Q2 2023 Power Corporation of Canada Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Power Corporation Q2, 2023 earnings Conference call.
At this time all lines are in listen only mode.
During the presentation, we will conduct a question and answer session instructions.
Instructions will be provided at that time for you to queue up for a question.
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I would like to remind everyone that this call is being recorded on Friday August 11 2023.
I would now like to turn the conference over to Mr. Jeffrey or President and Chief Executive Officer of Power Corporation. Please go ahead Sir.
Thank you operator and welcome everyone to.
Earnings results call here happy Friday, everyone, thanks for being with us.
I wouldnt before he's starting the presentation just like to remind everyone.
Page three.
Our disclaimer regarding non-GAAP measures and forward looking information.
With me today is Greg <unk>, our chief financial.
Financial Officer of Power Corp, and we're pleased to go through our presentation with you and open it up for questions later on.
Just skipping forward several pages, you've got on page six other information.
From our various companies that's available to you.
Regarding our results and other recent presentations that have been done and with that I'll go right into the guts of the presentation on page seven.
So.
This is <unk>.
Really pleased with our results and with developments since we last spoke at the end of Q1 first of all from an earnings point of view. It was a very strong quarter for our group overall.
My mind, it really demonstrated.
The earnings power of our two key earnings driving our company as being great West Lifeco and I G M from great West life perspective.
And they are broad based earnings strength on a base earnings basis.
And then the later of course by the strong growth so savvy U S business through empower it wasn't a lot of noise and they are in the quarter for our base earnings.
So really to my mind demonstrated.
Earnings power of Great West Lifeco.
And then when you go over to a I G M flat assets year over year really solid earnings.
And I'm really very kind of consistent performance. So very pleased with both the the earnings at Great West life and I G. M. And then across the group we had good good earnings results as well at the same time as you go to the bottom part of the page here continue to be extremely busy and executing on a number of them.
Our strategy strategic items, they're a part of our value creation strategy, including a number of key transactions the sale of Putnam to Franklin obviously the.
The largest of those but also an important transaction for cigar with ADT with BMO and along the way we sold our position in Dallas for an after tax after tax proceeds of $97 million, which is continues to be part of our strategy of selling non core assets.
And creating a finance for principally for share buybacks. So I'll move over to then page eight.
You would know all of this information, but just to say you know it's it's.
Difficult environment, its not an impossible environment, but I'm, obviously with rates going up.
And with a lot of jitters around markets in the last several years long term funds flows have gone negative and they said there's a Canadian example at the start of the page, but you've also got the same phenomena happening with individual clients across a lot of markets in the United States and money has been flowing in with rates, where they are and determine deposits.
You just have one example of that over the last couple of years the change in term deposits. The big six banks in Canada. So you're getting you know clients are putting money with attractive rates or buying Cds at a far.
Car hire a pace.
Pace than they had been previously and they're being fairly defensive in terms of their long term close we'll see how that last markets have been strong in both the U S and Canada over the last period here. So we'll see whether that starts to change.
But that's the environment, which we're operating in and with that I'm going to turn it to Greg to actually walk through the <unk>.
Actual results over the next few pages Greg.
Great. Thanks, Jeff.
Hum.
As Jeff had mentioned are strong.
Adjusted earnings.
The group.
We're up $200 million 847.
Or 127 per share versus <unk>.
The prior year of 647 or 97 cents.
The of course, the adjusted NAV is reflecting those strong earnings.
And you can see that we were ended the quarter.
At.
48.86, our per share.
It traveled to August 10th to almost $50 at a 49 95.
So sharply over our 2022.
And of course, we declared a dividend in the quarter at 52.5 or six.
And it takes me to slide 10.
Not to be.
Two repetitive, but a great west life by a very strong quarter.
As Jeff mentioned quality quarter in terms of good solid growth from the underlying segments in particular, the U S and.
The capital and risk solutions.
Solutions segments.
At AGM.
Just a quick note.
As Jeff mentioned.
You mentioned, Oh, I'm, not changing all that much year over year, but still delivering a comparable results.
IGN did have a restructuring charge in the quarter.
Which they see leading to expense reductions on a run rate basis is about $65 million a year and they guided.
That.
You should see expense growth of only 2%.
A year and that.
We will take us to J B O S J B L.
Ah 90.
Billions of dollars contribution to our PCC this quarter versus the minus 27, a year over year.
Strong cash earnings at J B L.
And also some fair value marks on their shipyard capital portfolio in the quarter of about $17 million.
And we.
We had a reversal of recovery of the.
Web help.
Noncontrolling interest liabilities about $37 million in the quarter.
That as you all know has been going against the earnings.
<unk> for nine consecutive quarters.
Uh huh.
We took.
The recognize the liability increase as the web helped offset increased over those periods.
Makes me two other investments the Standalone businesses, we sold almost health, which was a nice.
During the quarter.
We have realized a $97 million on.
And.
Corporate expenses are pretty simple in terms of the changes there.
We have.
$17 million gain in the prior quarter from our.
Cash settled.
Liabilities.
In in compensation.
Compensation and this quarter it was a loss of $5 million.
And 46 looks like a good number of if youre looking at where we should be coming in for the remainder of the year.
<unk> 46 per quarter is a pretty good number.
The financing and income tax charges last year, we had a deferred tax loss.
The benefit that we recognized so that.
It is basically the difference there and.
With that I think I'll just go straight to slide.
Slide 11, and here, we break down the net asset values and of course, the big driver in the quarter being great West life. It was widespread.
He has had a very strong stock performance over the last couple of quarters and since our March.
It is up 7% and of course, that's reflected in our NAV and as I said.
At June it was Oh, almost $49 and yesterday it was almost a.
Knocking on the door at 50, so well with that I'll turn it over to Jeff. Okay. Thank you, Greg and I'll move forward to slide 12.
I'll just make a few comments our first opportunity to speak about the sale of Putnam to Franklin.
Just start by saying, we're really pleased with this transaction, we think it's going to work out really well for all parties.
Just a little bit of background Putnam had and we had really created an amazing investment engine partner and I think if you look at barron's them. They had partners number two amongst the roughly 50 companies over their long term 10 year track record.
And I didn't affirm that was the number one was there was a sub advised platform. So if you look at pure investment firms that are managing their own findings.
Basically it a fantastic long term investment track rate, which had.
Plating, starting to translate into better flows, but the economics, obviously, we had struggled with those for years as many of you have pointed out to us and we were well aware of this really unlocks that economic value with a really good fit with Franklin I think when I say all parties are going to are going to benefit I would start by clients of partner. This is.
You know that the model of Franklin, what they did with Legg Mason and all of their other acquisitions they leave the investment engines.
Essentially unattached to Standalone investment engines, all the lead portfolio manager is at Putnam had signed up.
To the deal and to be part of the new company going forward prior to the announcement. So it's great for the clients, it's great for the people at Putnam.
I think it's going to work out extremely well for our for the shareholders as well for great West life, and ultimately up to power Corp. I think Franklin are going to be able to do a great job with it and we'll really benefit them and in many fronts and there'll be able over time to get the economics.
Given their scale on on so many functions and they'll get the economics that are part of them that we were struggling to get so a good transaction from great West Vice perspective, it's gone on it unlocks the value of Putnam.
It wasn't earning any money from partners.
And that with total potential proceeds over time of up to a 1 billion seven to a $1 billion eight.
Yeah. So you know that's that's a good transaction economically unlocks the value. It really allows them to focus on their retirement and wealth management business in the U S. But all of their focus on it which is another great benefit.
We think the shares of Franklin and will do well over time and we're great West is now a shareholder in front of Franklin and then Theres a distribution partnership that will benefit Franklin, but also backs at great West and our group as I said.
For Canadian audience might think of Franklin as there is there are as Franklin Templeton, but Franklin Templeton.
Which is a traditional business it's changed a lot in the last several years under Ginnie Johnson's leadership and they bought Legg Mason, which is eight different investment platforms really interesting.
Performance in different capabilities, and then they've built out a great alternative business, having purchased somewhat leading a private equity and debt shops.
Around the U S and Europe .
So lots of capabilities that will benefit across our platforms. So we will benefit from closer cooperation with them and our clients will benefit from that as well. So just a very pleased where the transaction took a long time to get done obviously, but it was and we're very pleased with our results.
As I flip to page 13.
I just wanted to kind of draw the the lens back a little bit and give some perspective on what's happened in the U S. If you go back to the start of 2019, So just four and a half years ago, great West coast completely repositioned its U S business. If I go back to the start of 2019, great less U S business was three businesses.
Yes.
And the largest of that was the individual life insurance and annuity business separately contributing the most profits.
There was in power and there was putting them.
Business was contributing I think if you go in 2018, it was earning a little less than $400 million Canadian contributing about 13% of great West Life goes earnings are we kicked off 2019 by announcing the sale of the individual life insurance business to protect it and a little over $2 billion.
We then went on and did three significant transactions to enhance the position of empower in their market and build it into a clear number two player in the U S market.
And then we've just announced the sale of Putnam so over about a four and a half year period, we've gone through three businesses to one market leading business. If you go to the court or the great West life, just announced and power earned 265 million Canadian or roughly 29% of great West Life's earnings that's in one quarter only.
So this has been a huge transformation from a strategic positioning point of view a focus point of view and we now have I think a very competitive high growth business in the U S that is very meaningful to our to our great West Lifeco and I think it will become even more meaningful a meaningful given what I think the growth prospects are for that business in the years ahead.
So.
That's the story there I'm going to then move to.
Page 14, and just make a comment on I N G M. It.
It maybe not quite as dramatic from a transactional point of view, but I G. M. I think also if you go back over the last five or more years has really changed its business profile, both internally through and heavy investments in 19, Williston Mckenzie and also through number of transactions.
They are now in a position where in their two key fields, which is wealth management the largest part of I G M and an asset management. They have two very strong Canadian players and I G wealth and Mackenzie and then they have some very high growth prospect businesses as well in both wealth management and asset management node.
Lee with.
With significant plays in both the U S through Rockefeller and then China, China AMC. So a lot of change that's gone on at IGN, we really like the way the business is.
Is positioned and Greg mentioned the.
The initiative on cost I think I G. M. We're showing they can invest in their businesses grow their businesses were all being very disciplined from a cost point of view and that continues to be a compressive and something that we're very encouraged by.
Alright.
The 80, Q BMO transaction.
Eight EQ and BMO has become general partners and Great West life also invested as well they were already a partner and and cigar.
And I think this is really going to help the continued strong growth of cigar and help them get to the next level. It's validation of what cigar has become a well.
With third parties coming in and wanting to be part of it and wanting to play a bigger role in and investing in their funds.
Yeah, I think will help fuel cigars growth, which has already been very impressive.
And it's consistent with the strategy that power articulated we have said, we are all about creating value and ultimately profitability in our investment platforms, but we were looking to do that through third party capital.
And so that third party capital comes in the form of a L. P commitments to their funds, but it can also come in terms of participation through the G P and by selling shares and the G. P. We not only help to fund the growth of the G. P in its own activities.
But we also get more LP commitments. So we're all about creating shareholder value here and this I think is a big step forward and a validation of what our what we've been creating and cigar.
Page 16 is just a reminder, we have well we do spend a lot of time focused on the organic growth of our businesses. We have continued in the last Ah trial.
2023 to be very active from a transactional point of view.
As we've said we were going to do.
We talk about those three levers of value creation that number two is M&A at the at the operating business is number three is because we can do at the power level.
To create value and you see on the page here just a listing of some of the things that we've announced over the last several months in pursuit of our value creation strategy.
Okay. Turning then Oh, a few pages on the platforms themselves. So on page 17, you have got 21 $8 billion of funded and unfunded AUM at cigar empower sustainable that's up from $19 2 billion at a you know a year ago pretty difficult.
Got funding environment out there. So we're pleased that but they have been continue to be able to raise funds and in the last quarter that just ended cigar had a couple of closings of their funds and that includes the Portage capital Solutions Fund, which is a late stage Fintech fund that's I'm, obviously big position in <unk>.
<unk> this is actually too.
Buy into Fintech companies that are in later stages and what our potash has been has been investing in as well as a as an another health care partners Fund.
That's a series two of Oh, that's out that particular strategy at the bottom of the page you see the 16 billion of $21 8 billion of which 16 billion is funded and you'd see power corp's.
Commitment to that is about $2 2 billion.
We really have about the same amount of L. P capital committed to those strategies as we had at the time, we announced the transaction the reorganization back at the end of 2020 and yet the the funded AUM has grown dramatically and so again to reemphasize. The message. We are trying to grow these businesses to profitability to create value.
And we're trying to do so.
Without committing further capital to the strategies, we're recycling our L. P capital as we get as the platform to look to us to be part of the seat as they launch new products, where we're looking to recycle proceeds that we're getting from distributions that were getting from our LP positions in that.
So that is what is what's the strategy is and you've been flipping to page 18, you just get a breakdown on the fee bearing capital at the bottom right, which is very close to the funded funded capital.
And then you've got the economics, there for cigar and for power sustainable cigars.
Our run rate and management fees of about 45 million Canadian in the quarter. That's just basically the fees before you get to a carried interest is there that can be a little noisy from quarter to quarter, sometimes you get a closing in the quarter and there's and there's a catch up on fees that you would it's not quite like.
The fund business or the or the asset management business and there can be some they can go and invest in a fund and all of a sudden they get a closing and all of a sudden you gotta catch up big and so there's a bit of lumpiness, but it's not a bad indicator of run rate notwithstanding that you'll see a bit of noise quarter to quarter.
And then you've got a power sustainable which has got it doesn't have the same level of AUM, but nonetheless dunson.
<unk> done some good fundraising through a number of strategies and is looking to launch a number of other strategies in the in the quarters ahead.
If more scale.
Page 19 won't go I won't spend a lot of time on this where we're going to we're doing a lot of work to try and get to the point, where we can explain to you what our returns have been on our L. P. On our in our different Lps investments that because it's hard to tell from our P&L. So we're doing a bunch of work to try and be able to share that with you in the call.
<unk> ahead. This is simply saying, what we target in our different or what the what the strategies themselves target. So in the top half you've got basically more of the equity type strategies private equity venture capital the China strategies, there's about $1 billion of powers MTV is.
<unk> has invested in that in that the targets of those funds range from 10% to 18% as Lps.
The bottom half you've got private credit royalty more and more of our real estate, it's hard to put a line on these things, but those would tend to be lower return, but still attractive return strategies lower risk and the returns on them at target returns tend to be 8% to 11%.
Yeah.
Okay page 20.
You know I get a lot of questions on lion in L. M. P. A lumen paulson and when are we going to divest in you know what's our strategy. There. We I think we showed it in our previous quarterly results that we have raised a lot of capital, but it hasnt been through line and through our aluminum pulse.
Even though you might have thought we might have thought when we announced the strategy they might they would've been at this point.
We would have realized some capital on them. So we haven't done that we felt we focused on other things, we just announced Dallas, we continue to raise capital and monetize assets.
But lying in alumina pulse have it has not been opportune for us to do so at this point, but this page points out that having said that they've continued to grow their businesses and we were up until 2020 are the primary sources of capital for those two companies and that has completely changed since we announced the transaction you've got at the top.
In our line that its a backward empower put in something a little less in 'twenty.
I've got 17, or 18 by memory I'm not off by far not off by much and in 2022, we supported an offering they did and then Lance just announced a $142 million of our financings.
And we were not part of that so the overwhelming bulk of the growth of line. That's been financed by third parties and in the case of aluminum pulse. It's all been financed by third parties. So again, we're trying to build up the value of these businesses grow we will ultimately realize value on them and we're doing our best not to be the thunder of their growth and value creation.
Which allows us on page 21 to return our.
Capital to shareholders, we've been back more active on the buyback side recently, a total of about $280 million invested in purchasing shares to this point, including about 160 <unk> post the end of the quarter June 30th cashes are a very respectable one four.
That's at the end of June 30th.
So that's does not include the 159, they're just above it.
Let.
That's priority spending 159 million to buy some shares back and as you know we target about $800 million roughly in cash.
As a kind of a standing position and we are always very mindful of our credit ratings across the group.
Page 22, just a quick shot.
Very focused on shareholder returns.
Just to say well.
This is a July 30th our power Corp's returned to shareholders relative to some of our key benchmarks.
You're all in the business you know these things can be very sensitive to start dates and end dates. So you can't put too much emphasis on any one day they can jump around.
But nonetheless, we track this closely and are and we're not we're focused on absolute returns to shareholders, but were also relatively competitive and keep our eye out as to how we're doing against our key benchmarks itself. It's just there for your edification.
As I flip to page 23, we have those returns have been there notwithstanding that the discount to NAV.
Kind of gapped out over a period from the middle of last year up until recently its come start to come back down again, and we could talk for an hour about what causes that and we're obviously not in the minds of all buyers and sellers of the stock. So we don't have any perfect crystal ball as to what creates that I simply.
Rather than try to explain in the ups and downs I just look at the fact that when it goes up it's an opportunity.
Cause I don't see the justification for.
Where it is anywhere on these levels I do understand.
Through the period up to the end of 18 Y It was trading as a as high as it was why the discount was as high as it was but as I've said many times other than the net present value of our expense load.
I have a roughly a you know after tax of 46 million that Greg talked about.
On the expense all of which gets you to about a two or three per cent discount.
I think the rest of it is all there for the taking and we're going to continue to be out and communicate and broadened our shareholder base and tell our story and continue to use that as an additional lever to drive value.
And page 24 of the last patients that you've seen all this before the strategy essentially remains unchanged and we're continue to be highly focused and very excited about the prospects for creating value.
With that operator, I will end my comments and we'd like you to open it up for questions from from different people, who would have questions.
Absolutely we will now begin the question answer session.
Join the question queue, you May Press Star then one on your telephone keypad.
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We will pause for a moment as callers join the queue.
The first question comes from Graham Ryding with TD Securities.
Go ahead.
Okay.
Hi, good morning, maybe.
Maybe I could just start with the Shurgard partnership works.
The institutional partners, who brought in can you just flush out sort of the.
I guess, the pros and cons and why why you see the benefits youre, bringing in these partners is it more around sort of fundraising and growth potential.
In exchange for giving up some of the ownership of this alternative platform.
Yeah, Hi, Graham good morning.
I think well it is all about value creation and about creating scale.
Those partners bring and will bring significant L. P commitments that will help.
Both existing strategies at cigar as well as helping to launch additional strategies.
And they will also bring capital into cigar to fund its own operations.
Including that.
Including potentially whether cigar whatever add groups you have seen that in the past.
Where it was in fact, the real estate group that are great West life had in the U S where the group became part of scar are there opportunities for cigar to add additional capabilities through other firms that might be out there. That's on the drawing board. It is not necessarily going to happen, but provide some funding for that as well.
But significant validation and significant L. P commitments that will help.
Help to bring cigar to the next level of growth profitability and ultimately create value for our power Corp, and if we can own a smaller chunk of a bigger more successful firm and we can do that.
We'll do that if that's what's going to maximize our value and that's the way we think about it.
Okay fair enough if that answers your question or not.
That's helpful. How do you go about sort of determining value.
Are you on this business given you know its obviously got a high growth rate, but there's still.
It's not profitable yet.
How do you go about.
What are you paying in valuation when you're bringing in partners.
Yeah, well, there's lots of valuation metrics that are used and they've got they've got a U M. They've got revenue they've got growth prospects and so.
Hum.
You get their evaluators that do that and you look at your strategies you got forecasts on fees on revenues funds that are existing funds that are there.
The second and third versions of findings, then theres, new funds and they all get discounted at different rates and there's a whole massive profession around.
The value.
A G P and lots of firms that have to do that for a living because he's positions trade a lot and there's a lot of trading of G. P positions in the ER and the ops World you want to add to that Greg I'd just add that.
Both of these platforms have a longer history than just the the history that Oh, you may be aware of when you know the.
The cigar platform was launched with Paul three Oh, leading it and Oh power sustainable when Olivier.
There they were legacy investments with several funds that had been successfully launched for example on the cigar side did a cigar Europe . We've been there almost 20 years. So you know.
There is a history of success.
Successful launches of these funds and and also a track record in terms of their there.
Our ability to generate revenues for the G. P. So.
It's not somebody.
As a startup might be so there's a track record as well, but that is useful in not only demonstrating to evaluate offers but also to our participants.
Both BMO and <unk> would be fairly sophisticated purchasers and.
Are out there supporting a.
Ventures like this all the time, so we get feedback from them as well obviously.
Okay great.
Just on the GPL piece there was.
Some gains this quarter around web help can you give us a little bit of color of what we should expect if anything going forward around either for their fair.
Fair market value gains or.
These sort of reversals of these these put liability is because I believe this deal.
The merger of web helped us still has to close by the end of the year I think.
Yeah.
You're quite right about that so concentrix as the purchaser and.
Hoping that Oh.
Successfully close and what's that close there will be a gain on the transaction.
At that time, you'll see a very significant reversal.
That.
That liability and.
It's almost $1 $6 billion are on their books today.
So that all goes away Hum on the transaction.
So that that should be the last if you will mark that we see when the transaction closes so hopefully that's helpful.
But just to be clear are you going to is.
Is that going to flow through to you as sort of your ownership position in GBS all of that.
One 6 billion gain.
Okay.
Absolutely, yes, yes, but you know that the one six that I.
Quoted right now and I think that's accurate I'm, just looking down the table J I think this one six isn't it.
Okay. So yeah, so that will take pick up a share of that our proportionate share correct.
Okay.
Understood. That's it for me thank you.
Thank you grant.
The next question comes from Geoff Kwan with RBC. Please go ahead.
Hi, good morning.
Good morning.
Just wanted to follow up also on the 80 can't be no transaction.
You mentioned, how it helps the growth from the L. P and also maybe from the GP level, but just wondering is there any benefits and that might be contemplated from a distribution and.
Ankle whether or not it.
Friend relationships, they may have with other L.
L. P type investors and then also too is there any plans to kind of grow distributions of your alternative strategies within the retail channel kind of similar to what some other players in the industry have done.
I think yes, and yes would be the answer if there were if there were two questions. Two yes as if there were three three yes, because that was very not interrupt your your question Jeff.
Look I think the first thing I used the word validation.
And so the fact that 80 cues in there I think out.
We will make a statement to investors not just retail, but investors institutional investors around the globe about.
The quality of what a cigar is and I think that I would be hopeful I think scar people would be hopeful that that leads to other L. P opportunities with a broader base of investors.
I think the focus on the right not to 80 Q itself would be providing any distribution. It's a sovereign wealth fund I don't think that the fact that they've invested it will make a statement.
Two a lot of I think to a lot of people in open up different markets.
Very much cigar is focused on retail opportunities within our own platforms, but also on other platforms and retail I gotta be careful how I use that word I mean, it goes from family office to high net worth shops to a to the democratization as the word excuses to have out of them.
Products that firms like Mckinsey and many others are doing across the world. So they're focused on doing that.
You know the BMO partnership might help there as well, but I'm not into the weeds as do all of the all of the opportunities that may be there, but cigar lake like all of our alts platforms are looking to broaden out their distribution and not just be focused on the institutional marketplace.
Because I think a lot of the growth over the next decade is going to come not just it's not from institutional institutions, but it's going to come from high net worth ultra high net worth and retail channels I don't know if that answered your question.
No it does.
Just a second question I had is.
And on page or slide 18 from the presentation. There was some mention of additional fine lines like additional fund launches expected is that.
The new strategies that you're referring to or is it subsequent vintages existing funds and if it's the former just any.
Any insight.
Insight as to what those new strategies might be.
There are some new strategies being launched I don't know, whether we've talked about them publicly I'm looking at Greg here. Yeah go ahead or there are a couple that have been announced actually yeah.
Our sustainable announced.
Uh huh.
Uh huh.
U S a.
And thread that front.
And also I think they have plans to do similar in the U K. So I think that's been announced.
And there are vintage is oh, Jeff as you quite rightly surmise that are add ons to some of the existing fund so.
But they're they're always others on the drawing board, but those are a couple of things to look forward to it.
Okay. Thank you.
Thank you.
The next question comes from Tom Mackinnon with BMO capital.
Please go ahead.
Yeah, Thanks, very much and good morning, a question on slide.
Slide 18 with respect to our asset management activities.
Investment platform expenses remain elevated here and I'm wondering is it just a matter of scale here that's needed before.
Those management fees are going to be enough to significantly surpass those.
Our platform expenses and how should those platform expenses a trend you know as you would launch additional fund strategies and I have a follow up thanks.
Yeah, Great question I'll take a first cut and then Greg.
And whatever color you want yes, I think in the case of cigar, they're effectively on a fee basis right around breakeven on a cash expense basis.
And.
But they are you know pretty significant scale at this point as you can just you annualize the management fee. There is a good revenue base. There. That's just the base fees and their expenses are running at about that level. So you know more scale more assets are scaling existing strategies scaling existing strategies that might mean, the next vintage of it.
Is the way easiest way to get that to a profitability point of view in there they're pretty close right now what you end up always having a trade off with is that the opportunity to extend the products into adjacent products. So you've got a credit fund and you're in a particular.
Part of the market and if you can put a new credit fund you know of right next door that it's got a different tilt it might be less less risk or higher risk.
You ended up also scaling the core team.
And then you try and add new strategies, all together and you and when you add new strategies altogether, you create future value, but you go backwards on profitability because you go there's a J curve here. So you go every time you add a new strategy, you're probably two to three years, where you're incurring at the margins from losses, while you get the money to work and you get the scale going so.
So it's a it's a continual trade off of how fast do you want it how big do you want to be in five years versus how quickly do you want to get to profitability and the fastest way to get the profitability.
Not launch any new strategies, but then youre curtailing ultimately your value creation are you know 345 years down the road. So I don't I'm not trying to be evasive cigars got lots of opportunities there right at the cusp of being profitable.
After on a fee only basis, and and Theres, a forever kind of discussion about it.
How about new new launches and the pace of the pace of profit would be going forward I don't know does that answer. Your question. It's maybe you were you were out looking for something.
Good and.
Follow up is the there's a negative 10 in other on that slide just not sure what that is and what is your what's your ownership now in cigar you know post the recent transaction with the EQ and BMO and GW well.
The other who's got some noise in it in fact, there are some transaction expenses, even though the transaction hasnt closed in it.
And that would be the I think a big chunk of it and Theres. Some theres theres. Some non cash equity amortization that is in that line I believe as well, but the biggest one is a one time item.
And you get we'd have a debate about whether non cash equity amortization should be above the line in terms of fee related earnings are below the line and we're doing a lot of work as to how others around the industry disclose that.
But that's what that that's what that number is anything to add on the profitability and I'll come back on the equity I don't really think that's got.
There's a little bit of noise in that number this quarter.
Ownership now.
<unk>.
Yeah, So where we are above our 50%, but we're not much above 50% between management, which has got a significant chunk.
Great West life, BMO and 82.
Power Ism is a majority shareholder and I think we're gonna look in terms of your questions and in terms of Oh.
I think it was six grams questions on.
On you know how do you value this saying when we get to a close here, we're going to we'll talk about what we do with the Mark and we still got some work to do on that it hasn't closed yet, but right now were holding the GP interest it not a very significant interest, but you know.
What was the ownership for the transaction are.
Jeff.
We would have been around 70.
70%.
70 78.
So you went from 78 to just over 50.
Yep Yep.
Well, it's like I bring be accretive right away because of the negative earnings here. So.
Yeah, well there.
It'll it at this point, it's a value play not an earnings play I Hope you can appreciate it yeah I understand I'm, just being facetious, sorry, thanks, Yeah, no, but I think I think it I think the value that's in cigar will.
Created value that will.
Become evident not still not massively.
Materials power Corp, but but it is what it is and we've got a business here. That's growing quickly that's got great capabilities in that we're creating are creating some value and I think this is a big step but that was it was an important decision for us do we delude ourselves.
Or do we continue to want a bigger chunk and that and again it came down to whats the way, we're going to maximize the value of our position and put a value maximization hat on and you say this was a good thing for our cigar and a good thing for power Corp.
Thanks.
Okay. Thanks, Tom.
Once again, if you have a question. Please press Star then one.
The next question comes from Doug Young with Chardan capital markets. Please go ahead.
Hi, Good morning, I think this goes back first of what I think Jeff you were alluding to in some of your prepared remarks, just trying to get a little bit more color.
You know on the swings or did the $18 million from Sag guard in the investing activities and that has been swinging all over the.
Which as you know I guess, that's as expected.
Can you talk a bit about it.
It was a big improvement sequentially like what drove that you know what are some of the drivers there.
Thank you, Doug and I'm scrambling here to find the 18 that youre, referring to Thomson and and so it's Greg.
Its Andrei <unk>.
Activities proprietary capital so you've got staggered and power sustainable it's page eight 846 and <unk>.
And your shareholder report, but.
Yeah.
Yeah.
Do you have an answer to that question, Greg I don't stop trying to find the reference yes.
We can always kind of come back.
Wanted to understand a little bit more about the drivers there, but more importantly, with insight you're right I mean.
So all the things that I think you've got a real estate fund in there can you talk a bit about some of the exposure there that's been a hot topic across the financial sectors, and then you've got a sustainable energy fun.
IPP valuations have been hit hard and so I'm just trying to and then you've got fee caps coming through in China.
When did that has implications at all for the staggered platform. So those are the three areas there.
Actual headwinds, but maybe they're not so I'm, just trying to get a little bit more color.
Yeah.
Well, Greg you look at those numbers I'll just go to the fee caps in China that has no impact at all on our alternative assets platforms, we didnt mention that but for those of you I think it would have been discussed in the IGN.
Call that that's really an and.
In the retail business in China.
The authorities put on a fee cap, which resulted in a roll back of some of the fees and the mutual fund industry and that would affect retail funds in and we.
We'll have a I think I G M reported about a 12% impact on CMA sees profitability, but at the same time the Chinese authorities are very conscious of having a healthy.
And profitable business.
You know I'd say, that's a that is what it is and but it doesn't impact at all the China strategy is set to power stable capital House. Those are not those are not mutual fund strategies.
Is ourselves in some institutions in that strategy, but not to a retail and with Greg I Hope I talked long enough to give you an opportunity to catch up to the page.
If I can take that.
Doug was asking about on the $18 million.
You want to make commentary for sure follow up afterwards, that's fine and we can follow up later or two but in.
And in the quarter.
Doug.
It was largely driven by our games.
Gains on our European funds.
Sure.
Those are all fair value through the P&L These days.
Also we had good.
Our performance in the private credit and the healthcare royalties.
So.
That's where the most of it came from there was.
Some.
Negative marks on the real estate.
The upper west or real estate, but not significant in the quarter. They don't have a lot of exposure to.
Our commercial Uh huh.
Properties so.
So.
So that would be the key I think in terms of.
The quarter.
Okay, and you don't see anything on the sustainable and sustainable energy side, that's concerning to you from valuation or potential surprise impact within your funds.
At this point.
No.
I wouldn't say so I'm certainly.
We are in the business.
Western Canada and.
Alberta.
Government did come out.
But the other day, but that's probably not.
Not going to affect what we have in the ground. So I don't see a particular headwind, but that's probably what you were alluding to him. So.
Uh huh.
Yeah.
Okay, and then I guess, what I guess, what everyone's trying to kind of ask and I'll I'll just kind of ask it directly I mean, what was the valuation implied with the transaction of the GP would you be willing to give that or is that something that you would be willing to get potentially at close.
Yes, that's what I was just referring to Doug. Thanks.
If I wasn't clear.
Clear about that I think we are considering that issue after close once we close as to what we do with the Mark We Havent line is exactly but the bias would be to put it would be to mark and disclose.
But we're not at that position right now to make a comment.
Okay, and then just maybe lastly.
Sorry go ahead.
Yes.
Okay. Yeah, just lastly, maybe strategy wise Big picture Wise, you know great West has been doing deals in the advisor space to kind of.
Position itself in and have better distribution, you know against the big the big bag.
Thanks.
A M is competing fiercely.
Against the Big banks, and we here at this time and time again.
Now what would it be valuable for power and within the power group accompany complex to have a schedule on bank license or an entity that is in that space.
And I know if you go back in time power has had.
Franchising and whatnot doesn't have it anymore, but like when you think about strategy and things that are missing within the group of companies is that something is that a reasonable direction to go in.
I think you start with a client focus and say you want to be able to provide as much capability to your clients as you, possibly can and that flows back into the health of your distribution and then that ultimately flows back into profitability. So if you can just go to that level you'd said like we'd like to have more than we should have more product.
And in the last 24 months, the flowing back into banking products and Cds has shown that right.
Having cash products is important people forgot about it over the period of interest rates going to zero and then staying there for so long and interest rates pop back up and all of a sudden gas products are important.
But once you go beyond that statement of how do you bring it to your clients you get too can you be competitive manufacturing it and can you do it on a scale basis and can you do it on a sustainable basis and then the question gets a lot trickier and the answer becomes less clear.
And you've got if anything has been shown in the last 12 months. It's that it's basically a lesson of history is it having a strong diversified deposit base.
As opposed to going out and building a business on kind of what I'd call Hot money is maybe too strong, but kind of competing on rates.
A strong diversified deposit base is essential in my mind and in our minds to having a successful.
Intermediary banking business to having a banking business and they're looking at that from a Canadian landscape point of view or a U S landscape from where we are that's a tall order.
Really tall order, so that's where we always give.
Get to in that discussion it doesn't mean, we're not interested in providing banking products and services to our clients and then trying to make some margin on it where it is important to our offering.
But it might be more distribution margin than it is the actual manufacturing side I don't know if that answers your question, but that's the way we think about it.
Makes sense thanks for the color.
Okay. Thank you.
Ladies and gentlemen, there are no further questions. So this concludes your conference call for today.
Thank you for participating and you may now disconnect your line.
Thank you very much.
Yeah.
Yeah.
Yes.
Yeah.
Yes.
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