-for-dollar trade-off, right? And there are sort of follow-on benefits that we get. So as an example, the Q2 announcement where we've realigned along global lines, that wouldn't have been possible if we hadn't started putting in consistent, constant global infrastructure across the board.So I'll give you an example. Even on the finance side, we've been rolling out an SAP general ledger system across the world. We wouldn't have been able to consolidate the finance function on a global basis had we not had a common backbone to work off of. So it's a bit chicken and egg. We continue to invest in systems. We continue to invest in the infrastructure. That, hence, allowed us to move forward more rapidly than we anticipated with the globalization of some of our functions. And as I mentioned in my prepared remarks, there was an addition of about $3 million of run rate savings already for the quarter.

[Cihan Tuncay, Director]

And just with regards to the performance fee, I know that I'm not asking for any specifics, and I know you won't provide them, but given the disruption that we've seen in markets and across the world this year, is there any change in how the mechanics of that performance fee could be calculated or implemented just from an operational perspective? Any changes versus prior periods? Or is it more or less the method unchanged?

[Lucas Pontillo, Executive VP & Global CFO]

I'd say the methods are not -- have not changed. I mean the volatility is what it is. I mean the performance fees could pay out in downward markets the same way as they do in upward markets. So that being said, as I say, structurally, nothing has changed there. But I'm not going to comment any further. Nice try, Cihan. We'll have to wait for Q4.

[Jean-Philippe Lemay]

But maybe an additional comment on that, Cihan, is that also performance fees can come from various ways. I mean we're various -- in various strategies, we have a component of either carried interest in some of the private markets platform. We have some performance fee and long omni strategies and obviously, performance fees on liquid also. There are various sources of potential optionality in the platform and in the fee structures we have with our different clients.

[Cihan Tuncay, Director]

Right, right. Okay. And then just one more question for me. You guys have made very good progress on reducing your leverage levels and looking to your 2022 strategic priorities in terms of AUM growth. How do you feel -- from a leverage perspective and just from the state of the industry, how do you feel about M&A opportunities today going forward to reach your longer-term strategic objectives?

[Lucas Pontillo, Executive VP & Global CFO]

I'd say there's a couple of components to your question. I'll break them up. I guess on the point of just comfort with leverage, we're very comfortable at this stage. We continue to run our stress tests. And by virtue of the fact that we continue -- I talk about the fact that we've increased EBITDA 15% year-over-year as we continue to grow, as we continue to gain operating leverage, as each quarter goes by, that only helps bolster sort of the resilience in terms of how we meet our ratios and the like. So from that perspective, we're feeling very comfortable about how we go into 2021 and, as well, are well prepared to deal with any ongoing market volatility, which we may have ahead of us.I think in terms of the capital allocation decisions in terms of where the -- where we -- how we redeploy that capital, that second part of your question. At this stage, we spent the last number of years really building out our product suite. And I think at this point, the better place to make that investment is really in making sure that we get the distribution function caught up to make sure that we're actually providing platforms and runways for all of these great strategies that we have. So I think that's really going to be the first priority for 2021 as opposed to any additional acquisitions on the manufacturing side. So I would say if we look out the next 12 months, the bigger capital allocation decision will be to invest in distribution.

[Operator]

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

[Jaeme Gloyn, Analyst]

First question is on the global restructuring savings of $3 billion. That looks great. The language in the MD&A suggests that it's being put back into the business, I guess. So does that mean that the expense line hasn't -- that hasn't shown that $3 million in run rate savings? It's just -- it's being put back to work. And so we haven't seen it yet. And then when would you expect to see that run rate savings flow through?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. So in terms of the run rate -- and thanks for the question. You're bang on. You're not seeing it fully come through because, as I said, there was some redeployment in the quarter. And JP can maybe elaborate on that a bit. But if you're trying to zero in on sort of more what is a normalized run rate for the quarter at this point, I think we did mention in our disclosures. There was about $2.1 million in that $122.5 million of SG&A, which was sort of out of character for the quarter. And so there was some catch-up compensation expense really related to bonuses. As we've had stronger performance than we've anticipated, it sort of forced us to go back and look at the bonus pool for the year. And then likewise, there was sort of this -- there's some fund charges in the U.S. as we chose to subsidize some fund expenses, which would not be recurring.

[Jean-Philippe Lemay]

Yes. And maybe I can add to that, Lucas. We are also redeploying in investments and in distribution. We're continuing to increase our head count in distribution and continuing to evolve and increasing focus and specialization on the distribution for us -- for our front across regions. So that's one source of redeployment. And the other one is the continued addition of organic initiatives in the investment -- on the investment platform And mainly this quarter and until the end of the year, added leadership on the public markets platform as part of that. So the appointment of Anik is also a testament to our continued focus on building the best possible platform going forward.

[Jaeme Gloyn, Analyst]

Okay. That's good. So Lucas, if I just summarize what you said. There's some more elevated expenses on some items, and then there's obviously some lower expenses related to COVID. So net-net, this is roughly about the right number for a run rate.

[Lucas Pontillo, Executive VP & Global CFO]

Correct. Correct. We'll have to see sort of how much -- as we get into 2021 how much we get back to the sort of travel and marketing at that sort of a normalized level, if you will.

[Jaeme Gloyn, Analyst]

Yes, of course. So I want to dig into the average fee rates again in a little bit more detail than the first question. So you talked about the trends persisting. If I look over the last 4, 5 quarters, the trend would be flat. I think I would best describe it. If you go back to Q3 '19 and sort of take averages for each of the 3 AUM segments, that's flat in institutional and private wealth and then, of course, down in retail with some of the divestitures going on. So is it reasonable for us to forecast rising average management fee rates? And to what extent would be too aggressive on that front?

[Jean-Philippe Lemay]

I can characterize in terms of our outlook of how we see our business mix going forward. We've positioned the platform to be able to capture many growing and growth opportunities going forward. In many strategies that we've developed over the years, we're at the point where -- especially in thinking about some of the private market strategies, we're at the point where we have several converging factors that are the key ingredients into pursuing accelerated growth. We have seasoned investment teams that have built a very strong track record, strong investment processes, building a reputation institutionally and beyond as well. And at the same time, we have a macroeconomic outlook that is very conducive and attractive for these types of asset classes.And also, the converging aspect as well that it fits and provides a very interesting and attractive risk/reward profile from a client need standpoint. So when you add all of these together, we feel that this is very conducive for accelerated growth on the private market side. So that's one thing. And our continued evolution of our platform on the public side also will continue to see inflows in global equities and equity strategies alike. So we feel we can continue to sustain a very strong average fee beeps, and we have the mechanism and the growth pillars in place to see a positive trend around that. So that would be kind of my strategic view on it, Jaeme.

[Jaeme Gloyn, Analyst]

Okay. And more comments on that. Just as you think about the transition to the new AUM disclosures, it would be really helpful to have at least 4- to 5-quarter history or even longer of the AUM and the fee rates by those new AUM channels to see the stability or the progression that were in those buckets. Just a comment there. You don't have to respond to that.

[Lucas Pontillo, Executive VP & Global CFO]

You're not the first to ask. So we're working on it, Jaeme.

[Jaeme Gloyn, Analyst]

Great. That's great.

[Jean-Philippe Lemay]

Exactly.

[Jaeme Gloyn, Analyst]

So I think one more for me, and I just wanted to check in on the share of earnings of the joint ventures and associates. I think when we first saw this pop into revenues in Q4 '19, the thought was that it would be, I guess, obviously uncertain but lumpy and might hit in those quarters, so Q4s on a seasonal basis. It looks like it's a little bit more consistent than that. How should we be thinking about these revenue earnings? And what sort of macro or other industry factors can we look to, to sort of forecast how that revenue line is going to perform on a quarter-to-quarter basis?

[Lucas Pontillo, Executive VP & Global CFO]

I'd love to be able to tell you, Jaeme, that there's -- there'd be some consistency to that. But unfortunately, it's just not the case. I mean these are really the sort of the value-added projects that specifically come out of our U.K. real estate operation. So it depends entirely on the queue of projects and then really in terms of the times of completion of those projects. So certainly, I think going into this year, we had some concerns relative to the disruption with the whole COVID pandemic and what that might have meant for some of these projects. Thankfully, they've continued to advance at a very reasonable pace. But as I say, it's hard to be able to say sort of what it's going to be in the quarters going forward.

[Jaeme Gloyn, Analyst]

Okay. And should we still expect like a Q4 lumpiness? Is that the cadence of Q4 revenues for that line item? Is that fair? Or is that completely...

[Lucas Pontillo, Executive VP & Global CFO]

No. It's not fair. As I say, if it comes back to just -- it's when the projects are delivered and when the keys are exchange that you effectively get to close on it, so.

[Operator]

Your next question comes from Graham Ryding of TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

My first question, just maybe on the Bel Air, just some context perhaps on how much AUM is with Bel Air and how many investment teams are there, just to give us a little bit of context around the team that left.

[Lucas Pontillo, Executive VP & Global CFO]

So you would have had 5 investment teams in total, so minus the 1 that just left. And I would say, this team was probably second to third in ranking in terms of overall size. And so you can split that up between. And as I say, where the -- I don't want to give too much in terms of assets and the like at this point because, as I say, the remaining team is really focused on retaining assets at this point, and they're all engaged and aligned on that objective, so.

[Graham Ryding, Research Analyst of Financial Services]

That's fine. That's fair. And what about Bel Air's total AUM that's within your business? Could you give us some context there?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. Sure. So they'd be -- they're just shy of, call it, just over $10 billion.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And then there were some outflows with, I think, what you called intermediaries on the private wealth side. Like is that third-party family office type relationships where they are making allocation decisions and it's sort of outside of your control? Is that what's going on there?

[Jean-Philippe Lemay]

Yes, that's exactly it, Graham. Most of the asset, the decrease that we've seen in that channel this quarter is exactly related to what you just described.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. And then on the private market side with the new disclosure, I just want to make sure I understand it correctly, but you're adding what you call committed, undeployed capital. So is that going to be incremental to the AUM that we're seeing now? Like are you -- is that how we should interpret that addition on the private market side?

[Jean-Philippe Lemay]

Yes, exactly, Graham. So if we were to publish AUM in that new framework this quarter, the AUM would be $1.5 billion higher than the $177.7 billion that we're showing right now. That's exactly it.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. And is that -- when it's committed but undeployed, is it fee-earning right away? Or do you only earn fees on it once it gets deployed? How does that work?

[Jean-Philippe Lemay]

So the specific $1.5 billion is not fee-earning as it stands. We have, in the AUM, a portion of undeployed that is actually fee earnings. That's why we are putting in the fee earning, but that is undeployed. It's a small portion, maybe $200 million, $300 million there. But the $1.5 billion that we're going to show going forward are really committed capital, like commitment signed subscriptions but not fee-earning at this point. It gives an outlook in terms of the -- if you assume that, that amount is deployed, let's say, on average, between 6 and 12 months, it gives an outlook in terms of future fee-earning assets coming in.

[Graham Ryding, Research Analyst of Financial Services]

Understood. Okay. And then just my last question would just be for Lucas. Just on the capital outlook, what is your -- do you have a target for a sustainable level of leverage? You've definitely made progress on that front, but I still think, relative to some of the peers out there, you are carrying a higher level of leverage. What is your comfort level or target on the debt side?

[Lucas Pontillo, Executive VP & Global CFO]

As I say, we're targeting 2.8 for Q4, so just reaffirming that target from the previous call. And as I say, going forward for next year, I think we're going to look at it in a very holistic perspective in terms of just overall capital optimization, given the handful of initiatives that we're looking at. And I think, frankly, a lot of it is just going to depend on how quickly we get out of this pandemic and do we go entirely on offense or are we still playing a bit of defense relative to, let's say, where the markets are at this stage.

[Operator]

[Operator Instructions] Your next question comes from Jaeme Gloyn of National Bank Financial.

[Jaeme Gloyn, Analyst]

Just 2 follow-ups here. First one, on the share-based comp in the quarter, down from the previous quarter but still back to, I guess, let's say, a normal historical level. Is this the -- is it fair to think of share-based comp as continuing around the sort of $5 million, $6 million level per quarter?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. Yes, that is fair. There'll be some marginal increase in the next quarter just by virtue of some of the new hires that came in, but you'll see that it'll -- that, that 5% to 6% range is a good range, Jaeme.

[Jaeme Gloyn, Analyst]

Great. And then last one is just a little like modest activity on the NCIB. The DRIP is still active. What's -- I guess, what's the plan for NCIB and DRIP and, let's say, these sort of ancillary capital raising or deployment initiatives?

[Lucas Pontillo, Executive VP & Global CFO]

There's a couple of ways we're looking at it at this point, and hopefully, you got the emphasis on the 15% year-over-year revenue and EBITDA growth. And we're sitting here looking at the stock price having been down 12% on the same period. And we're saying to ourselves, there's obviously a disconnect there, so reinvesting in our stock is the right thing to do for shareholders. The question is, at this point, sort of how much you go at it. To date, what we've done has really been to manage any dilution coming out of that. And we've organized the DRIP in the same fashion, sort of when we were in Q2 and playing full defense in the face of the pandemic. We were issuing shares with the DRIP to just preserve cash. As we launch the NCIB, we're now actually -- we're going to buy shares on the open market to fulfill the DRIP requirements. And as I say, we're going to do a very holistic assessment of sort of how we go forward with our capital allocation. But as I say, I think when you compare the performance that we've had relative to the disconnect in the stock price, we continue to look at this as something that should be an attractive way for us to return capital to investors.

[Operator]

There are no further questions at this time.

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

Thank you, Takkan. That concludes today's call. Thank you for joining us.

[Jean-Philippe Lemay]

Thank you, everyone.

[Operator]

Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.