Fiera Capital Corp

TSX:FSZ

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. My name is Joanne, and I'll be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's earnings call to discuss financial results for the first quarter of 2020. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] Thank you.I will now turn the conference over to Ms. Mariem Elsayed, Director of Investor Relations and Public Affairs. Ms. Elsayed, you may begin your conference.

[Mariem Elsayed, Director of Investor Relations & Public Affairs]

Thank you. Good morning, everyone, and thank you for your patience. Welcome to the Fiera Capital conference call to discuss results for our first quarter of 2020. On the call with me today are Mr. Jean-Guy Desjardins, Chairman of the Board and Chief Executive Officer; and Mr. Vincent Duhamel, Vice Chairman of the Board; Mr. Jean-Philippe Lemay, Global President and Chief Operating Officer; and Mr. Lucas Pontillo, Executive Vice President and Global Chief Financial Officer. We've also invited all our employees to listen in on today's call. To all of you who are currently logged on, welcome. Before we begin, I invite you to download a copy of today's presentation, which can be found in the Investor Relations section of our website at fiera.com.Note that the comments made on today's call, including replies to certain questions, may be forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on Page 2 of the presentation.I will now turn the call over to Mr. Duhamel.

[Vincent Duhamel, Vice Chairman of the Board]

Good morning, everyone, and thank you for joining us today. Again, I want to start by thanking all of our employees for their remarkable dedication, outstanding professionalism, phenomenal collaboration over the last few months and, clearly, flexibility, which have been nothing short of extraordinary. We hope you and your families are doing well and know that we will do whatever we can to help in these uncertain times.I'm now on Slide 3. March 31, 2020, AUM was $158.1 billion, compared to $169.7 billion at the end of 2019. The decrease was mainly the result of the unpredictable capital markets environment, which negatively affected AUM by $14.5 billion and mainly impacted our equity surge. Nonetheless, as a result of our significant global exposure in equities, the inferable impact of markets was partly offset by a $5.6 billion pickup from currency fluctuations. We also funded $1.7 billion in new mandates during the first quarter, which included over $600 million from institutional clients investing in global and Canadian equity mandates as well as Private Alternative Investment strategy.Private wealth clients contributed over $650 million during the first quarter and financial intermediaries in Europe and the U.S. invested $400 million across many of our strategies. We had gross redemptions of $4.9 billion, of which half were from clients consolidating investment services providers or taking mandates in-house. The remainder were spread out across mandates and consisted mainly of strategies generating lower average basis points. Consequently, although net flows were negative in Q1, new mandate won from existing clients carried on average higher basis points than mandates lost. This pattern has been recurring in a significant way over the last several quarters and is indicated of the strides we've made in implementing the different initiatives of our 2022 strategic plan and our goal of becoming part of the top 100 asset managers in the world. For the last 12 months period ending March 31, 2020, we grew AUM by $13.2 billion or 9%.On to Slide 4. Since the firm was founded in 2003, our efforts have been focused on building a diversified investment platform capable of meeting our clients' needs across economic cycles. Thanks to that diversity, we have also been able to expand our sources of income across asset classes and top investment performing strategy, making us much more resilient as an organization. Our alpha-generating capabilities and our AUM diversification are core to strengthening and stabilizing our earning base. Just 5 years ago, almost 60% of our AUM were composed of fixed income strategies, almost none in private alternative. As of March 31, that percentage in fixed income was down 47%, and our alternative strategies had expanded to make almost 11% of our AUM.What's more? Despite the risk-off environment that were called on the first quarter, our asset mix remained relatively unchanged at the end of -- from the end of 2019. If you do the math, you'll see that equity AUM declined by 11% during the first quarter. Fixed income AUM declined by 4%. Against the background of the record-high levels of volatility uncertainty that plagued the market during the quarter, these results are an indication of our team's ability to generate alpha and win new mandates as well as the currency diversification within our asset classes. Notably, around 80% of our equity investments are outside of Canada. For all these reasons, the overall decrease in firm-wide AUM was only 6.8% during the first quarter, which compares very favorably to our peer group.As of March 31, AUM in our Private Alternative Investment totaled $15.3 billion, with an additional $1.4 billion in committed capital. Moving forward, we expect that institutional and high-net worth investors will continue to allocate capital to private investments that offer significantly less volatility and less correlations to traditional market returns and, in turn, provide a compelling risk/return profile for our clients.Of note, today, 90% of our Canadian institutional clients that are invested in private alternative strategies are also investors in our public market strategies, a testament to our diversified and competitive offering. Furthermore, based on preliminary estimates, we expect that April 30 consolidated AUM should be above $167 billion, reflecting our equity investment team's significant outperformance. In early April, our global equity fund's institutional share class received a 5-star overall rating from Morningstar. This rating is a measure of the fund's risk-adjusted return relative to 764 funds in this category, world large stuff. To put that into context, only 10% of funds rated by Morningstar are awarded a 5-star rating.While it is too soon to speculate on how markets will behave over the next 3 quarters, we are confident that our resilient investment platform and top-performing strategies will allow us to continue delivering value for our clients.I will now turn the call over to Jean-Philippe.

[Jean-Philippe Lemay]

Thank you, Vincent. I'm now on Slide 5. During these uncertain times, our primary focus is the health and safety of our employees and keeping a close relationship with our clients in conjunction with ensuring the successful and seamless execution of our business continuity plans. As such, with the exception of Hong Kong, all our teams around the world continue to work from home, and we are optimizing the use of technology to engage with clients in new ways. The observed level of continued productivity, organizational development and focus on strategic projects during this period of time is a testament to our engaged and aligned teams across the globe towards our firm's mission.In an effort to keep our teams informed, we are communicating with them on a weekly basis, sharing what we know when we know it. We've held 2 virtual test calls with key members of senior management, giving employees an opportunity to ask us their questions firsthand. We also set up a COVID-19 task force, composed of employees and executives from different regions and divisions to review business continuity plans and proactively plan for different deconfinement scenarios. Thanks to the hard work and commitment of our operations and technology teams as well as the investment we've already made in our platform.When the firm transitioned to working from home in mid-March, we swiftly and effectively shifted to operating remotely. This included managing our investment strategies and staying even closer to our clients by providing valued and trusted advice during these difficult times. I'm happy to report that despite the physical distances that separated us, we continued to win new mandates, announced the sale of Fiera Investments retail mutual funds and continue making progress with our operations and technology transformation efforts.I'm extremely proud of all of our employees who are continuously maintaining a high level of engagement and focus to continue to bring the firm forward. Our teams have done a tremendous job in swiftly deploying our contingency plans in order for us to safely and effectively conduct our daily activities across functions. I want to thank all our employees for their remarkable contribution over the last few weeks.I'm now on Slide 6. With regards to investment performance, we are very pleased to report that it has remained strong, and this, despite the capital markets environment, where the fixed reached an intraday high of over 85% during the first quarter of 2020. Our diversified and risk control active management approach in fixed income, our quality and high conviction bias in equities in our different investment platform are providing our clients with customized investment outcomes. Most of the company's equity strategies outperformed their benchmarks during the 12-month period ended March 31, 2020. On a relative return basis, it maybe had low downside capture which helped performance and resulted in a number of our equity strategies outperforming their benchmarks by double digits.Our fixed income strategies generated positive absolute returns during the 12-month period ended at the end of the first quarter. A very high proportion of our fixed income strategies have delivered good relative performance over the last 5 years. Over the last 3 months, our core fixed income strategies did exceptionally well, while our credit-focused strategies were more challenged, albeit fully in line with our expectations given the credit backdrop of the economic downturn.In private markets, our infrastructure strategies performed according to expectations, delivering high single-digit returns and continued to deploy capital. The health-related lockdown has had a minimal impact on infrastructure as a result of our low exposure to assets that are dependent on traffic volume. Our private equity and global agriculture strategies also performed according to expectations, proving resilience in the face of the crisis. Canadian and U.K. real estate delivered positive returns for the last 12 months. The lockdown is hampering rental collections across the industry, with retail experiencing the greatest distress. Fortunately, our funds have relatively low portfolio exposure to retail and the currently challenged energy sector.Our private debt strategies in Canada and developed Asia continued to deliver attractive positive returns over the last 12 months and delivered positive returns during the last 3 months. Notably, our diversified lending fund performed well, generating a return of 1.67% during the first 3 months of the year.Furthermore, as a result of the fund's many different liquidity sources and monthly distributions, it is still providing liquidity to clients, whereas other funds in the industry have completely halted redemptions. Our disciplined approach to redemptions is allowing clients wishing to withdraw the flexibility to do so over a more extended period of time in a manner that is fair to all investors. Our top priority is to protect our investors in the fund. We are very pleased with the way this fund has been managed and proud to report that we have also had inflows during both the months of March and April.I'm extremely pleased with the investment performance of our teams during this challenging first quarter of 2020. Many of them continue to deliver first quartile performance on a trailing 12-month basis from March 31. Our active approach to portfolio management, our asset classes and regional diversification and also the dedication of our employees make up the competitive advantage that has allowed us to outperform in all respects during these unusual times. What's more, by virtue of these characteristics, we believe we are very well positioned for the eventual recovery.And now on to the review of operations on Slide 7. In Canada, our strong relative investment performance contributed to further supporting our distribution activities. Early April, we announced the sale of Fiera Investments' retail mutual funds to Canoe Financial. This transaction will allow Fiera Capital to broaden its existing relationship with Canoe by leveraging the combination of Canoe's strong distribution network in the Canadian retail market and Fiera Capital's excellence in investment management.In the U.S., except for the Fiera Capital emerging markets fund, all major strategies beat their respective benchmarks during the first quarter. Since the beginning of Q2, the emerging markets fund has been outperforming its relative benchmark. In Europe and Asia, we continue to pursue the development of our prospects pipeline across both continents and in the second quarter began onboarding new talent. As for Bel Air, this private wealth business has performed well and has been helping clients position their portfolios to take advantage of market dislocations in the current environment.In Private Alternative Investments, we received commitments from clients in our infrastructure and agriculture platforms. And in agriculture, we acquired 3 properties in Australia and made a follow-on investment in a business in Washington state. We also received seed capital for our North American and European subdebt strategy during the first quarter.As mentioned earlier on, I'm also pleased to report that many of our initiatives and the continued evolution of our global target operating model has continued throughout the first quarter. Certain initiatives include the global implementation of Salesforce, supported by the alignment of our global client data model.I will now turn it over to Lucas for a review of our financial performance. Thank you.

[Lucas Pontillo, Executive VP & Global CFO]

Thank you, JP. Turning to Slide 8. As a result of our efforts on diversifying our investment platform since the creation of Fiera almost 17 years ago, we completed our first quarter in 2020 on solid footing despite the volatile market conditions. Before acquisitions completed in 2019, added to our suite of competitive investment strategies in new geographies and asset classes. Our expanded geographic footprint not only enhanced our client offering, but also diversified our revenue streams. Our broad investment capabilities and strong investment outperformance will allow us to continue to service our clients with an array of investment solutions during these uncertain times. When we look at our Q1 results, approximately half of our revenues were generated outside of Canada in the first quarter of 2020. This compares to 30% of revenues generated out of Canada back in 2015.On to Slide 9 for a highlights of our revenues. Revenues increased 13% from $142.8 million in Q1 of 2019 to $161.7 million in the current quarter. Total revenues for the last 12-month period ended March 31, 2020, were $676 million, up $113 million or 20% compared to Q1 2019 LTM revenues of $563 million. The increases were primarily due to the 4 acquisitions we completed in 2019, organic growth from the institutional distribution of our global equity and Fiera private alternative asset investments and more favorable asset mix between bond and lost business. Base management fees increased $25.7 million or 20% year-over-year. From a client perspective, institutional base management fees increased $17.5 million; private wealth increased $2.8 million; and base management fees in retail increased $5.5 million in the U.S. and Canada.In Canada, while we announced the sale of Fiera Investments mutual funds to Canoe on April 9, 2020, we do not expect it to have a significant adverse impact on future revenues, as we will also be expanding our subadvisory relationship with Canoe in connection with this transaction.Performance fees were $3.3 million in Q1 of 2020 compared to $1.6 million in Q1 of last year, driven mainly by performance fees in our traditional asset classes. Other revenues of $3.8 million were down $8.3 million compared to Q1 of 2020. The decrease was mainly driven by a $4.9 million loss on foreign exchange hedging recorded in Q1 2020. This compares to almost $1 million gain recorded in Q1 of 2019. The loss was primarily due to the weakening Canadian dollar versus the U.S. dollar, which was negatively impacted by lower oil prices in addition to the economic impact from COVID-19.Turning to Slide 10. We generated net earnings attributable to common shareholders of $7.6 million during the first quarter of 2020. This compared to a net loss of $6.6 million in the first quarter of last year. Net earnings attributable to common shareholders in the current quarter were impacted by a $19.9 million unrealized gain on the revaluation of purchase price obligations and a puttable financial instrument liability. This unrealized gain was partly offset by the $4.9 million loss on foreign exchange forward contracts and a $6.8 million loss on interest rate swaps in the current quarter. On a per-share basis, we generated earnings per share of $0.07 for the first quarter of 2020 compared to a net loss of $0.07 per share in Q1 of last year. Adjusted net earnings were $20.5 million in Q1 2020, compared to $24.9 million in the year ago period. Adjusted net earnings in the current quarter includes the $4.9 million loss on the foreign exchange forward contracts and the $6.8 million loss on the interest rate swaps. Adjusted EPS was $0.20 basic or $0.19 on a fully diluted basis for Q1 2020. This compares to $0.26 for both basic and diluted in Q1 of 2019.Turning to Slide 11. Adjusted EBITDA increased $4.7 million or 12% from $38.8 million in the first quarter of 2019 to $43.5 million in the current quarter. The increase was mainly driven by positive adjusted EBITDA contributions from the 4 acquisitions completed in 2019 as well as an increase in revenue in institutional markets from organic growth in our global equity and Private Investment Strategies, these increases were partly offset by that $4.9 million loss on foreign exchange forward contracts.In Q1, adjusted EBITDA margin was 26.9%, which was in line with the margin from the same period last year. On the last 12-month basis, adjusted EBITDA increased $50.1 million or 34% compared to $197.6 million from the same period last year.We are encouraged by improved market performance subsequent to quarter end. However, we remain vigilant and recognize that it is still premature to determine the full extent of the economic impact of this pandemic. As such, we continue to exercise prudence, now closely monitoring expense and capital allocation initiatives. Our balance sheet remains well capitalized, and we have sufficient liquidity. As of March 31, 2020, we had over $65 million in cash and cash equivalents on hand. Finally, the Board approved a quarterly dividend of $0.21 per share, unchanged from the previous quarter, which will be payable on June 25.I'll now turn the call back to Jean-Philippe.

[Jean-Philippe Lemay]

Thank you, Lucas. I'm now on Slide 12. The economic environment remains cloudy and meet the continued progress of the current virus globally. As the health crisis has and social distancing measures received in accordance, so too should the economic drag as activities totally resumes and pent-up demand is unleashed with the vast incursion of monetary and fiscal support amplifying the eventual recovery.The Canadian economy has suffered a significant setback amid the COVID-19 pandemic and the severe route in energy markets. The pain will be widespread with the services sector slammed by the shock to demand following mandatory social distancing measures, while supply chain disruptions and the energy collapse will exert downward pressure on the goods side. Encouragingly, the Bank of Canada and the government have been quick to respond and have unveiled a wide range of policies aimed at stemming the damage for both business and consumers.In the U.S., the number of new COVID cases accelerated aggressively throughout the nation, and economic activity came to a virtual standstill as authorities adopted drastic measures to combat the fast-spreading pandemic with both consumers and corporations assuming the collateral damage. The Federal Reserve has acted with unprecedented aggression to prevent the credit crisis and ensure that financial markets remain functionable. While the U.S. government passed a massive rescue package to bolster the shattered economy and fund of nationwide effort to stem the coronavirus.Looking abroad, Europe and Japan were already reeling from last year's trade war when the health crisis emerged while these export-oriented economies remain particularly vulnerable due to their supply chain linkages to China. Moreover, a recession in Europe appears increasingly inevitable as countries, including Germany, Italy and France, seal off their borders and force public lockdowns. Indeed, Japan has already entered a technical recession as the sales tax hikes induced contraction in the fourth quarter has made a way for COVID-related slump in the first quarter of 2020.Finally, the Chinese economy was at the epicenter of the COVID-19 outbreak. While draconian measures imposed by the government quickly contained the spread, it came with a massive economic toll as the economy came to an abrupt halt at the beginning of the year. However, policymakers responded forcefully and made reviving growth a top priority. Encouragingly, the lockdowns have proven successful in combating the virus as new cases have peaked. As a result, the economy has begun to reopen as the population slowly returns to work.During these extraordinary times, our employees have remained resilient and their positive attitude has permeated the firm. They are Fiera Capital's most valued assets and the source of innovation that propels us forward. I want to thank them for everything they do for the organization. Collectively, we've had to quickly adapt to new ways of operating, but our mission of being at the forefront of investment management science and delivering superior investment advice to our clients have remained intact. These have always been and will always be key priorities for Fiera Capital.This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator]

[Operator Instructions] Your first question comes from the line of Gary Ho from Desjardins Capital Management.

[Gary Ho, Analyst]

Maybe first question is for Lucas. Can you give us an update on the leverage at quarter end, kind of where that stands? I think last quarter, you also provided some stress scenarios and both your leverage and dividends were on fire. Just wondering now if that thinking still stands with your last look at these stress scenarios.

[Lucas Pontillo, Executive VP & Global CFO]

Okay. So first part of your question, the leverage ratio per banking covenants for the first quarter stands just over 3.1x. Our total funded debt at this point found on the facility is about $515 million. You can see that from our financials. And at this point, the stress testing we brought, we run various scenarios. And given the strong Q1 that we've had, I think, certainly when you compare it in comparison to Q1 of last year, it's allowed us to build up a significant buffer in terms of our earnings runway for the year, and it puts us in very good stead for 2020 in terms of being a ratio obligation. So yes, we are very comfortable with that even in our stress test scenario for the year.

[Gary Ho, Analyst]

Okay. Perfect. And then maybe one for JP. Just on the private alt AUM. Do you expect any potential negative marks on the private assets looking out? How does the capital deployment landscape look? Maybe specifically on the Clearwater side as well and the distressed debt sizing, so are you seeing some opportunities there?

[Jean-Philippe Lemay]

Sure. Thank you, Gary, for the questions. The 2 platforms in the private side that will be more challenged or more challenged are, obviously, the real estate and the credit side. So on the real estate side, we expect markdowns, but very minimal markdowns at the end of Q1 on that side. And for the credit fund or credit positioning that we have on the different strategies, we still expect -- albeit maybe taking some provisions, we still expect positive yields throughout 2020. In terms of overall client activity and commitment, we've been experiencing over Q1 a continued strong interest, namely in infrastructure, agriculture and real estate in terms of client commitments and added committed capital. And we expect this as well to be a continued theme in terms of client demand going forward. So that is all my comments.

[Gary Ho, Analyst]

Okay. And then just my last question, maybe Lucas, back to you. Just on the SG&A side, again, assuming no acquisitions and kind of pre-performance fees. Is this quarter's SG&A a good run rate to think about and when I'm looking out kind of fiscal '20 here? Or are there any potential kind of more spending related to the strategic plan in the second half?

[Lucas Pontillo, Executive VP & Global CFO]

For the moment, it is a good run rate. And I say for the moment because sort of, as I mentioned in my prepared remarks, it's premature at this stage to really know sort of the full impact of this crisis. But, I mean, it could be for the rest of the year. So we continue to monitor that, both for opportunities and potentially making sure that we're not missing any reinvestment opportunities on the back end of the year should we pull out of this sooner rather than later. So again, for the moment, we just -- we remain vigilant. We continue to monitor that. I think the important thing to note is when you look at our SG&A relative to our growth in revenues quarter-over-quarter, SG&A is up 7% year-over-year, whereas our revenues are up almost 13% year-over-year. So I think on a run rate basis, we're doing a very good job of managing our expense run rate at this point relative to our revenue growth already.

[Operator]

[Operator Instructions] Your next question comes from the line of Jaeme Gloyn from National Bank Financial.

[Jaeme Gloyn, Analyst]

Yes. My first question is, if we just leave the market impact aside and forget about that, how is the coronavirus and the dislocations that it's created? Have that changed your strategy or AUM growth strategy? And I'm thinking about organic versus inorganic specifically.

[Jean-Philippe Lemay]

Yes. I can give you color on that, Jaeme. This is JP. Obviously, it's been for us a direction lately that we've taken of focusing much more on the organic part of the equation from a growth standpoint. We feel that the way that our platform is currently positioned, with developed -- the private market platform where we are right now in their cycle of development, and also combined with the current context, we feel that investors, both on the institutional side and the private wealth side will gain an even more stronger interest on that front. So obviously, our organic effort and focus is really geared towards that and supporting that, both in -- obviously, in Canada, continued effort. But also, that's the way that we feel we're going to be able to leverage as well our different presence in the U.S. and Eurasia regions.So again, this is a key theme -- a key organic theme for us. So this availability of platform and the diversity of our strategy is there, combined with our recent demonstration, that on the public side, we're also able to deliver alpha in many different market scenario. Especially the ones that we are in right now, we feel are positioning us very, very well to support our distribution efforts and capital allocation, and that's what we're focused on at this point.

[Jaeme Gloyn, Analyst]

Okay. Okay. So we should not expect a return to M&A given maybe some cheaper valuations here is what I'm taking out of that, focus still on organic. Still on that organic theme, and thank you for the preliminary April AUM updates. I'm just wondering if there's any puts and takes on the fund flow aspect, or if that is entirely a market-driven estimate.

[Jean-Philippe Lemay]

In the estimate that we shared, the $167 billion, it includes all effects. That is market impact, added value, alpha impact and also flow impact in that number at the end of April.

[Jaeme Gloyn, Analyst]

And are you able to share the flow aspects? Was there a drag from net outflows? Or was it -- yes.

[Jean-Philippe Lemay]

In the month of April, the flows were more on the positive side. And we -- I have to share that I can also say that we have also a strong pipeline across the different platforms. So we feel confident.

[Jaeme Gloyn, Analyst]

That's good to hear. In terms of the leverage, and this is probably a question for Lucas, what's driving the leverage increase in this quarter? Is that primarily just the seasonality around working capital that we typically see in Q1? Or is there something else going on there that maybe you're looking to just build liquidity in this environment?

[Lucas Pontillo, Executive VP & Global CFO]

Great question. Thank you. Actually, in terms of -- if you look at our cash position, we actually reduced our cash position somewhat from the previous quarter. So it's not a question of reporting cash. Really, these 3 elements, as you pointed out, the first one is effectively sort of a working capital turnover for the quarter. Q1 and Q3 are our highest working capital turnover quarters as a result of the timing of our bonus payments. So Q1 would be the quarter where we effectively pay out bonuses across the firm. And then in Q3, we're also paying out the investment manager bonuses. So again, those are the 2 pressure points from a cash flow perspective. So I'd say 1/3 of that increment came from that. The other 1/3 was really just FX exposure. So again, we have a portion of our debt, which is actually denominated in U.S. dollar. So really, all you're seeing there is the FX increase or the FX impact on the debt. So that was worth about $23 million that in and of itself is an increase.And then finally, we just had the settlement of some purchase price obligations and share-based compensation that was still tied to the acquisition of Charlemagne a few years back. So that was the other big component for the quarter, if you will. But if you take the 3 of those, they are effectively about 1/3 each that contribute to that delta from the prior quarter.

[Jaeme Gloyn, Analyst]

Okay. And that settlement, that wasn't cash, I guess, right?

[Lucas Pontillo, Executive VP & Global CFO]

That settlement there wasn't cash, correct.

[Jaeme Gloyn, Analyst]

Yes. Last one and then I'll requeue. In terms of the CNR and Clearwater markdown, it seems like it was primarily driven by volatility and, I guess, the impact of lower AUM on the long-term cash flows. So the question is, how permanent is that mark? And should we expect that to come back as markets rebound?

[Lucas Pontillo, Executive VP & Global CFO]

It can. And so to your point, particularly with CNR, the 2 variables that drive it are the market return. And so you can appreciate that with an emerging market fund, that obviously, the returns, sort of that variance of returns is quite wide. So certainly, again, as we look forward to the extent that there's a rebounding there, there could be a reassessment, and then likewise, in terms of the flow expectation, as you mentioned. So CNR has got 8 years left on that arrangement. So there's a long time to go to sort of make up the sort of the shorter-term flow expectations that have been built into it for the year.

[Operator]

[Operator Instructions] Our next question comes from the line of Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Just on the interest rate swaps, it was quite a large amount this quarter. Is -- can you remind us what the purposes of those swaps? And was that just a reflection of the big drop in interest rates in the quarter? And what should we expect going forward for this? Is it -- will this be an ongoing theme? Or is this a onetime expense?

[Lucas Pontillo, Executive VP & Global CFO]

So I would break your question down into a few parts. So the genesis of these swaps were effectively switched out our floating rate debt into fixed rate, and we've done that every time we've sort of drawn on the facility. It's actually a collection or a series of swap arrangements. So we have almost 10 of those. And then in this case, what happened is when you had such a drastic drop in rates, as you've seen, we recorded a loss in that in this period. We have 2 portions to that swap. There's a portion for which we get hedge accounting for. And that's because we've been able to match up very equally to the acquisitions we had in the U.S. On the Canadian side, the matching is not as perfect and has been over a longer period of time, and it's really that portion there where you're seeing the mark-to-market effect, and that's what came into the P&L for this quarter.Expectation-wise going forward, I mean, I think our expectation is that the Fiera rates have gotten to a pretty low spot at this point. So as we find ourselves in negative rate territory, our expectation is not. But you should see much more noise coming out of this line item going forward.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. So the adjustment is this quarter, but it's not necessarily a run rate on this swap cost. Okay. And then there's a big drop in share-based compensation. Can you -- I think, typically, you sort of look about $5 million to $7 million a quarter. Just some color there would be helpful as well.

[Lucas Pontillo, Executive VP & Global CFO]

I think in Q1, it was just a question again of the programs that were still in place and sort of accruing and coming due. And at this point, we didn't have as many in the quarter.

[Graham Ryding, Research Analyst of Financial Services]

So is that at a continuing theme? Or should we expect it to pick back up?

[Lucas Pontillo, Executive VP & Global CFO]

Well, I mean, they'll fluctuate, right? I mean share-based compensation certainly, as it relates to acquisitions, I mean, we use that as a mechanism to align interests of acquisitions. But to the point at this stage, without any foreseeable acquisition activity in the near term, I wouldn't expect to see any too much movement there.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. And then just my last question. On the private assets part of your AUM, can you remind us how those assets are valued? And whether there was any material mark-to-market adjustments in Q1?

[Jean-Philippe Lemay]

So just to follow up on my earlier comment, there's a -- from a valuation perspective, in each of the platforms, there's a very strong, robust periodic valuation process that differs between asset class. The different appraisal methods are adapted, obviously to the different markets. Like I mentioned, the 2 platforms that will be more subject to a potential markdown in Q1 are the real estate side of things as well as the private debt side of things as well and maybe just a very, very small one in the agriculture front. But overall, in the real estate, if you think about maybe 5% to 10% markdown in Q1, that would be kind of the extent of it. So that's the stance we have in the private market.

[Graham Ryding, Research Analyst of Financial Services]

And so is that captured in your AUM that you've reported?

[Jean-Philippe Lemay]

The AUM of the real estate platform is probably around 25% of the total AUM you have on the private debt platform. So the valuation is a bit delayed. I will have to check if it -- if it's actually reflected at the end of Q1. I'm not sure on that one, so we can get back to you on that.

[Graham Ryding, Research Analyst of Financial Services]

And the other ones that you mentioned, are those captured?

[Jean-Philippe Lemay]

Yes. The other ones are captured.

[Operator]

There are no further questions at this time. Ms. Elsayed, I turn the call back over to you.

[Mariem Elsayed, Director of Investor Relations & Public Affairs]

That concludes today's call. Thank you, everyone, for joining us today. [Foreign Language]

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.