Onex reports robust growth outlook as Convex acquisition and AIG partnership promise enhanced shareholder value and increased fee-related earnings

OPERATOR - (00:00:00)

Upside as Convex continues to compound tangible book value through disciplined underwriting and retained earnings. As we have consistently outlined to our shareholders, we only want to deploy capital in areas where Onyx has deep domain expertise and a clear right to compete. We spent decades building experience and relationships across the insurance sector and Convex is a great example of our deep domain expertise. Owning a property cash insurer gives us two powerful engines of value creation. First, from through cycle underwriting profits which can be reinvested back into the business or become available for future dividend distribution. Second, as Convex's investment portfolio, which is currently around $8 billion, grows, allocation to alternative assets will grow with it, which will include Onyx's own private equity and credit funds. This should drive incremental AUM growth and fee related earnings for our asset management business. While the PNC market is not immune to cyclicality, we're comfortable with that risk given we expect to be a long term owner of the business and Convex is still in the early stage of its growth trajectory. The business has significant opportunity to capture additional market share underpinned by his high quality relationships and reputations with brokers and clients. The combination of best in class growth and high quality underwriting should allow Convex to compound its equity value at attractive rates through the cycle. We see that growth as a meaningful driver of Onex's future shareholder returns and a key contributor to the ongoing expansion of our net asset value over time. Turning to AIG's investment this new relationship with one of the world's largest and most sophisticated insurance companies is an incredibly positive development for Onyx. Their 2 billion commitment to to our private equity and credit funds will contribute an incremental $15 to $20 million of fee related earnings, more than offsetting the impact of dilution. Moreover, this opens the door to a number of other benefits, including the potential to collaborate on future investments and a range of other initiatives that could prove significant over time. Overall, our relationship with AIG not only reflects a shared perspective on both the upfront value and long term prospects of Convex, but is also an endorsement of the On X platform and our ability to create future shareholder value across our existing businesses. We are also thinking strategically about how to best enhance enterprise value. Upon closing, Convex will account for 42% of our balance sheet. With the remaining $5 billion of investing capital, we will continue to grow it and deploy it through two key areas. First, by allocating up to 10% per fund into our own strategies while relying increasingly on third party fundraising to scale FGAUM and the related fre. Second, by pursuing direct on balance sheet investments. These would be in areas where we have a clear right to compete but with differing risk adjusted return, holding period and leverage parameters so as not to conflict with OP and OnCap opportunities. Added to this will be a continued focus on growing fee related earnings. We have made significant gains on FRE Throughout 2025 in large part due to the work of our credit team and we are now positioned to exit the year with a positive total FRE run rate that is ahead of plan. This growth will be accelerated by AIG's commitment to our alternative asset strategies as well as the additional future investment into these strategies by Convex. As we work towards our objective of closing the transaction in the first quarter 2026, we will keep shareholders updated on key developments and we'll continue to look for opportunities to provide the appropriate information to understand and value this transaction, including why we believe Convex deserves to be recognized at a premium valuation within our overall nav. And now a few comments on the quarter. Again, credit continues to outperform our expectations this year, led by the ongoing momentum in structured credit. The team priced 22 CLO transactions through October, raising or extending 10.7 billion of fee generating assets across our Structured Credit and Tactical allocation platforms. The performance of our CLO portfolio continues to be top tier across important risk metrics. Our private equity teams continue to be active in Q3 with both realizations and deployments, ensuring that we continue to return capital to our limited partners while putting new investment money to work and opportunities that align with our chosen sectors. Onex Partners announced the sale of approximately 55% of its investment in OneDigital in a transaction that values the business at more than $7 billion, which was completed at a valuation almost on top of our Q2 mark. In addition, we successfully closed the sale of our 25% stake in WestJet at more than a 40% premium to our mark. Including these two transactions and Pro forma for the closing of the Convex transaction, Onex Partners 5 will have reached DPI of 0.7 times, a strong achievement relative to the average DPI of comparable funds in this vintage. Following the sale of precision concepts in Q2, the OnCap team successfully closed their sixth investment in Fund 5, which is now approximately 50% invested. On the human capital front, we announced that Meg McClellan will join Onyx as our new CFO following Chris's decision to step down from the role he has held since 2015. We are looking forward to welcoming Meg who will assume the CFO responsibilities following our year end call. I'm pleased that Chris has agreed to stay on in a leadership capacity to help ensure a smooth transition and provide continued guidance and support. I also want to acknowledge Tapic Papatia's confirmation as head of Onix Partners. Tapic has always shown great leadership and strong investment acumen, is a true ambassador of the Onix culture and entrepreneurial spirit. Finally, I want to thank everyone for their condolences and support. Following Nigel Wright's passing, Onyx lost a friend and colleague. Nigel was a gentleman in the truest sense of the word. I'll now turn it over to Chris.

Chris - (00:07:15)

Thanks Bobby and good morning everyone. While most of my remarks will focus on our results for the quarter, I'll also take some time to address some financial aspects of our acquisition of Convex and relationship with AIG. So let's start with our investing segment. Onex ended Q3 with investing capital per share of $121.61, up slightly from Q2 and representing a return of 7% for the first nine months of the year. The five year CAGR on investing capital per share is 13%, just below our target range. Our PE portfolio was up slightly during the quarter while on X Partners 5, the Onex Partners Opportunities Fund and OnCap 4 continued to generate positive returns across a broad range of their portfolio companies. These gains were mostly offset by losses in Onex Partners 4. As Bobby said, it was an active period for our PE teams on both realizations and deployments. In September, Onex Partners 5 announced the sale of 55% of its investment in OneDigital, which is expected to close later this year. We also had two partial exits closed since Q2 on Cap 4 sale of approximately 80% of its interest in Precision Concepts International and Op 5 sale of 25% of its stake in WestJet to a consortium of leading global airlines. The combined proceeds to Onex from these realizations will be approximately $360 million. It is worth noting that the last 13 realizations across our PE platforms dating back to 2022 have been completed at attractive values relative to their prior quarter's mark. In fact, only one was executed below the prior quarter's mark and in that case at only a 3% discount and five redundant premiums of 15% or more, including the recent partial sale of WestJet at a 40% premium. On the new investment front, in September, the On X Partners Opportunities Fund announced the acquisition of Integrated Specialty Coverages, or isc. The company is a technology enabled insurance platform that fits well within the portfolio with our long history of successfully investing across the entire property and casualty insurance value chain, particularly in founder led businesses like ISC. And in October, Oncap5 announced an investment in CSN Collision, a leading network of collision repair centers. As some of you will recall, oncap has experience investing in this industry, having previously owned Caliber Collision, an investment that generated a 7.5 times multiple of capital to On X Corporation. Both the Opportunity Fund and on Cat 5 are off to strong starts with investment pace on target. On the asset management side of the business, Onex ended the quarter with $42 billion of fee generating AUM, with private equity and credit increasing by approximately 22% and 18% respectively during the year. The increases primarily reflect the earlier commitments made to Oncap 5 and the Onex Partners Opportunities Fund as well as the issuance of new CLOs. The asset management segment generated earnings of $20 million in Q3 of which 11 million was fee related earnings from the PE and credit platforms. After factoring in the costs associated with managing Onex Corporation's capital and maintaining the public company, total firmwide FRE was 1 million for the quarter and year to date. Credit continues its strong FRE trajectory with an end of quarter run rate of 50 million. By year end we expect this run rate to increase to approximately 60 million, exceeding our 2023 Investor Day target. With credit FRE ahead of plan, we also Expect to exit 2025 with positive firm wide run rate FRE. As we noted in the presentation we posted last week, our forecast is to exit 2025 with firm wide run rate FRE of approximately $17 million based on Q4FG AUM initiatives in process and this is before any of the benefit that will accrue from the $2 billion of allocations to our alternative asset strategies from AIG. At this point, we're estimating incremental FRE of 15 to $20 million on this 2 billion of AUM and we'd expect an increased allocation of capital from Convex to ONIX strategies to be additive here. The actual FRE impact will depend on the strategies to which AIG and Convex ultimately allocate capital, but in all cases we expect a very high conversion of management fees to fre. As we've discussed before, we're at a point in both PE and Credit where the infrastructure can manage incremental capital with very little in the way of additional costs. As the capital from AIG and Convex gets allocated. We'll continue to update our run rate FRE reporting to reflect the actual benefit now turning to Convex and aig. As Bobby said, we think this is a terrific evolution of Onex and we're confident it will allow us to accelerate enterprise value creation for the benefit of shareholders. I thought it would be helpful for me to add some color around the funding of the transaction and onex's go forward liquidity. Onyx's funding could be affected by further PE realization and investment activities between now and closing. But at the moment we expect our $3.8 billion investment in Convex to be funded by a combination of $1.5 billion of cash from our balance sheet, a $1 billion draw on the new NAV loan facility rolling over our existing $700 million investment in Convex, including carried interest, and finally approximately $600 million from the issuance of Onyx shares to AIG. After factoring in cash flows from PE transactions, we've already announced we expect to have approximately $300 million of cash on Onyx's balance sheet of close. In addition, Onyx will have $200 million of undrawn capacity on the NAV loan. We're very comfortable that $500 million of liquidity is sufficient in the near term. And if you look out over the next one to two years, we expect Onyx to generate meaningful additional liquidity mainly from net PE realizations. As I mentioned, we expect to generate positive overall FRE going forward and our credit business will continue to grow without the need for meaningful net new allocations of ONIX capital. So that leaves our PE investing as the key driver of medium term liquidity. Ignoring Convex, Onyx has approximately $5 billion of PE investments in the ground relative to only 750 million of unfunded PE capital commitments of which only 400 million are to funds in their commitment period. So with that ratio we expect meaningful net realizations from PE will allow Onyx to pay down the NAV loan in relatively short order. Overall, the acquisition of Convex and strategic relationship with AIG position Onex to create long term enterprise value. In one fell swoop, we're better leveraging our balance sheet to reduce the historic cash drag, allocating about 40% of our investing capital to an investment we know really well that will compound value over the long term and paving the way for strong growth in FRE by demonstrating our commitment to an asset lighter model and securing significant new AUM from AIG and Convex. That concludes the prepared remarks. We'll now be happy to take any questions.

OPERATOR - (00:15:55)

Certainly. And our first question for today comes from the line of Bart Charsky from Research Analysts. Your question please.

Bart Charsky - Research Analyst - (00:16:05)

Great, thanks. It's RBC Capital Markets and good morning Wanted to ask around the with the AIG Youth Partnership. Bobby would love your thoughts in terms of how you're thinking about this having the impact around fundraising. Does it change any of the outlook in terms of Op6, timing, sizing, etc. Thanks.

Bobby - (00:16:28)

Yeah, so I think having an organization like AIG. Look at where we brought Our asset management business business to. Over the last couple years and want. To invest in Onex Corp. So it's a really strong endorsement and. I think it's only additive or a Positive for fundraising going forward. I don't think it impacts timing of of our fundraisers coming up for OpOnCap or credit. Specifically for op, I would still target sort of mid-2026 as a fundraising launch date and again Chris mentioned it the 0.7 times DPI is a very, very significant stat for that platform and looks very, very good relative to other PE. Firms in that vintage.

Bart Charsky - Research Analyst - (00:17:24)

Okay, thanks. And could you remind us like what. Percentage of the fund are you in Op5 and would that be a similar percentage for Op6 that Onex invests in or are you thinking maybe more capital light direction where you'd be a lower percentage of that fund?

Bobby - (00:17:40)

Yeah. So for Op5 we were 2 billion of about 7 billion. And again we expect to be up to 10% of our various funds going forward. So it would be a much more. Capital light model, if you will, from Onex Corp's perspective and balance sheet perspective.

Bart Charsky - Research Analyst - (00:17:59)

Okay, great, thanks. And the last one for me is. We're hearing lots around kind of this private credit narrative within alternative asset managers. I would love your thoughts around. Are you seeing anything in your portfolio? Maybe walk us through how you differentiate in terms of origination to protect the book. Any thoughts there on private credit?

Bobby - (00:18:21)

Yeah, so private credit's had a couple. Of big blow ups over the last couple of months. I'm happy to report that our credit team had no exposure to those blow ups. I think Ronnie and the team have a protect the downside mentality and when they see problems come up, not in those particular names because we weren't in. Those names, but they tend to move. Very quickly when they see a problem and not wait for the problem to get confirmed. So. So I don't think it's systematic on what we're seeing. I think there were reasons why those credits went bad from governance control and other reasons, but from our own portfolio. We haven't been in any of those. To date, which I give the. Credit team a lot of kudos for.

Bart Charsky - Research Analyst - (00:19:08)

Great. That's it for me. Thanks. Bobby, thank you.

OPERATOR - (00:19:12)

Thank you. And our next question comes from the line of Graham Riding from TD Securities. Your question, please.

Graham Riding - (00:19:19)

Hi, good morning. Can you just talk about the strategic shift underway here with this Convex acquisition. So if we look out over the next one to three years and if you are successful in monetizing some of your existing PE co investments, should we expect a similar strategy going forward where you make some further concentrated investments in sort of majority type positions? And if so, what's the right mix? How many of these would you think would be the right mix to sit within your nav?

Bobby - (00:19:54)

Yeah. So again, just to step back a bit, but I'll answer that specific question. There's really three things that I'd like our shareholders and fellow owners to focus. On in the near term. First is the acquisition of convex. We'll own 63% of it on the balance sheet. And again, we've, we have controlled that. Company for six years. So the informational advantage that we had going in in terms of doing six years of due diligence essentially, and the fact that AIG has invested more than $2 billion in the convex at the valuation. That we had, makes me feel very. Good, at least initially. Right. That part of our NAV ought to be looked at very differently than our NAV has been looked at going historically. Sorry. On the asset management side, I think it's nothing but positive to have AIG and incrementally more convex dollars coming in. I think it's going to help our PE platforms, it's going to help our subscale credit products that I've been talking about wanting to get the profitability to get outsized fre growth. And just the endorsement of those organizations on our overall platform I think is going to be a net positive for fundraising. But you point out a very important third leg of the strategy and that's, you know, as we become more of an asset lighter model in terms of Onex Corp's balance sheet commitment to our various products, there is an opportunity, and I use the word opportunity to redeploy or reorient is the word. I like to use that $5 billion of capital into Convex like transaction that will. My goal would be, that would make perfect sense to our fellow owners in terms of where we have a demonstrated right to compete as that capital gets deployed. But think about it in terms of lower to no leverage, like a Convex. It could be a junior security, it could be a control position, but we'll have enough influence in wherever we're doing to make sure that we have the ability to explain it well to our shareholders. And importantly, you're going to see much, much more transparency around those types of investments. You'll notice what we put up on our website in terms of the transparency around Convex and all the financial metrics. That one looks at to evaluate a company like that. You'll see that for anything that we do on the balance sheet. So again, so our fellow owners will know how to value the pieces. But I see it being very concentrated, just so you understand, maybe one or two other ones. Insurance is obviously a very natural one for you to think about. But there's other things that we've, that we really have done remarkably well over the years that we would be open to as well. But it will not be something opportunistic that isn't in one of our demonstrated areas to have a right to compete.

Graham Riding - (00:22:43)

Okay, great. And you know, you talk about having a six year sort of due diligence period here on Convex going forward. Would it make sense for you to follow a similar pattern here and look. Closely at your existing portfolio companies as. Likely candidates for further kind of concentrated investments?

Bobby - (00:23:05)

Yeah. The one thing that made Convex different because it was a denuvo, it really was never a leveraged buyout, even though it had a PE return for onyx and RLP's. I think it'll be very difficult for me to do a traditional PE type deal with a huge chunk of our capital. That is something, something I need to do five times leverage or something like that to get the appropriate return. So I see, I don't see immediate opportunities where the next one would come. From, that set of opportunities. But I would never close my mind. To it because you never know.

Graham Riding - (00:23:44)

Okay, understood. On the fre side, Chris, just want to make sure I'm understanding the guidance correctly here. You talked about in your presentation last week of a $17 million overall FRE run rate as you exit 2025. Should I be expect or should we be expecting sort of Q4, 25 FRE annualized to be 17 million or is it more like Q1, 2026 annualized?

Chris - (00:24:16)

Yeah. No, not Q4, not Q4, because you know, it is a run rate calculation. So there's always a little bit of a lag effect. Just so I would think you'd probably see us grow into that on an annualized basis. Probably more in Q2 when you know the stuff the capital we raise between now and the end of the year is kind of fully online and fully fee paying. And Chris, just so our Shareholders understand. Just to define run rate and what it actually means so people truly understand it. Sure. In a lot of cases when we raise capital and start earning management fees, there's just a lag associated with when the management fees actually kick in versus when the capital is allocated or invested. So we're simply looking at our fees, excuse me, our fgaum that's sort of in the house and in the ground, and calculating what the management fees are on that capital sort of on a, you know, fully deployed basis. And then we also obviously just look at our expense base sort of as where we are at that point in time, given what we need to spend to manage the capital that we're calculating the fees on. So it's a bit of a forward looking calculation as opposed to backwards looking calculation.

Graham Riding - (00:25:35)

Okay, but essentially by Q2, 2026 then. Not Q4 2025, you're expecting to be. Delivering kind of a 4 million plus. FRE in the quarter.

Chris - (00:25:51)

That would make sense. But again, the run rate will again have probably grown from annualized 17 to something much better than that at the end of Q2. But yeah, I think in terms of actual reported in the period, that would be a pretty good estimate

Graham Riding - (00:26:06)

Okay, understood. And then my last one, if I could just. Fundraising on the credit side, I always find it a little bit confusing when you make reference to sort of extended. AUM and new aum. Could you give us a bit of an update on was this sort of new AUM fundraising in the quarter and year to date on the credit side? Sure.

Chris - (00:26:25)

Let me just get that data pulled up for you. And while he's looking for that, they're. Also having really good success on OSCO too, which is our structured credit fund, OnTap, which is our dynamic credit fund, and again, the high yield and senior credit. The fundraising for credit's been pretty good across the board, but Chris, go ahead if you have those answers. Yeah. So across credit through the end of Q3, SGAUM new FGAUM raised was call it just over $5 billion in the year.

Graham Riding - (00:27:10)

Great. That's it for me.

OPERATOR - (00:27:12)

Thank you. Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program Back to Bobby LeBlanc for any further remarks.

Bobby LeBlanc - (00:27:25)

Thank you for your time today. We are truly excited about the strategic steps we made last week with the acquisition of Convex and the new partnership with aig. We look forward to having a dialogue. With you in the coming months to. Answer any of your questions and make. Sure you fully understand exactly how we're thinking about on X going forward, but we think it's a very exciting time. Have a great weekend, everybody. Thanks.

OPERATOR - (00:27:51)

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.