Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2022-Q4

[Operator]

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's earnings call to discuss financial results for the fourth quarter of 2022 [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions]. Thank you. And now I would like to turn the conference over to Ms. Marie-France Guay, Senior Vice President, Treasury and Investor Relations.

[Marie-France Guay, executive]

[Foreign Language] Welcome to the Fiera Capital conference call to discuss the financial results for the fourth quarter of 2022. 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 rr.Fieracapital.com. Note that today's call will be having. Also 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. Our speakers today are Mr. Jean-Guy Desjardins, Chairman of the Board and Chief Executive Officer; and Mr. Lucas Pontillo, Executive Director; and Globo, Chief Financial Officer; John Valentini, Executive Director and Chief Executive Officer of Private Markets; and Jean Michel, Executive Director and Chief Investment Officer of Public Markets are also on hand to answer your questions.On today's call, we will discuss our Q4 2022 results, starting with an update on our AUM, followed by our distribution and investment performance. We will then review our financial performance. Following the prepared remarks, we will take your questions. With that, I will now turn the call over to Mr. Desjardins.

[Jean-Guy Desjardins, executive]

Thank you, Marie-France. Good morning, everyone, and thank you for joining us. First of all, let me tell you that I'm very happy and quite excited to be back at the hand as we continue to pursue Fiera's growth ambition and execute against our strategic plan. Last year was a difficult year in Global Markets with declines in equity and fixed income markets, further impacting investor outflows and repeat. While 2023 has started on a positive note, we remain vigilant as we continue to navigate through a threatening macroeconomic environment. Not withstanding this, Fiera's strategic priority of growing our private markets platform as well as the strong relative returns of our public market investment strategy positions us well to whether any further market volatility in 2023. So turning to our fourth quarter results. We reported assets under management of $158.5 billion for the fourth quarter of '22, although we benefited from the market rally in equities in the fourth quarter. Outflows from a few financial intermediate clients muted the impact of the equity rebound on our public markets, AUM, resulting in AUM being essentially flat versus the prior quarter. Assets under management in private markets was also flat in the quarter. We continue to see a good pace of new subscriptions across our alternative strategies with decreases in AUM being driven by return on capital to investors rather than loss mandate. Overall, assets under management was down $29.8 billion or about 16% over the last 12 months as we, like the rest of the industry, were impacted by the equity and fixed income market downturn. This further precipitated outflows from client rebalancing following particulary strong investment returns in 2021. I -- the continued volatility in financial markets to the majority of 2022, intensified withdrawals from active equities through the second and third quarters as clients try to adjust their portfolios to be over through the high inflationary environment.On a positive note, the pace of the balancing we saw through most of 2022, did slow in the fourth quarter, and we experienced some positive momentum in the form of new fixed income allocation. We are confident that our proven track record of long-term performance across our strategies will position us well for when investors begin to reallocate towards public market strategy. We saw continued growth in private markets in 2022, which ended the year at $18.2 billion, resulting a year-on-year growth of 14%. We returned $1.4 billion to our clients through capital and income distributions while raising $3.3 billion in new subscriptions over the same period. Our private markets platform is a key differentiator to investors looking to diversify through this period of public market volatility -- we are uniquely positioned as we have been building this platform since 2005 and have established a diversified and strong performing offering across our private market strategies, which is unique in the Canadian market. In the quarter, new client mandates into our private market strategies continue to drive top line growth with new mandates representing 30% of the new AUM flows in the quarter, which are expected to generate 70% of the associated annualized base management fees. Though it was a difficult year for net flows. We are encouraged by the $8.2 billion of gross new mandates generated across our platforms over the year and look forward to building on that momentum in 2023 as we continue to expand our distribution capabilities globally.We'll now turn to our commercial performance across our channels and regions for the fourth quarter. So in Canada, we secured major wins this quarter with fixed income mandates one from large Canadian institutions, resulting in $400 million of positive net organic growth in the institutional channel. While flows in the Canadian financial intermediaries channel was challenged this quarter with the majority of the outflows driven by the loss of certain fixed income mandates. Our differentiated private wealth platform in Canada allows us to offer our high net worth clients access to our private market investment strategies via our full fund theater structures. PruFund saw significant growth in 2022, growing from $4.5 billion to $5.7 billion, with $1 billion of that increase attributable to organic growth.In Europe and Asia, despite the continued stressed market conditions in that region, we saw modest positive net organic growth in the fourth quarter. In public markets, we secured a major LDI mandate from a large institutional client in Europe, which drove the majority of the positive net organic growth this quarter. We continue to gain momentum in the financial intermediary channel across that region with the approval of new partners for both our Atlas Global Equity and ops emerging market strategies. In the U.S., lost mandates of about $2 billion were driven by outflows of equity mandates, including a mandate sub-advised by Stonepine -- we continue to see attractive opportunities in the U.S. for our broad suite of investment capabilities. However, we still have more work to do on building out our distribution capabilities to penetrate the U.S. market more effectively, particularly with our private market strategies. While as we go forward, we recognize that client needs and market dynamics are different across the regions that we operate in. It therefore becomes important to have a decentralized approach to our distribution model to ensure that we are effectively positioning our strong suite of private market capabilities and continue to leverage the robust investment performance of our public market strategy.So I will now discuss our investment platform for the fourth quarter. Starting with our private market platform. We continued to deliver strong performance in the fourth quarter with positive returns in the majority of our private market strategies. Our Canadian and U.K. real estate strategies performance this quarter continued to reflect the downward property valuation pressures being experienced across all sectors within the industry. Asset values have decreased because of rising capitalization rates, however, these are due more as a reflection of the unfavorable macro environment rather than the underlying fundamentals of our real estate strategy. Our real estate portfolio is at an advantage due to its waiting in industrial and multi-residential with demand release sectors outpacing supply and driving rental rate growth, which partly offsets the cap rate increases. Our infrastructure strategies remain resilient in the face of a challenged macroeconomic environment and generated positive returns in the fourth quarter and for all of 2022. The inflationary hedging and fixed rate debt characteristics of the underlying assets in these strategies continue to be attractive to investors. Our private credit strategies generated strong positive returns this quarter and ended the year in positive territory, benefiting from diversification across sectors and geographies. The strongest performance was strategies with exposure to real estate debt. Also, as mentioned in previous quarters, many of our credit strategies are benefiting from floating rate exposure, which has resulted in an increase in overall yield. Turning to our agriculture platform. The strategy has delivered a strong return in 2022 of almost 8%, with multiple partnerships being completed, being value-accretive acquisitions with a strong pipeline of follow-on investments in the future, which continues to appeal to investors. The AUM for this strategy has almost doubled this year, growing from $1.1 billion to $1.9 billion.So lastly, in private equity. Much of this story remains the same with market volatility being tempered by the positive performance and resiliency of the portfolio's underlying business. The team continues to maintain a robust pipeline of transaction opportunities global. Overall, we raised $550 million in new subscriptions and deployed $800 million into new investments in the fourth quarter. We have accumulated $1.9 billion of committed undeployed capital, providing the necessary dry power to quickly deploy our clients' capital and to attractive investment opportunities. Year-over-year, our AUM for private markets has increased $2.3 billion. Over the last 3 years, revenues from our private markets platform has grown at a compounded annual growth rate of 20% and continues to be accretive to our top line with private markets driving 34% of revenues, while representing 12% of assets under management in quarter 4. Moving on to our public equity platform. On the back of a positive rally in October and November, global equity markets ended the fourth quarter in positive territory. However, this was not enough to offset the losses of the previous quarters. So as a result of full year market performance was negative, impacting the returns across most strategies. Our large cap equity strategies posted mixed results relative to their respective benchmarks for the fourth quarter. The Canadian equity strategy and an uncharacteristic uncharacteristically weak quarter due to security selection. However, the strategy is continue to be ranked in the first quartile across the 1-year and 3-year time horizon. Additionally, our Atlas global and international equity strategies. Both have a growth fill, whereas strategies with value characteristics outperformed that quarter. Our U.S. small and mid-cap growth strategy has delivered sustained strong performance relative to its benchmarks across the short and long term with a track record that continues to be attractive to clients. While relative performance was mixed across our equity strategies this quarter, the long-term track record is proof of the excellence of our investment teams. Over a 3- and 5-year time horizon, 96% and 98% of our equity strategies are beating their benchmark at the end of the fourth quarter, respectively.So now moving to our public fixed income platform. Our Canadian fixed income strategies continued to show resilience in the fourth quarter in the phase of recess generated risk. On an absolute basis, returns were modestly positive across the board, and we're also positive on a relative basis to their respective venture. In the U.S., our fixed income tax efficient core+ and high-grade core intermediate strategies had mixed results this quarter. The tax-efficient cores added value for the fourth quarter, mainly due to its long duration positioning and continues to be ranked first quartile on a 3-year horizon. The high-grade core intermediate strategy detracted value due to the short duration positioning of these strategies, which was detrimental as the market began to price and a slowdown in rate hikes. In line with our equity strategies. The long-term historical performance of our fixed income platform remained strong with 85% and 94% of our strategies beating their benchmark over 3 and 5 years, respectively, at the end of the fourth quarter.Now finally, our tactical asset allocation team, which I'm very proud of, continues to deliver positive returns relative to its benchmark of 3.78% value-added over a 1-year period, driven by an overweighted position on real assets, and underweighted position on bonds as well as an underweighted position in equities, which have respectively been the strongest and weakest performing asset classes over this period. The team continues to assume a defensive stance from an allocation perspective in light of a looming recessionary outlook with a continuation in the unweighted position in international equities, which was the main driver of the negative value add in quarter 4. So with that, I will turn it over to Lucas for a review of our financial performance.

[Lucas Pontillo, executive]

Thank you, Jean-Guy. Good morning, everyone. I will now review our financial results for the fourth quarter and year ended 2022. Across our investment platforms, we generated total revenues of nearly $185 million in the current quarter compared to $242 million in the fourth quarter of 2021. The -- the decrease was driven by lower performance fees in public markets, which returned to normalized levels in 2022, following an outsized performance year in 2021 and lower base management fees in public markets as a result of lower average AUM. Quarter-over-quarter revenues increased by $24 million or 15%, mainly because of performance fees being recognized in the fourth quarter. Despite lower average AUM for the quarter, base management fees increased quarter-over-quarter as a result of our growing share of revenues from private market strategies. Additionally, our increased weighting of AUM invested in equity strategies benefited revenues this quarter compared to last quarter due to the equity market rally at the end of the year. While AUM decreased 16% year-over-year, full year revenues only decreased 7% after excluding the impact of dispositions in 2021. The average fee rate of our new mandates were accretive to our current average fee rate, a testament to our continued diversified growth in our private market strategies, which offset the declines in public markets felt across equity and fixed income in 2022. Looking more closely at private market revenues for the quarter. Private Markets total revenues of $62 million were down by 6% in the fourth quarter compared to $66 million in the fourth quarter of last year due to lower performance fees and share of earnings on joint venture projects in our real estate business in the U.K. compared to last year. 2021 being a banner year for the U.K. real estate business. Despite this, base management fees in private markets were up nearly 22% compared to Q4 2021, driven by additional capital deployment and sourcing across our institutional and private wealth channels. In addition, commitment and transaction fees of about $9 million in Q4 from new flows and capital deployment continue to provide an additional revenue stream for this platform.Quarter-over-quarter, total revenues were up nearly 20% with additional commitment and transaction fees as well as performance fees earned in Q4. On a full year basis, base management fees in private markets were up 28% compared to the same 12-month period last year. We continue to see a growing relative share of contribution from private markets to our overall revenues, which accounted for 34% of the revenues in the fourth quarter of 2022, up from 27% in Q4 of last year, as Jean-Guy previously mentioned. Turning to a review of public market revenues. Compared to Q4 2021, public market revenues decreased 30% to about $123 million in the current quarter due to the afro ementioned performance fees in 2021 as well as from lower average AUM due to the decline in financial markets and client rebalancing out of equity mandates throughout the year. Quarter-over-quarter, public market revenues increased 14%. Although ending AUM was slightly higher in Q4, average AUM for the quarter was actually lower. That being said, public market-based management fees remained stable from the previous quarter and benefited from a favorable change in asset mix weighted towards equities, which enjoyed a rally in performance in the quarter. On a full year basis, public market revenues declined 16% to about $471 million compared to the prior year. Excluding dispositions in 2021, the revenue decrease was only 14% year-over-year. With regards to SG&A, SG&A, excluding share-based compensation, totaled approximately $133 million in the fourth quarter, an increase of about 14% from the prior quarter. This increase is aligned with our corresponding increase in revenue given the variable nature of some of our compensation structures and public market strategies. On a full year basis, total SG&A expense decreased by $25 million or almost 5%. When excluding share-based compensation and dispositions, SG&A was effectively flat year-over-year. As we continue to navigate the challenging economic environment, we are closely monitoring our operating expenses as we adjust to an ever-evolving market volatility.Turning to adjusted EBITDA and adjusted EBITDA margin. We generated adjusted EBITDA of $52.8 million in the current quarter, an increase of 16.8% from the prior quarter, driven largely by higher revenues from performance fees, which we typically crystallize in the fourth quarter. Year-over-year, adjusted EBITDA decreased by 43% due to the outside performance fees in 2021, which, as mentioned, returned to more normal levels in 2022. Our adjusted EBITDA margin increased in Q4 from the prior quarter to 28.6%. The 12-month trend in adjusted EBITDA has remained stable through fiscal 2022, a testament to our prudent focus on profitability despite the volatile year the markets have had and their corresponding impacts on the top line. Looking at net earnings and adjusted net earnings, the company posted eighth straight quarter of positive net earnings with net earnings attributable to shareholders of $2.5 million or $0.02 per share during the fourth quarter of 2022. Adjusted net earnings were $33.1 million or $0.32 per share. On a trailing 12-month basis, adjusted earnings per share was $1.19. With respect to free cash flow... Last 12 months free cash flow was $58.9 million for the fourth quarter of 2022. While the year-over-year decrease was obviously impacted by the decrease in adjusted EBITDA, it is also important to note that 2022 was also impacted certain nonrecurring outflows earlier this year, mainly the settlement of share-based compensation plans related to the Stonepine transaction as well as the acquisition of the remaining 20% interest in Fiera Real Estate U.K., which together had over a $40 million drag on our last 12-month free cash flow and will continue to do so for the next few quarters. Turning to our financial leverage. Our funded debt as defined by our French facility agreement was essentially flat year-over-year at $426 million and decreased by $28 million to $426 million quarter-over-quarter. -- mainly from higher cash flows from operations in the quarter and higher cash distributions from our real estate joint venture projects in the United Kingdom. Net debt has decreased to $589 million, a decrease of $38 million from last quarter, largely driven by the same factors as our funded debt. However, net debt increased $88 million year-over-year. This was due to the purchase of a portion of shares from our Natixis stake sale through our share buyback, the settlement of certain purchase price obligations and put options and the payment of accelerated share-based compensation related to Stonepine. Combined, these 3 items alone were over $75 million for the year.In 2022, we took a number of actions to prudently manage our leverage and enhance our financial flexibility, including the refinancing of our credit facility and convertible bonds. We continue to remain vigilant in the rising interest rate environment, including evaluating opportunities to hedge our interest costs. Overall, our financial ratios saw a moderate increase in 2022, due in large part to the nonrecurring cash outflows previously mentioned. We remain well positioned to where further economic uncertainty and market volatility with a funded debt-to-EBITDA ratio of 2.37x and a net debt ratio of 3.28x, down 25% and 17% since their height in March of 2020. We remain committed to delivering value to our shareholders as a fundamental pillar of our strategy. As such, we continue to return capital to our shareholders through our dividend. The Board has declared a quarterly dividend of $0.215 per share, payable to holders of record on March 8, 2023. This brings our trailing 12-month dividend to $0.86 per share, up from $0.845 per share comparative period last year. I'll now turn the call back to Jean Guy for closing remarks.

[Jean-Guy Desjardins, executive]

Thank you, Lucas. As we continue to weather the volatility that has characterized 2022, we see positive momentum from the slowdown of the client's risk behavior. While the financial intermediary is down was impacted this quarter by certain large outflows. We are encouraged by the volume of mandates we have won across our other channels through this difficult year. Our private markets platform continues to see strong, stable returns and remains a key focus of top line growth, generating an increase in share of revenues through every quarter of 2022. The diversification provided by our public and private market platform and our unique private wealth offering has allowed us to be resilient in a turbulent macroeconomic environment. There is no doubt that 2022 was a challenging year for the asset management industry and for Fiera. However, I continue to be inspired the capabilities of our highly talented team, and I returned as CEO energized, passionate about navigating our business through this complex period. So looking ahead, I believe that our laser focus of putting our clients first, all while producing innovative solutions tailored towards their specific needs will give us a competitive advantage as we work towards achieving our strategic vision of being an efficient allocator of capital and generate value and sustain prosperity for all our stakeholders. I will now turn the call back to the operator for the question period.

[Operator]

Thank you, sir. Ladies and gentlemen, [Operator Instructions]and your first question will be from Etienne Ricard at BMO Capital Markets.

[Etienne Ricard, analyst]

On private markets, could you please share how limited partners are re-evaluating their allocation to alternatives in this market environment?

[Lucas Pontillo, executive]

Ettienne Well, it'll direct the question John on that. But thank you, and welcome to the first call. I know this is your first introduction to the year quarterly. So John...Â

[John Valentini, executive]

Clients are --

[Lucas Pontillo, executive]

Perhaps Etienne if you can repeat the question.

[Etienne Ricard, analyst]

Sure. So my question is on private markets, could you please share how limited partners have been reevaluating their allocation to alternatives in this market environment?

[John Valentini, executive]

When you say they're reevaluating what are the impacts that some portfolios have had that have been fully allocated or has been the denominator effect that equities has had. So some funds have slowed the pace of making additional commitments just because of that, they've been getting their upper limit of the allocations. We've had some cases of that. But again, that has a limited impact because the vast majority of investors and particularly smaller institutional investors in the market we target are still underallocated to private markets. So we do still see demand that we will see flows. So to answer it, we don't -- we still see continued interest and increased allocations as investors, most investors are underallocated or not even -- are just starting to allocate to private. So the growth will continue in this market environment. Jean maybe want to...

[Jean-Guy Desjardins, executive]

I may add something to John. I was looking at the latest data year-to-date. And I was quite happy to see that on a monthly basis, we're generating a level of new flows into our private market strategies that's more than well in line with our expectations for the year. And there has been a tilt towards the credit strategies relative to the other strategies up to now, which might be an indication of some preferences shifting as a result of -- it's funny, but as you know, the market psychology is gradually moving right now towards expectations that rates will go up again this year. And you see numbers that Fed funds will be shooting towards 6% now, which, in fact, is consistent with our macro view, but that's another story. And our credit strategies tend to be, in fact, quite a lot than most of them tend to be short-term generation strategies that benefit from rising interest rates. And if you take our diversified lending fund, for example, that uses our internal credit strategies in a diversified portfolio concept is running at a current yield of about 8.4%. And -- and when rates go up, the return of that strategy goes up because most of the loans are coming rate. And there might be something really that's why we're noticing that investors and the limited partners you're referring to are sort of reacting to the prospect of rates going up, which is beneficial for our pruning trade states.

[John Valentini, executive]

That's indicated in the investor presentation. If you look at the Q4, just a Q4 absolute return number is an indication of the returns going forward of credit and the lowest return we have in Q4 is 2.2% of the most senior credit and you have strategies close to 3% and over 3% just on a Q4 on a quarterly basis.

[Etienne Ricard, analyst]

 Appreciate those details. John, just to come back to one of your comments when you say your limited partners are largely under invested in alternatives. Given denominator effect you talked about, how much do you assess your clients' portfolios are allocated to awards alternatives relative to, let's say, a year ago?

[John Valentini, executive]

Well, I will -- I don't have exact data to that, but I know as we discuss the different channels we have, whether it be private wealth intermediaries or even our institutional clients, we still are, I'd say, underallocated. I mean, the phenomena that I explained on certain situations where clients the denominator effect is low. And we see that. I mean, the evidence of that is really in the redemptions. And we have not had -- I mean, it's been de minimis. The redemptions have been de minimis this year. And when we did get them, it's really because of that. So clients are overallocated and they're reducing their exposures. So we've seen that last year because of what happened to the public equities. But it's been de minimis compared to what we know on our client base. There still is a big void and under allocation of clients that aren't allocated. So go ahead, Jean.

[Jean-Guy Desjardins, executive]

Okay. And our highest worth client base, we have a $10 billion of higher clients in Canada. And based on our optimal asset allocation positioning corporate-wise, we have identified that there is an additional $1.5 billion of potential where some of our high net worth client base to go into alternatives and have those portfolios lined up to an optimum strategic allocation. And if that's the experience that we have in our base I think we can extrapolate that across the Canadian high net worth market. It's huge. The potential is huge. So we are extremely optimistic about the potential that Fiera has to become a very, very significant player in Canada. And just in Canada, let's not talk about the U.S. and Europe, but just in Canada to be a very significant player down the road in this private market industry because no retail clients on the retail side of the market, the high network side of the market, we know it's very underrepresented right now. The institutional market is ahead of that, but we believe that the smaller segment of the institutional market, be it the $1 billion to $10 billion institutional portfolio is currently underweighted private market strategies.

[Operator]

Next question will be from Gary Ho at Desjardin Capital Markets.

[Gary Ho, analyst]

Maybe just start off on the outflows in the quarter. Performance at least on a 3-year basis, seems pretty solid. Shanghai, you're now back at the helm. Any changes you might make on the distribution side, maybe game plan to turn kind of flows around? Or do you really need a more constructive market? And also, did I catch you correctly, $2 billion of outflows from Stonepine and color around that?

[Jean-Guy Desjardins, executive]

 Well, I can talk about distribution. I'll let Lucas talk about the outflows. The -- yes, distribution, we are and we are moving the distribution model down into the business units. But we are operating 3 business units, private market, public market and high networth. High net worth was already into the high net worth business unit, the distribution in the business unit. We are bringing down into the public market division and the private market division, the distribution people that were all incorporated in a global structure, and we want those people to be operating close to the portfolio managers to be close to being the investment strategies that they're representing and servicing to the clients. And we're also waving to a more specialized distribution concept between public markets and private markets. So those changes are, I'd say, from a, I guess, conceptual point of view from the distribution model point of view, meaningful because we're specializing the distribution and client servicing people between public and private markets. And we're pushing down the distribution activities into the business unit so that the people will be closer to the portfolio managers and to the culture and the substance of that business unit that they have to represent. So that in a way, it will be that much deeper into air blood because they're going to be swimming into it.

[Lucas Pontillo, executive]

And then... The second part of your question in terms of the outflows related to Stone pine, I'll give a broader elaboration on that relationship and sort of what 2022 has looked like. Specifically to the outflow, it was one large U.S. client at the end of Q4. It was about $1.5 billion. So that accounts for that. That was the only client loss during the year. If we look at that sort of our entire client base relative to the Stonepine strategies, they're down about $12 billion year-over-year, and you can break that down into 3 categories. First category is just effectively to market effect. And with the equity markets being down, about $4 billion of that $12 billion is explained by the market. You had another $4 billion, where we still have extensive client relationships with the clients just rebalanced and sort of repositioned their overall exposure to equity. So that explains the second 1/3. And then the final 1/3 is being one client loss that we mentioned in Q4 as well as you'll recall, the BelAir strategic sort of rollover that we had at the beginning of the year.

[Gary Ho, analyst]

Okay. So I guess with StonePine now, we're roughly in that $50 billion is how much they manage?

[Lucas Pontillo, executive]

Correct. just under $50, right $49.2

[Gary Ho, analyst]

Okay. Great. Second question, John. Good to have you back on the call, seeing solid AUM to $18 billion in revenue growth. Maybe a broader question. When you look out, let's call it, 3 to 5 years, where do you see AUM growing to? Is there anything missing that you'd like to add? And then private markets now represent 34% of consolidated revenue, where could you see this mix growing to over time?

[John Valentini, executive]

I think the rate of growth we've experienced over the last couple of years, Gary is sort of indicative of the type of growth that they experienced over the next 3 years. I mean, we continue to see -- we've experienced double-digit growth, and we continue to expect double-digit growth, both on an AUM level and revenue level going forward.

[Gary Ho, analyst]

Okay. And anything missing in the strategy that you'd like to add?

[John Valentini, executive]

Sorry.

[Lucas Pontillo, executive]

Anything Missing the strategy of the platform that you'd like that?

[John Valentini, executive]

No. From a corporate development standpoint, we've done a lot of that over the last 5-7 years. We really have quite a complete list of strategies. I'd say the only area that's still from a corporate development standpoint is U.S. real estate, both on equity and debt. That is really the only strategy, I'd say, missing from our mix. Other than that, we're basically fairly well covered in terms of strategies.

[Gary Ho, analyst]

Okay. That makes sense. And then my last question for Lucas, maybe more of a numbers explanation question. There was a $16 million provision related to certain claims. What was that related to? And then also on the leverage side, I didn't see the funded debt ratio moved much sequentially, but the LTM EBITDA dropped roughly $40 million. Just wondering why -- and is it because the calculation removes performance fees?

[Lucas Pontillo, executive]

So I'll handle your second question first and then come back to your first one. So on the second one, yes, the way the calculation works that actually amortizes the performance fees over 3 years, so to remove the volatility out of the performance fees. So you're correct there. On your first question, we had 2 line incidents, which we are currently working through. We felt it prudent to provision for those amounts in the fourth quarter. These are types of activities, which we carry insurance for. But at this point, it's early days as we work through these items. And we don't believe that will be material in nature. But by virtue of our normal operations, we normally come across some of these incidents. And as I say, we're -- we do have insurance coverage that we're exploring at the moment as well.

[Gary Ho, analyst]

Sorry. Lucas, as you said that's clients related?

[Lucas Pontillo, executive]

2 trading error issues, correct.

[Operator]

 Next question will be from Jaeme Gloyn Gloyn at National Bank Financial.

[Jaeme Gloyn, analyst]

 First question, a couple of little ones here. On the severance this quarter, does that include any expenses tied to the CEO transition? Or is that something we'll see in Q1? And can you quantify that number at this stage?

[Jean-Guy Desjardins, executive]

Jaeme, thank you for your question. No, that does not include -- that was a Q1 event. So you'll be seeing that coming up in Q1. We can't comment on that right now as we're still in discussions, but we'll have an update at the end of the first quarter.

[Jaeme Gloyn, analyst]

Understood. The -- shifting to the dividend, 6 quarters now at the same dividend level. Obviously, free cash flow took a little bit of a dip this year, but some onetime items that you would maybe not expect to see come back next year. So just thinking through what are your thoughts on dividend growth going forward here? Is that something you're expecting to keep flat for the remainder of the year? Or how should we be thinking about that?

[Jean-Guy Desjardins, executive]

At this point, we remain comfortable with the current level of the dividend. As we always mentioned, we continually stress test our cash flow. As you well pointed out, we had some anomalies in 2022, which puts some pressure on the current year free cash flow. But when we look back at a 5-year historical period and when we look forward on the 2-year period based on our projections and our expectations. We're still coming in with a dividend to free cash flow ratio of under 100% and closer to 95%. So we're quite comfortable at that level at the moment.

[Jaeme Gloyn, analyst]

Okay. Got it. We're seeing some commentary or some, I guess, revaluations of U.K. real estate portfolio. Just wondering what are some of the potential impacts that could have in Fiera's exposures? And would that flow through the income statement for Fiera? Do you have any commentary around that U.K. and maybe other commercial real estate exposures in general.

[John Valentini, executive]

 Yes. So there has been -- in the investor presentation, you'll see in our core fund of the Q4 return was negative 2.3%. However, we were a positive 0.7% in our industrial fund. And the 2.3% negative is a very -- is negative but very strong relative to our peers. Our core fund last year had a positive return. A lot of core funds had negative returns. So we continue to sit in the top quartile performance of the index in Canada. And the reason our fund is also sitting very strongly is that over 50% of our fund is in industrial. We are the other sector that we're exposed to is multi-residential, and we have very low affinity exposure to closed-end malls and office. So that speaks to the strong performance of our real estate strategies where it's consistent in all of our strategies, our over allocation for industrial, multi-residential and very little allocation  any type of office and close on retail. So performance remains strong across the board. So we actually see that as a positive for continued flows in real estate, which last year, we raised well over $1 billion in our real estate strategies.

[Jaeme Gloyn, analyst]

Great. Got it. And just the last one, maybe a bit more philosophical or even too early to be thinking about. But with the strength of the private markets business, -- what kind of considerations have you had or is it a possibility where you might look to spin out that franchise from the public market franchise, just given the valuations that are typically applied premium -- more premium valuations applied to those bolt platforms. Just wanted to get maybe some high-level thoughts from you around potential way to surface some value in the Fiera franchise.

[Jean-Guy Desjardins, executive]

Yes well, the answer is no. And I think that -- I think it's important to appreciate the extent to which we have tremendous synergies between those 3 business units. And I think most people most underestimated the extent to which the  fee of each other. -- product market is a source of significant growth to our high net worth and our private market division. The private market division is a source of growth to the other 2. The high net worth division is a source of growth for public markets and private markets. It's very, very difficult to see the value added that will be created for shareholders if we were to consider spending and you could take -- you could ask the same question about any one of those 3 divisions. And you can talk about -- if you say that the private market business has worked so much. It looks like a big number when you look at it on its own, but when you look at the impact that it has on the overall enterprise value, forget the stock price a enterprise value, the overall enterprise value that's been or potentially can be created over the next few years as a result of that the dynamic that it is between those 2 divisions, we believe that for the shareholders, it would not be a good thing to do. So it's not something that we are considering for that we think and the board thinks that it's appropriate to be considered given those synergies that exist between the 3 divisions and how they feed to each other...

[Operator]

[Operator Instructions] and your next question will be from Rasib Bhanji at TD Securities.

[Rasib Bhanji, analyst]

I guess my first question would be to you, Jean Guy. Welcome back. Just wanted to ask, is there anything specific in the broader market or with Fiera that necessitated your return as CEO? And the second part of that question was about to be on if there are any changes that you would be introducing this year? So you spoke about the distribution model. But is there anything else that is being considered right now?

[Jean-Guy Desjardins, executive]

 The first question, where you made the reference to the general macroeconomic and market environment, I think we did publicly explain where the change took place. And I think the public statement was a very clear it meant that the Board made the decision. And honestly, your point is sort of right. The Board made the decision to make a change in the face of the probability associated to having the next couple of years, not just 2023, but the next couple of years, potentially facing a very difficult macroeconomic environment, which will bring about significant potentially significant financial market volatility and felt more comfortable having older, more experience. I like the expression more experience more than older so you can take away the older aspect, or a more experienced CEO at helm that's it. I think it's a set of circumstances that I think explains that decision. So your second question about changes, Yes, I think -- well yes. If you look at -- we've announced and I think I publicly expressed what the organizational structure of the firm would be. I think you must have noticed I have recreated the private market group as a individual division. I provided Jean-Michel to be the leader of that division, and we will be operating on the basis of 3 business units, public markets, private markets, high net worth. And I think you can see that the signal is very clear that we're moving to -- I think I don't like the word, but I think I have to use it to a more decentralized structure, providing a higher degree of identity to each one of these units. -- under clear leadership, where people will be made clearly  responsible, which very specific operating targets with a very specific set of responsibilities, which we believe we've been the Board believes that is conducive to a very entrepreneurial culture, where people have all the freedom to express their creativity. -- and execute that creativity through their own initiatives because at the end, they only will be accountable, I can tell you, 200% accountable for delivering on the target set that would be given to them. And if you say, well, is that a change, I would say that in some ways, yes. But other than that, I said -- I think I've talked about the change in the global distribution model that we have, which basically is also being pushed down into the business units. And at the top of the structure, and I suspect you must have noticed, that I have reallocated technology and operation to Lucas under the CFO responsibility. And I have moved the HR responsibility under Gabriel. And that basically frees up Jean-Guy to be much more involved and much closer to dealing with clients and to also deal with potential clients, which is my contribution to the growth of our business. And so those are, yes, the organizational changes that we think will have a significant impact on the future growth of Fiera Capital yes.

[Rasib Bhanji, analyst]

Okay. I appreciate that answer. That's really good color. Just as a follow-up here, would there be any restructuring or onetime charges with the changes in either the global distribution model or any of the organizational changes?

[Jean-Guy Desjardins, executive]

We are working through. So as part of the announcement earlier in the year, I mean, you're quite right, there are some additional repercussions. But again, we'll be in a better position to comment on those after the first quarter.

[Rasib Bhanji, analyst]

Okay. Understood. And...Okay. And just my last question on the $6 billion in outflows from the financial intermediaries segment, specifically public markets. I think you mentioned there was more than one mandate that was lost here. Could you give any more color on this, please?

[Jean-Guy Desjardins, executive]

As I mentioned, one of them was the Stonepine kind of sub-advisory that we have John, do you want to speak about it?  The -- we had a sort of a larger fixed income mandate, quite sizable with one of the financial intermediaries. So lower from an overall beeps perspective and impact on revenue, but that one in and of itself was over $3 billion. So between the 2 of those, they effectively make up that $6 billion that you're referring to.Â

[Operator]

Thank you. And at this time, there are no further questions. Please proceed with closing remarks.

[Marie-France Guay, executive]

Thank you, Sylvie. Well, that concludes today's call. And for more information, do not take advantage of our website at ir.Fieracapital.com. Thank you for joining us.

[Operator]

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.