Q4 2019 Earnings Call
[music].
Welcome to our next is fourth quarter and full year 2019 conference call. My name is Liz and I'll be your operator today.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press star one on your telephone keypad.
At anytime during the conference you need to reach the operator, Please press Star then zero.
As a reminder, this conference is being recorded.
I will now turn the conference over to MS. Emilie balloon director Investor Relations Onyx. Please go ahead.
Thank you as good morning, everyone and thanks for joining us for broadcasting this call on our website.
With me today, our Bobby Leblanc, Chris Kevin and other members of our leadership team.
As you May recall as of January Onest 2018, we determined onyx met the definition of an investment energy as defined by Srs Chen.
Change in status has fundamentally changed how we prepare present and discuss our financial results.
It's important to note that periods ending on or before December 30, Onest 2018 have not been restated to reflect this change.
Accordingly readers of our fourth quarter and full year materials should exercise significant caution in reviewing considering and drawing conclusions from period to period comparisons and changes as the comparisons across periods can be inappropriate or not meaningful if not carefully considered in this context.
As a reminder, all references to dollar amounts on this call our new S unless otherwise stated.
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.
Earlier. This morning, we issued our fourth quarter and full year 2019 press release, Mdna and consolidated financial statements, which are available on the shareholder section of our website and have also been filed on SEDAR.
Our supplemental information package is also available on our website.
Before I pass it over to Bobby I'd like to highlight a few of our full year results.
We reported segment net earnings of $836 million, which on a fully diluted per share basis with $8 a nine cents.
Onyx shareholder capital increased to $7.2 billion or $69.47 per fully diluted share.
Our investing capital per share increased by 11% on an adjusted basis.
And our fee generating assets under management increased by 33% to $27.5 billion.
With that I'll now turn the call over to Bobby.
Thanks, Emily good morning, everyone.
I'm going to store or taking a look at what we're seeing in the markets and then review or activity in 2019.
Debt remains readily available and there's lots of liquidity on the sidelines.
However, M&A activity is down so far this year.
As such our private equity pipeline is relatively quiet in both North America in Europe.
With that said.
Onyx partners is currently evaluating a few opportunities that could prove to be very interesting.
As we discussed at Investor Day.
Next partners, we're focused on deepening our expertise across four core verticals.
Concentrating on domestic investing.
And prioritizing proprietary transactions over auction processes.
Finally over the past few days, we've seen significant volatility in the equity markets driven by economic uncertainty on the potential impact of the grown a virus.
As you would expect we're monitoring the situation in real time.
Right now Theres no material concern for a private equity business.
But we'll continue to keep it close high for signs of negative developments.
Let's now turn to activity by business unit.
Our private equity platform had an active year.
In total the Onyx group invested $2.7 billion and about half of that was deployed in the fourth quarter.
This was mainly through four new platform investments Westjet convex enertec.
Hi luck three of which will proprietary.
Of the Ottimo about 470 million came from Onyx.
And the vast majority of the remaining 2.2 billion came from our limited partners.
What's important to note.
As of the LP capital nearly 1.2 billion was above and beyond their fund commitments.
This unusually high amount of co investment was largely driven by the convex opportunity.
And highlights the strong partnerships, we built in our investor desire to commit further capital alongside us.
With the acquisition of what yet.
Onyx partners five now has three companies at it.
Although it's early days.
We're pleased to see good progress within each of these businesses to date.
On cap for our mid cap fund.
It is now 65% invested.
As a reminder, upon needs to be 75% invested before we're able to start raising a successor.
Depending on the pace of our acquisition activity, we could be fund raising for our next midmarket vehicle within a year or so.
Moving on to private equity realizations.
In 2019, we returned the second largest amount of capital in our history.
The Onyx group realised 3.7 billion, which onyx to share with more than 1.2 billion.
This was driven by sales of publicly traded shares and the outright sale of businesses.
It's worthwhile to remind you that these monetizations stemming from years of work executing on our investment theses.
The majority of the realization activity was driven by investments within Onyx partners for.
Which helped to improve the funds performance.
At year end, well before had a net IR a 5%.
Which is a nice improvement for the negative 2% a year ago.
Our realization activity.
Together with the increase in value of our unrealized portfolio.
Resulted in Onyx is private equity investments, increasing by 21% gross in the year.
Lastly, our Onyx partners platform continues to focus on building its operations team.
As a reminder, this team is focused on creating value within our operating businesses and enhancing our diligence processes.
We now have experts on our team focused on health and benefits supply chain and procurement.
We expect to continue to add new talent.
As we seek to grow our operations capabilities.
Ill now move on to Onyx credit.
We had a pretty strong year in 2019.
Fee generating AUM grew by 16% to 10.5 billion driven by both new CLO issuance and the introduction of Onyx credit products to gluskin chefs clients.
Our siloed distributions grew by 44% to 85 million benefiting from the refinancing activity we did in 2018.
Our net equity invested in CLL has remained pretty flat at about $450 million.
Later this year, we expect to be raising our next direct lending will fund.
In anticipation of this we're focused on continuing to grow our origination capabilities.
We now have a team of six people dedicated to origination.
Two more expected to join shortly.
We intend to continue to add to this team throughout the year.
I'll now turn to our wealth management platform Gluskin chef.
We ended the year with Canadian 8.3 billion of client capital.
Up nearly 2% since our acquisition in June.
In the fourth quarter, we saw an increase in client additions and good investment performance, which offset stable capital outflows.
Our goal is to build a comprehensive wealth manager with institutional caliber public and private market strategies and best in class financial planning offerings tailored to sophisticated high net worth clients.
On the wealth planning side, we've grown the team from two to six people and now have top talent in both tax in the state planning.
We're now turning our focus on hiring more mid level and junior resources to further strengthen the value add for clients.
Part of our investment thesis with cost and chef, what's the simplifies fee structure and make it more competitive within the wealth management space.
We implemented the initial changes earlier this year.
Which we believe will better position the business for growth.
The activity within our private equity private credit and wealth management platforms led to our fee generating a U M increasing by more than 30% last year.
Lots can chef was the largest contributor to this growth.
Another topic I'd like to touch on is our progress to further integrate DSG considerations across the organization.
Since our founding we've always taken the approach that we're not simply buying shares to the goods, but rather investing in living breathing companies.
We believe that responsible investing as part of being a good investor.
However, as Onyx has grown.
So two plus our approach to U.S.G.
In 2019, we established an E.S.G. committee.
Comprised of Representatives from all of our platforms in corporate office.
This committee is focus on enhancing the firm's holistic approach DSG.
We also became an alliance member of the sustainability accounting standards Board.
These steps you're not market change in how we do business.
Or view as to the importance of responsible investing.
But rather are a formal acknowledgement of the standards, we've always believed our fundamental to successful investing.
To wrap up.
2019 was a good year for Onyx.
We're pleased with the progress made with each of our platforms and we continue to invest in our people to support growth and build value for all investors.
Today, we have a strong balance sheet with approximately 1.8 billion or cash.
More than 4 billion of committed Uncalled third party capital available to deploy a new private equity investments.
Finally.
As we always like to remind you alignment with our investors is core to our culture and critical to our success.
This is evidenced by onyx managers personal investment of $1.9 billion across our various funds and onyx shares.
With that I'll now turn the call over to Chris.
Thanks, Bobby and good morning, everyone.
Onyx reported net earnings of $187 million or $1.86 cents per share in Q4.
As I've noted in prior quarters My focus during these calls will be on segment earnings, which we believe best reflect on X's performance.
Onyx is segment earnings are computed before deducting stock based compensation and the amortization of intangibles and most of our pp any.
We've defined Onyx is segment earnings this way to be comparable to the basis on which many of our publicly traded peers report and to be consistent with how we manage our business.
Q4 segment earnings were 211 million or $2.04 per share.
Quarterly segment earnings were again, driven by the investing segment, which contributed $1.55 cents per share.
However, the asset and wealth management segment had a particularly strong quarter contributing 51 million were 49 cents per share.
All told Onyx generated $836 million of segment earnings for 2019 or $8, a nine cents per share.
Oh, 90% of these earnings came from the investing segment, so I'm going to drill down there first.
Onyx continues to have a substantial majority of its investing capital at work in private equity. So investing segment earnings depend on the performance of our private equity funds.
A 6% gross return from Onyx is private equity portfolio in Q4 resulted in $145 million of net investment income.
Q4 capped off a consistent year of value creation in the PE platform, a 21% gross return and net investment income of $683 million.
These returns were primarily attributable to Onyx partners for which generated $793 million of gross value increase for on X Corp. In 2019.
Ill circle back to the importance of LP fours performance, when I discuss our asset and wealth management segment.
I should also mentioned that the Q4 PE results are net of 66 million dollar charge stemming from changes to the compensation investment programs for the Onyx partners team.
As discussed in the Mdna. The changes were designed to have no net cost to Onyx Corporation overall, the upfront 66 million dollar accounting charge will be balanced with lower compensation expense going forward.
Additional details will be provided in onyx his upcoming information circular.
Turning to our credit platform.
Investing activities, there contributed $12 million in the quarter and $64 million for the year on a mark to market basis.
These results generally line up with the performance of the credit Suisse leverage loan index.
However, as you know we're focused on the cash returns from our CLL equity investments in 2019 was a strong year in this regard these investments yielded 12% in the year and once you include the fee stream. We capture is the manager the gross CLL platform yield was 18% for the year.
This next schedule details Onyx, a shareholder capital at quarter end and provides Q3 and prior year amounts for comparison.
As you can see there havent been any fundamental shifts in on excess capital allocation.
However, despite a busy and successful quarter realizing value in our PE funds.
Onyx is overall exposure to private equity increased slightly.
Okay Fives acquisition of Westjet and net value increases across the funds more than offset the distributions from the ESI Gi and clutter of eight secondary sales.
Although investment segment earnings do a good job of capturing Onyx as investment performance I think it continues to be useful to also think of those earnings as a return on invested capital.
As you can see from this slide 2019 was a solid year from this perspective with shareholders enjoying a 13% return on their investing capital before an 80 million dollar contribution from the asset manager.
With that ill move on to the asset in wealth management segment.
Which generated net earnings of 51 million or 49 cents per share in the quarter, an 80 million or 76 cents per share for the year.
The private equity asset manager contributed 33 million in Q4 up from a net loss of 1 million in the prior quarter.
This increase was the result of US 27 million dollar Mark to market improvement in carried interest primarily from Onyx partners three.
Given the cumulative performance of Opie four to date or not yet accruing carry on that fund. However, 2019 was a strong year with gross value increases of $1.3 billion for the fund as a whole.
As Bobby mentioned this performance is driven LP fours net IR from negative 2% to 5%.
Should LP for cross the 8% net IR our threshold carry we began accruing.
As is typical in the industry Opie for includes an 80 20 catch up such that 80% of the gains above 8% go to the carry pool until aggregate carry equals 20% of the cumulative gains.
So with all P. fours recent performance continues going forward carried interest will become a significant contributor to segment earnings.
A strong quarter from Gluskin chef resulted in wealth management contributing $21 million.
The quarter over quarter improvement was driven by $23 million of gross performance fees.
These fees are earned based on the calendar year performance of the underlying gluskin chef funds and therefore only accounted for at year end.
Looking at the full year results private equity contributed $69 million compared to 6 million in 2018.
The increase was driven by management fees from LP, five which began to accrue in November of 2018.
And a net 41 million improvement in carried interest.
These increases were partially offset by higher variable compensation compared to 2018.
When Onyx partners performance led to lower compensation across the team and in particular, the five members of on axes investment committee declining to receive any variable compensation.
The last item before I turn the call over to Q and aim is to remind you. The contribution from wealth management represents the results of gloss can chef only since its acquisition in June.
Pro forma for a full year of gluskin.
The asset in wealth management segment generated $94 million or 90 cents per share in 2019.
And those earnings are in year with no carried interest from our private equity platform and our over and above the $63.77 or just shy of Canadian $85.
Of investing assets attributable to every share of Onyx you own.
That completes my comments on the financial results, we now be happy to take any questions.
As a reminder, ladies and gentlemen to ask a question you will need to press Star then one on your touched on telephone to withdraw your question press the pound key.
Please standby will be compiled acuity roster.
Your first question comes from Jeff Kwan with RBC capital markets. Your line is now open.
Hi, good morning.
First question was just the you mention any another $1.8 billion and cash in Bobby you mentioned the pipeline.
Isn't as robust.
As you've had in the past, but that there maybe some deals that may come to fruition just wondering how you're you're balancing what may be coming down the pipe versus the stock trading at relatively wide discounts and maybe in terms of share buybacks.
Yes, Jeff I think obviously the events of the last couple of days changes that calculus.
You bet.
Overall Big picture I don't think our approach to that has changed we are always looking at the opportunities that we see in our pipeline and the returns we expect from investing in that versus where the stock's trading and the returns we think shareholders would enjoy from buying back our stock over time.
So the actual stock prices a factor, it's not determinative, but as I said you can imagine that that calculus has moved in favor of buying back some stock given performance in the last couple of days.
Okay and then my next question with some.
In in refocusing on a narrower set of industries, and then going deeper within those industries.
For those parts of those industries that maybe you are looking at.
That are well call it newer relative to what do you may have done before hand, given the pullback in the market. Sorry are you have you gone deep enough.
Yes, if an opportunity presents itself that you can pull the trigger because I know you guys tend to be pretty thoughtful and in terms of.
Expanding into various sub sectors, our various sectors.
As you've done in the past.
Yes, hi, as Bobby.
The four verticals were focused on.
All four of them with the exception of software within business services has been the areas, where we've had long term success and Onyx industrials healthcare financial services and business services and when we have been and are continuing to go deep dramatically within those four verticals and we are more than ready to move.
Quickly have done opportunity presents itself given the current environment.
Okay.
Just one last question I had is.
You talked about PSG and the approach there.
Just wondering how important is is SGN when you're looking at an investment opportunity just in the context of I mean at least right now I think we've seen.
Some companies that square well on Connie asking metrics and seem to be getting a bit of a premium like how you balance that out relative to maybe if theres a company that doesnt score as well any SG metrics, but maybe the return looks a little bit more attractive.
So again as I mentioned in the comments, we've always sort of had responsible investing as part of our culture, we look at it.
And every deal we do know something doesn't fit.
In terms of what we're we'd be proud to own we just don't own that we won't take a great returns on closing that were not proud to own.
But with that said people are monitoring it more closely and we need to do a better job reporting on it and and do a better job of.
Articulating to the shareholder how we've always done that and that's what the processes will do from this point forward, how would you add anything to that.
Yeah.
I would just probably add with with the recent adoption of size fee, which is the sustainable accounting standards board with that's very helpful.
For us is.
It is just being more transparent.
And systematic about what we do as Bob you said is on a change just marks.
Our ability to perhaps be more transparent to our Lps and indeed ultimately to our shareholders about what we do.
Okay. Thank you.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that Star then one.
Our next question comes from the lineup Scott Chan with Canaccord Genuity. Your line is now open.
Good morning.
Just just relating to the grown a virus when you when you spend through your private equity portfolio is there any and kind of direct exposure that you can maybe help us point out to help navigate.
Kind of going through your.
For your company.
Yes. So obviously, we're we're looking at that real time by company and very closely.
To date has been.
A minor impact mostly in supply chain and logistics.
But who knows where this ultimately goes the place that you know that worries me a bit of people stop gathering in public places some of our businesses could be impacted by that but it's really too early it's really too early to know this is.
This is all pretty new in the volatility the last five or six days has got US who got our management team really focused on the issue, but as of right now we don't shaving material, but again you know that can change your we're monitoring the situation very closely.
Okay, and and Bobby just on cost cutting shaft. The fact of all the I guess your line is that did a 23 million performance fees for for 29, when you talked about the change that the structured did you change the performance fees for Phil.
Hello to sort out what over to Seth.
Yes, we did we eliminated performance fees on all of the long only product.
And.
And later on this year, we'll be introducing.
Tiered fees, mostly for the benefit of our more substantial clients.
Tiered fees, meaning the larger the client that the stepdown in fees is that correct that's correct.
Okay and.
And Bobby just lastly on glass can you talked about.
Yeah, you on being up 2% quarter over quarter since a closed in June you talked about Q4 client additions was that implying that there was net sales.
Gluskin within Q4.
So.
Essentially our our sales have been benefiting from the introduction of Onyx credit products.
In the.
Client withdrawals have been relatively stable so as we said together with.
Some improvement in market performance overall, we've had a net growth in the near you.
Okay got it thank you very much.
Our next question comes from the line ethnic prepay with BMO capital markets. Your line is now open.
Okay. Thanks, I think most of my questions have been answer I just have one on one of the portfolio companies looks like there was a bit of a step up in earnings for Ryan Specialty group, Let's say that was accompanied by it also decline and balance sheet leverage just give us a bit of color on what's been driving the performance that business.
Yeah. So Ryan spoke those specializes in the same type of risks that congrats on the right. So as a specialty broker.
Rates in the insurance market have been going up for underlying risk, which helps the business like Ryan because they get more.
Dollars per unit of work.
And just generally speaking, they're doing a great job of creating organic growth and then stealing share in the market and doing accretive M&A. So.
Having a verity of had a very good year last year in terms of both earnings growth and Delevering as result of those factors.
Okay. Thank you.
That concludes our question and answer session I will now turn the conference back the popular block.
Thanks for joining us everyone as always if any questions feel free to contact Emily.
I hope you all have a really nice weaken.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disconnect.
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Oh.
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Welcome to on excess fourth quarter and full year 2019 conference call. My name is lists and I'll be your operator today.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question answer session.
That's fine, but you have a question. Please press star one on the telephone keypad.
But anytime during the conference you need to reach the operator, Please press Star then zero.
As a reminder, this conference is being recorded.
I'll now turn the conference over time as I'm, only blowing director Investor Relations Onyx. Please go ahead.
Thank you Liz good morning, everyone and thanks for joining us or broadcasting this call on our website.
With me today, our Bobby Labonte, Chris cabin and other members of our leadership team.
As you May recall as of January 1st 2019, we determined onyx met the definition of an investment entity as defined by as far as.
This change in status has fundamentally changed how we prepare present and discuss our financial results.
It's important to note that periods ending on or before December 31st 2018 have not been restated to reflect this change.
Accordingly readers of our fourth quarter and full year materials should exercise significant caution in reviewing considering and drawing conclusions from period to period comparisons and changes at the comparisons across periods can be inappropriate or not meaningful if not carefully considered in this context.
As a reminder, all references to dollar amounts on this call, our and 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 at remarks.
Earlier. This morning, we issued our fourth quarter and full year 2019 press release, and DNA and consolidated financial statements, which are available on the shareholder section of our website and I've also been filed on SEDAR.
Our supplemental information package is also available on our website.
Before I pass it over to Bobby I'd like to highlight a few of our full year results.
We reported segment net earnings of $836 million, which on a fully diluted per share basis was $8 a nine cents.
Onyx shareholder capital increased to $7.2 billion or $69.47 per fully diluted share.
Our investing capital per share increased by 11% on an adjusted basis.
And our fee generating assets under management increased by 33% to $27.5 billion.
With that I'll now turn the call over to Bobby.
Thanks, Emily good morning, everyone.
I'm going to start but taking a look at what we're seeing in the markets and then wherever youre activity in 2019.
That remains readily available and there's lots of liquidity on the sidelines.
However, M&A activity is down so far this year and as such our private equity pipeline is relatively quiet in both North America in Europe.
With that said Onyx partners is currently evaluating a few opportunities that could prove to be very interesting.
As we discussed at Investor Day.
Onyx partners.
Our focus on deepening our expertise across four core verticals.
Concentrating on domestic investing.
And prioritizing proprietary transactions over auction processors.
Finally over the past few days, we've seen significant volatility and the equity markets driven by economic uncertainty and the potential impact of the grown a virus.
As you would expect we're monitoring the situation in real time.
Right now there's no material concern for a private equity business.
What we will continue to keep a close high for signs of negative developments.
Let's now turn to our activity by business unit.
Our private equity platform had an active year.
In total the Onyx group invested $2.7 billion at about half of that was deployed in the fourth quarter.
This was mainly through four new platform investments Westjet convex enertec.
Hi luck three of which were proprietary.
About a mile about 470 million came from Onyx.
The vast majority of the remaining 2.2 billion came from our limited partners.
What's important to note this will be LP capital nearly 1.2 billion was above and beyond their fund commitments.
This unusually high amount of co investment was largely driven by the convex opportunity.
And highlights the strong partnerships, we built and our investor desire to commit further capital alongside us.
What the acquisition of what Jeff.
Next partners five now has three companies in it.
Although it's early days.
We're pleased to see good progress within each of these businesses to date.
On cap for our mid cap fund.
It is now 65% invested.
As a reminder, upon needs to be 75% invested before we're able to start raising a successor.
Depending on the pace of our acquisition activity, we could be fund raising for our next midmarket vehicle within a year or so.
Moving on to private equity realizations.
In 2019, we returned the second largest amount of capital in our history.
The Onyx group realised 3.7 billion, which onyx to share with more than 1.2 billion.
This was driven by sales of publicly traded shares.
Outright sale of businesses.
It's worthwhile to remind you that these monetizations stemming from years of work executing on our investment theses.
The majority of the realization activity was driven by investments within Onyx partners for.
Which helped to improve the funds performance.
At year end.
Before I had a net IR a 5%.
Which is a nice improvement for the negative 2% a year ago.
Our realization activity.
Together with the increase in value of our unrealized portfolio.
Resulted in Onyx in private equity investments, increasing by 21% gross in the year.
Lastly, our Onyx partners platform continues to focus on building its operations team.
As a reminder, this team is focused on creating value within our operating businesses and enhancing our diligence processes.
We now have experts on our team focused on health and benefits supply chain and procurement.
We expect to continue to add new talent.
As we seek to grow our operations capabilities.
Ill now move on to honest credit.
We had a pretty strong here in 2019.
Fee generating AUM grew by 16% to 10.5 billion driven by both news yellow issuance and the introduction of Onyx credit products to gluskin chefs clients.
Our siloed distributions grew by 44% to 85 million benefiting from the refinancing activity we did in 2018.
Our net equity investments yellows remain pretty flat at about $450 million.
Later this year, we expect to be raising our next direct lending fund.
In anticipation of this we're focused on continuing to grow origination capabilities.
We now have a team of six people dedicated to origination.
Two more expected to join shortly.
We intend to continue to add to this team throughout the year.
I'll now turn to our wealth management platform Gluskin chef.
We ended the year with Canadian 8.3 billion of client capital.
Up nearly 2% sensor acquisition in June.
In the fourth quarter, we saw an increase in client additions and good investment performance, which offset stable capital outflows.
Our goal is to build a comprehensive wealth manager.
Institutional caliber public and private market strategies and best in class financial planning offerings tailored to sophisticated high net worth clients.
On the wealth planning side, we've grown the team from two to six people and now have top talent in both tax in the state planning.
We're now turning our focus on hiring more mid level and junior resources to further strengthen the value add for clients.
Part of our investment thesis with cost and shaft, which simplifies fee structure and make it more competitive within the wealth management space.
We implemented the initial changes earlier this year.
Which we believe will better position the business for growth.
The activity within our private equity private credit and wealth management platforms led to our fee generating AUM, increasing by more than 30% last year.
Lots can chef was the largest contributor to this growth.
Another topic I'd like to touch on as our progress to further integrate DSG considerations across your organization.
Since our founding we've always taken the approach that we're not simply buying shares to that gets but rather investing in living breathing companies.
We believe that responsible investing as part of being a good investor.
However, as Onyx has grown.
So to watch our approach to CSG.
In 2019, we established an S.G. committee.
Comprised of Representatives from all of our platforms and corporate office.
This committee is focused on enhancing the firm's holistic approach DSG.
We also became an alliance member of the sustainability accounting standards Board.
These steps are not market change in how we do business.
Or view as to the importance of responsible investing.
But rather are a formal acknowledgement of the standards, we've always believed our fundamental to successful investing.
To wrap up.
2019 was a good year products.
We're pleased with the progress made with each of our platforms. We continue to invest in our people to support growth and build value for all investors.
Today, we have a strong balance sheet with approximately 1.8 billion or cash.
More than 4 billion of committed Uncalled third party capital.
Level to deploy a new private equity investments.
Finally.
As we always like to remind you alignment with our investors is core to our culture and critical to our success.
This is evidenced by Onyx managements personal investment of $1.9 billion across our various funds and onyx shares.
That I'll now turn the call over to Chris.
Thanks, Bobby and good morning, everyone.
Onyx reported net earnings of $187 million or $1.86 cents per share in Q4.
As I've noted in prior quarters My focus during these calls will be on segment earnings, which we believe that reflect on X is performance.
Onyx. This segment earnings are computed before deducting stock based compensation and the amortization of intangibles and most of our pp any.
We've defined Onyx is segment earnings this way to be comparable to the basis on which many of our publicly traded peers report and to be consistent with how we manage our business.
Q4 segment earnings were 211 million or $2.04 per share.
Quarterly segment earnings were again, driven by the investing segment, which contributed $1.55 cents per share.
However, the asset in wealth management segment had a particularly strong quarter contributing 51 million were 49 cents per share.
All told Onyx generated $836 million of segment earnings for 2019 or $8, a nine cents per share.
Oh, 90% of these earnings came from the investing segment, so I'm going to drill down there first.
Our next continues to have a substantial majority of its investing capital at work in private equity. So investing segment earnings depend on the performance of our private equity funds.
A 6% gross return from Onyx is private equity portfolio in Q4 resulted in $145 million of net investment income.
[music] for capped off a consistent year of value creation, and the PE platform, a 21% gross return and net investment income of $683 million.
These returns were primarily attributable to Onyx partners for which generated $793 million of gross value increase for on X Corp. In 2019.
I'll circle back to the importance of Opie fours performance when I discuss our asset and wealth management segment.
I should also mentioned that the Q4 PE results are net of 66 million dollar charge stemming from changes to the compensation investment programs for the Onyx partners team.
As discussed in the Mdna. The changes were designed to have no net cost to Onyx Corporation overall, the upfront 66 million dollar accounting charge will be balanced with lower compensation expense going forward.
Additional details will be provided in onyx his upcoming information circular.
Turning to our credit platform.
The investing activities, there contributed $12 million in the quarter and $64 million for the year on a mark to market basis.
These results generally line up with the performance of the credit Suisse leverage loan index.
However, as you know we're focused on the cash returns from our CLL equity investments in 2019 was a strong year in this regard these investments yielding 12% in the year and once you include the fee stream. We capture is the manager the gross CLL platform yield was 18% for the year.
This next schedule details Onyx, a shareholder capital at quarter end and provides Q3 and prior year amounts for comparison.
As you can see there havent been any fundamental shifts in on excess capital allocation.
However, despite a busy and successful quarter realizing value in our PE funds.
Onyx is overall exposure to private equity increased slightly.
Ob fives acquisition of Westjet and net value increases across the funds more than offset the distributions from the ESI Gi and clarity secondary sales.
Although investment segment earnings do a good job of capturing Onyx is investment performance I think it continues to be useful to also think of those earnings as a return on invested capital.
As you can see from this slide 2019 was a solid year from this perspective with shareholders enjoying a 13% return on their investing capital before an 80 million dollar contribution from the asset manager.
With that I'll move onto the asset and wealth management segment.
Which generated net earnings of $51 million were 49 cents per share in the order and $80 million were 76 cents per share for the year.
The private equity asset manager contributed 33 million in Q4 up from a net loss of 1 million in the prior quarter.
This increase was the result of US 27 million dollar Mark to market improvement in carried interest primarily from Onyx partners three.
Given the cumulative performance of Opie for today, we're not yet accruing carry on that fund.
However, 2019 was a strong year with gross value increases of $1.3 billion for the fund as a whole.
As Bobby mentioned this performance is driven Opie fours net hirer from negative 2% to 5%.
Should LP for cross the 8% net fire our threshold carry would begin accruing.
As is typical in the industry LP for includes an 80 20 catch up such that 80% of the gains above 8% go to the carry pool.
Aggregate carry equals 20% of the cumulative gains.
But before his recent performance continues going forward carried interest will become a significant contributor to segment earnings.
A strong quarter from Gluskin chef resulted in wealth management contributing $21 million.
The quarter over quarter improvement was driven by $23 million of gross performance fees.
These fees are earned based on the calendar year performance of the underlying gluskin chef funds and therefore only accounted for at year end.
Looking at the full year results private equity contributed $69 million compared to 6 million in 2018.
The increase was driven by management fees from LP, five which began to accrue in November of 2018.
And a net 41 million improvement in carried interest.
These increases were partially offset by higher variable compensation compared to 2018.
When Onyx partners performance led to lower compensation across the team and in particular, the five members of Onyx as investment community declining to receive any variable compensation.
The last item before I turn the call over to Q and aim is to remind you. The contribution from wealth management represents the results of Gluskin chef only since its acquisition in June.
No formal for a full year of gluskin.
The asset in wealth management segment generated $94 million or 90 cents per share in 2019.
And those earnings are in year with no carried interest from our private equity platform and our over and above $63.77 or just shy of Canadian $85.
Of investing assets attributable to every share of Onyx you own.
That completes my comments on the financial results, we now be happy to take any questions.
Okay.
As a reminder, ladies and gentlemen to ask a question you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.
Please standby, we compile the Q and a roster.
Your first question comes from Jeff Kwan with RBC capital markets. Your line is now open.
Hi, good morning.
First question was just you mentioned you know the $1.8 billion and cash in Bobby mentioned pipeline.
Isn't as robust.
As you've had in the past, but that there maybe some deals that may come to fruition, just wondering how you're balancing what may be coming down the pipe versus the stock trading at relatively wide discounts and maybe in terms of share buybacks.
Yes, Jeff I think obviously the events of the last couple of days that changes that calculus.
You bet.
Overall Big picture I don't think our approach to that has changed we're always looking at the opportunities that we've seen our pipeline in the returns we expect from investing in that versus where the stock's trading and the returns we think shareholders would enjoy from buying back our stock over time.
The actual stock prices a factor, it's not determined enough, but as I said you can imagine that that calculus has moved in favor of buying back some stock given performance in the last couple of days.
Okay.
And then my next question when some.
In refocusing on a narrower set of industries and then also going deeper within those industries.
For those parts of those industries that maybe you are looking at.
That or call it anywhere relative to what do you may have done before hand, given the pullback in the markets that are you have you gone deep enough.
That is an opportunity presents itself that you could pull the trigger because I know you guys tend to be pretty thoughtful in terms of.
Expanding into various sub sectors, our various sectors.
As you've done in the past.
Yes, hi, as Bobby.
The four verticals were focused on.
All four of them with the exception of software within business services has been the areas, where we've had long term success and Onyx industrials healthcare financial services and business services and when we have been and are continuing to go deep dramatically within those four verticals and we are more than ready to move.
Basically at the an opportunity presents itself given the current environment.
Okay and just one last question I had is.
You talked about PSG and the approach there.
Just wondering how important is is SGN when youre looking at an investment opportunity just in the context of I mean at least right now I think we've seen.
Some companies that that's quite well on SG metrics and seem to be getting a bit of a premium like how you balance that out relative to maybe if there's a company that doesnt score as well any SG metrics, but maybe the return looks a lot a bit more attractive.
So again as I mentioned in the comments, we've always sort of had responsible investing is part of our culture, we look at it.
At every deal we do want to something doesn't fit.
In terms of what where we'd be proud to own. We just want owner, we won't take a great returns on something that we're not proud to own.
But with that said people are monitoring it more closely and we need to do a better job reporting on it and do a better job of.
Articulating to the shareholder how what we've always done that and that's what the processes will do from this point forward, how would you add anything to that.
Yeah.
I would just probably add with with the recent adoption of size fee, which is sustainable accounting standards Board what thats very helpful for us is.
Just be more transparent.
And systematic about what we do as Bobby said, it's not a change just marks.
Our ability to perhaps few more transparent to our Lps and indeed ultimately to our shareholders about what we do.
Okay. Thank you.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that Star then one.
Our next question comes from the line of Scott Chen with Canaccord Genuity. Your line is now open.
Good morning.
Just just relating to the grown a virus when you need spans three or private equity portfolio is there any kind of direct exposure that you can maybe help us point out to help navigate.
Kind of going through your.
For your company.
Yes. So obviously, we're looking at that real time by company and very closely.
To date, it's been.
Minor impact, mostly a supply chain and logistics.
Who knows where this ultimately goes the place.
That worries me a bit of people stopped gathering in public places some of our businesses could be impacted by that but it's really too early.
Too early to know this is.
This is all pretty new in the volatility of the last five or six days has got US who got our management team really focused on the issue, but as of right now we don't shaving material, but again that can change we're monitoring the situation very closely.
Okay, and and Bobby just asking chef you talked about.
As you kind of said did at 23 million performance fees for 29, when you talked about the change that fee structure did you change the performance fees for Phil.
Hello to start I went over to Seth.
Yes, we did.
We eliminated.
Performance fees on all of the long only product.
And.
And later on this year, we'll be introducing.
Cheered fees, mostly for the benefit of our more substantial clients.
Karen fees, meaning the larger the client that the stepdown fees is that correct that's correct.
Okay and that.
And Bobby just last sale last can you talked about.
Yeah, you on being up 2% quarter over quarter since a closed in June you talked about Q4 client additions was that implying that there was net sales.
Second within Q4.
So.
Essentially our our sales have been benefiting from the introduction of.
Annex credit products.
The Andy.
Client withdrawals, who have been relatively stable so as we said together with.
Some improvement in market performance overall, we've had.
Net growth in Asia.
Okay got it thank you very much.
Our next question comes from the line of Macquarie with BMO capital markets. Your line is now open.
Okay. Thanks, I think most of my questions have been answer I just have one on one of the portfolio companies was like there was a bit of a step up in earnings.
For Ryan Specialty group it looks like that was the company by it although declining balance sheet leverage just give us a bit color on what's been driving the performance that business.
Yes, so Ryan spoke that specializes in the same type of risks that congrats on the right. So it's because of specialty broker.
Rates in the insurance market have been going up for underlying risk, which helps the business like Ryan because they get more.
Dollars per unit of work.
And just generally speaking they're doing a great job.
Creating organic growth and stealing share in the market and doing accretive M&A. So.
Having a verity of had a very good year last year in terms of both earnings growth and Delevering as result of those factors.
Okay. Thank you.
That concludes our question and answer session I will now turn the conference back to Bobby Lovelock.
Thanks for joining us everyone as always if any questions feel free to contact Emily.
I hope you all of a really nice weaken.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disconnect.