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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Q1 2021 AGF Management Limited Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I'll now turn the call over to Adrian Basaraba. Mr. Basaraba, you may begin.
Thank you, operator, and good morning, everyone. I'm Adrian Basaraba, Senior Vice President and Chief Financial Officer of AGF Management Limited. Today, we will be discussing the financial results for the first quarter of fiscal 2021. Slides supporting today's call and webcast can be found on the Investor Relations section of agf.com. Also speaking on the call today will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer. For the question-and-answer period with investment analysts following the presentation, Judy Goldring, President and Head of Global Distribution, will also be available to address questions. Turning to Slide 4, provided agenda for today's call. We will discuss the highlights of Q1 2021, provide an update on the key segments of our business, review our financial results, discuss our capital and liquidity position and finally close by outlining our focus for the remainder of 2021. After the prepared remarks, we'll be happy to take questions. With that, I'll turn the call over to Kevin.
Thank you, Adrian, and thank you, everyone, for joining us today. March marks the 1-year anniversary of the pandemic. Over the past year, we have prioritized the health of our employees and supported our clients in navigating these uncertain markets by providing expert insights and thought leadership. We also made effective use of technology and accelerated our digital transformation to position AGF for success. A year later, we are seeing the results of our efforts with all the lines of business showing positive momentum that has carried beyond Q1. I'll begin with some highlights. AUM reached almost $40 billion at the end of Q1, our highest level in the past 5 years. Our mutual fund business reported gross sales of $1 billion, which is almost double the first quarter of last year. Net sales in Q1 were $385 million. This marks our best quarter of mutual fund flows in over a decade. Our institutional business onboarded 2 clients in the past quarter and has a robust pipeline of prospects. Investment performance has remained strong, which supports a continuation of our sales trajectory. A number of our global and fixed income strategies continue to outperform versus their peers. We have a strong balance sheet and are well positioned to pursue growth initiatives that will generate stable sources of earnings and cash flow. Along those lines, we are committed to building our private alternatives business. As part of our extended partnership with SAF Group, we have begun fundraising for the launch of a direct lending private credit strategy in Canada. We expect to see the offering and complete the first close in early Q3. And the Board confirmed a quarterly dividend of $0.08 per share for the first quarter. While we are pleased with the overall business momentum, this rapid growth has had a temporary short-term impact on our financial results. Variable compensation costs were higher this quarter due to our strong sales, investment performance and AGF's rising share price. Similarly, deferred selling commissions, or DSC, which are paid upfront to advisers, were higher this quarter. Although DSC as a percentage of our total mutual fund gross sales has fallen significantly year-over-year, it has increased in absolute dollars due to our improved mutual fund sales. It is important to note these short-term impacts are due to growth. We view variable compensation in DSC as upfront investments that will generate higher profits and free cash flow over the long term. When you look at expenses in Q1 and eliminate timing of certain expenses and compensation related to improved performance, but -- our core expenses are actually down sequentially and year-over-year. Looking ahead for our 2022 fiscal year, we will reset organic growth targets. If similar levels of sales persist, the cost of variable compensation should be lower.Starting on Slide 6, we will provide updates on our business performance. On this slide, we break down our total AUM in the categories disclosed in our MD&A and show comparisons to the prior year. Mutual fund AUM increased by 16%. I'll provide more color on our mutual fund business in a moment. Institutional, sub-advisory and ETF AUM decreased compared to prior year mainly due to the redemptions that we disclosed in previous quarters. As indicated on our previous call, we onboarded 2 institutional clients during Q1. One is a small institutional mandate that invested in our global sustainable growth equity strategy, which has a stellar track record. The other is a large U.S. institution that selected 3 of our global and U.S. equity strategies for its SMA platform. While AUM growth for this mandate will occur gradually over time, we are optimistic based on preliminary flows from the first few weeks. We're currently working on onboarding another U.S.-based mandate and hope to confirm this account on our next call. In early March, we also received an allocation of approximately $150 million from an existing strategic partner to our American growth strategy. Given the increased interest we're seeing across multiple strategies and jurisdictions, we are confident about our ability to generate sales within the Institutional segment. RFP and RFI activities have also remained strong, which bodes well for future sales. Our private client business continues to demonstrate consistent steady growth, with AUM increasing 7% year-over-year. Our private alternatives AUM was $2.7 billion and we are making solid progress towards our goal of reaching $5 billion by the end of 2022. Turning to Slide 7, I'll provide some details on the mutual fund business. The Canadian mutual fund industry had a strong RRSP season, reporting net sales of $40 billion for the first 3 months ending February 28 of 2021. AGF's mutual fund business reported net sales of $385 million for the quarter, which marks our second consecutive quarter of positive net flows. Excluding net flows from institutional clients invested in mutual funds, net sales were $376 million compared to net redemptions of $141 million in Q1 of last year.AGF sales improvement outpaced that of the industry. Gross sales for our long-term funds in Q1 grew at more than twice the rate of the overall industry. We continue to benefit from the trends toward global and U.S. equities, fixed income and ESG. Furthermore, we are seeing year-over-year improvements across all channels, IIROC, MFDA and strategic partnerships. In fact, growth for fee-based series outpaced the rest of the mutual fund business. The momentum from the last several months has continued into March, where we had net sales of approximately $200 million up to the March 29 date. Before I return the call back to Adrian, I want to give a quick update on performance. AGF measures mutual fund performance by comparing gross returns before fees relative to peers within the same category, with first percentile being the best possible performance. We target an average percentile ranking versus peers of 50% over 1 year and 40% over 3 years. Average percentile rankings over the past 1 year improved from 60% at Q1 of last year to 41% at Q1 of this year. Average percentile rankings over the past 3 years remained relatively stable at 53%. With that, I will turn the call back over to Adrian.
Thank you, Kevin. Slide 8 reflects a summary of our financial results for the first quarter with sequential quarter and year-over-year comparisons. For ease of comparison, we have included adjusted numbers throughout the remainder of the presentation. EBITDA before commissions for the current quarter, excluding Smith & Williamson, is $26.8 million, $4.8 million lower sequentially. Breaking the number down, private alternatives EBITDA was $3.9 million lower. Recall that Q4 was unusually high because one of our private alternatives funds had a partial monetization. The remaining decline in EBITDA, less than $1 million, is attributable to higher SG&A, partly offset by increased net revenue due to higher AUM. SG&A was $48 million, which is $2.7 million higher than Q1 2020 and $4.9 million higher than Q4 2020. Q1 included higher expenses sequentially because of the timing of benefit payments, which are typically recorded in the first quarter of each year. Q1 also included higher variable compensation due to increased sales, investment performance and AGF's rising share price. If you eliminate the effects of timing and variable compensation related to improved performance, the remaining expenses in Q1 are lower than both Q4 and Q1 of last year. Diluted earnings per share, excluding Smith & Williamson, was $0.08, which is $0.01 higher than Q1 2020 and $0.11 lower than Q4 2020. When compared to Q4, $0.05 of the decline is due to lower EBITDA before commissions, which we already explained. And then $0.05 is due to higher DSC, and that's because of higher sales. And we're walking through this in detail to illustrate that the level of EPS in the quarter is really due to timing of alternatives earnings, timing of expenses and variable expenses relating -- related to accelerating growth. Now in a moment, I'll cover our EBITDA margin in basis points for our investment management business, which is flat to Q1 compared to the trailing 12 months. That's in a quarter where we experienced significant new business stream. Looking forward, I'll address SG&A guidance. At the beginning of the year, we estimated $180 million for 2021. At the time, while this guidance assumed a return to net sales for our retail organization, it did not assume a further acceleration in sales or investment performance. During the first quarter, we've seen a dramatic shift in our business trajectory. Retail, mutual fund growth sales had $1 billion, which is an improvement of 84% year-over-year and a 59% improvement compared to Q4. We also recorded retail mutual fund net sales of $376 million. This was our strongest quarter of mutual fund flows in over a decade and this trend has continued into late March, with net sales of approximately $200 million for the month as of March 29. With this in mind, we believe that our 2021 SG&A will land between $185 million and $190 million for the year, which assumes mutual fund sales continue at its current trajectory while taking into account seasonality. We're happy to pay for success-based performance, and our ability to significantly reduce our expense base over the past few years has given us the flexibility to fund our rapid growth. While sales commissions and DSC paid on these sales are expensed immediately and not capitalized, we will earn revenue on these sales over a much longer period, generally 7 years. It's important to note that while growth will create short-term strain on our financial results, it will ultimately drive higher value for our shareholders. When we begin our strategic planning process for 2022, expense control will be a key theme. And as Kevin mentioned, we reset targets each year. So to the extent that mutual fund sales are at a similar level next year, we would expect lower amounts related variable compensation. We'll continue to take a thoughtful and disciplined approach with our SG&A and find efficiencies while continuing to invest in growth areas.Turning to Slide 9. I'll walk through the yield on our business in terms of basis points. This slide shows our revenue, operating expenses and EBITDA before commissions as a percentage of average AUM on the current quarter as well as the trailing 12-month view. Note that AUM and related results from Smith & Williamson, the private alt business, onetime items and other income are excluded. Q1 revenue yield is 113 basis points, 2 basis points higher than the trailing 12 months. As you can see on the slide, the increase is mainly due to a shift towards mutual fund products with relatively higher fees. Q1 SG&A as a percentage of AUM was 53 basis points, 1 basis point higher compared to the trailing 12 months, which resulted in an EBITDA yield of 25 basis points, which is flat to the trailing 12 months. Again, this is notable, given the acceleration of growth in the quarter and related expenses. Turning to Slide 10. I'll discuss free cash flow and capital uses. This slide represents the last 5 quarters of consolidated free cash flow on a trailing 12-month basis, as shown by the orange bars on the chart. The black line represents the percentage of free cash flow that was paid out of the dividend. Our trailing 12-month free cash flow was $42 million and our dividend payout ratio was 57%. Our remaining capital commitment to the private alternatives business is $70 million. Capital commitments may be funded from excess free cash flow, but keep in mind, there will also be further recycling of capital as monetizations occur, which will help to fund future commitments. As of February 28, we have cash of $60 million, short and long-term investments of almost $160 million and no debt. We also have our credit facility available, which provides credit to a maximum of $150 million. While we currently have no debt, we're comfortable increasing our debt -- our net debt-to-EBITDA up to around 1.5x, should the right opportunities arise. We plan to deploy our capital in a balanced way, including returning capital to shareholders and investing in areas of growth, such as our private alternatives business. Redeploying this excess capital to generate recurring earnings is a key strategic priority. Turning to Slide 11. I'll turn it to Kevin to wrap up today's call.
Thanks, Adrian. Q1 was a solid quarter. We recorded the best quarter of mutual fund sales in over a decade, with improvements coming across all channels, IIROC, MFDA and strategic partners. Our institutional business has a robust pipeline of prospects. Investment performance has remained strong, which supports our sales momentum. Our private alternatives business continue to make progress towards our goal of reaching $5 billion in AUM. We are focused on building on the momentum from the past few quarters and creating value for our shareholders over the long term. Along those lines, I'd like to reiterate our strategic priorities, which are to deliver consistent and repeatable investment performance as well as drive the organization to sustainable net inflows. At the same time, redeploy the excess capital to generate recurring earnings, and we will position the firm to reach $5 billion in alternatives by 2022. And all of this, we'll meet our revised expense guidance while continuing to invest in key growth areas. I want to thank everyone on the AGF team for all their hard work in these challenging times. We will now take your questions.
[Operator Instructions] And our first question comes from Gary Ho from Desjardins Capital
Maybe for Adrian, the first one, you're seeing the solid sales momentum that you guys are experiencing and then you also revised your SG&A target of $185 million to $190 million. Can you walk me through what you're assuming in those revised targets? Is it similar growth of kind of that mid-80% in terms of gross sales? Are you trendlining that for the rest of the year to get to that within those numbers?
Yes, Gary, it's Adrian. Thanks a lot for the question. Yes. Maybe I should just step back and give a little bit of color in terms of why the guidance changed. Because you know that back on January 27, we said $180 million of SG&A for 2021. And now we're saying $185 million to $190 million. So maybe I'll start by sharing with you kind of what we looked at when we updated the guidance. So back in January, when we gave you the guidance, net sales in that month were about $87 million. And so we saw a pretty significant acceleration in the business since then. February, our net sales were $231 million. And March, I think if I had to estimate where we ended up at the end of the month, it's probably closer to $225 million than the $200 million that we talked about earlier, that's just an estimate. And as you know, Gary, our sales plans are variable. So higher sales gains, higher sales compensation. But sales compensation isn't the only reason why we changed the guidance and it's something only thing to look at when we do the estimate, right? So markets since January 27, were up 6%. So higher markets, along with the higher sales drives higher AUM, higher AUM drives higher profits, and higher profits means that we pay out a higher general bonus because it looks like we're going to exceed the targets for the year. In addition, AGF share price is up 16% since January 27, and this means additional share-based compensation because certain of our plans are cash settlement. We are going to look at stock settling some of these plans to remove this volatility going forward. But just to give you another -- some more insight into kind of what we look at when we estimate our guide for the year, that's a change, the stock price being up 16%. And then investment performance also has gotten better in the last couple of months. You look at strategies like Global Select, American Growth, Global Sustainable Equity, Global Convertible Bond, and there's actually a few others that are all top 5 percentile on a 1-year basis. So that drives some additional performance compensation as well. So to answer your question specifically, Gary, we can't really give you a formula for 2021, because I think as I've hopefully demonstrated there, there's just so many factors that drive expenses. And that's why we have to give you a range. But please note that all the things that we mentioned here are positive for long-term value. And they do sort of drive expenses. So what I would encourage you to do is just look at kind of the year-to-date sales that we've achieved, right? You know that in the first 5 months, we've got $1.4 billion of gross, $600 million of net. There is a little bit of seasonality, but we'll leave it to you to sort of look at that. And then if you want to take the conversation even further from expense, if you look at this quarter, our EPS got impacted by higher deferred selling commissions, right? So they were like $0.16 in the quarter. But again, we're happy to pay deferred sales commissions on new sales and new and increasing sales. And maybe I'll just stop and apologize here for the long answer, but let me just finish by saying, when you look at, especially with DSC and its impact on EPS, it really underscores the need to look at EBITDA before commissions. For a company like AGF that's experiencing very high rates of organic growth, you have to look past just the headline EPS, right? So focusing only on EPS, you're going to miss the fact that results can be negatively impacted by increasing sales momentum, but that's a positive for value creation. I don't know if Kevin or Judy, you want to...
Gary, it's Kevin. Let me add. When we sat there in January, we knew that -- and we've been talking on the last couple of quarters that what we saw at the turn last year at the bottom in March was that month-over-month, we were seeing pretty good progression. And if we look at Q4, we saw about 1/3 percent -- 33% odd jump from Q4 of the prior year. And so I think when we sat with you guys at the end of January, we felt pretty good at the forecast. And then as I said, as well as Adrian just said, the numbers came in -- have been coming in, momentum of the sales side picked up dramatically and has stayed with us in March. Maybe Judy, in a minute, can touch on the seasonality that may come through with that. But nonetheless, I look back at that in the year of COVID, and we're sitting here a year later, and that we're sitting 4 months into our fiscal year, and we've got $600 million net and we've done over $1 billion on the growth side in the first quarter. I get the short-term pain on the expense side. I would think we take that all day long to embed the long-term revenues for the next 6, 7 years that those sales bring in. Again, to the extent that this continues at this pace, we'll have to moderate this guidance a bit, but I think we're comfortable that we've been conservative about where we think we're headed on this for now. But I get the short-term problem, but it's short term, given the fact that the long-term benefits here on the revenue side, I think, way outweigh it, from my perspective.
Okay. Perfect. And then maybe second question just on the institutional side. What were the net flows in the quarter? And Kevin, I think you mentioned a few institutional wins. Just wondering kind of how the pipeline looks when you look out over the next couple of quarters?
Judy, do you want to take that?
Yes. I'll start. I mean, certainly, what we've seen is a really marked increase in the number of RFPs and RFI activity over the last couple of quarters, seeing some great momentum in the United States, particularly, focused in around our GSG mandate -- sorry, global sustainable Mandate and some of the global and emerging market strategies. And so overall, what we're seeing is a positive pipeline of about $200 million going forward.
Yes. And Gary, we had some redemptions come out that we had told you about those cleared. We had a couple that actually pulled back because performance on one of our value strategy has improved dramatically. Now we don't know if that's a permanent pause. But the combination of that performance improving and the pause on that redemption plus those flows give us a pretty good positive pipeline as we move into Q2.
Okay. And last question, maybe also for Judy, actually. Just on the DSC front, we're just a little bit over a year away from the banning. Have you had discussions with your strategic partner in terms of transitioning to other fund types? Do you expect higher sales kind of before the DSC ban as some of these advisers might take advantage of the higher kind of upfront commissions here?
What we're doing is making sure we're working with our partners to help transition whichever way they're moving towards the mutual fund dealers side of the business, some of them are still using DSC. So we are ensuring we have vehicle opportunities -- sorry, pricing advantages in whichever vehicle they might want to use, in whichever way they want to transition their business. So we are just making sure we're working closely with them to provide the support that they need as they change the business model.
Yes. And I'll just add there, Gary, that in 2020, DSC sales as a percentage of all gross sales was about 40%. And in Q1, we were sitting at about 33%. A lot of the growth is coming from IIROC channels and kind of non-MFDA, just to give you a little bit more color on what's happening with DSC.
And our next question comes from Nick Priebe from CIBC Capital Markets.
Just on the topic of retail fund sales. Would you characterize the momentum you're experiencing on the gross sales side as fairly broad-based across the product lineup? And I guess what I'm getting at is given the above-average sales result, I'm just wondering if there are any notable mix changes that we should be aware of that could have an impact on, say, the weighted average fee rate?
Well, we have been -- first of all, if I can go back, I mean, the reality is we've been working towards this momentum for quite a while by building out our brands, maintaining good, strong relationships, and of course, what we've seen some great performance. And so we've been fortunate because the product lineup is very broad in terms of what is selling across global equity: U.S. equities, U.S. small, mid-cap; fixed income has seen great traction; and our global sustainable and ESG portfolios are also -- have phenomenal performance and again, great traction. And then we're fortunate as well as we've been focused on really broadening out our reach into IIROC. We're seeing growth in that channel. MFDA is steady. And of course, we've got some strong strategic partnerships that we continue to foster and nurture. So Adrian, you might want to speak or Kevin, do you want to speak to the mix?
Yes. Nick, yes, it's Kevin. So mix has been, as Judy said, has been pretty broad. So on the fixed income side, it's been total return bond, which is sort of a going over a bond funds, so it's shorter duration. Obviously, when rates back up like this, it does really well. People look for things like that, global converts gives you kind of a different yield. But then it's really been on the equity side. It's been global, global concentrated, Global Select, our ESG product, which is global, have all done well. So the mix shift, it's really away from maybe other players and other things into some more discrete and differentiated products that we're offering that line up. But all of them, the breadth of what's working, is pretty good for us as well as the channel breadth that we're seeing.
Okay. That's helpful. And then back on the DSC topic, I think you pointed out how DSC fund sales have declined over the past year as a proportion of gross retail fund sales. So is it reasonable to expect a gradual tapering in DSC fund sales into mid next year when the regulatory changes take effect as opposed to more of an abrupt change in sales practices on June 1 or whatever the date is?
Yes, Nick, I'll take that first and maybe hand it to Judy. We have, as we said, by channel, believe it or not, we're seeing some of the largest growth coming out of the non-DSC, as you'd expect. So it's IIROC, and these are significant jumps in channel growth for those. So we would continue to expect the tapering of that as those other channels pick up and as other partners start to move their business model towards the June 22 regulatory date. So a combination of some of our strategies in these other channels, accelerating those channels. At the same time, our partners start to shift their business model. So you're absolutely right on the taper.
Yes. I think just -- yes, I mean, same thing. I mean, it's just really clients are responding. I mean, it's out there. There's no hiding from the change in regulation. And so business models have to shift with it. And as I say, we're having conversations with our partners along those lines.
Okay. And last question for me. Just I would expect over time that the growth and expansion of managed assets in your ETF suite should outpace the traditional mutual fund lineup. Can you give us a sense for the scale of the ETF business today in AUM? And is there a point where you would consider breaking out some of those smaller categories separately from a reporting perspective to get a more comprehensive look at the sales performance of some of those other product categories?
Yes, Nick, I'll take the first part of that. What we've seen at the industry level, believe it or not, in I think it was January as well as February. We saw fund sales outpace ETF sales in the industry. Part of that is an industry phenomenon of what's been driving some of the passive flows here, which are just cap-weighted indices, whereas people are looking at maybe the 5 or 6 names that make up 25% to 30% of that index and saying, do I want to own this in this kind of a shift. So you've seen some benefit back to active management and certainly, some could come back into the fund complexes. And that's an industry phenomena, not just ours. And then in terms of just our -- sizing of our ETFs were about $1.3 billion today. We expect that to grow to probably $5 billion over the next several years or so. But that, at that point, again, we're moving to a more vehicle-agnostic world. We look at a client or an adviser and say, we're indifferent if you choose to fund from us, an F series, an ETF from us or an SMA, potentially. So we're trying to get to a place where the wrapper becomes indifferent to our end adviser. So you need to have all 3 SMAs, ETFs and mutual funds and you can see it from month-to-month, adviser preferences obviously will shift.
And our next question comes from Graham Ryding from TD Securities.
I'm just -- I'm interested, you made a comment about sort of a shifting sort of mix in your gross sales. Could you give us some context of -- from a channel perspective, how much of your mutual fund sales are coming from IIROC versus MFDA versus strategic partners, perhaps in the quarter and how that would compare to last year or your traditional mix?
Adrian, I'll take that one. Graham, it's Kevin. So yes, by channels I said, IIROC has grown 125% year-over-year in the quarter. MFDA, which has grown about 85-ish percent. So again, we see it coming from where we have repositioned. Again, we're trying to bring differentiated strategies to IIROC where firms have bigger books, looking for differentiated solutions. And obviously, that's paying off here. As we've seen the mix away from MFDA, still important to us, but the growth coming from IIROC in the quarter, certainly, the year-over-year and the quarter-over-quarter.
Okay. Understood. And Judy, I thought you made some reference to pricing advantages when you're talking about -- as firms are shifting their business model away from DSC, what was that in reference to? If I heard correctly?
Yes. No, it wasn't really in pricing advantages. It's just more -- as they shift their business model, they're moving to F Series or to a front-end model. And our focus is to just ensure we've got whatever structure the client is looking to have in our vehicles and in our products so that we can accommodate their business transition.
Understood. And then what does that business transition involve or typically look like? Are the dealers having to offset some of the lost compensation for the advisers and fill the gap somewhat? Or what does it involve?
Every dealer is going to be treating it differently. I think a lot have to do some technology investments in order to accommodate F Series in a front end -- not so much front end, but maybe F Series. And then how they end up choosing to adjust on that compensation model has really been different for every dealer.
Okay. Great. If I could shift to the private alt side. If you put it in your MD&A, I think I missed it. But the private credit fund, what's the size that you're targeting? Do you know that yet? And what's the capital commitment from year-end to get the fund launched?
Yes. Maybe I'll start with that. So on the private alt side, we're still tracking to our $5 billion target for 2022. Just to refresh everybody, we've had 4 funds. First, on the infrastructure side, we have partnered with InstarAGF, which I think is one of the premier infrastructure now, North American investors in that space. So 2 funds there. Second fund is being invested today. And then we've had 2 credit funds with our credit partner, which is the SAF Group, which also date back to roughly 2014-ish, and we're working for the third one on that now. And this fund is going to be more of an evergreen fund, Graham. So it won't have a closed-end target to it, if you will. And so we'll pace that launch out over several quarters. But think of it as a fund that will be in the private credit space, but have an open-ended and therefore, a growing, hopefully, AUM over time with that. And then on the commitment side, Adrian, maybe can you walk through what you see there in terms of our commitments over the next couple of years in the alt space?
Yes, absolutely. So the remaining committed capital to the alt platform right now is $70 million, and that includes $12 million or $13 million we still have to put into see the Evergreen fund. But if you step back, Graham, we've got no debt. We have $60 million in cash. We've got $140 million in LP investments in alternatives. We could borrow $100 million, and we still made a 1x debt-to-EBITDA. So to the extent that any of these alternatives platforms or even new plan from the platform, we need additional capital, we've got the financial wherewithal to do that.
[Operator Instructions] And the next question comes from Tom MacKinnon from BMO Capital.
Yes. Just following up on the private alt, it looks like there's about $12 million that was returned from the private alts in the quarter. Is that correct? And is that going to be earmarked, I guess, for the -- to see the Evergreen fund?
Yes, Tom, that was a monetization of an asset in one of our credit funds. So yes. But in terms of earmarking, we've got, as we said, cash on the balance sheet. We don't look -- typically say that this monetization goes into the -- replace that fee for that asset, right? And we look at each fund, fund by fund. And then as we look to redeploy the proceeds of S&W, obviously seeding other funds, seeding other partners becomes important as well. So that becomes a longer-term plan on that front.
How should we be thinking about the $70 million in commitments then? Is it going to be coming out of -- or maybe just if you can square that with how much is going to be monetized over? And when are these $70 million commitments supposed to be completed by? And how much is going to be monetized to help fund those $70 million commitments?
Yes. So maybe I'll take that first, Tom, and hand it back over to Adrian. So think about a fund's life, it depends on the fund, right? If it's an infrastructure fund, it takes anywhere from 2 to 5 years to start to invest that. So that capital gets drawn over time. Along the way, it's probably starting in somewhere years 4 to 7, you start to monetize those assets. So they come back out at you. Our credit fund has a shorter life. If it's a closed end fund, 4 to 7 years. You start investing that right away, typically, and you'll get monetization sooner. So there's a natural ebb and flow of it. And so we think that over time, they get to $5 billion. And Adrian, you can back -- or correct me on this. But I think we have thought about that our total commitments at any given time could be somewhere in the 220-ish range, maybe slightly higher, because as you're deploying in new assets each year, you're getting things back coming in the other side. And Adrian, I don't know if you have any other thoughts on that?
Yes. No, absolutely. I think the way you think about this is that, that $70 million probably gets invested over the next 2 or 3 years. The monetizations are more difficult to predict. But we do have some additional disclosure in our MD&A that kind of goes over the money that we put into the alternatives platform. We've effectively got half of our money back. And we are turning towards about a 1.3 multiple on invested capital. So again, it's been a very positive thing as far as our capital goes. And the last thing I'll say is that even though we've got some excess capital and willing to support the business, really, what we're in this for is recurring management fees and carry, right? So we want to -- that's the ultimate goal, is to earn a higher proportion of management fees relative to the earnings that we're getting from the LPs.
Okay. So should we think of $70 million commitments over the next 2 or 3 years is really just funded by free cash flow and perhaps some debt?
Yes. Like as Kevin said, Tom, we don't -- we're not really -- it's kind of fungible. But absolutely, if you look at the free cash flow that we have in excess over the dividend, that could potentially be enough to fund $70 million if you take into account monetization. So you can think about it that way. I don't think we'll have to dip into the debt -- I don't think we'll have to dip into the balance sheet if you consider expected monetizations.
Yes. But Tom, one of the things I would say is we do plan on relevering the balance sheet up to an optimal capital structure at some point, which we think is 1 to 1.5x. But cash flow will be increasing along the way, too, as sales momentum continues. And also the fact that as we get to that June 22 date, DSC dropping off of improved cash flow significantly. So there's a number of ways that we have to put capital back to work. And just to remind people, after the S&W sale, if you think about between the paydown on the debt, we still had enough to do between the buyback, which was $40-odd million in dividends last year, probably $70 million of base capital repatriation to our investors. So I think the balance sheet has got plenty of wherewithal to invest in the alts business going forward, given those dynamics about the core business right now, plus some of the ability to relever up. I'm not concerned about the deal-by-deal or the commitment side right now.
If cash flow is going to improve as a result of the ending of the DSC and the balance sheet, as you say, has the ability to fund everything needed for your alternatives here, why are you releveraging?
Tom, I said we could. And there's an optimal capital structure that someone would want. And so as we find opportunities to accelerate our growth, we could and we would take advantage of that.
And our next question comes from Graham Ryding from TD Securities.
On the private credit fund, is there any thought to make it available to retail? Is that something you're still looking at?
Yes. Graham, I'll start first and maybe Judy or Adrian can add. But yes, that's exactly right. We're thinking about -- for all of our really alternatives, we think of them now more of on a spectrum basis. So more liquid things down for the pure retail base to more private things for our family offices and institutions. And then on private credit, we're working with a structure that allows and probably will allow some liquidity in for our retail or high -- and IIROC channel as well as some of our family office and institutional clients who may be able to tolerate further lockup. So yes, you're absolutely correct that the idea is to bring it to a broader audience.
Okay. Great. And then my last question, if I could, is just I know you have an option here to acquire some management contracts from the SAF Group. What are you monitoring or evaluating, I guess, over the course of the next probably 6 months now that would sort of help you make that decision to whether you want to do something or not?
Yes. I mean I guess I'll start, and hand it to Adrian. I mean, there's an optimal -- as you know, in capital markets, right, the last day of the option is the most valuable in terms of the exercise date. It works a little bit different, I think, in a private option like this, where we're looking at launch, we're looking at pipelines of things, and there will be a date where we go to make that exercise decision. And so maybe I don't know, Adrian, I know you've done some work on this in terms of your own thinking. Do you have anything to add to that?
No. I think, Kevin, the way you phrase it is right on. I mean, we want to utilize the structure we put in place, obviously, which is -- gives us time. I think if you tie it back to Kevin's last comment, it's obviously a good opportunity because we do have some excess capital. And one of our strategic priorities is to deploy that excess capital to earn recurring revenue.
Okay. Great. And what's the total size of their AUM across all their funds?
Yes, Graham. Some of that information is not publicly disclosed. And so I think until we exercise the option, we'll probably keep that private because SAF is a private company at this point.
And the next question comes from Gary Ho from Desjardins.
Just on the buyback here. I noticed you guys were a little bit quiet in the quarter. Just wondering kind of what your thoughts are on that front looking out?
Yes. Gary, it's Kevin. We were quiet in the quarter, but we just finished off, as I said, the $40 million SIB, which was roughly 7 million shares, right? So we want to give some breather on in terms of being so active with it, but we will be back in. We've talked about removing some of this stock volatility on the comp side. So you'll see us probably hedge some of that out by buying some of that back in. So we'll be probably back to normal activity. We certainly have a lot of room on the NCIB as well.
And we have no further questions. I'll turn the call back over for final remarks.
All right. Thank you for joining the call today and look forward to the next call when we review our Q2 results. Thank you very much, and good day.
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.