Onex Q2 Earnings Call Highlights

Key Points

• Onex shifted its investing capital toward Convex after private-equity realizations and the post-quarter-end sale of Emerald. Convex represented 44% of investing capital at quarter-end, while the NAV loan used to fund its acquisition was reduced from $700 million to $220 million.
• With its balance sheet strengthened and shares trading at a discount to intrinsic value, Onex plans to resume share repurchases immediately while still pursuing one or two additional large direct investments, particularly in financial services.
• Convex delivered strong operating results despite softer pricing, posting $1.9 billion in quarterly gross premiums, a hybrid? 85% combined ratio and $169 million in net income. Onex’s structured-credit business also produced record quarterly fee-related earnings, while management remained optimistic about a first close for Onex Partners VI later this year.

Onex TSE: ONEX said its second-quarter performance was supported by continued strength at specialty insurer Convex, private-equity realizations and record quarterly fee-related earnings from its structured credit business, while the company moved to resume share repurchases after sharply reducing its NAV loan balance.

Chief Executive Officer Bobby Le Blanc said the company has made progress on four priorities outlined following the Convex acquisition: shifting investing capital toward direct ownership of Convex and other potential investments, improving balance-sheet efficiency, increasing asset-management profitability and returning capital to shareholders.

“We have already made meaningful progress against these goals in the first six months of this year,” Le Blanc said.

Capital mix shifts toward Convex

At year-end 2025, private equity represented $5.6 billion, or 65%, of Onex’s investing capital. Following the Convex acquisition, private-equity realizations and the post-quarter-end sale of Emerald, private equity represented $4.4 billion, or 46%, of invested capital, according to Le Blanc. Convex accounted for 44% of investing capital.

Chief Financial Officer Meg McClellan said Convex’s value increased 4% during the quarter and 9% since the acquisition closed in February, reaching $4.2 billion at quarter-end. The valuation continued to use a 2x price-to-tangible-book-value multiple, unchanged from the previous quarter. At that valuation, Convex’s implied price-to-earnings multiple was 9.8x last-12-month adjusted net income, McClellan said.

Onex ended the quarter with total investing capital per share of $123.99, or C$176.02. Excluding the one-time dilutive impact from issuing shares to AIG earlier this year, investing capital per share increased 6% over the past 12 months.

The company also used private-equity realization proceeds to reduce its NAV loan. Le Blanc said Onex drew $700 million under the facility to help finance the Convex acquisition but subsequently reduced the outstanding balance to $220 million, leaving the company in a net-neutral cash position.

McClellan said Onex had $287 million of cash and near-cash at quarter-end, $600 million of undrawn revolving credit capacity, and approximately $4.4 billion of pro forma private-equity and investing capital. Unfunded commitments to funds in their active commitment periods totaled $275 million, down from $330 million at year-end.

Share repurchases set to restart

With the NAV loan reduced and shares trading at what management considers a significant discount to intrinsic value, Onex expects to resume share repurchases immediately. Le Blanc said the company would use its normal course issuer bid and would also look for potential block purchases.

He said Onex has sufficient capacity to buy back shares while pursuing “another very large acquisition or two” similar to Convex. The company is seeking one or two additional direct investments that can generate compelling risk-adjusted shareholder returns and potentially complement Convex or its asset-management operations.

Le Blanc said investors should not expect Onex to acquire a multibillion-dollar asset manager. Instead, potential asset-management transactions would likely be smaller tuck-in opportunities within the company’s areas of expertise. He added that a larger deployment of capital is more likely to be in financial services than asset management.

Convex posts underwriting gains amid pricing pressure

Convex reported gross premiums written of $1.9 billion in the quarter, up 8% from a year earlier, despite year-to-date rate changes of negative 5%. The insurer generated net income of $169 million and an 85% combined ratio during the quarter.

For the year to date, Convex reported adjusted net income of $275 million, including $62 million of mark-to-market losses on its investment portfolio, primarily related to fixed-income investments. Excluding that accounting effect, adjusted net income would have been $337 million, Le Blanc said.

Convex completed its planned transition of the fixed-income portfolio to an available-for-sale classification during the quarter. Under that treatment, future unrealized valuation changes will be recorded outside net income.

Over the past 12 months, Convex’s adjusted net income rose 38% to $719 million, while its combined ratio improved to 84% from 94%. Return on average tangible equity increased 350 basis points to 20.3%.

Convex CEO Paul Brand said pricing pressure was most pronounced in property insurance and reinsurance, while casualty lines and political violence and terrorism books saw stronger pricing. He said the company is not pursuing broad expansion into new product lines simply to grow premiums in a softening market.

Brand also attributed elevated favorable prior-year reserve development to lower-than-expected losses in short-tail lines rather than an improvement in major events. He said the company had not identified any major-event losses in July or August, while noting hurricane season remained underway.

Asset management and fundraising outlook

Fee-generating assets under management totaled $43.2 billion at quarter-end, up 6% over the previous 12 months. Credit fee-generating AUM was $30.6 billion, rising 2% during the quarter on net new CLO fundraising, while private-equity fee-generating AUM was $12.6 billion and flat sequentially.

Structured credit generated $19 million of fee-related earnings in the second quarter, its strongest quarterly result to date. The credit team raised or extended 10 CLOs in the first half, representing $4.4 billion in fee-generating assets, and completed a final close for its second structured credit opportunities fund, OSCO II, bringing aggregate capital committed to that strategy above $500 million.

Onex reported $4 million of fee-related earnings for the quarter and run-rate management fees of $211 million. In June, the company realized $65 million of carried interest through the sale of the Ryan LLC continuation fund into a new single-asset continuation fund managed by Onex.

Management reiterated its target of $35 million in exit run-rate fee-related earnings by the end of 2026, contingent on a successful first close of Onex Partners VI in the fourth quarter. Le Blanc said he was optimistic about a first close this year but did not provide a target size.

Onex Partners V, a 2019-vintage fund, has returned 1.0x distributed-to-paid-in capital, while Onex has realized approximately $1.4 billion of distributions from Onex Partners over the past 12 months, including July transactions and excluding Convex. Le Blanc said the company also expects further potential realizations from both Onex Partners and ONCAP through the remainder of the year.

About Onex (TSE:ONEX)

Onex Corporation is a private equity investor and asset management firm. The company operates in two main segments: investing, which includes private equity, private credit, and direct investments; and asset and wealth management, which manages pension plans, sovereign wealth funds, insurance companies, and family offices. Investing revenue primarily comes from net gains on corporate investments and CLOs (collateralized loan investments). Asset and wealth management revenue comes primarily from management and performance fees.

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