Q2 2021 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the IGN financial second quarter 2021earnings results call. As a reminder, all participants are in listen only mode on the conference is being recorded.
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I would now like to turn the conference over to Keith Potter Senior Vice President Finance. Please go ahead.
Thank you good morning, everyone and welcome to why GM financial 2021 second quarter earnings call. Joining me on the call today are James the Belden, President and CEO of IGN financial Damon merchants on President and CEO of <unk> management.
Free Mcinerney, President and CEO of Mackenzie investments and Luke Gould Executive Vice President and CFO of IBM financial before we get started like the draw your attention to our cautions concerning forward looking statements on slide 3 of the presentation.
Slide 4 summarizes our not for it but the actual measures used in the material on.
Slide 5 we provide a list of the documents that are available to the public on our website related to the second quarter result, or idea of financial.
That all channel the call the gene.
Well good morning, everyone.
I'm going to start on slide 7.
The second quarter was another record setting quarter for I G M.
We achieved record of you M&A in the quarter of 262 billion of.
Up 5.4% in the quarter.
We also achieved record high investment fund net flows of $1.9 billion and total net flows of $2.5 billion, which.
Which include record highs for both high G wealth and Mackenzie.
But I'm most pleased with earnings per share of <unk> 99 cents, which is the highest EPS for any quarter in the company's history and up a full 29 per cent from last year.
Another notable item in the quarter is the ITM was recognized by corporate Knights once again as the.
1 of the best 50 corporate citizens in Canada.
Finally, with our record earnings and growing capital position, we're actively looking at options to redeploy capital.
Turning to slide 8 on investment returns, we continue to see strong equity market increases across major indices and slight gains in fixed income.
Overall this had a positive impact for ITM clients with average client investment returns of 4.5% on the second quarter and 7.2% year to date June 30th 'twenty 'twenty 1.
Turning to slide 9 Q.
Q2 long term mutual fund net sales were $27.9 billion for the total industry.
$13.4 billion for the industry asset management peers.
The following a record first quarter. This is the best fund industry second quarter net sales in Canadian history.
Turning to slide 10 on <unk> results for the second quarter.
Average AUM on a of $255.4 billion increase.
Increased 74 billion or 40.8% year over year.
Including approximately 30 billion related to the acquisition of G. L C and Green chip, which closed in December of last year.
As I mentioned second quarter EPS of 99 cents is an all time record high.
Slide 11, now highlights the earnings contributions from each of our segments, where we brought our disclosure it's down to the net earnings line as announced in March.
Itm's year over year increase of net earnings was driven by strong results across all of our reporting segments.
Finally, slide 12 demonstrates the record Q2 results at both hygiene wealth management and Mackenzie.
And the continued momentum the Damon and Barry will speak to in greater detail. So over to you David.
Great. Thank you James and good morning, everyone.
Turning to slide 14 to the idea of wealth management second quarter highlights.
<unk> reached the new all time high of $112.2 billion.
Increasing 4.9% during the quarter driven by record breaking Q2, net inflows of $670 million and claw and client investment returns of 4.2%.
Gross flows of $3.2 billion were also a new record for the second quarter.
Net sales in the IGN products were $397 million during the quarter, which represented half billion dollar improvement relative to last year.
July was another very strong months with record high net inflows of 348 million and net sales into IGN managed products of $210 million.
This represented the ninth consecutive month of positive net sales on the IGN products on the 10th consecutive month of positive net flows.
Underlying the strong results is an acceleration of our success in further penetrating the high net worth and mass affluent client segment. We are now seeing significant positive impact from our business transformation efforts over the last few years on both our consultant and client experience.
I'll speak to more to each of these themes on the coming slides.
Turning to slide 15.
You can see the very strong results through the first 7 months of the year, including July of <unk> record net inflows of $348 million.
The 12 month trailing line chart on the right demonstrates the significant momentum in our total net flows of net sales into IGN products, both of which have been accelerating over the past 4 months relative to Q1 of this year.
The next moving to slide 16, you can see our Q2 record high gross inflows were nearly up are up nearly 70% year over year.
On the line chart, you'll see our trailing 12 month net sales rate has reached 2.1%.
We expect to provide of wealth management based market share of benchmark in the near future that will include the full service broker the independent planner and the branch advice channel.
I look forward to sharing more information with you on this new metric on future calls.
The client net inflows are broken down in more details on net outflows table, where you can see the significant improvement in net sales into <unk> solutions as well as continued use of the Mackenzie funds on our approved list.
Total inflows into IGN products were $397 million.
Turning to slide 17, similar to last quarter I'll speak to the mechanics of that play in our growth and net flows by investment product category.
Starting with the second column on the left you can see that our Q2 net inflows of 670 million were primarily made up of $258 million of cash and short term savings and $399 million of third party in-kind transferred from other dealers.
The third column shows the significant outflow from these categories resulted in net sales into the <unk> managed solution the Mackenzie funds totaling $397 million.
Our success of acquiring new client relationships.
The increasing our share of wallet with existing clients.
Kind of recruiting experienced industry advisors will continue to drive income transfers of third party funds securities and cash from other dealers. We also expect flows into our investment solutions to continue as our consultants work with their clients whereby comprehensive financial planning and leverage the benefits of utilizing well constructed managed solutions.
<unk>.
On slide 18, you'll see 1 of our key kpis the.
The productivity of our consultant network, which continues to grow.
The selected a few key initiatives that we attribute the increased productivity to.
Each of which magnifies and build upon 1 another.
In 2017, we provided more flexibility to our clients by eliminating the DSC purchase option and significantly tightened our recruiting standards gearing our business towards more experience.
Our National Service Center was launched with the focus on delivering a consistent experience to our clients with somewhat less complex dietz, allowing our consultants to direct more of their time and energy toward servicing and attracting clients with more sophisticated and complex financial Inc.
Related to this point, we launched our new advisor desktop powered by Salesforce to help drive efficiencies as well as identify opportunities for our consultants to engage their clients and prospects.
We have also made ongoing investment product and pricing enhancements, bringing together the best asset classes and asset managers to build a truly unique offering for our clients, making us more competitive in the mass affluent and high net worth marketplace and.
And finally, we're seeing significant benefits in both our consultant and client experience through investments in our next generation financial planning tool the <unk> living plan on online client portal and our digital forms.
Next I'll highlight 2 key proof points showing the impact of these investments are having on our success the.
The first is on slide 19, which details on new client acquisition efforts.
In Q2, we had 456 million of gross and net inflows from newly acquired clients with over $500000.
This is more than a 5 fold increase over the past 5 years and over double last year's result.
On the right hand chart you can see the trailing 12 months flows from newly acquired clients, where we have an increased focus on mass affluent and high net worth and of decreased focus on the mass market.
You can see while there was a brief pause related to COVID-19 by mid August our consultants on our business had adapted to the pandemic and our momentum has accelerated since that time.
We have proven that we can source of crude.
And on board mass affluent and high net worth clients in this virtual environment.
The second proof point is on slide 20.
And it's centered around the annual investment Executive dealer report card, which was published in June of this year.
The reported based on interviews with over 500 financial advisors spanning 11 dealer firms across the country with the focus on programs and support offered by their respective firms.
And the 2001 addition of this report I G wealth management continued to demonstrate leading capabilities in all of the financial planning metrics as well as ongoing training programs, which are critical part of our value proposition and our financial planning edge.
We also saw the positive impact of our transformation initiatives shine through in our scores on technology tools and product offering.
With all of the scores increasing significantly over the last 3 years.
Well theres a lot of excitement of momentum at IGT right now it's important to remember that we are still in the fourth year of a 5 year transformation and we have significantly more upside as we continue to execute and elevate our consultant and client experience, while we're happy to see our efforts be reflected in the independent third Party report the daily vote of confidence from our.
Employees are consultants, our clients and the growing number of experienced industry of crudes are choosing to build their business with I G is far more important to us.
So now I'll turn it over to Barry Mcinerney.
Thank you very much Dana and good.
Everyone.
I'll begin my comments on Mckenzie as Q2 results on slide 22.
We ended the quarter with the new record high total AUM of $201.7 billion driven by strong capital market returns and net sales of 1.9 billion.
Retail remains the key driver of our record investment fund net sales of 1.4 billion of during Q2.
This marks our 19th consecutive quarter of positive retail investment fund net sales.
<unk> momentum continues to be broad base for both mutual funds and Etfs across all major asset classes and categories. As the results we have sustained our market share gains from competitors in the Canadian retail channel.
And our institutional business contributed positively to net sales of approximately $500 million, including sort of advisory separately managed accounts and institutional mutual fund sales.
This quarter, we are pleased to announce several planned new fund launches of Mackenzie that together focused on sustainable investing tax efficient strategies and utilize our strategic partnerships to broaden both of our product.
And distribution reach.
Focusing on sustainability, we have created a new investment boutique how better world that will further expand our capabilities in the space. We launched 2 sustainable investing products earlier, this year and plan to bring more to market. This fall.
We also launched the Mackenzie tax managed global equity fund are launching the Mackenzie, China, AMC, All China Bond fund.
And in partnership with Welsh simple launch the Sharia compliance ETF on.
I'll also highlight the performance of our 2 strategic investments focus on asset management, North Sea in China AMC on the coming slides.
These businesses support 2 important growth catalysts for Mackenzie.
Slide 23 highlights our investment fund flows which include adjustments for large fund allocation changes that can impact the comparability of results over time.
The charts on the left demonstrates the consistently strong year to date gross and net sales of our various time periods.
Our momentum has continued into July with record high investment fund net sales of $420 million during the month of $6.8 billion on a 12 month trailing basis.
Slide 24 summarizes Mckenzie as Q2.2021 operating results.
It'll of mutual fund gross sales of $3 billion were up 20% year over year, driven by of 55% increase in retail gross sales.
The Kansas continues to gain market share as demonstrated by our long term investment fund net sales range, which was 10% at the end of June.
And in terms of Morningstar ratings of 47% of Mckenzie of AUM range.
4 of 5 star rated funds and 14 of our top 20 funds are rated 4 or 5 stars for a series of cash.
Slide 25 shows our retail net sales on how investment performance looks across our investment boutiques.
Change of see strong overall performance in our growth oriented boutiques, while our candle value and global quantitative teams have delivered strong outperformance year to date.
The net sales of wide range of boutiques contributed positively this quarter, including our equity fixed income and multi asset teams as well as of our third party managers, which includes China AMC.
Similar to last quarter Slide 26 highlights the growth catalysts that are reshaping the global asset management industry.
The highlight of 3 of the 5 teams alternatives Etfs and China.
North of leaf has experienced continued exceptional fundraising results of $1.7 billion for the second quarter alone.
We also continue to see synergies play out with our core businesses and our sister company at Great West Lifeco, where we have strengthened the high net worth of offerings.
Using north of the private market solutions launched a private credit fund and Mackenzie with morphine much the com.
And utilize the broad array of northeast solutions as a preferred partner for great West life strategy to increase their balance sheet allocation to private markets.
Briefly on our ETF platform, we exceeded the $10 billion.
The market's short 5 years after launching our first ETF.
Of all very proud of this important milestone.
I'll also take this opportunity to highlight our emphasis achievements on the important China, Inc.
As a reminder, we have on on the ground presence in this market with our Mackenzie Beijing Office, our Hong Kong based Asia investing boutique and an important partnership and 13, 9% of equity interest in the Chinese asset management industry leader, China AMC.
Continuing on slide 27, the growth on the Chinese mutual fund industry has remained robust with long term mutual funds growing 46% over the last 12 months net sales contributes approximately 62% of this growth with the net sales rate of roughly 23% over the past year consensus expectations.
The Street AUM will continue to grow at a mid to upper teens CAGR over the long term 5 years of and beyond.
As we highlight of about a year ago, China AMC as a consistent top contender across all major asset classes within the Chinese asset management industry. The.
The firm ranked fourth overall in terms of long term mutual fund assets under management as a percentage on the right.
And turning to slide 28, China AMC is also 1 of the most diversified asset management companies in China by distribution channel and investment management capabilities.
Noteworthy that we are seeing significant growth in long term mutual funds, which grew 41% since June of last year. The company has also experienced strong growth in money market funds and institutional business over the past 2 years. We are very encouraged by the strong relationships, we have the China AMC and its controlling shareholder Citic securities.
I'm pleased we have demonstrated some of the synergies between our 2 firms with the new $680 million sub advisory mandates awarded to Mckinsey in June.
And Canada Mackenzie is offering unique solutions to address the growing need for Canadian retail investors to gain exposure to the Chinese capital markets, including our 5 star rated China equity funds sub advised by China, AMC and the upcoming launch of the Mackenzie, China AMC all of China Bond fund, which will be available later this year.
Anthony from our close relationship with China, AMC repositioning Mckenzie as a thought leader on the evolving Chinese market.
On working with retail financial advisers of the search for the best ways to incorporate Chinese assets into the clients' portfolios.
Notwithstanding the recent company's engagement the specific economic sectors of our conviction on the mid to long term prospects for the Chinese markets and our position in China AMC is undiminished.
I'll turn the call over to Luke.
Great. Thanks, Greg Good morning, everyone.
Turning to slide 30, I would highlight once again the solid growth in M&A during the quarter. We ended at 262 billion up 5.4% driven by strong investment returns of 4.4% as well as net flows of $2.5 billion, which would represent an annualized rate of 4% of assets.
We also published of July results yesterday, and so far Q3 has been good with M&A and other 1.2% to 265 billion and record high investment fund net flows of $600 million.
Sort of page 31, you can see the last 5 quarters of IGN EBIT and margins.
On the right I would remind that we closed the acquisition of the GLC on January 1.2021, and this explains the change in revenue and expense rates.
I'd also comment it was a very clean and solid quarter with growth in net revenue rates on the top right consistent with Q1 level cost per unit declined as a result of seasonality expenses and economies of scale and the EBIT margin at 45 basis points is up from the Q1.
Sure. The page 32, you can see on Jim's consolidated income statement with the earnings of $237 million of 99 cents per share up 29% from last year and 17% from Q1.
The only comment I'd have on this slide is to reaffirm our commitment to expense management you can see on point to that for operations and support expenses for 2021, our guidance remains unchanged and you can find this detailed independent slide 43.
As a result of the strength in Mckenzie as retail sales were revising our guidance on Mackenzie wholesale on commissions, which are found within the business development mine and I'm going to review this a couple of slides.
Turning to page 33, you can see is you will key revenue and expense lines on the Wright presented us annualized basis points of the respected driver Youll.
Youll see advisory fees of $104.2 basis points of relatively unchanged relative to Q1.
Migration of high net worth clientele was partially offset by a greater share of assets being subject to advisory fees as more money was put to work and I remind we don't charge of advisory fees on on cash and cash substitutes like deposits money market Fund high interest savings accounts and among the other assets.
I'd also remind we expect there'll be continued declines in this line over the next few quarters from growth on the share of our assets with high net worth clients.
And I would reconfirm our guidance that you should expect reductions of about <unk> 6 to <unk> 8 basis points. In this line of each of the next few quarters, depending upon how that migration and success in high net worth goes.
I'd also point out that asset based compensation at the boat 48 basis points and we'd expect to be at or very near this level over the coming quarters.
Turning to page 34, you can see <unk> income statement.
At the board of net earnings of $134 million were up 34% from last year and 18% from Q1 and as you can see on 0.1 on the right. We've reconfirmed our full year expense guidance for AG.
Turning to page 35, you can see the composition of Mckenzie of AUM on the left and you can see the annualized net revenue rates on the right again I'd remind that we had the GLC acquisition on January 1st and you can see the impact of this had on each of these 2 charts.
I'd also comment on the chart on the right. We can see Mckenzie as net revenue rate was strong in the quarter up the basis point and this was supported by continued growth in the retail and continued growth in net in equity and balance mandates.
Turning page 36, I'm going to spend a little bit of time on this slide that we've been sharing with you to help you understand retail sales results and how our business development expenses will behave across different variability.
Or because of different variability in the wholesale on commission to gross to net sales levels.
On the left chart you can see the retail mutual fund sales trend.
And I'd note in the light Blue line, which is the bigger biggest driver of our wholesaling of commission. We've now crossed through the 4 billion dollar margin on retail mutual fund net sales.
In the Middle chart, you can see that this has been driven by year over year improvements in gross sales of over 50% during each of the last 3 quarters and if you go on the table right below the Middle chart Youll see that we have to circle business development expenses in the second quarter of 2021 of $25.1 million and that this is the significant increase over Q1 of 5.
Yeah.
The key part of this increase is we've adjusted our accrual true.
Reflecting the expected full year retail mutual fund net sales results slide billing dollars based upon the strength that we've seen mckenzie of retail business in the second quarter and you can see on the chart on the left of this is where we're going with that 12 months trailing trend right now.
On the right you can.
See how full year expenses will respond to different sales levels.
And again, we have revised our guidance for this line to reflect $5 billion and I'd also remind our previous guidance on our previous accrual had been to of full year net sales result of $2.5 billion.
Thank the sensitivities on the right give good insight into how the expense will change based upon different full year sales possibilities.
And I would also guide than had we been closer to our current level of $4 billion.
We would of had an extra 2 million of the.
Of earnings this quarter because of our true.
ROE would have been lower so again, we have marked at the $5 billion and that is where we're trending.
1 of the page 37, you can see Mckinsey the earnings during the quarter were $56.5 million of <unk>.
The 4% from last year on 18% from Q1.
You can see we've called out the increased business development expense accrual that I described on the last slide and on point too.
The also reconfirmed our full year guidance for Mackenzie the operations and support expenses.
Moving to page 38 of building on Barry's comments, we profiled some of the results of trying to asset management on.
On the left we showcased the strong growth in.
AUM reviewed earlier by Barry in the Middle you can see trying to Emcees earnings and on the right is IGN share of these earnings expressed of millions of Canadian dollars.
A few quick comments I'd make on the slide.
First you can see on the left there's been meaningful growth in long term mutual funds at the bottom left and in particular on highlight actively managed equity and balance funds had been selling very well and for China Im seeing the in the domestic market.
Year on year over year, you'll see earnings were up by 47%.
And I would highlight during each of Q2.2021 and Q2.2020, there was just over $1 billion of contribution from seed capital of Mark to markets. There was no such Mark in Q1, 2021and this represented part of the increase in earnings relative to Q1.
And at the bottom right, we reminded the company pays an annual dividend you can see our dividend doubled this year as a result of the strong growth in earnings combined with an increase in the dividend payout rate.
Moving to page 39, we've highlighted the earnings growth rate of the different segments and our underlying investments.
In the first point, we've highlighted that the secondary transaction, we did in wealth simple closed during the quarter and we received pre tax proceeds of just under $300 million.
And at the bottom we've got a pull of table, where we've reminded that our strategic investments out of value of over $4 billion.
We presented the trading value of our 4% stake in great West life <unk>, 3.7 billion based upon the close a few days ago, China AMC of $960 million reflects our entry p/e multiple of $17.5 times applied the consensus earnings estimates for 2021 and I'd note that these earnings estimates are feeling conservative.
Nor fleets of 200 million reflects the purchase price of a few months ago and as Barry with your business development has been very strong and ahead of our expectations and.
Well simple of flex the equity fundraising evaluation from a few weeks ago.
As James indicated the second comp on the right shows that we of excess capital of just under $600 million at the end of June.
And lastly on page 40.
<unk> analyst consensus 2021 earnings estimates by component and the use of the estimates just before we publish the Q2 results.
<unk> taken in the right column, our share price of $44 on July 30th and we've calculated an implied <unk> multiple for each of IGN Mackenzie that results. When 1 makes the specified value of assumptions per each of our strategic investments.
And the bottom row.
We've compared this resultant P of about 7.8 times to the average <unk> per global wealth managers in the case of <unk> and for global asset managers in the case of Mackenzie and I'd highlight when you look at those global peers. These of the averages and those peers that have higher earnings growth our trading multiples that are higher than this.
Just the close my remarks by saying, we've gone up a lot of operating leverage on these businesses.
Lot of momentum in the businesses the operating results as well as the earnings and as James mentioned at the beginning we're focused on driving continued earnings growth and we look forward to future quarters.
That concludes my comments I'll turn it over for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then 1 on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then channel.
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Yeah.
The first question is from Geoff Kwan from RBC capital markets. Please go ahead.
Yeah.
Hi, good morning.
My first question, which was on the dividend I think the payout ratio was about 57% in Q2, and if you take a look at the first half I can think of is closer to 62%. So just was curious about.
You know what let the board see was on why the dividend was maintained in this quarter and also any thoughts that assuming the markets remain constructive.
This quarter, the kind of the likelihood that we might see a dividend increase that when you reported Q3 results.
Sure. Thanks, Jeff.
Go ahead James go ahead no go ahead.
Okay. Thanks, James I would just keep in mind Jeff.
When you look of our earnings the the theory was.
About 70% of cash, earning and so I'd remind we equity account for our investments in China and grit with lifestyle and we then obviously received the dividends.
From them. So that's part of the reconciliation between reported earnings in cash earnings. We also at the sales Commission.
And in.
Capitalize and amortize the component.
Our lens first and foremost is on cash earnings were about 70%, but as you highlight of our earnings are growing at at the healthier rate and we will be of reevaluating the dividend on an ongoing basis. I'd also highlight we will evaluate share buybacks as well as the other capital deployment opportunities to increase our earnings and create shareholder value.
Yeah, and Jeff I would just add it's James speaking that.
I'd like to see us get further through 2021 and frankly have start to have some line of sight on 2020.2 as of.
We take this conversation on this decision to our board sometime in the fall.
Okay. Thanks, and just my other question was on <unk>.
Given the business has evolved over the years to having much more of a I would say comprehensive full service platform and the greater capabilities along with that.
When when you bring in the new clients and they've got.
Ex amount of client assets.
In the things like stocks or non <unk> wealth mutual funds Etfs those sorts of things is the goal to migrate most or all of it into <unk> wealth.
You'll fund product, assuming its consistent with their financial plans and if so how long does this transition kind of take to migrate those assets over.
Back in what portion is truly unencumbered and then if you can elaborate on the potential M&A angle anything that's missing on the ICM product shelf that would be of interest.
From an M&A standpoint, or any other strategic investments you'd be looking at.
Alright, Thanks, Gary.
Yeah.
Well look with respect to the surplus capital.
It is we call it on allocated capital, it's it's truly surplus.
So there is a set aside for next quarters of dividend. So there's a there's a degree of conservatism.
Our embedded in our definition of unallocated capital that I think is important to bear in mind. So you know in theory of.
Given how we calculate on allocated capital we could choose to deploy at all of our bearing in mind that we we have I would describe it as you know a significant amount of our senior debt capacity, if we ever chose to to exercise that as well so.
You know that's a I I I view of the full almost 600 as of as potentially capital that we can do something good with for our shareholders.
Your question on M&A I'm, Gary I'd say this.
We.
If the world is reflating if market confidence hangs together here, we could be in for an act of M&A environment in both wealth management and asset management.
And we would be interested in participating sensibly in that environment.
So when I think about wealth management, you know I think I've said before and I'll reiterate that we're particularly interested in the high net worth on ultra high net worth the segments are in Canada.
Oh, there's a resiliency and the stability I would say 2 to wealth. The earnings that we think is a is very strong and very appealing, but obviously it would have to make sense.
On asset management, you know, we view that as the as inherently of global business. So you know strengthening capabilities, where it where it made sense of Berry has spoken on the past about his 5 growth lever and he always wants to have a.
You know of really good category of of growth flavors that are that are forward looking and put us on our front foot. So that's potentially of interest too.
I think maybe Gary of the most important thing I can say to you is this.
This management team genuinely believes that the the path to a higher share price for I G M.
Is through higher earnings so that's our guidepost, that's our north star as we think about kind of our strong financial position as we think about surplus capital. We're very mindful of that are to improve the share price over time, we have to grow earnings.
Okay, great. Thanks, Thanks for the color.
Second question for Barry just wanted to dig into the Green Chip then normally a little bit.
And other strong net inflows that you can check you know what's the capacity on that platform, how big can that grow and then on the north east side of the $1.7 billion in commitments can you maybe quantify how much of that was I G and great West.
Oh, hi, Thanks, Gary as Gary.
Yeah of Green shippers continues to sell very well and as you know there's a really a strong interest we think this the sustainable interest in Canadian retail and global institutional by the way in the area of of <unk>.
<unk> environmental global equity.
And Ah you know we actually.
<unk> started down the path of also looking for select opportunities for Green chip institutionally, particularly outside of Canada, where they themselves before being acquired by us.
And for over a decade had good dialogues with the institutional consultants and institutional investors, but maybe some hesitancy of them to give money to such a small firm and now of course being part of Mackenzie Rishi.
We're seeing those clients coming in we picked up 6 or 7 by the way.
5 million on average each of smaller accounts, but so how it's going to sell well going forward, both retail and institutional still bringing in $34 million of day and can reach out capacity of 5 the it isn't all cap strategy has actually surprisingly sort of growth area, but the value of style [laughter] a bit of a dichotomy there but the.
Green Chip style is all cap.
And at times, if there is still a focus with value on the small to mid of course, they got on what they might have to watch the capacity a few years out but they they basically are all cap and right now they're focusing on all on all capitalization of the entire composition of spectrum. So no capacity constraints at all of in fact, similar to what we did with Phil taller as growth team last year.
Where we launched the second version of his U S growth smid cap to more of a larger capitalization pure mid cap of.
We are the green ship balanced fund that we launched embedded in that on the equity side is a larger cap version of Green ships. So we've got lots of capacity lots of runway. There. So we're very pleased to make that the second flavor so to speak kind of come to life North leaf.
The you know again the $1.7.
The 1.7 billion of about 400 million is from IAG and grievous life, so well over $1 billion billion 3 ish is external and the what we're very pleased with as well and obviously, where do we dialogue with them on a on a regular basis, James Luc and myself is that the the new wins are some.
The existing clients in Canada institutional interest shows you the confidence they have this is an incredible firm.
They have most of their clients of multiple mandates with northeast so the new wins are from existing clients in Canada.
Some new clients in Kansas, the new institutional clients outside of Canada, which is as part of their strategy to a more globalized their distribution and it's across all 3 of the major categories and strategies private credit private equity and infrastructure. So really of a broad array of sales of fund raising last quarter $1.7 billion again it's.
[noise] quite outstanding given their total AUM base of $15 billion and Bruce we continue to expect of exciting things for the end of quarters to come.
Yes.
Perfect. Thanks, Thanks, Barry and then last question Luke just on the updated expense guidance.
1 of the bigger changes as you mentioned is the Biz Dev expense.
And Mackenzie and Youre now assuming retail mutual fund net sales of $5 billion.
And other that's based on solid Mackenzie specific performance and sales efforts, but also industry tailwind.
The $5 billion is the bogie for 2021 can you maybe give us the glimpse of how slide 36 might look for 2022 net.
Flow stay flat or perhaps maybe decline a little bit.
That's a great question, Gary It's probably Barry Might've said in his remarks, and you will remember for the Q a few quarters ago, we raise the bar every year.
We actually Havent set.
Our bar for 2022 of yet.
We will be but that's what you could expect is if things.
Continue at these levels.
We'd probably end up with a with the 2020 to forecast it looked very much like our original 2021 guidance, so quite a bit cells of the.
Where we've actually of marked the expense to after this year.
So.
Sorry, the net flows to come off versus the $5 billion.
Should we see that line of the expense line decline as well.
I'd say 2 things 1 during this period.
If we if we're lower than $5 billion, then will obviously be lower than the guidance set out on page 36 on the right, where we've given full year guidance of $95.9 million if that that target is hit.
Then if we were to.
We would expect to reset the bar and where we're seeing today what that would mean is if we continued to expect $5 billion again in 2022, the expense would be lower than 2020 one's level.
We haven't set how much lower.
But you can expect if you look at the at slide 36, something closer to the $81 million to $84 million range.
As we reset things higher and again, we reset every year based upon our expectation, but that is our theme is the bar does get raised every year and we do said it in the context of of what we're expecting from the industry and for ourselves at the time.
Got it okay.
Helpful.
Thank you.
The next question is from Graham Ryding from TD Securities. Please go ahead.
Hi, good morning.
Maybe I'll just start with the with IPC there was a bit of change in the management, there recently and it seems to be.
1 area of your business Thats, probably lagging in terms of growth relative to other areas. So what's the what's the plan there and in terms of trying to get at.
I guess the performance better and more in line with the rest of the rest of your.
On your businesses yet.
Sure well good morning.
So yeah, Chris Reynolds 1 of the founders of the of IPC is now the executive chair of IPC and in that role.
Chris is going to be very very focused on advisor recruitment advisor retention.
As well as.
As well as growing the business and kind of developing kind of what I'll call a.
The new industrial models of our new economic models for the business.
So he's gonna be act of purchasing practices.
He's a he's already embarked on something we call <unk>.
The corporate branch model, where we buy books of business and convert those books of businesses 2 of salary plus bonus model. So he's going to be very involved in the in the evolution of the business as well as generally with the advisor recruiting advisor retention. It's all of it it's a real strength of his.
Blaine show Chuck of course moves over as President and CEO of ITC, a plane is the long standing Hum High G. M officer of an employee and he's going to be focused on the operations and and you know we have a we.
We have confidence in the future of that of that business, we quite like it now.
As it sits here today I.
It's I think it's important to say the IPC Ah represents less than 2% of our earnings I think it earned about $15 million last year, but what I find appealing about it is it's it's got $30 billion of assets under administration and it's a it's a very important participant in that are in that independent space and so we think we.
Can the dual a fair bit with it over the over the coming years.
What has impacted the performance recently is the council of product the council of mutual fund product that has not performed as well as the as we would've liked and so I can assure you that our 1 of the first things Blayne is focused on is the is addressing that.
I'd also point out that the core acknowledged that advisor recruitment can.
Can be lumpy now, it's always going to be lumpy Graham that's that's not going to change I think that's the nature of that.
But I did notice last night as we put out the July results that the July was the July was a good month for I P. C $45 million of net flows including $15 million of out of our I T.
M product. So you add it all up there's there's there's work to do to be sure.
But we've got Chris Reynolds and of Great role, we've got Blayne on a great role, we've got plans for the business as the industry evolves and the I think on the phone us of time Youre going to see IPC do a lot more than 2 per cent of our earnings.
Yeah.
Perfect. Thank you.
David maybe I'll jump to you you mentioned that you're in the fourth year of your 5 year Road map, but can you just give us some context on whats left in terms of important sort of initiatives to rollout.
Yeah, we are going to continue the work on the on automation, it's something that that we've made significant progress with and it's something that we're looking to finish up.
This year, particularly suited towards the new client focus reforms.
The neutral point of focus reforms.
Really move.
The move everything from from post trade to pre trade and you're trying to navigate.
I know your client with the know your product with suitability and the thing that we've done which I am. So excited about is that we've embedded compliance in the in the business growth.
So 2 of.
Of the digitalization and process automation, we are going to be able to free up our advisers to ensure that we're putting our best foot forward as it relates to the coding of brokers reforms.
Firmly believe that we're going to have a competitive advantage relative to the rest of the strength in terms of what we're doing there.
And then broader.
We're focused on automation for our clients and for our operational unit, we're focused on making sure that we.
The other elevate our client contact center and our client service Department and then we're going to transfer our infrastructure to 2 of the cloud and a lot of that is going to take place is planned to take place next year.
Okay, Perfect and then maybe 1 more just for you Barry.
The fund sales have obviously been very strong we have seen some deterioration in your overall fund performance over like the more recent 1 year period versus.
Sure.
3 and 5 year periods, just any concern on your part around fund per per.
Performance potentially impacting your sales momentum or any of any color or context context would be appreciated.
Sure. Thanks, Frank a good question no concerns at all so I'm as you know we have of multi boutique model. So we have a variety of of different investment styles.
On the equity side growth value core we've got fundamentally the quantitative and sort of any particular time of.
Child could be out of favor nothing independent of of the.
The boutique in terms of partner.
We have typically over the years seen our percentage of AUM in 4 of 5 star funds.
Range between 40, and 60% free never at 47 per cent.
On the mid mid level so.
That's the within a range.
I'd like to highlight 2 or 3 points. So I guess, it's important 0.1st.
The first of all take Blue water Blue water is just the consistent 5 star performer across all of their funds and there and Morningstar funds as you know the ratings are a blended of 3.5 and 10 year returns in there.
Most of it of the top decile and of 3.5 and 10 years of their proposed spin a little soft last few quarters because of again their style is growth oriented quality oriented.
So usually avoid resources so of course, it's come back now.
Last month, or so, but they'll bring in again over 1 billion of net mutual fund sales for us collectively blue water across their mutual funds as they've done now done about 2 or 3 years or so advisors just loved them, they're just fantastic couple of months of.
Quarters, rather soft performance no problem at all but for the.
For them as they get bigger and bigger of course, they have a couple of quarters of softness that come through the the short term 1 year numbers.
We have 14 of our top funds are 4 of 5 star and so again they consistently show of long term performance across all of the asset classes, where like I pointed out of as I've mentioned before the dumped very well also on our new funds and as you know those funds don't have any Morningstar stars because there the last 3 or true.
Our record of the.
The Green Chip Environmental was mentioned already that's over $1.6 billion it'll hit a 3 years in November we expect the very high rating.
Blue water global balance well over $800 million it'll hit the 3 years in January of expected very high rating.
You know on mid cap I mentioned, the fill tyler's mid cap to complement the smid cap U S selling very well on a year old no ratings right. So you can see the peak the advisors really have confidence in our boutiques that have a sustainable 4 and 5 star the very confident in these funds have no startup of it because they like the the proper.
And in the process of the teams and 1 more point, if I could what I'm very proud of is as you know we of Mackenzie pride ourselves in in selling to the advisors from of solutions perspective of portfolio construction perspective, the number of our funds that are 3 star so.
Of our unconstrained bond, which just was a downgrade before sort of a 3 star arguably miss categorized in the high yield category. There's no category reported if there apparently is being worked on to introduce a multi sector global fixed income category, which the that's where it should be on but with high yield and doing so well last time of launch it popped down to 3 sales just every day.
Very very well has nice diversified portfolio and the downside risk protection monthly income boxes for starting up Bob's between 234 star if outcome oriented high Div high yield and high income every month downside risk protection of advisors all of it 1 of our top sellers. This year. So I think David mentioned client reform I think you'll see more and more.
More of the advisers talking to us the manufacturers being more open to the buying outcome oriented of mutual funds irrespective of their stars because they they optimize their portfolio of construction, so and so no concerns at all of our percentage of just raising the range of where they normally are of I did want to highlight also the of the new fund is doing very well as well as some of the outcome.
The funds the irrespective of the star ratings still selling strongly.
Perfect. That's it for me thank you.
Okay.
The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good morning, David I wanted to go back to Jeff's question.
On the on kind of transfers and you've talked about the non registered side, but what about the registered side.
1 of the client comes from another institution like how like what proportion of Iga accounts are self directed versus a hell.
All of that investors group or like if it'd be kind of the tabulate that at all of them.
Just trying to get a sense on those accounts.
<unk> is coming in and kind of of the same question as Jeff on the right just to the side.
On the ability that migrated into ICU products over time.
Yes, so I would I would say that because of our focus on the mass affluent and the high net worth the naturally youre going to see the business get a little bit more towards non registered.
Because that is the the pool that youre playing in those are the larger accounts and those areas. So I'd say that day.
That's exactly what's happening with our business.
A greater proportion of our of our new business is coming from non registered TSA tfsa type of accounts versus registered registered still remains a big part though.
We've gone on bundled so in terms of registered its all held in our nominee accounts either in.
On our Iga account or on high profile of accounts. So it's completely self directed.
It makes it easier to move registered money, because youre not dealing with with the.
Toxin with non registered would you have to be more thoughtful but at the end of the day I think it's important that everyone.
Thanks in terms of non registered that's not the.
It's not necessarily a bad thing, even though you have to be more thoughtful when it does take longer time, it does bring greater opportunity and that's 1 of the expertise that we have on our firm is tax planning and talks of optimization.
And that's why you see the results that you do in terms of our ability to to to sell of IGN product.
Relative to the amount of money that's coming in I think it brings it gives us a tremendous opportunity our advisors in the body to.
The value proposition of of selling managed solutions that are well constructed it frees them up they're not sacrificing on performance because of the great sub advisors that are that we have in all of the efforts that we put towards portfolio of construction. So you.
We're seeing some some significant progress in that area and I would expect that to continue.
Great and.
And just on China AMC the.
The net earnings have been exceptional over the past.
You know I would call it since you've.
Made the investment, but more particularly over the last couple of years up 45 per cent year over year, what what is it in that business say relative to on IGN that allows it to have enhance our earnings growth I'm only asking just to get a sense on kind of the quarterly run rate, which is obviously tracking a lot higher than than the Walmart.
<unk>.
Yeah.
Hi.
Oh, sorry go ahead Barry.
So I'll jump in afterwards please.
Well I mean, that's just to say yet.
On the domestic China asset management industry experience.
Experiencing very very strong growth in net flows we expect that to continue on as Barry said in the early part of the presentation. The expectation is true for over 15% annual growth in that market and it is expected to be over half of global flows into the asset management industry in the next 10 years.
Much like in the Canadian market, there's a lot of operating leverage in that business. So as a U S growth you can expect revenue to grow of consistent with that but earnings to beat to the Levered and so when you look at the last 3 or 4 quarters of the growth in earnings that <unk> experienced of about 3% to 50% depending on the quarter. There was a there's a big run.
The way in front of US for continued earnings growth from these levels.
And is there like fee compression headwinds like we'd like we see in North America of war or that's not the case, yet because it's the more infant market.
It's a competitive market you can say you can think of it as being competitive with the with Canada and the U S. In terms of retail and I'd say much like our business here the composition of the clientele.
It has an impact on the on the overall overall earnings and you can see from the of slight very presented the theres, a very diversified asset base, there and try to see where they do have the big focus on retail and you can see the long term funds, but they also the very vibrant and institutional business.
So that's going to kind of have the biggest impact on the weighted average fee rates in that market and I would think of it as being very competitive and in having margins across the segment is very very comparable to what types of Canada.
Alright.
Yeah go ahead of others.
I'll just add to <unk> comments are spot on me the.
It's getting to be a very big market, but.
Honestly.
The largest economy of world and the market is growing so fast and yes. There are a lot of foreign players going into China because of the big players because obviously as the loose at half the growth of the industry next few decades will emanate from China.
But we just see it remain so I'm pleased and confident that having a strong minority interest and even the preeminent local player is the right strategy because as Luke said their multi channel not just reach of institutional online they've got they've they're they're developing alternatives offerings, China AMC.
They're just a terrific firm and it is really early days I mean, there is 1 stat. We were looking at to all of US in terms of what the potential growth of this market place no timeline right, but if you look at more developed countries like Canada. The U S and the ratio of the long term mutual funds to the gross domestic product GDP in Canada. The U S is 1 of 100 per se.
And Thats kind of shows you that the long term funds divided by GDP, but on 100% ratio range.
If it's 8% 8.0% in China. So it has just enormous runway as the candidates the local Chinese become more comfortable investing into long term mutual funds the.
3 pillar system, which is just starting there the social security system is up and running but how the long ways to go there corporate pension system is up and running but really early and the third pillar of our RSP pillar just nascent. So the runway is enormous obviously looks at a lot of players there competitive rates should be.
Why wouldn't it be but again those local players like us China AMC, we fit we feel have really key competitive matches for years to come over the of the new foreign players coming in.
Yes.
And then just on the strategic investment side, if I kind of look at the quarter over quarter change.
Is it fair to say the.
On the <unk>.
The unallocated capital increase the doubled was mostly from the more simple.
Youre a portion of the wall simple sale in Q2.
Yeah, Yeah, that's correct that was the biggest part of the increase.
Okay, and just lastly, I haven't seen it yet on the NCI, but did you buy back any stock in the quarter or or or if anything Q3 of debate at all.
No no we didn't know okay perfect. Thank you very much.
As a reminder, it is star 1 to ask the question.
The next question is from Jamie <unk> from National Bank Financial. Please go ahead.
Yes. Thanks. Good morning first question for Luke on the business development expenses I, just wanted to get a sense as to the.
On the cadence.
As we approach that that guidance for the full year I think it's pretty clear on that front just wondering it.
It seems like there was the bigger accrual this quarter of does that suggest there is the step down next quarter or is it more of a straight line approach too.
Tobacco of your guidance.
Yes, great Great question, Jamie So you're right there was the catch up in Q2, and so right now we've given the full year expense.
The expense.
<unk> track towards 5 billion and obviously, if we assess in Q3 and the and the risk of installing of sales we could we could change the accrual of the other way.
Just to get something.
That reflects the expectation at that time.
But that's how you should think about it is we actually did have a catch up because of the great momentum Mackenzie had in Q2 and you can see that extra $5 million that came in and then we're going to track towards the full year number for the remainder of the year, assuming we trend towards $5 billion.
Okay got it and then the second question for James or or Damon I guess.
Hum.
As we see the relief from the federal government on the on open banking.
And I'm thinking about your fintech platforms as well as some of the other financial planning.
Services that Ah I G wealth is providing do you have any comments any initial views on the on how that can.
Support enhanced drive per.
Other growth for the business.
Well I would janney.
Jamie I would just say in respect of that that we.
You know we participate very very actively as you know in the in the broader power ecosystem of of Fintech.
And when you look at the the full range of companies that are in that ecosystem on the number of companies that we have an opportunity to.
<unk> to partner with and indeed have indirect ownership interest in <unk>.
Hi, I can say that our we will we will absolutely participate in the evolution of this industry will participate.
The paid in a way that benefits our shareholders, but as importantly, or more importantly, I will participate in the way that are the benefits of our clients and I think.
We're seeing that in our current relationship of set with well simple we see it in our current relationship with the with conquest.
And frankly, we're in discussions with the with the other companies in that ecosystem and you know on the phone most of time, we view all of that is being quite shareholder and client friendly.
Yeah.
Okay. Thanks.
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