Q3 2020 Power Corporation of Canada Earnings Call
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I would now like to hand, the conference over to your speaker today, Mr., Jeffrey or President and Chief Executive Officer of Ferro Corporation. Please go ahead.
Thank you.
Operator, and welcome everyone to our quarterly analyst and Investor call.
That's great to have you with us today, thanks for joining us.
It's just open it up with the regular disclosed disclaimer statements on forward looking statements on page two.
And and also disclaimer on page three regarding military for us.
Measures.
So with that today. In addition to myself I've got a great Kruczek executive Vice President and Chief Financial Officer.
Power Corporation.
And I will just open the call made up by talking a bit about the third quarter No question. This.
It was a quarter, where power and its major operating businesses made really big strides in advancing our value creation agenda.
Our major public companies had strong financial results in the face of a COVID-19.
And at the same time announce a number.
Number of highly attractive transactions that are not only strategic but a very accretive to earnings on the whole and value enhancing.
The power level, we continued to make good progress in building out our investment management platforms as well as enhancing value of our standalone businesses and.
All the while across the group at the public operating companies in at power. We continue to push forward on our efforts to enhance our communication to the market participants both in terms of the content the way, we present and in terms of the frequency of the meetings.
So on page six.
Yes.
Got the fact that each have great west life, ITM and GBL have had their earnings out on their own calls or releases and the point of this call is not to repeat the material that was presented by them.
Other than that what we're going to do is provide our perspective on some of the key developments and then talk about some.
Developments at the power corporate level itself.
Moving along to slide seven I think the word frenetic is probably not inappropriate when you talk about what's been announced over the last few months.
There were five.
Pretty significant transactions.
For them.
With that the operating companies plus the wealth simple announcements just after the quarter end, some and really.
Significant I think any in these in these deals in many ways I'm going to address them in the pages that follow so I'm not going to go through them on this page, but you can just see the pace of activity and this didn't all happen obviously.
We have that third quarter people at great West at I.G.M. across power have really been working extremely hard on many of these are they and they fell into place a in this quarter I'm, but lots of people have been working for a long time to make all of this a success I do want to point out one thing on the page which is not.
The men's actual announcement, but the.
The leadership changes at IBM, and my first chance to kind of publicly acknowledge.
What went on there at ITM and first of all thank Jeff Carney and and recognize what Jeff did from 2013 to two.
The September when.
When we announced his retirement as CEO of ITM and what he did really it for AARGM was fantastic in terms of helping to reposition Mckenzie and its leadership position something that Barry Mcinerney and the team have done a great job of continuing to build on.
Really setting I'd wealth up for future success, putting in place an incredible team.
Okay, and then and then finally when he was diagnosed with.
With early onset Alzheimer's dealing with that in a way that allowed us to go out and properly plan.
How we were going to.
Replace him and in effect build on what he had done and so.
Jeff has done.
On an incredible job and we're lucky that although he is no longer in a management position, we're going to benefit from his ongoing council.
And as an advisor to IBM and to the group.
Very very happy with what we now have as a leadership team very fortunate and thrilled to have James O'sullivan I join us as a full time dedicated.
Gated CEO of ITM, and then with the strength of the team at IBM, We've got Damon Murchison as a.
As CEO of wealth and of course, very mcinerney, and Chris rentals carrying on in the job. They are doing and building out Mckenzie an ITC. So the whole thing we're thrilled with the management team.
But I just want to acknowledge that here on this call.
Okay, Let me move along then and pass it over to to.
Greg Tritech to walk us through the next few slides and talk about the quarterly results.
Great. Thank you Jeff.
I will take you straight to page nine and begin.
And with the.
Overview of the change in.
Ccs net asset value.
So.
Looking at the bottom of the table charts. There you can see at September Thirtyth 34, 94 is the share of.
Kurt.
I should say the NPV per share.
Compared to $30.79 in March that's up 13.5%.
When I looked this morning, I think were us since then as of September Thirtyth as it grew up another 11%.
So.
Good.
Lengths in the.
NAV accretion of appreciation over the course of the last little while.
Looking at the publicly traded companies.
You can see that they were up 12.4% as a group.
I've just mentioned part purchases and.
Great deal that transaction.
Two.
Eliminate purchases are moving well along and you can see that.
The NAV has increased from March as well there.
Their net asset value at JPL on March 30, Onest with something.
$15.9 billion.
And on September Thirtyth was $18 billion couple other things to call out on the slide if I could and that would be take your eyes down to power of Pacific Our Pacific.
Almost at $1 billion, you can see that.
It's up.
37.4% outperformed the CS side by some 20%.
During the quarter and we have a slide on that and we'll speak to it in more detail a little later on.
Vince a little further down the line you can see the fintech investments and.
That.
Okay.
Appreciation there you can see at 78.9% is reflecting basically the transaction that Wilson will simple announced.
In October where they.
Raise capital at a value of $1.4 billion pretty money for.
Sure well simple.
And.
The only other comment I would have on this slide would be that I'll, just remind folks that.
Not everything is mark to market.
On a regular basis.
As we do all the publicly traded securities in particular I'd call.
Note, China asset management, which is basically carried at its equity accounted value.
With that I go to page 10, and just.
Just a brief overview of.
The results.
Couple of comments one this is a new presentation that reviews tier.
Sure.
And trying to live up to our initiative to.
Simplify things and actually be a little more transparent and so we've done that not only in this particular presentation of.
Our results, but also in our press release and and in our Mds.
Days.
And.
The one thing you would have seen is the way we are presenting the contribution from great West life, Hi, Jim Unfortunately is.
We used to reallocate all the consolidated entries to.
The.
Those entities and.
What we've done.
Chosen to do is actually show the three as they reported their earnings so it's much easier to go from their earnings to our share.
[music].
Their earnings with no adjustments so it would be very clean and should be very obvious to you and you would have seen.
Seeing this.
In their reported results so looking at the consolidated entries.
There's a number of consolidated entries in there one and one in particular that were going to call out and it's called out in that that bullet.
At the I guess the sub bullet.
Right right and the top of the Remeasurement of the put liability on the non controlling interest and well simple and web help.
As I mentioned earlier that there is a significant increase in value and well simple and also it.
Have health and.
That led to.
Two obviously.
That's fairly significant gain however.
When they are consolidated entities those gains are not reflected in the PNM and.
That's not like it used to be a tight with non showing my age quite frankly, there used to be something called.
Dilution gains.
Since we have adopted IR.
For us.
There are no such things and.
Gains when you have a consolidated entity do not flow through the PME now so that.
That will be recognized in equity and in the fourth quarter.
However.
Associated with that.
Is put rights that we have.
To re value in the current period and those put rights are in relation to options held by wealth.
Well simple Cheryl.
Holders.
Mainly the country non controlling interest quite frankly, not shareholders thorough but just the non controlling shareholders.
And.
Those put rights have to be Mart and reflected in the PNM now and in the current period, we did that and Thats resulted obviously an expense in the PNM.
And it was represents 16 cents 10 cents for the wealth simple Mark and.
Six cents for the web health Mark and when you look at this presentation you will find the six cents affects the parse there is a line.
Five cents in the consolidated EPS.
Train sets life go and GMP share of wealth simple smart and five cents at PFC.
And so.
When you look at these results.
You know, we think you should take into consideration that obviously that.
That 16 cents.
Added back to the 65 cents would have reflected an 81 cents.
Quarter, which is more comparable to.
The Q.
Q3 result.
We have slides later in the deck that address the the platform.
Contribution also try and AMC.
And also the corporate operations and.
And so I will turn it back to Jeff and we will address those individually okay. Thank you Greg so.
So I'll turn over to the next page, which is a restatement of our strategy and you've seen this slide before but still relatively new song Act keep repeating it for a while.
Also that it's well understood.
The strategy of Power Corporation is one that is focused on financial services not diversification.
The public operating companies, which after all represent some 70, 980% of the gross asset value of power remain a very important part of our strategy and they are continuing to pursue.
To their strategies with our involvement.
And support to growth their value through organic and M&A transactions, but at the power level. If I can kind of describe the words that are there we are going to streamline and simplify.
At the power level.
And we're going to build value.
Through the investment management platforms that we have and if I can create a vision for where we see it being several years out you're going to have a much simpler company with investment platforms that have seed capital that we'll be able to show you and tell you what we're running on the seed capital and have investment management companies that have revenues and expenses and contributions.
It is and we're able to show you that and we think not only is that a recipe for creating value, but it's one that investors will be able to understand and hopefully value much more easily and if we continue to push forward on our strategy to communicate clearly and enhance the clarity of our disclosure and the frequency of our interactions.
We think that we will create value added at the power Corp level that will be enhancing to what we're doing at the operating company public operating company page.
Page 12 is that it's really just another representation, but we like to think of it in terms of how we organize our strategies around the three leverage you've seen them before the opco organic.
Panic leavers they use of M&A and then what we are doing at the holding company to enhance the value. So I won't spend any time on this slide.
I would like to spend the next few moments just not going through the description of the transactions, we announced because they've all been publicly described and you will have seen them before I would like to just very briefly on each give you.
Our perspectives on why we think they are exciting and why they add to the group and the fact, why we why we did them so.
So I'm on page 13, which is a mackenzie acquisition of GL.
Let's see asset.
Asset management and the at the same time you had the contracts set from Congress going back from Mckenzie to Canada like this does three things for them.
The group it enhances Mckenzie his leadership position in the asset management business in Canada. It also gives mckenzie access to two channels a much greater access to the candidate life retail channels, but importantly for the first time access into the defined contribution retirement channel.
Ill in Canada, and so very important for Mckenzie to two important new distribution channels for them too.
For them to pursue and then from the Canada life perspective.
A much stronger position in the wealth management market as they in effect have a prime supplier with much greater and broader capabilities.
And our and through this transaction also have complete freedom to go out and use third party suppliers as they have in the past, but this in fact facilitates that to be able to provide the very best products for the Canada life clients. So we think those three things at the win all around for both him and great West.
Let me turn then to page 40.
So just on the I guess two days before the end of Q2, we announced the personal capital transaction actually closed we got our approvals very quickly you see at the bottom of the page it closed on August 17.
This trends. This transaction I think is is really really exciting it does three things for mpower.
Great West life Us retirement.
A defined contribution player it adds a best in class digital wealth management platform.
Personal capital has a California based.
Digital hybrid wealth management business, which has outstanding technology client experience and value and is quickly.
Rowing so its a direct to consumer business now that empower has in wealth management. Secondly, empower was already very focused on building their retail business on the money that comes out of their defined contribution business. The so called rollover enroll in money the personal capital tools and technology implanted into that is going to enhance that.
Business significantly and finally, the personal capital tools and experience imbedded in powers defined contribution business itself will enhance the experience and enhance the the growth prospects of that business very exciting before I leave the page I want to make a point that.
We've.
Talked a lot about powers or in the past Fintech strategy.
There were really two major investments that took that were the most significant capital investments across the group one of them was personal capital, which I GM put about $145 million us into over four years and the other was well simple.
The rest of the Fintech strategy will very exciting.
At the Port has strategy in the diagram strategies really Didnt know a lot of capital those are really more people build outs, but the capital went into personal capital and it went into into well.
Well simple and this transaction.
Validated that that move because it turned out for ITM that they made a very good return on their money.
And as the auction came we were able through empower to now have personal capital as a real value added piece of the great West life platform. So this is one of two fintech investments, we made and it's turned out very very well, okay. Turning along to page 15 really the biggest transaction by far the most meaningful over the last few months that we have.
As announced is the mass mutual transaction.
It does in my view for things for the company it solidifies and strengthens empowers position as the number two provider in the growing retirement business in the state. It's an eight trillion dollar market, it's still ripe for consolidation I think over the next.
10 years, and we are a clear and number two to the industry leader fidelity through this through this transaction. It's highly accretive financially. This is a classic great West life coal cost synergy play.
We know exactly how to duties and so that the deal.
Next on very attractive terms that will be highly accretive to the earnings of great West life go as those synergies are realized over the next 18 months following closing, which we expect right around the end of the year thirdly, empower becomes very important to great West life. Once we've done. This in addition to the growth and the earnings we have at.
At empower already and power will be somewhere in the low twentys percentage.
Of the earnings and contributions of great with life co. As you look out say three years from now so this transforms and power from a attractive business to an attractive business, it's very very important to great West life cycle.
And then the final thing is that today.
They are with the personal capital acquisition that I mentioned on the previous page. This gets empower into a position where it can really attack the retail wealth management business. So it transforms it.
From a a DC group player into a company that has a real retail business going as well very excited about this trends.
Yes.
Page 16 is the.
Northleaf transaction that was announced on September 17th and again this is going to be a very attractive transaction it will be.
Accretive to earnings, but more importantly, I think is really going to help the strength of our franchises. The first thing. It does is for GM book Mckenzie NFG.
That provides them with very interesting products to go after new client bases, but also I meant the returns in many of their products for their existing clients for great West life. It all it does the same they can embed some of these products and the products that they distribute to their clients as well their own balance sheet is looking for.
These kind.
Products and it provides them with direct access to north leaps products and finally for Northleaf Association with this distribution with great West life balance sheet with our group will augment their growth, which has already been significant really high quality company. We're just thrilled that we were able to.
Come to an agree.
To supplement and I think everybody is very excited on both sides to pursue this partnership with Northleaf.
After the quarter page 17 after the quarter ended we.
Well simple announced their financing Greg's already mentioned it I won't.
Belabor it other than to say from a financial point of view our group put 315.
Currently in Canadian over the past four or five years into well simple about a third of that roughly was that the power power financial level and the bulk of the rest was at the IBM level, a little bit of great West life.
This transaction values that at 934 million so.
A triple and on an IR our basis is about 44% annual.
And our returns so that validates from a valuation point of view.
The other big investment we made in in the Fintech space.
And at the same time, it's also going to provide well simple with another 100, and so odd million to continue funds to continue to build out their platform and the shareholders were the Lee.
I think technology investors in the us here.
And.
They are going to participate there is the board seats, there we get the benefit of their knowledge their experience on on on realizing value and augmenting value in these businesses. So again, it's a win all around you see along the bottom of the page some parameters there about the success. It will simply continues to enjoy.
Leave it.
Much more than just an investment business right now they have a trading business they've got.
Made an acquisition in our offering tax services to their clients and the existing clients that existed in that business. I think we got 1.5 million Canadians right now doing business with well simple, it's a very impressive story.
Okay, Let me turn.
And then on to page 18, and we're going to continue to highlight the asset investment management platforms of cigar holdings and power sustainable don't really have time on a on a quarterly call like this particular with all the stuff that went on in this quarter to spend as much time as we would like to on this but we will continue to do so.
Turning in the quarters ahead and through other forms that we will create but a good progress. This just gives you on page 18, a quick snapshot we have on the left hand side bottom of the page $7.3 billion of assets under management or committed Blue 5.3 is actually funds that are deployed and.
Another $2 billion that are committed but our unfunded at this point of the 5.3 billion. That's committed you can see the dark blue at the bottom $2.8 billion from power PARP and $2.5 billion from other parties of the uncommitted 2 billion, 75% of that is from third parties to our emphasis going forward here is as third parties.
Theres funding it and as you move towards the right side of the page you see cigar holdings.
Which is the cigar Europe private equity the private credit business venture capital, which is really a lot of that is the fintech Portage portfolios and our health care business that is already primarily third party and power sustainable capital which is.
Is that our Pacific, which Greg mentioned earlier, having fantastic returns and power energy that at this point is all 100% power per capital, but they're hard at work, bringing in a third party investors and the next couple of pages I won't go on them just quickly on 19, you get to.
Little more profile on cigar holdings, you see the number of Lps.
I have the number investments the number of people where they are located.
And on page 20, you have some facts on power sustainable capital and what they're doing both in the energy space. The capital they have some of the returns that theyre targeting.
Then the power sustainable capital position that Greg mentioned, so we will.
They come back and continue to provide more and more information on these businesses.
I'll quickly then run through before wrapping it up our other important investments trying to asset management continues to do extremely well as you know we have I think 13.9% of this business I GM has another 13.9 so collectively.
Well for the second biggest shareholder this is in my view the Premier company in the Chinese market. It is the number two long term mutual fund player. It's the number one ETF player. It's got a very important institutional business not mentioned on this page and you can see the growth over the last year at the bottom right of the profitability next to it you can see the growth in assets under management.
Profits up 31% year over year power Corp. share in the quarter of that profitability was 11 million GM of course would have had it.
Comparable number it's not making big big contributions to earnings at this point, but it's growing very quickly and it's obviously in a market that.
Is doing exceptionally well and in an economy thats.
Huge and growing and is under saved.
Page 22.
Repeat what we've said all along I mean, while the businesses on this page are in Standalone businesses are not on strategy for the business of power Corp. in the future.
We're not we are going to continue to work with our partners.
In these businesses and manage these businesses to maximize value and realize value in a way that works for power Corp, and in a way that works for our partners and so but and we've got some attractive businesses here. There were some good developments in these businesses in the quarter up <unk> 0.02 in particular.
We sold it.
Its eastern Diamond business, that's a baseball bat business to rolling sport.
And then Leone, which is an electric vehicle manufacturer based here in Quebec, and it's basically trucks and buses, obviously, a very fast growing area. They entered into agreements with some major companies, including Amazon to provide them with it.
Because they are already in our manufacturing state. This company is it's not just a field of dreams.
And some really exciting developments there and we think there's some good potential for value creation in this business in the periods ahead.
We are I wont on 23 continued committed to reducing our expenses.
Not a big change in the run rate this quarter, but no change in our plans to to reduce our run rate expenses by $50 million.
Just two more slides I'll focus on and then we'll open it up for questions. The page 24 as is so important to us and I'm pleased to say in over the past few quarters, we've made progress.
Across each of Great West life, Fiveg Mpower Corp. In our communication to great West life introduced the base earnings metric in the first quarter, it's been well received by the market all the feedback I've received and they received.
They have a new segment disclosure as they announce or new.
Management lineup in the first quarter and the enhanced.
Our source of earnings and disclosure the greater granularity in the second quarter.
I'm really excited about their new disclosure.
I am continually gets lumped in as an asset manager well that's true it's an asset manager we have been saying for a long time that the asset management piece of the value chain is a relatively small piece of it.
It's much more of a wealth management business and with the.
New disclosure and with the agreements with both high G. wealth and with Canada life on commercial terms, we now are able to break out very clearly.
Gee wealth and ITC. This is what we make has a wealth manager.
And here's Mckenzie and what here's what they make as an asset manager and then finally and just as importantly, there is another strategic bucket of assets that many of them shouldn't really be value in on an earnings basis, and so should really be a sum of the parts and here's what they're valued and here's their progress and so this was an important first step in IBM being.
To explain to the marketplace, how they make money and how the businesses work. So very pleased about that and then here are corp.. We continue with what started in the first quarter. Our first earnings call. We've been extremely active in reaching out to investors and you see the very bottom of the page, including it says 31, one on ones with mostly investors and some analysts since then.
Well Q2, it's actually since I think September eight thats all after the massmutual announcement, we have been very busy reaching out to our shareholders and to our analysts.
Ill pull it all together.
On on page 25.
This is the same three leavers, but kind of giving it a little bit of additional.
Handle life here and in a nutshell what are we trying to do at the end. The first two levers which is the operating businesses. We're trying to drive higher earnings in the first instance, turning the very significant investments we've made over the last number of years to improve those companies competitive positions turning that into.
Strong.
In older earnings growth, then adding to that through the use of M&A and what can I say this quarter kind of it all kind of fell into place and one quarter lots of good things happening. So that we have higher earnings and we have.
Higher trajectory of earnings that the market sees because we're communicating it and they gain confidence in what we see as the earnings.
Prospect that has the possibility not only are benefiting from the higher earnings, but potentially higher multiples because when we look at the multiples we think that they reflect very low implied growth rates into the future.
And then at the power Corp level. We are also working on increasing our net asset value in some cases realizing on that.
Praluent, returning money to shareholders and simplifying it and communicating it so investors can understand it when you add all that up it's higher earnings potentially higher multiples higher end, Avi and potentially a lower discount if we do a good job in communicating it so.
So even without the revaluation, it's an exciting.
Very if you add revaluation to it is extremely exciting story.
This is why we're very pumped up about it why we're very focused on executing the strategy.
And so I won't go to the last page, it's just kind of summarize as well where we are in the quarter I think with that ill conclude my remarks, and I would ask the operator to.
Store in the lines up for <unk> for questions from those that are on the line.
Absolutely as a reminder to ask the question you will need to press star one on your telephone to withdraw the question you'll need to press the pound Keith first.
First question will come from the line of just Kwan of RBC. Please go ahead.
Hi.
Yes, good afternoon on.
Well I got to think about what you what you've done over the past couple of years I mean, you've done a bunch of different things to simplify the structure optimized capital structure.
Thinking about going forward.
Other things you can do.
Due to simplify the structure the story disclosures whatever else like that.
Hi.
That could surface value, but not including say for example doing acquisitions.
Well, thanks, how do you feel like right now where we are in terms of standing of the ball game.
Do you think right now you'd like to do.
Okay. So on the point of simplification, because I think the value.
Value creation is also one of at the operating businesses.
Getting belief in the marketplace on the organic earnings.
Prospects as well as adding to it through M&A, that's a big part of the equation, but your question is on the simplification piece of it which which.
Additive, but not not the whole thing right. So on the simplification piece I think that structurally we have combined we've done two deals that you mentioned power power financial came together in GB Ellen Perjeta, but when you look at all my communications with market with shareholders and investors and analysts when you look at power corporate itself.
And you look at the string of investments, we have people don't understand them and they don't know how to value them and most of them.
Our not earnings driven valuation their net asset value valuation unlike great west in IBCM, which are principally earnings driven and so we have a complicated long list of companies that people don't appreciate.
Can't value don't know how to put metrics around so I think the simplification that I talk about over the next couple of years will be less about structurally simplifying and actually simplifying the business itself. So that if you again and vet envision if we're successful in transferring this into say.
A few years out.
All we have is the investment platforms.
You would have two things to look at you would have.
Seed capital that we could go to the market to say, we have X billion dollars and seed capital supporting all these strategies and and were earning a rate of approximately 8% or 10% or it will depend on the mix between what the strategies are and that's what we have that value.
That's what we're earning and secondly, we have investment management platforms that have revenues of X and cost of this and and this is what they are contributing.
And I think when we get to that point it will be a much simpler story to explain and to value and and.
I think.
If we do a good job communicating that.
That will enhance our value because as opposed to right now I think it contributes to the discount quite a bit.
I don't know if I answered your question its.
If you want to if you want to I don't know if that answers your question Jeff.
It means disposing of assets I mean, ultimately I'm talking about disposing of assets at the buyer level.
Right, Okay, and then on your asset management platform like Whats to do you have like a mix in terms of the types of investors you've been able to attract into your bears various strategies.
And also to is is there much in the way of.
Cross sell of them investing.
Multiple strategies that you offer yes.
Yes, good point and the answer is I don't have all of those facts in front of you you do have on I forget the pace number on cigar holdings, which is where the so the third party capital currently as I think they have a list of 200 Lps if you see there.
And I I know there are.
Investors, who are multiple invests.
Testers and those are a mix of verifies institutions. This it's a broad list of institutional investors, Greg you want to grow geographically as well for sure because a lot of because some of it as cigar France, but even then in the businesses of of our Fintech businesses and then the businesses of our our.
Royalties.
And those have really gone out and our credit funds. There are third party investors around the world and those investors. So I don't have that we will I think whats best there is as we give exposure to those strategies, which is tough to do on a on a call like that will either have a session on the platforms themselves, whether it's an investor day or we do it as part of an investor.
Our road show and really highlight what's being done there Jeff.
Okay that would be helpful.
Okay. Okay. Thanks, Thank you.
Your next question will come from line of Graham rate, writing of TD Securities. Please go ahead.
Hi, good afternoon.
Yeah.
So the topic just the was an acquisition I think Grayhawk recently, just any could you provide some color on that.
That process. There is some natural distribution channel that you're trying to sort of build and create around good alternatives platform.
In addition to your historically was.
And then were institutional client base.
So if you think you get very good question. So if you think about the private investment space.
And you think about the strategies, whether it's classic private equity, whether it's real estate whether it's.
Which were not in EPS harcourt level, whether its infrastructure all of these asset classes.
Have hit.
Historically had as their market as you point out institutions, and then family offices Ultra high net worth.
And so those remain important sources and that then we believe through and you see that through the Northleaf deal.
Theres going to maybe.
Produce word, but its true democratization of alternatives, which is essentially finding.
Ways and vehicles through which you can bring non liquid investments to a broader part of the market into high net worth and into even mass affluent and theres lots of strategy is one can do that too.
Do so with which I GM in Mckenzie.
Oriented a life and other parts across our group will be doing however, the ultra high net worth and the family office opportunity is still a very important distribution channel for that so in cigar holdings going out and.
As effectively buying what is a platform that access is a family offices and high net worth.
And they are looking to create a vehicle to distribute.
Their products into that marketplace, with Canada, and Thats not a big dollar ticket or it would have been disposed of course.
But nonetheless, a very interesting group that is intended to provide them with greater distribution.
Okay.
Understood and then there's obviously lots of.
Activity, both with acquisitions and some divestments, that's a great question I GM.
Should we expect a period here of less activity over the near term as you.
You sort of focus on integration.
And whatnot or do you feel.
Got the balance sheet capacity to stay active or are you going to pull back a little bit on the activity and focus on integrating these deals were.
What should we do.
I think we'll continue to be looking very actively there is no doubt that from a capital position or from a fire power position.
Great West life.
It is going to be focused on repayment of debt. Fortunately the mass mutual deal is not only accretive but very cash flow positive. So that'll put a a bit of a.
Hamper on what they can do for the immediate I think we said in our do it will be a couple of years before we're back down to the debt level there.
We started that and great west be right back where they were they've got lots of capital, but they did utilize debt and cash to make the acquisition. So I think that you know.
From a great West point of view would say not likely going to see a great big cash transaction, it's not not all that.
Likely in the next.
Period of time.
But when you start when you start to get to the point, where you can see yourself.
You know getting yourself down to the right leverage level. These deals take a while to get done. So it doesnt mean, we wont be looking ahead of time, but but at the same time, we will continue to.
Look at other areas, where we can make acquisitions and there is lots of them that were.
We're active on they may be of a lesser size than a mass mutual but across.
Across great West Eni GM, we're looking at opportunities yes.
Great that place and I'd, just add to that Graham.
We we tend to historically think of.
All the resources with great West life and.
GM being concentrated but I think one of the things you have to think about these days as well as that we develop management teams were quite cool softness develop management teams.
Several different geographies that stand up themselves right and so their capacity and their capability to take on the new M&A.
Any projects Opportunistically has increased quite dramatically in the last several years and the same thing I would say about HCM. So just.
We want to make sure. It's a good addition, Greg thank you so.
To follow on Gregs comment, you're not likely going to see in power make a big DC acquisition in the next 12 months that would be highly unlikely.
Given.
And that that team is.
Is involved in the mass mutual but there's lots of other teams across the group and the different businesses that.
Our could take that could take on activity.
Thanks for your question Craig Yes, yes.
Yes, It does and one last quick one if I could there was just comes again from your Standalone businesses.
In the quarter was there something one off there and what was behind US, yes, really small holding.
Graham.
Jake Health and it was and.
It was not really a gain it was that a recovery of a previous write down. So I think we realized something like $16 million on the transaction something okay.
That's it for me. Thank you okay. Thank you.
Your next question comes from the line of Nick CNBC. Please go ahead.
Okay, good afternoon well.
Yes.
The modest modest progress unplanned expense reductions in the quarter excellent if you could just.
Based on the status.
Just to those efforts, what's left to get from 47% to 100.
Just a color on that objective of the would be helpful.
Yes, so we had lots of focus is this quarter.
We when we announced it we had a whole list of items that we were planning to.
Yeah.
Follow up.
I would say a little bit as COVID-19 related I mean, some of it is looking at our space utilization and maybe.
Maybe not the best time to be looking at space utilization in a market, where everybody's working from home and nobody is looking for space.
So there is there is a little bit of that but I would say is as.
COVID-19 related I'll turn it over to Greg why don't you want it you sure take a swing at this yeah. So Nick.
What are the things that we did initially looked at was certainly as Jeff was saying is our footprint in it and you may or may not know this but we have a.
Real estate business as well.
Well that.
Flying under the radar if you will.
And.
Part of that is looking at.
Selling some of the properties that we hold.
And.
We are making some progress there are quite a bit of progress quite frankly in this environment.
And so that's that's a big component of what we have to do for going forward. So hopefully in the coming quarters.
Will have more news on that but the team has been hard at work at looking at opportunities there too.
Two.
Looking.
Look at the portfolio and take it down to a size where.
We're operating in those premises.
By ourselves and are only our own people.
So that will be concluded over the coming quarters, though the other thing I'd say is that we.
We have.
Yes.
The fleet of planes that we use I shouldn't say a fleet, but we have a couple of planes that we use and we certainly aren't using those these days and we're looking at ways that post.
Post co, but the world is changing.
And will change and so we think there's opportunities there too in the way that we're organized and we.
Work.
And again that was part of the initial plan.
That we were going to be more efficient, they're also going from three Ceos to one but also just we were looking at our travel and how we do have perfected Lee and that's kind of been sidelined a little bit right now our run rate expenses are actually weighed down in that regard obviously in 2020 kinds of COVID-19, but we're not trying to.
Take credit for that that we are trying to take credit for stuff, which is kind of permanently embedded into our cost base, even in a post COVID-19 environment.
Got it okay. That's helpful.
And then liquidity ended the quarter at 1.2 billion still very healthy.
I think you see.
Signals that you intend to deploy that capital through the repurchase of shares.
Shares.
Just give us a sense how comfortable you are getting you know given the evolving macro backdrop, we are drawing down on that capital at the holding company level six.
Next you got some of those initiatives like late last year.
Yes, so our plan very much.
Just to do share buybacks and to redeem the the pref shares and with the onslaught or the onset of COVID-19, we decided that add a holding company keeping liquidity in that kind of environment was the right thing to do and we're still in that mode right now and I think we're just going to continue to watch how the.
The pandemic.
Progresses and how.
The medical side progressive and what impact that can have on the economy. So we're not in a position where weve changing gears, but we're monitoring it and the plan would be when we can kind of see our way through the backend with enough confidence then we would then be in a position to look at redeeming Preston start to do a share buyback.
And we will resume the share buybacks that we had started at the start of the year that we have suspended so.
So I don't know if I'm answering your question, but I'm kind of saying no change in our in our current stance for the moment, but watching it actively and very much have in our plan going forward share buybacks and the redemption price.
Okay, Okay fair enough.
A question on the investment management platforms, I think you alluded to the fact that you're in the market doing to fund raising for both.
I think our holdings in our sustainable capital platforms.
I'm, just wondering would power corporation expect to participate and commit some amount of capital to the next round of fundraising or are you starting to back away from that as you.
Hi, guys.
The growth of third party capital in those platforms, Yes, really good question, so and just on your first point.
In the material here, you see that a cigarette holding announced a closing of 450 million on their credit fund.
Second credit fund and and so there is an example of recent.
So raising and the energy group is also actively discussing as as the.
The kind of civic capital.
You also saw in the slide that currently 50% or so of the capital that that work is power Corp, and I mentioned in my remarks that of the 2 billion that unfunded, but committed thats.
25% power money and going forward, we would expect that to be lower than that.
What's the ideal amount I think it will depend on the strategy in the stage of development. If we're launching a new strategy investors are going to expect that they're going to they're going to want power to put up more money if it's.
Third fund of an existing strategy it doesn't require much. So if you look on that page I can't remember that the number 17 or 18, you will see for example in the credit strategy is that we don't have a lot of capital in those shows so it depends but it.
Going down and lower and lower and as the program has the platform gets more and more mature weeks.
We will need to put less capital into the strategies.
Yeah Okay.
Okay very helpful. Thanks for taking my question, Okay, Nick Thanks.
Your next question comes from the line of Tom Mackinnon of BMO. Please go ahead.
Yes, thanks very much good afternoon.
A couple of questions just step.
What struck me when you, Jeff when you talked about potentially buying back stock.
Like nearly 70% of your any of these Ah life insurance company and Osby said like insurance companies aren't allowed to buy back stock So I'm.
Im just wondering is it.
Yeah.
There are you've got a holding company here.
On top of a life insurance company that can kind of I guess, you get around that led to some extent, but.
That in keeping with spirits I mean, how do you juggle that.
Internally there.
Yes. So the first thing is we're not buying back stock right now, but it's not because obviously you said no. It's because we as a holding company we have been.
You know a prudent with the liquidity.
Well I think the operating companies because you look at their financial position as they have been taking advantage of the environment quite frankly to make acquisitions, but at the holding company level, we've been prudent with our liquidity and were not enough is we're not buying back stock I think if we got back into a mode of volumes.
Next I do not believe it applies at the parent level.
And I don't think it I don't think thats.
It does not I don't think its in failing its step with.
The spirit of it and it's not quite 70 by the way just to correct. A number I think it's going to be something down around 60 is where it is but I.
I don't yeah.
Interesting question its not something that we think were restricted by but it's it's sort of it. It's a academic question if I could with me being insulting Tom at this point because we're not in the market right now in this environment buying back shares and I'd also say that.
To the second wave once we get hopefully everybody gets through the second wave in a short period of time.
Time, and some of the darker skies start to.
Move away and I think attitudinally, everybody will have a different perspective on those things yet so very good that's the one.
One thing that we keep in mind, yes, good point Greg.
Oh, that's great I'm, just the cash at the.
Sells a quarter over quarter I think in the area. That's 150 million almost what was driving that with some of those did you take cash out and put it into some of the alternative platforms or invest it somewhere else.
No when you say the change in cash you're talking about.
Right now.
It was about 150, yeah that would have just been up funding some of our commitments to the platform strong in the quarter nothing nothing unusual quite frankly.
So when we see the fair value for an alternative go up if.
If you took 150 out of cash and put it in one of the alternatives.
Within the fair value of the alternative go up 150 in the <unk> and the cash go down by 150.
That would generally be the accounting, yes, you know we we may have used some of that for other assets as well you know its goes through all uses of the corporation would have right don't forget that we.
When it comes to paying dividends, we pay out a.
Pretty much everything that we get from our subsidiary companies. So.
At times, we will.
Be drawing down our cash to to fund virtually everything so it doesn't necessarily mean that.
It's all going into those platforms.
Okay. Good point, what was driving the.
If you take out all the noise around the well simple put stuff.
Maybe you can just see if we look at the alternative investment platforms.
What sort of drove the.
Which one in particular was driving the investment income that you that you got that you recorded.
Which one of the alternative platforms is probably the bigger driver of that.
Sure so.
Give you.
Actually both of them contributed this time in different ways.
If you look at.
Cigar holdings and I mentioned this to to Nick one of the one of the realizations. There was a sale of Chegg health health, which is in there but.
Also.
There was a good profit from peak.
A performance that peak performance isn't the hockey business and its seasonally strong at this period of time so that.
That was one contributor, but then a tower.
Sustainable or.
In power energy itself quite frankly.
It was a contributor.
In the quarter as you know there is a lot of depreciation in that business.
But its revenues were strong expenses down in the quarter end so it.
Contributed more than it would have been in a normal quarter. So.
And going forward when you when you see.
These entities.
Certainly when you're in the funds like cigar holdings.
Most of that stuff comes through as realized stations.
When we have a significant influence or.
We've sold a.
A property that's just a product portfolio holdings. So we only recognize that when we realize things.
And that's the same as it would be when.
You look at power of Pacific, but.
But for power power energy, that's an awful.
Operating business and we pick up.
Basically in a full consolidations so.
Theres theres different drew.
Drivers to the revenue streams on that and.
And thinking of topics for.
Special.
Section or a special.
Team one time.
Going it's not that everybody was going to put up their hand and want to attend this one but you know the accounting for some of those properties is a little complicated.
But we're trying to be more and more transparent on that as well. So we're going to see if we can't put something together to give you a more.
We have an understanding of how that does move.
Yes that would be great I mean, you've got to.
I mean, you end up having these fair value adjustments that are put in here for these fair values and.
This predominantly level three assets I mean someone at cigar holdings tell you that this is the value of it and then you.
With that in late May be just give it.
Just a quick highlight or just quick overview as to how you get some of the fair values for.
Cigar holdings in power sustainable.
I know that we could we could spend hours on it but do you have any oh, yeah quick.
Way or you have any quick.
Quick summary that you can share with us just so we just feel investors feel comfortable with the value terms that are on these things yeah.
Yes, sure, absolutely and quite frankly, Tom or yeah.
Yes, one of the things that one of the things that.
You'll recall is that we did a full value.
Duration when we did.
Did project next and we took a PFC private so you know the marks there.
We're basically right on top of where we had been marking our portfolio is all along and that was only that seems like it was years ago, but it was only about six months ago quite frankly.
So then the RBC fairness opinion and that it was yes. It was.
But we have a very disciplined process when it comes to doing the marks.
Each one of the the platforms is governed by.
A.
The board of directors with valuation committees.
Gets independent.
Audited financial statements.
They are.
Quite frankly distributing their products to LP investors so.
They have to be disciplined about their marks in there and there is a disciplined process around it so.
It's it's one that happens every quarter.
So when you're when you are.
Looking at the funds in particular.
Including power Pacific, which is publicly traded quite frankly, so that's not hard to value.
There is a lot of discipline around it not to say there is and discipline around the rest of the marks but there isn't much left after that other than.
Our energy and trying to asset management and that was what I was cautioning when I went through.
The NPV table.
China asset management is carried at.
Its equity accounting value, we don't market on a regular basis too.
Market.
We certainly can give some indication quite frankly of market values and I'm sure you would understand the.
The market value of asset managers, especially in a high growth.
Theater like China.
So.
We think thats, a low mark quite frankly, we havent.
Revenue strategic partner end.
And.
They do not make.
Those marks and those valuations public.
Im sure they do them themselves, but we have to follow the lead of the company and also our partner when it comes to that.
And when it comes to power.
The energy as I said, it's an operating business and right now we do we do test the value every quarter, because it's a significant amount of money and we at this point test at Moore for any impairment that might be in the property.
And that's not because we think the.
Business.
Or is not doing well, but we don't do a.
Quarterly Mark on that when either we do that every year and we do that.
In a rigor rigorous basis because of.
The management needs to have a mark for compensation and so core.
In the spring, we we we market every year. So that gives you a very high and quick Dirty summary on it but I don't.
Be pleased to pull something together that's more specific for you.
Is there anything on cigar I mean, you mentioned the other since you mentioned cigar holdings, how are those marks determine.
Yeah.
Before I did mention.
Our openings, but yes, it was and Thats, where you said Theres 200 Lps. If you look on page 19 or whatever it is that are in those funds are there. It's all majority outside money and they're sophisticated you're not raising money from third parties and then when they all Pease ask how's the valuation.
We kind of do it this way.
However, like if there is a lot of scrutiny if you're in the business of raising institutional money, but I think this is a great topic I think all the questions here around profitability around the the marks around these businesses are great and set up.
I think the future sessions, where we can go into greater detail, we need to because this is where we're building out the business and we will advertise.
But as an.
An accounting lesson and well because then we won't have any attendance other than Tom and Greg.
Okay. Thanks for that.
Your next question comes from the line of Doug Young of tissue today. Please go ahead.
Hi, Good afternoon, Hi, Doug.
Hi, guys. Thanks.
Hi, the question My first area just around the area of simplification and hopefully a lot of these will be pretty quick but is there any restrictions on moving or selling.
China AMC down debt tie GM, because I know the original investment was done at our level of the secondary investments to satisfy GM is there any restriction on moving that down.
There is theres no Chris restriction per se.
The the process, if we were to want to do that.
Would not be one that you would just complete movement. However, theres lots of parties that would need to be involved in that process, starting all away from.
Parties in China and regulators.
There is in China, two boards of directors and management teams.
Power anti GM and independent directors and no doubt financial advisors and legal advisors. So the process would not be.
There's no restrictions, but the process would be one that would be highly scrutinized and we would take a lot of effort. It is something that.
We are.
That is out there as a question to answer does that are we in the best position to have the CMHC holding in two spots are we better to unified in one spot.
And and do we get better value recognition and by putting it in in a single spot.
It's where we're well aware that as a question we've been pretty busy as you can see from what we've been up to in the last few quarters, but.
But it's something we're going to be turning our attention to at some point here and and looking at is where is the best spot and you're quite right just to repeat for other shareholders or others on the line who may not know the history when the first.
Peace became available of China asset management in.
2011.
We were providing an opportunity with buying with that first chunk and we had a discussion whether im wasn't the best place to put it but at the time, our wasnt accredited investor in China, and IBM was not and.
Person was not eligible things changed over time, and so now we end up.
So one other opportunities came we balanced the position out and Thats now jointly owned so it's timely and we're asking ourselves the question where is the best belong.
And then just I mean, I think kind of idea and it sounds like you are quite focused on site building.
Yes, so, but when I think of like simplification of the structure the Northleaf transaction degree how transaction.
Would that be better suited to be down it.
Or or why wouldn't it make sense to have that down.
So so these are the.
The buying into.
The high net worth business as per the earlier question Grayhawk that was initiated out of cigar with relationships.
Cigar had and cigar was looking to build out their distribution platform.
For their funds and so they saw that opportunity had the discussions with the parties came to agreement on it.
And did that transaction. So we're not in the business of saying when they are doing at all by the way. Thanks for thanks for negotiating all that I think it belongs and Jim I don't know, whether the Grayhawk management would have even done that deal that's not the way the transaction happened or the agreement happened.
So thats.
That's that's how that happened.
You you are asking a broader question and it's maybe not your question, but I'll I'll turn your question into this we have private investments going on at power and we have been going on.
Within great West life in real estate and and other other alternatives alternative areas and we havent going on at.
Northleaf that GM and gray.
Opens of purchase it's a big world in private investment, it's a very very big world and there's lots of different strategies.
And our Corp is not going to satisfy all of IBG Ams are great West life needs.
And there and those companies are public companies and they are free to pursue their strategies, how they want to go out.
And get it.
It wasn't in these asset classes for their own clients are for integrate with life's case for their own balance sheet as well and so.
And powers. Good is very good in certain asset classes have very competitive in certain asset classes or at least was competitive. Another. So the companies are it is what it is we have got different businesses different public companies and they're all.
Pursuing their strategies and I think in private investments there is.
Many many years of high growth to come in these areas.
Lots of opportunities for our group to play in different ways.
I don't know if I answered your question, but we do acknowledging we have it in different places and and that is the way it is and it will be I.
It will be that way for some time.
Yes my question.
You kind of give me a bit of a flavor now my question more was just like staggered as all fall within that structure than what it does is would it be better suited to be down to the operating companies.
It sounds like now that's not necessarily your thought process I mean.
There is a lot that can be done.
I think the best in class is that back long duration liabilities and whatnot and so by my question was is it makes sense that staggered at the top or does it make sense to have it down yes, okay, sorry, if I misunderstood I sort of addressed and indirectly maybe but these are all these are all people businesses. When you get right down to what other people businesses. So that the people that join cigar euro.
Those initially 20 years ago in France, and the people that have joined up to the Fintech strategy and the people that have joined up to the teams that are in the guard joined the team it was part of power.
Paul three is.
Operating the business just like.
With that let me is on the power sustainable capital side they joined.
They join those teams they've got excited by what it was a boat and then part of the opportunity is also to distribute through why Jim are great West when you have a great west wants to do it because there's no way we can we try and force them. That's what they signed up for and they are in a company that they're working for us. So you turnaround hey, well it makes more sense to have it and.
A lot of people that came to work Didnt, that's not what base that's not what the joint just like the people at Northleaf joined Northleaf and are part of that group. So.
Some of these things on paper when you look at them you might say theoretically it makes more sense to put it here, but there are actually people businesses and you do a lot of damage and you can quite frankly destroy what you have.
Right.
You have to do things that might look like they might be more logical in another place I would add that to my answer Jack.
Okay, and then just lastly.
Why wouldn't backend the 69 million put option liability like for me that that would be a completely unusual item. So why why not backed that out.
Operating EPS in earnings.
Well I guess.
That's a really good question, Doug and.
We'd like to take it to them up and.
Yeah, and ask US why we can't do it as well.
But you know.
The the regulators are pretty fussy about.
So.
You know when you back out items and when you don't and.
It would it was our view not that we didn't go to the regulars asking the question, but it was our view that this.
This was explainable that everybody would see it as you just captured it.
And therefore treated accordingly.
ER and that way, we could be consistent with what a if you will the spirit of the regulation when it comes to things that.
These things are I think most people would say part of that.
Is that strong business, where it is.
There.
Startup companies that are need to attract capital need to have.
Owners that have an interest in the <unk> in the in the business and when you're in that business. It's part of the business. So it's hard to argue that.
Not going to be a one time event and so that's that's how we got there.
So for what it's worth.
That's why we flagged it out we called it out and we we thought like you're intimating like well geez it makes sense to.
And not have it there so why not.
So.
Okay, great. Thank you, yes, thank you very much.
Okay.
We have no further questions I'll now turn the call back over to the presenters for closing remarks.
Okay. Thank you operator and again.
Again, thank you each for EPS participating and we will not lots of lots of good questions here lots of food for thought as to how we follow up.
Some of these questions with some further presentations and we.
I look forward to talking to everyone soon and have a great day. Thank you.
This concludes today's conference call you may now disconnect.
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