AGF Management's (AGFMF) CEO Blake Goldring on Q3 2016 Results - Earnings Call Transcript

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AGF Management Ltd. (OTCPK:AGFMF) Q3 2016 Earnings Conference Call September 28, 2016 11:00 AM ET

Executives

Adrian Basaraba - SVP and CFO

Blake Goldring - Chairman and CEO

Kevin McCreadie - President and CIO

Analysts

Gary Ho - Desjardins Capital Markets

Graham Ryding - TD Securities

Tom MacKinnon - BMO Capital

Stephen Boland - GMP Securities

Scott Chan - Canaccord Genuity

Paul Holden - CIBC

Operator

Welcome to Third Quarter 2016 AGF Management Limited Earnings Conference Call. My name is Christine and I will be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Adrian Basaraba, Senior Vice President and Chief Financial Officer. You may begin.

Adrian Basaraba

Thank you, operator, and good morning, everyone. I’m Adrian Basaraba, CFO of AGF Management Limited. Todaywe will be discussing our Q3 2016 business update and financial results.

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 Q3 2016, provide an update on the key segments of our business, 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 turn the call over to Blake.

Blake Goldring

Thank you, Adrian, and thank you everyone for joining us on today's earnings call. During Q3 2016, we continued to make progress towards our stated goals. I’ll begin with a few highlights.

Despite industry net sales declining by 34% versus prior year, our mutual fund net redemptions improved by 27%. This was the 15th consecutive quarter of year-over-year improvement. Our gross sales were also resilient in challenging market conditions despite the fact that industry gross sales were down by 6%, our gross sales were relatively flat as compared to the prior year quarter.

This is after adjusting for a rebalance in a fund-to-fund program. Details are described as a note to our AUM table in the MD&A. After successful close in the second quarter, the InstarAGF Essential Infrastructure Fund achieved the subsequent close with an additional $85 million in capital commitments. 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 won over $600 million in new global mandates this year and nearly $1 billion in total gross sales in the institutional and sub-advisory channels. We reported adjusted earnings per share of $0.13 and the Board confirmed a quarterly dividend of $0.08 per share during the quarter.

The $0.13 was after adjusting for an item in Smith and Williamson which is a one-time item in nature. Otherwise, Smith and Williamson had a very solid quarter. We are encouraged by the fact there has been no negative impact related to Brexit and management team at Smith and Williamson remain positive about the business going forward.

The trend in our investment performance remains intact. While several of our larger funds were slightly below median at the end of August due to defensive positioning, the trend in three-year performance continues to hold and improve. Kevin will provide an update on the investment platform very shortly.

Turning to Slide 6, we'll provide updates on our business performance. I'll start with retail. The surprise Brexit vote at the end of June and mixed economic data created significant uncertainty within financial markets during our third fiscal quarter. Discontinued volatility has an impact on the mutual fund industry in Canada, which while still healthy has declined relative to last year. Year-to-date industry net sales of long-term funds were $22.8 billion down 52% compared to $48 billion reported a year ago.

Despite industry softness, AGF sales results have continued to improve. We expect sustained improvement will be driven by focusing on the following priorities. One, we’re continuing to enhance our investment performance. Our three-year figure continues to remain strong and we have strong performance funds in key categories.

As I mentioned, Kevin is going to be speaking more about the performance in a moment but if we take a look at our one-year numbers, these reflect a quality bias in several of our large funds as cyclical equities outperformed in August.

Point two, capitalizing our 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 gross and net sales as a result.

Three, providing innovative products and solutions around specific needs. This quarter we combined a substantial capabilities of Highstreet and FFCM under a unifying brand QuantShare Advisor. During the quarter we spent a significant amount of time refining the capabilities required for the QuantShare’s ETFs which we launched into the Canadian market.

Our ETFs will be differentiated in the marketplace. They are multifactor, global and risk-adjusted, really the next generation of smart beta. A preliminary prospectus for these products was filed in September. We plan to launch these ETFs early in 2017 and we're very optimistic about our ability to capture significant market share.

Before you leave retail, I’ll provide an update on industry regulation. The industry is now in the process of providing comments on Consultation Paper 33-404, which is a continuation of the ongoing regulatory review of our industry. These comments are due by the end of September at which point the regulators will review the comments received and hold a number of live roundtable discussions with the industry and stakeholders in December.

The consultation paper touch 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 believe the debate around the best interest standard will eventually lead to questions about open architecture, similar to what has happened in other jurisdictions such as United States and United Kingdom. We believe that this will potentially benefit independent managers such as AGF.

On June 29, the Canadian Securities Administrators released notice 81-327 which cover the consultation that will occur this fall on the option of discontinuing embedded commissions. This consultation will build on a research that the CSA has already undertaken. The consultation will seek to assess the impact that such a change could have on the market, determine if existing tools and regulatory initiatives underway are adequate to remove conflicts of interest and examine the outcome of similar regulatory reforms in other jurisdictions.

Some of these changes could have negative consequences for some Canadian investors, in particular, small investors. However we have positioned our business for any particular outcome. This year 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 structure 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.

Before leaving this point, I’ll note that $5 billion in high net worth AUM is a significant milestone for us. Our private client businesses have been sure and steady performers with a compound annual growth rate of 10% over the past five years. We anticipate solid performance with demographics supporting growth in this segment and look to the future. Our diversification is one of the strengths of our operating model and we're looking forward to growth in each of our distribution channels.

Now I’ll pass the presentation over to Kevin.

Kevin McCreadie

Thank you, Blake. Our AUM above median over one and three-years stands at 35% and 47% respectively. We target having 60% of our AUM above median over three years and 50% of our AUM above median in any one year. The three-year target is particularly important as success on this measure has been shown to drive gross sales. We are pleased with the trajectory of the three-year figure and expect to achieve our three-year target in near term as we continue to drive consistent returns on our portfolio. This will drive the next leg of growth in our retail platform.

As I have stated on previous calls, the one year figure could evolve on a month-to-month basis. This was evident in August as of two of our large funds performed just slightly below the median causing the drop in its figure compared to last quarter. This under-performance was a result of quality names underperforming during the cyclical rally that occurred during the month of August. Our portfolios continue to have a quality bias which should outperform during the periods of market volatility.

Many of our institutional and retail clients are concerned about risk, we expect this theme to be ongoing. I’m confident that our portfolios are properly positioned to meet our client’s needs. As Blake mentioned, we look to utilize our risk management solutions which are a combination of the capabilities of FFCM and Highstreet to launch ETFs in Canada.

FFCM also has a capability to manage U.S. 40 Act registered product in separately managed accounts. They are the advisor to the QuantShare’s family of ETFs in the U.S. that provides exposure to well-known investment factors specifically momentum, value, data and size. In addition, FFCM manages the suite of tactical risk-managed ETF strategies.

Turning to Slide 8, I’ll talk more about our institutional business. During the quarter the pipeline we announced at Q2 fully transacted. As we highlighted last quarter, the redemptions that occurred during Q3 were primarily the result of a single redemption from an EM client.

As you recall this was due to structural shift in U.K. local pension authority market where plans are being forced to cooler asset and internalize as much AUM as possible in an effort to reduce cost. The shift impacted a large client of ours. As part of that change, the new investment management of the combined pension fund philosophically does not believe in an EM as an asset class and decided to decrease their equity exposure. As a result, we saw 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 remain strong and demand remains intact. We feel confident about our ability to continue to generate gross sales. In fact we have raised over $600 million year-to-date in global strategies through the institutional channel.

Our positive pipeline also represent the strength of our global team. During the quarter we were notified with global core win on a prominent Asian investor in our [indiscernible]. While the initial allocation is expected to be small, future flows could be significant.

During the quarter we recorded a subsequent close of the essential infrastructure fund with $85 million in capital commitments. We expect additional commitment to the InstarAGF Essential Infrastructure Fund when it achieves final close by year end. To-date we have garnered $457 million in committed capital which represents about 60% of our target size of $750 million.

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

In combination with Stream Asset Financial, our Midstream Energy Fund we have raised nearly $700 million in AUM. We believe that real assets will continue to play a role in the portfolio of diversification and we expect this platform to have nearly $1 billion in AUM by the end of the year.

With that I will turn the call back over to Adrian.

Adrian Basaraba

Thank you, Kevin.

Slide 9 reflects a summary of our financial results for the current quarter, the sequential and year-over-year comparisons. We reported EPS of $0.10 per share for Q3 2016 and adjusted EPS of $0.13 per share. $0.03 adjustment related to a tax levy recorded by Smith and Williamson. The charge was non-cash to AGF and it's important to note that excluding the charge, Smith and Williamson had a strong quarter delivering $3.5 million in earnings which represents an increase over the prior year quarter.

In each of the periods displayed, the company recorded items that were one time in nature. So for ease of comparison, we've included adjusted numbers. On an adjusted bases EPS was stable relative to Q2 and was up 8% relative to last year.

On an adjusted basis, Q3 2016 EBITDA was $27.4, which is comparable to $27.7 million recorded in Q2 and down 10% year-over-year.

Our results for Q2 and Q3 of 2016 included full quarter of fund operations business, which was internalized in February 2016. Fund operations revenue, which is paid for by the fund is included in the P&L within management, advisory and administration fees. Expenses are shown in SG&A.

Expenses in the quarter came in at $52.4 million within our guidance of $210 million per year. We anticipate Q4 of '17 in the same range. As for 2017, we're now in the middle of planning for next year and we'll have updated guidance for you in January.

Turning to Slide 10, I'll walk you through the yield on our business in terms of basis points. The 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 earnings from Smith and Williamson, alternative platform, one-time items and other income. With respect to revenue, the operations reflect an increase in revenue yield versus the trailing 12 month view due to the addition of the fund administration business which began in Q2 2016.

Excluding the fund operations business, we're seeing a decrease in management fee revenue yield due to a mix shift in favor of sub advisory AUM and the impact of management fee reductions which we announced last quarter and came into effect in April.

SG&A increased to 64 basis points compared to 61 basis points on a trailing 12-month basis. The increase was primarily driven by the additional cost brought on through the fund operations business. As a result, EBITDA basis point decreased to 24 in Q3 from 26 on a trailing 12-month view.

Now turning to Slide 11, I'll discuss free cash flow and capital uses. So this slide represents the last five quarters of consolidated free cash flow shown by the blue bars on the chart. Free cash flow was $12.9 million in Q3 and the dividend payout ratio was 49%.

We also received $14 million in cash from the subsequent close of the essential infrastructure fund as a return of capital, bringing our investment in the fund down to our proportionate share of total commitments. We now have $48 million invested in InstarAGF Essential Infrastructure Fund.

Upon final close later this year, we expect to receive another return of capital. Afterward as the fund issues capital calls, we will invest the remainder of our commitment over the next two years.

Our original $50 million commitment to Stream Asset Financial LP, only $7 million remains. The remaining capital will be used for follow-on investments over the remaining two-year investment period. Considering both Stream and the Essential Infrastructure Fund, our remaining capital commitment to the alternatives platform is $59.

We continue to be pleased with the level of free cash flow generation from the alternatives platform. As we've explained on prior calls, we 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 also emerge as the platform generates scale and for the next year, we expect most of our management fee revenue will be reinvested to grow the platform. Moving on to other capital considerations we've drawn $235 million on our operating line, which provides credit to a maximum amount of $320 million. We'll continue to be opportunistic with through the NCIB.

Turning to Slide 12, I'll turn it to Blake to wrap up today's call.

Blake Goldring

Thanks Adrian. AGF continues to make progress against our stated objectives. Along those lines, I would like to share our primary goals for the remainder of 2016. One, we've sustained the improvement in our investment performance. Two, drive gross sales through retail product developments. Three, leverage our capabilities of Highstreet and FFCM to introduce new and innovative products. Four, achieve final close of the essential infrastructure funds.

I want to thank everyone on the AGF team for all their hard work. I'm proud of the results we’ve achieved in the third quarter of 2016 and we're excited to accomplish more as the year concludes.

Thanks very much and now we’ll take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gary Ho from Desjardins. Please go ahead.

Gary Ho

Good morning, Kevin. Can you give us some more color on the final close of the essential infrastructure fund, how that is progressing and as well, looking out to 2017, what should we expect in terms of new funds on the alternative side?

Blake Goldring

Yes, thanks, Gary. We are on target to be final close on this toward year-end this year and feel pretty comfortable given what we know is in the pipeline and be right at where we had targeted in terms of size, so I think both are tracking in terms of date as well as sizing of them.

And then as Adrian said, we'll probably be looking at -- it's probably going to be at least another year out before we start putting on another fund, so probably think about something along the '18-'19 timeline, nothing in '17 as we digest this fund and obviously we have to get through the investment period there, but think more along the '18 timeline for us.

Gary Ho

Okay. And then just on the fund performance, are you concerned with this three-year number dipping a little bit and how confident are you in hitting the 16% target that you've had let's call in next 12 to24 months?

Blake Goldring

Yes, I’m very comfortable. We have an aberration I guess in the calculation. Two large funds had kind of slid from [primarily] [ph] in those top two quartiles slid over in to mid 50s. So really on the cost for the second quartile, which end up being about 16% of that calculation.

And a lot of this because of the cyclicality of the rally that we saw in August and we tacked on against a subpar August this year and we dropped off a phenomenally good one. So as I said you before, month to month throughout the year you can see some variability there, but I’m pretty comfortable looking at just positioning and we’re not offside any place.

There is no magnitude of this version around the benchmark that gives me any concerns. So yeah, things are progressing and then look at as we move through the next 18 months or so, we probably start to move towards that target on the three-year number.

Gary Ho

And sorry that 16%, that’s on a three-year number, is that on the one-year number?

Blake Goldring

That’s on that one year because we have two large funds that are about 16% of that calculation. So it's literally cusped over from the high 40s into the low 50s kind of thing. So not a real concern.

Gary Ho

And then just lastly on the ETF launches next year, can you remind me how many funds you guys are planning and are these something that advisors are seeking kind of through your conversations you've had with them recently?

Blake Goldring

Yes, so we filed this week or I should say last week for seven funds, there will be four building block funds if you think of them that way, that are going to be risk managed, lower volatility, multi factor, something that we think is a smarter or version two of smart beta that is probably unique to the marketplace. We’ll then bundle those into three ETFs that we'll package some of those in and use some other ETFs potentially to create a suite of balanced global low vol solutions. So again seven in total.

We think about that as the first ramp of -- but a continuing dialogue of what people are looking for, which is idea of lower risk, lower volatility, global, which is again we talk to investors, home buyers really does not, met with people who are interested in balance. So I think it meets all three of those themes and so just an evolution and similar thinking to what we've had in the rest of our products that were just delivered through a different vehicle.

Gary Ho

And what would the fees on average be of those? I’m not sure, I didn't go through that prospectus, but I'm not sure if that's in there?

Blake Goldring

Yes, actives are in the marketplace there in the range between 50 and 70 basis points. So we're going to be somewhere in the middle of that range.

Gary Ho

Perfect, thank you. That’s it from me.

Operator

Thank you. Our next question comes from Graham Ryding from TD Securities. Please go ahead.

Graham Ryding

Just to follow on from the ETF conversation, are these funds at all do you feel like they're differentiated enough from your existing low volatility products or how do you think about positioning them relative to your existing line up?

Kevin McCreadie

Yes, they will be different, Graham. This is Kevin. Think of them this way, it's a combination of our capabilities at Highstreet which have built up those low-vol suites with the capability that we acquired through FFCM. So it's going to be an intersection of those two. So it will be sufficiently different both from what standalone being offered today but also from what I think was out there in the marketplace.

Graham Ryding

And so I assume it's really sort of that IIROC channel that you're focusing on here in Canada? Did these products or are you going to be trying to grow them and sell them in the U.S. or is that -- you're focusing your existing line up in that institutional market?

Kevin McCreadie

Yes, so the marketplace is evolving here, you're right. The channel that we're probably going to go directly towards is IIROC with this suite of products. In the U.S. our capabilities through FFCM have a slightly different suite of ETFs today that we use there and the marketplace there is also evolving to the second generations of Smart Beta but also you're starting to see institutional adoption of these vehicles.

So again different product suite for our U.S. offer particularly because in our existing offer in the U.S., we have the ability to shorten [indiscernible] ETF and hedge which we can't do in Canada. So we've a slightly different offering set than what we have on the U.S. side.

Graham Ryding

Okay. Great. And then on the infrastructure side, of your $457 million I think is the number that you've raised to date from the essential infrastructure fund, how much of that has been deployed?

Kevin McCreadie

I think of that number we're running just shy of -- we've got three investments done just starting to do the back of the envelope math in my head, but I'll probably say it's probably a little less than half of that.

Graham Ryding

Okay. And of the Stream financial it's roughly just under [$250 million] [ph], is it fully deployed?

Kevin McCreadie

Yes, as Adrian said on Stream, it's probably $7 million-ish left to go. We've already had some return of capital there as you know and as I think about the math back on that last question, it's probably closer to 60% invested on that original amount committed.

Graham Ryding

Okay, great, and the management fees you earn on these, is it on what's committed or what's on deployed?

Adrian Basaraba

Yes. So the management fees that we earn in infrastructure platform are on the committed capital. It's Adrian, Graham.

Graham Ryding

And then just jumping to retail sales if I could, any update there, I know strategic partnerships is something that you guys have talked about as a priority so are there any updates on anything you're working on or anything you've signed and then maybe just an update on what retail channels are working for you and where do you see an opportunity or an area that you'd like to improve on?

Blake Goldring

Yes thanks, it’s Blake here. I have to say it's obviously -- we all know a challenged environment out there of what the market and more generally what the industry experienced. I can tell you that we are out there working very hard knocking at doors and speaking with the MFDA as well as the IIROC. IIROC has been a real focus for us.

But the real starting point is really on the performance. We're seeing that with our elements which I mentioned is how 90% of our assets above median in that area. So we've got great pick-up in the MFDA channels as well with our strat account partners. We signed a new insurance partner in the last -- within the last two quarters and we're seeing strong sales in all of our strat accounts in that positive position.

IIROC we see are corporate class funds. This is continuing to gain great strength. We introduced four funds in the corporate class structure. These are income oriented products and again we're getting nice pick-up there.

Redemptions again continue to improve. They are down 27% and as we mentioned that our gross is only off 2% relative to 6% of the industry’s. I also am quite excited Graham by the launch in 2017 of our ETFs and frankly I think we're well positioned as we roll into the end of this year and with our products and performance that we're going to reward our shareholders and unit holders in the New Year.

Graham Ryding

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Tom MacKinnon from BMO Capital. Please go ahead.

Tom MacKinnon

Yes thanks very much. Good morning, everyone. Kevin just a follow on, on the investment performance question, you gave some details with respect to a couple funds that may have been a little bit offside.

Just wondering, was there any specific weightings and sectors that these funds would have had, or any market call that's embedded in these funds, that contributed to that and how things might be looking over the last month with respect to those two large funds?

Kevin McCreadie

I will give an example Tom for instance our large Canada fund which is a four, five star fund granularly, is typically when you have quality funds. It's got a combination global and Canadian there and if you look at what happened some after the Brexit vote, you had a pretty good return to cyclicality. Some material stocks you had energy stocks, some of them are pretty good.

So we’re going to way overweight in some of that stuff. Please look at what gold has done this year within Canada. So that’s a fund that is probably 9% of that calculation for us and it slips in the mid-50s. You sit here today it's back into 40s. So it doesn’t trouble me. But that’s -- we don’t have big bets that's offside than anything.

Tom MacKinnon

Okay. Appreciate that. Thanks.

Operator

Thank you. Our next question comes from Stephen Boland from GMP Securities. Please go ahead.

Stephen Boland

Thanks, all. I'll also ask a question about performance. It really goes to your target, guys, about having that 50% over one year and 60% over three years. And certainly the challenging conditions brought that one-year number down. Are those targets what you need to achieve, you believe, to get to consistent net sales? Is it possible to get there with those numbers under those two targets?

Kevin McCreadie

Steve its Kevin, the three-year numbers I think is what advisors look at. I think they look for consistency today in a world where I think risk is frontend center on them. I think they wanted to stay in a corridor of returns. And so for me I think it is about the three-year number.

I think we’ve done some analysis which I think we’ve talked about in the past, which is those firms that can have 50% or more of their funds over three years in those top two quartile tend to generate gross sales. So I think it is an important metric.

The fact that we're right near that 50% line and we have been improving by a 1% or 2% move. Again as you've heard me talk, there is some role math. You role something off tax something else on, but, generally it's about consistency and if you drive that consistency over time, you'll tend to drive that three-year number to a higher place.

Because other people around you who are maybe in the first percentile today, statistically are going to blow themselves up to be somewhere in the fourth quartile. So again if you can drive consistency over three and five years, you start to see I think gross sells pick up.

Stephen Boland

Okay. So, when I look at that 47%, your target is 60% for the three year -- and I apologize -- coming into December here are you rolling off a bad year or are you rolling off a fairly good year?

Kevin McCreadie

Its going to be back to 2000 -- so we will have 2014 embedded in 2013 some good in that three. So it shouldn’t involve the little bit Steve. I don’t have the math in front of me.

Adrian Basaraba

I am just, I don't know if I might just jump in here Steve that, when you that a look at the category that we're selling out there today. it really be the balance categories and I’d look at our AGF goal balance performance where on a three-year basis all that for the second quartile in almost balance yield growth as well as our global equity perform is also one or three year basis and these are key categories, right and they're all second quartile. So I think we're well positioned there from product perspective.

Stephen Boland

Okay. Thanks guys.

Operator

Thank you. Our next question comes from Scott Chan from Canaccord Genuity. Please go ahead.

Scott Chan

Thanks. Good morning, guys. Just going back to the fund performance on three years and the median, Kevin, do you know if that large cap dividend fund that's 9%, is that over or below the median as of August 31?

Kevin McCreadie

Have a one year, it's about – it’s below its like 40%s, 46%, 45% this morning to year date so. I don’t have the three-year in front of me, Scott, but that’s a four and five star funds. So my guess is that’s probably going to solved in those quartile on a three basis.

Scott Chan

Okay. And then Blake can you talk about the new insurance partner of last few quarters, can you just expand on that?

Blake Goldring

No I actually we don’t go into specific clients Scott. But I can say that this is a national organization and they got a very solid footprint margin in the Quebec market.

Scott Chan

So is that like on a subadvisory basis, putting some of your products on their platform?

Blake Goldring

That's correct.

Scott Chan

Okay. And on the high net worth side, it's showing good relative growth. What's the main driver of that? And is that platform in the slow positive over the past year?

Blake Goldring

Yes, it will be very solid and I think it's just we are - performance have been very solid in each of the separately branded organization. So that would be Highstreet, Doherty and Cypress out in Vancouver. And so we've been having net new growth of course in each of those markets they are quite dominant organizations.

Scott Chan

Okay, great. Thanks, guys.

Operator

Thank you. Our next question comes from Paul Holden from CIBC. Please go ahead.

Paul Holden

Thank you. First question is related to product development on the mutual fund side. You'd previously mentioned some quant strategies maybe coming out of High Street where you're developing a three-year track record. So, wondering if that's something that's still in the works or if that's more gone the route of ETF now?

Kevin McCreadie

Yes, Paul. This is Kevin. Those products will have three year of track record in November, which will assess they are all very strong. They will have some component of those will be in those ETFs. We haven't yet made a decision about - again do also putting that separate and different vehicle, so more to come on that.

We are probably looking - obviously the ETF list is going to be first priority because want to get two markets early next year. But you'll probably see other fund offerings as this pass - as we move into the middle of the year. I wouldn't look for anything in the first quarter though.

Paul Holden

Got it. Major fund product development looking at more like mid 2017. Okay. And thin in terms of FFCM, would you consider the operational integration complete at this point in time or is there more to go?

Kevin McCreadie

Yes, for most part Paul, we've got as you know probably what I call that infrastructure and for most of the part call it down and we move them in our offices, on a system, compliance, all that wrapped around them. So that was completed for the most part over the summer little bit more to go, but that's not a distraction at this point.

Paul Holden

Got it. And then in terms of selling their mandates into the institutional channel, any kind of update and color there you can provide?

Kevin McCreadie

Yes, probably it's going to be U.S. focused. We are working with our team in the U.S. And FFCM team to really try to lay out of our strategy for how and where. And multiple application there obviously there are standalone applications some of the big gatekeepers and platform, but as I said there is a growing interest in institutional ETF strategist/discreet allocation and balance account using ETFs. We use that word strategist around that. So you'll see that evolve that strategy for distribution somewhere over the next couple of quarters.

Just to remind you they've got today between different sub-advisory relationship probably $1.5 billion of assets that they advise and that type of so others today were other funds. So we have a fairly good start there. It's really about penetrating those different channels differently as we move into next year.

Paul Holden

Okay. And then last question is related to the Alternative assets platform. In the past you launched, you talked about the potential of launching a second InstarAGF fund maybe even this year. Now it sounds like you pushed that back to 2018-2019. So, just wondering what changed there in terms of strategy?

Kevin McCreadie

Yes, I just think we've got this first time fund as we talked about in the past take a lot to the close of first time fund is much harder, lot harder in terms of getting institutional investors to invest some don't invest in first time funds.

So there is a longer gestation period. So we probably - in my mind couple of quarters behind where we want to be which puts the investment side of that thing while as we said 50% to 60% invested of what we’ve raised so far as we've taken a next big chunk, that's going to do the fair amount of investment work to be done on that front next year which try to put us or thinking at more toward 18.

Paul Holden

Got it. Okay. Thank you.

Operator

Thank you. I will now turn the call back over to Adrian Basaraba for closing comments.

Adrian Basaraba

Thank you very much for joining us today. Our next earning call will take place on January 25, when we review the results of our fiscal 2016. Details of the call will be posted on our website.

Finally, an archive of the audio webcast of today's call with supporting materials can be found on AGF.com. Thank you and good day.

Operator

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

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