On Thursday, Onex (OTC:ONEXF) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Onex Corporation reported a strong Q2 2026, with significant contributions from Convex, which achieved premium growth and maintained high underwriting profitability.

The company's capital allocation strategy focuses on direct ownership of Convex and a few strategic businesses, efficient balance sheet use, reduction of capital intensity in asset management, and resuming share repurchases.

Significant progress was made in repositioning investing capital, reducing private equity allocation to 46% and Convex now represents 44% of invested capital.

Convex's performance was robust with $1.9 billion in gross premiums and a 20%+ return on equity, despite a challenging pricing environment.

Onex aims to achieve $35 million in run-rate fee-related earnings (FRE) by end of 2026, contingent on a successful first close of Onex Partners 6.

The company plans to resume share repurchases, supported by reduced NAV loan and ample liquidity.

Convex's adjusted net income increased 38% year-over-year, with improved combined ratio and return on equity.

Private equity realizations amounted to approximately $1.4 billion over the past year, with strong DPI performance.

Credit segment saw a 13% growth in fee-generating AUM, with structured credit achieving its best FRE quarter.

Onex's second quarter investing capital per share increased by 6% over the past year, reflecting strong performance and strategic capital deployment.

Full Transcript

OPERATOR

Joining us for broadcasting this call on our website. Hosting the call today are Bobby LeBlanc, Onex's Chief Executive Officer, and Meg McClellan, our Chief Financial Officer. Also joining today's Q&A session is Paul Brand, Chief Executive Officer of Convex. Earlier this morning we issued our second quarter 2026 press release, MD&A, and consolidated financial statements, which are available on the Shareholders section of our website and have also been filed on SEDAR.

Our supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in USD unless otherwise stated. I must also point everyone to our webcast presentation for our usual disclaimer and cautionary factors relating to any forward-looking statements contained in today's presentation and remarks. With that, I'll now turn the call over to Bobby.

Bobby LeBlanc, Chief Executive Officer

Good morning everyone. I'd like to thank Convex CEO Paul Brand for joining Meg and me for this call and for being available to answer your Convex-related questions when we get to Q&A. Onex delivered a good second quarter. Convex continues to perform well, our private equity funds returning meaningful capital to our limited partners and to Onex, and our credit platform grew fee-generating assets under management and posted its strongest quarter yet for structured credit earnings.

Before discussing our businesses in greater detail, I want to spend a few minutes on Onex's strategy and capital allocation priorities. Our strategic plan remains focused on driving long-term enterprise value creation and earnings growth. When we announced the Convex acquisition, we described it as a key step in Onex's evolution. The broader strategic direction outlined at that time can be summarized in four priorities. First, reposition our investing capital towards the direct ownership of Convex and one or two other additional businesses that ideally have a strategic fit with Convex and/or our asset management business while providing enhanced disclosure to our investors. Second, utilize our balance sheet more efficiently. Third, reduce the capital intensity of our asset management business while driving fee-related earnings and carried interest growth. And fourth, position Onex to resume returning capital to shareholders through share repurchases. We've made significant progress against each of these priorities in the first half of the year and I will discuss each in turn. First, the mix of our investing capital.

At year end 2025, private equity represented $5.6 billion, or 65% of investing capital. That has changed quickly over the past six months. Between the acquisition of Convex, significant realizations across our private equity portfolio, and the sale of Emerald which closed after quarter end, private equity now accounts for $4.4 billion, or 46% of invested capital. That is a 19 percentage point reduction in six months. Convex now represents 44% of investing capital.

Second, the balance sheet. Onex historically maintained a significant cash balance in part to support large private equity and credit commitments. At year end 2025, our net cash balance was $2.1 billion, which was 24% of our investing capital. We deployed a significant portion of that cash and drew $700 million from a NAV loan to help fund the Convex acquisition. Since then we have used private equity realizations to rapidly reduce the NAV loan to $220 million, leaving us in a net neutral cash position today.

Third, the profitability and, as I just mentioned, the capital intensity of our asset management business. We remain on track to achieve $35 million of exit run-rate FRE by the end of 2026, driven by improved profitability across both our private equity and credit businesses. Achieving this goal is dependent on having a successful first close for Onex Partners 6 in Q4, which we believe is achievable. At the same time, we are reducing the amount of Onex capital required to support these businesses by limiting our participation in future Onex funds to a maximum of 10%, ensuring alignment with our limited partners while allowing for a higher proportion of third-party fee-paying capital. Meg will discuss our FRE trajectory and the related fundraising drivers further in her remarks. Fourth, how we allocate capital from here. Our strategy will include both share repurchases and deploying capital into one or two additional investments that can deliver compelling risk-adjusted returns for shareholders and where we will provide a high degree of disclosure and transparency. As we outlined last quarter, the continued repayment of the NAV loan was expected to position us to restart share repurchases.

With the NAV loan now reduced to $220 million, ample liquidity available, and Onex's shares continuing to trade at a significant discount to management's view of intrinsic value, we expect to resume share repurchases immediately. None of this happens without good partners. Both Convex and our strategic investor AIG are proving to be exceptional partners and both are closely aligned with us on the path to value creation. We recently closed the first allocation from AIG under its three-year $2 billion commitment to Onex's funds with an investment in ASCO 2, and we expect more to follow for future Onex funds, including Onex Partners 6 and separately managed accounts investing in Onex's credit strategies. Turning now to Convex performance. Convex delivered another strong quarter with premium growth, disciplined and profitable underwriting, and an attractive return on equity over the last 12-month period that continues to exceed 20%. Gross premiums written were $1.9 billion in the quarter, up 8% year over year with growth across both insurance and reinsurance. Importantly, this growth was achieved despite negative price pressure, with year-to-date rate changes at negative 5%.

As we forecast at the time of our Convex acquisition, insurance pricing has softened, in particular in short-tail classes of risk such as property. In contrast, there have been rate increases in areas affected by the Middle East conflict and in casualty classes. It is important to reiterate that Convex's underwriting strategy is focused on profitability as opposed to top-line growth. Despite market conditions, Convex has continued to increase market share without sacrificing the strategy and expects to continue generating attractive underwriting performance.

Convex generated net income of $169 million in the quarter and delivered an 85% combined ratio. Net investment returns were $45 million lower than in the prior-year period. This is primarily reflected by mark-to-market losses on the investment portfolio this quarter compared with a mark-to-market gain in the second quarter of last year. On a year-to-date basis, Convex generated an adjusted net income of $275 million. Results were negatively impacted by $62 million of mark-to-market losses in Convex's investment portfolio, primarily related to fixed income investments.

Excluding this non-operational accounting item, adjusted net income would have been $337 million. During the quarter, Convex completed the planned transition of its fixed income portfolio to an available-for-sale classification. As discussed last quarter, this treatment is consistent with peers and means future unrealized changes in values will be recorded outside of net income. The last 12 months provide the clearest view of Convex's earnings trajectory.

Adjusted net income increased 38% to $719 million from $520 million in the prior-year period, while the combined ratio improved to 84% from 94%, primarily reflecting a reduction in the loss ratio to 48% from 59%. Return on average tangible equity increased 350 basis points to 20.3%. Looking ahead, as Convex continues to mature in scale, we expect its earnings to benefit from the same structural levers we have previously discussed with shareholders.

These include continued market share gains, prudent growth in asset leverage which remains well below industry norms, improvement in investment portfolio yields, and improved operating leverage. As the business continues to scale, we remain pleased with Convex's performance and value. Our partnership with Paul Brand and the entire Convex team remains strong. On to private equity realizations. Our DPI at OP's two most recent funds are well into the top quartile for similar funds of the same vintage.

OP5A, a 2019 vintage fund, has now returned 1.0 in DPI, which is a very important metric for the OP6 fundraise. Over the past 12 months and including July transactions, Onex has realized approximately $1.4 billion in distributions from Onex Partners excluding Convex. ONCAP is also actively working on realizations in Fund 4, which we expect would bring that fund's DPI to more than 1.0. The ONCAP team is also focused on the continued deployment of ONCAP 5 and has a robust deal pipeline of opportunities with the potential to close this year.

Turning to credit, the team continues to grow assets under management by delivering differentiated and high-performing products and by expanding its investor base. Credit fee-generating AUM has grown by 13% over the last 12 months, and just a few weeks ago Onex was ranked the 11th largest broadly syndicated CLO manager globally by AUM, putting us within reach of the top 10. It is worth highlighting once more that direct lending represents only 1% of Onex Credit's AUM.

The combination of a long-term and sophisticated institutional client base together with an intentionally underweight position in direct lending is allowing us to avoid many of the headwinds facing the industry. In the first half of the year, the credit team has raised or extended 10 CLOs representing a total of $4.4 billion in fee-generating assets, and in July they also successfully achieved a final close for their second structured credit opportunities fund, ASCO 2, bringing the new aggregate capital committed to deploying this strategy to more than $500 million.

Structured credit, which includes CLOs, taps, and the ASCO funds, delivered $19 million in fee-related earnings in Q2, its best FRE quarter to date, and remains well positioned for continued growth. So let me close where I started. We said we would reposition our investing capital, use our balance sheet more efficiently, increase the profitability of our asset management business, and position Onex to resume share buybacks as quickly as possible.

We have already made meaningful progress against these goals in the first six months of this year. We are not finished. We expect a first close for Onex Partners 6 later this year. We continue to look for one or two more direct investments to be held on the balance sheet, and we continue to strengthen our financial disclosure so you can see the value that we are building. I am confident in Onex's intrinsic value and believe that as we continue to grow it and make it more visible, the market will increasingly recognize that value.

Repurchasing our shares at current levels and future dividends received from Convex should further accelerate value creation for our shareholders. I'll now turn the call over to Meg.

Meg McClellan, Chief Financial Officer

Thank you, Bobby, and good morning everyone. First, let me provide an update on Onex total investing capital. Onex ended the second quarter with total investing capital per share of $123.99, or in Canadian dollars $176.02. Excluding the one-time dilutive impact of issuing shares to AIG earlier in the year, Onex investing capital per share has increased by 6% over the last 12 months. As a reminder, we expect the incremental FRE and shareholder value generated by AIG's $2 billion commitment to Onex private equity and credit products to more than offset the dilution from issuing shares to AIG.

AIG's commitment will be deployed over three years following the Convex close in the first quarter. Allocations have already begun. Convex strong performance is reflected in the value of our investment. Convex value increased 4% in the quarter and 9% since the acquisition closed in February to US$4.2 billion at quarter end. This equates to, in Canadian dollars, $76.82 per share. Onex valuation continues to be based on a two-times price-to-tangible-book value multiple, unchanged from last quarter. This is supported by Convex’s strong return on equity as well as levers the business can utilize to continue to grow earnings at this valuation. Convex’s implied price-to-earnings multiple is 9.8 times the last 12 months’ adjusted net income. Convex now accounts for 44% of Onex total investing capital and was a key driver of our Q2 results.

Other investing capital, which includes our private equity and credit investments as well as cash, near cash, and the remaining balance of our NAV loan, ended Q2 at $5.3 billion, or, in Canadian dollars, $99.20 per share. Onex Private Equity investing capital generated a 4% return over the last 12 months and was flat during the quarter. Importantly, our private equity team has generated strong realizations. These proceeds have enabled us to rapidly pay down the NAV loan and transform the mix of our investing capital.

As Bobby discussed, Onex Credit investing capital generated a 2% loss over the last 12 months and a loss of less than 1% during the quarter. The losses primarily reflected credit market volatility and unrealized mark-to-market declines in our European CLO investments and opportunistic credit strategies. Now let's turn to asset management. Fee-generating AUM was $43.2 billion at quarter end, up 6% over the last 12 months and 1% during the quarter.

Credit fee-generating AUM was $30.6 billion, up 2% during the quarter. That was driven by net new CLO fee‑generating AUM raised. Private equity fee‑generating AUM was $12.6 billion, which was flat during the quarter. Run‑rate management fees were $211 million. In June, Onex realized $65 million of carried interest from the sale of the Ryan LLC continuation fund to a new single‑asset continuation fund to be managed by Onex. This new continuation fund will extend the duration of fee‑generating AUM and provide Onex with an additional carried interest opportunity.

Overall, fee‑related earnings generated during the quarter were $4 million. Management's primary metric for monitoring asset management earnings is run‑rate FRE. We believe it provides the clearest and most durable view of the underlying earnings power of the business. In‑year FRE remains an important measure of current performance but can be affected by market volatility, the timing of fundraising, continuation vehicle transactions, and private equity realizations.

In‑year FRE therefore provides a useful point‑in‑time view, while run‑rate FRE remains our primary measure of determining underlying performance. Several key revenue drivers, including our active fundraising pipeline and the expected first close of Onex Partners 6, are projected to contribute more meaningfully to the second half of this year. Assuming we deliver on these fundraising objectives, we remain on track to achieve $35 million of exit run‑rate FRE by the end of 2026.

As Bobby mentioned, overall, our focus for the asset management business remains on growing FRE and building a more durable, recurring management fee base, while maintaining expense discipline. We believe this will increase the value of the asset management business over time. Finally, on liquidity, we ended the quarter with $287 million of cash and near cash. Subsequent to quarter end, we reduced the NAV loan principal balance to $220 million. We also have access to $600 million of undrawn capacity under a revolving credit facility.

Capital flexibility. In addition, we have more flexibility with our pro forma private equity investing capital balance of approximately $4.4 billion. We only have $275 million of unfunded commitments to funds still in their active commitment period. This is down from $330 million of unfunded commitments at year end and $403 million at this time last year. Overall, we believe our liquidity position provides ample capacity to fund our remaining capital commitments and to support the capital allocation priorities Bobby outlined.

This includes resumption of share purchases. In closing, we continue to make progress against our strategic priorities, as Bobby described, and we look forward to building on that momentum throughout the balance of the year. Thank you.

OPERATOR

We will now open the line for questions. Certainly, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our first question comes from the line of Scott Fletcher from CIBC.

Scott Fletcher, Analyst at CIBC

Hi, good morning everyone. Paul, I want to start with a question on Convex, if you don't mind. You were able to grow premiums 8% despite what sounds like some further softening in the overall pricing environment. Just hoping you could break out some of that growth and maybe give us a sense if there are any specific lines or businesses that are driving premium growth. Or, on the other hand, if there's elevated contribution from new lines versus share gains.

Just some color on the makeup of the growth I think would be really helpful.

Paul Brand (Chief Executive Officer)

Yeah, I'm very happy to answer that. So, clearly, we've seen the same market as a lot of our competitors and there's been a lot of pressure on property in both the insurance and reinsurance lines. And we are a little bit under where we would have been expected to be with those as we've reacted to that softening in pricing. Converse to that, we've seen actually some quite good pricing in some of our casualty areas, and we've also seen very positive pricing in our political violence and terrorism books, which have been obviously affected by the U.S. aramble. So, overall, we write a quite diverse portfolio of both specialty insurance and reinsurance business, and we think with a sort of negative 5% rate, there's both actually still margin in the business overall and you can see that coming out in the results. And there is room for us to grow, particularly as we focus on our client relationships. What we're not doing is opening a whole host of new lines of business because I'm not certain that's the best way to grow in a softening market.

Quite likely to pick up something that you don't fully understand.

Scott Fletcher, Analyst at CIBC

Great. That's really helpful color. And then, staying with Convex, prior-year development, favorable release there was elevated in the quarter versus where it's typically been. Is there anything specific to call out there that might change how we think about that on a go‑forward basis?

Paul Brand (Chief Executive Officer)

Yes, we like to reserve conservatively, obviously. And so we tend to react to sort of bad news faster than we do with good news, if you like. So you can see sort of some of the slightly higher current-year loss ratios for both Q1 and Q2 2026, and that's as we're absorbing what we're seeing as a negative price movement. But then, as the portfolio matures—and particularly it matures more quickly for the shorter-tail lines, as opposed to the long-tail lines—we sometimes see that actually our actual versus expected actually is way less than we'd expected it to be, and at that point in time react to it.

So the story of Q2 is very much about—it's not really about the major events improving. It's really about just not seeing as many losses in those short-tail lines as we had expected. Now, I'm not saying that's a trend, and as you say, eight and a bit percent is a bit above what we've seen in prior quarters, but it is. If you don't see the losses, then you can't hold on to the money.

Scott Fletcher, Analyst at CIBC

Fair enough. Thank you. That's really helpful color. I'll pass the line.

OPERATOR

Thank you. And our next question comes from the line of Bart Jarsky from RBC Capital Markets. Your question, please.

Bart Jarsky, Analyst at RBC Capital Markets

Great. Thanks for taking a question. Good morning, everyone. Bobby, I wanted to ask around the buyback. So it looks like you're reinstating it, maybe. Just what should we expect in terms of the pacing and timing of that buyback?

Bobby LeBlanc, Chief Executive Officer

Yeah, so you should expect us to start it immediately, as soon as Colin, Sam, our General Counsel, tells us it's okay to do so. But we'll start it immediately and we'll go in through our normal course issuer bid, as we always do. You know, there's rules around that that make it hard to get a lot of shares within a short period of time. But we'll also be, you know, looking for blocks that may come up as well. And I think, again, I think we have plenty of liquidity—being in a net cash neutral position or net debt position, net neutral position—where I think we can be opportunistic in buying shares like we had been for the last five or ten years before we deployed so much of our capital into Convex. I think we have plenty of room. We have plenty of room just given how much capital there is here in the balance sheet to do share buybacks and to proceed with pursuing another very large acquisition or two, similar to Convex.

Bart Jarsky, Analyst at RBC Capital Markets

Okay, got it. Thanks. And then on private equity, the performance was soft this quarter—like OP was negative 1%, ONCAP was 2. That's a little bit different than what we've seen with the larger public alts who had really strong PE performance this quarter. Could you maybe talk through what drove that performance? Was it specific investments or any kind of themes that you're seeing in your PE book?

Bobby LeBlanc, Chief Executive Officer

Yeah. First, when you look at other people's PE performance, be careful that they're not mixing other lines of business with PE. They often do, and it kind of clouds the comparison. But look, we try very hard, as you know, to make sure our marks are correct. And in any given quarter we can have some one or two things happen in the portfolio where we want to make sure our marks reflect reality. And I'm not going to get into specific names, but that was the case here.

There were a couple of names where we felt as though we needed to lower the mark just based upon public comps and other ways that we value the companies. And when that happens, we do it. We don't expect it to happen every quarter, but this quarter resulted in basically a flat NAV quarter for PE. I don't expect that to be a trend. I don't expect that to be a trend, though.

Bart Jarsky, Analyst at RBC Capital Markets

Okay, that's helpful and understood. And if I could sneak in one more just on the run‑rate FRE guidance, you know, that embeds an assumption that OP6 has a first close. Maybe just walk us through what you're expecting for that first close and maybe, more importantly, what gives you the confidence that we can get that first close end of this year. Thanks.

Bobby LeBlanc, Chief Executive Officer

So look, we're—Topic and myself and the team are feeling quite, you know, optimistic about the first close occurring this year. I can't give you sizing—like, we won't do that. But I can assure you what we're looking at for a first closing, and quite frankly demand for closes beyond the first close for OP, with people we've done business with for a long time and some new people, you know, that should result—subject to the world, you know, staying the way it is—in a good result where the human capital we have at OP would allow us to have a good margin in that business from an FRE perspective.

Bart Jarsky, Analyst at RBC Capital Markets

That's it for me. Very helpful, thanks.

OPERATOR

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

Graham Riding, Analyst at TD Securities

Hi, good morning, Paul. Maybe I could just go back to you for a second. Any visibility on how sort of cat losses or one‑time outsized losses might be tracking in Q3? Is there anything to call out that could impact ROE?

Paul Brand (Chief Executive Officer)

I mean, there have been some events, but nothing that we are thinking is going to be in a major event category so far in July and August. I mean, we're still in the midst of the hurricane season. I mean, at the moment that's been very quiet, but those things can change quite rapidly. So, yeah, we'll keep you posted. But nothing to talk about at the moment.

Graham Riding, Analyst at TD Securities

Okay, understood. Thank you. Bobby, just pretty good activity on the PE portfolio realization activity side. Any—can you give us some commentary maybe on the visibility you have toward through the second half of this year on that front? Maybe I'll start there.

Bobby LeBlanc, Chief Executive Officer

Yeah. Look, for both OP and for ONCAP, there are things in the pipeline that we think will convert to cash between Now and the end of the year, and it'll be subject to any process. But you know, we're very focused on making sure. We're being very sensitive to the fact that LPs want us to have not just us, the industry have a very high ratio of DPI to net MOIC. And again, as I said in my opening commentary, we're top decile and well into the top decile on that metric. And I think that's part of the reason there's optimism around the first close for OP this year.

No. What you shouldn't expect is us buying a multibillion-dollar asset manager. But what we could buy, like Convex and the partnership with AIG, that was synergistic with the asset management business. So whatever the next leg or two or the final leg or two of the stool might be, we're hopeful that they're synergistic with what we have to date in those two things. It doesn't mean you should be thinking that one of the things we're contemplating is buying a $5 billion asset management business.

We're not. But there are, look at, there are tuck-ins you could do in the asset management business that could make great sense relative to our areas of competence that, you know, we've talked about in the past. But it's more likely that a large deployment of capital being something in financial services rather than asset management. Thank you.

OPERATOR

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, Chief Executive Officer

Thank you very much for your time. I hope you enjoy the rest of the summer. And if you have any questions, feel free to reach out to Meg or me or Zeb, and we'll be sure to get back to you quickly. Have a great day, everybody. Thanks again.

OPERATOR

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

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