Q1 2024 Onex Corporation Earnings Call
Operator: Welcome to ONIC's first quarter of 2024 conference call and webcast. During the presentation, all participants will be in a listen-only mode.
Welcome to Onyx first quarter 2024 conference call and webcast. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session with prequalified analyst at that time. If you have a question. Please press star one on your telephone keypad.
Operator: Afterward, we will conduct a question and answer session with pre-qualified analysts. At that time, if you have a question, please press star 1-1 on your telephone keypad. As a reminder, this conference is being recorded. Please go ahead.
As a reminder, this conference is being recorded and now I'd like to turn the conference over to Jill harmonic managing director shareholder Relations and communications at Onyx. Please go ahead.
Operator: Thank you. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Bobby LeBlanc, Onex's Chief Executive Officer, and Chris Govan, our Chief Financial Officer. Earlier this morning, we issued our first quarter 2024 press release, MD&A, and consolidated financial statements, which are available on the shareholder section of our website and have also been filed on CDAR. Our supplemental information package is also available on our website.
Thank you good morning, everyone and thanks for joining US we're broadcasting this call on our website hosting the call today are Bobby Le Blanc, <unk>, Chief Executive Officer, and Kris <unk>, our Chief Financial Officer.
Jill Homenuk: Earlier. This morning, we issued our first quarter 2024 press release, MD&A and consolidated financial statements, which are 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.
Jill Homenuk: 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.
Operator: As a reminder, all references to dollar amounts on this call are in US dollars 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. With that, I'll now turn the call over to Bobby. Good morning, everyone.
Jill Homenuk: With that I'll now turn the call over to Bobby.
Bobby: Good morning, everyone.
Robert M. Le Blanc: In Q1, Onex showed good progress in areas that are important to our ability to grow our business. PGED earning AUM grew by 4% from the previous quarter. We're not yet in a position to formally announce anything, but the teams are working hard on future realization. Our portfolio companies are being managed well, and we believe there's a strong potential to create more value in the quarters to come. HONCAP is exhibiting good momentum in its fundraisers. ONCAP V has now closed on commitments of approximately $800 million, with a strong pipeline heading towards a final close later this year.
Bobby: In Q1 Onyx showed good progress in areas that are important to our ability to grow our business.
Bobby: P J, earning AUM grew by 4% from the previous quarter.
Bobby: While not yet in a position to formally announce anything.
Bobby: The teams are working hard on future realizations.
Bobby: Our portfolio companies are being managed well.
Bobby: And we believe there is a strong potential to create more value in the quarters to come.
On cap is exhibiting good momentum on fundraising.
Bobby: On cat five.
Bobby: Outflows on commitments of approximately $800 million.
With a strong pipeline heading towards a final close later this year.
Robert M. Le Blanc: The team secured good co-investment support for last year's BioAmerics transaction and continues to actively pursue realization opportunities. Onex Partners is building a good deal pipeline within our specialty areas of focus. The team has been making progress in securing capital for future transactions with the support of some of our long-standing partners. In addition, they are working hard on opportunities to deliver more DPI or return of capital to LPs. On that front, we're happy to report that OP4 will reach 1.1 times DPI when the ASM sale closes later this year.
Bobby: The team secured good co investment support for last year's buyer America transaction and continue to actively pursue realization opportunities.
Bobby: On X partners is building a good deal pipeline within our specialty areas of focus.
Bobby: The team has been making progress in securing capital for future transactions with the support from some of our long standing partners.
Bobby: In addition, they are working hard on opportunities to deliver more DPI.
Bobby: While return of capital to Lps.
Bobby: On that front, we're happy to report that <unk> four will reach one one times DPI.
Bobby: ASM sale closes later this year.
Robert M. Le Blanc: Credit has had a productive start to 2024. Across many of our products, we are seeing incremental progress supported by our ability to deliver customized and innovative solutions. Our ONTAP offering, which originated through our Mercer partnership, is a good example.
Bobby: Credit has had a productive start to 2024.
Bobby: Across many of our products, we are seeing incremental progress supported by our ability to deliver customized and innovative solutions.
Bobby: Our untapped offering that originated through our Mercer partnership is a good example.
Robert M. Le Blanc: We are also now able to actively market our products through our Canadian Private Client Partnership. While this growth is expected to take time to accelerate, it feels positive to be in a position where we are looking forward to growing our FGAUM through this channel. Our CLO business continues to deliver outstanding results. So far in 2024, the team has priced four new CLOs and refinanced or reset four others. That totals over $1.8 billion of new FGAU equity and another $1.7 billion of extended FGAUM. Euro CLO 9 is our biggest European CLO to date, pricing at roughly 500 million euros.
Bobby: We are also now able to actively market our products through our Canadian private client partnerships.
While this growth is expected to take time to accelerate it feels positive to be in a position where we are looking forward to growing RFG AUM through this channel.
Bobby: Our CLO business continues to deliver outstanding results.
Bobby: So far in 2024, the team is price for new CLO.
Bobby: And refinance or reset for others.
Bobby: That totals over $1 $8 billion of new AUM.
AUM.
And another $1 7 billion of extended <unk>.
Bobby: AUM.
Bobby: Neuro CLO nine is our biggest European CLO to date.
Bobby: At roughly 500 million euros.
Robert M. Le Blanc: The team continues to attract new investors to our platform while opportunistically reducing Onyx's equity holdings, which allows the platform to scale with less Onyx capital. Onex's work in CLOs is a prime example of what we can accomplish when we focus our efforts in an area where we have a demonstrated right to compete and win. We were a top 10 global issuer last year and will continue to hold that position into 2024, as we work to create more value for shareholders and clients. We will increasingly focus our capital and resource allocation decisions on priority areas.
Bobby: The team continues to attract new investors to our platform.
Bobby: While opportunistically, reducing anixter as equity holders, which allows our platform to scale, but less on X capital.
Bobby: And it is working CLO.
Bobby: As a prime example of what we can accomplish when we focus our efforts in the area, where we've been demonstrated right to compete and win.
Bobby: We are a top 10 global issuer last year and continue to hold that position into 2024.
Bobby: As we work to create more value for shareholders and clients, we will increasingly focus our capital and resource allocation decisions on priority areas.
Robert M. Le Blanc: These include those areas where we see the most long-term opportunities and ability to drive NAV and earnings growth. Across our business, I see momentum growing and brighter spots emerging; where we see good opportunities to strengthen Onyx, we move quickly to act. We are wholly focused on building the best Onyx for you, our shareholders, and we will continue to proactively communicate our progress. With that, I'll now hand it over to Chris.
Bobby: These include those areas, where we see the most long term opportunities and ability to drive NAV and earnings growth.
Bobby: Across our business I see momentum growing and brighter spots emerging.
Bobby: While we see good opportunities to strengthen onyx.
Bobby: Quickly to act.
Bobby: We are wholly focused on building the best Onyx for you our shareholders and we will continue to proactively communicate our progress.
Bobby: With that I'll now hand, it over to Chris.
Christopher Allan Govan: Thanks, Bobby, and good morning, everyone. Onex ended the first quarter with investing capital per share of $107.44, reflecting a return of 11% over the past year and essentially unchanged from year end. In Canadian dollars, investing capital was over $145 per share, up 2% since year-end, given some strengthening of the U.S. dollar. Over the past five years, investing capital per share has compounded at an annual rate of 14%. We repurchased approximately 600,000 shares in the first four months of the year and renewed our normal course issuer bid in April.
Chris: Thanks, Bobby and good morning, everyone.
Chris: Onyx ended the first quarter with investing capital per share up $107 44.
Chris: Reflecting a return of 11% over the past year and essentially unchanged from year end.
Chris: In Canadian dollars investing capital was over $145 per share up 2% since year end, given some strengthening of the U S dollar.
Chris: Over the past five years investing capital per share has compounded at an annual rate of 14%.
Chris: We repurchased approximately 600000 shares in the first four months of the year and renewed our normal course issuer bid in April.
Christopher Allan Govan: As we've indicated before, share buybacks will remain part of our capital allocation plans while the shares trade at a wide discount. Over the last two years, we've used the balance sheet to reduce our share count by approximately 10% to a little under 77 million shares outstanding.
Chris: As we've indicated before share buybacks will remain part of our capital allocation plans, while the shares trade at a wide discount them.
Chris: Over the last two years, we've used the balance sheet to reduce our share count by approximately 10% to a little under 77 million shares outstanding.
Christopher Allan Govan: For our continuing shareholders, these buybacks have captured approximately $440 million of hard NAV. We ended the first quarter with cash and near cash of $1.4 billion, representing about 17% of investing capital consistent with year end. As a reminder, the pending sale of ASM from Onyx Partners 4 is expected to provide net proceeds to Onyx of about $275 million, which will more than offset the pending acquisition of Accredited in OP5 and therefore further build our liquidity for share buybacks and other opportunities ahead of us.
Chris: For our continuing shareholders. These buybacks have captured approximately $440 million of hard NAV.
Chris: We ended the first quarter with cash and near cash of $1 $4 billion, representing about 17% of investing capital consistent with year end.
Chris: As a reminder, the pending sale of ASM from Onyx partners or is expected to provide net proceeds to on X from about $275 million, which will more than offset the pending acquisition of accredited <unk> five and therefore further build our liquidity for share buybacks and other <unk>.
<unk> is ahead of us.
Christopher Allan Govan: As Bobby mentioned, our PE teams are actively pursuing realization opportunities while also seeing a growing investment pipeline for private equity. Our portfolio produced a $30 million net gain, or a return of 1%, in Q1. OP was flat for the quarter as gains from private investments were substantially offset by a decline in value for a couple of public investments. ONCAP experienced a 3% decline, driven by one investment being significantly impacted by a change in its regulatory environment. However, this investment has already locked in a very good return, more than offsetting this decline with a $69 million contribution from our direct investment. Driven by Ryan Special.
Chris: As Bobby mentioned RPE teams are actively pursuing realization opportunities, while also seeing a growing investment pipeline.
Chris: Looking at private equity.
Our portfolio produced a $30 million net gain or a return of 1% in Q1.
Chris: <unk> was flat for the quarter as gains from private investments were substantially offset by decline in value for a couple of public investments.
On cap experienced a 3% decline driven by one investment being significantly impacted by a change in its regulatory environment.
Chris: However, this investment is already locked in a very good return.
Chris: More than offsetting this decline was a $69 million contribution from our direct investments driven by Ryan specialty.
Christopher Allan Govan: Overall, our diversified portfolio of more than 40 companies continues to perform, and we expect meaningful contributions to our NAV going forward. Turning to credit investing, Credit Strategies delivered a $13 million net gain, or a 2% return, in Q1.
Chris: Overall, our diversified portfolio of more than 40 companies continues to perform and we expect meaningful contribution to our NAV going forward.
Chris: Turning to credit investing.
Chris: Credit strategies delivered a $13 million net gain or a 2% return in Q1.
Christopher Allan Govan: Again, this quarter was again driven by our CLO investors, which continue to perform well after a very strong 2023. Now let's turn to the asset management side of Onex. Onex ended the quarter with just over $35 billion of fee-generating AUM, up 4% from year end. Our teams raised $1.8 billion of new FGAUM in Q1, predominantly from two new CLOs and capital raised for Onyx Partners Opportunities and ONCAP5. Our CLO platform had a strong start to the year, raising or extending a total of $3.5 billion of FGAUM, including two U.S. CLOs closed in Q1, and the pricing of our next U.S. and Euro CLOs.
Chris: Again this quarter was again driven by our CLO investments, which continued to perform well after a very strong 2023.
Chris: Now, let's turn to the asset management side of the business.
Chris: <unk> ended the quarter with just over 35 billion.
Chris: Fee generating AUM up 4% from year end.
Chris: Our teams raised $1 8 billion of new FCA AUM in Q1.
Predominantly from two new CLO and capital raise for on X partners opportunities and on Cat five.
Chris: Our CLO platform had a strong start to the year.
Chris: Raising or extending a total of $3 $5 billion of SGA AUM.
Chris: Including two U S. CLO closed in Q1, and the pricing of our next U S and Euro CLO.
Christopher Allan Govan: Once the two price deals close in Q2, we'll already be close to the growth we targeted for all of 2024, with the team taking advantage of a strong underlying market. As of the end of April, we had over $ 4 billion of FGAUM with private wealth clients, largely unchanged from our last update. With our client assets transitioned to our distribution partner, our focus has shifted to growth, supporting our distribution partners, building new distribution relationships, marketing our existing products, and developing new products where we have a right to compete. Turning to fee-related and distributable earnings, the first quarter total FRE was a loss of $12 million, with a $4 million loss from the asset management platform.
Chris: Once the two price deals close in Q2.
Chris: Already close to the growth we targeted for all of 2024.
Chris: With the team taking advantage of a strong underlying market.
Chris: As of the end of April we had over Canadian $4 billion of FCA AUM with private wealth clients.
Chris: Largely unchanged from our last update.
Chris: With our client assets transitioned to our distribution partners.
Chris: Focus has shifted to growth.
Chris: Reporting our distribution partners building, new distribution relationships marketing, our existing products and developing new products, where we have a right to compete.
Chris: Turning to fee related and distributable earnings.
Chris: First quarter total FRE was a loss of $12 million with a $4 million loss from the asset management platform.
Christopher Allan Govan: Well, year over year, FRE benefited from cost savings, actually. This was partially offset by the impact of management fee reductions associated with the end of OP5's commitment period, as telegraphed last quarter. Though we expect full year FRE performance to decline in 2024, fundraising plans should drive progress and run rate FRE over the course of the year. To that end, run rate management fees were $197 million at quarter end, up $6 million or 3% from year end.
Chris: While year over year FRE benefited from cost savings actions.
Chris: This was partially offset by the impact of management fee reductions associated with the end of <unk> commitment period.
Chris: As telegraphed last quarter.
Chris: Though we expect full year FRE performance to decline in 2024.
Chris: And raising plans should drive progress in run rate FRE over the course of the year.
Chris: To that end run rate management fees were $197 million at quarter end up $6 million or 3% from yearend.
Christopher Allan Govan: Looking at distributable earnings, we generated $45 million of DE in Q1, driven by recurring distributions from our credit investment. Finally, an update on Onex's carried interest offer. We ended the quarter with $264 million of unrealized carried interest, reflecting a decline attributable to the OP4 public investments I mentioned earlier.
Chris: Looking at distributable earnings we generated $45 million a day in Q1, driven by recurring distributions from our credit investments.
Chris: Finally, an update on our <unk> carried interest opportunity.
Chris: We ended the quarter with $264 million of unrealized carried interest, reflecting a decline attributable to the <unk> for public investments I mentioned earlier.
Christopher Allan Govan: As a reminder, Onex has over $31 billion of private equity and credit AUM subject to carry, representing a meaningful opportunity for value creation going forward. As Bobby discussed, we made solid progress in Q1 across a number of important factors. We're focused on leveraging the areas where we have a right to compete, and our actions will continue to reflect a drive for profitability, growth, and shareholder value. That concludes the prepared remarks, and we'll now be happy to take any questions. Certainly. And as a reminder, ladies and gentlemen, if you have a question, please press star one one.
Chris: As a reminder, onyx has over $31 billion of private equity and credit AUM.
Chris: AUM subject to carry.
Chris: Presenting a meaningful opportunity for value creation going forward.
Chris: As Bob discussed we made solid progress in Q1 across a number of important factors.
Chris: We're focused on leveraging the areas, where we have a right to compete.
Chris: And our actions will continue to reflect a drive for profitability growth and shareholder value.
Speaker Change: That concludes.
Speaker Change: <unk> the prepared remarks, and we will now be happy to take any questions.
Speaker Change: Yes.
Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you have a question. Please press star one one.
Operator: And our first question comes from the line of Geoffrey Kwan from RBC Capital Markets. Your question, please. Hi, good morning.
And our first question comes from the line of Geoffrey Kwan from RBC capital markets. Your question. Please.
Geoffrey Kwan: I just have one question about your kind of interim opportunity. How's the field pipeline today versus the cap of a job? And what I mean by that is, are there, for example, lots of opportunities such that you can maybe be a little bit more particular than usual around which deals? Hey, Geoff, it's Bobby.
Geoffrey Kwan: Hi, Good morning, I just have one question is just on your kind of interim opportunities fund.
Geoffrey Kwan: Does the deal pipeline today versus the capital that you have to be able to put to work in.
Geoffrey Kwan: Do you mean by that is are there potential lots of opportunity such that you can maybe be a little bit more particular about the unusual around which deals do you want to pursue.
Robert M. Le Blanc: I hope we're always very particular about which opportunities you want to pursue. But the pipeline for OP and ONCAP is still not, and you asked about OP specifically, it's still not as normal as it would have been three or four years ago. But it is more active.
Geoffrey Kwan: Hey, Jeff This is Bob.
Bob: Hope were always very particular about which opportunities we wanted to pursue but the.
Bob: The pipeline for opiate on cap, it's still not.
Bob: And you asked about opioid specific it's still not as normal as it would have been three or four years ago.
Bob: But it is it is more active but we'll be very careful like we always are and choosing.
Robert M. Le Blanc: But, you know, we'll be very careful, like we always are, in choosing which investments to pursue and make sure, you know, we know that that's meant to be sort of a 12 to 18 month fund and make sure that we have that timeline in terms of not doing everything all the way. Actually, maybe if we could ask a follow-up question, is it getting a sense out there because of some of the issues?
Bob: Which investments to pursue and make sure we know that.
Bob: Meant to be sort of a 12 to 18 months fund and make sure that we.
Bob: We have that timeline in terms of not doing everything all at once.
Speaker Change: Maybe I can ask a follow up question.
Speaker Change: Are you getting a sense out there because of some of the issues within traditional private equity of that.
Robert M. Le Blanc: private equity that if you're in situations where, bidders or whatnot that you're not seeing as much of today than you would have, again, to your point, three to four years ago. No, the competition feels the same. Like it's just the inventory is not as much.
Speaker Change: If you are in situations, where there is.
Speaker Change: Multiple bidders or whatnot.
Youre not seeing as much.
Speaker Change: Competition.
Speaker Change: Today than you would have again to your 0.3 to four years ago.
No the competition.
Speaker Change: The competition feels the same.
Robert M. Le Blanc: And particularly on PE to PE deals, like those deals have slowed down. When I look at the pipeline for realizations across, you know, again, it's not totally strategic, but it's more skewed towards strategic buyers than it has been in the past, which is surprising given the amount of dry powder out there for private equity. Thank you. Please take a moment for our next question. And our next question comes from the line of Graham Ryding from TD Securities. Your question, please. Hi, good morning.
Speaker Change: The inventory is not as much.
Speaker Change: And particularly on <unk> like those deals have slowed down when I look at the pipeline for realizations across the firm.
Speaker Change: Again, thats not totally strategic but it's more skewed towards strategic buyers and it has been in.
Speaker Change: In the past, which is surprising given the amount of dry powder out there for private equity.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question.
Speaker Change: Comes from the line of Graham Ryding from TD Securities. Your question. Please.
Graham Ryding: The Opportunities Fund, is this the bridging fund that you were referring to last quarter? And should we expect some further fundraising from this fund? Or what's your sort of expectation?
Graham Ryding: Hey, good morning.
Graham Ryding: The opportunity opportunities fund is this the bridging fund that you were referring to last quarter.
Graham Ryding: Should we expect some further fundraising on this fund or what's your what's your sort of expectation here.
Sally: Hi, Graham and Sally. Yeah, that is the same fund. And I think your expectation should be for us to have a final close of that fund, you know, within three to five months from where we sit today. Okay, so similar to ONCAP 5, there's one more fundraiser expected, and one more. Yeah, I think in terms of closings, but yeah, one more major close. And just so you understand the way fundraising is working now because fundraisers, generally speaking, across the alt world have been elongated.
Graham Ryding: Hey, Greg sorry, Yeah that is that is the same fund and I think your expectation should be for us to have a final close of that.
Graham Ryding: Fund.
Greg: Within three to five months of where we sit today.
Greg: Okay. So similar to <unk> 501, more one more fundraise as expected.
Speaker Change: And one more.
Speaker Change: I think in terms of closings, but yes, one more.
Speaker Change: And just so you understand the way Fundraisings is working now because fundraisers generally speaking across your oil had been elongated.
Sally: PE in particular, you know, last closes are going to be the biggest closes, right? So you really, the most momentum you'll see is on a last close, like for an ONCAP, because people, at this point, are typically waiting for the last close. There'll be people who want to allocate because they have to allocate within a quarter. But you know, you should expect to see the last close be the largest close in their Okay, great. understood.
Speaker Change: In particular.
Speaker Change: Last closes we're going to be the biggest closures right. So you really the most momentum youll see it on our last close like for non cat because people at this point are typically waiting for the Alaska there'll be people, who want to allocate because they have to allocate within a quarter, but you should expect to see the last close to be the largest closed in those situations.
Sally: And that's on the credit side; then you've obviously had some really strong activity on the CLO side. What's your expectation for the remainder of the year? You know, looking past Q2, will it be further CLOs or, you know, have you sort of hit your budget and, [inaudible] Okay, understood. And my last question, if I could just, you know, what you talked about earlier, just, you got a question about your opportunities to deploy capital.
Speaker Change: Okay, Great understood and then on the credit side, then you've obviously had some real strong activity on the CLO side.
Speaker Change: What's your expectation for the remainder of the year Youre looking past Q2 will be further close or.
Speaker Change: Are you sort of hit your hit your budget and.
Speaker Change: Or you or your target already.
Speaker Change: Like as long as the markets are open and running.
Speaker Change: More and more paper and CLO formation.
Speaker Change: I hope.
Speaker Change: I would like nothing more for us to blow through.
Speaker Change: Budgets that have running the team continue to do what they've done in the first four months of the year for the last eight months of the year. So there's no we won't take the foot off the accelerator if the market's there.
Speaker Change: Okay understood.
Speaker Change: And then my last question if I could just you talked about earlier just you got a question about your opportunities to deploy capital, but can you give us a sense for how the market is changing for opportunities for portfolio realizations.
Sally: But can you give us a sense of how the market is changing for opportunities for portfolio realizations, the opportunities becoming slightly better than perhaps it was three, six, maybe 12 months ago. It's definitely better than it was three and six months ago, but I wouldn't call it normal yet.
Speaker Change: The opportunity to become a.
Slightly better than perhaps it was $3 six maybe 12 months ago.
Speaker Change: It's definitely better than it was three and six months ago, but I wouldn't call it normal yet.
Robert M. Le Blanc: Like we obviously are working on several realizations internally, some partial, some full. But again, like the pipeline we're seeing on the new deal front, the same is really true on the realization front. It's better than it was, but it's not what I would call normal if you were to look at an overall five.
Speaker Change: We obviously are working on.
Speaker Change: Several realizations internally some partial some some full.
Speaker Change: Again like the pipeline, we're seeing on the new deal front. The same is really true on the realization front, it's better than it was but it's not what I would call normal. If you were to look at the overall the five year period.
Speaker Change: Understood that's it for me thanks.
Thanks, Craig.
Speaker Change: Thank you.
Speaker Change: To conclude the question and answer session of today's program I'd like to hand, the program back to Bobby Le Blanc for any further remarks.
Chris: Thanks. Thanks, Chris. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Bobby LeBlanc for any further remarks.
Robert M. Le Blanc: Thank you for your time. If you have any questions, feel free to call Jill or Chris or me or anybody you'd like, and we'll be happy to answer your questions. And I hope you all have a nice weekend.
Speaker Change: Thank you for your time, if you have any questions feel free to call, Joe or Chris or me or anybody would like and we will be happy to answer your questions and I Hope you all have a nice weekend. Thank you.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Scott Chan, Nikolaus Priebe, Robert Blanc, Nikolaus Priebe, Nigel Wright, Unknown Shareholder, Nickelodeon.com, Music Music Music Welcome to ONIC's first quarter of 2024 conference call and webcast. During the presentation, all participants will be in a listen-only mode.
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Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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Operator: Afterwards, we will conduct a question and answer session with pre-qualified analysts. At that time, if you have a question, please press star 11 on your telephone keypad. As a reminder, this conference is being recorded. And now, I'd like to turn the conference over to Jill Homenuk. Please go ahead.
Speaker Change: Welcome to <unk> first quarter 2024 conference call and webcast. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session with prequalified analysts at that time. If you have a question. Please press star one on your telephone keypad as a reminder.
Speaker Change: This conference is being recorded and now I'd like to turn the conference over to Jill <unk>, managing director shareholder Relations and communications at Onyx. Please go ahead.
Operator: Thank you. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Bobby LeBlanc, Onex's Chief Executive Officer, and Chris Govan, our Chief Financial Officer. Earlier this morning, we issued our first quarter 2024 press release, MD&A, and Consolidated Financial Statements, which are available on the shareholder section of our website and have also been filed on CDAR. Our supplemental information package is also available on our website.
Jill Homenuk: Thank you good morning, everyone and thanks for joining US we're broadcasting this call on our web site hosting the call today are Bobby Le Blanc, <unk>, Chief Executive Officer, and Chris <unk>, Our Chief Financial Officer.
Speaker Change: Earlier. This morning, we issued our first quarter 2024 press release.
Jill Homenuk: And consolidated financial statements, which are 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.
Operator: As a reminder, all references to dollar amounts on this call are in US dollars 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. With that, I'll now turn the call over to Bobby. Good morning, everyone.
Jill Homenuk: 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.
Jill Homenuk: With that I'll now turn the call over to Bobby.
Robert M. Le Blanc: In Q1, Onex showed good progress in areas that are important to our ability to grow our business. Fee-Generating AUM grew by 4% from the previous quarter. Well, I'm not yet in a position to formally announce anything. The teams are working hard on future realization. Our portfolio companies are being managed well, and we believe there's a strong potential to create more value in the quarters to come. ONCAP is exhibiting good momentum in its fundraising. ONCAP V has now closed on commitments of approximately $800 million, with a strong pipeline heading towards a final close later this year.
Good morning, everyone.
Bobby: In Q1 Onyx showed good progress in areas that are important to our ability to grow our business.
Bobby: Fee generating AUM grew by 4% from the previous quarter.
Bobby: While not yet in a position to formally announce anything.
Bobby: The teams are working hard on future realizations.
Bobby: Our portfolio companies are being managed well.
Bobby: And we believe there is a strong potential to create more value in the quarters to come.
Bobby: On cap is exhibiting good momentum on fundraising.
Bobby: On cat five.
Bobby: How close on commitments of approximately $800 million with a strong.
Bobby: Pipeline heading towards a final close later this year.
Robert M. Le Blanc: The team secured good co-investment support for last year's BioAmerix transaction and continues to actively pursue realization opportunities. Onex Partners is building a good deal pipeline within our specialty areas of focus. The team has been making progress in securing capital for future transactions with the support of some of our longstanding partners. In addition, they are working hard on opportunities to deliver more DPI or return of capital to LPs. On that front, we're happy to report that OP4 will reach 1.1 times DPI when the ASM sale closes later this year.
Bobby: The team secured good co investment support for last year's <unk> transaction and continue to actively pursue realization opportunities.
Bobby: <unk> partners is building a good deal pipeline within our specialty areas of focus.
Bobby: The team has been making progress with securing capital for future transactions.
Bobby: Support for some of our long standing partners.
Bobby: In addition.
Bobby: They are working hard on opportunities to deliver more DPI.
Bobby: Turn of capital to Lps.
Bobby: On that front, we're happy to report that <unk> four will reach one one times CPI on the ASM sale closes later this year.
Robert M. Le Blanc: Credit has had a productive start to 2024. Across many of our products, we are seeing incremental progress supported by our ability to deliver customized and innovative solutions. Our ONTAP offering, which originated through our Mercer partnership, is a good example.
Bobby: Credit has had a productive start to 2024.
Bobby: Crosses many of our products, we are seeing incremental progress supported by our ability to deliver customized and innovative solutions.
Bobby: Our untapped offering that originated through our Mercer partnership is a good example.
Robert M. Le Blanc: We are also now able to actively market our products through our Canadian Private Client Partnership. While this growth is expected to take time to accelerate, it feels positive to be in a position where we are looking forward to growing our FGAUM through this channel. Our CLO business continues to deliver outstanding results. So far in 2024, the team has priced four new CLOs and refinanced or reset four others. That totals over 1.8 billion dollars of new FGAUF and another $1.7 billion of extended FGAUM. Euro CLO 9 is our biggest European CLO to date, priced at roughly 500 million euros.
Bobby: We are also now able to actively market our products through our Canadian private client partnerships.
Bobby: While this growth is expected to take time to accelerate it feels positive to be in a position where we are looking forward to growing RFG AUM through this channel.
Bobby: Our CLO business continues to deliver outstanding results.
Bobby: So far in 2024, the team is price for new Clo's and refinance or reset for others.
Bobby: That totaled over $1 $8 billion of new.
Bobby: AUM.
Bobby: And another $1 7 billion of extended FGA AUM.
Bobby: Euro CLO nine is our biggest European CLO to date.
Bobby: At roughly 500 million euros.
Bobby: The team continues to attract new investors to our platform.
Bobby: While opportunistically, reducing onyx as equity holdings, which allows our platform to scale with less Onyx capital.
Robert M. Le Blanc: The team continues to attract new investors to our platform while opportunistically reducing Onyx's equity holdings, which allows the platform to scale with less Onyx capital. Onex's work in CLOs is a prime example of what we can accomplish when we focus our efforts in an area where we have a demonstrated right to compete and win. Onex was a top 10 global issuer last year and will continue to hold that position into 2024, as we work to create more value for shareholders and clients. We will increasingly focus our capital and resource allocation decisions on priority areas.
Bobby: Honestly as work in Cielo is a prime example of what we can accomplish when we focus our efforts in area, where we have a demonstrated right to compete and win.
Bobby: We were a top 10 global issue last year and continue to hold that position into 2024.
Bobby: As we work to create more value for shareholders and clients.
Bobby: Increasingly focus our capital and resource allocation decisions on priority areas.
Robert M. Le Blanc: These include those areas where we see the most long-term opportunities and ability to drive NAV and earnings growth. Across our business, I see momentum growing and brighter spots emerging; where we see good opportunities to strengthen Onyx, we move quickly to act. We are wholly focused on building the best Onyx for you, our shareholders, and we will continue to proactively communicate our progress. With that, I'll now hand it over to Chris.
Bobby: These include those areas, where we see the most long term opportunities and ability to drive NAV and earnings growth.
Bobby: Across our business I see momentum growing and brighter spots emerging.
While we see good opportunities to strengthen onyx.
Bobby: Quickly to act.
Bobby: We are wholly focused on building the best Onyx for you our shareholders and we will continue to proactively communicate our progress.
With that I'll now hand, it over to Chris.
Christopher Allan Govan: Thanks, Bobby, and good morning, everyone. Onex ended the first quarter with investing capital per share of $107.44, reflecting a return of 11% over the past year and essentially unchanged from year end. In Canadian dollars, investing capital was over $145 per share, up 2% since year end, given some strengthening of the U.S. dollar. Over the past five years, investing capital per share has compounded at an annual rate of 14%. We repurchased approximately 600,000 shares in the first four months of the year and renewed our normal course issuer bid in April.
Chris: Thanks, Bobby and good morning, everyone.
Chris: On X ended the first quarter with investing capital per share up $107 44.
Chris: Reflecting a return of 11% over the past year and essentially unchanged from year end.
Chris: In Canadian dollars investing capital was over $145 per share up 2% since year end, given some strengthening of the U S dollar.
Over the past five years investing capital per share has compounded at an annual rate of 14%.
Chris: We repurchased approximately 600000 shares in the first four months of the year and renewed our normal course issuer bid in April.
Christopher Allan Govan: As we've indicated before, share buybacks will remain part of our capital allocation plans while the shares trade at a wide discount. Over the last two years, we've used the balance sheet to reduce our share count by approximately 10% to a little under 77 million shares outstanding.
Chris: As we've indicated before share buybacks will remain part of our capital allocation plans, while the shares trade at a wide discount.
Chris: Over the last two years, we've used the balance sheet to reduce our share count by approximately 10% to a little under 77 million shares outstanding.
Christopher Allan Govan: For our continuing shareholders, these buybacks have captured approximately $440 million of hard NAV. We ended the first quarter with cash and near cash of $1.4 billion, representing about 17% of investing capital consistent with year end. As a reminder, the pending sale of ASM from Onyx Partners 4 is expected to provide net proceeds to Onyx of about $275 million, which will more than offset the pending acquisition of Accredited in OP5 and therefore further build our liquidity for share buybacks and other opportunities ahead of us.
For our continuing shareholders. These buybacks have captured approximately $440 million of hard NAV.
Chris: We ended the first quarter with cash and near cash of $1 $4 billion.
Chris: Representing about 17% of invested capital consistent with year end.
Chris: As a reminder, the pending sale of ASM from Onyx partners or is expected to provide net proceeds to on X of about $275 million.
Chris: Which will more than offset the pending acquisition of accredited and LP five and therefore further build our liquidity for share buybacks and other opportunities ahead of us.
Christopher Allan Govan: As Bobby mentioned, our PE teams are actively pursuing realization opportunities while also seeing a growing investment pipeline for private equity. Our portfolio produced a $30 million net gain, or a return of 1%, in Q1. O.P. was flat for the quarter as gains from private investments were substantially offset by a decline in value for a couple of public investors. ONCAP experienced a 3% decline, driven by one investment being significantly impacted by a change in its regulatory environment. However, this investment has already locked in a very good return, more than offsetting this decline with a $69 million contribution from our direct investors. Driven by Ryan Special.
Chris: As Bobby mentioned RPE teams are actively pursuing realization opportunities, while also seeing a growing investment pipeline.
Chris: Looking at private equity.
Chris: Our portfolio produced a $30 million net gain or a return of 1% in Q1.
Chris: <unk> was flat for the quarter as gains from private investments were substantially offset by decline in value for a couple of public investments.
Chris: On cap experienced a 3% decline.
Chris: Given by one investment being significantly impacted by a change in its regulatory environment.
Chris: However, this investment is already locked in a very good return.
Chris: More than offsetting this decline was a $69 million contribution from our direct investments driven by Ryan specialty.
Christopher Allan Govan: Overall, our diversified portfolio of more than 40 companies continues to perform, and we expect meaningful contributions to our NAV going forward. Turning to credit investing, Credit Strategies delivered a $13 million net gain, or a 2% return, in Q1.
Chris: Overall, our diversified portfolio of more than 40 companies continues to perform and we expect meaningful contribution to our NAV going forward.
Chris: Turning to credit investing.
Credit strategies delivered a $13 million net gain or a 2% return in Q1.
Christopher Allan Govan: Again, this quarter was again driven by our CLO industry, which continued to perform well after a very strong 2023. Now let's turn to the asset management side of the business. Onex ended the quarter with just over $35 billion of fee-generating AUM, up 4% from year end. Our teams raised $1.8 billion of new FGAUM in Q1, predominantly from two new CLOs, and capital raised for Onex Partners opportunities and ONCAP5. Our CLO platform had a strong start to the year, raising or extending a total of $3.5 billion of FGAUM, including two U.S. CLOs closed in Q1, and the pricing of our next U.S. and Euro CLOs.
Chris: Again this quarter was again driven by our CLO investments, which continue to perform well after a very strong 2023.
Chris: Now, let's turn to the asset management side of the business.
Chris: On X ended the quarter with just over $35 billion of fee generating AUM up 4% from year end.
Chris: Our teams raised $1 $8 billion of new FCA AUM in Q1 predominantly.
Chris: Predominantly from two new CLO.
Chris: Capital raise for on X partners opportunities and on cap five.
Our CLO platform had a strong start to the year.
Chris: Raising or extending a total of $3 $5 billion of SGA AUM.
Chris: Including two U S. CLO is closed in Q1 and the pricing of our next U S and Euro CLO.
Christopher Allan Govan: Once the two price deals close in Q2, we'll already be close to the growth we targeted for all of 2024, with the team taking advantage of a strong underlying market. As of the end of April, we had over $ 4 billion of FGAUM with private wealth clients, largely unchanged from our last up, with our client assets transitioned to our distribution partner. Our focus has shifted to growth, supporting our distribution partners, building new distribution relationships, marketing our existing products, and developing new products where we have a right to compete. Turning to fee-related and distributable earnings, the first quarter total FRE was a loss of $12 million, with a $4 million loss from the asset management platform.
Chris: Once the two price deals closed in Q2.
Chris: Already close to the growth we targeted for all of 2024 with the team taking advantage of a strong underlying market.
Chris: As of the end of April we had over Canadian $4 billion of FGA AUM with private wealth clients.
Chris: Largely unchanged from our last update.
Chris: With our client assets transitioned to our distribution partners.
Chris: Focus has shifted to growth.
Chris: Porting, our distribution partners building, new distribution relationships marketing, our existing products and developing new products, where we have a right to compete.
Chris: Turning to fee related and distributable earnings.
Chris: First quarter total FRE was a loss of $12 million with a $4 million loss from the asset management platform.
Christopher Allan Govan: Well, year over year, FRE benefited from cost savings, but this was partially offset by the impact of management fee reductions associated with the end of OP5's commitment period, as telegraphed last quarter. So we expect full-year FRE performance to decline in 2024; fundraising plans should drive progress and run rate FRE over the course of the year. To that end, run rate management fees were $197 million at quarter end, up $6 million or 3% from year end.
Chris: While year over year FRE benefited from cost savings actions.
Chris: This was partially offset by the impact of management fee reductions associated with the end of <unk> commitment period.
Chris: As telegraphed last quarter.
Chris: Though we expect full year FRE performance to decline in 2024.
Chris: Raising plans should drive progress in run rate FRE over the course of the year.
Chris: To that end run rate management fees were $197 million at quarter end up $6 million or 3% from year end.
Christopher Allan Govan: Looking at distributable earnings, we generated $45 million of DE in Q1, driven by recurring distributions from our credit investment. Finally, an update on Onex's carried interest offer. We ended the quarter with $264 million of unrealized carried interest, reflecting a decline attributable to the OP4 public investments I mentioned earlier.
Chris: Looking at distributable earnings we generated $45 million a day in Q1, driven by recurring distributions from our credit investments.
Chris: Finally, an update on our acts as carried interest opportunity.
Chris: We ended the quarter with $264 million of unrealized carried interest, reflecting a decline attributable to the <unk> for public investments I mentioned earlier.
Christopher Allan Govan: As a reminder, Onex has over $31 billion of private equity and credit AUM subject to carry, representing a meaningful opportunity for value creation going forward. As Bobby discussed, we made solid progress in Q1 across a number of important factors, we're focused on leveraging the areas where we have a right to compete, and our actions will continue to reflect a drive for profitability, growth, and shareholder value. That concludes the prepared remarks, and we'll now be happy to take any questions. And as a reminder, ladies and gentlemen, if you have a question, please press star one one.
Chris: As a reminder, onyx has over $31 billion of private equity and credit AUM.
Chris: AUM subject to carry.
Presenting a meaningful opportunity for value creation going forward.
Chris: As Bobby discussed we made solid progress in Q1 across a number of important factors.
We're focused on leveraging the areas, where we have a right to compete.
Chris: And our actions will continue to reflect a drive for profitability growth and shareholder value.
Speaker Change: That concludes the prepared remarks, and we'll now be happy to take any questions.
Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you have a question. Please press star one one.
Operator: And our first question comes from the line of Geoffrey Kwan from RBC Capital Markets. Your question, please. Hi, good morning.
Speaker Change: And our first question comes from the line of Geoffrey Kwan from RBC capital markets. Your question. Please.
Geoffrey Kwan: I just have one question about your kind of interim opportunity. How's the field pipeline today versus the cap of a company? And what I mean by that is, are there, for example, lots of opportunities such that you can maybe be a little bit more particular about than usual around which deals? Hey, Geoff, it's Bobby. I hope we're always very particular about which opportunities we want to pursue.
Geoffrey Kwan: Hi, good morning.
Geoffrey Kwan: One question is just on your kind of interim opportunities fund.
Geoffrey Kwan: The deal pipeline today versus the capital that you have to be able to put to work and what I mean by that is are there potential lots of opportunity such that you can maybe be a little bit more particular about the unusual around which deals do you want to pursue.
Robert M. Le Blanc: But the pipeline for OP and ONCAP is still not, and you asked about OP specifically, it's still not as normal as it would have been three or four years ago. But it is more active. But, you know, we'll be very careful, like we always are, in choosing which investments to pursue and make sure, you know, we know that that's meant to be sort of a 12 to 18 month fund and make sure that we have that timeline in terms of not doing everything all the way.
Geoffrey Kwan: Hey, Jeff This is Bob.
Bob: I hope were always very particular about which opportunity we wanted to pursue but the.
Bob: The pipeline for <unk> is still not and you asked about <unk>, specifically is still not as normal as it would've been three or four years ago.
Bob: But it is it is more active.
Bob: We will be very careful like we always are and choosing.
Bob: Whats your investments to pursue and make sure. We know that that's meant to be sort of a 12 to 18 months on them and make sure that.
Bob: We have that timeline in terms of not doing everything all at once.
Robert M. Le Blanc: Actually, maybe if we could ask the follow-up question is, are you getting a sense out there because of some of the issues? Private equity that if you're in situations where bidders or whatnot that you're not seeing as many of today than you would have, again, to your point, three to four years ago? No, the competition. No, the competition feels the same. Like it's just the inventory is not as much.
Speaker Change: Actually maybe I can ask a follow up question is.
Are you getting a sense out there because of some of the issues within the traditional private equity of that.
Speaker Change: If you are in situations, where there is.
Speaker Change: Multiple bidders or whatnot that youre not seeing as much.
Speaker Change: Competition.
Speaker Change: Today than you would have again to your 0.3 to four years ago.
Speaker Change: No.
Speaker Change: Competition.
Speaker Change: The competition feels the same it's just the inventory is not as much in.
Robert M. Le Blanc: And particularly on PE to PE deals, like those deals have slowed down. When I look at the pipeline for realizations across, You know, again, it's not totally strategic, but it's more skewed towards strategic buyers than it has been in the past, which is surprising given the amount of dry powder out there for private equity. Thank you. Please take a moment for our next question. And our next question comes from the line of Graham Ryding from TV Securities. Your question, please. Well, hi, good morning.
Speaker Change: Particularly <unk> like those deals have slowed down when I look at the pipeline for realizations across the firm.
Again, it's not totally strategic but it's more skewed towards strategic buyers and it has been in.
Speaker Change: In the past, which is surprising given the amount of dry powder out there for private equity.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question.
Speaker Change: It comes from the line of Graham Ryding from TD Securities. Your question. Please.
Graham Ryding: The Opportunities Fund, is this the bridging fund that you were referring to last quarter? And should we expect some further fundraising on this fund? Or what's your sort of expectation here? Hi, Graham and Sally.
Graham Ryding: Hi, good morning.
Graham Ryding: The opportunity opportunities fund is this the bridging fund that you were referring to last quarter.
Graham Ryding: Should we expect some further fundraising on this fund or what's your what's your sort of expectation here.
Sally: Yeah, that is the same fund. And I think your expectation should be for us to have a final close of that fund, you know, within three to five months from where we sit today. Okay, so similar to on cap five, there's one more fundraise expected, and one more. Yeah, I think in terms of closings, but yeah, one more major close. And just so you understand the way fundraising is working now because fundraisers, generally speaking, across the Altwell have been elongated.
Graham Ryding: Hey, Greg sorry, Yeah that is that is the same fund and I think your expectation should be for us to have a final close of that fund.
Greg: Within three to five months of where we sit today.
Greg: Okay. So celerity on cap five as sort of one more one more fundraise expected.
Speaker Change: And one more.
Speaker Change: They can turn to closings, but yes, one more meeting closed.
Speaker Change: You understand the way Fundraisings is working now because fundraise is generally speaking across your oil had been elongated.
Sally: PE in particular, you know, last closes are going to be the biggest closes, right? So the most momentum you'll see is on a last close, like for an ONCAP, because people at this point are typically waiting for the last close. There will be people who want to allocate because they have to allocate within a quarter.
Speaker Change: In particular.
Speaker Change: Last closes we're going to be the biggest closes right. So you really the most momentum youll see it on our last close like for non cat because people at this point are typically waiting for the Alaska there'll be people, who want to allocate because they have to allocate within a quarter, but you should expect to see the last close to be the largest closed more situations.
Sally: But you know, you should expect to see the last close be the largest close in their Okay, great. Understood. And that's on the credit side; then you've obviously had some really strong activity on the CLO side.
Okay, Great understood and then on the credit side, then you've obviously had some real strong activity on the CLO side.
Sally: What's your expectation for the remainder of the year, looking past Q2, will there be further CLOs or, you know, have you sort of hit your budget and Scott Chan, Robert Blanc, Christopher Govan, Nikolaus Priebe, Geoffrey Kwan, Nigel Wright, Unknown Shareholder, Nikolaus Priebe, Geoffrey Kwan, Jill Homenuk, Ronnie Jaber, Onex Corporation Okay, understood. And my last question, if I could just, you know, what you talked about earlier, just, you got a question about your opportunities to deploy capital.
What's your expectation for the remainder of the year, you're looking past Q2 will be further CLO or.
Speaker Change: Have you sort of hit your hit your budget and.
Speaker Change: Or you or your target already.
Speaker Change: Like as long as the markets are open and wanting more.
Speaker Change: More and more paper and CLO formation like I hope.
I would like nothing more for us to blow through.
Speaker Change: Running the team continue to do what they've done in the first four months of the year for the last eight months of the year. So there's no we won't take the foot off the accelerator if the market's there.
Okay understood.
Speaker Change: My last question if I could just you talked about earlier just you got a question about your opportunities to deploy capital, but can you give us a sense for how the market is changing for opportunities for portfolio realizations.
Sally: But can you give us a sense for how the market is changing for opportunities for portfolio realizations? Is the opportunity becoming slightly better than perhaps it was three, six, maybe 12 months ago? It's definitely better than it was three and six months ago, but I wouldn't call it normal yet. As we obviously are working on, several realizations internally, some partial, some full. But again, like the pipeline we're seeing on the new deal front, the same is really true on the realization front.
Speaker Change: The opportunity become a.
Robert M. Le Blanc: It's better than it was, but it's not what I would call normal. If you were to look at an overall score of five, That's it for me. Thanks. Thanks, Graham. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Bobby LeBlanc for any further remarks. Thank you for your time. If you have any questions, feel free to call Jill or Chris or me or anybody you'd like, and we'll be happy to answer your questions. And I hope you all have a nice weekend. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Speaker Change: Slightly better than perhaps it was $3 six maybe 12 months ago.
Speaker Change: It's definitely better than it was three and six months ago, but I wouldn't call it normal yet.
Speaker Change: We obviously are working on.
Speaker Change: Several realizations internally some partial some some full.
Speaker Change: But again like the pipeline, we're seeing on the new deal front. The same is really true on the realization front is better than it was but it's not what I would call normal if you were to look at it overall the five year period.
Speaker Change: Understood that's it for me thanks.
Speaker Change: Thanks, Craig.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Bobby Le Blanc for any further remarks.
Speaker Change: Thank you for your time, if you have any questions feel free to call, Joe or Chris or me or anybody would like and we will be happy to answer your questions and I Hope you all have a nice weekend. Thank you.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.