Q2 2022 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the AGM financial Q2, 2022 analyst call and webcast.
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Now I'd like to turn the conference So Richard Howes Martin pleasure.
And head of Investor Relations. Please go ahead Sir.
Thank you Charles Good morning, everyone and welcome Judge on financials 2022 second quarter earnings call joining me on the call today.
Amy Sullivan, President and CEO of IGN for agile Damon Merkerson, President and CEO of <unk> wealth management, Luke Gould, President and CEO of Mackenzie investments and Keith Potter Executive Vice President and CFO of <unk> financial.
Before we get started I would like to draw your attention to our cautions concerning forward looking statements on slide three of the presentation.
Slide four summarizes non <unk> financial measures and other financial measures used in this material.
On slide five we provide a list of documents that are available to the public on our website related to the second quarter results.
And with that I'll turn it over to James.
Okay. Good morning, everyone I'd like to turn to slide seven to start with a few highlights for the second quarter.
First of all earnings per share of <unk> 87 cents and what was the second best adjusted Q2 on record and I think a strong result.
We're currently in a challenging macro environment, that's producing heightened financial market volatility.
This dynamic was reflected in our assets under management and advisement and our three main operating companies, which together decreased nine 8% during the quarter.
Mackenzie snap sales have also been influenced by this environment in line with the industry results for Q2.
That said, we continue to see very strong results at it well in terms of net flows.
And both north sleep, and China, AMC delivered excellent AUM growth during the second quarter.
Well, we don't include our AUM and flows from strategic investments in our reported numbers.
We do believe it's important for our shareholders to understand the very real progress being made here.
Given the environment, we're taking further action to manage our expenses this year.
Bringing our full year, our full year expense growth guidance down to no more than 3%.
Down from our initial guidance of 5% in February and three 5% in May.
From a capital allocation perspective, we remained active on our share buyback in Q2, and repurchased two 3 million shares for a total cost of $90 million.
Turning to slide eight where we show our client investment returns alongside major equity and fixed income indices.
Other than China, which had a strong second quarter returns were sharply negative across major markets.
In Stark contrast to the second quarter July brought with it a strong rally across many equity and fixed income markets.
<unk> client returns rebounded four 7%.
Still we remain cautious given the level of uncertainty and continued market volatility and are managing our businesses to position ourselves for a range of outcomes over the next 12 to 24 months.
Yeah.
Turning to slide nine on the overall industry net sales.
Well in the second quarter of 2022, the industry experienced broad based net redemptions across asset classes totaling $21 $7 billion. Unfortunately, the worst Q2 on record.
Q2 long term mutual fund net redemptions for industry asset management peers were $8 $7 billion down 22.9 billion from the record positive result achieved last year.
We believe it is environments such as these where the country's top wealth and asset management firms and their advisors do their best work engaging closely with their clients to navigate uncertainty.
Turning to slide 10 on <unk> results for the second quarter net earnings were $207 million and I already mentioned that earnings per share of 87 cents was our second best Q2 on record. The top result was Q2 of last year.
Slide 11 highlights net earnings by business segment, which Keith will review in detail during his remarks towards the end of the call.
Turning to slide 12, our assets under management, and an advisement declined 6% to 9% across wealth management IPC and Mackenzie during the 12 months ending June 32022.
However, we are seeing continued growth at both China, AMC, and northcliffe, with 8% and 26% year over year AUM growth respectively.
Turning to slide 13 on net flows.
We saw strong net flows at IAG wealth, which remained in positive territory. Despite the market environment.
This demonstrates the leading value proposition and momentum we have at high G right now.
Mackenzie participated in the broader industry net redemptions in Q2.
North leaf continues to deliver strong fundraising with $1 $1 billion of new commitments during the second quarter alone and with that I'll turn it over to Damon.
Thank you James and good morning, everyone.
Turning to slide 15, and ICU wealth management second quarter highlights.
We ended the quarter with <unk> of $105 5 billion, a decrease of nine 3% during the quarter or as a result of financial market declines.
Due to strong net flows of $389 million were down from $670 million last year.
Note that Q2 gross inflows of $3 1 billion were the second best in our history down slightly from 2021.
Redemption rate over the last 12 months remains well below the industry and ended the quarter relatively unchanged at eight 6%, while the industry redemption rates increased to 14, 6%.
Positive net flow momentum continued into July marking our 20 <unk> consecutive month of positive net flows.
We have continued our strong positive momentum in the high net worth and mass affluent market segment, where inflows from newly acquired clients over $500000 total $447 million, which was in line with Q2, 2021 and up 219% over the past five years.
Lastly, I'm pleased to share that I do wealth imagine what's top rated amongst its peers in the 2022 investment executive dealer report card.
Turning to slide 16, as you can see our Q2 2022 gross and net flows remained strong.
And on a year to date basis I do welcome to achieve the highest gross and net flows in over 20 years at $7 1 billion and $1 9 billion perspective, respectively.
We're also pleased with our strong growth in net flows in July , which clearly demonstrates the resiliency of this business model and the strong advisor and client value proposition because that centered around the value of comprehensive financial planning.
Turning to slide 17, as a reminder, this slide demonstrates the mechanics behind our net flows and how they can materialize into E. ITM investment solutions. After first arriving as deposits high interest rate savings accounts third party funds and securities.
During Q2, we're pleased to see strong client inflows and given the heightened market volatility only a modest shift and deter deposits during the quarter.
We continue to focus on long term financial planning with our clients and expect to see strong net sales in the ITM investment solutions over time.
Turning to slide 18.
As I mentioned in Q2, we achieved our second best gross inflows in our history with $3 1 billion and our net inflows continued to remain strong.
We firmly believe we are winning market share through new client acquisition and greater share of wallet from our existing clients with our 12, our trailing 12 months net flows rates of three 4% in the quarter.
On slide 19, we highlight how <unk> clients tend to stay the course and remain committed to their financial plans throughout periods of market volatility.
I guess, well last 12 month's redemption rate was eight 6%, which remains low and stable.
This year, we reached our lowest 12 month trailing redemption rates since 2008, while the overall industry redemption rate for long term funds on the other hand has experienced a sharp increase during the second quarter, reaching four 6% at the end of June .
Turning to slide 20.
This highlights our momentum in the high net worth and mass affluent client acquisition.
Which continues to be significant attributed to our overall gross and net flows at <unk> well.
We're very pleased with our results here in Q2 2022 with gross flows from newly acquired clients over $500000 remaining well above levels. We've seen back in the second quarters in 2018 in 2019 and in line with Q2 2021 were clearly proving that our path to new client acquisition is strong.
Garlic or whatever market cycle that we're in.
Today, our advisors are spending more and more time with our existing clients, while still acquiring new clients in this volatile market. We believe this demonstrates the leading value proposition <unk> offers to our advisors and to high net worth Canadians.
Turning to slide 21, we show our strong productivity by advisor experience both of our newer advisors and more experienced advisors practices are continuing to deliver strong productivity numbers as measured here by gross inflows per advisor.
We believe the key initiatives undertaken on the right hand side of this slide will continue to drive strong productivity results.
Lastly, let's turn to slide 22.
Very pleased to share that Iga wealth was top rated among full service mutual fund dealers in the 2022 investment executives dealer report card.
And that our advisor net promoter score was higher than each and every one of the full service brokerage arm of the big five banks.
These are encouraging results at a time when we are seeing the tangible payback for several years of investment in our business.
<unk> scores increased significantly in several key areas, including technology and tools and advisor desktop firms.
Firms responsiveness to adviser feedback and receptivity to adviser feedback products and support for high net worth clients support for dealing with changes in the regulatory environment and the firm's corporate culture.
We also led all firms and financial planning support which is a core part of our value proposition.
These leading resolve all point to the many initiatives we've completed over the last several years such as enhancing our technology to help our advisors meet the requirements of the client focus reforms expanding our focus on the client and adviser experience and launching products that meet the evolving needs of.
Our mass affluent and high net worth Canadians.
I'll now turn the call over to Luke Gould to discuss Mackenzie results.
Thanks, Dan and good morning, everyone.
I'll skip to slide 24.
Wednesday.
First Jim spoke to the industry environment, and we've seen the impacts of our business during the second quarter.
One totally when the $184 7 billion as at June 32022 was down 10% in the quarter as a result of financial market declines invest.
Investment fund net redemptions of $819 million were in line with industry outflows with Mckinsey as net redemption rate in line with industry peers.
23.
Our previously announced distribution grids Primerica, we reached a major milestone in June 30th with the launch of a suite of 25 funds designed to address the specific needs of primerica advisers and their clients sales into these funds began on July 6th and the early progress is very encouraging I'm going to review this in more detail a couple of slides.
China delivered another strong quarter of asset growth with long term fund AUM, increasing 13, 1%. This reflected a combination of strong net sales activity as well as investment returns for financial markets.
And north we continue to see strong fund raising with $1 1 billion of new commitments during the second quarter.
Turning to slide 25, you can see the trend in history, because net flows we're just over halfway through 2022, and we've clearly seen a very different year. So far in terms of industry flows relative to the record setting 2021.
As mentioned during Q2, we maintain market share versus peers as well as gross sales capture.
The year is far from being over and we see opportunities to take advantage of our strong positioning to win market share and deliver strong near and long term growth in the coming quarters looking.
Looking at July we're encouraged by the notable improvement in investment fund net sales relative to June and we continue to believe Mckinsey is well positioned with the boutique structure, leading access to distribution and a lot of a lot of strong prostate to emphasize and lean into in the back half of the year.
Turning to slide 26, you can see the summary of Q2 2022 operating results reached.
Our retail and institutional investment fund net redemptions reflect the industry outflows. Our last 12 month trailing long term investment fund net sales rate was two 3% at the end of June remained slightly above industry peers.
To supplement James's comments on industry flows from earlier.
I'd highlight that a large destination for client monies owed in mutual funds in the industry with deposits and safety with term deposits in particular, capturing significant flows during the second quarter.
And in the bottom right I'd highlight 42% of Mackenzie AUM rated by Morningstar, four and five star funds and 17 of our top 20 mutual funds were rated four or five stars and series F.
Move to slide 27, you can see our retail mutual fund AUM investment performance and net sales across our investment boutiques.
We continue to believe our boutique investment structure offers diversification and choice as our solutions remain relevant through market cycles because of this diversity of boutiques.
Year to date 2022, we continue to see value strategies generally outperforming growth strategies and you can see this in the lift in Kendall short term performance while growth oriented boutiques generally saw performance impact in the near term.
When you look at the asset weighted performance performance and for central across boutiques, you can see we have a lot of strength.
Within a lot of relevant product categories, I'd highlight Canadian equities and resources, where we have real strength in top decile performance across several boutiques IBM condo have performed very well with their focus on quality and value respectively.
Green Chip one of our sustainable boutiques continues to have exceptional performance across every time horizon, our global equity and income and fixed income teams have considerable strength across multiple mandates and also highlight we have an exceptional roster of income offerings across boutiques are monthly income portfolios are top decile across time horizons, and we are very strong floating rate products.
Ross product structures, including Etfs as well as our recently launched private credit offerings with normally and we are leading into all of these these offerings.
Turning to slide 28.
I won't spend a moment, highlighting mckenzie as multiyear product and service and distribution growth for America.
As mentioned, we launched officially this this exclusive product suite for them onto a dirty.
We profiled here on this slide this mckinsey future path series of funds, which offers 25 unique funds covering all major CFC categories with style choices for equities and a number of asset allocation solutions.
I'd note that we're very proud of this product offering that we've established and we're and we're also proud of the sales support we stood up as well as the marketing support for Erika We've been doing road shows with them across said July into August and we're very pleased with the reception.
And I'd remind that going forward and Mckinsey is wanted to exclusive fund providers available to PFS sales network of 7000 advisors across the country, who distribute about $20 billion and and have seen significant growth over last few years.
Sales of these new solutions began on July 6th and the overall relationship is off to a very promising start.
Turning to slide 29.
We feature here, our five growth levers at Mackenzie, which are driving our product emphasis in Q2 2022.
We launched the Mckenzie north with global private equity fund, which allows retail investors to gain exposure to private equity.
This marks our fourth fund launched in partnership with North lease helping to democratize alternate investments in Canada. We now offer the full spectrum of normally its capabilities private equity private credit and infrastructure across Mckenzie said Mckenzie solutions. We're very excited about this partnership with North we believe alternatives are an important part.
Asset class for Canadians and you'll hear US say many times. This is the missing middle and that's a retail Canadians have been missing for their portfolios.
Continuing to slide 30.
Here you can see the overall Chinese mutual fund industries, AUM up six 3% in the quarter driven by positive investment returns.
Chinese equity markets and as you can see in the bottom left continuing positive net sales long term fund AUM was up seven 4% in Q2, reaching new record highs.
Both long term funds in money market funds continue to attract positive net flows and you can see the bottom left the industry annualized net sales rate of long term funds remains over 10%, which is incredibly healthy.
On the right you can see that <unk> continues to rank second overall in terms of long term mutual fund assets under management in China, and our market share is increasing within a rapidly growing market up to four 6% of the industry.
It's a four 3% last quarter.
On page 31, you can see China sees growth in AUM has continued to be strong and reached an all time high of RMB 174 trillion in Q2 2022.
I'd remind that what's particularly important here is the growth in long term fund assets, which you can see at the bottom stack, which were up 13% in the quarter and 24% year over year and this strong growth in Q2 was split roughly evenly between investment returns and net sales.
Move to slide 32.
We've highlighted here Norfleet capital Partners' 2000, 22 billion in AUM and the strong growth across private equity private credit and infrastructure asset classes.
The year to date growth is up 13% driven by the strong fundraising you can see her at $2 2 billion and year over year growth of 29% in 2021 last year due to strong fund raising we're on track for that exact same growth in 2020 to close to 30% I will now turn the call over to Keith great. Thanks, Luke and good morning.
Page 34, you can see our M&A.
The chart on the left shows assets were down nine 8% during the quarter due to negative market returns.
You can also see we started Q3 at a low point with June ending assets at around the average balance in Q1 of 2021.
The good news is that July was a good month and the markets what AGM assets up four 5% to $252 9 billion. So an encouraging start for Q3.
On page 35 of the slide shows quarterly EBIT in millions of dollars on the left and as a percentage of M&A on the right. So I have a few comments here first on the left you can see net wealth and asset management fee revenue of $534 5 million is down relative to $557 1 million in Q1.
Lower average assets is clearly one item explaining the drop but there are a few other items that influenced the change one.
We had a softer quarter in the mortgage business due to rising rates and that resulted in about a $6 million decline relative to Q1, but there were two offsets supporting Q2 revenue versus Q1, including higher advisory fee rates at IAG and net asset management fees at Mackenzie and we do have one extra day in Q2 to collect revenue.
With respect to expenses as we started to open up for Covid, we have reintroduced in person conferences for advisors and Q2 season seasonally is a busy quarter for these events and it explains the increase in the business development expenses that you can see in the Green from Q1 2022 to Q2 2022.
On the right you see our margins and if you normalize for the mortgage business EBIT EBITDA margins would be flat in Q2 relative to Q1 and adjusting for the seasonality of the conferences.
And as I, just described plus the impact of lower net investment income due to seed capital losses in the quarter would have a similar impact to Q2 of 2021.
Turning to slide 36.
Where you can see our consolidated earnings for IGN.
At the bottom.
Adjusted EPS as James mentioned earlier second highest Q2 EPS on a record of 87. So a strong result and building on my comments from the last slide you can see we've highlighted endpoint one at seed capital losses of $4 6 million as a result of financial market declines now overall net investment income was only negative six.
1000, it was offset primarily.
From interest income.
0.2 operations and support and business development expenses combined increased four 1% year over year and this includes the in person conferences that I commented on in the prior slide and excluding this.
Expenses would have been up two 5%.
We do remain focus on managing expenses for the year and as James mentioned, reducing full year 2022 expense guidance to no more than 3% growth from three 5%, we communicated last quarter and we're going to do this through disciplined hiring and managing our discretionary spend and the last 0.3, our dividend payout rate.
On a 12 month basis is 67% of cash earnings.
Going to slide 67, you can see a summary of <unk> and.
And key revenue and expense margins on the top right. Our advisory fee rate was $103 one basis points in the quarter, that's an increase of $1 two basis points, which primarily relates to lower assets and as a result, the mixed shift of our client wealth batch in the various pricing tiers.
In absence of market declines in typical market returns, we would continue to expect to see a slight downward pressure on advisory fee rates of about five basis points per quarter as we continue to make progress in our high net worth market.
I would also highlight that our asset based compensation rate was $49 eight basis points in the quarter and you can see that this was up six basis points from Q1, a large part is due to the maturing DSC units as well as the mix shift an adviser compensation rates and as we look forward.
<unk> five basis point per quarter increase in this rate is a reasonable expectation for the remainder of 2022.
I would also remind everyone that the DSC units mature or as they mature asset based compensation rates do double and I'd also remind that we discontinued the sale of these products in 2016. So this trend will come to an end in Q4 of 2023 at which time <unk> units will have all mature.
And this is also a reason that youre seeing redemption fees decline.
Each quarter.
On slide 38, I'll make three points first as I mentioned.
The last slide redemption fees continued to decline and that will be gone by 2024.
One on the slide other financial planning revenues declined by about $8 million to $9 million quarter over quarter and relative to Q2 2021, and this was primarily due to lower mortgage banking income, which was impacted by rising rates and then.
2022, lower prepayments relative to 2021, I do expect the mortgage banking income to be a bit soft in Q3, as we work through remaining commitments and do expect lower prepayments relative to last year on.
On the second point business development expense increased nine 5% and this highlights the seasonality of conferences and if you exclude this from the business development expense line.
<unk> would have been closer to 1%.
Moving to slide 39, you can see Mackenzie AUM by client and product type as well as our net revenue rates.
Just have two comments on this slide first on the right.
Focusing on the Blue line, you can see the management net management fee rate for third party clients, Excluding Canada life of 85 basis points. The increase of one five basis points quarter over quarter was mostly driven by lower deferred selling commission expenses, which are netted within this line as well as the Q1 seasonal impact on how.
Asset based compensation is paid to the dealers.
I will highlight that Mackenzie stopped selling DSC and low load auctions on June 1st in accordance with regulatory change and this is a small part of Mackenzie business, but for some context, the free rate would've been just over one basis point higher if DSC sales commissions were not paid in Q2.
Other than this we would expect day rates to be fairly stable going forward subject to major mix changes in retail institutional or other asset class ships.
On slide 40.
The item I'll highlight here is the increase in operations and support and business development expense of four 1% year over year.
Business development expenses are down primarily due to lower variable costs related to sales linked compensation items at.
Our guide that there is still potential for some variability in this line item depending on sales outcomes.
Based on where we're at in the current industry. We do expect this line to be managed within the overall expense growth guidance of no more than 3%.
The higher operations and support expenses were driven by a couple of notable items. One we do have did have some strategic hires in the on boarding of our better world boutique in September of 2021, and also the lead up to the launch.
The primary fund relationship that Luke spoke to.
On Slide 41, you can see Chinese <unk> results on the left total AUM of RMB 174 trillion is up 8% from last year and a record high.
At the bottom you can see long term funds were up 24% from last year and the dark blue stack.
I'd also point out that average AUM was relatively flat quarter over quarter with the CSI 300, rising strongly in June up, 8% and Thats really what drove ending AUM upwards.
On the right.
You can see IGN share of China Amc's earnings of $14 8 million and this is really quite in line with Q2, 2021, and Q2 2022, where average assets in those periods were very similar.
On page 42.
You can see well simple quarterly metrics on the left hand side, while simple.
Increased 14% year over year down 13% in Q2 as market volatility intensified.
And then the middle column, we're very pleased to see well simply continuing to build a strong franchise in year over year growth in a number of clients, which is up 39%.
Moving on to slide 43 in the top right.
I will remind that we we do record or 24% fully diluted stake in wealth simple at fair value through other comprehensive income.
And then this quarter, we did adjust our valuation downward by 47%.
And this reflects the continued decline in what we saw in public peer valuations during the quarter well simply focus on its core business, including a revised revenue forecast for the company.
With this valuation change I would point out that we still have an estimated IRR, that's well over 40% on the investment to date and this includes the $300 million in proceeds we did realize from our participation in the secondary equity offering last year that as Luke covered norfleet continues to grow rapidly.
But I'd note that our earnings pickup for Q2 included about $2 million.
Favorable onetime nonrecurring item and so you can think about two $5 million to $3 million per quarter. After noncontrolling interest as a reasonable run rate in the coming quarters.
And in the.
The table at the bottom we have reflected the upcoming purchase.
An additional 13, 9% stake in China emcee for $115 billion and along with the transaction the sale of part of our great West life <unk> stake and we do expect this transaction to close in 2022.
And lastly on slide 44, you can see our typical disclosure around some of the parts.
At July 29, the closing price of 3700 18 imply.
The implied multiple for IGF wealth and Mackenzie based upon expected 'twenty 'twenty. Two earnings is six nine times I'd also highlight the second column from the right. Our unallocated capital you can see is that 200 $729 million.
And it's.
$154 million pro forma the China AMC transaction close and so that concludes my remarks, and I'll turn it over for questions.
Thank you.
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The first question comes from Geoff Kwan from RBC capital markets. Please go ahead.
Good morning.
Just wanted to.
To get an update in terms of M&A.
M&A in the market just in terms of has there been much in the way.
Change in the number of assets potentially for sale and also.
Any sort of potential dislocations persisting in terms of the bid and ask prices.
Yes, Thanks, Jeff It's James.
I would say there are there are opportunities out there to be sure again, both in the wealth space and in the asset management space.
But I'd also say this market is not unlike others. We're in the in the face of market dislocations.
First thing that happens is that the volume of transactions.
Dropped significantly.
And then there's a period of times, where a period of time, where either the buyers kind of reset their their values are the sellers reset their expectations and that can take a little bit of time to play out.
And as we as we sit here today.
We're expecting an active M&A market as we as we move into the fall period.
We're preparing for it.
Okay. Thanks.
Luc I wanted to ask you on the Prime Miracle relationship.
What do you would.
That's fine.
Excess but that relationship if we're having a chat a year from now but also maybe like three years from now.
I think Joe for Us, it's all about share.
I've been so fortunate to have this opportunity.
And Colgate this relationship with Primerica, so for US success looks like having 50% of their are there any way over over some reasonable period and call. It four to five years. So as we report quarter by quarter, we'll be we'll be telling you the progress that we have on that.
And we'll be reporting on both how primerica is doing in developing their business here and as mentioned has been developing very nicely they've got a very strong franchise here in Canada, and we will be talking about our share and you'll remember when we got exclusivity of the Laurentian Bank channel. It took us about three and a half years to ramp up to steady state share in there we went for it.
From zero to 95% of their <unk>.
And that's where we sit now so in the case of Primerica. We view success is getting to a proper share 50% given that that's the opportunity that's been afforded to us and if we do really well serving serving primerica and their advisors than maybe the sugar it goes north of 50%.
And we're just going to be pushing so hard to help primerica would be successful in this market.
And so I apologize if you've mentioned before what what's the current market share of that anyway.
Right now the largest piece of that aways with is with EGF who's had a preferred relationship over time and they're close to call it 40% 50% of.
Primerica's EUA in Canada right now Mckinsey is has had.
We've actually participate as a prime provider along with everybody else. So you can think of our share being about 5% right now and and really this new exclusive suite of funds that we've launched this 25.
Fund fund family as being this new relationship with Primerica and starting to close to zero. So I think there is zero, 5% to 5% right now and we're going to be pushing with all we got to get to somewhere like 50% or beyond over over some reasonable period.
And if I could just sneak in one last question Luca.
Talk about on the last earnings call. Some of the things you wanted to focus on I know, it's technically I guess, it's only been a little over a month now, but just wanted to get your initial takeaways from <unk>.
The transition over to Mackenzie, but conversations internally as well is that with mckinsey as clients.
Right. Now. This is this is a great job for them to present, my first 30 days some of us that with the board of directors yesterday.
Right now its been absolute validation for me coming in and the one thing I'm. So happy about is the talent here, we've got talent across our boutiques talents across our functions and so I'm just excited to be at to be leaning in as we head into Q3, and Q4 and again my story as mentioned last quarter, its when its kind of strategic momentum and.
And continuity and growth and so.
No no no surprises to me.
Really just encouraged with the team I've gotten the capabilities we have.
Okay. Thank you.
The next question comes from Nick <unk> of CIBC capital markets. Please go ahead.
Hi, good morning.
So as you pointed out in your prepared remarks, the flows it <unk> seem to be relatively resilient.
Paired to the industry and I wanted to drill into why redemption rates and asset retention has been better there.
When an IAG client makes it tactical call to reduce equity or credit market exposure and their portfolios are they typically rotated into money market products such that the headline flows aren't impacted the same way they might be foreseeing Mackenzie.
Has that been a partial explanation or a tailwind for flows at IAG in periods of market stress, because you're able to keep that money managed in house.
Yeah, Hey, Nick it's David so.
When you look at our redemption rate and what's taking place. In this is this is really not a surprise when you take a look at when theres been volatile markets in the past <unk> is always showing that.
We do a great job of holding our clients hands and because our whole focus is on financial planning.
Our clients tend to stay the course, because they tend to understand how the markets operate in the long term and as long as they have a long term time horizon and they have a financial plan then they understand kind of the shift in the Watson.
When there's volatile markets. So we really do a good job of making sure that they stay the course now there are opportunities when there is opportunities in the market and when clients need to to look at short term then we will make some changes there but.
On the whole our client base tends to really really be sticky as it relates to their to their plan and the things that have changed relative to the past I'd point to two things number one from a performance perspective.
Our products are doing very very well.
So.
Ultimately as Canadians and as investors you want absolute performance with the market drop.
And everyone gets that but from a relative standpoint, our performance is quite strong and then number two with our advisors and the education they have around financial planning and now the tools that they have at their fingertips. They can do a much better job than in the past it really showing the clients the impact of the markets on their long term financial plan.
And when when you have a client that is prepared for these types of situations a lot of times, they're like yes, you talk to me about this.
Talking about this so I kind of understand what's going to happen. So it's.
It's something that that I fully expect it to continue and we're excited about the opportunities to continue to have a lower redemption rate, but at the same time.
Really drive some really strong net sales net sales and net flow growth.
Okay. Thanks for that.
Just one other question for me.
Pretty substantial markdown recognized with one simple in the quarter.
In the last fundraising round, if I recall correctly, you took money off the table, which you know with the benefit of hindsight was the right decision.
Given that the capital raising environment has become more difficult for higher growth fintech companies like bulk sample I'm just I'm wondering how your stance towards that investment may have changed and whether you might consider participating in future fund raising around third party capital is more difficult to source or is it too early to make that determination.
I think it's too early I don't think our stance has changed our stance is.
I would describe as sort of long term support of well simple and of course, we have an important product.
Gartner ship with them, but we are mindful. We are we are their largest shareholder.
And we're proud of that.
And I, what I would point out as Keith.
Even at the current Mark.
Our IRR on this investment is approaching 45%.
And when I look at their business to the two things that we disclosed quarterly I think are two things that well simple should be deeply proud of $1 7 million clients.
That's a big number in Canada. When you think about the structure of this industry in Canada for someone to.
To acquire one 7 million clients is.
Just the giant foundation stone for the future in my view and equally alongside that $17 billion in assets. Another Great Foundation stone. So our posture is a is one of is one of support.
We will continue to support them in the future will unfold and it's just very very difficult for us to say, what what that future might look like.
Yeah, Okay, Alright fair enough.
Thanks, very much for taking my questions.
Okay.
The next question comes from Scott Chan of Canaccord Genuity. Please go ahead.
Hi, Good morning, maybe gaming just a follow up question on on I G. A when I look at them that low the other dealer flows.
With that mostly new clients coming in.
Hey, Scott.
Well the answer to a simple answer to that is yes.
We're doing.
Very very good job.
Around bringing in new clients.
And we're on strategy as it relates to mass affluent and high net worth.
This is an organization that not only has momentum, but it's got growing confidence.
We're closing more large deals.
In the high net worth space than we ever have in our history.
And right now when Youre closing them, given the market environment, when youre, bringing in cash or bringing in third party investments.
You do not just repurpose that money right away.
Cash you tend to dollar cost average into the market over a six to a 12 month period and a contrast for US you need to take a look at them in the context of the overall.
Financial plan that we've written for our clients and.
Where there's opportunities to make changes you certainly do a lot of those generally come towards the end of the year when when it comes to tax planning side at a time, but <unk>.
<unk> got to be very cognizant of the markets that we're in the way that people feel about their investments we feel very very good about our ability to continue to attract more clients and continue to bring in new dealer flows and we've proven over time, particularly when you come to a normalized market environment that our product shelf is extremely competitive product shelf.
And more times than not when clients come in here they want to they want access to our product. So we feel good about the prospects of being able to sell AGM investment solutions over long term.
Okay.
On the Primerica side can you remind me how much leeway you have right now.
Yeah, they've got about $16 billion of mutual funds and $4 billion to take funds.
Okay.
And then the other providers I guess currently putting yourselves, let's see the other 45%.
Is that opportunity.
Two.
Yeah, Walt but to providers like how did those play out over time, but those funds are legacy five big there's still or do they transferring into these new trucks and I'm just trying to see the.
The other 45%.
How that you know could be allocated over time or does it stay there.
That's the way to think of it as very similar to what <unk> described <unk>. So think of the shopping essentially closed going forward and they are being too with two exclusive fund families. One that one being ours and the others being Ags and thank these financial planners working with their clients on on proper asset allocation over time.
<unk> and creating great portfolios, but I would expect naturally that theres going to be a migration as advisors to work with their clients towards these two two exclusive fund families.
Okay.
And my last question I missed the North lease you said, there was a $2 million benefit of non recurring.
Patterson or what was that again.
I'll take that one I know Keith had mentioned it said there was it within the financial results for the quarter, there was $2 million favorable nonrecurring item.
So what was that like a gain on something here.
It was actually fees paid on the redemption of a client.
Okay. Okay, great. Thank you very much.
The next question comes from Graham Ryding of TD Securities. Please go ahead.
So sorry, just to follow up on that what's the run rate.
North lease is closer to.
4 million right now and about 6 million.
Recorded.
Yeah actually agreements, it's Keith here I'd say, you can think quarterly two 5 million to $3 million per quarter would be or would it be our share.
After that.
After Noncontrolling has got it okay.
Okay.
My one question would just be I guess for Luke would be my first one just.
Flows that momentum obviously the industry has been a headwind here for everybody. So just broadly speaking what do you think is needed to get <unk>.
And then come back at Mackenzie is it more the industry backdrop has to improve or is there any need here to improve performance and any any particular areas to sort of outperform your peers.
Right now.
Actually two things so one on the on.
On the user experience.
This I'd characterize as industry backdrop as you put it a lot of money to safety in the context of a very challenging environment in the first and second quarters and mckinsey participating in that as kind of I call it to maintain market share.
Experience is for.
One is do we need anything else.
One we are seeing it a bit better Q3 and in terms of the environment backdrop, but we are participating in environment competitively. We're feeling very good about the both the capabilities across a number of boutiques in a number of product categories. So we don't think we need anything different we're going to be leaning in and we've got a lot of very relevant product categories to be leaving.
So in Q3, and Q4 and so make no mistake, we are expecting to gain market share irrespective of market environment going forward.
Okay.
Understood and on <unk>.
Slide 27, and I appreciate the disclosure you can provide.
So you are sort of the asset weighted percentiles across three different strategies do you also provide an overall what is your sort of percentile or your performance relative to medium.
Yeah, that's right on that right.
Slide where we talk about 42% of assets being in four or five star funds and you remember for us our target of 60% and with our boutique approach given the way categories are constructed in Canada, where you have apples oranges and bananas in the same category for.
For example on the global equity category, you've got growth managers value managers et cetera in the same category.
At 60% for us is our target and to be within 40% to 60% of assets at four and five star funds is what we believe we need to be consistent top three in the marketplace over time.
So we're right in that zone. Currently we did have one of our large funds downgrade grew four stores three stores during the period, but these funds. It was a byproduct of growth being out of favor and we feel great about our capabilities across the roster that you can see on page 27.
The other overlay that I highlighted that's important is when you look at certain teams like Canadian equity were floating rate were categories that are relevant you don't it doesn't pop on page 27, but we have such strength in a lot of these product themes across boutiques.
And so Canadian equity.
Our mandate managed by the North American equity team, that's top fifth percentile across the one year three of the five year tenure, we have great Canadian equity exposure within within IV. So theres a lot of a lot of very relevant product categories, where mckinsey is really uniquely positioned to lead in floating rate income or other categories were.
We're well positioned across categories in boutiques and also cross product structures.
Yeah.
Okay, Alright, that's helpful.
It would be interesting to see what your sort of percentile ranking is overall.
Also two right. After if you want to see that Youre looking for the dollar weighted average share for central.
Yes, Mackenzie Mackenzie overall would be also an interesting number to sort of see how are you.
Sure.
Yes, you are looking for the 1% to three to five years 10 overall, absolutely that's certainly really great.
Yeah.
And then north leave $1 1 billion of new commitments in the quarter, what what mandates where those are.
Into.
What's resonating that was like the previous quarters. It was a it was actually a good weighting of our private equity private credit and infrastructure and like the previous to the previous quarters as well, we're very encouraged that more and more of the mandates are being sourced by clientele outside of Canada.
So Norfolk is really.
Chugging along on our strategic goals of growing forward as categories and importantly, growing its clientele and I think it's an important theme in spite of all the support being given by IGN and great West Lifeco.
We're still a very small part of the fund raising of diversity of the company is doing very well.
Okay. Good.
And then my last question, if I could just the China AMC deal with.
I think the closing has been pushed back.
If I'm reading that correctly.
What's the what's the delay here any concern.
Yes, it's James.
Process to close is very much ongoing.
We expect the transaction to close either.
Late in Q3, or Q4, and we're working diligently on it.
Okay.
Is it for me thank you.
The next question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, I just had a.
Couple of questions for Damien.
So you made the comment earlier in the call about you know just with the consultants.
Many more time and with existing clients address the concerns given the market downturn, you know minimized higher redemptions that sort of thing.
So how would you describe what that dynamic is kind of like today versus normal.
In terms of how much time, they're spending with existing clients versus trying to get new clients. So as an example, like what percent of the time when you say they normally spend with existing client communications versus trying to win new clients and how is that different.
And versus what what's going on today.
Yeah, Jeff so.
I would think that traditionally when you when you look at our advisors in and how they spend their time.
Generally going to be.
Two thirds with their existing clients, a third with with acquiring new clients.
I would say to you that because of technology.
That it's allowed us to maintain that same ratio.
Because what was happening right now is that because of technology and our ability to reach out and talk to our clients virtually what you'd find is the allotment of timing the allotment of time for each meeting is much shorter than it had been in the past generally speaking when unique client face to face you'd be looking at an hour or two hours now youre doing meetings 15 2000.
30 minutes. So you can meet more people in a day than you have in the past and Thats why a lot of our advisers really love the technology that we've we've provided to them and they've really taken it to heart and that's been the biggest driver of quite frankly, our increased client engagement.
By any measure and last the last call I shared with you. The Gallup survey in how our clients are talking about our organization.
And which is great and it's been a huge driver of our new client acquisition.
Because we are able to reach out and talk to new clients and more and more of that more weight and more frequently than we than we have in the past. So we're quite excited about our ability to continue to prospect in volatile markets because quite frankly.
This is the best time to be out there talking to clients that are not <unk> wealth clients right now and you've heard me say this in the past.
When Covid started Canadians really had the time.
First time in the history. They are really start thinking long term about their lives.
And what has happened during this environment not only is that continued but they are really really focusing on their lives outside of just their investment portfolio.
And they've got a lot of serious questions with a serious people to answer those questions and that's what we did we saw tough financial problems and questions. We answer those questions for Canadian So right now youre seeing the intersection between demand in the marketplace and our capability.
And you can see it in the numbers.
Okay and then my other question I had was.
We're looking at.
Overall fund performance for the for the funds at I G.
They've significantly printed government that.
Over the over the past number of quarters.
Historically.
It seemed like the.
Investment performance at Iag's funds didn't necessarily correlate well.
With the kind of consulting growth in that and that sort of thing I'm. Just wondering like how you see that dynamic today as to whether or not the fund performance and of the funds.
Can have a greater impact on net sales performance, whether or not it's pivoting more to the high net worth part of the market or just what would you think about that dynamic today.
Yeah. Okay. So first off I think we all know that performance from a wealth management perspective.
It's not going to be as crucial as it is on an asset management perspective, but it is certainly important and one of the biggest decisions. We made a number of years ago was to to get out of the investment management game, because that's not our forte.
So our strategy of really employing the best sub advisors in the world and looking at our global landscape has really done wonders for this business first of all number one.
Improve the confidence of our advisors.
And it's allowed them to really focus on what they do best and say hey, listen to the clients we outsource it.
And we bring in the best of the best and it makes our clients feel feel much better number one number two you can see that you can see the result of that confidence coming out in our redemption rate, where I think that's the place where it clearly shows.
And the next place would be our ability to acquire new clients.
Because new clients, obviously, it's not that you need to make rich people rich twice.
But people like to make money and we need to be able to make money for our clients and they pay us fee. They pay us fees, because they want to make money and they want us to solve complex problems and we want to focus on that and we've proven that it does make a difference there and then the last one is in the recruitment of experienced advisors to this firm.
When you're talking to an experienced advisors working for another dealer. They want to know that you have a product shelf that is competitive that is going to allow them to do what's in the best interest of their clients.
So I think that no I don't think I know that our new strategy that we're employing right. Now is is working and we're going to continue to invest in it we're going to continue to hire the best managers no matter, where they are and make sure that we provide the top quality product for our clients for our advisors.
Perfect. Thank you.
The next question comes from Jamie <unk> of National Bank Financial. Please go ahead.
Yeah. Thanks, Good morning, I was just curious on the north leaf.
Ademption was there anything in that redemption.
Good.
Apprised you.
Maybe anything on that on the rationale that you can share and is there anything from a from the perspective of let's say lessons learned for the rest of the business or anything unique about that redemption.
Yes, Jamie it's Keith here I'd, just say theres nothing material about it and the business continues to chug along.
Try clients.
Doing very very well so I would just say it was just a one off and really a non material event at all.
Okay and is the fee income earned on a redemption is that typical of a normal redemption transaction or was there something.
Really different about this transaction that generated a larger fee.
So Jamie I, just characterized as <unk>.
It really wasn't an normally the trajectory is one of a very strong growth look right now the net contribution rate over the next fund raising rate, it's almost 30% per year.
Yeah, Okay. Thanks on that and then just thinking about that.
Mackenzie net flow profile.
Obviously, a lot of market backdrop, driven but.
What what perhaps are your business development.
Personnel, saying in their conversations with financial planners.
With decision makers.
From from those boots on the ground right now around a maybe a potential bottoming.
And inflection.
I would say into into Q1 Q2 volatility.
July more volatility July is feeling quite a bit more confident.
We are still getting numbers for Q2 in terms of the flows into things like Gic's, we'd have the April and May data. It was a lot of money.
And so right now I know as we are on the on the ground with advisors.
We're trying to be relevant and they give them all the support they need as they as they pivot their clients' portfolios.
<unk> this new environment and make decisions going forward, but I'd say, there is increasing confidence for the boots on the ground and again for most of our clientele that we serve these are financial advisors working with their client.
They tend to focus on the long term financial planning dollar cost averaging all of these themes. So there was a real reaction, particularly way from a duration fixed income products in favor of safety in the period, but as were in July and now entering August I'd say, there's more confidence, but resolutely those boots on the ground are focused on final.
Planning and working with their clients to have great solutions performed well over time.
Okay. Thank you.
The next question comes from James Shanahan Edward Jones. Please go ahead.
Thank you and good morning.
I have a question about the <unk> share of China AMC earnings it looks like in the fourth quarter.
Any disclosed a 4 million dollar unfavorable tax adjustment.
And in the second quarter I'm, sorry, the first quarter of 2022, there was a $2 $3 million after tax loss on seed capital.
And so if you adjust for that it looks like there's a pretty significant.
Still sequential quarter decline in earnings for China, ANC or at least some weakness there perhaps you could just explain.
How we should be thinking about.
Earnings on a go forward basis and perhaps.
Expressed as a percentage of.
Assets under management in Canadian dollars, perhaps just some guidance there would be helpful. Thanks.
Jamie Let's say, it's Keith here, Yeah. When you look at Q1 2022 relative to Q2 2022.
There is call it a $2 $3 million.
After tax loss on seed in Q1, I would say Q1 2020 to Q2 2022.
Average assets were pretty much on par and earnings were pretty much on par.
You'll see some volatility with the.
The margins from quarter to quarter, but I would say there was no surprises there.
The prior periods.
At the end of the year there are.
Other types of revenue sources such as.
Performance fees that you're going to get in Q4, and so you get some volatility typically near the end of the year, but I would say, it's pretty much on par with average assets. So if you look to the left hand side of slide 41.
Q1, 2021, Q1, 2022, and if you normalize for Q2 2022 average assets in all those periods were pretty much the same store earnings.
Okay. That's helpful. Thank you Keith.
Matt.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Kyle margins for any closing remarks.
Okay.
Alright, Thank you Karl and thank you everyone for joining our call. This morning.
Hope you all have a great weekend, Karl with that we'll close out today's conference call.
Thank you Sir.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
[music].
Yes.
Yeah.