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Executives

Blake Goldring - Chairman of the Board and Chief Executive Officer

Robert Bogart - Chief Financial Officer, Executive Vice President and Member of Executive Committee

Mario Causarano - President of AGF Trust Company and Chief Operating Officer of AGF Trust Company

Analysts

Doug Young - TD Newcrest Capital Inc.

John Reucassel - BMO Capital Markets Canada

Paul Holden - CIBC World Markets Inc.

Geoffrey Kwan - RBC Capital Markets, LLC

Scott Chan - Canaccord Genuity

John Aiken - Barclays Capital

AGF Management Limited (AGF.B) Q2 2011 Earnings Call June 22, 2011 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AGF's Second Quarter 2011 Financial Earnings Conference Call. [Operator Instructions] As a reminder this conference call is being recorded, Wednesday, June 22, 2011. 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 3 and 6 months ended May 31, 2011 and AGF's most recent annual information form.

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

Robert Bogart

Thank you, operator. Good morning, everyone. I'm Bob Bogart, CFO of AGF Management Limited. It's a pleasure to have you join us today for our second quarter results for fiscal year 2011. 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 AGF's second quarter results. Also joining us on the call and available to answer questions is Mario Causarano, President and COO of AGF Trust.

Moving to Slide 4, I'll now turn the call over to Blake.

Blake Goldring

Thank you, Bob, and welcome to everyone listening to today's conference call. Overall, I am very pleased to announce the continued growth and positive trends in our business, driven by strong product offerings and the acquisition of Acuity. In fact, assets under management increased 20.8% in Q2 2011, well to the same period one year ago with EBITDA up 24.4%, as well. The Acuity integration is well ahead of our original expectation, and we work together very well as partners to cross-train the AGF and Acuity teams, as well as a successful cross-Canada marketing roadshow.

Since our last update in March, AGF Investments Inc. and Acuity Funds Ltd. announced the investor approval of the fund mergers related to the acquisition of Acuity and are now subject to regulatory approval. The recent cross Canada marketing efforts were well received and feedback remains consistent. AGF and Acuity were a perfect match.

Our retail business continues to trend positively on gross sales, with year-to-date gross sales up over 17% compared to last year. There remain ongoing challenges with net flows and certain mandates driving the net redemptions, but we're seeing improvement in the underlying investment performance and a slowing of the redemption levels over the quarter. Our institutional strategy continues to be encouraging. The institutional pipeline of mandates has grown since last quarter by almost 50%, and we brought on new leadership to run that business. Over the last 15 months, AGF's been successful in attracting and hiring some of the top talent in the asset management space leadership roles at our firm. We knew this is an exciting time and feel we have assembled a team that can deliver on a growth strategy moving forward.

At AGF Trust, where loan assets are down, we continue to build out our mortgage programs and booked the broker and advisor channels. And in so doing, the credit quality of our loan book has continued to improve.

Finally, due to our strong balance sheet, growth and cash flow, I'm pleased to announce that the Board of Directors have declared an increase in our dividend to $0.27 per quarter, an increase of $0.01 or almost 4%; 3.8% to be exact.

Turning to Slide #5, we turn and consider assets under management. We are one of the largest independent investment management firms in Canada. We really view ourselves a global wealth management firm. Our assets today, under management, increased 20.8% to $51.8 billion year-over-year. While the Acuity acquisition helped boost our assets under management, we're confident that we'll continue to grow our assets organically across the board. We will also be prepared to strategically add assets under management via acquisition where it makes sense. I want to reiterate that Acuity has been an excellent contributor to AGF, rounding out our product offering and choices for investors as well as adding talented managers to our investment team. You will notice from this slide that we've had growth across all 3 client segments: Retail, Institutional and High-net-worth. We consider diversification to be one of our strengths and essential to being a successful investment management firm.

Turning to Slide 6. We're extremely pleased with the results from the acquisition of Acuity, both on an integration level and financial level. As you can see from this slide, as we've discussed on previous calls, we proactively made the integration of Acuity a key priority, and we've completed nearly all of our major milestones to date. I am very proud of the team that's been orchestrating this, and I believe it speaks to the execution capabilities of my colleagues here at AGF. We've received positive feedback from both our cross-training sessions of the 2 partnering teams, as well as that cross-Canada marketing roadshow that we recently completed. We're already seeing early results and potential new mandates from the cross-team partnerships, which is very exciting. We look forward to the next key integration date which is in August, where we'll combine the transfer agency systems. This is very important, as it will allow for the exchangeability of the AGF and Acuity products. Overall, the integration success has surpassed our original management and board expectations, and we are encouraged by the financial, cultural and competitive value that Acuity brings to the AGF family.

Turning to Slide 7. In terms of retail sales, we saw continued positive trends continue from Q1 into Q2, with gross sales growth year-over-year driven by the Acuity acquisition. In fact, our gross retail sales growth in the past quarter was 7.9% compared to the same period last year and the year-to-date of over 17%. Just a -- consider redemptions for a moment. We saw higher-than-usual redemptions, largely as a result of the announcements and the uncertainty related to the acquisition of Acuity. However, this is expected. It normally happens with an acquisition, as there is a degree of uncertainty right at the time of announcement. As it relates to redemptions, we feel that the AGF is uniquely positioned to be rewarded when the equity market begins to expand and volatility in the world markets and world events returns to more normalized levels. We continue to have strong interest in our new fixed-income funds and have achieved improvements in Dublin, with redemptions training downward versus Q1 2011.

Again, we're confident that we're on track and our strategy to get other net redemptions is working and continues to be solid interest in the market place for AGF products. Our comprehensive product shelf, our strong relationships and our focused funds will all contribute to future growth.

Turning to Slide #8. During last quarter's call, we first showed you a more detailed view of our institutional business, and I'm excited by the momentum we continue to build. Gross of last quarter, our net year-to-date institutional outflows are down by almost half and our pipeline of mandates to fund has increased from $750 million to $1.1 billion, an increase of 47%. The majority of the funding will take place over the next 4 weeks. Please note that the pipeline is net of any planned redemptions on the institutional side. Our acquisition of Acuity continues to reinforce the strength that we've built in the business, and I'm confident that the additional capabilities of the Acuity portfolio management team will help us win new large global mandates.

During the quarter, we hired Chris Boyle from a top-ranked competitor to lead this business line, and he's working closely with the rest of the executive team to explore and win new opportunities to build upon our track record of institutional success.

I'm proud to say that we have almost doubled our institutional assets under management since the market crash in 2008. We're confident we can continue to make inroads in this growing space on a domestic and global level.

Back to you, Bob.

Robert Bogart

Thank you, Blake. Turning to Slide 9. We provided a summary of our consolidated financial results for the second quarter of 2011 compared to 2010. Consolidated revenue was up 17.1%, driven by higher levels of AUM in our Investment Management segment. Overall SG&A was up 10.2% primarily related to increased headcount and compensation levels. EBITDA was up 20.4% to $75.4 million in the second quarter 2011. As Blake previously mentioned, we have recognized $3.6 million in integration costs during the quarter, related to Acuity. Excluding these onetime costs, adjusted EBITDA increased 16% to $79 million.

Net income for the quarter was up 18.9% year-over-year to $32.7 million. Diluted earnings per share were $0.34. Excluding onetime costs, diluted EPS increased to $0.37, a 5.7% increase year-over-year. Finally and importantly, free cash flow increased 10.9% to $51.8 million.

Turning to Slide 10, let's look at the Investment Management segment. Second quarter revenues in our Investment Management segment were up 19.4% year-over-year to $157.8 million and up 13.3% on a sequential quarter basis. As mentioned, this is primarily related to higher AUM levels as a result of the Acuity acquisition. SG&A expenses increased 11.7% year-over-year, but were down on a percent of revenue basis. Compensation-related expenses were higher in the second quarter of 2011 as a result of the Acuity acquisition, increased headcount and higher performance bonus expense. These increases were offset by a reduction in fund absorption expenses as compared to 2010. During the quarter, it was determined that the company's revenue commitment with Citigroup Fund Services will be achieved as a result of the Acuity acquisition, so our absorption estimate was reduced to reflect this.

EBITDA of $65.9 million increased 19% on a year-over-year basis and a 20.7% increase on a sequential quarter basis. Excluding Acuity onetime acquisition and integration costs, EBITDA increased to $69.5 million or 25.5% relative to Q2 2010. Overall, adjusted EBITDA margin excluding those onetime costs increased to 44% in Q2 2011, reflecting margin expansion of over 200 basis points from a year ago.

Turning to Slide 11. This slide lets you see our segment performance on a longer trended basis and smoothes out some of the impacts of market volatility. It shows our Investment Management segment revenue, operating expenses and EBITDA as a percentage of average AUM on the current quarter, a trailing 12-month basis to the prior year's quarter. Note the quarters have been annualized in Q2 '11 and the trailing 12-months excludes the impact of onetime cost.

As reflected in the previous slide, the increase in AUM, in addition to the realization of the synergies associated with the Acuity integration, has resulted in an increase in the EBITDA yield for the quarter as compared to the trailing 12 months and quarter-over-quarter basis.

Moving on to Slide 12, let's review the Trust segment. Gross loan originations were up 118% from the same period last year, from $39.9 million in Q2 2010 to $87 million in Q2 2011. The increase was driven both by investment loans, primarily RSP loans that were funded post-Q1, in addition to an increase in mortgage loans as the mortgage broker and advisor channels continue to gain traction. Although the funding levels are behind our initial expectations, we continue to see positive momentum in this space.

Turning to Slide 13. Trust revenue for the second quarter of 2011 was $21.3 million, that's a decline of 14.1% year-over-year, directly attributable to lower average loan balances. Loan assets remained essentially flat at $3 billion versus last quarter. Net interest margin was stable at 260 basis points. SG&A expenses in the second quarter were relatively flat, with a 2.1% increase year-over-year.

Reflective of the improving credit quality of the book and economic conditions, Trust loan loss provision for the quarter was $3.1 million, a reduction of 36.7% from a year ago. EBITDA for the quarter was $8.5 million, a decrease of 18% from a year ago.

The efficiency rate was 46.9%, trending lower on a sequential quarter basis as excess capacity is managed, and we expect the efficiency ratio to continue to trend down as volumes pick up and operational capacity is utilized accordingly.

Turning to Slide 14, both the earnings per share and EBITDA per share have turned in positively on an adjusted basis. Adjusted EBITDA per share has increased 9.3% on a quarter-over-quarter basis. Reported EPS has remained relatively flat due to the onetime transaction cost and the effective increased amortization due to purchase accounting, as reported under IFRS.

Based on the results today, we are very pleased with the value that Acuity has provided to our cash earnings. While we expect EPS to be flat to slightly accretive on a full year basis, the Acuity acquisition will contribute an estimated $0.19 per share on an EBITDA basis.

Turning to Slide 15. Free cash flow for the quarter is $52 million, an increase of 10.6% from a year ago and reflects a 36.8% increase on a sequential quarter basis. We view our free cash flow generation as a key strength of the company, which will be used to increase shareholder returns, reduce debt and provide the available capital to execute strategic acquisitions as and when the opportunities arise.

We are also pleased to announce that AGF Trust's Board of Directors has approved the $10 million dividend from Trust to AGF Management Limited, which will occur in Q3 and is subject to us for OSFI notification. We will continue to review options to unlock capital from Trust, which is in a strong capital position.

Now with that, I'll turn it back over to Blake.

Blake Goldring

Thanks, Bob. I'd like to revisit our dividend and the importance returning value to our shareholders. As Bob mentioned, we continue to see strong cash flow generation from our business and as I mentioned at the opening, we're pleased to announce a dividend increase of $0.01 per share to $0.27 per share per quarter. This represents an annualized dividend of $1.08 per share. We have a strong track record of increasing our dividend, with 14 consecutive increases in our dividends paid per share since 1997. This speaks to our careful growth, sustainability and prudent use of capital. We believe that we have a very attractive dividend yield and value proposition for investors, especially relative to other large quality Canadian companies. We've been a successful Canadian business for over 50 years, and our track record and traditions speaks to our brand. In a market with much uncertainty, we feel that our consistent strength in free cash flow, track record of returning value to investors and dividend proposition are very appealing. We will continue to be proactive in ways to increase shareholder value for investors.

In closing, I'd like to reiterate that we now have a comprehensive suite of products to address every market cycle and life stage. We're confident our strategy is working and that sales and performance will continue to improve.

That concludes our formal remarks, and now we'll turn it over to you to -- for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Scott Chan from Canaccord Genuity.

Scott Chan - Canaccord Genuity

Blake, just on your comment on the Institutional side. You said the $1.1 billion pipeline -- what did you say about 4 weeks? That it's going to be deployed in 4 weeks? Do we expect this fiscal Q3 quarter barring any...

Blake Goldring

That pipeline will be received within the next 4 weeks.

Scott Chan - Canaccord Genuity

So is it just one -- is it a couple of mandates? Or is it just one large one or...

Blake Goldring

Oh, it's going to be a couple of mandates that we have funding.

Scott Chan - Canaccord Genuity

Okay, so it's going to come in the next 4 weeks?

Blake Goldring

That's correct.

Scott Chan - Canaccord Genuity

Okay. And just on your last comment, I guess, on Acuity adding $0.19 per share on EBITDA basis. Is that for 2011 or 2012?

Robert Bogart

That's -- Scott, it's Bob. It's 2011, and that's net of the transition -- transaction cost.

Scott Chan - Canaccord Genuity

Okay. And just lastly, just on the fund mergers press release that you sent out concerning the Acuity Pooled Funds. You said that it was changing to the Trust. Are they changing to the mutual fund trust? Or are they still going to stay at pooled high-net-worth products with the lower MER? Just a bit confused.

Blake Goldring

No, no, you're read -- gearing to open it in Trust.

Scott Chan - Canaccord Genuity

So it is going to be converted to the open-ended mutual fund trust?

Blake Goldring

That's correct.

Scott Chan - Canaccord Genuity

So the high net worth advise -- clients in there, do they -- are they going to be charged the same fee or are they going to be charge the higher fee? The mutual trust fund fee?

Robert Bogart

With the -- sorry, with regard to the actual fees that we're going to be charging? Was that...

Scott Chan - Canaccord Genuity

Yes, if it's going from the pooled to the mutual fund trust, is this going to be the same fee structure or is it...

Robert Bogart

No, they're going to -- closed trusts are going to the open-ended -- mutual fund trust. The pools are staying the same, Scott, they're not changing.

Scott Chan - Canaccord Genuity

The pools are staying the same, okay.

Robert Bogart

Correct. They're not fused with the change.

Scott Chan - Canaccord Genuity

Okay, that's perfect. That's it.

Operator

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

Geoffrey Kwan - RBC Capital Markets, LLC

First question I have was on the synergies. How far would you say -- or I mean, if you were trying, say, were looking for x amount of synergies, whereabouts would you be today? Like, would you be 75% done? I mean, I know you have talked about some of the stuff coming up in August, but I'm just trying to get a sense of where you guys think you are right now.

Robert Bogart

Yes, it's, I think, about 80%, Scott (sic) [Geoff].

Geoffrey Kwan - RBC Capital Markets, LLC

And in terms of the other stuff you talk about while you're looking at getting some more stuff. I mean, can you kind of talk about where there may be some other opportunities to get those synergies?

Robert Bogart

Define "stuff." Are you talking...

Geoffrey Kwan - RBC Capital Markets, LLC

Well, I mean, you've -- you said you've done x to date. You've got the transformation stuff. I guess, what other stuff could be done?

Robert Bogart

Yes, it's just -- it's more of the transition. So we've got -- we still are -- have a significant amount of headcount that's associated with the transfer agency which has not been converted and so there's some client service folks and operational folks, which will be synergies at some point post-August.

Geoffrey Kwan - RBC Capital Markets, LLC

Okay. And last question I have was on the capital that you're bringing out of Trust, $10 million. Did you guys request for that more? Did OSFI say this is all you can take out? Are there opportunities to take out more in the future?

Robert Bogart

Yes, the -- there's no requirement to get approval from OSFI with respect to the dividend, Geoff. So we chose the $10 million and over the next couple of quarters, we'll be looking at the capital structure trust and all the options in terms of, as I mentioned in my comments, to unlock a little bit more capital. But that was a management decision.

Blake Goldring

Geoff, I just wanted to come back to on your question about synergies. Because the other key element here is that once we do get the transferability between the 2 groups, I -- this is something which will allow, obviously, people to move within the family, as opposed to feeling obliged to pass redeem which I think is a very positive element. The other side, too, is that these cross-country tours that we've had, the training sessions -- I see that there's going to be a great increase in overall marketing cloak, if you will, that a lot former, call it AGF clients today who have not formerly have been involved with Acuity product, they're going to start looking very hard at this. And I -- and there's a lot of excitement. So this is where I think that there's going to be some real upside on the revenue side, as well.

Robert Bogart

Yes. I mean, it's an anecdote, but there was a large broker that dropped a very significant ticket. Once the pools, the Acuity pools, were introduced, he was primarily an AGF supporter. So that's -- again, that's just anecdotal, but that's the type of revenue synergies that we're looking for that we haven't even -- we haven't factored into any of the expectations and the modeling.

Geoffrey Kwan - RBC Capital Markets, LLC

Okay, great.

Operator

Our next question is from John Reucassel from BMO Capital Markets.

John Reucassel - BMO Capital Markets Canada

Question for Bob. Bob, just -- you mentioned the EBITDA accretion for Acuity. Could you give us -- it is -- that's -- let's just clarify: that's annually, that's $0.19 annually. And what would it be on an EPS basis?

Robert Bogart

EPS would be $0 to $0.02.

John Reucassel - BMO Capital Markets Canada

$0 to $0.02.

Robert Bogart

Right, and that wasn't annual. That was just for 2011, John, so you'll need to annualize that.

John Reucassel - BMO Capital Markets Canada

Okay, okay. All right, thanks for clarifying that. The other thing, Blake, just on the gross sales and with Acuity now, if you get growth sales of $600 million to $700 million, is the activity you're seeing on the reduced redemption activity -- can you generate net sales with gross sales of $600 million to $700 million? Or do you need rising gross sales to deal with the redemption activity?

Blake Goldring

No, we got to get, certainly, higher...

John Reucassel - BMO Capital Markets Canada

Okay, so the improvement you're seeing in the redemption activity, you still need to drive the gross sales higher?

Blake Goldring

Definitely.

Robert Bogart

Right, right. Then you've got to -- you got to stop the brokers from redeeming you and then the gross sales will come.

John Reucassel - BMO Capital Markets Canada

Okay, so the activity you're seeing on the redemption side, still not -- the improvements are still not good enough with the current level of gross sales. That a fair statement?

Robert Bogart

That's a fair statement.

John Reucassel - BMO Capital Markets Canada

Okay. And then a question for Mario. We hear a lot about the tough pricing environment, particularly in the mortgage broker, variable rate mortgage business. Could you talk about pricing and profitability on the origination and kind of an outlook on spreads in margins and what you're seeing?

Mario Causarano

So John, you've -- what you're hearing and your comment is a valid one. I mean, that is exactly what's happening in the industry. Pricing on that segment of the market has been very competitive. Margins continue to get compressed and quite frankly, that's why we've been careful as the rate at which we're trying to bring some of the stuff on. We launched an arm product this week, and so we're careful where our pricing is. From our perspective, we've got 2 other things that we can do. One is the space in which we play in, in the alternative mortgage space allows for much better pricing and much better spreads. And the other thing we have is our advisor mortgage product, which again gives us a different spread to -- into that heavy, competitive, discounted prime rate product that's out there. So we're really using that to kind of manage our spreads through the cycle, because anything in that prime price is really starting to get quite competitive, as you're pointing out.

John Reucassel - BMO Capital Markets Canada

Okay. So on the originations on the $85 million, is it mainly your new arm product? Or where is it coming from?

Mario Causarano

No, we just launched that arm product. So it's a combination of our RSP program, which has some great spreads on it. It's a combination of some A product in the mortgage space, which has a little bit lower prime and a combination of, let's call it, non-prime, which has a wider spread on the mortgage portfolio. And also, it's coming out of our advisor program, which has a much better spread than the program that's coming out of our mortgage broker channel. That's why you're not seeing the spread compressed the way that you would anticipate it, because we're kind of managing. But there's a fair bit of pressure, as you point out, in terms of kind of what's happening in the marketplace.

Operator

Our next question is from Paul Holden from CIBC.

Paul Holden - CIBC World Markets Inc.

So I look at the way you allocated free cash flow in Q2. It seems like your priority today is paying down debt versus buying back shares. Is that sort of what we should expect through the rest of the year?

Robert Bogart

We'll be opportunistic, Paul, on the buyback of the shares when we -- through the remainder of the year, but we've got a little bit of a bias to reduce debt, But we're at, I kind of said it publicly in some of the analyst meetings, that we'd like to get to a kind of a 100% coverage. So we're there, almost. So we'll assess both. But to your point, specifically, the bias is a little bit on debt reduction.

Paul Holden - CIBC World Markets Inc.

Okay, got it. And then in terms of using that $10 million from AGF Trust, can you tell us how you plan to use that excess capital?

Blake Goldring

We will utilize that just as in the same frame that we view all casual. So it will be debt reduction, dividend increases, share buybacks and powder for acquisitions.

Paul Holden - CIBC World Markets Inc.

Okay. And then any thoughts on, let's say, making out a special dividend on a -- creating a regular dividend to flow up from Trust?

Blake Goldring

Well, we hope to have a systematic and thoughtful restructuring of the capital structure in Trust and whether it be normalized dividends, special dividends, buy down of the sub-debt, that's all kind of understudy at this point. But, I mean, I think the direction that we'd like to -- the message that we'd like to send is that we're confident and -- confident about our ability to extract some excess capital from Trust over the next 4 to 8 quarters.

Paul Holden - CIBC World Markets Inc.

Okay. And then with respect to the redemption rate, you suggested that they've tailed off post-quarter. Does that imply that the abnormally high rates associated with the acquisition have, I don't know, expired at this point? I mean, you're returning normal redemption levels, is that the message?

Robert Bogart

Well, I think we're talking about -- redemption levels, on a quarter-over-quarter basis, were actually lower. So even though the net redemptions as a whole new organization were increased year-over-year, I think if you look at the redemption levels, they're lower. Blake's point, he was commenting with respect to the uptick in redemptions around the Acuity acquisition and the -- we'll call it the lack of clarity around what was happening with various fund post -- hopefully, those questions have been allayed. And once we have transferability on the 2 families post-August, we'd expect that the Acuity redemption rate fall in line with industry averages.

Paul Holden - CIBC World Markets Inc.

Okay, so we might see one more quarter, Q3, with higher redemption rates. Okay.

Robert Bogart

Right.

Paul Holden - CIBC World Markets Inc.

And then last question related to AGF Trust. As we saw the loan loss ratio tick down a bit quarter-over-quarter, should we still be expecting something closer to 50, 55 basis points? Or do you think, given the recovery in the economy, that 40 to 45 basis points is now a more reasonable expectation?

Robert Bogart

Yes, I mean, we -- from a provisioning perspective, I mean, we continue to stay concerned with our provisions. There's some economic news out there from in terms of whether we're completely through this cycle, we continue to hear a lot of that kind of noise. We're being conservative with our provisioning. It's formula-driven, and we got some floors in there today that are kind of holding it in place. And so we'll continue to look at that as we get through the rest of the year.

Paul Holden - CIBC World Markets Inc.

Okay, no further questions.

Robert Bogart

Thanks, Paul.

Blake Goldring

Thanks, Paul.

Operator

[Operator Instructions] Our next question is from Doug Young from TD Newcrest.

Doug Young - TD Newcrest Capital Inc.

Hey, so I just wanted to maybe clarify something. The $10 million, Bob, that didn't come through in this quarter from the Trust op?

Robert Bogart

That's correct, Doug, it's going to -- it'll come through in a couple of weeks.

Doug Young - TD Newcrest Capital Inc.

And then the -- because I did see that the cash at the Trust went down about $70 million, that's basically, but that stayed within the Trust entity itself. Is that correct?

Robert Bogart

Yes.

Doug Young - TD Newcrest Capital Inc.

And then just lastly, on the Trust side, when we look at your asset-to-capital ratio, or maybe the Tier 1s, how should we look at it? What should the Trust business be running at? I know you're thinking of bringing cash back up over the next 8 -- 4 to 8 quarters. What should that -- when you model out where this business is going to go, where do you think that those ratios should be?

Mario Causarano

Well, it really depends on how the balance sheet is growing and the mix of the balance sheet and the risk. We've got a lot of capital in the organization today and to Bob's point, we -- fundamentally, what we look at is we look at what our prospects look like from the growth of that balance sheet: What are we going to need? What are we generating? And then we start making decisions. I guess -- you know what, we got Tier -- our Tier total to ratio today. Capital ratio is up in the 25% range, like that's too well over-capitalized. And so to Bob's point, we've got to get that down. In terms of a target number, it really will depend on how we're growing the balance sheet and the rate at which we can grow the balance sheet is really what will give us the number that we we're looking for.

Doug Young - TD Newcrest Capital Inc.

And then, Mario, just the -- is $3 billion, plus or minus, is that where you think you'll run over the next -- from a size of balance sheet, over the next 2 years?

Mario Causarano

No, we're looking for better growth than $3 billion, that's kind of a starting -- that's kind of where we're at today. So we'll be looking for growing out the balance sheet. We're careful in terms of, to John's point, trying to get the mix right, in terms of managing the EBITDA and the earnings and the spread. But there's -- we've got some growth projections built into the business, for sure, and we continue to go down those paths to bring in more growth.

Doug Young - TD Newcrest Capital Inc.

Okay. And then just on the institutional side, just want to clarify, on Slide 8, you talked about $1.1 billion of committed pipeline that's coming in over the next 4 weeks. Just wanted to clarify because I know last quarter, you talked about $750 million, and that was going to be coming through last quarter, but the net flows in total were $112 million.

Mario Causarano

Yes, the -- thanks for picking that up, Doug. The $750 million was actually, on a client's request, delayed, so that funding is happening as we speak and over the next 4 weeks or so, along with some other mandates that were won since the last call.

Doug Young - TD Newcrest Capital Inc.

Okay, so that's -- the $1.1 billion includes the $750 million, so that's -- they're both coming through in the next 4 weeks, essentially.

Mario Causarano

Right, there wasn't a -- yes, it wasn't the $750 million net of redemptions which funded this quarter, right.

Doug Young - TD Newcrest Capital Inc.

Yes, okay, good.

Operator

Our next question is from John Aiken from Barclays Capital.

John Aiken - Barclays Capital

Blake, you'd mentioned in your prepared remarks, and I think that it was echoed by Bob, about acquisitions. Now, I know that we're still very, very soon after the integration of Acuity, but what would your preference be? Are we talking about just assumption of AUM? Or is this more -- would you look more to the more strategic partnership that you found with Acuity? What would be your preference?

Blake Goldring

Well, I think, John, I think we would be quite open to looking at either case. I think for now, we want to just focus on properly executing in this acquisition that we've got underway right now, and all's pretty well. But I think looking further, certainly I could see other opportunities on the institutional space, for instance, and there could be other opportunities -- some opportunities in the Acuity deal, and we would certainly be ready to track quickly on a situation like that.

Robert Bogart

Yes, john, I don't think we would -- we wouldn't make an acquisition just for the sake of the acquisition, the AUM, I think. We've got a frame of ensuring that it would either bring to us additional capabilities and products, much like the Acuity acquisition; it would open up distribution channels that we're otherwise not participating in today and/or geographies in which we're not necessarily present.

John Aiken - Barclays Capital

Well, subsequent to the Acuity announcement, have you had more potential partners knocking on your door?

Blake Goldring

Just about every week.

John Aiken - Barclays Capital

Fantastic.

Operator

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Bogart.

Robert Bogart

Thank you very much, everyone, for joining us today. Our next earnings call will take place on September 28, when we'll review the third quarter results for fiscal 2011. Details of the call we'll post it on the website. Finally, an archive of the audio webcast of today's call with supporting materials will be available in the Investor Relations section of our website. Good day, everyone.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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Source: AGF Management Limited's CEO Discusses Q2 2011 Results - Earnings Call Transcript

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