Onex Corp

TSX:ONEX

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to Onex First Quarter 2020 Conference Call. My name is Jonathan, and I will be your operator today. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference over to Ms. Claire Glossop Irani, Director, Client and Product Solutions in Onex.

[Claire Glossop Irani, Director, Client & Product Solutions]

Thank you, Jonathan. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. With me today are Gerry Schwartz, Chris Govan and a number of our managing directors. Earlier this morning, we issued our first quarter 2020 press release, MD&A and consolidated financial statements, which are all available on the shareholders section of our website and have also been filed on SEDAR. Our supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in U.S. unless otherwise stated. I must also point everyone to our webcast presentation for our usual disclaimer and cautionary factors relating to any forward-looking statements contained in today's presentation and remarks. Lastly, I want to let you know that we've moved this year's annual and special meeting of shareholders to the summer. It will now take place on July 21 via audio webcast. More details will be provided in the coming weeks. With that, I'll now turn the call over to Gerry to discuss our recent activity.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Thanks, Claire. Good morning, everybody. If you can believe it, it's been more than 2 months since we began working from home. Our support functions in accounting, legal, human resources, finance and technology have done a wonderful job making us productive almost as though the world hadn't been locked down. Nonetheless, the truth is it's not quite business as usual. In particular, private equity functions best when our investment professionals are meeting with their management teams, visiting operating facilities, and seeing for themselves products produced and services delivered. At our wealth management business, Gluskin Sheff, our client wealth managers want to see their clients in person. There's plenty of virtual interaction, but we crave real interaction with one another. For now, we're all making do with the technology tools at our disposal. But we also look forward to a return to normalcy. And we will get back to normal. One element all crises share, they eventually end. Until then, our focus will be on positioning our companies to navigate this downturn and to be ready to prosper in the recovery. As Chris will explain in more detail, our private equity portfolio has several businesses directly and negatively impacted by COVID-19. Others that will suffer varying degrees of headwinds and several that aren't really affected much at all. In each case though, our businesses are important contributors to their markets, with a strong reason to exist and to grow. Let's now turn to a couple of notable events in the private equity portfolio so far this year. Primarily driven by a successful secondary sale of SIG Combibloc shares, Onex has received more than $200 million from realizations and distributions in the first quarter. In total, the Onex Group received $572 million from this same sale. In mid-April, we agreed to acquire Independent Clinical Services, known as ICS. While few traditional LBOs are getting financed these days, we are able to acquire ICS by assuming its existing financing. This company, ICS, is the leading U.K.-based health care staffing and workforce management business. It operates primarily in the U.K., but also has an emerging U.S. footprint. We like ICS. Leading position in its core markets. The favorable market backdrop and the runway to grow both organically and through acquisitions. Other new opportunities in private equity are likely to come to us in more distressed situations. I'll now turn to our credit platform. As you know, the credit markets have been highly volatile. The Credit Suisse Leverage Loan Index was down as much as 18% in March. Onex' exposure to the credit markets is almost entirely first lien loans. Most of them held in CLOs where Onex is both the manager and an equity investor. There's been much written about CLOs of late. So Chris will spend some time walking you through our exposure and how we think about it. I'll just say that we feel good about the positioning of the portfolio and its current status. Even though the mark-to-market reductions are significant and some distributions may be reduced over the next couple of years. But please remember that our CLOs are not forced to sell assets because of marks. One of the credit opportunities that we may be able to take advantage of in the near future is the difficulty, some less well capitalized managers will have getting through the downturn. We also believe there may be opportunities to invest in CLO securities held by other investors, who are, in fact, more sensitive to mark-to-market volatility. In light of the pandemic environment and our recent hiring of Jason New, which, by the way, I'll touch on in just a minute. Our team will also be looking at more opportunistic distressed strategies. We believe we're well positioned to help good businesses with bad balance sheets. Now I'd like to return for a moment to Gluskin Sheff. Overall, Gluskin Sheff's client capital declined CAD 988 million or 12%, as a result of market declines at the end of March. Obviously, some of that has come back with the market rebound during April. With only a couple of exceptions, our equity and credit portfolios performed at or above their benchmarks on a net basis. In particular, I'd like to give a shout out to Peter Zaltz and his Blair Franklin team, they did exceptionally well throughout the volatility. In the last few months, we've added some great new people to our team. Jason New, has joined Onex' Co-Chief Executive of Onex Credit. Jason comes to us after 12 years at Blackstone, where he was a senior Managing Director and Co-Head of Distressed and Special Situation Investing. In addition to his role as Co-CEO with Stuart Kovensky, Jason will soon spearhead the launch of distressed and opportunistic credit strategies. Jessica Brennan joins us as the Head of Client and Product Solutions. Jessica was at the Carlyle Group for the last decade, where she was a Partner and Managing Director in Investor Relations. We've known Jessica for a long time as earlier in her career, she worked on the Onex Partners I, II and III fundraises, while she was then at Credit Suisse. Jessica will be focused on continuing to build our institutional distribution capabilities as well as helping to develop new products across all Onex platforms. As I look back over our 36 years in business, I realize that Onex has seen wars, recessions and, yes, even pandemics, COVID-19 may be the worst. But I have enormous confidence in our team to navigate through the challenges ahead. In each case over our history, we've come through a crisis stronger, and more resilient than when we went into it. I have no doubt we will do it again here. Before I turn it over to Chris, I'd like to thank all of our stakeholders, employees and investors for their support. We are side-by-side with you, and we look forward to seeing each other in person and putting this chapter behind us. I'll now turn the call over to Chris.

[Christopher Allan Govan, Senior MD & CFO]

Thanks, Gerry, and good morning, everyone. Onex reported a net loss of $997 million or $9.97 per share in Q1. The Q1 segment loss, which excludes stock-based compensation, an impairment charge and amortization of intangibles and most of our PP&E, was $1.52 billion or $10.34 per share. Our segment results are driven by our investing segment, which had a $985 million loss this quarter. Although these Q1 results largely align with the COVID-related declines we all saw in the equity and credit markets, I'll spend more time than usual breaking things down. Let's start by looking at Onex' PE portfolio. There was a net mark-to-market loss from private equity investing in the first quarter of $644 million. This loss reflects broad mark-to-market decreases across the portfolio. So I think it's worth discussing the approach we took to the PE valuations for Q1. The valuation of our PE portfolio always involves a significant amount of judgment. This was especially true for Q1 in light of the COVID-19 pandemic. The impact on our portfolio companies will depend on the duration and spread of the pandemic, the duration and severity of advisories and restrictions affecting the economy and the longer-term modifications to demand and consumer behavior. At March 31, each of these factors was highly uncertain and difficult to predict. Given the unique challenge posed this quarter, we took the following approach to ensure a robust process. First, we deferred the normal time line by about 2 weeks to ensure we had sufficient time to digest and consider all of the available information in the markets and the most current results at our portfolio companies. Second, liquidity was a particular area of focus. Although liquidity is always a consideration in our valuation process, the current environment brought liquidity and the near-term cash burn of some of our businesses to the forefront. And finally, we made adjustments to cash flow projections and business plans for the near-term impacts of COVID, but we generally relied on the equity and credit markets for an assessment of long-term risks. Typically reducing valuation multiples and increasing weighted average cost of capital for valuation purposes. Before moving on, I'll point out note 13 to the Q1 financial statements. This valuation disclosure, including ranges of key valuation inputs and sensitivity tables is always included in our quarterly report, but the data may be of greater interest to you this quarter than in the past. As you all know from your own portfolios of public equities, the valuation of just about every business was negatively impacted in Q1 by the severe economic contraction and ongoing uncertainties and risks. And although every sector contributed to the S&P 500's 20% decline, sector allocation and diversification mattered. The IT sector was only off 12%, whereas energy was down just over 50%. Onex' PE portfolio is made up of 37 separate businesses with no cross collateralization. This slide details the allocation of the portfolio by industry segment at the end of Q1. For those of you that follow us closely, you'll notice that rather than bucketing the investments by the broad industry verticals we typically talk about, we've refined the list a bit to create some subcategories we thought would be useful to you in thinking about Onex' exposure to COVID. Looking at this list, you'll note that our largest exposures are to business services and financial services. Our business services investments did very well in the quarter. About 60% of this NAV is in Clarivate, which actually traded up 24% in Q1. Similarly, financial services was a bright spot, with our exposure mainly consisting of specialty insurance broker RSG and Convex, a well-capitalized specialty insurer in the very early stages of building its book of business. On the flip side, as you probably expect, the economic shock and the prospect of ongoing social distancing took a toll on valuations in the events in leisure and the aerospace and defense sectors. Overall, our private equity investments declined by 16% in Q1, which was actually about 3% better than the S&P 500, despite the higher leverage in our portfolio. Strong performance from our 2 largest sectors and a lack of exposure to energy drove this relative outperformance. Although industry sector is helpful in thinking about the impact of COVID, there are many different business models within each sector. So I thought it would be helpful to share with you how we've been discussing our exposure internally and in conversations with our limited partners. Although far from scientific, we found it helpful to bucket our investments in 3 categories of COVID exposure as detailed on this slide. The first category being the fortunate group of 11 businesses where the expected impact of COVID is low or in some cases, even a long-term positive. Next, 19 businesses where the pandemic has and will create material headwinds on the demand or supply side. And last, the 7 businesses that are directly exposed to COVID or some of us have said, in the crosshairs. These are companies where revenue has been reduced to near 0 and where longer-term changes in consumer behavior and demand are a meaningful ongoing risk. About 90% of Onex' exposure in this category is made up of ASM Global, Emerald Expositions, Parkdean and WestJet. I found this segmentation of Onex' private equity exposure to be helpful from 2 perspectives this quarter. First, it helps explain the overall movement of our Q1 marks. And in my mind, evidence is the reasonable and clear-eyed approach we took. And perhaps more importantly, it provides insight into how Onex' PE portfolio may perform going forward, depending upon the severity and duration of the pandemic and its associated impact on our economies. Let's now turn to Onex's credit investments. These investments generated a $323 million mark-to-market loss in the quarter. Given the structural leverage employed in the underlying strategies, Onex' performance was largely in line with the overall market, which saw the CS Leveraged Loan Index down just over 13% in Q1. As we've said on many occasions, we hold a long-term view on our credit investments. And particularly as it relates to our CLOs, market volatility and mark-to-market write-downs will not make us force sellers rather will continue to sit in our equity, knowing the underlying cash flows from the loan portfolio will ultimately determine our return. The impact of the current economic conditions on our credit investments will depend largely on how the underlying loans perform through the coming down cycle. Simply put, the extensive defaults and associated recoveries. Today, in addition to our focus on overall credit quality, we watch very carefully the portfolio's exposure to CCC rated loans. To the extent that CLO has more than 7.5% exposure to CCC loans, the excess is included in the interest diversion test at market rather than par. If the interest diversion test is not met on a testing date, amounts that otherwise would be distributed on the CLOs equity are retained to purchase additional loans. This mechanism is what we've sometimes referred to as the self-healing feature of a CLO. So far, all our CLOs have met their Q2 interest diversion test with only 1 left to be tested. However, we'll be watching the 3, 2014 vintage CLOs carefully going forward as some defaults and losses early in their lives have put them closest to the line. To put the near-term risk in context, first quarter distributions were $20 million, with $4 million of that coming from the 2014 vintage. However, should downgrades and defaults in the senior loan market persist or accelerate, additional vintages could come under pressure. We are, however, relatively well positioned. Our team at Onex Credit has a long track record of lower than market defaults. And they have continued to build the portfolios by underweighting cyclicals and focusing on liquid and high-quality names. To put it mildly, this is an atypical quarter. And as such, I've gone into more detail than I normally would around all the mark-to-market activity. So let's bring this all back into perspective by looking at our shareholder capital as a whole. After all the puts and takes, private equity and credit now represent 56% and 8% of our investing capital, respectively. With our $1.9 billion of cash and near cash, accounting for a full 35% of hard NAV. Overall, Onex has shareholder capital of just over $60 per share, of which $54.83 or CAD 77.79 is attributable to our hard NAV. Before turning the call over to Q&A, I'll spend a few minutes on the asset and wealth management segment. It incurred a loss of $67 million or $0.65 per share compared to net earnings of $12 million or $0.12 per share in Q1 '19. PE management fees trended down year-over-year as realizations reduced the fee base in our fully invested funds. However, the most significant driver of Q1 asset manager performance was an $84 million net reversal of carried interest, including a $22 million net reversal on Onex's capital. As a result, the PE manager contributed the $70 million loss in the quarter with the contributions from credit, wealth management and the parent company being more typical. I also like to look at our asset management results on an LTM basis. LTM PE management fees were up $33 million year-over-year with the inclusion of a full year of fees from OP V. However, as was the case for the quarter, the most significant driver of LTM asset manager performance was a net reversal of carried interest. As a result, the PE manager contributed an LTM $21 million loss with more typical contributions from Credit and the parent company. Wealth management's $41 million contribution reflects the first 10 months of Gluskin Sheff under Onex ownership. Looking forward, Onex' total run rate annual management fees are now $288 million. Which consisted of $185 million from private equity, including an allocation of $57 million on Onex' capital, $49 million from Credit and $54 million from Gluskin's public equity and debt strategies. As you can imagine, this is not the start to the year that any of us expected, and our relative performance is cold comfort. However, Onex is fortunate and well positioned to perform going forward. We have about $3.5 billion invested and at work in our PE and credit strategies with a great deal of control over when and how we realize on this capital. We are not fore-sellers.We have $1.9 billion of cash and near cash alongside $4.3 billion of uncalled LP capital to take advantage of opportunities going forward. We have almost $300 million of annual management fees the lion's share of which are on long-term capital and unaffected by marks. And we have a seasoned management team that has $1.3 billion of personal investments aligned with our shareholders, limited partners and clients. Q1 wasn't fun at all, and a lot of uncertainty remains around what the balance of 2020 holds for all of us. But we look forward to the challenge and believe we have the resources and business model to succeed. We'd now be happy to take questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Just wondering if you could give maybe some examples of things you've done specifically with your private equity companies to try and preserve value or even take advantage of opportunities in light of COVID-19?

[Robert M. Le Blanc, Senior Managing Director]

Geoff, it's Bobby. Yes. So the first thing we did, obviously, after we made sure our employees at Onex and the employees at all of our portfolio companies are safe as we focused on liquidities and covenants and just made sure that the portfolio -- we understood where needs might be. Interestingly, for a variety of different reasons, we don't see a lot of liquidity problems within our PE portfolio for this calendar year. There may be 1 or 2 where a covenant and/or some liquidity is needed. But if we see the aggregate dollars for those being less than sort of $100 million at the moment, that can obviously change. And in some situations where the situation where we had direct exposure to, in the crosshairs, as Chris said, we either had modest leverage, in some cases, even had specific pandemic insurance. We are looking to take advantage of it as well. So to the extent competitors are wounded and we're in a better capitalized situation, within some of those businesses, we are looking for opportunities to take advantage of it. Nothing to speak of definitively, but clearly, we have our eye on that. But overall, we were -- I was pretty pleased to see how well our portfolio seems to be holding up from a liquidity perspective to date.

[Geoffrey Kwan, Analyst]

Okay. And I know it's still early days here, but how does COVID-19 change how you're thinking about the types of acquisitions you want to do and conversely, ones that you may not be as attracted to that you would have beforehand?

[Christopher Allan Govan, Senior MD & CFO]

So look, for the immediate term, as Gerry said, the normal way M&A is sort of -- is gone. It will come back for sure. We're looking at -- we're making PE returns on the debt of our own portfolio of companies, industries we know well that are having liquidity problems and things of that nature. But I think one will need to think about portfolio construction going forward, depending upon when a vaccine is available and when things get back to normal. I wouldn't sit here and say we'll never buy a business again that has the risk of crowds gathering because if a vaccine comes through, I would fully expect those types of businesses to have high demand, just like they did pre C-19. So too early to tell how the long-term would be impacted. But short term, those impacted type businesses are the ones that are having the liquidity problem, which could be an opportunity for us on the investment side.

[Geoffrey Kwan, Analyst]

Okay. And going back to Chris, your comments about the private equity investments outperforming the S&P by kind 300 to 400 basis points in Q1. Is it too early to say how your investments would have compared to other key private equity peers?

[Christopher Allan Govan, Senior MD & CFO]

It's not too early. Some of them have reported, Geoff. We don't have -- it's too early for us to have a view of the whole market, including, I'll call it, our private competitors. But there's a handful of public competitors that have already published. And I'd say we're sort of right kind of in a middle, maybe a little bit better than average. A couple of the large ones were off 22%. A couple of the other ones, we're off sort of 8%, 12%. So I think it depends a bit on portfolio and industry focus. But so far, I'd say we're kind of right in the middle, maybe a little bit better than average.

[Geoffrey Kwan, Analyst]

Okay. And then just my last question was on Slide 15 of the supplement or Slide 14 of the conference call presentation. When you talk about the gross PE capital, is that an original historical cost or some more up-to-date valuation?

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Sorry, what's the -- on which slide are you talking Geoff?

[Geoffrey Kwan, Analyst]

That slide where you are giving the -- that slide where you're talking about the sector exposure -- sector and services, Aerospace & Defense and stuff.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Yes. Got it. Sorry. Yes, those numbers are all fair market value, as reported in our financials at March 31.

[Operator]

Our next question comes from the line of Nik Priebe from BMO Capital Markets.

[Nikolaus Priebe;BMO Capital Markets;Analyst]

Wanted to ask if you could talk about the dislocation and the repricing that we've seen occur in the leverage loan market and how that might actually impact your private equity investments? I guess what I'm really getting at is when you foresee any complications in -- associated with refinancing risks at this point?

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

No. We don't have any meaningful maturities coming due till 2022. So I think we're in pretty good shape from that perspective. Obviously, if you try to go out and do a new loan today or refi something today, the cost to borrow will be much higher than it was pre C-19, but we're pretty well insulated for that for the foreseeable future on the PE side.

[Nikolaus Priebe;BMO Capital Markets;Analyst]

Okay. Okay. Got it. And then from an asset allocation perspective, I think you finished the quarter with a higher proportion of your investing capital allocated to cash. Just in light of the circumstances. Is that something you'd look to maintain for the foreseeable future?

[Christopher Allan Govan, Senior MD & CFO]

I don't think we're -- sorry, it's Chris Govan speaking. Yes, unfortunately, one of the reasons, obviously, our cash as a percentage of NAV went up was because of the denominator effect of the write-downs across the rest of the portfolio. I don't think we're fixated on maintaining cash and a 35% of NAV out of a sense of caution. I think we're going to continue to look for opportunities to put that cash to work as we have in the past. Whether that's through our existing commitments in the private equity space, new opportunities in credit, including some new strategies that we hope to be bringing to market. And as you can imagine and as you would have seen in our disclosure, the opportunity to buy back our stock got more attractive with the downturn. So yes, I don't think we're in a situation where we're trying to hoard our cash. I think we're going to stay focused on also playing offense and looking for opportunities to put that to work.

[Operator]

Our next question comes from the line of Paul Holden CIBC.

[Paul David Holden]

A couple of questions on credit strategies to start. From what I look at, I might look at a different Leveraged Loan Index than the S&P, it looks like it's recovered roughly half of its losses from Q1, does that line up with what you're seeing?

[Christopher Allan Govan, Senior MD & CFO]

Yes. I got it. And I don't follow it all that closely. Paul, it's Chris speaking. I don't know if Seth follows a little bit more closely than me. Certainly, the leveraged loan index has recovered from March 31. I'm just not -- I don't have those numbers in front of me.

[Seth Mitchell Mersky, Senior Managing Director]

Paul, this is Seth. Directionally, you'd certainly be correct, right, because the CLO portfolio, in particular, is a very broad portfolio. So whenever you see a market move, you'd expect to see a similar move in our portfolio. Now that doesn't necessarily translate directly into equity marks on the CLOs because those are marked separately by bid -- on the bid side. But directionally, you're going to absolutely be correct.

[Paul David Holden]

Okay. Okay. And then I want to better understand what happens to the equity position in the CLO if an interest diversion test fails? Is it simply a matter of thereby you collect less cash flow and interest? Or is there also a mark-to-market implication as well?

[Seth Mitchell Mersky, Senior Managing Director]

So what gets mark-to-market is the amount of defaulted loans or CCC loans that are in excess of 7.5%. And then what that can affect is your overcollateralization tests. If you fail that, then cash flow that you would have otherwise received in distributions as the equity investor will get diverted to buy additional loans to improve the collateral coverage. And that's why we refer to it as self-healing because you take that which you would have received and instead bring down the leveraging effect. Now those monies aren't lost to you forever. As the portfolio improves, you can resume distributions. And of course, you own the remainder cash flows.

[Christopher Allan Govan, Senior MD & CFO]

Yes. So the way I think about it, Paul, is so long as ultimately, the CLO ends up paying off all of its debts, which in the history of CLOS, there have been very, very, very few exceptions to that. Whether an interest of -- whether there's a diversion of your equity in any particular quarter, as an equity holder, it won't affect your multiple of capital, the actual amount you end up getting back. It only ends up affecting your IRR because those cash flows are deferred until the back end of the structure.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

I'd add to that, just to say that in the 2008 crisis, there were some number of diversions of cash flow to the equity. But by the time those CLOs were complete, we're wound up. I think it's fair to say that in almost every case, the shortfall in equity cash flow had been made up.

[Paul David Holden]

Great. That's helpful and makes sense. And then I want to ask a few questions on the updated valuations on the private equity investments. First question, something that Bobby said in an answer sort out to be the pandemic insurance. Are -- did your updated valuations reflect expected payouts for that coverage?

[Robert M. Le Blanc, Senior Managing Director]

Depends on the situation. I think for Q2, we'll have a much better idea what's actually going to occur there. But they did and they -- yes, how can I answer that question without -- we have much better clarity on -- we'll have much better clarity on the collectability of that insurance as of the end of Q2 than we did in Q1. So I think it was taken into consideration. We just have better information today.

[Paul David Holden]

Got it. Okay.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

I think it's fair to say, Paul, though, in the aggregate, looking at the totality of our portfolio, those outcomes won't have a particularly material effect on the aggregate on the portfolio.

[Paul David Holden]

Okay. Next question I want to ask because it seems like -- to me, it seems like you've made more conservative assumption changes than what I've seen in the past from Onex. Even maybe during the great financial crisis, I'd say, these markets have been more conservative than how quickly you adjusted your marks back then. So a, it's kind of like, is that a fair characterization? And then second part of that question is, we've seen the cost of credit and equity risk premiums change post quarter end and how quickly will those kind of changes be reflected in the marks going forward?

[Christopher Allan Govan, Senior MD & CFO]

Yes. It's Chris, Paul. I think -- I can't speak to all the gives and takes in terms of our valuation process from 12 years ago to today. But I would say, I do think they are different crises. I think that this crisis had a more direct and obvious impact on cash flows of businesses as opposed to necessarily liquidity and financeability and balance sheet impacts. So I do think it's just different when you turn your mind to a valuation of a run of the mill industrial business today versus what you might have been thinking back in the in a financial crisis of '08, '09. But I don't think I have anything more to give you on that. Others might have a view. On your second question, yes, I think if markets rebound in terms of reduced cost of equity and reduced cost of debt that will flow through into our valuations at the end of June. We really do look to the markets, to a large extent, to help us price future risk. We've got to figure out the expectations for each of our businesses independently. But yes, when markets move materially, you should expect that to be reflected in the correlation with the movement in our overall valuations across the portfolio.

[Paul David Holden]

Great. Okay. And last question I have, and this is related to sort of maybe broad assumptions you've made around the length of duration for the pandemic and the length of duration around quarantine. Just so I can have some kind of benchmarks to work with if things resolve quicker than maybe kind of generally what you've baked in or if things resolve and over a longer period of time versus what you baked in? I think it'd just be helpful. And again, general characterization is not specifics, but just in general would be helpful.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Yes, sure. We obviously don't know when things will go back to "Normal." What we've been testing in all of our PE companies is to make sure we have visibility on liquidity for the next year or so. But beyond that, it's really hard to tell. That's sort of the time frame we've been working in when we think about the risk. So making sure for the next 12 months, we have a path to make sure that we have the proper liquidity for each of our businesses.

[Christopher Allan Govan, Senior MD & CFO]

Yes. And from a valuation perspective, Paul, this sort of ties back to the last question I answered. That was the point I tried to make in my opening comments. That -- to a material part of our valuations in terms of trying to assess the depth and duration of the pandemic, we really kind of tried to look at what the markets were telling us. About the overall markets assessment of that through risk premiums and cost of debt, cost of equity. So we're trying to really reflect the overall market view of that as opposed to taking an independent Onex view that we're going to be back to normal in 2 months, 4 months, 6 months.

[Operator]

[Operator Instructions] Our next question comes from the line of Scott Chan from Canaccord Genuity.

[Scott Chan]

I think it would be helpful if you provided some update or insight into the WestJet investment, maybe particularly in terms of the kind of the capital position and an injection of future capital might be needed by Onex or co-investors.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Tawfiq could you respond to that?

[Tawfiq Popatia, Managing Director]

Yes. I mean, I think you should assume that any comments that you've heard from Chris and Bobby about liquidity have WestJet assumed in those. So I don't think there's anything further to say on the liquidity comments. In terms of activity there, if you followed what's happened with our peers and the U.S. carriers publicly, it's really a similar story. Capacity is down a lot. In some ways, we've been just really, really focused on getting our resting heart rate down to a level where we can emerge on the other side of this gradually and following the advice of the various federal and provincial public health agencies in a way that allows us to recover gradually and meet demand as it surfaces. So we're just really in a bit of a hibernation, I guess you could call it. And then in some ways, I think we'll probably have to plan for perhaps recovery a bit sooner rather than later, if the borders open in a way that favor domestic leisure travel, which is still really core to our business relative to many of the international and cross-border carriers that you would read about.

[Scott Chan]

And maybe just if someone can update, just on the general M&A pipeline because, Gerry, I think in your opening remarks, you kind of talked about it being a bit slow, but if I look at your private equity peers, it seems like it's the right environment or a ripe environment for deploying capital.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

So it's really still pretty early post C19. So I'd say the M&A environment for us on the large-cap PE side is still relatively slow against businesses that are hitting liquidity walls are the ones that are looking for money right now. But if the economy is slow for several quarters, that will start to permeate through the rest of the rest of the industry that could have opportunity. The normal straight M&A, Goldman Sachs hires -- we hired Goldman Sachs to buy a business or a process, that is -- that part of the market is just shut down right now. So relatively speaking, because of that, the pipeline is less. It's slower.

[Scott Chan]

Okay. Fair enough. And going back to Gluskin Sheff, I think you commented that Blair Franklin performed well, was it in April or in the quarter? Because if I look at the public debt strategies, it seems like it was down significantly quarter-over-quarter.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Seth, could you give some specifics on that?

[Seth Mitchell Mersky, Senior Managing Director]

Sure. It was down in the month of March, although it recovered much of that in the month of April. But when you look at it relative to just about any other competitor and certainly most other strategies, we thought they did exceptionally well. Keeping in mind, it's not a contrarian fund per se, it just came into the quarter or came into the month, significantly under-levered relative to its peers, and then was able to take advantage of the disruptions in the market by effectively relevering somewhat.

[Scott Chan]

Okay. And just last question, maybe for Chris. I noticed that the disclosure on the private investments, the LTM EBITDA and net debt was not included. As far as I can see, is that something that we expect going forward?

[Christopher Allan Govan, Senior MD & CFO]

No, Scott, we're discontinuing that disclosure. We got to a point where because of situations and restrictions with partners and co-investors and the like, we were down to a very small handful of companies where we were able to disclose. And overall, we just thought that the value of that relative to the cost of the companies involved wasn't worthwhile in the context of trying to understand our overall private equity business.

[Operator]

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gerry Schwartz for any further remarks.

[Gerald Wilfred Schwartz, Founder, Chairman, President & CEO]

Thanks, everybody, for participating in this call today. We appreciate your support. And as always, feel free to contact Chris or Claire, if you have any questions at all. We look forward to speaking with you again next quarter. Thanks, everybody. Goodbye.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.