AGF Management's (AGFMF) CEO Blake Goldring on Q2 2016 Results - Earnings Call Transcript

| About: AGF Management (AGFMF)

AGF Management Ltd. (OTC:AGFMF) Q2 2016 Earnings Conference Call June 29, 2016 11:00 AM ET

Executives

Robert Bogart - EVP & CFO

Blake Goldring - Chairman & CEO

Kevin McCreadie - President & CIO

Analysts

Graham Ryding - TD Securities

Paul Holden - CIBC World Markets

Scott Chan - Canaccord Genuity

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AGF Management Limited Q2 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Wednesday, June 29, 2016.

Your speakers for today are Mr. Blake C. Goldring, Chairman and Chief Executive Officer of AGF Management Limited.; Mr. Kevin McCreadie, President and Chief Investment 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 implied 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 caution regarding forward-looking statements, which is contained on Page Two of the Presentation, AGF’s MD&A for the three and six months ended May 31, 2016, and AGF’s most recent annual information form.

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

Robert Bogart

Thank you, operator, and good morning, everyone. I’m Bob Bogart, CFO of AGF Management Limited and thank you for joining us today for a discussion of our Q2 2016 financial results.

Please note that the slides supporting today’s call and webcast can be found in the Investor Relations Section of agf.com. Also speaking on the call today will be Blake Goldring, Chairman and CEO; and Kevin McCreadie, President and Chief Investment Officer.

Turning to Slide 4, I’ll provide the agenda for today’s call. We’ll discuss the highlights of Q2 2016, provide an update on the key segments of our business, we’ll review the financial results, discuss our capital and liquidity position and finally close by outlining our focus for the remainder of 2016. After the prepared remarks we'll be happy to take questions.

With that, I’ll now turn the call over to Blake.

Blake Goldring

Thank you, Bob, and thank you everyone for joining us on today’s earnings call. During Q2 2016, we continued to make progress towards our stated goals. I’ll begin with a few highlight. Our AUM increased by 6% versus Q1 with growth in each line of business.

During Q2 2016, despite industry net sales declining by more than 50% versus the prior year, our mutual fund net redemptions improved by 31%. Net redemptions also improved by 10% as compared to Q1. The InstarAGF Essential Infrastructure Fund achieved first close with $372 million in capital commitments from a diverse of investor base from around the world. We’re targeting a final close in the $750 million range by the end of the year.

Our global institutional products continue to perform well in the face of market volatility. We've won over $600 million in new global mandates this year and we’re actively working to convert over $2 billion in early stage opportunities.

We reported earnings per share of $0.12 and the Board confirmed a quarterly dividend of $0.08 during the quarter. Our investment performance as measured by AUM above median over one and three years stand at 50% and 54%, reflecting improvement from a year ago.

This improvement in our investment performance has occurred over a period of high market volatility and we were able to achieve this due to our focus on risk management. Britain's vote to leave the European Union has brought even more volatility to the markets.

Our relative fund performance the last several days during difficult periods has been solid, which I believe again is indicative of our focus on risk management. Kevin will provide additional comment on this -- during his update.

Turning to Slide 6, we’ll provide updates on our business performance. I’ll start with retail. The tone of our markets reversed sharply to the upside during our second fiscal quarter amid steady U.S. [economic and] [ph] accommodative monitory policy. However, as I mentioned, investor concern about the implications of Brexit have increased volatility more recently.

Volatility has had an impact on the mutual industry in Canada, which continue to weaken during Q2. Industry net sales of long-term funds were $10 billion compared to $21 billion reported a year ago. Year-to-date, industry net sales decreased by 58% to a year ago.

As mentioned, despite industry softness, AGF sales results have continued to significantly improve. We expect that the same improvement will be driven by focusing on these following priorities. One, continuing to enhance our investment performance. Our one year investment performance has now stabilized near our target range and our three-year figure is approaching the target of 60%.

Two, capitalizing of specific funds, which are in categories that are selling. AGF Elements is a good example of this. Over 90% of elements AUM is above median over three years and that in turn has driven strong growth in net sales as a result.

Three, providing innovative products and solutions around specific needs. We have positioned our products for volatile markets and have invested significantly in our quantimental capabilities at High Street and FFCM. We’ve developed some very interesting low volatility strategies in the global space that are nearing their three-year track record and we’re now planning a product launch.

Four, working closely with our strategic business partners to facility distribution and continue the strong momentum that we’d experienced to date.

Before we leave retail, I’ll provide an update on industry regulation. On April 28, the CSA released Consultation Paper 33-404, which is a continuation of the ongoing regulatory review of our industry. The report touched on a number of topics, but most importantly proposed a framework for implementing a best interest standard either directly or through a specific set of rule enhancements applicable to firms and their representatives.

We’ve mentioned several times in the past and that this is going to be the direction the regulator might consider moving. We further believe that any debate around the best interest standard will eventually lead to questions about open architecture, similar to what has happened in other jurisdictions such as the United States. This we believe will also benefit independent managers such as AGF.

The industry is also awaiting the CSA’s high level policy direction on embedded compensation, which is expected in any day. We continue to believe that this embedding trailing commission could have negative consequences for some Canadian investors. However, we have positioned our business for any particular outcome.

At the beginning of Q2, we announced a fee reduction across 23 of our funds, including 14 of our fee-based series F Class. We plan further development in the way we restructure our product set to help advisors transition to fee-based.

We have diversified our business across multiple channels. In addition to our retail business, we have $11 billion in institutional and sub-advisory AUM and $5 billion in our high net worth channel. The last two channels already operate on a fully disclosed basis.

That means that over half of our AUM is fee disclosed. Our diversification is one of the strengths of our operating model and we’re looking for growth in each of our distribution channels.

With that, I’d now like to pass the presentation to Kevin.

Kevin McCreadie

Thank you, Blake. Our AUM above median over one and three-year stand at 50% and 54% respectively and performance in key funds is particularly strong. We target having 60% of our AUM above median over three years and 50% of our AUM above medium in any one year. The three year target is particularly important as success on this measure has been shown to drive gross sales.

We have met our one-year target, which has total redemptions and expect to achieve our three-year target sometime in 2016 as we continue to drive consistent returns in our portfolios. This will drive the next leg of growth in our retail platform.

Many of our institutional and retail clients are concerned about risk and we expect this theme to be ongoing especially in the light of the recent outcome of the Brexit vote. We do not yet know what Brexit will look like tactically, but expect to get a clear picture over the coming months.

The process to leave the EU could take several years. The uncertainty will create market volatility, combination of a shock in confidence and sustained policy uncertainty to push the U.K. into a recession, business confidence and spending is expected to fall in the U.K. This uncertainty will remain until there is more clarity around David Cameron’s replacement as well as a better understanding of what this means for business going forward.

In North America, the outcome of the vote now lessens the likelihood of Fed reserve rate hike in July and could push the rate hike off into 2017, lengthening the era of loose monetary policy.

As a result, bond yields will remain low and equity should regain stability assuming the U.S. economy continues to improve. One of the key tenets of our investment performance enhancement strategy is appropriate risk management across all of our portfolios generally in order to contribute to consistent and repeatable results.

This attention to [risk] [ph] has served our clients well over the lead-up to and the fallout from Brexit, as the performance in our funds held up well compared to our competitors over this volatile period. On a month-to-date basis through June 27, approximately 78% of our AUM is above median according to Morningstar. This time period covers both upside and downside market volatility.

We will also look to develop more risk management solutions by combining FFCMs unique factor-driven ETF strategies with High Street's quantimental capabilities to deliver innovative risk-aware solutions.

FFCM has the capability to manage U.S. 40 Act registered products and separately managed accounts. It is the advisor to the quant shares family of ETFs that provides exposure to well-known investment factors, specifically momentum, value, beta and size.

In addition, FFCM manages the suite of tactical risk managed ETF strategies. These capabilities will position us to launch some innovative products in the near future. We will update you on our progress later in the year.

Turning to Slide 8, I will talk more now about our institutional business. During the quarter, we had approximately $635 million in gross sales in the institutional channel. This includes $200 million from the Q1 pipeline and new $219 million global core win of which $165 million funded in Q2 and the first close of the InstarAGF Essential Interest Infrastructure Fund.

Additionally, although it rolls up under private client, I would like to highlight Doherty and Associates also won a $150 million mandate in the family office channel.

Our ability to generate gross sales remains solid. We have also had a few redemptions as well during the quarter and our pipeline at the end of Q2 stands at negative $309 million. The pipeline figures primarily result of a single redemption notification from an EM client totaling $434 million. Let me provide some context.

Local Pension Authority in the U.K. is undertaking a massive structural shift as plans are being directed to pool your asset and internalize as much AUM as possible in an effort to reduce cost.

This shift impacted a large client of ours as part of the change the new investment management of the combined pension fund philosophically does not believe in EM as an asset class and has decided to decrease their equity exposure. As a result, we will see those assets redeem. It is important to note that this redemption was not the result of performance or service issues.

Performance in our global strategies remains strong and demand remains intact. So we feel confident about our ability to generate positive flows. We also expect additional commitments to the InstarAGF Essential Infrastructure Fund when it achieves final close expected to be the end of the year. First close going at $372 million in committed capital, which represents about half of our target side of $750 million.

Our cornerstone investors include high quality institutions from Canada, Europe, U.K. and the U.S. The support of these investors validated InstarAGF distinctive value proposition and approach to infrastructure investment management and is also a strong endorsement of the quality of our team.

In combination with Stream Asset Financial, our midstream energy fund, we now have over $0.5 billion in AUM in alternatives. We believe that real assets will continue to play a role in portfolio diversification and we expect this platform to have nearly $1 billion in AUM by the end of the year.

With that, I’ll turn the call back over to Bob.

Robert Bogart

Thank you, Kevin. Slide 9 reflects a summary of our financial results for the current quarter, compared to the previous quarter into Q2 2015. Adjusting for one-time cost relating to transitioning our fund accounting and custody services, EBITDA and EPS were $27.7 million and $0.13 per share respectively, which is comparable to the previous quarter. On a reported basis EBITDA for the quarter was $26.2 million and EPS was $0.12.

Our results for the quarter include a full quarter of the fund operations business, which was internalized in February 2016. This accounts for much of the variance in the revenue and expense lines on a sequential quarter basis.

Fund operations revenue, which is favored by the fund is included in the P&L with a management advisory administration fees. Expenses are reflected in SG&A. Our previous SG&A guidance did not include fund operations with a full quarter now complete, our updated SG&A guidance including fund operations is $52 million per quarter.

Turning to Slide 10, I’ll walk through the yield on our business in terms of basis points. This slide shows our revenue, operating expenses and EBITDA including fund operations as a percentage of average AUM on the current quarter as well as a trailing 12-month view. Note that the results exclude our earnings from Smith & Williamson and the alternatives platform one-time items and other income.

With respect to revenue, the operations reflect an increase in revenue yield due to the addition of the fund administration revenue. Excluding the fund operations business revenue we're seeing a slight decrease in asset management revenue yield due to a mix shift in favor of sub-advisory AUM and the impact of management fee reductions we announced last quarter, which came into effect in April impacting two months of the second quarter.

SG&A increased to 66 basis points compared to 58 basis points on a trailing 12 month basis. The increase was primarily driven by the additional costs brought on through the fund operations business, an increase in fund cost driven by the fund changes we implemented during the quarter and lower average AUM.

Expenses for the quarter came in at $54 million, which includes $1.5 million of transition costs related to fund custody in accounting operations transition. Adjusted expenses were $52.5 million. EBITDA basis points decreased to 25 basis points in Q2 2016 from 28 basis points on a trailing 12 months view.

Turning to Slide 11, I’ll discuss our free cash flow and capital uses. This slide represents the last five quarters of free cash flow shown by the blue bars on the chart. The cash flow represented is consolidated free cash flow. Free cash flow was $16.4 million in Q2 and the dividend payout ratio was 38%. Q2 free cash flow includes a distribution from our equity investment in Smith & Williamson.

We also received approximately $75 million in cash from the close of the infrastructure fund as a return of capital, bringing our investment in the fund down to our proportionate share of total commitments.

When you consider the return of capital along with the subsequent capital calls, we now have $62 million invested in the Essential Infrastructure Fund. Upon final close later this year, we expect to receive another return on capital to bring our investment in the fund down for a proportionate share of total commitments once again.

Of our original $50 million commitments to Stream Asset Financial LP, only $7 million remains. The remaining capital will be used for follow-on investments of the remaining two-year investment period.

As we’ve explained on prior calls, we’ll generate returns from our infrastructure platform in two ways. Our LP investments will have a total return profile of approximately 12% and generate a cash yield in the 6% to 7% range.

Management fees will emerge as the platform generates scale. For the next few years we expect most of our management fee revenue will be reinvested to grow the platform.

Moving to other capital considerations, we were not active with our NCIB during the quarter, that does not signal a change in our approach as we’ll continue to be opportunistic repurchases through the end CIB throughout the year.

Now turning to Slide 12, I’ll turn the call back to Blake to wrap up.

Blake Goldring

Thanks Bob. AGF continues to make progress against our stated objectives. Along those lines, I’d like to share our primary goals for the remainder of 2016.

One, we want to sustain the improvement of our investment performance and processes. Two, continue to drive growth sales through retail product development and strategic partnerships. Three, leverage our capability at Highstreet and FFCM to introduce new and innovative products and four, achieve final close of the essential infrastructure funds.

As mentioned previously, effective July 4, Bob will be transitioning from Chief Financial Officer to the role of EVP, Head of Corporate Development. In this capacity, working with the Executive Team, Bob will be responsible for developing opportunities for growth in our business, including driving success within the FFCM business overseeing the private client operations and AGF's alternatives investment platform.

We’re very pleased to have Adrian Basaraba is our incoming CFO. Over the decade Adrian has been with the firm. He is proven to be very capable and trusted partner that has an in-depth familiarity in all aspects of our business and has been an integral part of our Senior Leadership Team.

I want to thank everyone at AGF for their hard work for this past quarter. I am proud of the results that we’ve achieved and I am excited to accomplish much more throughout the remainder of the year.

Thank you very much. We’ll now take your questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we have our first question from Graham Ryding with TD securities. Please go ahead.

Graham Ryding

Hi, good morning.

Blake Goldring

Good morning.

Graham Ryding

Maybe I can start on the institutional side. You mentioned year-to-date on the Global Core you've had some pretty good traction, and you've got about $2 billion in potential mandates that you're, I guess, competing on. I'm just wondering if you could give us a feel like a success rate that you've seen in the Global Core area of RFPs and whatnot for mandates.

Kevin McCreadie

I think, Graham it’s Kevin. Global Core, we’ve had consistent long-term performance there. It's just year-to-date now we’ve probably 360 ahead and just shy of 500 on a one-year basis, which will put that in the top one or two quartiles.

I think the activity is there. I think when you have negative markets like this, though, you're going to cause some paralysis around RFP activity and we’re seeing that in the industry which is down right now and you're also getting into seasonal part of the summer, but yeah I don’t -- I am not worried about Global Core I think evidenced by some of the wins we've just had, I think that that pipeline doesn’t concern me.

Graham Ryding

Okay, great. I guess maybe -- maybe I could go at it another way, then. I think you said almost $600 million is what you’ve won year to date on the Global Core area. Of that, how much RFP activity was behind that? I assume you are not winning 100% of RFPs that you are going for, but there is obviously some success you are getting.

Blake Goldring

Yeah, that $600 million was a combination -- let me just give it to you again. So $200 million of that I would say probably you have to strip out that $600 million we had in starting there. So back that out you probably still in the $400 million range on Global Core win for the quarter. So, yeah so that $600 million is included into $685 million, [indiscernible] take that out of the $400 million.

Graham Ryding

Okay. And then obviously a disappointment on the emerging market redemption from the U.K. I'm just wondering if the remaining -- I think you told us the last quarter, there's about $1 billion in emerging market institutional AUM.

So the remaining assets, how should we think about that? Is that spread across a bunch of different accounts, or is there one or two sizable mandates there? And what is your visibility or comfort on those assets?

Blake Goldring

Yeah, there’s probably about $700 million left in EM on institutional clients, yes it’s a number of accounts on the institutional side. I would say as I’ve been telegraphing for the last couple of quarters, EM volatility was going to be an issue in terms of clients wanting to de-risk, wanted to put more money into the asset class and that's probably the bigger concern.

This was obviously something that we couldn’t control. Wasn’t performance related. It was really a philosophical difference with the clients and this merger scenario.

But yes, I think frankly we’re going to put money back in the EM in terms of our investments. We’ve been investing on our global team continually over the last year and we'll continue to put some resources to EM. It’s a place that we believe in and I think there will be opportunities when these markets settle in.

Graham Ryding

Okay. Great. And could you give us a bit of a feel for -- I think you have about $11 billion outside of your infrastructure assets. So $11 billion institutionally. How should we think about that mix across the Global Core emerging markets and the other mandates?

Blake Goldring

I would say Global Core is probably the biggest, we have some strategic account partners. So I would said as the bigger mix think Global Core, Global Dividend think actually American Growth [indiscernible] for some of our larger strategic partners.

So it’s not EM, so I would say it’s probably more stable and again Global Core, Global Div, American Growth all have been high performing. So I have very little concern about activity there.

Graham Ryding

Okay.

Robert Bogart

Yeah, I don’t think we have, Graham, we’re not really concerned about concentration risk with respect to the $11 billion.

Graham Ryding

Okay. And maybe I could just sneak in one more. Your fund performance obviously improving, and it's approaching your targets. And you have still got retail net redemptions, but the trend there is certainly improving. So what has to play out for the next leg for that to actually turn into positive net sales on the retail front? And is there a reasonable timeline that you're looking for or that you're targeting?

Blake Goldring

Graham, it’s Blake here. Yes, well we all know that performance is really the leading indicator and the sales really fall all in the retail side and we are very encouraged by what we’ve been seeing in frankly a very volatile market environment.

We have been putting a lot of effort, meeting with a lot of advisors coast to coast. We have some interesting product development going on. I just told that we introduced actually four funds in the corporate class structure that have really been well received by the market notwithstanding recent changes model on that regard and we continue to make good progress.

So we’re targeting some time, obviously with the market volatility that we’re as a result of last week. It’s a little bit more of a challenge to see exact win when we'll go to the positive, but we’re anticipating certainly towards end of next year will be certainly the time.

Kevin McCreadie

Yes, Graham it’s Kevin, I think it's just, it's back to the consistency and starting to drive that through your number into that 60% range, which it’s a pretty comfortable investment processes right now. So it’s time function. But we're moving in the right direction on it.

Graham Ryding

Okay. Great, thank you.

Operator

And thank you. [Operator Instructions] And we have our next question from Paul Holden with CIBC. Please go ahead.

Paul Holden

Thank you. Good morning. So on the topic of sales, maybe I can ask a couple of questions related to your strategic partners specifically, if you are willing to share what the growth sales trends are with your strategic partners.

Blake Goldring

Well, I can say that across all our strategic partners, we've registered ongoing strong growth and again I come back to it. It really is on the back of some really fine performance and consistent performance in certain areas, I did highlight our wrap program called our Elements, which continues to sell very strongly through all the various channels of our various strategic partners.

Paul Holden

Okay. So mutual fund growth sales with strategic partners are up year-over-year.

Blake Goldring

They are. That's correct.

Paul Holden

Okay.

Blake Goldring

And they’re positive not just versus the prior year.

Paul Holden

Right. And so that would be - my second question is related to net sales. Then your positive net sales with your strategic partners?

Blake Goldring

That is correct.

Paul Holden

Okay. Next question related to your gold label funds, you just recently announced that you are lowering the investment threshold. Just wondering if you can walk us through the decision there, why lower the threshold.

Blake Goldring

Really we're all about meaning frankly customer centric and we're talking to a lot of advisors and what makes a lot of sense and frankly they're looking at their own books and ease of doing business is really important and so we're really reflecting what the market is asking for.

Paul Holden

Okay. And would you be able to provide us some ballpark numbers on AUM and sales into gold label?

Blake Goldring

This is something we're anticipating right now that this is going to be an area of ongoing growth, much as we're seeing frankly a shift towards more fee-based type investing and as we penetrate more deeply into the IROC channel, we’d expect to see over time that this is going to be a big area of growth.

Paul Holden

Okay. So it's fair to say then that -- sorry, go ahead.

Blake Goldring

Paul, I was just going to comment that as a percentage of AUM our fee-based and high net worth series are growing vis-à-vis the traditional mutual funds and it’s not to be unexpected, it’s in line with what we're seeing within the industry.

Paul Holden

Okay. So, if I understand the message correctly, it sounds like you're currently at a low base but that base is growing.

Blake Goldring

Yes, correct.

Paul Holden

Okay. And then, you repaid $40 million of debt during the quarter. Maybe walk us through kind of the thought process on future potential debt repayments and how you prioritize debt repayments versus repurchasing stock.

Blake Goldring

Well, I think, we were -- we had excess cash we're in the negative arbitrage situation with respect to interest rates. So we wanted to utilize the repatriation of the capital from the infrastructure fund to pay down debt.

We would be -- as we’ve talked about opportunistic with respect to the NCIB and we will look to balance both the repayment of debt, strengthen the balance sheet as well as to repurchase shares probably in equal light.

There's no real one preferred capital use or the other. It's a combination of making the right investments in the growth sectors, paying down debt and returning capital back to our shareholders and we've been fairly consistent with that over the last several years.

Paul Holden

Okay. And just one final question if you could help me with the math a bit here. If I was to take institutional net flows for the quarter and exclude the new money that came into EIF, what would that number be?

Blake Goldring

It's roughly about $400 million Paul, in terms of gross.

Paul Holden

Sorry, net.

Blake Goldring

$15 million net out. [Indiscernible] the redemption we’d targeted last quarter we had highlighted for you.

Paul Holden

Okay. That's great. Thank you.

Operator

Thank you. We have our next question from Scott Chan with Canaccord Genuity.

Scott Chan

Good morning, guys.

Blake Goldring

Good morning.

Scott Chan

You talked about the Global Core and dividend a lot. And when I look through your equity strategies, you have some pretty good US equity strategies. Can you give me an update on the traction of those on the retail and institutional side? And I know Kevin you mentioned the American Growth side on the institutional side just a bit earlier.

Kevin McCreadie

Yeah Scott we do fair bit on strategic count basis with American growth. We've recently hired part of our institutional business two new sales folks with U.S. which is an area we have been under resourced. One of them is focused on sub-advisory channel in the U.S. where one of the product that he will be focusing will probably be some of our American suite as well some of our global products.

So yeah, I think it is a place that probably highlight global, which is really where we get large institutional demand some of the gatekeeper and platform choices will probably gravitate more toward American and American growth product as well, specifically in the U.S.

Scott Chan

Okay. And just to follow up on Graham's question, maybe I didn't hear it, but Blake, you talked about $2 billion in early opportunities on the institutional side. Are those in current RFP savings right now, or is this -- how do we think about that, that $2 billion number?

Blake Goldring

Yeah, so I think that when we signed up the opportunity in the market and looking at opportunities and this is what we've actually approached for to actually submit RFPs and so we had a fairly detailed process with the teams around the world and Kevin could you perhaps?

Kevin McCreadie

Yes Scott, some of that is RFP activity that we know about that we've been invited and some of that we’ve been responding to. Some of it is just early discussion so it’s a combination of wouldn’t line it all up as RFP activity, but it’s stuff that we identify through our sales channels as things that we're in discussion on.

So not sure what RFPs would draw hit rate to that, but obviously there is pretty good list of stuff that we're out there with and Scott it's lumpy.

Scott Chan

Yes, for sure. And just lastly just on the harmony on the press release related to gold label, some sub-advisors were dropped. In terms of the harmony pools right now, are the other overlays just increased or was there a substitution in terms of the mandates that we are taking out?

Blake Goldring

Yeah, some of the managers were increased, we didn’t really add any managers during the quarter on that. So we grossed up other allocations to other managers.

Scott Chan

Okay. Perfect. Thank you.

Blake Goldring

Thank you.

Operator

And we have another question in queue from Graham Ryding with TD Securities. Please go ahead Graham.

Graham Ryding

Just a quick follow-up on the tax rate. I think it's fallen to the 21%, 22% range over the last few quarters. Is that a run rate or should we be thinking 25%, 26% like previously?

Robert Bogart

I think it’s more a run rate Graham because it reflects the proportion of Smith and Williamson and earnings, which are not subject to tax. So to the extent that because a larger proportion of the bottom line, the tax rate will be impacted accordingly.

Graham Ryding

Okay, great. And then it was $4.6 million, I think, came through from the Smith and Williamson this quarter. And you may have answered this last quarter but I can't remember it. What should we be thinking in terms of a reasonable expectation for earnings from that investment?

Robert Bogart

Well you need to factor in obviously the currency devaluation of the Sterling, but $3.5 million I think is a conservative number.

Graham Ryding

Thank you.

Robert Bogart

You’re welcome.

Operator

And thank you. We have no further questions. At this time, I will now turn the call back over to Mr. Bogart for closing remarks.

Robert Bogart

Thank you very much for joining us today. Our next earnings call will take place on September 28, when we will review our results for the third quarter of 2016. Details of the call will be posted on our website.

As Blake mentioned on July 4, I will be transitioning to the role of EVP, Head of Corporate Developments and Adrian Basaraba, who brings a great depth of experience and is familiar to many of you will be transitioning to the role of CFO.

From a personal and professional perspective it's been a good experience over these last 6.5 years and I would like to thank all our stakeholders for our interactions over that time and you will be in good hands with Adrian moving forward.

Finally, an archive of the audio webcast of today’s call with supporting materials will be available on the Investor Relations section of our website. Good day, everyone.

Operator

And thank you ladies and gentlemen. This concludes today’s conference. We thank you for participating and you may now disconnect.

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