Fiera Capital Corporation (FRRPF) Q4 2022 Earnings Call Transcript

Fiera Capital Corporation (OTCPK:FRRPF) Q4 2022 Earnings Conference Call February 24, 2023 9:00 AM ET

Company Participants

Marie-France Guay - SVP, Treasury and IR

Jean-Guy Desjardins - Chairman and CEO

Lucas Pontillo - Executive Director and Global CFO

John Valentini - Executive Director and CEO, Private Market

Conference Call Participants

Étienne Ricard - BMO Capital Markets

Gary Ho - Desjardins Capital Markets

Jaeme Gloyn - National Bank Financial

Operator

Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to Fiera Capital's Earnings Call to Discuss Financial Results for the Fourth Quarter of 2022. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question-and-answer period. As a reminder, this conference call is being recorded. [Operator Instructions]

Thank you. And I would like to turn the conference over to Ms. Marie-France Guay, Senior Vice President, Treasury and Investor Relations. Please go ahead.

Marie-France Guay

Thank you, Sylvie. Good morning, everyone. [Foreign Language]

Welcome to the Fiera Capital Conference Call to discuss the financial results for the fourth quarter of 2022. Before we begin, I invite you to download a copy of today's presentation which can be found in the Investor Relations section of our website at ir.fieracapital.com. Note that, today's call will be held in English.

Also note that comments made on today's call, including replies to certain questions, may deal with forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on page two of the presentation.

Our speakers today are Mr. Jean-Guy Desjardins, Chairman of the Board and Chief Executive Officer; and Mr. Lucas Pontillo, Executive Director and Global Chief Financial Officer; John Valentini, Executive Director and Chief Executive Officer of Private Market; and Jean Michel, Executive Director and Chief Investment Officer of Public Markets are also on hand to answer question.

On today's call, we will discuss our Q4 2022 results, starting with an update on our AUM, followed by our distribution and investment performance. We will then review our financial performance. Following the prepared remarks, we will take your questions.

With that, I will now turn the call over to Mr. Desjardins.

Jean-Guy Desjardins

Thank you, Marie-France and good morning everyone and thank you for joining us. First of all, let me tell you that I'm very happy and quite excited to be back at the helm as we continue to pursue Fiera's growth ambitions and execute against our strategic plan.

Last year was a difficult year in global markets with declines in equity and fixed income markets further impacting investor outflows and the balance sheet. While 2023 has started on a positive note, we remain vigilant as we continue to navigate through a threatening macroeconomic environment.

Notwithstanding this, Fiera's strategic priority of growing our private markets platform as well as the strong relative returns of our public markets investment strategy positions us well to weather any further market volatility in 2023.

I'll turn in to our fourth quarter results. We reported assets under management of $158.5 billion for the fourth quarter of 2022. Although we benefited from the market rally in equities in the fourth quarter, outflows from a few financial and intermediary clients. Due to the impact of the equity rebound on our public markets AUM, resulting in AUM being essentially flat versus the prior quarter.

Assets under management in private markets was also flat in the quarter. We continue to see a good pace of new subscriptions across our alternative strategies with decreases in AUM being driven by return on capital to investors rather than last minute.

Overall, assets under management were down $29.8 billion or about 16% over the last 12 months as we, like the rest of the industry, were impacted by the equity and fixed income market downturn. This further precipitated outflows from clients rebalancing following particularly strong investment returns in 2021.

The continued volatility in financial markets in the majority of 2022, intensified withdrawals from active equities through the second and third quarters as clients try to adjust their portfolios to maneuver through the high inflationary environment.

On a positive note, the pace of the balancing we saw through most of 2022 did slow in the fourth quarter and we experienced some positive momentum in the form of new fixed income allocations. We are confident that our proven track record of long-term performance across our strategies will position us well when investors begin to reallocate towards public markets strategy.

We saw continued growth in private markets in 2022, which ended the year at $18.2 billion, resulting in year-on-year growth of 14%. We returned $1.4 billion to our clients through capital and income distributions, while raising $3.3 billion in new subscriptions over the same period.

Our private markets platform is a key differentiator to investors who looking to diversify through this period of public market volatility. We are uniquely positioned as we have been building this platform since 2005 and have established a diversified and strong performing offering across our private market strategies, which is unique in the Canadian market.

In the quarter, new client mandates into our private market strategies continue to drive top line growth, with new mandates representing 30% of the new AUM growth in the quarter, which are expected to generate 70% of the associated annualized base management fees. Though it was a difficult year for net flows, we are encouraged by the $8.2 billion gross new mandates generated across our platforms over the year and look forward to building on that momentum in 2023 as we continue to expand our distribution capabilities globally.

We'll now turn to our commercial performance across our channels and regions for the fourth quarter. So, in Canada, we secured major wins this quarter with fixed income mandates won from large change in institutions resulting in $400 million of positive net organic growth in the institutional channel.

While flows in the Canadian Financial intermediaries channel was challenged this quarter, with the majority of the outflows driven by the loss of certain fixed income mandates. Our differentiated Private Wealth platform in Canada allows us to offer our high net worth clients access to our private market investment strategies via our two funds figure structures, two fund saw significant growth in 2022, growing from $4.5 billion to $5.7 billion with $1 billion of that increase attributable to organic growth.

In Europe and Asia despite the continued stress market conditions in that region, we saw modest positive net organic growth in the fourth quarter. In public markets, we secured a major LDI mandate from a large institutional client in Europe, which drove the majority the positive net organic growth this quarter.

We continue to gain momentum in the financial intermediary channel across that region with the approval of new partners for both our Atlas Global Equity and OAKS emerging market strategies.

In the US, gross mandates of about $2 billion were driven by outflows of equity mandates, including a mandate summarized by StonePine. We continue to see attractive opportunities in the US for our broad suite of investment capabilities However, we still have more work to do on building out our distribution capabilities to penetrate the US market more effectively, particularly with our private market strategies.

As we move forward, we recognize that client needs and market dynamics are different across the regions that we operate in. Therefore, it becomes important. To have a decentralized approach to our distribution model, make sure that we are effectively positioning our strong suite of private markets capabilities and continue to leverage the robust investment performance of our public market strategy.

So, I will now discuss our investment platform for the fourth quarter. Starting with our private market platform. We continue to deliver strong performance in the fourth quarter with positive returns in the majority of our private market strategies.

Our Canadian and UK real estate strategies performance this quarter continued to reflect the downward property valuation pressure is being experienced across all sectors within the industry. Asset volumes have decreased because of rising capitalization rates; however, these are due more as a reflection of the unfavorable macro environment rather than on the underlying fundamentals of our real estate strategies.

Our real estate portfolio is at an advantage due to its waiting in industrial and multi-residential will demand with these sectors outpacing supply and driving rental rate growth, which partly offsets the cap rate increases. Our infrastructure strategies remained resilient at the pace of a challenged macroeconomic environment and generated positive returns in the fourth quarter and for all of 2022.

The inflationary hedging and fixed rate debt characteristics of the underlying assets in these strategies continuing to be attractive to investors. Our private credit strategies generated strong positive returns this quarter and ended the year in positive territory, benefiting from diversification across sectors and geographies. The strongest performance was strategies with exposure to real estate debt. Also, as mentioned in previous quarters, many of our credit strategies are benefiting from floating rate exposure, which has resulted in an increase in overall yield.

Turning to our agriculture platform. The strategy has delivered a strong return in 2022 of almost 8% with multiple partnerships being completed bringing value accretive acquisitions with a strong pipeline of follow on investments in the future, which continues to appeal to investors. The AUM for this strategy has almost doubled this year, growing from $1.1 billion to $1.9 billion.

So lastly, in private equity, much of this story remains the same with market volatility being tenth-third by the positive performance and resiliency of the portfolio's underlying business. The team continues to maintain a robust pipeline of transaction opportunities globally.

Overall, we raised $550 million in new subscriptions and deployed $800 million into new investments in the fourth quarter. We have accumulated $1.9 billion of committed un-deployed capital, providing the necessary dry power to quickly deploy our clients' capital into attractive investment opportunities. Year-over-year, our AUM for private markets had increased $2.3 billion.

Over the last three years, revenues from our private markets platform has grown at a compounded annual growth rate of 20% and continues to be accretive to our top line with private markets driving 34% of revenues while representing 12% of assets under management in quarter four.

Moving on to our public equity platform. On the back of a positive rally in October and November, global equity markets ended the fourth quarter in positive territory. However, this was not enough to offset the losses of the previous quarters. So as a result, full year market performance was negative impacting the returns across Moore's strategies.

Our large cap equity strategies posted mixed results relative to their respective benchmarks for the fourth quarter. The change in equity size – uncharacteristically weak quarter due to security selection, however, the strategy is continuing to be ranked in the first quarter across the one year and three year time horizon.

Additionally, our Atlas Global and International Equity Strategy both had a growth tilt, whereas strategies with value characteristics outperformed that quarter. Our US small and mid-cap growth strategy has delivered sustained strong performance relative to its benchmarks, across the short and long term with a track record that continues to be attractive to clients.

While relative performance was mixed across our equity strategies this quarter, the long term track record is proof of the excellence of our investment teams. Over a three and five year time horizon, 96% and 98% of our equity strategies are beating their benchmark at the end of the fourth quarter respectively.

Now, moving to our public fixed income platform. Our Canadian fixed income strategies continued to show resilient in the fourth quarter in the face of recession related risks. On an absolute basis, returns were modestly positive across the board and were also positive on a relative basis to their respective venture.

In the US, our fixed income tax exemption core plus and high-grade core intermediate strategies had mixed results this quarter. The tax efficient core plus added value for the fourth quarter, mainly due to its long duration positioning and continues to be ranked first quartile on a three year horizon.

The high-grade core intermediate strategy attracted value due to the short duration positioning of these strategies, which was detrimental as the markets began to price and a slowdown in rate hikes.

In line with our equity strategies, the long-term historical performance or fixed income platform remains strong with 85% and 94% of our strategies, leaving their benchmark over three and five years respectively at the end of the fourth quarter.

Now finally, our tactical asset allocation team which I'm very fond of continues to deliver positive returns relative to its benchmark of 3.78% value added over the one year period, driven by an over weighted position on real assets an underweighted position on bonds as well as an underweighted position in equities which have respectively been the strongest and weakest performing asset classes over this period.

The team continues to assume a defensive stance from an allocation perspective in right of a looming recessionary outlook with a continuation in the underweighted position in international equities, which was the main driver of the negative value add in quarter four.

So, with that, I will turn it over to Lucas for a review of our financial performance.

Lucas Pontillo

Thank you, Jean-Guy. Good morning, everyone. I will now review our financial results for the fourth quarter and year ended 2022. Across our investment platforms, we generated total revenues of nearly $185 million in the current quarter compared to $242 million in the fourth quarter of 2021. The decrease was driven by lower performance fees in public markets, which returned to normalized levels in 2022, following an outsized performance year in 2021.

And lower base management fees in public markets as a result of lower average AUM. Quarter-over-quarter, revenues increased by $24 million or 15%, mainly because of performance fees being recognized in the fourth quarter. Despite lower average AUM for the quarter, base management fees increased quarter-over-quarter as a result of our growing share of revenues from private market strategies.

Additionally, our increased weighting of AUM invested in equity strategies benefited revenues this quarter compared to last quarter, due to the equity market rally at the end of the year. While AUM decreased 16% year-over-year full year revenues only decreased 7% after excluding the impact of dispositions in 2021.

The average fee rate of our new mandates were accretive to our current average fee rate, a testament to our continued diversified growth in our private market strategies, which offset the declines in public markets felt across equity and fixed income in 2022.

Looking more closely at private market revenues for the quarter. Private markets total revenues of $62 million were down by 6% in the fourth quarter compared to $66 million in the fourth quarter of last year. Due to lower performance fees and shared earnings on joint venture projects, in our real estate business in the UK compared to last year, 2021 being a better year for the UK Real estate business.

By this, base management fees in private markets were up nearly 22% compared to Q4 2021 driven by additional capital deployment and sourcing across our institutional and private wealth channels.

In addition, commitment and transaction fees of about $9 million in Q4 from new flows and capital deployment continue to provide an additional revenue stream for this platform.

Quarter-over-quarter, total revenues were up nearly 20% with additional commitment in transaction fees as well as performance fees earned in Q4. On a full year basis, base management fees in private markets were up 28% compared to the same 12 month period last year. We continue to see a growing relative share of contribution from private markets to our overall revenues, which accounted for 34% of the revenues in the fourth quarter of 2022, up from 27% in Q4 of last year as Jean-Guy previously mentioned.

Turning to a review of public market revenues. Compared to Q4 2021, public market revenues decreased 30% to about $123 million in the current quarter, due to the aforementioned performance fees in 2021, as well as from lower average AUM due to the decline in financial markets, and client rebalancing out of equity mandates throughout the year.

Quarter-over-quarter, public market revenues increased 14% although ending AUM was slightly higher in Q4 average AUM for the quarter was actually lower. That being said, public market based management fees remained stable from the previous quarter and benefited from a favorable change in asset mix weighted towards equities, which enjoyed a rallying performance in the quarter.

On a full year basis, public market revenues declined 16% to about $471 million compared to the prior year. Excluding dispositions in 2021, the revenue decrease was only 14% year-over-year.

With regards to SG&A. SG&A, excluding share-based compensation totaled approximately $172 million in the fourth quarter, an increase of about 14% from the prior quarter. This increase is aligned with our corresponding increase in revenue given the variable nature of some of our compensation structures and public market strategies.

On a full year basis, total SG&A expense decreased by $25 million or almost 5%. When excluding share-based compensation and dispositions, SG&A was effectively flat year-over-year. As we continue to navigate the challenging economic environment, we are closely monitoring operating expenses as we adjust to an ever evolving market volatility.

Turning to adjusted EBITDA and adjusted EBITDA margin. We generated adjusted EBITDA of $52.8 million in the current quarter, an increase of 16.8% from the prior quarter, driven largely by higher revenues from performance fees, which we typically crystallize in the fourth quarter. Year-over-year adjusted EBITDA decreased by 43% due to the outside performance fees in 2021, which as mentioned, returned to more normal levels in 2022.

Our adjusted EBITDA margin increased in Q4 from the prior quarter to 28.6%, the 12-month trend in adjusted EBITDA has remained stable through fiscal 2022, a testament to our prudent focus on profitability, despite the volatile years the markets have had and their corresponding impact on the top line.

Looking at net earnings and adjusted net earnings, company posted an eighth straight quarter of positive net earnings with net earnings attributable to shareholders of $2.5, $0.02 per share during the fourth quarter of 2022. Adjusted net earnings were $33.1 million, or $0.32 per share. On a trailing 12 months basis, adjusted earnings per share was $1.19.

With respect to free cash flow, last 12 months free cash flow was $58.9 for the fourth quarter of 2022, while the year-over-year decrease was obviously impacted by the decrease in adjusted EBITDA. It is also important to note that 2022 was also impacted certain non-recurring outflows earlier this year.

Namely the settlement of share-based compensation plans related to the StonePine transaction as well as the acquisition of the remaining 20% interest in Fiera Real Estate UK, which together added over a $40 million drag on our last 12-month free cash flow, and we'll continue to do so for the next few quarters.

Turning to our financial leverage. Our funded debt, as defined by our credit facility agreement was essentially flat year-over-year at $426 million and decreased by $28 million to $426 million quarter-over-quarter, mainly from higher cash flows from operations in the quarter and higher cash distributions from our real estate joint venture projects in the United Kingdom.

Net debt has decreased to $589 million, a decrease of $38 million from last quarter, largely driven by the same factors as our unfunded debt. However, net debt increased $88 million year-over-year. This was due to the purchase of a portion of shares from our Natixis stake sale through our share buyback, the settlement of certain purchase price obligations and put options and the payment of accelerated share based compensation related to StonePine. Combined, these three items alone were over $75 million for the year.

In 2022, we took a number of actions to prudently manage our leverage and enhance our financial flexibility, including the refinancing of our credit facility and convertible bond. We continue to remain vigilant in the rising interest rate environment, including evaluating opportunities to hedge our interest costs.

Overall, our financial ratios saw moderate increase in 2022, due in large part to the non-recurring cash outflows previously mentioned. We remain well-positioned weather further economic uncertainty and market volatility with a funded debt to EBITDA ratio of 2.37 times and a net debt ratio of 3.28 times, down 25% and 17% since their hike in March of 2020. We remain committed to delivering value to our shareholders as a fundamental pillar of our strategy.

As such, we continue to return capital to our shareholders through our dividends. The Board has declared a quarterly dividend of $0.215 per share, payable to holders of record on March 8, 2023. This brings our trailing 12-month dividend to $0.86 per share up from $0.845 per share comparative period last year.

I'll now turn the call back to Jean-Guy for closing remarks.

Jean-Guy Desjardins

Thank you, Lucas. As we continue to weather the volatility that has characterized 2022, we see positive momentum from the slowdown of the client risk off behavior. While the financial intermediaries channel was impacted this quarter by certain large outflows. We are encouraged by the volume of mandates, we have won across our other channels through this difficult year.

Our private markets platform continues to see strong, stable returns and remains a key focus of top line growth, generating an increasing share of revenues through every quarter of 2022. The diversification provided by our public and private market platform and our unique private wealth offering has allowed us to be resilient in the turbulent macroeconomic environment. There's no doubt that 2022 was a challenging year for the asset management industry and for Fiera. However, I continue to be inspired. The capabilities of our highly talented team and I return as CEO energized passionate about navigating our business through this complex period.

So, looking ahead, I do read that our laser focus of putting our clients first, all while producing innovative solutions tailored towards their specific needs will give us a competitive advantage, as we work towards achieving our strategic vision of being an efficient allocator of capital and generate value and sustain prosperity for all our stakeholders.

So, I will now turn the call back to the operator for the question period.

Question-and-Answer Session

Thank you, sir. [Operator Instructions] And your first question will be from Étienne Ricard at BMO Capital Markets.

Q - Étienne Ricard

Good morning. On private markets, could you please share how limited partners are reevaluating their allocation to alternatives in this market environment?

Jean-Guy Desjardins

Étienne, I’ll direct the question to John on that. But thank you and welcome to the first call. I know this is your first introduction to this year accordingly. So, John?

John Valentini

The clients are -- sorry, I didn’t hear. Clients are…

Jean-Guy Desjardins

Perhaps, Étienne you can repeat it.

John Valentini

Repeat the question.

Étienne Ricard

Sure. So, my question is on private markets. Could you please share how limited partners have been reevaluating their allocation to alternatives in this market environment?

John Valentini

When you see they're reevaluating one of the impacts that some portfolios have had that have been fully allocated are has been the denominator effect that equities has had. So, some funds have slowed the pace of making additional commissions just because of that. So, they've been hitting their upper limit to the allocations. We've had some cases of that. But again, that has a limited impact because the vast majority of investors and particularly smaller institutional investors in the market we target are still under allocated to private markets. So, we do still see demand that we'll see flows.

So, to answer it, we don't – we still see continued interest and increased allocations of investors. Most investors are under allocated or not even are just starting to allocate to private. So, the growth will continue in this market environment. Jean, you maybe want to add.

Jean-Guy Desjardins

And if I – so I mean, they had something to Jean. I was looking at the latest data year-to-date. And I was quite happy to see that on a monthly basis, we're generating a level of new flows into our private market strategies that more than well in line with our expectations for the year. And there has been a tilt towards the credit strategies relative to the other strategies up to now, which might be an indication of some preference shifting as a result of the – it's funny about that.

As you know, the market psychology is gradually moving right now towards expectations that rates will go up again this year. And you see numbers that Fed funds will be shooting towards 6% now, which in fact is consistent with our with our macro view, but that's another story. And our credit strategies tend to be quite a lot of them and most of them tend to be short term duration strategies. That benefits from rising interest rates.

And if you take our diversified lending fund, for example, that uses our internal credit strategies is a diversified portfolio concept, is running at current yield of about 8.4% and when rates go up, the return of that strategy goes up, because most of the loans are pruning rate loans. And there might be something maybe that's why we're noticing that – that the investors, and the limited partners you're referring to aren't sort of reacting to the prospect of rates going up, which is better to solve for our credit strategies.

John Valentini

Yes. That's indicated in the investor presentation. If you look at the Q4, just the Q4 absolute return number is an indication of the returns going forward of credit in the lowest return we have Q4 is 2.2% on the most senior credit and you have strategies close to 3% and over 3% just on a Q4 on a quarterly basis.

Étienne Ricard

Appreciate those details. John, just to come back to one of your comments, when you say your limited partners are largely under invested in alternatives. Given the denominator effect you talked about, how much how much do you assess your clients' portfolios are allocated to alternatives – with alternatives relative to let's say a year ago?

John Valentini

Well, I won't have exact data to that, but I know as we discuss the different channels we have, whether it's the private well, intermediaries or even our institutional clients we still are I'd say, under allocated. I mean, the phenomena that I explained on certain situations where clients the denominator effect is low. And we see that. I mean, the evidence of that is really into redemptions. And we have not had. I mean, it's been de minimis. The redemptions have been de minimis this year. And when we did get them, it's really because of that. So, clients are over allocated and they're reducing their exposures.

So, we've seen that last year because of what happened to the public equities. But that spend demand as compared to what we know on our client base or still is a big void in under allocation of clients that aren't allocated. Lucas, go ahead.

Lucas Pontillo

And our high hedge worth client base, we have a $10 billion of high net worth clients in Canada. And based on our optimize allocation positioning corporate wise. We have identified that there is an additional $1.5 billion of potential while some of our high net worth client base, to go into alternatives and have those portfolios lined up to an absolute strategic allocation.

And if that's the experience that we have in our base, I think we can extrapolate that across the Canadian high net worth market, it's huge. The potential is huge. So, we are extremely optimistic about the potential that Fiera has, to become a very, very significant player in Canada. Just in Canada, let's not talk about the US and Europe, but just in Canada to be a very significant player down the road in this private market industry. Because no retail clients. No retail side of the market, the high net work site of the market, we know is very underrepresented right now.

The institutional market is ahead of that, but we believe that the smallest segment of the institutional market to be at the $1 billion to $10 billion institutional portfolio is currently under weighted private market strategy.

Étienne Ricard

Thank you very much.

Operator

Thank you. Next question will be from Gary Ho at Desjardins Capital Markets. Please go ahead.

Gary Ho

Great. Thanks, and good morning. Maybe just start off on the outflows in the quarter. Performance, at least on a three year basis, seems pretty solid. Shanghai, you're now back at the helm, any changes you might make on the distribution side, maybe game plan to turn kind of flows around or do you really need a more constructive market? And also, did I catch you correctly $2 billion of outflows from StonePine and probably around that?

Jean-Guy Desjardins

Well, I can talk about distribution. I'll let Lucas start about the outflows. Yes, distribution, we are moving the distribution model down into the business units. We are operating three business units, private market, public market and high net worth. High net worth was already into the high network business unit, the distribution unit is in the business unit. We are bringing down into the public market division, into the private market division.

Distribution people that were all incorporated in a global structure and we want those people to be operating close to the portfolio managers, to be close to the investment strategies that they're representing and servicing to the clients. And we're also willing to a more specialized distribution concept between public markets and private markets. So those changes are, I'd say, from I guess, conceptual point of view of the distribution model point of view meaningful.

This was specializing in distribution and client servicing people between public and private markets and we're pushing down the distribution activities into the business units so that the people will be closer to the portfolio managers and to the culture and the substance of that business unit that they have to represent. So, in a way, it will be that much deeper into their blood because they're going to be swimming into it.

Lucas Pontillo

And then the second part of your question in terms of the outflows related to StonePine. I'll give a broader elaboration on that relationship and sort of what 2022 has looked like. Specifically, to the outflow, it was one large US Client at the end of Q4. It was about $1.5 billion, so that accounts for that. That was the only client loss during the year. If we look at that sort of our entire client base relative to the StonePine strategies. They're down about $12 billion year-over-year and you can break that down into three categories. First category is just effectively the market effect and with the equity markets being down about $4 billion of that $12 billion is explained by the market, you had another $4 billion where we still have extensive client relationships with the clients just rebalanced and sort of repositioned their overall exposure to equity.

So that explains the second, third. And then the final third is between one client loss that we mentioned in Q4, as well as you'll recall, the Bel Air strategic sort of rollover that we had at the beginning of the year.

Gary Ho

Okay. So, I guess with StonePine now, we're roughly in that $50 billion that's how much they manage?

Lucas Pontillo

Correct. Just 50 correct, around 49.2.

Gary Ho

Okay. Great. Second question, John, good to have you back on the call, seeing solid AUM to $18 billion in revenue growth maybe a broader question. When you look out let's call it three to five years. Where do you see AUM growing to? Or is there anything missing that you'd like to ask and then private markets now represent 34% of consolidated revenue, where could you see this mix growing to over time?

John Valentini

I think the rate of growth we've experienced over the last couple of years Gary is sort of indicative of the type of growth we've experienced over the next three years. I mean, we continue to see – we've experienced double digit growth and we continue to expect double digit growth both on an AUM level and revenue level going forward.

Gary Ho

Okay. And anything missing in the strategy that you'd like to add?

John Valentini

Sorry?

Gary Ho

Anything missing strategy of the platform that you like that?

John Valentini

No. From a corporate development standpoint, we've done a lot of that over the last five, seven years. We really have a quite a complete list of strategies, I'd say the only area that's still from a corporate development standpoint is US Real Estate both on equity and debt. That is really the only strategy, I'd say, missing from our mix other than that we're basically fairly well covered in terms of strategies.

Gary Ho

Okay. Makes sense. And then my last question is for Lucas. I mean more of a numbers explanation question. There was a $16 million provision related to certain claims, what was that related to? And then also on the leverage side, didn't see the funded debt ratio move much sequentially, but the LTM EBITDA dropped roughly $14 million. Just wondering why and is it because the calculation removes performance fees?

Lucas Pontillo

So, I'll handle your second question first. And then come back to your first one. So, on the second one, yes, the way the calculation works that actually amortizes the performance fees over three years, so to remove the volatility out of the performance fees. So, you're correct there.

On your first question, we had two slide incidents, which we are currently working through. We felt it prudent to provision for those amounts in the fourth quarter. These are types of activities, which we carry insurance for. But at this point it's early days as we work through these items and we don't believe that will be material in nature. But by virtue of our normal operations, we normally come across some of these incidents and as I say, we do have insurance coverage that we're exploring at the moment as well.

Gary Ho

Sorry, Lucas, you said that's client related?

Lucas Pontillo

To two trading error issues, correct.

Gary Ho

Okay. Got it. Okay. Those are my questions. Thank you.

Operator

Thank you. Next question will be from Jaeme Gloyn of National Bank Financial. Please go ahead.

Jaeme Gloyn

Yes. Thanks. Good morning. First question, a couple of little ones here. On the severance this quarter, does that include any expenses tied to the CEO transition? Or is that something we'll see in Q1? And can you quantify that number at this stage?

Jean-Guy Desjardins

Hey, Jaeme, thank you for your question. No, that does not include that was a Q1 event. So, you'll be seeing that coming up in Q1. We can't comment on that right now. Still in discussions, but we'll have an update at the end of the first quarter.

Jaeme Gloyn

Okay, understood. Shifting to the dividend six quarters now at the same dividend level. Obviously, free cash flow took a little bit of a dip this year, but some one-time items that you would maybe not expect to see come back next year. So just thinking through what are your thoughts on dividend growth going forward here? Is that something you're expecting to keep flat for the remainder of the year? Or how should we be thinking about that?

Jean-Guy Desjardins

Yes. At this point, we remain comfortable with the current level of the dividend. As we always mentioned, we continually stress test our cash flow. As you well pointed out, we had some anomalies in 2022, which pushed some pressure on the current year free cash flow. But when we look back at a five year historical period, when we look forward, we're on the two year period based on projections and our expectations. We're still coming in with a dividend at a free cash flow ratio of under 100% and closer to 95%. So, we're quite comfortable at that level at the moment.

Jaeme Gloyn

Okay. Got it. We're seeing some commentary or some, I guess, revaluations of UK Real Estate portfolios. Just wondering what are some of the potential impacts that could have in Fiera's exposures and with that flow through income statement for Fiera, any commentary around that UK? And maybe other commercial real estate exposures in general?

Jean-Guy Desjardins

So there has been the investor presentation you'll see in our core fund of the Q4 return was negative 2.3. However, we were positive 0.7 in our industrial fund. And the 2.3 negative is a very – is negative but very strong relative to our peers. Our core fund last year had a positive return. A lot of core funds had negative returns. So, we continue to sit in the top quartile performance of the index in Canada. And the reason our fund is also sitting very strongly that over 50% of our fund is in industrial. We are -- the other sector that we're exposed to is multi residential and we have very low affinity exposure to close then malls and office.

So that speaks to the strong performance of our real estate strategies where it's consistent and all of our strategies are overall locations with industrial, multi residential and very little allocation to any type office and close them retail. So, performance remains strong across the board. So, we actually see that as a positive continued flows in real estate, which last year, we raised well over $ 1 billion in our real estate strategies.

Jaeme Gloyn

Great, got it. Thank you for that. And just the last one maybe – maybe a bit more philosophical or even too early to be thinking about. But with the strength of the private markets business, what kind of considerations or have you had or is it a possibility where you might look to spin out that franchise from the public market franchise just given the valuations that are typically applied, more premium valuations applied to those old platforms? Just wanted to get maybe some high level thoughts from you around potential way to surface some value in the Fiera franchise?

Jean-Guy Desjardins

Well, the answer is no. And I think that -- I think it's important to appreciate the extent to which we have tremendous synergies between those three business units. And I think most people must underestimate the extent to which the fee of each other. Public market is a source of significant growth to our high headwinds in our Private Market Division. The Private Market Division is a source of growth to the other two. The High Net Worth Division is a source of growth for public markets and private markets, it's very, very difficult to see the value-added that would be created for shareholders, if we were to consider spinning, and you could take -- you could ask the same question about it in one of those three divisions. And even when you can talk about if you say that the private market business has worked so much, it looks like a big number when you look at it on its own.

But when you look at the impact that it adds on the overall enterprise value, forget the stock price and look at enterprise value, the overall enterprise value that's been or potentially can be created over the next few years as a result of that dynamic that exists between those two divisions we believe that for the shareholders, it would not be a good thing to do.

So, it's not something that we are considering or that we think and the Board think that is appropriate to be considered given those synergies that exist between the three divisions and how they feed into each other.

Unidentified Analyst

Great. Thank you for the extra color.

Operator

Thank you. [Operator Instructions] And your next question will be from [Indiscernible] at TD Securities. Please go ahead.

Unidentified Analyst

Good morning. Thank you. I guess my first question would be to you, Jean-Guy, welcome back. Just wanted to ask, is there anything specific in the broader market or with Fiera that necessity that you return as CEO?

And the second part of that question was about to be on if there any changes that you would be introducing this year? So, you spoke about the distribution model, but is there anything else that has been considered right now?

Jean-Guy Desjardins

The first question where you made reference to the general macroeconomic and margin environment. I think we did publicly explain why the change took place. And I think the policy statement was a very, very clear statement that the Board made the decision and honestly, your point is sort of right. The Board made the decision to make the change in the face of the probability associated to having the next couple of years just 2023, but the next couple of years, potentially facing a very difficult macroeconomic environment, which will bring about significant -- potentially significant financial market volatility and felt more comfortable having older, more experienced I think the expression more experience more than older, so you can take away the older aspect, but more experience CEO and the helm. So -- and that's it. I think it's a set of circumstances that I think explains that decision.

So, your second question about changes. Yes, I think, well, yes, if you look at we've announced and I think I publicly expressed what the organizational structure of the firm would be. I think you must have noticed that I have recreated, the private market group as an independent division. I promoted Jean Michel to be the leader of that division.

And we will be operating on the basis of three business units, public markets, private markets, high net worth, And I think you can see that the signal is very clear that we will need to I think I don't like the word, but I think I have to use it to have more decentralized structure providing a higher degree of identity to each one of these units under their leadership, where people will be made clearly responsible, which with very specific operating targets, with a very specific set of responsibilities, which we believe leading the Board believes that is conducive to a very entrepreneurial culture, where people have all the freedom to express their creativity, and execute that creativity through their own initiatives, because at the end, they only will be accountable, and I can tell you 200% accountable for delivering on the targets that will be given to them.

And if you say, well, is that a change? I would say that in some ways, yes. But other than that, I said -- I think I've talked about the change in the global distribution model that we have, which basically is also being pushed down into the business unit. And at the top of the structure, I suspect you must have noticed, I have reallocated technology and operation to Lucas under the CFO responsibility, and I have moved the HR responsibility under Gabriel, and that basically frees up Jean-Guy to be much more involved and much closer to dealing with clients and to also deal with potential clients, which is my contribution to the growth of our business. And so those are, yes, our organizational changes that we think will have a significant impact on the future growth of Fiera Capital. yes.

Unidentified Analyst

Okay. I appreciate that. That's really good color. Just as a follow-up here, would there be any restructuring or one-time charges with the changes in either the global distribution model or any organizational changes?

Jean-Guy Desjardins

So, we are working through. So as part of the announcement earlier in the year, I mean, on your quote, right, there are some additional repercussions. But again, we'll be in a better position to comment on those after the first quarter.

Unidentified Analyst

Okay. Understood. Sorry. Okay. And just my last question on the 6 billion in outflows under Financial Intermediaries segment, specifically public markets. I think you mentioned there was more than one mandate that was last year, but could you give any more color on this please? Thanks.

Jean-Guy Desjardins

Yes. As I mentioned, one of them was the StonePine kind of sub-advisory that we have. John, do you want to speak about.

John Valentini

Yes. So, start larger fixed income mandates, quite sizable with one of the financial intermediaries. So lower from an overall each perspective and impact on revenue. But that one in and itself was over 3 billion. So, between the two of those, they effectively make up that 6 billion that you're referring to.

Unidentified Analyst

Okay. That's a good thing from me. Thank you.

Operator

Thank you. And at this time, there are no further questions. Please proceed with closing remarks.

Marie-France Guay

Thank you, Sylvie. Well, that concludes today's call. And for more information, do not hesitate to take advantage of our website at ir.fieracapital.com. Thank you for joining us. Thanks.

Operator

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.