Q3 2022 Power Corporation of Canada Earnings Call
Corp, third quarter 2022 earnings conference at this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
<unk> will be provided at that time for you to queue up for a question.
If anyone has any difficulties hearing the conference. Please press star zero for operator assistance at any time.
I would like to remind everyone that this call is being recorded on Thursday November 11.
2022, I would now like to turn the conference over to Geoffrey <unk>, President and Chief Executive Officer Telecard. Please go ahead.
Thank you operator, and welcome everybody to our Q3.
<unk> call.
Thank you for joining US with me is Greg <unk>, who is EVP and Chief financial Officer of our Power Corporation.
So I'll just start off on page six.
Well, we've actually got our disclaimer I guess I should pause on those patients we do have.
Our regular disclaimer regarding forward.
Forward looking information.
Yes.
Once you've had a chance to digest that I'll skip you all the way forward to page six.
Let's just highlight some of the additional.
Information is available to you with respect to power Corp, and great West life.
In GB and different sources of information that are being presented recently that you can look to to.
To follow up any additional information you may recall that we haven't addressed here are in subsequent discussions with you and with that I'll move forward to page seven and just give you some high level comments on the quarter I think from an earnings point of view.
We actually feel it was quite a solid earnings quarter at least with respect to the 75% of our portfolio, which is named the great West life, and IGN, which where we really look to earnings as the principal measures of performance and given the environment that we're in in the quarter, where we had.
Stock markets down bond markets down we.
We had currency headwinds certainly in the case of great West life.
It would have more of their portfolio exposed to Europe , and U K pounds and then other companies you might fall out that that was a headwind as well as a hurricane.
Great West Life's earnings we thought were very solid and they've demonstrated how diversified the business citizen how resilient the business is.
Down market.
And in the case of ITM very very exposed to asset levels that are driven down by equity markets and fixed income markets and they also demonstrated a good solid earnings with good cost control. So on the portion of our portfolio that earnings are a critical measure we thought it was a solid quarter and a very.
Difficult environment, the other 25% of the portfolio is not really.
Driven by earnings its more of an <unk> type of business, whether it's G. B L. Our investment platforms, which are well we are working hard to get them to profitability or not at that level. At this point and then we have other assets. So when you get into an environment, where you've got.
Public markets down private markets down.
Create a downdraft on from an earnings point of view and so that was evident in the court.
So we feel.
Good about the quarter and we are just in an execution mode. In following our strategy as we've articulated to you many times and we've spending all our energies not doing that well.
While we weather what are pretty difficult condition.
Conditions at this time.
Moving forward to page eight and these are just a little bit of an example of what's going on you know it but if you go on the left hand side as you look at the S&P down too.
Two.
21% over the first nine months of the year. The first three quarters and then you look at the bond market.
Am I being down 16%. This is I think it's the worst combined equity bond market start to a year on record and you probably saw the headlines I think it was bofa that does it work.
Showing a 60 40 portfolio typical portfolio that an in restaurant.
Please standby.
Apologies, ladies and gentlemen, please standby, while we reconnect the host.
Right.
Yeah.
Yes.
Right.
Okay.
Yes.
Okay.
Yes.
Yeah.
Uh huh.
Yeah.
So we know if everybody else's longhorn.
We know how many are still on that program. Hello, gentlemen, you May proceed. Thank you.
Okay, Hello, everyone I'm, sorry, we just had a communication.
Failure, and I don't know operator, whether we still have people on the line I'm assuming there are some other lines of work will carry oncologist or everybody for that a break I think.
Was.
Talking about market conditions, So, we'll try and speed up because we've lost some time here, but I believe I was on page eight and I was just making the point that it's the worst start to a year for the.
Client portfolios globally.
Taking the 60 40 portfolio as an example in 100 years that it's been recorded and that's had an impact on flows so very very difficult environment with that Greg I'll pass it to you to pick up on page number nine.
Okay. Thank you Jeff.
That backdrop.
I'll give you the headlines for the earnings for the quarter.
Both our EPS and adjusted EPS were <unk> 63.
But.
Obviously includes the 13th.
From hurricane and so without that 79 quarter.
I will talk about the NAV in a subsequent slide and we are.
State quarterly dividend at <unk> 49.
50.
That just take you quickly to the net and adjusted earnings page, which is page 10.
Jeff spoke a boat.
Our perspective on AGM and JBL, our great West life <unk>.
Earnings for the quarter.
As J B L.
As you are aware.
Our NAV driven business and that's their focus but.
In the quarter their contribution to earnings was.
Affected by a $22 million charge related to the minority.
Interests.
In web help.
Liability that they have on that.
And in addition to that costs that were incurred in the acquisition of sort of optus and feed it.
Moving on quickly to the.
Alternative asset.
Investment platforms.
You can see we were down in the quarter at $34 million. This this line is obviously affected by realization in our.
Investment.
Operations, and we had a good year in.
'twenty one.
Both China was realizing gains and also a cigar three when we did a secondary sale.
This year.
Cigar was quiet.
Period for realization and.
In China.
Our portfolio manager was positioning the portfolio.
In light of the market activities and realized gains and losses in the period.
Leading up to the par.
Party Congress and.
October .
<unk> asset management, you can see was down slightly but.
It was.
Affected by a $2.
Seed capital.
The markdown and other than that it would have been basically right on 2000 and <unk>.
'twenty one numbers so.
Standalone businesses.
Not contributing in the quarter.
And last year was affected by fair value marks on video.
The market.
On that particular stock decreased.
The liabilities associated with the.
Minority interests.
Were reversed.
Corporate operations to stop on that for a second.
And I think some of the analysts may have used Q2 as a.
Benchmark for projecting where Q3 might have been.
We.
We are right on our.
Guidance after project next.
At about $30 million $38 million in corporate expenses.
So the.
The corporate expense line is the one that's most.
Variable.
And.
In addition to that that line includes financing expenses and of course, our dividends paid on our preferred shares.
And a little tax.
Depreciation so.
The number generally should be.
Around 100 to announce what we would expect.
Going forward.
On that line.
And with that I'll, just go quickly to the NAV slide.
The NAV for the quarter.
<unk>.
2006 three.
$3 billion down from.
Uh huh.
The $27 eight <unk>.
Largely driven in fact, mainly driven by the marks on our publicly traded operating company so with that I'll turn it back to you Jeff.
Okay.
Thank you very much Greg so I'm going to move on to page 12, then.
And just talk about empower and the.
The key message here is our power is playing out very very well we are on track on the acquisitions. The business continues to grow and gain market share organically and is winning net flows organically.
And there's one thing that isn't.
That is down as the market and they have a lot of fee related income that is not the only thing that they do have a lot of fee related income on the revenue line and thats been impacted by.
The lower markets, both fixed income and.
In equity on the mass mutual basically the eighth wave of the mass mutual integration was completed in the fourth quarter.
The final wave so all of the mass mutual clients had been converted and the company is expecting to reach its $160 million run rate synergy target by the end of this year, that's great West life and of course, I'm talking about and the revenue retention is ahead of the original expectations that empower and Greg.
With life had at the time of the acquisition so declaring victory on mass mutual credentials at a much earlier stage.
It closed on April 1st So there is still very much in the planning phase there has been no.
Transitions of customers from prudential's platforms onto the empower platform.
And but there is nothing at this point that we see that would have us believe that we're not on track, but it is early days. So there's still lots of work to do on that personal capital.
The personal capital tools and many of the features that we saw in the personal capital business model have now been incorporated and launched in empowers defined contribution business. So you've got messaging.
Services, you've got Onboarding thats much simpler you got a better client interfaces empower already had great client interfaces relative to most of its competitors, which is one of the reasons. It has been gaining market share organically for a number of years.
They are even better right now with the personal capital tools. In addition to the personal capital tools I've been embedded into.
Empowers retail wealth management business, which as you know is setup to pick up.
Roll overs from the defined contribution business, that's a big flow that comes out of the empower book every year as people retire and changed jobs as well as roll ins people that have outside assets that empower looks to bring into their retail wealth management business and then the personal capital has a direct to consumer business, which.
Continue which was the original business that existed when it was purchased that continues to grow but it has affected of course by lower fees.
Overall risk market, where investors are not as aggressive or don't have the same risk appetite that they had a couple of years ago, but it continues to grow Okay turn my attention to page 13.
Really solid quarter again, given the circumstances for IGN, we're just highlighting here.
Well, which continued to be in positive flows in the quarter, which was great to see the second bullet point on the page there. They continue to show great momentum we have.
<unk> talked many many times and for some time about the retooling of that business and that much greater.
The company is in a really good competitive position.
Our growing clients theyre growing advisers.
And they are making inroads into larger and larger clients you see some of that illustrated on the left hand side of the page more and more of their new client acquisition is coming from clients that are with balances of about 500000 with the company and the business continues to demonstrate this as well we're really focused on here.
This continues to demonstrate really strong resiliency in the face of difficult markets and Thats always been a hallmark of this business model, we don't have a slide on Mackenzie.
<unk> is doing extremely well on a performance basis all of the work we do on advisor survey said they continue to make great inroads in terms of their position with advisers in Canada. We think they are a clear number two at this point in the market and the flows reflect the current market environment. So you have seen.
Flow numbers I showed it to you earlier so their flows.
The fact that people are in Canada retail investors essentially at the margin, taking not panicking, but taking money out of the market and those tend to be flowing into gic's right now at this point in the cycle.
I'll turn you to page 14.
Already got the comment from Greg on really strong results in China, AMC and the market's down big time their assets are actually up from a year ago.
<unk> are in really good shape relative to last year other than some seed capital losses as you might expect they've got seed capital markets are down. So they would have some marks that would be down there.
Terms of the transaction, we expect the transaction to close.
And that is the transaction, where we're selling our interest your AGM, we expected to close by the year end, we don't control that just <unk>.
<unk> involved but that is our expectation that we'll get it done by year end.
I move to page 15, just to call. It we don't often talk about north leaf.
That has done really well it had a long growth record as you can see very successful track record of growing AUM.
Prior to the acquisition by Mackenzie.
And which is great West also participated to the tune of 20%.
And they've continued to grow organically from their third party funders, but also good progress in launching products and having north vape products into both the wealth shelf Mackenzie is launching.
Integral funds using some of the North sea strategies, great West life is committing capital to the north of the balance sheet, but overall this business continues to grow and doing really well. The team is doing a great job. We're really pleased with how things are progressing at northlake.
Page 16 just to.
A quick few comments on GPL.
They have continued to rotate and put more assets into the into private assets as opposed to public assets you can see at the top of the page 23% of the portfolio is now in private assets and then they have Siena, which is it is an alternative asset manager, which is another 14% of their assets those percentages are somewhat.
<unk> of the fact in part that the public portfolio was down of course with the markets being down but notwithstanding that is absolutely.
The private portfolio is growing in absolute terms as well as you see in the first or the second bullet point on the page of private asset values are up in the quarter and year over year. They are putting more money to work in the private sphere and two large acquisitions that Greg mentioned in the healthcare space are called out.
And again from an earnings point of view those resulted in losses or a big transaction costs resulted in our there were transaction costs. It couldn't call it shouldn't call them big but there were transaction costs.
Two deals resulted in losses, but they were and we think theyre very attractive acquisitions for the company and down at the bottom of the page.
You can see that.
There has been a drop in the value of <unk> as well as its.
Holding its discount has widened out as long as well as some other European holding companies that are taking advantage of that by stepping up the share buyback program and they've been active in buying back their own shares, which I think are pretty attractive at current values.
Turning to page 17.
Power itself has been returning capital to shareholders through the form of dividends. We've also been active as you know through the year in share buyback and our own share buyback.
We purchased $15 2 million shares at this point over the course of the year, we slowed down a little bit in Q3, we were at a higher pace.
The markets were pretty shaky, we were looking at overall, where is the world going what are the worst.
Whats what are the financial conditions out there and got a little more conservative in terms of looking at our own liquidity, but we are still continuing to buy back shares and intend to continue to do so as we move forward.
We have on the balance sheet about $1 1 billion of available cash there's another $575 million that we expect pretax too.
Receive assuming that the CMA transaction closes we'd like to keep about two times, our fixed charge coverage, which is somewhere north of $700 million. So we still got lots of available firepower.
At Power Corp.
We are looking at how we deploy that liquidity and then at the bottom of page. We think we're in where we're we're very much looking into the future, but we're also cognizant of the fact that there is uncertainty there's financial risk out there or are we getting into a.
Recession, if we're getting to a recession, how harder recession will it be those are all unknowns at this point and so we just pointed out that we are in a very strong financial position as our as our or excuse me.
Our <unk>.
Investment companies that great West life AGM, the investments strong credit ratings and our capital structure really where it's almost all preferreds virtually all perpetuals.
The small amount of debt. We do have is not the first maturities in 11 years. So we're we're in pretty strong position financially here.
Okay <unk> comment on the Alt.
Alternatives. There was continued fundraising in quarters slowed down in the third quarter.
The strategy is completely what has been and what we've spoken about so far they're out trying to build their asset base and their revenue base both.
Cigar and power stable capital.
Hey, Good continued good fund raising on the credit side on the royalty side infrastructure.
Equity and venture capital is tougher as you would expect.
Both platforms are working on a number of.
Products and fund raises and we hopefully have more to announce in the quarters ahead here as they try to build out their scale and build out their revenue as we try and work to get them onto a profitable basis on our fee related earnings.
<unk> for both platforms cigar is pretty close to breakeven here it depends on the quarter. There's more there's a little more work to do on power sustainable, but I've got a lot of products in the hopper that we think will help build the top line. If they are successful in getting the fundraising got it.
I'll leave it at that.
And then just a quick comment on page 19 on on Fintech, we continue to be delighted with our Fintech strategy well simple.
I think it's crossed the 2 million client Mark at this point they.
<unk> revenues.
Our well down from where they were in 2021, when you have the trading side of their business really is.
Explode that business is still doing well, but at much reduced levels and they've been managing as many companies that are at their stage of development they've been managing to ensure they have good liquidity and they keep their liquid resources. So they have been they've managed their expenses as well as our costs on client acquisition and R. R.
In a good position financially I already commented on personal capital and forecast, which I mentioned I think in the last call had close to their third fund.
Now youre in a position where they're funded values are down as you know and so that's an interesting opportunity for them as they look to deploy.
$400 million and $600 million excuse me in the third fund.
Okay. So let's move forward then on page 20.
Standalone business is not too much to report here the lion however.
It was really ramp that's got one bus line, that's now getting into.
Really good production curve.
Making deliveries they've got a number of other lines that are.
Order backlogs, so that business continues to build out.
And so we follow we follow that evaluations of course on EV.
Companies as most technology companies are well down from where they were 12 to 18 months ago I think I'll leave my comments at that and then I will just kind of last couple of slides here, we continue to be.
Very focused on.
Taking the steps that are necessary to put power in a position where investors understand our value creation and understand.
How we make money.
And how the value will be created we continue to communicate that clearly and are determined to continue to see this.
Net asset discount line that you see.
Really going back and starting to drop from the start of 19, when we announced the sale of the U S life business at life co into the three way buyback and then the reorganization. We are determined to continue to drive this to a point where investors are paying net asset value for power as opposed to.
Buying it at a discount and in the meantime, we will be buying shares well.
It's sitting there at a discount.
The last page you've seen before.
Just say and I won't go through the page.
We are very focused on execution, we're in tough markets. So we're aware of that.
We're going to be cognizant of that.
If markets get worse or financial conditions get worse, we think we've got businesses both at power and in our subsidiaries that are well positioned for down markets, but we're very much focused on building out value going forward and we are have not changed our strategy one one bit and we are focused on executing the strategy that we announced a couple of years ago.
So with that operator.
If we still have anybody on the line Idaho.
Ask them when we are when we dropped off the call for 10 to 15 minutes, but.
Might you to open up the line for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
Here with me Tom path acknowledging your request.
Using a speaker phone please lift the handset before pressing any key.
First question comes from Geoff Kwan of RBC. Please go ahead.
Hi, Good morning, just I just had one question.
Just wondering if you can kind of talk about how the M&A landscape looks for you right now.
Kind of appetite, but also to just how attractive our evaluations in the areas that you are looking or is there still a valuation disconnect between.
Asking prices and what and what bidders in that they are willing to pay.
Yes.
Good question I would say that if you look where we've deployed a lot of our capital Jeff in the last couple of years, it's been in the DC space and the.
Trying to continue to we continue to believe that sector is going to consolidate we think we have a winning hand, and we think we have a winning business model.
And so that would be the first priority in terms of capital deployment.
And there are theres two factors.
The availability of properties is a bit episodic.
It comes and it goes we continue to believe theres going to be.
Platforms that come available, but we havent seen a lot of opportunities in the last year or so in the meantime, we've been busy from an integration point of view as well as great West life looking to get it.
It's a debt that it.
Incurred.
In the three acquisitions down to the levels, where we got a loaded gun again, if I can put it that way.
And we think we're getting over the next year will be in that position, we will have to we've only got one integration.
Going on versus three throat, so I don't want to and I hope the team in power, it's not listening right now because I'm, saying, we've got capacity to do more of their exhausted, but you can imagine they won't want me. They want to hear me say that we are ready to do more but they've got we're getting through the integrations the financial position will be there. So I think we are.
We're getting in a position where we can act if something came but we haven't seen a lot recently there.
The rest in terms of really an area of focus and I'll hand, it to Greg in a second all of our businesses are always looking for areas, where they can grow I do think in a few cases, we have not seen valuation expectations come down we've been involved in a number of processes in and it's a little bit like the housing market. The volume goes down because nobody wants to.
To come to grips with where their businesses are currently worth Greg did you want to add a comment to the to Jeff's question. You got no I was just going to say that our thinking is very much aligned with what.
Kwon, what I heard last week, when James was talking about the wealth management sector.
We said in his experience as well.
He hasnt seen.
The gap between private and public pricing.
Pricing this high for a long time, so we're spot on with that as well.
Okay, great. Thank you.
Thank you Jeff.
Thank you next question comes from Nik Priebe at CIBC capital markets. Please go ahead.
Yes. Thanks.
So we often talk about the discount to NAV and a disconnect between the run rate operating expenses and the size or the magnitude of that discount.
What action in your view might be necessary to close that further do you think it is a product of continuing to deliver on the commitments that you had articulated at the outset of the reorganization or.
Accelerating some of those initiatives I'd just be interested to hear your thoughts around that.
I think that.
I think people pay for value when they understand clearly that the value is there and that the value ultimately will be translated into.
Monetization or.
Cash.
That might be on a longer horizon, depending on the asset, but they need to have a good understanding and need to have confidence around it and I think on the power portion of the portfolio in fact, I think even including the.
All of the NAV piece of our business.
Theres still.
Room that we need to progress we need to make both in simplifying the portfolio, but it also and simplifying.
And being better at illustrating where the value can come from.
So that's a journey we've made good progress.
Comment on the expenses just replay that for others listening.
I think that everything is in our net asset value in terms of like except for our operating expenses the debt and the prefs or all deducted.
If you've got 150 or 75 or whatever the number happens to be a pretax expenses. When you do it you're doing a discounted cash flow on that youre going to get to about a two or 3% NAV discount.
And you could you could figure out well that maybe that's if we don't add any value at the power Corp level, you should trade at a 3% discount. So we still got lots of room to move here, but I think we need to continue to execute and maybe that's a better way to put it I think will simplify what we own I hope what we own in that 25%.
Which is two more earnings driven over time as we execute our strategy I think will move the dial so that the 75%.
We're going to put more capital into actions that drive earnings and less capital into actions that drive any view that the margin will help.
But I think just continuing to execute and communicate like I think the more we.
We make progress on our articulated strategy and the more we communicate transparently.
Our confidence will gain from investors and the more I see that discount are dropping.
Okay.
That's good and then just moving on to the asset management platform as you think about the future development of.
That business and.
Maybe the introduction of new capabilities are there any adjacent markets or asset classes that.
Might be step out in nature to what you're currently doing or you feel could be a good vertical to participate in either organically or through or inorganically.
Wondering about how how that might evolve over the next few years.
The answer to your question is Bang on it's a great question, it's exactly where they're focused.
We're not looking to add strategies that are.
Clearly new to the platforms.
Let's say that will never metal.
Ever going to happen, but each of the platforms are looking at building out in Adjacencies. So for example at cigar they have private credit funds, they're looking to be raising capital on a more senior private credit fund elsewhere in the credit stack.
If I look at.
The infrastructure business at cigar holdings. They are very much in the business of working on infrastructure products that are not what they currently have which is infrastructure equity and so those are step outs, where you don't have to completely go and add to your cost base in a major way in order to add revenue. That's the way they are thinking scale what they have.
But expanding the product suite and areas of expertise that they have now the exception would be in the case of cigar.
Cigar excuse me personal power stable capital they launched their just this last quarter. They launched their Agra fund their environmental Agra Fund. So that's a new product, but it's also very much on scope. So we'll get the we'll get some products that are new but but I think the scaling of the business requires that you focus on the capabilities you have and then.
Built out new strategies around those capabilities. So your question is exactly the way we're thinking.
Yes, Okay that makes sense alright. Thank you. Thank.
Thank you Mike.
Thank you. Your next question comes from Tom Mackinnon at BMO. Please go ahead.
Yes, thanks very much.
With respect to slide 18, just looking at the PCC funded portion which continues to come down.
As you build out kind of new strategies are you.
Really filling a lot of those new strategies, then with largely third party money.
And.
Secondly.
Where do you want to see is the PCC funded portion of this.
I come to is there is it do you wanted to.
Could you go as low as 10% and then the final would be I assume that.
As you take the money out of those it really doesn't do anything to.
It just augments your cash position from which you would be able to buy back stock So lost.
A lot in that question, sorry, but if you can just sort of take that I appreciate it.
Theres lots of question, because there's lots to the formula.
How do we get to where we got two so the first question is that the the answer as to how much capital would we like to have and seed the answer would be as little as possible.
But we're also trying to grow those businesses from start within our fee related earnings basis to profitability and contribution and in order to launch new products. They do need the support of the sponsor and power corpus.
As the sponsor so let me give you that will lead so that as little as possible. What's my expectation, we're trying to work. It so that we don't add more capital and that we recycle our capital if I can bet that would vehicle.
Now the number is going to go up and down from time to time, but the goal would be to not put a lot of new capital in but take capital out of existing strategies as they mature as they get realizations and make that capital available to recycle as the businesses grow and that's a kind of a two three year comment I don't know what happens beyond that now let me give.
U a nuance to that however, when you launch a new product for the first time.
Sponsors expect you to have more capital in it.
So we had more in the first vintages of certain funds by the time, you're launching the third fund the sponsor you've got credibility in this and the other Lps I should say don't expect U I said sponsors I'm sorry, the other Lps do not expect you to have as much seed capital when you've already got a proven track record. So we're finding we might've been 20.
Percent of a of our first fund in my time, you get the third one you can you can have 5%, but then you launch a new product and then you're back and it might be that product and it's got a big AUM to it and they want to aim at 20, so now you're putting $200 million of work. So the thing jumps around a bit the other thing that happens if you remember last year, we had in our European.
Cigar three funds you may not remember this but in our third private equity fund in Europe .
When last year someone came along and said we'd like to buy your entire.
Position in fund III, and we sold it when we talk about 300 million off the table. So bang all of a sudden are committed capital goes down so it's going to go up and down a little bit is what I'm trying to tell you Tom in the percentages will vary as we launch products, depending on what we're launching but our goal is not to be putting over time, new incremental capital into the seed.
We'd be to try and manage the capital we have recycled that while the third party and the revenues continue to grow that's kind of the playbook I don't know if that answers your question.
Yes, I think that's pretty good and I assume there is a.
It doesn't look in terms of the.
Investment platform expenses. It it doesn't look like is there any kind of operational leverage in that I guess, if I just kind of look at the investment platform expensive, it's just sort of grown with <unk>.
The assets.
Is there any.
There isn't any way is this is it.
This entire part of your business becomes a bigger that the investment platform expenses would change at all.
I think I think.
They both there's two things that drive expenses.
First is as these platforms have been built out you've got to put finance people in place you've got to put people in place too.
Dialogue with investors, you've got to put technology people in place you've got to put distribution of people who are building up the infrastructure of the asset manager itself and you got to get a certain minimum scale or yours or institutions combining that youre.
Youre not actually set up to deal with US and you don't pass our due diligence so you've seen at the center of buildup of those costs and I think that is pretty well I don't want to say, it's done as they grow but that is leverage level.
AUM should grow much faster.
Then those expenses and in fact, you'll see that year over year expense growth, but if you go back to our report on Q2 and I'd invite you to do so.
Both for cigar investment platform expenses and for power sustainable our expenses are at the same level as they were last quarter. In fact, I think they're down a million bucks on each platform. So that doesn't mean, they stay there forever, but those center costs, our leverage level, then you'll get actually to Nick's question earlier, if youre driving all of these new strategies and your <unk>.
Hiring new teams every time you launch.
Youre going to be a J curve every time when you launch a new strategy. It lose money for two three years until you start to get some assets in there. So if we just keep launching new strategies with new teams.
And then the expenses over the or the short to medium term will grow commensurate with the revenues and you won't get any real leverage on those strategies and your profitability, where the profitability comes is when you've got an existing team you can start to build up the <unk> on the existing team and in that and then you start to get leverage at the at the product level.
So the two things getting you start with if you got more AUM and you got more leverage at the product level you start to contribute at the product level you got your infrastructure built at the center and you hold that to grow much more slowly than our revenues and you get to profitability I'm being I'm being fast, but that's the way the business works.
And we're close to that point of inflection that cigar and we've got we've got further to go for us for reasons I can explain where we don't have time to do it here are sustainable, but that's the way the business model works.
Leverage is well I don't want it leverages all the revenue should grow faster than costs or where are wasting our time here obviously.
And presumably if that ever gets to a significant breakeven point and youre not recycling of new capital for that and that could be enough to offset any kind of.
Holdco expenses than a buy.
Bye.
By virtue of your example that would be a <unk>.
You've eliminate any discount to NAV and if it was actually greater than the Holdco expenses, then it's additive to the NAV is that a way of thinking of it.
But I think that well I think it's additive in and of itself. Okay like whether you've got 150 or 175 or whatever our corporate expenses are they are so if you can have a business that is currently at the at the fee level, losing.
20 million Bucks of Euro pick a number and you can turn that into $50 million of profitability I think thats I think thats $70 million to the good no matter, what and we would certainly be doing our best to try and explain that we've got cash flow and earnings coming in.
Whether the one whether the expenses are there they're not it's additive I think I do want to caution, though that I think we've got to do this will go to earlier questions as well I think when you're in this business the carry part of it.
Theres carry so you get.
You know there's a lot of these are one in 'twenty or one in 10 or two in 'twenty. The carry goes up and down and because of markets come down and you've got negative carry when markets go up you get positive.
Gary and that's not all in cash some of that is just kind of marked.
And then you've got the seed capital that that can go up and down so you've got volatility in the seed capital returns and some of the strategies and in the carrier part of the business.
Not cash, it's just volatility and we need that's the part that we need to kind of isolate in our reporting.
And kind of say this bucket is going to go up and down but you got to look at it on an NPV basis over time and these buckets are producing earnings in producing cash and you should look at those because we think of them differently and when I talk about improving our reporting our thinking is getting around that how do we do a better job of kind of laying that out for you the analyst community and for our.
There's two property understand that's thinking we're doing right now.
Alright, I appreciate the color.
Okay, John Thank you.
Okay.
Thank you. Your next question comes from Graham Ryding of TD Securities. Please go ahead.
Hi, good.
Good afternoon, maybe I could just start with JBL.
On the private assets there, they're up 12% year to date is that market performance or is there some capital deployment.
And that 12% growth number.
I don't know if I can I know they have deployed a lot of capital in the area. So I'm suspecting is mostly deployment, but I don't know.
Base quite accurate as Greg and I.
I don't have the quantum readily at hand, it looking down the table.
Got it.
We certainly can circle back on that Graham, but I don't have that number off the top of my head, but they've deployed capital private so I'm pretty sure it's going to come from that.
As opposed to Oh, okay.
That makes more sense, because it just seems like a difficult market to be growing.
Private assets by 12% year to date.
On the on your alternative investment platform and in particular, the proprietary investments you see capital behind your strategies.
I recognize that the returns here are going to be lumpy, especially with the carry and whatnot, but what is your targeted return there where you sort of thing.
Through through the cycle.
So again I'll start and I'll invite Greg, but you know we've got some.
But our in.
Healthcare royalties I think Thats, a seven day kind of range return that they are targeting we have we have private credit that would be below investment grade that would probably be in a comparable target. We've got at the other end of the extreme venture capital Fintech that would be in the.
Well into double digit 15%, 20% target.
We've got infrastructure.
Equity that would be once it is deployed around 7%.
Target, but.
But we are we still have some assets on our books that are under the development stage, but would be have a higher target. So it's all over the it's all over the map is the answer and I haven't tried to come up with that do we not have a sheet somewhere where we have good returns, but its just look just looking for it but we didn't have it in this quarter's deck, but I think we had it in the Q.
So we actually.
That's been that's been made public and what's hard then to gauge as an answer to Toms questions earlier, I was saying, where we have our seat kind of jumps around depending on what we launched in February we said, we sold out of some equity strategies. So the mix changes.
But the returns we have our targeted returns and are targeting insurance would be the same as the lp's because we're coming in as an ineffective and L. P. When we're putting season.
That answered the question Yep understood that's helpful.
And then you talked about it a little bit earlier, but just want to make sure that.
Sort of thinking about at the power Corp level. When you think about what you can do to drive value over the next few years.
You make reference to execution, so should we be looking for you to monetize and surface value from our Standalone investments.
<unk> capital through buybacks when you have excess cash and then continue to grow this alternative asset management platform or those sort of some of the key pillars that youre looking to execute on.
Yes.
The answer.
That's exactly what we're trying to do but it never.
I've answered. This question a few folks recently it doesn't always work out exactly the way and in a sequence that you think of as you think it does or that we even think it does so if I go back to when we launch.
The new strategy going back and announce it in two and a half years ago.
At that time, our expectation was likely that we were going to raise capital.
By selling the Standalone businesses.
In the appropriate time, and returning that capital, but what actually ended up happening was different than that.
What ended up happening is an aluminum pulse for example, we got into Covid and their business was caught in all kinds of backlogs and beautiful business, but not exactly the time to try and realize value on lumen pulse and then we had a very small investment in lion electric which turned out that the EV market.
It really took off and while valuations maybe got ahead of themselves as they did in many sectors that business has got more prospects than we thought it might have been exiting that business. At this stage. We were at it didn't seem like the right thing to do to realize.
For power Corp, but what ended up happening on the other side is that well simple.
Get our financing round were very very sophisticated the leading investors in technology around the world came along and said.
We think the company is worth a lot of money and we would like to buy a lot of the stock and and we have an opportunity between ourselves and I G. M to monetize some of them are positioned so we are.
Not as power Corp. As a group, we took $500 million off the table, we had $300 million invested to remind people. So we took all of our money off the table and then some and so power Corp realized its share of that and then I mentioned earlier in the call. We had the cigar fund three I think it was about $300 million. We had in seed capital, we had a pretty big chunk of the sea going back.
From 2007.
Or eight that fund.
We had a big maybe it's not that far back and I have that wrong, but we had about $300 million in the seed and somebody came along and said we want to buy the whole thing we sold it. So we ended up monetizing assets from and we sold some buildings too by the way that we had in the power portfolio. We ended up monetizing assets and not in the way we thought when we announced the strategy and the ones. We probably thought we were going to monitor.
We still own so I guess.
When I answered the question we have a goal in mind. The goal is to simplify focus on financial services get what we owned the profitability at the power Corp level and.
And monetize assets and buy shares back unless IGN, where somebody wants to do a wants to do a transaction and they need our support fine we're going to support that that is the goal if something came along in financial services that we could buy at power Corp, we might do that as well I'm not holding our breath on that but that would be something that could potentially happen so far.
On financial services.
Realize value from those parts of it that are noncore and then return cash to shareholders and as we do so we actually create value in and of itself not just by our being the discount but there's another thing if you permit me to go there is when we sell an asset that's in AAV.
And we buy a share back even if we were to buy it at 100% on EV.
We're actually taking we're getting more earnings into our mix because power currently 75% of the assets drives earnings since great West life, and AGM and and the other 25% is an EV. So every time, we liquidate in an a b asset even if all we do is buy shares back at an EV.
We're shifting our mix and getting more of our mix and earnings and that Hasnt been an explicit part of our strategy to date, but in fact, we do are trying to get more of our base driving earnings and they also drive cash flow and that Youll I think youll see that maybe not in a straight line the directionally over time.
That is another way we are in our that we are we think about it and we also think that will create value. So sorry, a long answer to your question.
That's perfect. Thank you.
Okay, Brian Thank you.
Thank you. Your next question comes from Jamie Glen at National Bank. Please go ahead.
Yeah. Thanks, maybe just one quick one on the.
On fund raising it looks like you were able to raise a couple of hundred million this quarter.
$1 4 billion for the year just.
Some commentary on how that compares to other alternative asset management peers that that you're aware of and then also a comment about.
Your your pipeline to continue.
With those fundraisings into the into the next quarters.
I don't have an answer in terms of like focusing on one quarter.
And $200 million raise relative to peers I don't have a good answer to that question I don't have the data on maybe the folks that are in.
And our platforms that have a better answer we could try and maybe I don't know where we'd get a source for that sort of more think of it relative to our plans.
It's not like we're we're not Blackstone yet we don't have 100 strategies out there fundraisings. The money comes in on a little bit of a lumpy fashion, so putting too much emphasis on one quarter is I think would be would be tough I think maybe a better question better question, they're both good questions, but a better answer might be on the pipeline.
So I think we're looking at.
At a number of credit products across both platforms that were we hope that we have a good lineup of potential funding coming in.
There is more work being done on the equity side of the infrastructure Fund power stable capital. We think we're in a good position to get some funding there.
And so but I don't know that I want to put a dollar value I don't know that we've actually talked about that and.
Jamie I'm not trying to be of Ace of I, just don't want to get ahead of what we should think about whether we can what we want to stay on pipeline and how specific we can be but at this point, we haven't been specific Greg I'm looking at your yeah. I think we can we can see if we can get some transparency on that.
Sure.
But I'd.
I think your general comments earlier on where we are spot on I mean, the market environment, everybody. We talked to anecdotally you know when we're travelling around is finding it a tougher environment. However, there are pools of capital in the world where.
Shall I use the word flush.
Yeah.
And those are the opportunities that our teams are currently exploring.
So they're there.
Out in the field right now trying to.
Convince people to.
Sign up for some of our.