Q1 2022 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the I T M financial Q1, 2022 analyst call and webcast conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference.
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I would now like to turn the conference over to Keith Potter Senior Vice President of I G. M financial. Please go ahead.
Thank you good afternoon, everyone and welcome to <unk> financials.
22 first quarter earnings call joining me on the call today are James O'sullivan, President and CEO of IGN financial.
Damon merchants, and president and CEO of Baidu off management, Barry Mcinerney, President and CEO of Mackenzie investments and Luke Gould Executive Vice President and CFO about GM financial.
Before we get started I'll draw your attention.
<unk> cautions concerning forward looking statements on slide three of the presentation.
Slide four summarizes non interest financial measures used in this material I would highlight on slide four that we've added the money for it.
First ratios to our non <unk> financial measures.
On slide five we provide a list of documents that are available to the public on our website.
To the first quarter results by GM financial and with that I'll turn it over to James.
Alright. Thank you. Thank you Keith and good afternoon, everyone.
Before I review, our first quarter I do want to acknowledge the situation in Ukraine.
Canada has a strong and lasting connection to Ukraine the.
The contributions of Ukrainian Canadians to the culture and prosperity of our country cannot be overstated.
Hearts go out to Ukrainian people impacted by this unjust war waged by Russia.
Turning to slide seven.
First quarter earnings were 91 cents.
And all time record high.
And a 7% increase relative to last year.
We also achieved the best first quarter net flows in our company's history at $2 $5 billion.
And we continue to emphasize and deliver outstanding expense control during the first quarter with operating support and business development expenses growing only two 1% relative to Q1 of last year.
And we are reducing our full year expense guidance to approximately three 5% growth.
The 5% previously.
Quarter, ending are you M&A declined three 2%.
It's our best ever RSP season, net inflows were more than offset by the declines in both global equity and fixed income markets.
From a capital allocation perspective, we launched a normal course issuer bid during the first quarter and repurchased 570000 shares for $26 million during March.
And we used our automatic securities purchase plan to continue through April repurchasing an additional 600000.
Shares for $26 million.
Alongside our first quarter results, we published our 2021 sustainability report and I'll share a few highlights on the coming slide.
Now on March 1st we announced several leadership changes in the organization that I believe deliver strategic continuity succession and further elevate this organization.
Every Mac and Ernie has announced his intention to retire effective June 32022 after over a 35 year career in the industry in Canada, and the United States and nearly six years, leading Mackenzie through a period of exceptional growth.
Luke Gould, whom you have all had the opportunity to get to know very well on these calls and over his 25 years without GM financial will become the president and CEO of Mackenzie effective July one 2022.
Succeeding Luke is Keith Potter another very familiar name to you I'm sure.
Based on this work as treasurer and head of Investor Relations and.
In prior roles, including head of product that I G well.
Becomes agm's Chief Financial Officer effective July 1st.
Kelly her joined our AGM financial on April 1st in a newly created role of Chief risk Officer, where she will lead our enterprise risk and corporate sustainability programs as well as administrative responsibility for our internal audit function.
I am very excited about these appointments and what they mean for ITM financial these.
These appointments speak to the depth and quality of the leadership that we have at our companies and the focus that we've been placing on succession planning.
I look forward to their contributions as they take on these new challenges and so turning to slide eight markets have been very volatile.
During the first four months of the year driven to a large degree by the war in Ukraine, combined with concerns over inflation and rising interest rates across major global economies.
While Canadian equity markets managed to deliver a positive total return during Q1 driven by resource exposure in the index, most global equity markets experienced negative returns during the quarter.
Fixed income markets in aggregate also suffered losses in fact, the 7% negative return for the FTSE T. M X, Canada Index was the worst quarterly return experienced over the 40 year history of the index driven by rapidly rising interest rates, coupled with inflation concerns.
This outlier event is causing a shift in product demand away from traditional duration products towards floating rate or other low duration solutions within the investment fund industry.
Turning to slide nine on the overall industry net sales.
Following our and I would say.
Standing 2021 for the industry, we've seen a decline in overall investor sentiment during the past couple of months relative to the very high levels seen last year.
First quarter long term mutual fund net sales for industry asset manager peers were $7 billion slightly above average, but down from $18 $8 billion. During the same period last year with noticeably limited sales into income oriented strategies.
All that said as we see volatility in the markets. We believe advisors can use this opportunity to work with our clients to navigate the current environment.
Includes conversations on understanding the impact of rising inflation discussing the importance of a well constructed.
Investment portfolio.
And the opportunity to invest money that has otherwise been sitting on the sidelines.
Turning to slide 10 on Itm's results average AUR M&A increased 10, 5% year over year and net earnings increased 8%.
Slide 11 highlights how our Gms earnings growth was driven by increases across all three of our segments.
Wealth management asset management, and our strategic investments.
Turning to slide 12, we saw strong net inflows across high G well IPC and Mackenzie investments.
And you will hear more on the strong fundamentals of these businesses in remarks from Damon Berry and Luke.
On slide 13, I'd like to highlight Agm's annual sustainability report released today.
We prepare this report for all stakeholders, but also to address the ESG needs of our investors analyst and ESG community.
We are committed to transparent disclosure and Youll find we include both Tcf D and S. A S b disclosures in our report.
In line with the theme of this year's report battering lives for Tomorrow, we have forged ahead with our sustainable priorities.
Building financial confidence advancing sustainable investing accelerating diversity equity and inclusion and supporting a just transition to a net zero economy.
Gm's commitment to ESG and sustainability also continues to receive recognition in the marketplace.
Clothing, Agm's inclusion and corporate Knights Global 100, most sustainable companies published earlier this year.
The appendix of this presentation contains some additional highlights from the 'twenty 'twenty. One report so I would encourage each of you to take a look at the full report available on our website and with that I will turn the call over to Damon.
Thank you James and good afternoon, everyone turning to slide 15, and Iga wealth management's first quarter highlights.
We ended the quarter with $116 3 billion a decrease of two 7% during the quarter as a result of the financial market declined.
One $5 billion was another record high in terms of net flows for Q1 and net sales in the AGM managed products of $1 $3 billion was our best Q1 in over 20 years.
We have continued our strong positive momentum in the high net worth and mass affluent segments of the market where inflows from newly acquired clients over $500000 increased 41% year over year in Q1 2022.
I'll speak to our new product launches on the coming slide.
And then how did your wealth management, we're proud to be recognized as a top employer in this country and for our strong results. We achieved in the 2022 J D power Investor satisfaction Survey, where we were ranked above each of the big five bank full service brokerage firms.
Turning to slide 16.
You can see our record high Q1 results and continued strong momentum.
We're also pleased with our strong net flows last month.
But April into perspective March and April is typically a period, where we have significant focus on working with our clients on tax planning and optimization.
Because of this only three april's in the last 15 years have had positive net flows including both April 2021, and 'twenty two.
April also marked the 19th consecutive month of positive net flows for <unk>.
Turning to slide 17.
In Q1, 2022, we achieved an all time record high gross and net flows of 4 billion and $1 5 billion respectively.
Our net inflows are broken down in more detail on the net flows table, where you can see that our $1 $3 billion of net sales in the IGN product during Q1 increased $556 million year over year.
We believe we are winning market share today.
Well, it's our trailing 12 months net flows rate, reaching three 6% during Q1.
Turning to slide 18.
Well, we've been growing our share of wallet with our existing clients.
I'd highlight how our new client acquisition is really driving our success.
As you can see on this slide in Q1 2022, we continued our strong momentum with gross flows from newly acquired clients, increasing 28% on a one year basis and 86% over a five year basis.
On the right hand side you can see the continued success, we're having in terms of high net worth and mass affluent client acquisition quarter after quarter.
The increase in new client acquisition continues to be a significant contributor to overall gross net flows momentum at <unk>.
Turning to slide 19.
To showcase our momentum and accelerating advisor productivity, both our newer advisors and more experienced advisor practices are demonstrating continued growth driven by the hard work of the advisors and the initiatives we have undertaken to further expand their capabilities and business potential which you can see on the right hand portion of this slide.
Turning to slide 20.
In April we launched in collaboration with Mackenzie investments and Blackrock, two new suites of products they need to provide clients with comprehensive diversification for their U S. Dollar based investments, including an innovative first of its kind solution that helps simplify the U S tax reporting process for Canadian residents, who pay U S taxes, which is often called.
Located in costly these.
These launches further elevate the product shelf, we offered to our high net worth clients in Canada.
Lastly, turning to slide 21 I'd.
I'd like to take a few moments to highlight some of the recent recognitions IGT wealth management has achieved.
In terms of the advisor engagement.
In the most recent and that's been exactly a dealer report card we improved in 26 of the 31 categories and we're the only dealer to improve year over year.
With respect to employee engagement, we were recently named a top 100 employer across Canada and in Manitoba for our strong employee offering and value proposition.
And in terms of client satisfaction J D power just published its 2022 Candida full service.
Investor satisfaction study and I'm pleased to announce that I do wealth has improved to six and their overall customer satisfaction index.
Both the industry average in each of our full service brokerage arms of the five big banks.
We believe this further demonstrates our attractive client value proposition is.
Very exciting for us to have a high level of adviser employee and a client engagement driving our underlying business results.
I'll now like to turn the call over to Barry Mcinerney.
Thank you very much Damon and good afternoon, everyone.
I will take us to slide 23 to review Mckenzie as Q1 results.
Total AUM $205 5 billion as of March 31 was down two 3% during the quarter due to negative investment returns of five 1%, partially offset by strong positive net sales of $873 million.
First quarter investment fund net sales of $1 $3 billion for the second best on record and Q1 marked our 20 <unk> consecutive quarter of positive retail investment fund net sales.
This quarter, we launched several new funds with a focus on sustainable investing in alternative solutions and I'll speak more to the progress we've made in the sustainable investing arena in a moment.
I'll also discuss the Q1 operating environment for the China asset management industry on the coming slides as well as an important development for the industry that is very positive for mid to long term growth.
Finally, nor fleece continue to see strong fundraising with $1.1 billion of.
New commitments during the first quarter.
Turning to slide 24, where we outline a trended history of Mackenzie.
<unk>.
As mentioned on our last call and reiterate by James Today, 2020, and 21 was an extraordinary year for net sales in the Canadian investment fund industry.
The industry environment in 2022 is presenting shifting challenges and opportunities with overall industry flows resetting and the mix of flows that is evolving noticeably.
We continue to adapt and pivot where necessary to position Mackenzie to compete and win market share and to deliver strong near and long term growth.
The chart in the top left corner compares our Q1 adjusted investment fund net sales of $625 million to prior periods outside of Q1 of last year 625 million represents the best Q1 in over 20 years.
And I would note that this figure excludes 675 million of net sales, resulting from fund allocation changes at well simple during the first quarter.
And Mackenzie reported investment fund net redemptions of $49 million for the month of April in line with what we're seeing in industry for the month.
Slide 25 summarizes Mckenzie as Q1 2022 operating results.
Retail mutual fund net flows of $592 million for the second best in over 20 years down relative to last year, but up $412 million compared to Q1 2020.
Institutional investment fund net sales were positive $880 million, which includes contributions from well simple.
Mackenzie continues to gain market share as demonstrated by our six 1% long term investment fund net sales rate as at March 31.
And 52% in Mckenzie as AUM rated by Morningstar were in four or five star funds and 15 of our top 20 mutual funds rated four or five stars for series F.
Slide 26 shows our retail mutual fund AUM investment performance and net sales across our investment boutiques. Our teams continued to deliver strong relative performance as measured by Morningstar and our retail sales continued to be broad based and diversified across investment strategies.
Year to date 2022, we have seen value strategies generally outperformed growth strategies and we see this lift and candles short term performance on the fixed income side. The net sales story has two distinct elements duration products and traditional fixed income categories experienced net redemptions across the industry.
During Q1 and Mackenzie experienced its share.
Offsetting this has been a strength in low duration fixed income strategies, such as Kansas floating rate mutual fund and ETF solutions and we've observed continued sales momentum during April in these solutions and others on their shelves that are designed to perform well through a period of rising interest rates.
Slide 27 shows the growth catalysts I've spoken to numerous times over the past six years or so at Mackenzie.
I am so very proud of the progress we've made across all of these growth areas and thanks individuals and teams responsible for position Mackenzie exceptionally well to execute against each of these opportunities well into the future.
With this thing my last time, joining this call I'd like to take an opportunity to highlight one element that hasn't been particularly personal.
Interest to me sustainable investing.
This is an area of great importance and impact to our organization and the industry overall.
Kenzie has been positioned as a leader in sustainable investing in Canada with the launch of over a dozen products focused on this space over the past five years and we are set to publish our inaugural sustainable investing report later this month.
In terms of AUM Mackenzie now matches for $5 billion Swift specific sustainable investing objectives positioning us in the top four within Canada with approximately 8% market share.
In addition, we've made significant progress building capabilities to better integrate climate and energy transition risks into our investment process across all of our boutiques.
Continuing on slide 28, the overall Chinese mutual fund industry AUM was relatively stable down only one 8% during the first quarter as negative investment returns for largely offset by continued positive net sales of 817 billion renminbi.
Despite equity market declines of approximately 14% during Q1 net sales into long term funds are still over 350 billion for Mindy.
Any market funds also attracted strong net sales during the quarter.
Overall industry money market fund AUM increased five 5%, while long term funds declined six 2%.
China AMC continues to ranked second overall in terms of long term mutual fund assets under management in China, and like Mckenzie has a diversified suite of investment solutions and benefits from broad access to distribution.
Turning to slide 29, well, while on the topic of China I wanted to focus in on the third pillar of Chinas pension system private pensions on April 21, China's State Council released a policy document outlining its framework to further develop China's pension system with the introduction of private pension that's a third pillar.
Supplementing the existing two pillars focus on government and corporate pension plans we.
We are encouraged by this important step in the development of China's third pillar.
Top asset manager in China, with a strong track record of innovation and deep experience managing pension assets, China, AMC is very well positioned to execute against the opportunity in the coming years.
And just to give you a sense for the size of this opportunity under this new private pension system.
Approximately $1 billion individuals' 1 billion individuals will become eligible to make voluntary annual contributions of up to 12000 reminbi into qualifying pension accounts.
The rollout and adoption of the new program will take some time, but the size of the overall market opportunity is significant and we are excited to participate in it by way of our investment in China AMC.
Lastly on slide 30.
We're highlighting norfleet norfleet capital partners $23 billion in assets under management and their strong growth across private equity private credit and infrastructure asset classes and in Q1 of this year North sea crew or by 4% driven by strong fundraising of one 1 billion during the quarter.
Now I'll turn the call over to Luke.
Great. Thanks, Barry good afternoon, everyone.
Page 32, you can see our M&A.
The chart on the left is a good job illustrates where we are at the end of April .
During Q1, <unk> was down three 3% due to negative market returns of four 6% and this was offset by record high net flows of $2 5 billion reviewed earlier by James.
During April 20 April .
Assets were down another 4% to $257 4 billion were made near these levels today and think it was Q2 you can see we have even in a slightly lower than the average balance in Q1 and slightly above the average balance in Q2 of last year.
Moving to page three three out of a couple of comments and you can see on this slide that presents our quarterly EBIT in millions of dollars on the left and as a percent of the U N V and the right.
On the left I'd direct you to the second stack from the talk where you can see that our share of associates earnings and net investment income was $46 4 million down 8 million from last quarter.
As you would've seen included in this line was $7 million, reflecting mark to market of seed capital related to market declines I'd also note $2 5 million of this was included within China Mt's results and reflects our proportionate share of their seed capital Mark to market.
On the right you can see our margins.
Key point I'd make here is to remind everyone that we have a number of seasonal items in Q1 of every year that has a depressing impact on earnings and it's very hard to model.
Going to highlight a few of them here and I'm going to speak a bit more to them in detail in the coming slides.
First our expenses are seasonally high in Q1, you can see on the chart on the right. Our unit costs of 44 basis points are down from 47 basis points in Q1 of last year, but of course because of the seasonality are up relative to Q4.
Second we have fewer days upon which we charge our revenues in Q1 than in other quarters. However, our asset base compensation to distributors and advisors is based upon one quarter of the year applied to an annual rate as opposed to our revenues, which are based upon 90 days divided by 365 days apply to an annual rate.
And lastly, our insurance sales that are seasonal and they were down $2 million from Q4 Q4 is our peak seasonal high period for insurance sales and so we do typically have this well we always have this there's a reduction coming into Q1.
When you go to page 34, where you can see our consolidated earnings statement Bright G M.
At the bottom you can see is reviewed by jeans, we had record high Q1 earnings of 91 up 7% from last year building on the comments from last slide you can see we've highlighted and one that the seed capital a mark to market was $6 $6 million as a result of financial market declines and that's highlighted in the last slide you can see the $2 $3 million this reflected our.
Our proportionate share of China in seeds.
Seed capital Mark to market.
0.2, we're very focused on expense management during the quarter, our ops and support and business development expenses were up 2% and were $9 million below our previous guidance.
You can see here on this point, we are revising our full year expense guidance to a three 5% increase from 2021 and this is a decline of approximately $15 million to $20 million from our previous guidance that expenses would be up two 5% this year.
And lastly in 0.3 with our increase in year over year earnings our dividend payout rate.
The last 12 months earnings basis has declined to 60% to 66% of cash earnings and as described previously we would consider a dividend increase that 60% of adjusted cash earnings so well the payout rate continues to reduce where as we've strengthened our earnings.
Not quite at that 60% payout rate, yet, where we would consider a dividend increase.
Great Page 35, you can see a summary of <unk> eight and.
And the key revenue and expense margin.
I'd highlight that on the top right you can see our advisory fee revenue rate was 101.9 basis points in the quarter.
We've highlighted in the great italicized numbers right above that we made a reclassification this quarter of net interest income that we earn on client cash deposits to be included in this advisory fee line given the character. The fact that it is driven as a percentage of the UAE and this amount was previously included with the other financial planning revenue line and.
He was trivial.
Retroactive for this you can see the fee rate declined by 2.5 basis points. This is right in line with our earlier guidance and the 0.5 basis point decline reflects our continued success and development of high net worth client relationships as reviewed earlier by David.
I'd also highlight that our recipes compensation rate was $49 two basis points in the quarter.
You can see this was the 0.5 basis point increase and this was as a result of continued maturing of units initially sold subject to a deferred sales sales charge.
To remind everyone that at seven year maturity.
These compensation on these units doubles I'd also remind that we discontinued sales of these products six years ago. So this trend will continue right until Q4 of 2023 and pulling that all the DSC woefully matured and this trend will discontinue.
Most importantly on this slide I want to highlight and remind that our asset based comp is established and paid on a different basis than our revenues.
The square or rectangle box shows the rate if one were to annualize our asset based comp based upon the number of days in the period and using average daily average assets in the denominator.
I'd remind that asset based comp is established monthly by applying a 112th amount to an annual rate each month and then applying this to a simple average.
Balanced and the simple average as the open balance at the beginning of the month M D.
Balance at the end of the month you can see in the bottom left we've actually depicted with the simple monthly average EUA is in every quarter and you can see it was $116 8 billion. This quarter and if you go up that chart on the left you can see that compares to $116 3 billion when one calculates a daily average balance.
I know it seems odd to be spending so much time on these technical amounts, but I would highlight back to mature on the right.
The different application of rates being $1 12 per month or $3 12 per quarter in the case of asset based comp versus our revenues being applied at night and breed of 90 days over 365 for the quarter as well as the different basis upon which we calculate an average has resulted in a difference of 49.2 basis points.
In reality that we paid versus 51 basis points. If one were to use the same basis upon which we are in our revenues.
This 0.9 basis point difference is worth about $3 million in the quarter. So it seems like a small amount. These technicalities, but it can it can actually add a large number if they aren't model properly.
I would also give guidance on this rate that for the rest of the year you should expect it to gradually increase as DSD units can see mature and we'd expect the average rate to be about 49 five basis points through the full year.
Moving to page 36, I'd use earnings are up six 4% year over year.
As mentioned earlier comparisons to Q4 or less relevant due to seasonal items. The one point, we'd make here is just to highlight our focus on expense management expenses were down $5 6 million relative to Q1 of 2021 at G. I.
I'd also note if you look at the net investment income and other line that we do have seed capital Mark to market declines in each and every one of our segments, including <unk>.
Moving to page 37, you can see Mackenzie went by client and product type as well as our net revenue rates.
I just have two quick comments on this slide on the right focusing on the yellow you can see the net management fee for third party clients, it's $53 two basis points and much like our discussion that actually well it's impacted by the same seasonality in asset based comp than <unk>. When you exclude the seasonality and how we pay.
Asset based compensation the rate was actually 54, one basis points down slightly from the Q4 and that slight decline reflects a change the competition towards that'd be well simple Etfs, which were sold during the period.
I'd also note.
Then if you look at the bottom left you can see the share of the wealth management AUM that we can't be advising to has increased from 69, 9% to 71, 9% and this is the result of an award or business by I G wealth to Mackenzie in the Canadian equity space within the high profile program and that award was $2 5 billion.
Yeah.
Move to page 38, you can see Mckenzie as net earnings were up eight 6% from last year and you can see the only item that we've called out here as the seed capital Mark to market of $2 $5 million.
On page 39, you can see China Mt's results.
On the left totally AUM of $1 six trillion won is up 4% from last year and down 4% from December and.
At the bottom you can see in the boardroom stack long term funds were up 22% from last year and down 7% in the quarter as reviewed by Barry in spite of the financial market volatility industry net sales were both robust and China AMC did gain market share during the period.
On the right you can see IGF share of Chinese sees earnings were $15 8 million. When you exclude the $2 3 million seed capital Mark to market and this was a healthy 25% increase from last year.
On page 40, you can see well simple squarely metric.
On the left in spite of financial market declines, we saw well simple the way increased by five 4% in the quarter due to continued strong client acquisition in the middle you can see that will simple continues to deliver very strong growth with its number of clients at 166 5 million at the end of March an increase of 8% in the quarter an increase of 62%.
In the last 12 months and this growth in clients always right in right in line with our plans for the business.
Moving to page 41.
The top right I would remind for.
For those who are viewed our results that we recorded a 23% diluted stake in wealth simple at fair value through other comprehensive income and this quarter, we did adjust our valuation downwards by 20%.
This 20% revaluation is consistent with the decline in valuation multiples for publicly traded fintech providers.
The table at the bottom I'd remind you of the upcoming purchase of an additional $13, 9% stake in China asset management from our parent company for 1.15 billion and you can see along with that transaction. We are selling part of our great West Lifeco stake to them and this deal is on track to close likely in early Q3.
I'd also highlight the right column that these strategic investments have a conservative value of $4 $6 billion.
And lastly on page 42, you can see our typical disclosure around some of the parts of IGN.
The April 29 closing price of $40 71.
We present here, an implied <unk> multiple for <unk> wealth and Mackenzie based upon expected 2022 earnings when we went to press and this implied multiple of $6, one times, which compares to p/e multiples of global wealth managers and asset managers at much higher levels.
I'd also highlight the second column from the right on the allocated capital and other where you can see we have excess capital of $805 million or around $230 million. Following the pro forma for the upcoming purchase of Chinese <unk> shares I do want to remark that we have a normal course issuer bid outstanding of 6 million shares as James reviewed earlier.
We believe this quarter actually produce very fundamental strong results and I just want to everybody now we're very excited come into black Monday and have the opportunity to repurchase our shares at what we believe is a very attractive price based upon where they are trading.
That concludes my comments alternative question.
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The first question comes from Chop Kwan with RBC capital markets.
Please go ahead.
Good afternoon.
My first question with you I mean look kind of talked about it at the end on the share buybacks and coming out of the blackout a blackout period, but just was wondering like what the pullback in equity markets.
Impacted how you think about capital allocation on the share buybacks it sounds like you're gonna be active but it has it.
You know how do you thinking about being more active than usual on the share buyback as opposed to M&A.
And then similarly on the M&A side has the market decline impacted kind of the acquisition pipeline and asking prices.
Sure Good afternoon, Jeff.
You know we are repurchasing.
Approximately 30000 shares a day.
As we speak which.
It does not sound like a lot, but it's actually you know annualize that it's 8% of our float if you exclude positions held by power Corp, and and great West life and the IGN.
So am I.
I think I think there is very much an opportunity for us to to increase that if if weakness.
In markets persist and so that is something we will we will oh okay.
Considering to be sure.
On M&A, what I'd say is.
You know I think I've shared with you Jeff a couple of months ago at a conference of yours that I had never seen a bigger gap or spread between public company valuations and private market valuations.
And typically.
Those gaps.
Don't persist at least they don't persist at these levels I've been witnessing them.
And of course public company valuations have only gone down from there and so I think.
I think there remains a gap I'm still waiting to see evidence of on block or M&A values are coming.
Coming down meaningfully, but I think that is a possibility I think it's very much a possibility in these very volatile markets.
We're going to see more attractive M&A values and if we do.
Then you know I'd refer you to our you know our two kind of strategic questions that we've laid out over the next three to five years.
Our full potential in high net worth and ultra high net worth in Canada, and how we go about achieving it.
And secondly in asset management, how do we position Mackenzie in what is truly a global a global industry. So I certainly think there is some some room for our N CIB to AR to increase as I say at current levels, it's kind of mop up 8% of the float per year and I'm hopeful that we're going to.
See on block values decline and that that might create an opportunity for us to do what I.
I think good management teams should do which is be disciplined at the top of markets and be opportunistic at the bottom of markets.
Thanks for that.
My second question was for Barry and also for Luke Barry just with your upcoming retirement when you kind of take a look back do you I mean do you feel like you've accomplished everything you wanted to do when you joined AGM or are there. Some things that you still want to see done and maybe Luke can carry on that Baton and then Luke and I don't know if it's still a bit early.
But are there things that you'd like to do to sustain the momentum at Mckinsey.
Well I guess I'll start.
Thanks, Jeff that's very very nice question.
Yeah certainly.
Short feeling really good about where Mackenzie is right now and for Luke.
A really terrific Mackenzie leadership team to take take the baton and take to for them to new Heights.
I mentioned.
<unk> had a chance to listen into our.
Annual shareholders meeting earlier today.
We worked hard collectively last six years to continue to push hard on the brand and the investment talent Boy, we brought in somebody new teams across the spectrum, particularly in the areas of <unk>.
Staying ability and alternatives, which are fast growing.
And.
And also these growth catalysts that we I'll lean in on the five of them.
I mentioned earlier.
They worked really well in tandem with the current core.
To characterize the growth catalyst in the future of course, so they both work well together in terms of building really really good portfolios, we think for advisers and investors. So I think I think really it is a dynamic industry at all right. So I have full confidence that Luca and the team.
Take it over to Jeff Carney is Jeff did that we pivot and adapt as the environment changes, but if you look at what we've got right now Mackenzie.
The breadth of investment capabilities, and the brand and distribution prowess and the fact that we've got not just market.
Market share gains across the traditional asset classes, but participating in the fastest growing asset class in the world being private markets.
North Sea and then participating in the by far our fastest growing asset management and retirement market in the world in China for China and shape.
It's a pretty good launchpad I would say, we all would like to do margin our tenure, but duty calls for me if my family and other another.
The demands on my time so.
Feeling really good where we are today rest assured though it is a dynamic industry looks looks kind of pretty dynamic vision himself. So I'll pass it to look for a few comments. Thanks Jim.
Great. Thanks, Thanks, a lot for the question that Jeff I appreciate it I just like that maybe use the question that to celebrate vary a little bit.
I've been referring to what I call, Barry six and of the six things that Mckinsey did under various leadership and a 36 year your leadership.
First we tripled our AUM, we doubled our earnings we consistently grew market share in Canadian retail, we diversified our distribution channels, we continually launched innovative products in the relevant categories and we enhanced our advisor and employee engagement.
So those are very six my mantra has been and it's going to continue to be that we want to do all of those things again every single one of them over the next five or six years, just like we did under Gary's leadership and right now I'd say I'm very fortunate that we have this foundation and the right strategy that we believe we can accomplish each and every one of those six things as we look forward into the next five.
Year period. So that's that's what <unk> is really one about continuity and Mccann momentum and really continuing the legacy the variance had been building for this room.
Great. Thank you.
The next question comes from Scott Chan with Canaccord Genuity. Please go ahead.
Thanks, a lot Barry.
Maybe.
Switching to our northlake, which had a very positive quarter, mainly driven by.
The $1 1 billion in net inflows are you kind of talk about the product launches or the pending product launches for private equity infrastructure and private equity is at our target from a flow perspective.
That you can provide us that you see over the next 12 to 18 months that visibility there within that within that complex.
Yeah. So.
First of all you can see the growth no surprised that drove the growth trajectory our northeast since our investment in before our investment and clearly those are mature vast majority continuing to be in the institutional space because they have such a strong.
Strong offering across private credit and private equity infrastructure and.
With existing clients re upping and of new clients coming in and.
And as you know they're <unk>.
Marketing now institutionally outside of Canada, and the U S and Europe .
We're helping on the China side.
The retail democratization. Its it really is just an incredible coiled spring. It takes time as you've heard me before in terms of education.
<unk>.
We're starting to see the flows.
On the credit side, the industry ticked a little bit of a step back temporarily just because of a couple of industry Debacles, I guess, but the call.
The quality of that wave.
Investors. So so impressive so the private credit is starting to take hold infrastructure actually right now probably has even though it's been available shorter period of time has had more sales.
Then in private credit.
Terrific asset class neutral lot of advisors.
As you know it gives you good long term returns income inflationary separate sensitive as well.
And then the private equity as you've heard from me that'll be coming out this quarter actually Q2 so.
I think it's been a good year start getting all the products ready to launch great partnership North Steve The pedigree is well received by advisers.
It's taken us time to educate advisers sell it here's how it improves.
Our portfolio, so we're feeling pretty good.
We don't really have a target to be honest with you because we wanted to take a year or two to get all the products launch again at the end of this quarter, we'll have all the products launched in terms of their traditional three.
Three offerings at North sea, but more to come by the way and some other really neat neat innovative products under Luke's leadership and and as I mentioned I think what you'll see now is starting to see after it's been a year now of good groundwork foundational work you'll start to see the acceleration of those sales, particularly now that our wholesalers at Mackenzie and partnership northeast.
Go out with all three of private equity private credit infrastructure and have that solutions type discussions advisers to see where they want to add if any might may already have exposure in some areas and therefore, we can complement it with other area. So not a specific answer to your question was a great question I think that will probably give you more guidance, Luke will probably be coming quarter.
There are some some targets.
Want to get this thing I'll get out there and it'll be totally out there now by the end of this quarter end.
You'll start to see some good really good flows.
And it's good it's good for advisors, a Canadian because it's being so good for pension plans for so many years around the world.
Great.
Picking up institutional there Hugh.
You called out Q1, net inflows of 888 million, which is probably one of the strongest quarters ive seen.
There's been headwinds.
And the space fall asset managers, so maybe you can describe.
Listen one large mandate.
I was in China.
How did that come together and what the pipeline on that side.
Yeah. Please.
Yes.
As you know I'm, an old institutional guy years ago. So it's always one of my favorite topics.
So first of all just to answer your question specifically.
The wealth simple partnership it continues to really expand and so therefore, they represent the majority of the.
Institutional flows for us because we classify them as institutional.
We worked with them as an institutional investor because we work with their CIO and his team. So so.
Majority of that was from well simple and.
Our wealth simple the monies that we manage for all simple either they investing in our Etfs in which they are now doing.
And the for each shifts that we manufactured for them and we are approaching $2 billion $2 billion AUM for simple and they are growing very fast comes in everyday which is very nice on the pure institutional side pension plans from Dallas foundations.
Sovereign wealth funds I was I would say.
Never been more excited at Mackenzie in terms of our pipeline going forward now let me condition is that a little bit.
The my express institutional.
As a money manager trying to institutional mandates is that do you have to have continuous.
Opportunities in inflows, because youre going to nationally lose some mandates through.
A rebalancing by the plan sponsor.
We lost one a couple of quarters ago, because the pension de risking doing lot of LDR investing and we had equity so.
We liked our performance, but they so you're always going to have a natural churn of institutional.
And when Covid hit we actually start relationships with the retail advisors almost.
Almost the same virtually not true for the institutional consultants. They were more challenging you probably heard from industry of having that communication, probably almost a year. So during COVID-19 they have their own not to be critical in the same week, we noticed we couldn't get access to them like we would normally do because of that.
Kind of a natural pipeline started to pull back a bit for a year to 18 months and therefore, you've been seeing some net net outflows institutional for Mackenzie that will stop going forward.
<unk> is a very strong we might we might have a big win this quarter Q2, if not it would be early Q3, and then youll see a country again, so it's been several quarters <unk> seen about flows except for obviously Q1 word about simple with a nice nice pick up and that continues.
I expect that you'll see some really nice they're lumpy right ins and outs, but some nice lumpy wins coming in on a regular basis going forward. The pipeline has been refreshed.
It's global it's around the world a lot of our Quant team trick Quant team in Boston a lot of it is green shift to sustainable Environmental fund, which now has a high interest as you know not just retail, but now institutional for obvious reasons. So it's exciting but we did have to take time to I would say restock the pipes.
And we've done that now so things should be quite.
Quite positive going forward.
That's very helpful. Thanks, Barry and congratulations again lastly, James.
You've kind of talked about the M&A strategy for the last several quarters, our high net worth Ultra high net worth you kind of talked about your leverage and how that potentially excess capital moving up that leverage to two times plus so we kind of think of this strategy are you looking to like by several like Oh.
Family offices or investment counts layers and consolidate it and how do you think about that or how should we think about that in terms of strategy within IAG or mckenzie or both.
Yeah. Good question.
But our our first priority to be sure is organic growth and I G, well and and I P C.
And we continue to invest in those business not just in terms of technology and process, but more importantly in terms of recruiting.
And bringing advisors to the organization and and associated assets as well and that's that's very true well kind of its very true at IPC and so.
But we have I believe a very positive view of the future of both our wealth and IPC and each of them as we speak are penetrating the high net worth.
Panel and they will forever have our full support and doing so having said that we do think there might very well be acquisition opportunities out there and.
I think it will come as no surprise to you to hear that the the Canadian market is a mature market. It's a it's a market that where acquisition opportunities are relatively scarce.
And so theres not going to be a lot of properties out there and so I think we're gonna have to be nimble and we're gonna have to be open minded.
It could be a chunky acquisition it could be it could be a fewer more smaller acquisitions. So like I'm I'm approaching this very very much with a with an open mind.
And as I said in an earlier question.
You know we.
We have been in the traffic and I as I said I have found.
The gap between public market values of private market values to be to be quite wide one of the widest I've seen in my career.
And Yep Yep.
<unk> values or M&A values come down we will view that as a as an opportunity but look this is one where we're gonna have to be patient because its canada and there's a there's not a lot left to buy.
Okay. Thanks for that James.
Yeah.
Once again, if you have a question. Please press Star then one.
The next question comes from Rushee Bungie.
TD Securities. Please go ahead.
Good afternoon. Thank you.
If I could just start off with China AMC.
Couple of questions over there.
One could you speak to the timing of the private pension program in China for <unk>.
Other than if you have more insights.
When could we potentially expect a full rollout of the program.
It's Barry I'll. Thank you I'll start and Luke might have some comments as well.
Do you expect that.
As normally conducted with these big policy.
Decisions in China, they're going to do a pilot project for 12 months and so that will be rolled out in <unk>.
Some major urban centers in China and test.
Test the interim chesty interest and pick up in the technology and the offerings et cetera. So.
This is a so I would.
What youll see probably after a year then it'll be expected if things.
As expected.
In terms of the pilot it'll be in full are in full execution mode.
The reasonably we find us so exciting for China, AMC and we already mentioned it is the fact that we have been waiting for this third pillar for quite some time, we knew it was going to happen and that was here.
And.
This is a significant opportunity it will take time.
But our RSP is decades ago. It takes time for everyone to have be familiar with tax deferred vehicle and how to use it.
But.
Yeah.
Could support you could argue that it would be enough to pick ups can be quicker in China than in Canada, because the Chinese conference can be fully behind it. They are incentives obviously with the three pillars now to get their aging.
<unk>.
Thank.
Taken care of during retirement.
And the fact that the average age of the Chinese versus when we had RSP is rolled out in Canada is vastly different rate. So 12 months of a pilot to get things working China AMC by the way already launched a couple of years ago, a full array of target date and target risk.
<unk> just to get them ready their design and their offering true institutional retail because that has been potentially could be.
Some of the preferred.
Investment strategies for this third pillar so.
More on it in future calls and obviously, we'll keep you apprised and Luc and James everybody else is what we hear on the ground on the pickup and future projections, but that's.
That's the that's the official.
12 months rollout that will occur.
And then we'll give you updates thereafter.
Okay. Okay.
And then just my second question on China, and see the earnings this quarter. So excluding the seed capital losses of $15 8 million.
It looks like.
Whereas this 20 to 21 million you recorded last quarter it looks like.
Amortize it will drop into the drop in the mutual Fund me a number I'm. Just wondering was there anything one time in mutual over there and.
I guess.
How much operating leverage would the business have to hiring.
It was from this point on.
Yeah, I'll take I'll take that one there do tend to be some seasonal fees within the fourth quarter, but substantially you should look at this as being in line with the long term about fund assets. That's the biggest driver and so as the total assets includes things like money market funding institutional their lower fee. The biggest driver of the earnings is the long term.
Funds and so when you look at 25% year over year on an earnings compared to 22% year over year long term funds. That's that's kind of the relationship you should expect.
Got you that makes sense.
And just my last question on on Green Chip. So fund performance was really strong over there.
Fluids were noticeably lower this quarter.
Just wondering.
A reflection of a more competition into the sustainable.
One category or is this more of an industry wide trend.
That happened in Q1.
Thank you.
Sustainably sustainable flows in Keane reach out seem to be very strong year over year.
The flows are down overall as you know this year versus last year at the industry level. So relatively speaking the interest remains relatively high.
If you look at our Green ship Environmental fund, you're a five star, 99%, 98% tougher pharmacist receptions just exceptional exceptional strategy exceptional.
Team.
And.
Interesting enough.
They deploy a value approach, even though it's a growth industry. So that's probably another high.
Hi interests of advisers, so EBIT down year over year simply because it was new last year Ray brand New last year, we saw.
Mutual funds across the industry that were brand new and novel.
Exceptional flows and we certainly got a sexual flows.
Last year this year right now overall it starts still number one seller net sales into the green ship environmental mutual funds, so selling very well for US right now and we would say that.
There is more competition.
Green ship has been doing this for over 15 years, that's all they do environmental investing globally. So they have a significant competitive advantage over any new launches that have occurred in the advisors recognize that.
And they are capturing a large market share in that dramatic environmental area Theres been a broadening of ESG offerings and broader sustainable investing offerings across Canada, but that environmental thematic area, which is.
A real catalyst probably for years to come.
Green chip is dominating in it. So we're very very pleased with that and I think you should expect more flows and by the way, it's not just from a sort of a.
Offering to clients because of their ESG interests is just a very also very powerful investment thesis to invest.
<unk> global companies that are principally focused on in the areas of new energy sources and so.
And if I could put a little plug and also we have a very strong resources team.
The current energy sources.
Interest in both are occurring because of the transition as we know it's going to take time.
And so and.
As I know a lot of the new energy sources are powered by the current industry sources. So you know all that so we're pipe left to have both actually but specifically the decline in the green shift year over year I would no worries at all that was expected because of the newness last year and this is powering ahead.
And it will flow for quarters to come.
Yeah I appreciate the color those are all my questions and congrats again on entertainment Buddy. Thank you.
The next question comes from Jamie coin with National Bank Financial. Please go ahead.
Yeah.
Two two questions first one on the on the seed capital losses, given still some market erosion here into the second quarter.
As is.
Is the likelihood that we that we should expect to see some more around the unrealized losses flow through in Q2 or what's.
How should we look at that going forward.
Yes, you definitely should J B, we've got about $130 million of seed capital at AGM and you can expect it's substantive Li Yep.
But largely equities also what we do have some some infrastructure private credit, but you should expect to see the seed capital move with markets.
As it did in Q1 and I'd say the same for China AMC, a large part of the seed capital as our proportionate share of their reductions. So let's so as markets move you can expect those type of mark to market every quarter.
Okay. Good good to clarify and then the second one more more strategic in nature around the primary relationship.
Still early days here, but wondering if there's anything that you can highlight.
As you're building out that exclusive relationship.
Sure it's Barry.
Again, as we expressed last quarter really excited by that and.
Still a work in progress and getting everything set up in terms of the new funds in the <unk>.
Systems in the plumbing and the marketing materials and rollout.
But we.
We will give you more information on that probably next quarter, but things.
Things are progressing really well.
We're excited by primarily is growing very nicely too so and we already Mackenzie had about a 1 billion a $1 billion around they use about $1 billion of our mutual funds already so we know them well.
And so to be added on as one of the two managers.
A second major.
For this new program.
With the with their growing is really exciting. So early days, we'll give you more updates on that and but things are progressing well in terms of getting everything in place for the launch.
Hugh.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Keith Potter for any closing remarks.
Thank you and thank you for everyone joining us on this Friday afternoon.
Hope you have a great weekend and with that we will end today's call.
This concludes the conference call you may disconnect your lines.
For participating and have a pleasant day.
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Thanks.
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Okay.
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Yes.
Yeah.
Okay.