Q3 2025 Onex Corp Earnings Call
Speaker #1: Welcome to Onyx's third quarter 2025 conference Call and webcast . During the presentation , all participants will be in a listen only mode .
Speaker #1: Afterwards , we will conduct a question and answer session with pre-qualifying analysts . At that time . If you have a question , please press star one one on your telephone keypad .
Speaker #1: As a reminder , this conference is being recorded . I will now turn the conference over to Jill Homenuk Managing Director , Shareholder Relations and Communications at Onyx .
Speaker #1: Please go ahead .
Speaker #2: 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 , Onyx's Chief Executive Officer .
Speaker #2: And Christopher Govan , our chief financial officer . Earlier this morning , we issued our third quarter 2025 press release and consolidated financial statements , which are available on the shareholder section of our website and have also been filed on Cd-R .
Speaker #2: Our supplemental information package is also available on our website . As a reminder , all references to dollar amounts on this call are in us , unless otherwise stated .
Speaker #2: 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.
Speaker #2: With that , I'll now turn the call over to Bobby .
Speaker #3: Good morning everyone . Before providing my comments on the quarter , I wanted to provide some thoughts on our pending acquisition of Convex and new strategic relationship with AIG .
Speaker #3: These transactions are a transformational step forward for Onyx , with the potential to meaningfully enhance long term shareholder value . Since becoming CEO , one of my main priorities beyond optimizing the business and focusing on those areas where we have a right to compete , has been to identify opportunities to deploy our balance sheet , to create enterprise value .
Speaker #3: I truly believe these relationships with convex and AIG to industry leading organizations that are well aligned with our own culture and principles , is one of these opportunities .
Speaker #3: In convex , we are not only acquiring an outstanding organization and proven leader in the insurance industry . We are strategically and intentionally leaning into a business and ecosystem that we know extremely well , and where we have been able to generate outsized returns in just six years from its inception .
Speaker #3: The business has delivered well beyond expectations and still has excellent growth prospects . Further , the informational advantage we have built up related to convex puts us in a far superior position with much lower risks than if we were acquiring a business we didn't know as well .
Speaker #3: When Steve and Catlin and Paul Brand have achieved to date with convex is truly remarkable . We'd like to thank Steve and Paul and the rest of the employees at convex for their efforts and results .
Speaker #3: They are one of the most talented teams in the industry , and we're delighted to remain their long term partners . In addition to the strength of the team , convex has built a differentiated underwriting platform , one that has grown gross written premium by 22% annually since 2022 .
Speaker #3: Profitability is also improved steadily , with recent combined ratios in the high 80s to low 90s as the business continues to scale into its expense base convex is also demonstrated .
Speaker #3: Prudent underwriting and has had consistent favorable prior year reserve development since 2022 . Importantly , it carries no legacy insurance liabilities , having been established as a de novo insurer in 2019 with the support of Onyx and our LPs , convex is structure with no legacy technology burden and a focus on outsourcing non-core functions should allow for meaningful incremental operating leverage as the business continues to grow .
Speaker #3: As we highlighted in the investor presentation available on our website , convex is key performance indicators clearly position it ahead of its peers , particularly on an organic growth basis .
Speaker #3: At our entry price of 1.9 times Q3 tangible book value , we see meaningful upside as convex continues to efficient cost tangible book value to disciplined underwriting and retained earnings .
Speaker #3: As we have consistently outlined to our shareholders , we only want to deploy capital in areas where Onyx has deep domain expertise and a clear right to compete .
Speaker #3: We spent decades building experience and relationships across the insurance sector , and convex is a great example of our deep domain expertise . Owning a property casualty insurer gives us two powerful engines of value creation .
Speaker #3: First , from through underwriting profits , which can be reinvested back into the business or become available for future dividend distribution . Second , as convex is investment portfolio , which is currently around $8 billion , grows allocation to alternative assets will grow with it , which will include Onyx's own private equity and credit funds .
Speaker #3: This should drive incremental AUM growth and fee related earnings for our asset management business . While the PNC market is not immune to cyclicality , we're comfortable with that risk given we expect to be a long term owner of the business and convex is still in the early stage of its growth trajectory .
Speaker #3: The business has significant opportunity to capture additional market share , underpinned by its high quality relationships and reputations with brokers and clients . The combination of best in class growth and high quality underwriting should allow convex to compound its equity value at attractive rates through the cycle .
Speaker #3: We see that growth as a meaningful driver of Onex's future shareholder returns and a key contributor to the ongoing expansion of our net asset value over time.
Speaker #3: Turning to AIG's investment , this new relationship with one of the world's largest and most sophisticated insurance companies is an incredibly positive development for Onyx .
Speaker #3: There are 2 billion commitment to our private equity and credit funds will contribute an incremental 15 to $20 million of free related earnings , more than offsetting the impact of dilution .
Speaker #3: Moreover , this opens the door to a number of other benefits , including the potential to collaborate on future investments and a range of other initiatives that could prove significant over time .
Speaker #3: Overall , our relationship with AIG had only reflects a shared perspective on both the upfront value and long term prospects of convex , but is also an endorsement of the Onyx platform and our ability to create future shareholder value .
Speaker #3: Our our existing businesses . We are also thinking strategically about how to best enhance enterprise value upon closing , convex will account for 42% of our balance sheet with the remaining 5 billion of investing capital .
Speaker #3: We will continue to grow it and deploy it through two key areas . First , by allocating up to 10% per fund into our own strategies .
Speaker #3: While relying increasingly on third party fundraising to scale AUM and related free . Second , by pursuing direct , on balance sheet investments , these would be in areas where we have a clear right to compete .
Speaker #3: But with differing risk-adjusted return holding periods and leverage parameters so as not to conflict with OPP and on opportunities. Added to this will be a continued focus on growing free related earnings.
Speaker #3: We have made significant gains on free cash flow throughout 2025, largely due to the work of our credit team. We are now positioned to exit the year with a positive total free run rate that is ahead of plan.
Speaker #3: This growth will be accelerated by AIG's commitment to alternative asset strategies , as well as the additional future investment into these strategies . By convex .
Speaker #3: As we work towards our objective of closing the transaction in the first quarter of 2026, we will keep shareholders updated on key developments and will continue to look for opportunities to provide the appropriate information to understand and value this transaction, including why we believe Convex deserves to be recognized at a premium valuation within our overall NAV.
Speaker #3: And now , a few comments on the quarter . Again , credit continues to outperform our expectations this year , led by the ongoing momentum in structured credit .
Speaker #3: The team priced 22 closed transactions through October , raising or extending 10.7 billion of fee generating assets across our structured credit and tactical allocation platforms .
Speaker #3: The performance of our CLO portfolio continues to be top tier across important risk metrics . Our private equity teams continue to be active in Q3 , with both realizations and deployments ensuring that we continue to return capital to our limited partners while putting new investment money to work and opportunities that align with our chosen sectors .
Speaker #3: Onyx partners announced the sale of approximately 55% of its investment in one digital in a transaction that values the business at more than $7 billion , which was completed at a valuation almost on top of our Q2 mark .
Speaker #3: In addition , we successfully closed the sale of our 25% stake in WestJet at more than a 40% premium to our mark . Including these two transactions and pro forma for the closing of the convex transaction , Onyx Partners five will have reached DPI of 0.7 times a strong achievement relative to the average DPI of comparable funds in its vintage .
Speaker #3: Following the sale of precision Concepts in Q2 , the Cap team successfully closed their six investment in fund five , which is now approximately 50% invested on the human capital front .
Speaker #3: We announced that Meg MacLellan will join Onyx as our new CFO, following Chris's decision to step down from the role he has held since 2015.
Speaker #3: We are looking forward to welcoming Meg , who will assume the CFO responsibilities following our year end call . I'm pleased that Chris has agreed to stay on in a leadership capacity to help ensure a smooth transition and provide continued guidance and support .
Speaker #3: I also want to acknowledge topic puppeteers confirmation as head of Onyx Partners , topic has always shown great leadership and strong investment acumen and is a true ambassador of the Onyx culture and entrepreneurial spirit .
Speaker #3: Finally , I want to thank everyone for their condolences and support . Following Nigel Wright's passing , Onyx lost a friend and colleague .
Speaker #3: Nigel was a gentleman in the truest sense of the word . I'll now turn it over to Chris . Thanks , Bobby and good morning everyone .
Speaker #3: Well , most of my remarks will focus .
Speaker #4: On our results for the quarter . I'll also take some time to address some financial aspects of our acquisition of convex and relationship with AIG .
Speaker #4: So let's start with our investing segment . Onyx ended Q3 with investing capital per share of $121.61 , up slightly from Q2 and representing a return of 7% for the first nine months of the year .
Speaker #4: The five year kegger on investing capital per share is 13% , just below our target range . Our PE portfolio was up slightly during the quarter , while Onex Partners five , the Onex Partners Opportunities and on cap four continued to generate positive returns across a broad range of their portfolio .
Speaker #4: Companies . These gains were mostly offset by losses in Onex Partners for , as Bobby said , it was an active period for our PE teams on both realizations and deployments .
Speaker #4: In September , Onex Partners five announced the sale of 55% of its investment in one digital , which is expected to close later this year .
Speaker #4: We also had two partial exits closed since Q2 on cap for sale of approximately 80% of its interest in precision concepts International and OP five sale of 25% of its stake in WestJet to a consortium of leading global airlines .
Speaker #4: The combined proceeds to Onex from these realizations will be approximately $360 million . It is worth noting that the last 13 realizations across our PE platforms dating back to 2022 , have been completed at attractive values relative to their prior quarters .
Speaker #4: Mark . In fact , only one was executed below the prior quarters mark , and in that case , at only a 3% discount and five were done at premiums of 15% or more , including the recent partial sale of WestJet at a 40% premium on the new investment front .
Speaker #4: In September , the Onex Partners Opportunity Fund announced the acquisition of Integrated Specialty Coverages , or ISC . The company is a technology enabled insurance platform that fits well within the portfolio .
Speaker #4: With our long history of successfully investing across the entire property and casualty insurance value chain , particularly in founder led businesses like ISC and in October on Cap five announced an investment in CSN collision , a leading network of collision repair centers .
Speaker #4: As some of you will recall , on Cap has experience investing in this industry , having previously owned caliber Collision , an investment that generated a 7.5 times multiple of capital to Onex Corporation .
Speaker #4: Both the Opportunity Fund and on cap five are off to a starts with investment pace on target . On the asset management side of the business , Onex ended the quarter with $42 billion of fee generating AUM with private equity and credit increasing by approximately 22% and 18% , respectively during the year .
Speaker #4: The increase is primarily reflect the earlier commitments made to on cap five and the Onyx partners Opportunities Fund , as well as the issuance of new Clos .
Speaker #4: The Asset Management segment generated earnings of $20 million in Q3 , of which 11 million was fee related . Earnings from the PE and credit platforms , after factoring in the costs associated with managing Onex Corporation's capital and maintaining the public company total Firmwide free was 1 million for the quarter and year to date .
Speaker #4: Credit continues its strong free trajectory with an end of quarter run rate of 50 million by year end . We expect this run rate to increase to approximately 60 million , exceeding our 2023 Investor Day target .
Speaker #4: With credit free ahead of plan . We also expect to exit 2025 with positive Firmwide run rate free . As we noted in the presentation we posted last week , our forecast is to exit 2025 with firm wide run rate free of approximately $17 million based on Q4 AUM initiatives in process .
Speaker #4: And this is before any of the benefit that will accrue from the $2 billion of allocations to our alternative asset strategies from AIG .
Speaker #4: At this point, we're estimating incremental free of $15 to $20 million on this $2 billion of AUM, and we expect an increased allocation of capital from Convex to Onex strategies to be additive here.
Speaker #4: The actual free impact will depend on the strategies to which AIG and Convex ultimately allocate capital. But in all cases, we expect a very high conversion of management fees to free.
Speaker #4: As we've discussed before, we're at a point in both PE and credit where the infrastructure can manage incremental capital with very little in the way of additional costs.
Speaker #4: As the capital from AIG and convex gets allocated , we'll continue to update our run rate free reporting to reflect the actual benefit .
Speaker #4: Now turning to convex and AIG . As Bobby said , we think this is a terrific evolution of Onex . And we're confident it will allow us to accelerate enterprise value creation for the benefit of shareholders .
Speaker #4: I thought it would be helpful for me to add some color around the funding of the transaction , and Onyx's go forward . Liquidity .
Speaker #4: Onyx is funding could be affected by further PE realization and investment activity between now and closing . But at the moment , we expect our $3.8 billion investment in convex to be funded by a combination of 1.5 billion of cash from our balance sheet , a $1 billion draw on the new Nav loan facility rolling over our existing $700 million investment in convex , including carried interest and finally , approximately 600 million from the issuance of Onex shares to AIG .
Speaker #4: After factoring in cash flows from PE transactions , we've already announced we expect to have approximately 300 million of cash on Onyx's balance sheet at close .
Speaker #4: In addition , Onyx will have $200 million of undrawn capacity on the Nav loan . We're very comfortable that $500 million of liquidity is sufficient in the near term .
Speaker #4: And if you look out over the next 1 to 2 years , we expect Onyx to generate meaningful additional liquidity , mainly from net PE realizations .
Speaker #4: As I mentioned, we expect to generate positive overall free cash flow going forward. Our credit business will continue to grow without the need for meaningful net new allocations of Onyx Capital.
Speaker #4: So that leaves our PE investing as the key driver of medium term liquidity . Ignoring convex Onyx has approximately $5 billion of PE investments in the ground relative to only 750 million of unfunded PE capital commitments , of which only 400 million are to funds in their commitment period .
Speaker #4: So with that ratio , we expect meaningful net realizations from PE will allow Onyx to pay down the Nav loan in relatively short order .
Speaker #4: Overall , the acquisition of convex and strategic relationship with AIG position Onyx to create long term enterprise value in one fell swoop . We're better leveraging our balance sheet to reduce the historic cash drag , allocating about 40% of our investing capital to an investment we know really well .
Speaker #4: That will compound value over the long term and pave the way for strong growth in free cash flow by demonstrating our commitment to an asset-lighter model and securing significant new AUM from AIG and Convex.
Speaker #4: That concludes our prepared remarks . We'll now be happy to take any questions .
Speaker #1: Certainly . And our first question for today comes from the line of Bart from research Analyst . Your question , please .
Speaker #5: Great , thanks . It's RBC Capital Markets and good morning . I wanted to ask around the with the AIG . You partnership .
Speaker #5: Bobby would love your thoughts in terms of how you're thinking about this . Having the impact around fundraising . Does it change any of the outlook in terms of OP six timing , sizing , etc.
Speaker #5: ? Thanks .
Speaker #3: Yeah . So I think having an organization like AIG look at where we brought our asset management to management business to over the last couple of years and want to invest in Onyx Core .
Speaker #3: It's a really strong endorsement , and I think it's only additive or a positive for for fund going forward . I don't think it impacts timing of of our fundraisers coming up for for OPP on cap or credit , specifically for OPP .
Speaker #3: I would still target sort of mid 2026 as a as a fundraising launch date . And again , Chris mentioned it . The 0.7 times Dpis are very , very significant stat for that platform .
Speaker #3: And it looks very , very good relative to other other PE firms in that vintage .
Speaker #5: Okay , thanks . And could you remind us what percentage of the fund are you in Op5 . And would that be a similar percentage for Op6 that Onyx invest in , or are you thinking maybe more capital light direction where you'd be a lower percentage of that fund ?
Speaker #3: Yeah . So in for Op5 we were 2 billion of about 7 billion . And again , we don't we expect to be up to 10% of our , of our various funds going forward .
Speaker #3: So it would be a much more capital light model , if you will , from Onyx corporate perspective and the balance sheet perspective .
Speaker #5: Okay , great . Thanks . And the last one for me is , you know , we're hearing lots around the kind of this private credit narrative within alternative asset managers .
Speaker #5: I would love your thoughts around are you seeing anything in your portfolio . Maybe walk us through how you differentiate in terms of origination to protect the book .
Speaker #5: Any thoughts there around private credit ?
Speaker #3: Yeah . So private credit has had a couple of a couple of big blow ups over the last couple of months . I'm happy to report that our credit team had no exposure to those blow ups .
Speaker #3: I think Ronnie and the team have a , you know , protected downside mentality . And when they see problems come up , not in those particular names because we weren't in those names , but they tend to move very quickly when they see a problem and not wait for the problem to get confirmed .
Speaker #3: So I don't think it's systematic on what we're seeing . I think there were reasons why those those credits went bad from governance control .
Speaker #3: And , you know , other , other reasons . But from our own portfolio , we haven't we haven't had we haven't been in any of those to date , which I give again , credit team a lot of , a lot of kudos for .
Speaker #3: .
Speaker #5: Great . That's it for me . Thanks , Bobby .
Speaker #3: Thank you .
Speaker #1: Thank you . And our next question comes from the line of Graham reading from TD securities . Your question please .
Speaker #4: Hi .
Speaker #3: Good morning. Can you just talk about the strategic.
Speaker #6: Shift under here underway here with this convex acquisition . So if we look out over the next 1 to 3 years and you are successful in monetizing some of your existing PE co-investments , should we expect a similar strategy going forward where you make some further concentrated investments in sort of majority type positions ?
Speaker #6: And if so , you know what's the right mix ? How many of these would you think would be the right mix to sit within your nav ?
Speaker #3: Yeah . So so again , just to step back a bit , but I'll answer that specific question . There's really three things that I'd like our shareholders and fellow owners to focus on in the near term .
Speaker #3: First is the the acquisition of convex will own 63% of it on the balance sheet . And again , we've we've controlled that company for six years .
Speaker #3: So the informational advantage that we had going in in terms of doing six years of due diligence essentially , and the fact that AIG invested more than $2 billion in the convex at the valuation that we had , it makes me makes me feel very good , at least initially , right .
Speaker #3: That that that part of our nav ought to be looked at very differently than our Nav has been looked at going historically . Sorry .
Speaker #3: On the asset management side . I think it's nothing but positive to have AIG and incrementally more convex dollars coming in . I think it's going to it's going to help our PE platforms .
Speaker #3: It's going to help our our subscale credit products that I've been talking about , wanting to get the profitability to get outsized free growth and just the endorsement of those organizations on our overall platform .
Speaker #3: I think , is going to be a net positive for fundraising . But you point out a very important third leg of the strategy , and that's , you know , as we become more of an asset , lighter model in terms of Onyx Core balance sheet commitment to our various products , there is an opportunity and I use the word opportunity to to redeploy or reorient is the word I like to use that $5 billion of capital into Convex Lake transaction that will my goal would be that would make perfect sense to our fellow owners in terms of where we have a demonstrated right to compete as that capital gets gets deployed .
Speaker #3: But think about it in terms of lower to no leverage , like a convex . It could be a junior security . It could be a control position .
Speaker #3: But but we'll have enough influence . And wherever we're doing to make sure that we have a , you know , the ability to , to explain it well to our shareholders and importantly , you're going to see much , much more transparency around those types of investments .
Speaker #3: You'll notice what we put up on our website in terms of the transparency around convex and all the financial metrics that one looks at to , to , to evaluate a company like that , you'll see that for anything that we do on the balance sheet .
Speaker #3: So again , so our fellow owners will know how to value the pieces . But I see it being very concentrated . Just so you understand , maybe 1 or 2 other ones .
Speaker #3: Insurance is obviously a very you know , it's a very natural one for , for you to think about . But there's other things that we've , that we really have done remarkably well over the years that we would , we'd be open to as well .
Speaker #3: But it will not be something opportunistic that isn't in one of our demonstrated areas to have the right to compete .
Speaker #6: Okay , great . And you know , you talk about having a six year sort of due diligence period here on convex going forward .
Speaker #6: Would it make sense for you to follow a similar pattern here and look closely at your existing portfolio companies , as you know , likely candidates for further kind of concentrated investments ?
Speaker #3: Yeah , the one the one thing that made convex different because it was a de novo , it really was never a leveraged buyout , even though even though it had a PE return for for Onyx and LPs , you know , I think it'll be very difficult for me to do a traditional PE type deal with a , with a huge chunk of our capital .
Speaker #3: I.e. something I need to do five times leverage or something like that to get the appropriate return . So I see I don't see immediate opportunities where the next one would come from , from that , that set of opportunities .
Speaker #3: But I would never I would never close my mind to it because you never know .
Speaker #6: Okay . Understood . On the on the free side , Chris , just want to make sure I'm understanding the the guidance correctly here .
Speaker #6: You talked about in your presentation last week of a $17 million overall free run rate as you exit 2025 . Should I be expecting or should we be expecting sort of Q4 25 free annualized to be 17 million ?
Speaker #6: Or is it more like Q1 2026 annualized ?
Speaker #4: Yeah . No , not Q4 , not Q4 , because , you know , it is a run rate calculation . So there's always a little bit of a lag effect just so I would think you'd probably see us grow into that on an annualized basis , probably more in Q2 when the stuff the capital we raise between now and the end of the year is kind of fully online and fully fee paying .
Speaker #3: And , Chris , just , just for shareholders , understand just fine run rate and what it actually means . So people truly understand it .
Speaker #4: Sure . What in a lot of cases , when we raise capital and start earning management fees , there's just a lag associated with when the management fees actually kick in versus when the capital is allocated , or invested .
Speaker #4: So we're simply looking at our our fees or excuse me , our form . That's sort of in the house and in the ground and calculating what the management fees are on that capital , sort of on a , you know , fully deployed basis .
Speaker #4: And then we also obviously look at our expense base sort of as where we are at that point in time, given what we need to spend to manage the capital that we're calculating the fees on.
Speaker #4: So it's a bit of a forward looking calculation as opposed to backwards looking calculation .
Speaker #6: Okay . But essentially by Q2 2026 , then not Q4 2025 , you're expecting to be delivering kind of a 4 million plus free in the quarter .
Speaker #4: That that would make sense . But again , the run rate will again have probably grown from , you annualized 17 to something much better than that at the end of Q2 .
Speaker #4: But yeah, I think in terms of actual reported in the period, that would be a pretty good estimate.
Speaker #6: Okay , understood . And then my last one , if I could just fundraising on the credit side , I always find a little bit confusing when you make reference to sort of extended AUM and AUM .
Speaker #6: Can you give us a bit of an update on what's the sort of new AUM fundraising in the quarter and year to date ?
Speaker #6: On the credit side ?
Speaker #4: Sure . Let me just get that data pulled up for you .
Speaker #3: And while he's looking for that , they're also having really good success on Asco two , which is our structured credit fund on tap , which is our dynamic credit fund .
Speaker #3: And and again the high yield and senior credit . They're the fundraising for credit has been pretty good across the board . But Chris go ahead .
Speaker #3: If you have those answers .
Speaker #4: Yeah so so across credit through the end of Q3 AUM to form raised was call it just over $5 billion in the year .
Speaker #6: Great . That's it for me . Thank you .
Speaker #3: Thank you .
Speaker #1: Thank you . This does conclude the question and answer session of today's program . I'd like to hand the program back to Bobby LeBlanc for any further remarks .
Speaker #3: Thank you for your time today . We are we are truly excited about the strategic steps we made last week with the the acquisition of convex and the new partnership with AIG .
Speaker #3: We look forward to having a dialogue with you in the coming months to answer any of your questions and make sure you fully understand exactly how we're thinking about Onex going forward .
Speaker #3: But we think it's a very exciting time . Have a great weekend , everybody . Thanks .
Speaker #1: Thank you , ladies and gentlemen , for your participation in today's conference . This does conclude the program . You may now disconnect .