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Executives

Robert J. Bogart - Chief Financial Officer, Executive Vice-President, Member of Executive Committee, Member of Investment Committee, and Member of Product Committee

Blake Charles Goldring - Chairman and Chief Executive Officer

Analysts

John Aiken - Barclays Capital, Research Division

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Paul Holden - CIBC World Markets Inc., Research Division

Stephen Boland - GMP Securities L.P., Research Division

Graham Ryding - TD Securities Equity Research

Scott Chan - Canaccord Genuity, Research Division

AGF Management Limited (AGF.B) Q4 2013 Earnings Conference Call January 29, 2014 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the AGF Management Limited's Fiscal 2013 Financial Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Wednesday, January 29, 2014. Your speakers for today are Mr. Blake C. Goldring, Chairman and Chief Executive Officer of AGF Management Limited; and Mr. Robert J. Bogart, Executive Vice President and Chief Financial Officer of AGF Management Limited.

Today's call and accompanying presentation may include forward-looking statements. Such forward-looking statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were applied in the formulation of such statements and actual results could differ materially.

For additional information regarding such forward-looking statements, factors and assumptions, AGF directs you to the caution regarding forward-looking statements, which is contained on Page 2 of the presentation, AGF's MD&A for the year ended November 30, 2013, and AGF's most recent Annual Information Form.

And I will now turn the call over to Mr. Bogart. Please go ahead, Mr. Bogart.

Robert J. Bogart

Thank you, operator. Good morning, everyone. I'm Bob Bogart, CFO of AGF Management Limited. Thank you for joining us today for a discussion of our fourth quarter and fiscal 2013 financial results. Please note that the slides supporting today's call and webcast can be found in the Investor Relations section of agf.com.

Today, Blake Goldring, Chairman and CEO, and I will discuss our fourth quarter and fiscal 2013 financial results.

Turning to Slide 4. The agenda for today's call will discuss the highlights of the fourth quarter, provide a business update on the key segments of our business, review the financial results, discuss our capital and liquidity position and finally, close out with an outlook for 2014. After the prepared remarks, we'll be happy to take questions. And with that, I will now turn the call over to Blake.

Blake Charles Goldring

Thank you, Bob, and thank you, everyone, for joining us on today's conference call. The past 12 months have been encouraging for global equity markets. Investors benefited from an improved growth outlook and accommodative monetary policy in developed countries, which drove equity markets higher in the U.S., Europe and Japan. While emerging markets underperformed the developed market peers on a relative basis, absolute performance over our last fiscal quarter was strong, an encouraging sign heading into fiscal 2014.

In the United States, equity fund net sales have been strong. According to ICI, year-to-date November net sales of equity funds were $159 billion, a $281 billion improvement over the same period in 2012. Bond flows were soft in 2013 with $58 billion in net redemptions. The rotation to equities is also underway in Canada where equity funds experienced a $20 billion increase in 2013 over 2012, reaching almost $6 billion in net sales. Bond fund flows decreased by $23 billion to net redemptions of $4 billion.

In addition to the rotation towards equity, we're also seeing a higher allocation to global mandates, a shift towards stand-alone funds and an improvement in independent net flows relative to banks.

During calendar 2013, AGF Fixed Income flows experienced positive net sales of $38 million, largely attributable to AGF floating rate funds and the fact that it is a solution for rising rates. We've been positioning our retail line up for this transitional phase of the market. Our clients have concerns about rising rates and stock market volatility. We've launched products that fulfill these needs.

Canadian dollar weakness also works in our favor. It is also a tailwind to global investing by Canadians. With continued focus and improvement in our investment performance, we are well-positioned to gain a greater share of industry flows.

Now, with that back drop, let's review the 2013 and fourth quarter highlights. In our retail mutual funds, 2013 saw 11 consecutive months of improvement in net outflows compared to the equipment months in 2012. Our usage structure positions our institutional business for expansion in Europe. We recently re-signed a long-term contract with our largest strategic partner, Primerica. We completed the first step of the formation of an alternatives platform.

Adjusted Q4 earnings per share came in at $0.11 per share. Free cash flow was sufficient to cover dividend and payments. To that end, in December, the Board approved a 27% -- $0.27 per share dividend consistent with previous periods and our commitment to return value to our shareholders.

Turning to Slide 6. On Slide 6, we list some of the developments related to our investment capabilities. As we announced last month, Martin Hubbes, our CIO, will be leaving the firm in February and I want to take this opportunity to thank him for his considerable contribution and loyalty over a 22-year career at AGF. We're well underway in our search for a Global CIO. We see some great interest from a variety of candidates across North America. AGF has independence, scale and a global reach, all of which are attractive to many candidates.

The CIO will be a crucial leader and play a pivotal role in assisting AGF's continued growth as a global leader in investment management across our traditional and alternative platforms. We currently have 30% of our retail AUM of the median on a 1-year basis, as reported by MorningStar. This is an improvement over last quarter, but still below our target of 50%. However, we feel very positive with the short-term momentum. 58% of our assets under management were above median in the final quarter of the calendar year.

Leading this positive change is continued outperformance within our Dublin team, which manages our Global and European value mandates. The changes employed in the investment process, particularly, the portfolio construction and risk management, have delivered lower volatility without sacrificing alpha generation. To that end, 100% of Dublin's AUM is above median over 1 year and a short-term trend continues to hold true as well.

We also have discussed on previous calls, the changes that we've made at Highstreet and the performance improvement experienced over the last 2 years. The results in 2013 continue to be very encouraging. Highstreet's Canadian equity fund, which is our largest quant strategy, has outperformed its benchmark every period from 1 month to 3 years. As further recognition of this improvement, Highstreet was awarded a significant new mandate in the last quarter.

AGF American Growth Class is first quartile over 1, 2 and 3 years and should see increased demand, particularly, if U.S. markets continue to rally and the Canadian dollars continues its slide. Delivery innovation to our clients remains a priority.

AGF Focus Funds, which are [indiscernible] bundles of primarily, internally managed funds, have enjoyed wide appeal with our clients. Net sales for Focus Funds are in the range of $100 million annually.

AGF Floating Rate Income Fund continues to garner significant interest. Its run remains around $400 million per year. AGF U.S. AlphaSector Class is yet another innovation. Launched in August, the fund employs risk controlled strategies in down markets while still providing equity exposure for upside capture in positive markets. The basic premise is that over the long term, investors can come out ahead by avoiding the large volatile market down draft in their equity exposure. It's still early, but my feeling is that we have again, been successful at fulfilling a market need and we may yet have another blockbuster on our hands. This fund currently has sales run rates of over $1 million per day and has reached $170 million in assets under management in only 4 months.

Last week, we announced the formation of a joint venture with Greg Smith and his company, Instar Group Inc. This new initiative is in response to the strong demand in the institutional marketplace for non-correlated assets. Many of our clients have targeted allocations away from public markets into real assets that produce more stable and consistent returns, as well as matching their long dated liabilities.

Our clients have told us that they like the idea of dealing with an independent firm where goal alignment between themselves and their partner is strong. AGF will invest alongside third-party investors, which is important to demonstrate commitment and alignment as we build assets in the fund. Over the coming quarters, we'll be able to provide more information on the structure of our institutional offerings, including the specifics around the Instar infrastructure funds.

For now, I can tell you that the investment strategy will initially focus on mid-market opportunities in North America. Investments will be in the form of mezzanine debt or equity capital of companies and projects across a spectrum of infrastructure sectors, including civil and social infrastructure, water, waste water and renewable energy.

We expect alternatives, including infrastructure, to play an increasing role in our industry, and specifically for AGF's operating results. This is a great example of AGF deploying capital in an effective manner. The seeding of the structure will generate returns in capital and strategically, we've added a new capability that will generate recurring fees.

Turning to Slide 7. Sequentially, the third quarter to the fourth quarter in our fiscal year, net flows in our retail business were comparable. This is after adjusting for $120 million of a Series O [ph] inflows in the third quarter. Retail advisor net outflows improved by 15% compared to the same quarter last year.

The improvement was broad and included our global and international funds. Net sales have improved for 11 consecutive months, this is despite some headwinds related to emerging markets. EM indices have underperformed relative to developed markets. We have a large fund in this space that's experiencing redemptions. We've also made some changes in the management of some acuity funds, which also caused some redemptions.

Part of the reason we've seen a broad improvement in our strategy to use AGF's floating rate and U.S. -- AGF's U.S. AlphaSector Class to establish new relationships and create cross-selling opportunities.

Over 1,400 advisors have bought AGF floating-rate, 400 of them were not doing business with us previously. Of the 400 new advisors who bought AGF floating-rate, 40% have bought a second product, which shows the cross-selling strategy is working. We've had success in penetrating the Iraq channel and we're looking to replicate the success with AGF's U.S. AlphaSector Class. It's still too early to judge, but we'll share results with you in the future.

We'll continue to improve our investment performance and launch innovative solutions, define new advisors, revitalize existing relationships and get advisor clients buying a broad-base of AGF products. And this is frankly the strategy on how we're going to move towards net sales in our retail business.

Turning now to Slide 8. I want to get into some detail on our Institutional business. At the end of third quarter, we reported $105 million institutional pipeline. This was made up of $965 million in sales commitments and $860 million of redemption notices. The sales commitments in the Q3 pipeline did not fund in Q4, but the redemptions were all transacted.

In addition, we had a large redemption from a single client in Q4 that we explained in our November AUM press release. By the end of Q4, the net pipeline was positive $756 million. That includes the gross sales commitments carryforward from Q3.

The Q4 pipeline was fully funded in December and includes seed investors in our 2 new UCITS products. Having several UCITS funds with material scale that can compete in high demand categories is a significant benefit for AGF.

In 2014, we're working hard to capitalize on this opportunity and extend our presence in the European market. Our Toronto-run Global Core Equity strategy will remain the centerpiece of our product offering in 2014. The Global Equity category is a very competitive space with close to 400 direct institutional competitors around the world.

The global Institutional market is heavily consultant-influenced and building consultant support takes times. We started that process last year, including the hiring of an individual responsible for global consultant relationships. We continue to see interest in our emerging market strategy and a secular trend for growth in emerging markets remains intact. However, relative performance of EM indices and our strategy, in particular, creates a risk of redemptions in legacy accounts. This is why diversification in our institutional product offering is important.

We'll be adding new capabilities such as infrastructure but we've also developed new capabilities in-house. Emerging markets value will soon be added to the Smith and Williamson platform, a distribution in the United Kingdom. Emerging markets value has been in incubation for over 3 years within our Dublin office as performance and risk characteristics are very strong.

The institutional business can be lumpy but we feel confident that the strong value proposition we can present to institutional clients. The new and interesting capabilities such as infrastructure, a global distribution footprint, our UCITS with scale and strong performance of strategies such as global core are few reasons we're excited about the Institutional business going forward.

Turning to Slide 9. I will now turn the call over to Bob who will review the capital liquidity and financial information.

Robert J. Bogart

Thank you, Blake. If you've had a chance to look at our published financials and MD&A, you'll notice that our presentation has been divided into continuing operations and discontinued operations. This is consistent with the presentation of results from previous quarters. Discontinued operations are identified as a single-line item just below the income from continuing operations.

Slide 9 reflects a summary of our financial results from continuing operations for fiscal 2013 as compared to fiscal 2012, as well as a trending quarterly result. For continuing operations, we have also presented adjusted numbers, which exclude significant one-time adjustments. This presentation is consistent with our MD&A.

EBITDA for Q4 '13 was $33.6 million, down 13% from Q3. Adjusting for the one-time restructuring charge of $3.6 million recognized in the fourth quarter, EBITDA was $37.2 million compared to $38.6 million in the prior quarter, reflecting lower AUM levels. EBITDA for fiscal 2013 was $163.6 million, compared to $189 million in 2012. Adjusted EBITDA was $163.5 million compared to $194.1 million in 2012.

The decline is attributable to the decrease in revenue driven by lower AUM levels and increased stock compensation expense. Fourth quarter EPS was $0.08 per share unadjusted and $0.11 per share on an adjusted basis. EPS for the year came in at $0.25 per share compared to $0.29 per share in 2012. Adjusted EPS for 2013 was $0.53 per share, compared to $0.63 per share in the prior year.

Turning to Slide 10. I'll walk through the basis points yield on our business. This is a slide we regularly show on our calls. It lets you see our performance on a longer trended basis and smoothing out some of the impacts of market volatility. It shows our investment management revenue, operating expense and EBITDA as a percentage of average AUM on the current quarter and the prior year's quarter as well as a full year view.

Note that the results exclude the impact of one-time items, fair value adjustments, interest and other income and Smith and Williamson. It essentially represents our core results from the asset management business. We have also adjusted the prior year's SG&A to reflect the current year's change in our presentation of fund expense reimbursements, which I had mentioned in prior quarters. This allows for an apples-to-apples comparison.

With respect to revenue, the operations reflect quarter-over-quarter and a year-over-year increase in revenue yield due to a higher mix of retail business per dollar of AUM. The redemptions experienced with the institutional assets are a lower fee rate, which has caused the average rate to increase.

For SG&A, we have shown the impact of stock-based compensation expense separately. In 2013, our stock price appreciated 63%, resulting in higher expense relative to 2012. Adjusted SG&A, normalizing for stock compensation expense volatility and excluding one-time cost, has decreased year-over-year on an absolute basis. However, SG&A is higher as a percentage of AUM compared to prior year as a result of lower AUM levels.

Unadjusted SG&A for 2013, came in as $190.8 million, higher than the guidance of $184 million provided during the Q3 call. The variance is attributable to a one-time restructuring charge of $3.6 million and higher stock-based compensation expense in the quarter due to share price increase. In addition, we recognized an additional $2 million of absorption expense related to pricing decisions on several funds that were executed last year.

The significant market increases, particularly in the U.S. market over the fourth quarter, drove a larger than anticipated absorption expense due to the increase in the funds underlying the AUM.

For fiscal 2014, we expect SG&A to be in the range of $175 million. This estimate reflects our ongoing efforts to trim our expense base and provides for a more normalized stock compensation expense. In 2014, we will employ a natural hedge on our outstanding restricted stock units to reduce the volatility in our P&L throughout the year.

On an adjusted basis, excluding one-time costs and stock comp expense, EBITDA yield for fiscal 2013 were essentially flat with fiscal 2012.

Turning to slide 11, I'll discuss free cash flow and dividend coverage. This slide represents the last 5 quarters of free cash flow shown by the blue bars on the chart. The cash flow represented is consolidated free cash flow. It's important to note that free cash flow from quarter-to-quarter can be impacted by a variety of items, including timing of taxes and dividends received from minority investments.

Our Q4 2013 payout ratio came in at 87%. At current equity market levels, we forecast that our free cash flow generation will be sufficient to fund the dividend for fiscal 2014. Of course, if there is a market correction or if outflows are more significant than current trends, we may choose to use our balance sheet to support the dividend if required.

The support of the dividend will continue as long as it's financially prudent, given our revenue and free cash flow outlook and balance sheet position. This is a decision that the board will be making on a quarter-by-quarter basis. We have renewed our NCIB facility, pending TSX approval and we'll be selectively active with the NCIB going forward.

Over the course of the quarter, we repurchased approximately 300,000 shares for a total consideration of 3.8 million. Subsequent to the year end, we have repurchased an additional 1.2 million shares. Going forward, we will use some of the NCIB capacity to purchase shares as a hedge against the outstanding restricted stock units, which I previously mentioned.

Over the past 18 months, we have repurchased 10 million shares of roughly 11% of our total shares outstanding. Going forward, however, the NCIB could see reduced activity in favor of new investments and/or dividend support. In addition to the dividend in the NCIB, we will deploy our capital with 2 objectives in mind. First, we'll develop new sources recurring revenue based on organic growth of our AUM; and secondly, we want to increase the yield on our cash.

And Blake mentioned, we announced an exciting venture initiative in the infrastructure space, where we can accomplish both goals. Launching the platform will give us exposure to investments with a very attractive return profile, including the running yield. The funds, once established, will attract AUM from the institutional client base and will generate recurring revenue and incentive fees. We believe this offering will also have attractive characteristics for the high net-worth and private client segments.

We see tremendous market demand that is both a fit with our Institutional clients and leverageable within our global distribution footprint. The startup working capital required is relatively minimal, with very favorable longer-term economics if executed properly. As it's still in a nascent stage, we are not prepared at this point to give specific targets on the business, but we'll certainly keep you updated as the initiative develops throughout the year.

Now moving to Slide 12, I'll turn it back up -- turn the call back to Blake to wrap up today's call.

Blake Charles Goldring

Thanks, Bob. As we look to fiscal 2014, I'd like to outline our priorities. Firstly, the onboarding of a new CIO will be a key area of focus. In addition, we expect that we'll continue to attract top talent in our investment management group. After an improvement in retail net sales in 2013, we will target further improvement in 2014. For the institutional business, we expect to be winning significant net new business as we exit 2014. Alternatives will be leveraged as a long-term organic growth opportunity.

In fiscal year '14, we'll renew the NCIB and be active throughout the year, selectively repurchasing shares. Our balance sheet remains strong and will support the dividend. I want to thank everyone on the AGF team for all their hard work over the course of 2013, and to our shareholders for their continued support.

We'll now take your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from John Aiken from Barclays.

John Aiken - Barclays Capital, Research Division

With the AGF Instar Infrastructure initiative, can you let us know what your -- what the sense is for the cash commitment that's going to go forward and whether or not you can give us any sense as to how material the costs are going to be for establishing the platform?

Blake Charles Goldring

Yes, John. Its Blake here. We've allocated $100 million but of course, this is a stage where we're just getting started, so it would not be deployed, we would expect, in certainly, year 1.

Robert J. Bogart

With respect to the second part of your question, John, we had envisioned a $2 million to $3 million investment in working capital for fiscal '14.

Operator

Our next question is from Geoff Kwan from RBC Capital Markets.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

The first question I had was with respect to the search for the CIO. Is it something that you would like to have the person already working at AGF by the middle of the year? I'm just trying to get a sense on timing. And then also similarly, is there any issues or any concerns that when you're going out and doing the search around non-competes or any costs that may need to be incurred to be able to bring the person on board faster?

Blake Charles Goldring

Well, I guess, the first issue, I can tell you that we are at a relatively advanced part in our search at this stage and that there has been great interest. And the issue you're flagging regarding non-competes and what have you, that has not been an issue that we've had to encounter just yet. So I guess, at this stage, it's too early to stay, Geoff, but our view would be that we'd like to have somebody here, certainly by midyear, certainly sooner would be the expectation.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Okay. And then the question around the disclosure on the MER reductions, I just wanted to clarify, that was stuff that you had done earlier in the year last year as supposed to something that was done in Q4, is that correct?

Robert J. Bogart

That's correct. It was roughly midyear, so last year. It's just been the recent move, particularly in the U.S. equities as I mentioned in my comments, Geoff, that drove the AUM up fairly significantly in one of the funds in which we actually did selectively choose to cap the MER.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Okay. And then last question I had and I apologize if you had mentioned it on the call. But have you talked about where you think the SG&A level will look like for fiscal '14?

Robert J. Bogart

I did talk about in the call, Geoff. It'd be in the range of $175 million.

Operator

Our next question is from Paul Holden from CIBC.

Paul Holden - CIBC World Markets Inc., Research Division

First question is with respect to mutual fund flows in the quarter. So Blake, you highlighted some good reasons on why the backdrop for fund flows is improving, yet we saw it deteriorate quarter-over-quarter. I was wondering if there's some specific reasons behind that trend?

Robert J. Bogart

I would say from an -- Paul, I'll take this. On an advisor basis, it actually has improved or better said, probably remain relatively flat Q3 to Q4. Looking year-over-year, it's improved about 15%. The reason that you're seeing the net flows optically look like they've deteriorated was by virtue of the large Series O [ph] that we received -- inflows that we received in Q3.

Blake Charles Goldring

Is this a Strat account?

Robert J. Bogart

It's the Strat account.

Paul Holden - CIBC World Markets Inc., Research Division

Okay. So it doesn't have to do with the...

Robert J. Bogart

That was a lump sum allocation as opposed to kind of a more normalized flow, that's the point.

Paul Holden - CIBC World Markets Inc., Research Division

Right. And that was one -- I think that number was 110 last quarter?

Robert J. Bogart

Yes.

Paul Holden - CIBC World Markets Inc., Research Division

So when you highlight the headwinds of emerging markets and the changes at a [indiscernible] impacting flows, that's going to be more of a fiscal Q1 effect?

Blake Charles Goldring

That would probably be fiscal Q1. We expect that will carry through.

Paul Holden - CIBC World Markets Inc., Research Division

Okay, okay. And then you highlighted the American Growth Fund as one fund that's putting up exceptional returns, and certainly, in the right category. And I would agree that it seems like an opportunity for next year, but is that fund currently in that redemption today? Or is it already in positive net flows?

Blake Charles Goldring

Which funds was that, Paul?

Paul Holden - CIBC World Markets Inc., Research Division

The American Growth Fund?

Blake Charles Goldring

That's actually attracting great interest and that continues to be very, very flat right now. But again, in the back of last year's very strong performance, and again, the record that we have with American Growth Fund, which really is a top quartile product, I think that we'll expect to see flow pick up in that area.

Robert J. Bogart

Gross sales, a, it's going to be focus fund that our sales force will get behind, Paul, and gross sales are up about 32% year-on-year.

Paul Holden - CIBC World Markets Inc., Research Division

Okay. Okay. And then, with respect to the CIO transition and fund performance, kind of where are we at -- like what -- I guess, what's taking place in the Toronto office specifically to help improve fund performance while we're waiting for a new CIO to step in?

Blake Charles Goldring

Well, Martin Hubbes, who is an extremely confident and talented colleague, he's still in saddle. So from an operating perspective, there is nothing that has changed. We are proceeding while we're conducting our search. So work that has already been started and great success in Dublin, for instance, where we've seen great performance that I alluded to and talked to about in the call. From a risk performance as well as what they've been doing in their allocations and decisions, that's really borne great fruit. The work that's been done at Highstreet, we've seen some great performance there. And then so Martin continues to work with the team and performance is improving, and we can see that from how we were a quarter, last quarter and continue to get stronger.

Robert J. Bogart

So we're above median, Paul, in 1, 3 and 6 months numbers. I mean, it's all a function of the work that's going on within the investment management organization. We are going to continue to execute against the work that Marty put in place as we transition to a new CIO.

Paul Holden - CIBC World Markets Inc., Research Division

Okay. Because with the performance I look at as a sort of a gross redemption issue. At what point do you think you need the returns to be above median to have a big impact on the gross redemptions i.e., does it have to be the 1-year number or does it have to be a 3-year number?

Robert J. Bogart

Probably, a little bit of both but if we had to put emphasis on one, you'd have it on the 3-year number. So some reaffirmation of what you're doing is working. It's more [indiscernible]

Paul Holden - CIBC World Markets Inc., Research Division

Okay. And then final question is an accounting for Bob. It looks like you increased your tax provision by $27 million in the quarter for the transfer pricing issue, but we didn't see it flow through the income statement. So I was just wondering how the -- if I have that right, a, and if I do, then how the accounting for that works?

Robert J. Bogart

Yes, you don't have the right -- Paul, I think the reference was for 2013. We increased the provision by the $27 million, which would have happened in the earlier quarters, the second quarter of this year.

Paul Holden - CIBC World Markets Inc., Research Division

Okay, so the provision was already at $53 million?

Robert J. Bogart

Well, there was -- we added to the provision by $27 million, that went through the P&L. There was a provision on the balance sheet already, that's why there's a $53 million balance sheet accrual for the issue.

Paul Holden - CIBC World Markets Inc., Research Division

Okay, and so the accrual before this quarter was $53 million?

Robert J. Bogart

It was -- no, the accrual -- yes, the accrual before this quarter would have been $53 million. You'd see that consistently on our quarterly financial statements that we have the taxes payable north of $50 million.

Paul Holden - CIBC World Markets Inc., Research Division

Okay, so there's no increase in that provision this quarter?

Robert J. Bogart

No. That would have happened in prior years.

Operator

Our next question is from Stephen Boland from GMP Securities.

Stephen Boland - GMP Securities L.P., Research Division

I just want to clarify the $370 million on Slide 11 of cash on your balance sheet. That's before the $30-odd million that got paid out there in December, that's correct, right?

Robert J. Bogart

That's correct, Steve.

Stephen Boland - GMP Securities L.P., Research Division

Okay. And can you -- I think we've been following this quarter by quarter a little bit. But is there further cash payments that you expect in the next 6 months or 12 months? Or like what prompted the payment in December if you are still going [indiscernible] investments and things of that sort?

Robert J. Bogart

Well, because we received the notice of reassessment. So previously, we had received a proposed notice of reassessment. So now, we have the actual notice. And so in order to stop interest and penalties from accruing on the assessment, we made a payment of 50% of the federal tax due and 100% of the provincial tax due with respect to the assessment. So that will -- and that applies for the 2005 to 2007 period. The accrual -- go head.

Stephen Boland - GMP Securities L.P., Research Division

No, I'm sorry, Bob. Sorry to interrupt there.

Robert J. Bogart

I just said the accrual that we have on the balance sheet is our best estimate with respect to the 2005 to 2013 tax years.

Stephen Boland - GMP Securities L.P., Research Division

Okay, so the remaining...

Robert J. Bogart

Situations are inherently uncertain, but we feel that we've provided for the ultimate resolution of the issue in our financial statements. So we're highly confident of our position. We're going to continue to defend it vigorously, but this will take several years to play out.

Stephen Boland - GMP Securities L.P., Research Division

Okay, so that payment that you did was -- you said the original assessment was for 2005 to 2007. So you paid that $30 million in respect to those years, right? But is there a fiscal...

Robert J. Bogart

That's correct.

Stephen Boland - GMP Securities L.P., Research Division

But you still -- you've accrued that other $20 million for the 2008 to 2000 -- I guess, present years for that issue, right?

Robert J. Bogart

That is correct.

Stephen Boland - GMP Securities L.P., Research Division

But you have not received a notice of reassessment for those years yet?

Robert J. Bogart

That is correct.

Stephen Boland - GMP Securities L.P., Research Division

Okay, sorry. I'm not sure if I got this right, but did you say you've repurchased over 1 million shares post quarter, post November, or did I get that wrong?

Robert J. Bogart

No. That's correct.

Stephen Boland - GMP Securities L.P., Research Division

That you have repurchased over 1 million shares?

Robert J. Bogart

Yes, we've repurchased 1 point -- I think it's 1.2 million shares since December 1.

Stephen Boland - GMP Securities L.P., Research Division

Okay, which gets me, I guess, my point you -- and also the subsequent event where you're talking about the 100 million subs going into of capital for this new initiative with the infrastructure. You mentioned 2 million to 3 million, but I presume that's just set up cost, but when you're, I guess, getting the funds up and running, and I presume it will be this year that there will be a co-investment and that's what the 100 million is talking about?

Robert J. Bogart

That's correct. The 100 million is really a commitment based on certain provisions being met. One of them is identifying another seed investor for the fund, which we're in process with. That essentially represents -- it will be a capital call for AGF as the investments are identified and capital is needed to close on those deals, then we'll be asked to participate in terms of funding that. That may take 18 months in actual -- for the funding period to actually draw down on the 100 million. The 2 million to 3 million I mentioned was working capital with respect to getting the venture up and running.

Stephen Boland - GMP Securities L.P., Research Division

Okay. So a lot going on with your balance sheet. Again your cash now is $340 million, to say, post that $30 million pay out, and then your assets have fallen. I guess, again you got this -- another capital commitment. So you're still very comfortable like paying a cash dividend at this level from the next -- I know it's quarter-by-quarter but you still remain very comfortable with the dividend level?

Robert J. Bogart

Yes.

Operator

Our next question is from Doug Young from Desjardins Securities.

Unknown Analyst

Bob, I just wanted to clarify the investment being made, the $2 million to, I think, $3 million in the Instar, that's working capital, that doesn't go through SG&A? Or is that included in your $175 million SG&A costs?

Robert J. Bogart

Yes, it's fair point. I should clarify, Doug. That's not included in the $175 million and it would go through SG&A, through hypothetically, a different segment -- reporting segment, but it will be in addition to the $175 million.

Unknown Analyst

And I know you had envisioned that to be an ongoing year after year or is that just a one-time expense?

Robert J. Bogart

Yes, we would anticipate that this would be breakeven prior to the full funding period closing. So within 12 months, is our expectation that working capital will not be required.

Unknown Analyst

Okay. And then on the cost side, you kind of mentioned that cost -- I forgot the wordings so excuse me, but the cost rationalization or your focus on cost. What is it that you're looking from a cost perspective to keep SG&A down?

Robert J. Bogart

Well, there are 3 items that are driving the volatility in the SG&A. Over the last 2 years, we've reduced headcount by approximately 15%, so that's the primary driver of our expenses. It's labor and near labor, which is driving the cost structure. The stock compensation volatility, we want to minimize that. We'll do that with a hedge as I mentioned. We have some one-time expenses, those will not be recurring in 2014. And then, I think with respect to the absorption, some of those are actually contra-revenue expenses in terms of the reductions on the MER caps. And so what we'll do is pending some decisions that we'll make internally around the pricing, just reduce the management fees. Effectively, you get to the same place and so fund absorption will reduce. Obviously, revenue will reduce. It will be essentially P&L neutral but it just removes the volatility out of the SG&A line. But with respect to -- we'll continue to look at capacity and take capacity out as required within the organization, that's how we'll continue to trim the SG&A.

Unknown Analyst

And then just on the capping of MERs or the changes in the management fees, any other changes that you're being -- I mean, you did what you did last year. Are there any other additional changes that you're being -- considering right now in existing products?

Robert J. Bogart

The only one on the horizon, which we -- again, we haven't wrestled to the ground, is the burgeoning fee business that we see in the industry, and how our F series are priced relative to competitors. The percentage of assets that are in F series is relatively small, so it wouldn't have a large bearing in terms of our installed base. But on a going forward basis, we want to make sure that we're appropriately positioned to capture that business on a competitive pricing basis.

Unknown Analyst

Okay. And then just lastly Blake, I didn't catch your full remarks at the end, but you mentioned something about -- at the very end, coming out of -- in terms of institutional net flows being positive exiting 2014. Did I get that right or did I get that wrong?

Blake Charles Goldring

You got that right, absolutely. We believe that we've got a competitive lineup of product that we're going to be able to frankly, stand toe-to-toe, nose-to-nose with, against the best in the world, and we're out there through our international platform and distribution network selling. So we're confident that we'll do well and exit '14 in a net sales position.

Unknown Analyst

So when I look at your -- I mean, because you got in Q4, net pipeline was $756 million, which would suggest that you would exit or you would -- 2014, be net -- but where I'm trying to go is, is there any other larger redemptions that you're anticipating as part of that comment?

Blake Charles Goldring

Well, gosh, that's one of those great questions because I did state the word lumpy, it's a lumpy business. And that you just don't know necessarily when a particular large client may have a change in their investment outlook on a particular sector or market. Or in a case where active management may be shifted towards passive, which happened in 1 client case, I'm thinking about last year. So I don't even want to speculate on that one. Doug, only to say that I think we've got some very good products that we're able to go and sell actively out there. And then increasing over the year, as we get our infrastructure fund up as well, that will just only add to what we'll be able to offer to clients.

Robert J. Bogart

So Doug, we would've put that into the pipeline if there is any knowledge of redemptions. We're sensitive to the emerging markets booked just by virtue of the fact that the volatility that, that sector is experiencing at the moment. But our strategy hasn't changed with respect to institutional. We believe in the long-term secular trends supporting exposure to global equities, including emerging markets. We've got 2 very, very good platforms, strategies to build upon in the institutional space. And exiting 2014 in a positive sales doesn't mean that we don't expect to exit Q1 2014 in a positive sales frame either. It's just that we feel as though we've got good momentum with respect to those 2 mandates, particularly, leveraging our usage capability and we're hopeful and optimistic for 2014.

Operator

[Operator Instructions] We have a question from Graham Ryding from TD Securities.

Graham Ryding - TD Securities Equity Research

Just wondering, maybe I could follow on from your last reference in the usage platform. Is there any update you can provide there as how that pipeline looks or any activity recently?

Blake Charles Goldring

Yes, we've got -- I can just simply say that it continues to grow. We've just got 2 new clients who we freshly onboarded.

Graham Ryding - TD Securities Equity Research

And just generally, what -- I don't know if you provide it but do you have a pipeline on your Institutional business right now? Is there a number that you could provide?

Robert J. Bogart

No. It's what we've disclosed on the slide, Graham. We're not going to provide a mid-quarter update on that.

Graham Ryding - TD Securities Equity Research

Okay. Okay. And then just on the -- staying on the institutional side, you provided a good mix of your business from -- on the retail AUM across your mandates. Can you give us an indication of what your mix is like on your Institutional AUM?

Blake Charles Goldring

When you talk about -- you mean, what is it that we're selling or...

Graham Ryding - TD Securities Equity Research

No. Your existing AUM across emerging markets, global mandates, maybe, anything other. Could you give us an idea of what that mix looks like on a percentage basis?

Blake Charles Goldring

I mean, it's -- we don't actually break down by a specific mandate, if that's what you're asking, for instance. Are you are asking how much is in this versus global, versus emerging market, versus resource, versus -- is that what you're asking?

Graham Ryding - TD Securities Equity Research

Sure, correct. Maybe 3 buckets: emerging markets, global and then other?

Blake Charles Goldring

We haven't released that, Graham, so we don't talk specifically. We look at our sector as a block of asset.

Operator

We have a question from Scott Chan from Canaccord Genuity.

Scott Chan - Canaccord Genuity, Research Division

On Q4, you mentioned the emerging market, there's a large redemption. How large was that redemption? Was that from a single client or was there a couple of clients?

Robert J. Bogart

There was the large client's redemption, which we disclosed in the December AUM update or November AUM update, I guess, in early December. In addition, due to some of the acuity changes that were made, there were some additional acuity institutional comps, which exit [indiscernible] It comprised what you see in terms of the Q4 activity.

Scott Chan - Canaccord Genuity, Research Division

And can you tell us just how much is left in the -- or how much is on the emerging markets platform on the institutional side? Is it less than $2 billion or maybe just a range?

Robert J. Bogart

It's approximately $3 billion.

Scott Chan - Canaccord Genuity, Research Division

$3 billion on the institutional, not including retail?

Robert J. Bogart

Maybe a little less than $3 billion, plus another $1 billion in Retail.

Scott Chan - Canaccord Genuity, Research Division

Okay. And Blake, I think in one of your earlier remarks, you said year-to-date, the net sales are positive on the fixed income side and that's driven by floating rates.

Blake Charles Goldring

Yes.

Scott Chan - Canaccord Genuity, Research Division

How are the sales on the equity side? Do you the shift in to equity in the last few quarters last year? And probably in January. Kind of what's the mood in investors heading into RSP season? Are you seeing better flows on the equity side?

Blake Charles Goldring

Yes, we are actually seeing better flows and they're actually improving, but it would be in our global and our international mandates. That's where we're seeing the flow change.

Scott Chan - Canaccord Genuity, Research Division

Global and international? And you talk about AGF Focus Funds and I think when you talked about it in the past, these are funds that you guys picked every year to focus on advisors for RSPs and you made some remarks about it being in net sales. What is the lineup of the Focus Funds heading into 2014? Is it -- in terms of the actual funds and I am assuming these are standalone funds, right?

Blake Charles Goldring

Yes, these -- so what we've done, we've bundled some of our better performing well known -- fund lineup and we offer these to our clients and we've done about right today, have about $200 million that have gone into the various products.

Scott Chan - Canaccord Genuity, Research Division

Can you talk about some of the products that are in the Focus Funds?

Blake Charles Goldring

Yes. We have American Growth, for instance, which is a very solid performer. We've got the monthly high income. We've got the Canadian, which is a traditional income fund, which is another top performer. Dividend fund as well, which has also been a very good fund. Our floating-rate, which we talked about.

Scott Chan - Canaccord Genuity, Research Division

Okay, and just in terms of the dividend, and I kind of hate to harp on it, but with the stock down and the yield over 9%, most of the peers out there have very, very low payout ratios between 50% and 70%. Certainly, when I look into 2014, with the asset declines. I get a payout ratio of over 100%. If we do get a global market decline, at what point do you consider possibly cutting dividend? Is it like a payout ratio trigger point or how are you guys going to think about that?

Robert J. Bogart

It is really based, Scott, on the facts and circumstances, what you are dealing with at that point in time. I'm not going to respond to kind of a hypothetical question. Other than the fact that we look at this from a quarter-to-quarter perspective and it requires board approval. So based on our revenue and our cash flow outlook, with all the facts and circumstances that we have at that point in time, we'll make the decision. So we think that based on current [indiscernible], as I said we can support the dividend. If and when there is a correction and a sustained correction and we want to utilize capital for other priorities such as growing the business, then we'll make that decision then and when.

Scott Chan - Canaccord Genuity, Research Division

And just the last question, Blake. You talked about slowing down the NCIB. I think in 2013, you probably did almost 50%. Is that kind of a possible range to use to model for 2014 when you renew your NCIB at the end of the month?

Blake Charles Goldring

I think Bob outlined our use of capital and certainly, with I think, the exciting investment that we're making in the whole infrastructure area in the alternative space, that will be an additional use of capital. So it would have come down in a priority ranking this year, Scott. So we'll probably see a little bit less, I think.

Operator

And that was our final question.

Robert J. Bogart

Well, thank you very much for joining us today on our call. Our next earnings call will take place on March 26, when we will review our first quarter results for fiscal 2014. Details of that call will be posted on our website. Finally, an archive of today's audio webcast of the call with supporting materials will be available in the Investor Relations section of our website. With that, I say good day, everyone.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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