Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2018-Q4

[Operator]

Good morning. My name is Jessa, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fiera Capital's Earnings Call to discuss financial results for the fourth quarter and 2018 fiscal year. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I'll 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]

[Foreign Language] Good morning. [Foreign Language] Welcome to the Fiera Capital Corporation Conference Call to discuss our Financial Results for the Fourth Quarter and 2018 Fiscal Year. 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 would like to invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at fieracapital.com. Also, the comments made on today's call and some of our replies to analysts' questions may deal with forward-looking information, which are subject to risks and uncertainties. Factors that may cause our 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. I'll now hand the call over to Vincent.

[Vincent Duhamel, Global President & COO]

Good morning, everyone, and thank you for joining us today. Let me begin on Slide 3 with the overview. This morning, we announced an agreement to acquire publicly traded, Integrated Asset Management, for a total consideration of $74 million, which represents total enterprise value of $64 million and $10 million of adjusted cash on hand. IAM is an Ontario-based independent investment managers with $2 billion in AUM with an additional $1.1 billion of committed capital, focused on 2 strategies; private debt and real estate, which will become part of Fiera Private Lending and Fiera Properties. This transaction will transform our private lending business into a leading pan-Canadian nonbank lending platform and accelerate our growth in real estate with complementary niche offering in industrial properties. We are excited to soon offer our clients an even wider suite of investment options in the private alternatives asset class and welcome a well-seasoned team with a long track record of performance. What's more, we expect this transaction to be accretive to both 2019 EPS and adjusted EPS. Now onto the fourth quarter. We won $1.4 billion in gross new clients in AUM in North America and internationally, despite the Q4 market volatility that had a negative impact overall on our AUM. But 2018 was a year of financial and operational growth. We continued to deliver positive results, despite the difficult market conditions experienced at the end of the year. We grew our assets under management by 6% to almost $137 billion and posted nearly 20% growth in both revenues and adjusted EBITDA. We generated adjusted earnings per share at $1.07. We made 2 strategic transactions in 2018 and announced a third, spanning our high net worth institutional and private alternative businesses and striving in 3 geographies; Asia, the U.K. and North America. Upon closing of the third acquisition, expected within the next few weeks, we will have added almost $8 billion loans to AUM, while expanding our solutions toolkit.For the year, the firm brought in $9.3 billion in gross new asset clients, the client assets, we're very proud of this performance. Before we review our operations, let me take a moment to briefly comment on a difficult market environment in the fourth quarter. With regards to equity markets, the elevated volatility in Q4 and an industry-wide impact on our flows significantly accelerated them across the board. While our flows were certainly influenced by market sentiment, our defensive asset mix grew by competitive advantage in managing exposure to risk to the benefit of both clients and shareholders. Since December 31, markets have bounced back nicely and are off to a better start in 2019 with stronger month in January, February and March to date. And now on the review of our operations on to Slide 4. In our Canadian division, we grew our AUM and delivered excellent investment performance in 2018, driven by top quartile ranked Global Equity, Canadian Equity, Systematic Investment Strategies, and Active and Strategic Fixed Income teams. In the high net worth segment, CGOV is contributing well to our cash flows and margins. And looking ahead, our teams have a number of new strategies, they will be deploying across equity, fixed income and private alternatives.What's more. I'm very pleased to report that we streamlined our custodians to 1 single vendor during the fourth quarter. This represents an important milestone for our Canadian division and will be key in improving operating efficiencies. Lastly, in February, we closed the previously announced sale of 9 of our retail mutual funds to Canoe Financial, while expanding our subadvisory relationships in the Canadian mutual fund business. Regarding our U.S. division, visibility is growing in our pipeline of which opportunities in this market remains at approximately $2 billion with more profitable mandate diversified across our equity fixed income, private alternatives and emerging market strategies. Transformation initiatives are completed, which means that our operations in the U.S. are now fully scalable. In addition, the Fiera Capital Emerging Markets Asia Select Fund, a fund that we've been managing since December 2017, is now contributing positively to EBITDA in 2018. Moving on to Bel Air. This segment grew substantially in AUM for the year. In the fourth quarter, we launched a new allocation fund to co-mingle together smaller accounts and set in motion a number of initiatives to improve efficiency and client experience. In our European division, where we continue to build out our presence and capabilities, we have decent pipeline of opportunities and have won several new mandates, including in the alternative investments, which will be funded in next few months. These wins are partly fueled by the success of our concerted cross-selling efforts into our U.S. and global equity funds. We are also marketing our Clearwater agent private credit strategies in our European markets. Over the coming year, we will continue to diversify our product mix, which will certainly -- will still more heavily focus on emerging markets. From a sales perspective, 2018 was a great year and we expect our people to continue driving performance as we work to position Fiera Capital among the top 100 investment managers in the world. On that note, we're proud to have launched our Global Respect and Inclusion Policy to foster an inclusive and diverse culture that will drive innovation. We see this as a first step on our journey to being an industry leader in the diversity space for the benefit of our employees, investors and shareholders. Turning now to private alternative strategies, on Page 5. We continued to grow this attractive asset class, adding $1.3 billion in AUM in 2018. We won new mandates across this investment category as investors increasingly seek out this asset class, stable and recurring cash flows and the unique level portfolio diversification that it brings. For the year, our flagship CORE Fund at Fiera Properties reported the record investment volumes with over $600 million in completed transactions and is already seeing a strong start for 2019. Also, in real estate, we announced the acquisition of Palmer Capital Partners, a strategic acquisition with over $1.3 billion in AUM and $350 million managed through joint ventures that will expand our presence in the U.K., a key area of opportunities for us. More recently, in January, we concluded a long-term partnership in our infrastructure platform with EllisDon, a major North American developer, constructor and facility service provider, that will enhance our deal flow and efficiency in which we deploy capital for clients. Continuing in our Private Alternative Investments platforms, Fiera Comox launched its first private equity fund in the fourth quarter. Fiera Private Lending had a record year in all fronts, AUM, revenues and EBITDA. And in Q1 2019, Clearwater launched a direct lending fund. Clearwater continues to attract significant interest of investors, looking to gain exposures to the Asia credit space. We have continued to grow the proportion of our alternative assets relative to total AUM, in line with our strategic plan. As of December 31, 2018, alternative assets made up $10.6 billion or 8% of the firm's total AUM. The Palmer and AIM -- IAM, sorry, acquisitions when closed, should add approximately $3.3 billion of AUM to our alternative platform. As a reminder, as we continue executing in our strategic plan, we expect to grow our alternative investments to represent at least 10% of the firm's AUM or 25% of revenues. In summary, it's been a very good year, focused on improving profitability and our shareholders return, even in a year of market corrections and the high volatility. We're very well positioned to move forward on our strategic plan as we enter 2019. I will now like to turn it to Lucas for our financial highlights.

[Lucas Pontillo, Executive VP & Global CFO]

Thank you, Vincent. Turning look to Slide 6 for a look at the Q4 2018 versus Q4 2017 results. AUM increased 6% year-over-year, driven by acquisitions and positive impact of foreign exchange. Revenues increased 11%, mainly due to the organic growth, combined with the additional revenues from our CGOV and Clearwater acquisitions. As a result, our adjusted EBITDA is up 9% to $39.3 million for the quarter. Looking at Slide 7 for the quarter-over-quarter comparison. Assets under management decreased 5% from the previous quarter to $136.7 billion. This was primarily due to the market depreciation and adjusted for FX of $3.6 billion, and some client rebalancing. As Vincent noted, we did win $1.4 billion in new mandates in the fourth quarter, mainly in our institutional segment. To note, that in line with our strategy of producing higher revenue generating mandates, many of the strategies won carry higher basis points than certain of the outflows recorded in the quarter. As such, revenues increased 14% sequentially, mainly due to higher performance fees as these tend to get paid in the second and fourth quarters, combined with the full quarter of contribution from Clearwater. As a result, adjusted EBITDA was also up over 7% quarter-over-quarter. Finally, adjusted EPS was $0.29 in the fourth quarter, up from $0.27 in the previous quarter. On an IFRS basis, we posted a loss of $0.02 per share compared to EPS of $0.01 per share in Q3. Turning to Slide 8. For the full year, our revenues grew 18%, driven mainly by the full year contribution from Fiera Capital's Emerging Markets Asia Select Fund, as part of the CNR transaction. The 2018 acquisitions of CGOV and Clearwater as well as organic growth, mostly from new institutional sector and growth continued in our Private Alternative Investments. As such, rolling last 12 months revenues continue to trend positively. Turning to Slide 9. Quarterly adjusted EBITDA increased 9% year-over-year, driven primarily by the CNR transaction and the CGOV acquisition, combined with revenues from the development of the Private Alternative Investments strategies. This was partially offset by an increase in operating expenses to support the firm's growth and expansion. Looking at Slide 10. Our rolling 12 months adjusted EBITDA continues to trend positively. As Vincent noted, initiatives such as streamlining our custodians had a direct impact on improving our operating efficiency. In order to reach our probability objectives, we have a number of efficiency initiatives focused on standardizing our processes, reducing duplication and leveraging shared resources that are in place. Also, we expect the margin contribution from the private alternative segment to increase over time, as the various parts of our portfolio realize their full potential. The addition of Integrated Asset Management is a perfect example as we expect this business to provide margins in excess of 40%. On Slide 11, you can see that our high revenue-generating solutions continue to yield positive results as the average basis points earned over AUM continues to trend upwards. This is a result of our ongoing focused on value-added strategies. In Q4, the average basis points earned in the base management fees was 37.6%, up from the previous quarter, driven in part by curtailing of lower margin accounts reflected in the Q4 outflows. Turning to our next slide, you can see our geographic mix. A recent transaction support our push for global expansion. Palmer Capital, when completed, will mark our first real estate acquisition outside of Canada and our second in the U.K. market, following the acquisition of Charlemagne in late 2016. During the year, we added senior management talent in Europe, which should also yield benefits in terms of business development. Even further beyond our borders, acquiring Clearwater in March 2018, increased our growth potential in Asia. We started on this path of diversifying revenues a few years ago. In 2018, 50% of our revenues were generated outside of Canada compared to just 30% back in 2015. I will now hand the call back to Vincent, who will review our investment strategies and related performance.

[Vincent Duhamel, Global President & COO]

Thank you, Lucas. 2018 and particularly, Q4 was defined by the volatile financial markets and this was certainly reflected in investors sentiment. That said, I would like to highlight the impact of Fiera Capital with the market decline in global equities during the quarter was partially offset by 68% weighting of our AUM and fixed income and our alternative assets, which were less impacted by the market fluctuation. Looking at Slide 13 for our fixed income strategies. Despite the high volatility that marked the fourth quarter of 2018, most of our fixed income strategies generated positive results compared to the benchmarks in 2018. Our active institution fixed income team closed the year with continued positive performance as a result of effective duration management and has been a very strong contributor in its first year. Over the last 5-year period, most of our strategies delivered excellent performance, outperforming their benchmarks, their relative benchmarks, which is reflected in the balance mandate as well. Turning to equity solutions on Page 14. Overall, 2018 was another good year for most equity strategies as fund managers maintained their quality focused. In general, strategies outperformed their benchmark during the year with many of those also ranking at top quartile. Given the market environment, our teams were able to demonstrate the effectiveness of many of our defensive strategies. Our recently launched low-beta strategy performed very well through year, end of the year volatility and continues to add value year-to-date for investors. Turning to Alternative Investments on Slide 15. Our private alternative funds performed very well in 2018. The demand is there and these strategies are gaining more and more traction as a result of offering attractive returns with lower degree of volatility in the local relations traditional asset classes. To that effect, we continue to dig up solutions that generate a steady stream of returns through investments in real estate, infrastructure, private lending, Asia credit, agriculture and most recently, private equity. Our strategies are building strong track records with the core real estate funds, for instance, reporting top-quartile performance over 1, 3 and 5 years. The strategies we added 3 acquisitions are also contributing well in terms of performance. Turning to Slide 16 and to conclude. After an extended period of calm, volatility reasserted itself in 2018. That said, we view the latest pullback in equity market as a short-term sentiment-driven correction within a cyclical bull market. Encouragingly, the conditions for pronounced global economy deceleration remained elusive at this time, and the outlook for global growth remains reasonably attractive. In addition, there is some early signs that the fiscal stimulus from both the U.S. and China should help stabilizing the global economy in 2019 and provide a buffer as major central banks take cautious and coordinating steps towards monitory policy normalization. We believe that it's premature to call an end to the global expansion, which should provide some scope for equity markets upside this year. Looking ahead, our 2022 strategic plan is a roadmap for creating long-term value for our shareholders. Based on our 4 pillars of people, process, performance and partners, we're diligently executing to establish Fiera Capital as a top-tier multi-strategy asset manager. The plan is deeply rooted in diversification and scalability, 2 components, which will drive both our top and bottom lines in the years ahead. From a strategic perspective, we are well on our way to achieving many of our objectives. The foothold, we have gained in various geographies, gives us a strong base to further expand our presence in attractive markets and make our solutions more readily accessible to clients. We will continue to work hard to harmonize our platform and build the unified global brand, one that brings us closer to our clients and is synonymous with performance and innovation. This is also a core element of our strategic plan and will be a key theme as we integrate current and future acquisitions. We will continue to pursue growth organically and through M&A. From an organic growth point of view, globally, our pipeline is robust and promising, notably in the institutional segment. From an M&A standpoint, when looking at acquisition, we always evaluate 3 key factors: first and probably the most important one, cultural fit, there needs to be a strong cultural fit in terms of talent, including at the senior management level; second, we look at complementarity of those strategies, we want strategies that add value to our existing suite of solutions; and lastly, financials, the target has to meet our financial criteria. From a product standpoint, delivering out alpha through customized solutions is at the foundation of our approach and a competitive advantage for us. As such, we will soon be offering new investment strategies to our clients, including access to Clearwater strategy as well as the new global low beta and global small-cap strategies that will be launched in the coming months. They support the highly diverse nature of our portfolio in terms of both geographies and types of products. Our private alternative solutions, for instance, provide strength and stability of income, opportunity for growth and sector diversification, and most importantly, sustained performance. In this segment, we expect to continue to drive growth as we have done over the past decade, by acquiring stakes in investment-class firms, underpinning them with operational and strategic support and retaining their talented investment professionals to focus on delivering strong, positive performance. From a profitability standpoint, cost containment and increased efficiencies will continue to be a major focus this year. We are confident that the initiatives we put in place thus far will soon begin delivering results. We expect the ongoing addition of more profitable strategies and a higher basis point mandates in our portfolio as well as our 2 acquisitions to positively contribute to margin accretion going forward. Finally, enhancing the firm's distribution capabilities will remain a priority. To service our increasingly diverse and progressively more global clientele, concerted collaboration efforts between our global distribution teams is critical. As we [ work ] as an organization, we remain focused on creating value for our clients and our shoulders. We're excited by the opportunities that lie ahead. This concludes our prepared remarks. Thank you for listening in today. I will now turn the call back to the operator.

[Operator]

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

[Nikolaus Priebe, Analyst]

I wanted to start a question on flow activity. In your prepared remarks, you alluded to the impact of market volatility on investor sentiment and the corresponding headwind you encountered for flows in the fourth quarter there. Can you just give us a sense of how the improvement in equity market returns on a year-to-date basis might have impacted sentiment and the flow activity that you're seeing in your funds here in the first quarter of 2019?

[Vincent Duhamel, Global President & COO]

You mean in terms of the -- well, in terms of the asset level or in terms of the level of activity that we're seeing from clients coming through or coming in?

[Nikolaus Priebe, Analyst]

Just in terms of the -- how the net sales have evolved? Obviously, the fourth quarter was a pretty challenging one.

[Vincent Duhamel, Global President & COO]

Well, I would say, in some of the -- we've seen some contribution coming through. There has been, especially, I would say, within the emerging market space has been a little bit more active than we've seen before. Last year was a very difficult emerging market. And clearly, we're seeing large institutional investors that are reallocating toward this asset class that was probably undervalued after the volatility we experienced in 2018.

[Nikolaus Priebe, Analyst]

Okay. So I guess, like in summary, have you seen an improvement in the net flow activity in the first 3 months of this year?

[Vincent Duhamel, Global President & COO]

Well, if this goes -- we've seen in the net flows -- we have to be careful because net flows -- certain net flows -- the net flows that we're seeing tends to come at much higher margins than the type of net flows that we've seen coming out, especially, in the fourth quarter of this year. So I wouldn't judge just the net flows by themselves, it's more what's attached to the net flows, which is also more important for the shareholders.

[Nikolaus Priebe, Analyst]

Okay. Maybe I'll just switch gears to the acquisition. I'm just wondering if you can give us a little bit of color, maybe this is a question for Lucas, just on what proportion of the cash component of consideration you would expect to fund by drawings on the credit facility?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. The deal has been structured, so it's a -- we've got equity value of $74 million, enterprise value of $64 million, and there is effectively a $10 million cash buyout that's included in the price. We are going to structure it as a 75% cash payment and 25% exchange in payments with Fiera Shares. I mean, you can assume that the cash portion will effectively be drawn on debt at this point.

[Nikolaus Priebe, Analyst]

Okay. And then can you just remind or maybe confirm for us that the covenant on the credit facility, is that establish as a maximum -- is it 4x debt-to-trailing EBITDA?

[Lucas Pontillo, Executive VP & Global CFO]

Correct. We can go up to 4x on the agreement, depending on certain conditions and triggers in there. But we will have the ability to go up to 4x.

[Nikolaus Priebe, Analyst]

Okay. And then when that ratio is calculated, does that include the converts as well?

[Lucas Pontillo, Executive VP & Global CFO]

It does not.

[Nikolaus Priebe, Analyst]

I'm sorry, it does not?

[Lucas Pontillo, Executive VP & Global CFO]

It does not, no.

[Nikolaus Priebe, Analyst]

Okay, okay. And then maybe just lastly, one last...

[Lucas Pontillo, Executive VP & Global CFO]

It's treated as an equity at the end of day, given its convertible nature, so...

[Nikolaus Priebe, Analyst]

Great, okay. And then one last one on the acquisition, like a -- it looks just -- at least on the surface, it looks like they've had -- IAM has had pretty good momentum over the past few years, both in earnings and fundraising success and share price has done pretty well. Can you just comment on why the management team was receptive to the idea of a buyout?

[Vincent Duhamel, Global President & COO]

Well, I would argue that -- coming into that point, which Fiera probably gives them a much better leverage and scalability of the business opportunities that they can go after. I think the realization that when you get to a level of where it is now $10.6 billion of AUM in the alternative space and the focus that we have in that segment just makes it more attractive platform for them to scale up.

[Operator]

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

[Gary Ho, Analyst]

Just to start off, again, just on the question on the acquisition. So I know that Fiera has a real estate on the lending fund, can you maybe elaborate on what is different with the Integrated Asset Management strategies? And what that platform brings to table? Perhaps you can talk about maybe various distribution capabilities, clients? And maybe give us the sense of fees if it's different than what you guys offer currently?

[Vincent Duhamel, Global President & COO]

Did you say, distribution of clients, is that what you mentioned?

[Gary Ho, Analyst]

Yes, distribution of clients or maybe fees, can you elaborate on those?

[Vincent Duhamel, Global President & COO]

So I would say that the -- from an investment -- the private lending is just a different sector. There are different geographical exposures that we gain within IAM. That gives us a better footprint, especially, in the Ontario market. In regards to the real estate components, they tend to be much more focused on industrial real estate, smaller industrial real estate, that tend to have very -- they are more management-intensive in terms of the maintenance of those, but these generate better yield for us. So we do have the management team. We have the IAM investment team that has been tremendous at managing this asset class and I think it's just going to enhance the overall returns in total for all of our clients. From a distribution standpoint or the client sale standpoint, what I would say, there is a number of clients that we have in common. So I think it's just an expanded -- and they have some very high-quality clients within IAM that it is just going to create, I think, a better menu or a larger menu for them to be able to tap on with the rest of the alternative offering within the Fiera universe.

[Lucas Pontillo, Executive VP & Global CFO]

I would also just add on the private lending side. This very complementary from an overall duration of the loan portfolio. So the Fiera Private Lending's current book, loans generally range up to a 24-month period. Whereas the IAM's private lending business really lends out in the longer tail of the curve, so business does 5-, 10- and 50-year loans. So this is really going to be, sort of, a bar-belling strategy in terms of our loan duration out there.

[Vincent Duhamel, Global President & COO]

Good point.

[Gary Ho, Analyst]

And the fees are similar?

[Vincent Duhamel, Global President & COO]

I think they are, yes. Sorry, Gary, I don't know the detail of that. [indiscernible] financials they are not too far away.

[Gary Ho, Analyst]

Okay, okay. Got it. And then maybe can you talk about whether the investment management professionals that's within IAM, are they locked up for a period of time?

[Vincent Duhamel, Global President & COO]

The investment professionals are, yes.

[Gary Ho, Analyst]

Okay. Is that like a 3- or 5-year time frame?

[Vincent Duhamel, Global President & COO]

Again, there is too much details. I don't know yet at this point, I'm just wondering that, need to ask John on this.

[Gary Ho, Analyst]

Okay.

[Lucas Pontillo, Executive VP & Global CFO]

And I can say that the management from both teams is, both the private lending and the real estate team are very committed and excited about joining the Fiera Group, given the complementary and the synergies that we spoke about, and really continuing to grow those businesses.

[Gary Ho, Analyst]

Okay, okay. And then, Lucas, you mentioned, the synergies. Can you maybe talk about the cost synergies, I think there are some with this acquisition? What are they related to and the timing when you expect those synergies, is it...

[Lucas Pontillo, Executive VP & Global CFO]

Yes, a large portion will actually come, as you know, I mean, it's a publicly traded company and they have 2 divisions within it. So effectively what now sits in corporate for them will no longer be coming over with us, and what we will be absorbing into Fiera will actually just be the 2 operating divisions. So that in and of itself will create synergy preclosing at the top of the house.

[Gary Ho, Analyst]

Got it. Okay. That's helpful. And then next question just on the adjusted EBITDA margin, 25.1% for the quarter, 25.4% for the year. You guys historically were targeting, kind of, 30% run rate by the end of this year. Is that goal? Are you guys still working towards that? And if so, what are the bigger components in achieving that? Is it growing revenue faster or tighter grasp on SG&A?

[Vincent Duhamel, Global President & COO]

Well, as of now, we've always stated and everything that we've done as we started the plan -- the 2022 plan has always been in regards as trying to expand the margins of the organization going forward from an operational standpoint. And we're doing that through the scalability and operating efficiencies, we've done it with the [ services ], we've done it in the U.S., we've done it, as we talked before, with the OAMS and CRMs, all the different systems that we have and tried to create one major platform that allows us to scale at the level that we need with those systems. The other one is organic growth. Clearly, the organic growth and shifting a lot of our assets from lower margins towards higher margins business, and growing that part of the book has been a key focus. We've also restructured the whole distribution. Big part of that is really to bring [ Nate Riggs ] to coordinate between the divisions and in the geographies to achieve -- to align distribution completely with corporate objectives of the organization. Acquisition is also the other leg, which we're planning this project and working on that margin expansion. Acquisition has been -- the accretion and diversity that gives us all the revenues for the business. So those are all the things that we control. The part that we, unfortunately, don't control and that was a really good lesson from Q4 2018 is the market, the beta of the market. I think one of you have picked up on that and it's really important to focus on the operational aspect of what we control in the business. And, no, we're trying not to get too worried about what will be the volatility of the market or whatever the market environment is. So focus is still and it's still a major focus of the organization, the margin expansion. Where that's going to land at different points in time, we can't -- we don't know because we see the market volatility in general with assets market in the last quarter.

[Gary Ho, Analyst]

Okay, that's very helpful. And then maybe just lastly. With this acquisition, the net debt to EBITDA, I think, it's in the mid-3s. Are you guys comfortable with that? And how do you guys plan to, kind of, grasping that down over time?

[Vincent Duhamel, Global President & COO]

We are very comfortable with that. It is well within the covenant that we have with the bankers. We have the -- the sensitivity of our revenues is very stable. We're -- it's relatively easy for us to service. So not a problem for us.

[Operator]

Your next question comes from the line of Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Just follow up on the last. Can you confirm what the actual debt-to-EBITDA multiple is as of Q4 and then pro forma the IAM deal?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, we will close -- we closed the year off at roughly 3.1 and our expectation is with the 2 acquisitions that we announced that we'll get to about 3.5 at the time of closing.

[Graham Ryding, Research Analyst of Financial Services]

Got it. Is Palmer in your numbers now or no?

[Lucas Pontillo, Executive VP & Global CFO]

No, it is not. The transaction is not close yet, but it is in the 3.5 amount that I'm mentioning.

[Graham Ryding, Research Analyst of Financial Services]

Yes, okay. That's helpful. Just on the margin front. Just wondering If we can go at it another way maybe, what sort of performance fees and AUM growth do you need in 2019 in order to get to a 30% EBITDA margin?

[Vincent Duhamel, Global President & COO]

Well, we don't forecast, we don't target on that. So our performance fees is also very volatile, and we try to manage the business based on the base management fees that we're able to generate as an organization. Performance fees is a great bonus, as is the icing on the cake that we can capture after. So we don't target, we don't forecast on those.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Can you get to a 30% EBITDA margin without performance fees?

[Vincent Duhamel, Global President & COO]

It'll depend on what the markets are going to be doing. Basically, we don't focus on that. Our focus is the overall market -- margin expansion that we can achieve. Yes, the focus on that scale -- on the scalability of the systems and the efficiencies that we can gain and how we can grow the business from base management fees standpoint through organic growth and some of the accretive acquisitions that we can make. It's all I could say at this point of time because with the Q4 that we're seeing -- the last year, in 2018, it becomes a very tough one to -- 2 components we don't control there.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. And then your AUM targets. Can you remind or confirm, and I think $200 billion by 2020 and $250 billion by 2022. Is that right?

[Vincent Duhamel, Global President & COO]

Well, we've always -- yes, we've always stated. The one in 2022 was -- we said for 2022 is not $250 billion. We said in 2022 we want to be in the top 100 asset managers in the world. And that's a key differentiator because the important part, especially, for our clients is not the amount that is important, is where you are situated, gives us enough resources to be able to expand and to have the offering that is important for those clients. So we've always stated, wanted to be in the top 100. To date, being in the top 100 means to be at approximately $250 billion.

[Graham Ryding, Research Analyst of Financial Services]

Got it. Okay. And then just my last question if I could. Just the dividend increase this quarter, I think the payout ratio is moved up to 75%. Are you happy, sort of, pushing that up or are you considering slowing down the rate of dividend increases?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. We monitor our dividend policy the same we do with the rest of our capital structure looking at our debt levels, looking at what's in our acquisition pipeline. So all of this is part of a holistic strategy for capital management and we look at it on an integrated basis. So yes, we're very comfortable with where we're at, at the moment.

[Operator]

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

[Jaeme Gloyn, Analyst]

First question is on that margin. I just want to get a sense from your calculations or your estimates, how much would be the equity markets have impacted the EBITDA margin? So, for example, if you were to allow, let's say, flat line AUM, that decline in AUM and lost revenue, how much of an impact did it have if you were to exit out?

[Vincent Duhamel, Global President & COO]

So first of all, the decrease in AUM -- there are a few factors. I think that are interesting here and the decrease, the volatility that we're seeing in the equity markets and the markets in general. First of all, I think if you look at our base management fees for 2018, this increase at a very steadily and very healthy clip throughout the organization. Where we have been affected is with our performance fees for 2018. You see it, I think in general, there was an expectation that we'd achieve the same thing we've done for last 3 years, which in case the market volatility that we've seen, is just -- wasn't possible. We've seen some redemptions coming through in the latter part of December, very large redemptions coming through within some of our most successful strategies at Fiera. What I would say there is, those strategies, those redemptions came in from clients that are paying extremely low fees as they've been clients with us for very, very long time, and now that's putting up a lot of capacity that allows us to sell those strategies, sell that capacity at more probably than double the price that we sold it 10 years ago. So it's not just the equity market that's been negative, there's a number of those factors that have played against us. Some accounting also from the -- and some of the operational capital from insurance standpoint that we need to do that will be -- that has affected that. I think we're stating those in our MD&A discussions.

[Lucas Pontillo, Executive VP & Global CFO]

Correct.

[Vincent Duhamel, Global President & COO]

Hedging, so those all beta effect that are not about the operating -- the operations of the business. Again, the operations of the business, I think, is improving -- we're proud of what the team has done on that space, improving very well and we'll continue to improve in this year and the next year after that.

[Jaeme Gloyn, Analyst]

Okay. So if I -- would it -- is it so safe to think about performance fee expenses or performance-based compensation as 40% of performance fee revenue?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. It's about 35% to 40% depending on the different strategies. It's not all the same.

[Jaeme Gloyn, Analyst]

Okay. So if I use that percentage and I look at SG&A as a percentage of base management fee revenues, I mean that ratio ticked up quarter-over-quarter and higher than at any other point in 2018. So I'm just -- and the guidance was for that to drift lower into 2019, of course, and further erode into 2020. So is there anything going on with the, let's call, a core SG&A -- the core SG&A expenses, that would have had that increase in the quarter more than you would've expected?

[Lucas Pontillo, Executive VP & Global CFO]

So there is a couple of elements, you just hit on one, which is the expenses associated with the performance fees. So because we tend to book performance fees in Q4 versus Q3. Part of that increase in SG&A is just the path along those expenses, which we wouldn't have had in the previous quarter. We also had some impact relative to the foreign exchange impact and the interest rate impact in Q4. You will see some amount coming through the interest expense and outlook on cost and other obligations, which went up quarter-over-quarter. And that's effectively as a result of as I said -- we had on our interest rate swaps with regards to our short and longer-term positions that was impacted in Q4 by the movement of rates as well as some FX impacts. So that's what's driving part of the SG&A as well. I think between those 2 items, you will explain a large portion of that quarter-over-quarter delta.

[Jaeme Gloyn, Analyst]

So I'm just a little bit confused because the SG&A number of $122.4 million wouldn't include any impact on the interest expenses, which is included in the separate line item below EBITDA. Is there something that I missed that's included in that SG&A of $122.4 million?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, there is -- so there is -- the interest on long-term debt and other financial charges, which was $10.1 million for the quarter, and so that was $4.7 million increase quarter-over-quarter, that is included in the SG&A.

[Jaeme Gloyn, Analyst]

Okay. We'll have to probably take that one offline because I guess I'm just not seeing that. And then second question. Just again, back on the leverage. It's now at 3.5x. I believe, the previously stated guidance for your comfort range on the EBITDA -- sorry, funded debt-to-EBITDA level was 3 to 3.5x, given how acquisitive the company was going to be, not necessarily that you would bump it up to 4x. Is it safe to assume that you've increased that comfort range from maybe, lets say, 3.5 to close to the covenant level of 4x, or is this really at the top end of your comfort range?

[Lucas Pontillo, Executive VP & Global CFO]

I think at the end of the day, we're always looking for opportunities and so the comfort range is certainly in that 3 to 3.5. That being said, if opportunistic opportunities come along, and we have the flexibility to go up to 4, in the agreement, we will certainly take advantage of that.

[Vincent Duhamel, Global President & COO]

But Jaeme, to that point though, I think over a longer time period, we will be -- more comfort zone within the 3 to 3.5, that has not changed.

[Lucas Pontillo, Executive VP & Global CFO]

The pushing to 4 is a short-term element of really [ the same being ] opportunistic with acquisitions, which we expect to be accretive and reduce that ratio back down to the comfort level in short order.

[Jaeme Gloyn, Analyst]

Okay. And if I think about the purchase price obligations on the balance sheet, is it safe to assume that those obligations will be repaid using shares whenever possible as opposed to cash?

[Lucas Pontillo, Executive VP & Global CFO]

That is correct.

[Jaeme Gloyn, Analyst]

Okay. And then maybe just a couple of granular, more granular questions on the revenue. I know that revenues looking very strong in this quarter -- year-over-year and then quarter-over-quarter as well. Could you just, sort of, give us little bit more color as to what's in that strong performance? It looks like there's some alternative investments that's rolling through that line item?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, so you're spot on. There's a big component in there, which is the alternative performance fees that flow-through. There was also just more of an accounting markup, which was related to IFRS 15 and it just had to do with how we accounted for expenses in the mutual fund business that we had in Canada, and effectively, it was just a gross-up, so you're seeing, sort of, an additional $3.5 million of revenue go through that line. It's actually EBITDA-neutral because it's just got an offsetting expense, it's just the way it was accounted for. So that's bumping it up somewhat. And then we also had some additional uplift in the CNR amount that went through the revenue in terms of a distribution fee that we received on that mandate.

[Operator]

Your next question comes from the line of Cihan Tuncay from GMP Securities.

[Cihan Tuncay, Analyst]

Just a couple of follow-up questions on the IAM transaction. Could you talk a little bit about what the performance has been in those funds over the last, call it, 1 to 3 years?

[Vincent Duhamel, Global President & COO]

Well, the performance I have seen and tried to reflect this in our [indiscernible] a while ago, [indiscernible] should be -- should have it around the better performance we had seen with relatively good. I'm trying to look at my notes here. It was part of the due diligence, but a few weeks back. I've been focused on [indiscernible].

[Cihan Tuncay, Analyst]

Or maybe relative to some of your complementary products in the Fiera Private?

[Vincent Duhamel, Global President & COO]

Well, they have different profiles, they have different profile in background. But I'm just looking at -- here we go. So looking on -- they've had a series of different funds, which -- no, most of them has been able to deliver everything above their benchmark. So if you look at the private debt, I think between 1-year, 3-year, 5-year, they have able to outperform their benchmarks. And remember, they have much longer durations in some of our strategies. And if you look at their 3 last real estate funds, each and every one of them were also doing better than their benchmark. So for us, it's a good complementary with what we already have in the offering and probably going to be able to leverage that within the organization. And I think it speaks for the quality of clients also that they have in those strategies, very institutional like.

[Cihan Tuncay, Analyst]

Okay. And just on the $1.1 billion of uncommitted capital. What's the time line on deploying that? Or is there any...

[Lucas Pontillo, Executive VP & Global CFO]

Yes, so most of that was in the one of the most recent closed-in private debt funds, that was almost $900 million that was raised there. The expectation is that will probably be deployed over the next 3 years. So you can probably think about that being deployed evenly over that 3-year period at this point.

[Cihan Tuncay, Analyst]

Okay. And just switching gears, just back to the G&A side. You mentioned in your prepared remarks about the custodian consolidation in Canada that was achieved during the quarter, could you potentially quantify what the impact of that could be going forward on the G&A line?

[Vincent Duhamel, Global President & COO]

No, not specifically. All I can say is that, for us -- the benefits goes also to the clients within the funds. So basically, we streamlined and you scaled up the fees that are being charged with the different funds by the clients. And for us, what it does, is simplifies and the operational support that needs -- we need to have in order to do that. So we don't segregate, it just becomes more efficient. So we had -- been able to streamline some of the back-office function just because we didn't have 6 custodians to deal with at the same time. But I wouldn't have a number per se of the improvements there.

[Cihan Tuncay, Analyst]

Okay. And maybe just -- what's the progress on that initiative in the International segments. Can we expect to see some more kind of milestones achieved on that?

[Vincent Duhamel, Global President & COO]

We have this year, I would say by Q2, we will -- we're now going through a major study here in office as to the -- how we're going to define the global architecture and the direction that we're going to take on the global architecture of the organization. This will start -- the process -- we're going through in all of the financial analysis behind that, and it will have -- will start to have an impact only next year, but a lot of those initiatives will start to kick in Q2 and Q3. But you will see the impact on efficiencies from a financial standpoint most probably on the starting in Q1, Q2 2020.

[Operator]

Your next question comes from the line of Scott Chan from Canaccord Genuity.

[Scott Chan]

If I go back to the IAM acquisition and just for modeling purposes, [indiscernible] had asked this, I guess, the EBITDA last year was $5 million, but that doesn't include the committed capital or AUM. So can you give us a sense, I guess, of the pro forma EBITDA or what EV/EBITDA multiple you paid -- or EV40 EBITDA multiple you paid?

[Lucas Pontillo, Executive VP & Global CFO]

Yes, so the EBITDA multiple is probably just over 8x, is what we paid for.

[Scott Chan]

8x forward?

[Lucas Pontillo, Executive VP & Global CFO]

Yes. Adjusted, correct, for the year.

[Scott Chan]

Okay, that's super helpful. And on Palmer, when you announced it, you expected to close at the end of Q1, is that case or is it going to be pushed over into Q2?

[Vincent Duhamel, Global President & COO]

Palmer?

[Lucas Pontillo, Executive VP & Global CFO]

Palmer.

[Vincent Duhamel, Global President & COO]

April 1.

[Scott Chan]

April 1. Okay, April 1. And then on the...

[Vincent Duhamel, Global President & COO]

That's the objective, yes.

[Lucas Pontillo, Executive VP & Global CFO]

We're awaiting regulatory approval and we're just working through a few final details.

[Scott Chan]

Okay, sorry. Q2, that's good. And just, can you give us more details on your private equity launch in Q4, just in terms of maybe the funding or the size and investment mandate of this fund?

[Vincent Duhamel, Global President & COO]

Sure.

[Lucas Pontillo, Executive VP & Global CFO]

Private equity.

[Vincent Duhamel, Global President & COO]

Oh, the private equity. So private equity is -- we've done within the Comox -- the Fiera Comox platform that does also a very successful agriculture one. We've launched, what, about $100 million, raised about $100 million in that fund, and now we're starting to deploy the capital with this.

[Scott Chan]

Is that an open-ended? Is that an open-ended fund or is that...

[Vincent Duhamel, Global President & COO]

Yes, it is an open-ended. Yes, it is an open-ended, yes.

[Scott Chan]

Okay. All right. And in your presentation, you mentioned like the Fiera Emerging Markets Asia Select Fund contributing positive EBITDA. What fund is that and how does that differ from the other funds that have a...

[Vincent Duhamel, Global President & COO]

That's the fund that we acquired from CNR.

[Scott Chan]

Oh, the international, okay.

[Vincent Duhamel, Global President & COO]

Yes, CNR. It's been renamed and now it's basically contributing to the bottom line.

[Operator]

[Operator Instructions] Your next question comes from the line of Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

I just wanted to follow up on the comments around capacity, around your global equity mandates and whatnot. Just what is the capacity constraint there? Is it investable opportunities or is it more operational?

[Vincent Duhamel, Global President & COO]

No, well, we try to be really, really careful. This has been a very successful strategy. If you look at the track record, it's probably -- it's second to none in terms for the last 10 years. We've been able to attract a lot of assets. So we're trying to be careful to protect the investors that we have in those strategies, to protect the track record that we have in that strategy and not to overwhelm that business. So we continuously look at the capacity that we have available and try to be careful for some of the clients. So I guess, it's more from an investment engine stand point, so what we find is it's lot easier to increase prices on some of the new clients coming through as opposed to increased by doubling the assets of that strategy. It makes more sense from an investment standpoint for investors.

[Operator]

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

[Jaeme Gloyn, Analyst]

I'm not sure, if you addressed this on the prepared remarks or not. But the rebound in equity markets for Q1, would you say that the lost AUM from investment returns in Q4 has been more or less fully recovered? Or is there still some catch-up to be done or is that even gone to the...

[Vincent Duhamel, Global President & COO]

Okay, Jaeme, just -- my lawyer is looking at me and saying that I cannot comment on that because that's a forward-looking statement. She is saying big no, no, no. Nice try. Sorry about that.

[Jaeme Gloyn, Analyst]

And then maybe just the second one is around the trajectory of quarterly EBITDA margins. Assuming the markets play out in a normal fashion, there's no upside or downside or material upside, downside moves, what would you expect that sort of quarterly trajectory to be from this 25% in Q4? Would you expect sort of like a point per quarter as we move through 2019, so that we exit 2019 with that 30% run rate?

[Vincent Duhamel, Global President & COO]

So, my lawyer is also looking at me and saying forward-looking statement. What I would say is -- changes to that point is, when you look at the quarter, the Q4 of 2018 and you iron out, you take out the beta effect that we've seen in there. What you will see is I think is an improvement of what we've done historically. So really what we talked about 1.5 years ago and what we're trying to accomplish, I think we been able to deliver on that. And I think we are in very solid grounds to continue. We have a number of those initiatives that we are pursuing that are going to allow us to continue meeting the margin expansion goal that we set for ourselves for the next few years. So -- and I'm looking at the lawyer to make sure that I'm not stepping on any stones on that. But that's basically -- I think if you spend a lot of time looking at the Q4 number taking away the beta effect in there, you're going to see a lot of the improvements that we've been able to accomplish.

[Operator]

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

[Gary Ho, Analyst]

Sorry just one quick follow-up. Just want to go back to the acquisition and wondering how the deal was sourced with that one in your pipeline that you've been working on for a while and maybe a follow-on to that is, kind of, how does the pipeline look today?

[Vincent Duhamel, Global President & COO]

Yes, this is a company and a management team with who we've been talking for a long, long time. I think we've been talking with them for over 2 years. It's been on and off a different moments, different periods of time. It's just at some point, you just became the right timing to make it work. So John has been extensively involved in discussing with those -- that team.

[John Valentini]

And I think that's characteristic of how we approach all our acquisitions is to spend a good amount of time actually getting to know the partners so that we can ensure that there is a cultural fit. So I think, as I say, more often than not you'll find that there has been a good amount of time that we've spent to get to know what we're getting ourselves into.

[Gary Ho, Analyst]

And then the pipeline as it stands today?

[Vincent Duhamel, Global President & COO]

Sorry?

[Gary Ho, Analyst]

The acquisition pipeline that stands today?

[Vincent Duhamel, Global President & COO]

Yes, the acquisition pipeline will continue to -- I'd say, we have an active list -- well, active and semi-active list of probably 12, 15 companies that we are looking, discussing, dancing, having coffee with whenever we show up in town and that's a continuing process that we review every month.

[Operator]

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

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

Great, thanks. That concludes the call. Thank you for joining us.

[Operator]

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