Q3 2023 Power Corp of Canada Earnings Call
Good morning, ladies and gentlemen, and welcome to the Power Corporation third quarter 2023 earnings Conference call.
At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session instructions 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 then zero for operator assistance at any time I would like to remind everyone that this.
Call is being recorded on Tuesday November 14th 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 and thank you for joining US this morning for our Q3 results call.
I am joined by Dan <unk>, who is the principal financial officer at this point.
<unk> Corp, and he has been with the group for over 30 years and ER.
It's going to be covering off on the financials.
With me today.
Number of you have asked about Greg Treads, Jack can I just make a brief comment Greg is doing well. He is our at home. He is recovering in good spirits and that's about all I can say at this point. So that's all good news and nothing further to comment at this point, so with Danny and I will go through the regular.
<unk>.
You've got the forward looking.
Cautionary statements on pages, two and three regarding forward looking information and non I for us information.
On page four where you have a picture of Danny Danny I don't know whether Thats a recent photo I'm looking at you are looking at this picture. It at this time there is.
A little different.
That's what I was going to say so.
So you've got did he and I and I'll go right through them too.
The rest of the information you've got on page six number of other recent disclosures by our group companies and with that I'll spend a few minutes on page seven.
So the highlight for me is just continued strong financial performance by our two main operating and income producing businesses, great West life, and a N I G M and.
And great West Lifeco continues to show very strong growth in earnings in the quarter in particular was well balanced it was very clean.
And there's a lot of noise and sometimes on the insurance side, you do get noise going one way or the other it was a very clean quarter and just demonstrating what we've been saying to the market for some time that we see strong growth in an organic earnings coming from great West Lifeco.
As well produce very solid results not the easiest environment, both asset management and wealth management are in outflows at this point in the markets had been very choppy.
And they produce very solid results and continued to demonstrate that they can.
Invest in the future growth of the business, while managing their costs very effectively so.
For me those were the two kind of highlights in the quarter.
Just moving towards the bottom part of the page. It is noteworthy that we're a great west continue to make good progress on its previously announced acquisitions Prudential is on track contract ahead of track in terms of a number of the metrics.
And a great with five also focusing on the wealth side with some of the some of the acquisitions that they are in the process of completing.
G B L.
A bigger earnings quarter for GB elder and he's going to comment on that in the middle and in a moment excuse me.
But would you be all continues to be active on returning capital to shareholders through buybacks.
So guard closed the transaction that we announced in the last.
Or call with ADT, you and BMO.
And so bringing in outside partners to continue to grow the scarred franchise.
The alternative platforms had good fund raising in the quarter $1 2 billion of new commitments in Q3 and in a very difficult funding environment, but continued solid progress there and power itself continues to be active on the on the buyback side.
Page eight.
The environment is one where money is still flowing into cash products flowing into Cds and the money market funds. It's also you know Canadians and Americans they are engaged and debt repayment.
And so you've got obviously interest rates are having a.
The big impact on that.
The behavior of consumers behaviors.
Investors, where it's not slowing so you've got a close going on in asset management, you've got outflows going on in long term investments and that's showing up in our in some of the headwinds that we're getting at this point in the cycle and our and our various franchises.
With that I'll turn it over to Danny to address some of the financials over the next few pages. Thank you Jeff.
And good morning, everyone. Please turn to page nine and as Jeff Just noted we saw strong earnings contributions from both <unk> and <unk> this quarter our.
Adjusted net earnings from continuing operations were $1 billion seven up.
Versus 520 million in the same quarter last year.
This translates into $1 52 per share compared with 78 cents in Q3.
2022, I'll address the drivers of this increase shortly.
Our adjusted net asset value was 48 26 per share.
Sure at September 30th and ended just under $50 at 49 98.
Yesterday, this is $1.12 higher than.
And then June 30th and $8.07.
Higher than the year end 2022, and finally the board.
A quarterly dividend of <unk> 52 cents in the house for shared yesterday.
Turning to page 10, a great with a strong performance across our segments, including an increase in year over year earnings from the U S. Europe and kept on risk solutions, partially offset by Canada, but it should be noted that.
For Canada, the pretax earnings were up.
This quarter when compared to the quarter third quarter of 2022, the combination of recent acquisitions operational improvements and disciplined expense management and translated into solid results for great West This quarter.
I G M earnings they were consistent year over year and supported by strong performance from both <unk> well and Mackenzie.
Contributions from IGN strategic investments included a year over year earnings increase from China asset management see AMC and decrease in its proportionate share of great West earnings. This was driven by Gm's partial sale of its great West shares in Q1 of this year as well as a true up related to the actual Q.
Two earnings disclose by Great West.
Moving to GBS contribution this quarter.
Web help completed its previously announced combination with Concentrix as you may recall G. B L. L. At built a noncontrolling interest liability overtime related to put options extended the founders and management up withheld.
As a fair value of web helped increased G. B L. What's required to recognize an accounting expense related to the fair value of these put rights disposal, one $2 billion at G. P M.
This liability was extinguished without any cash impact in GBM recognize a meaningful gain on deconsolidation of 1.3 billion euros of which PCC sure.
<unk> is recognized this quarter.
The amount of $323 million.
In other investments in Standalone business. Just this quarter's results was comprised largely of interest on cash and cash equivalents.
Finally, I'll highlight the corporate operating expense line, where this quarter, we had an 8 million dollar loss from our cash settled compensation liabilities versus that 2 million gain in Q3 of 22 going forward, we would expect less volatility from this item due to.
Two the hedging actions that we have taken to date.
I will now turn to page 11, we break down to 48 26 net asset value as of September 30th.
Great West remains a large component of our nev and modest gains in its share price this quarter were more than offset by the impact of AGM straightening performance.
Note that following the completion of the <unk> and be more strategic partnership where both parties acquired minority interests in Sungard Holdings management.
Have begun recording in our in a b cell government, that's like our management company at its fair value.
And this is not in the earnings and the prior quarters and was at carrying value. So when we get a bump there and with that I will turn it back to Jeff. Thank you Denis So moving along to page 12, I'll just pick up a few highlights for the various companies.
Great West Lifeco has been putting emphasis.
With its communication with the markets to reflect its internal focus on building up its wealth management businesses with the new.
Closure that great West Lifeco has been.
Doing around its value drivers.
It highlights the size of the wealth business within great West Lifeco and they are very focused on building that across their various geographies in Canada, obviously, a couple of acquisitions, a small one with value and value our partners, but also the IPC acquisition, which if the closing is still a pending builds up their position.
And their breath and wealth in Canada, It makes pretty loud statement about their commitment to the sector.
In the U S. Empower personal wealth is one of the key drivers of growth around that business.
Fed largely by the rollover is coming from the D. C platform, but also there's a very important direct to consumer market, there and that business has grown 30% year over year and is now at 65 billion U S of a UA on the empower personal wealth platform and in Europe, they've been making a number of moves.
Including in Ireland with the launch of Uni O wealth and a new joint venture with the AIB. So lots going on on the wealth side and Youll hear more about that from great West life as we move forward.
Now I'll turn to page 13. This is just a thing yet a snapshot of one element of a broader story. The brighter story that we have been talking about <unk> management has been talking about is it the I G wealth platform, formerly known as investors group has really undergone a very significant transformation over a number of years.
He was here.
And we've talked about the difference in the recruiting model.
Price the difference in the products the pricing.
The basically whole value proposition.
One element, we havent talked that much about is how much has been done on the technology front and on the now platform that advisers and clients experience and this is a snapshot out of the recent investment executive dealers report card and you can see in the upper left the scores that the advisors at IAG wealth give.
We have been continually improving over the last five years and then you've got our relative positioning against some of the major dealers. The platform has really been digitized over the last five years in a significant way and where it's one of the great strengths of the company continues to invest in its technology delivery for both adds.
Visors and for clients.
On page 14.
So just as I mentioned earlier, the the DQ in the BMO.
Investment into cigar words completed.
So this will provide.
Later funds within the G. P. A in order to invest as well as L. P capital and as part of our cigars strategy to give itself greater strength greater breadth.
And.
That's important in what is a pretty challenging fundraising environment and it's gonna be Oh can I help them I think over the next couple of years tremendously all alter.
I'll turn to page 15, we can.
Slide you've seen before saying we continue to be active on the transactional front notwithstanding the amount of time, we focus on organic growth we continue to.
Look at external transactions to reposition the group for greater growth.
And with that I'll go to 16.
So in terms of the fundraising platforms $1.2 billion was raised in the quarter, a 600 million U S was empower sustainable launch of its E U S infrastructure.
Trucks your credit funds, we've got a great team that has been hired.
As the guard health care.
It did have an additional closing and then the power sustainable equity infrastructure partnership, which is our Canadian venture had additional a fund commitments.
But notwithstanding that the environment is difficult and it's difficult not only on the fundraising side, but the deployment side as challenging as well you would all be aware there is less transactions.
Transactional activities, there's less M&A going on we read about it all the time that also means that have investment managers and alternative investment managers are putting less capital to work that they would be in a more active environment and of course, when you turn around and do your next fundraising in your next product, which adds a U M.
Onto your platform you do that once you've deployed or mostly deployed the previous fine and so if you're deploying at a slower rate, it's not only fundraising that slower but your ability to go out and launch new products has lessened. So it's hard to argue that does not alone in that it's a factor across across the industry.
Page 17, just speaks to.
The ongoing.
Actual results and we've got cigar and at the top which has got had oh from an FRE point of view the third line so at $42 million in fees.
And it's just operating slightly below the breakeven level from an ongoing basis and power sustainable making progress on the revenue side, but still a ways to go before it is at a breakeven point.
And again, we talk about the overall AUM of our platforms being just under $24 billion, but our fee bearing <unk> is the one that actually pays the bills and we're at $16 7 billion across them you're bearing capitals.
On page 18, our group has been active returning capital to shareholders. We continue that through Q3 and post Q3.
Just a 452 million of shares so.
So far in the year 12.
$12 6 million shares or one 9% of the participating shares and our cash position at the end of the quarter is $1 2 billion.
And that would be prior to having acquired the additional $112 million.
And then subsequent to the ended the third quarter.
We do have a loose target rough.
Roughly two times fixed charges, including financial charges that we'd like to keep on the on the balance sheet. So that's about $800 million and our our ratings continue to remain very.
Strong with our principal rating agencies.
Page 19.
<unk> has delivered over the last five years three years 12 months, a strong relative returns compared to our principal benchmarks.
It has been a so so that is good.
And that is notwithstanding what is on page 20, new which says that our net asset value discount has gapped out in the past year and a bit going back to the middle of 'twenty two.
So we had worked hard through the period.
Around the announcement of the reorganization made good progress on on decreasing the discount and it has gapped out in the past 18 months. So I guess, if I look at that from a glass is half full point of view, we've delivered competitive returns notwithstanding that we've had the last a year and a half where the discount is gapped out.
And so I view that as an opportunity.
Having said that this is on US we got to continue to communicate the value that we have and are different parts of our businesses.
And make sure that investors understand how that value is going to translate into value for them and so we will continue to be highly focused on communication as well as looking at our strategy is to realize value to ensure that they meet with our investors expectations.
But that's that's going to be a focus of our group.
An increased focus of our group I suspect in the quarters ahead.
And then I'll, just conclude and wrap it up on 'twenty, one the fundamental strategy hasn't.
Changed in the last number of years I will say that the I am really really pleased with the repositioning that has te.
Place at Great West life, and I G M over the last number of years.
I think that's 80% of our gross asset value and a and a much higher percentage of the part of the portfolio that is earnings based.
And if I go back to 2019 priority of us announcing the reorganization both and then look today, both great West life and AGM have been significantly repositioned for growth.
Great West life, if you go back to 2019 going into the year in.
In the United States had three businesses being our insurance business empower and Putnam.
Collectively in 2018, they earned I think $385 million Canadian after tax you fast forward to today. There is one business in the United States with the sale of our insurance business the pending sale of Putnam and the three acquisitions, we did in empower and in over the last couple of quarters.
The U S business have great West has earned in excess of $268 million Canadian a quarter. So you annualize that.
Compared to where we were four or five years ago is now 30%.
The business of Great West life, It's one business, it's growing very strongly organically and so as we move forward potential future acquisitions.
And so and that's at the same time the rest of the businesses have great West life have been strengthened so great West life really repositioned over the last four or five years, and I would say equally with I G M <unk>.
<unk> has got two strong.
Areas of wealth management anchored by our repositioned I G wealth and not the greatest environment today, but well positioned for growth in the future.
And then two other avenues with Rockefeller in the United States and while simple in Canada and on the asset management are very strongly positioned in Mckenzie.
With.
A large position in the Chinese market through C. M. A C and then with Abbott and as well in the alternative asset management space.
So I G M and great West are two principal assets have been repositioned for significant growth. So then the focus comes to the 20% of the portfolio, which is N. A V based being at G. B L and across our different power platforms. We've got good value there and we're going to double our efforts to communicate that.
To make investors realize the value that we've got and.
And with that I will wrap up my comments, operator and open it up to.
The.
Audience for anyone who has got questions and we'd be pleased to address them.
Yeah.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, good morning.
Hi, My first question. My first question was on the alternatives.
Alternative platforms.
That's sustained.
Sustainable.
What Congress.
Do you think what kind of gets you to.
On that level of profitability for each of them, but also kind of just trying to understand how to think about opex growth at.
At each of the platforms.
Get to scale is it how does that grow with it.
You know some sort of opex ratio or is it how does that opex growth compared to revenue growth or how should we be thinking about that.
Thank you Hi, Jeff.
Good question and.
I'll try not to be evasive, but it's because the answer is it depends.
If I look to cigar.
Actually both of them it depends on how you get to growth so if you're.
Getting the growth by launching additional strategies and the same.
That's in the same categories, you scale them and you get positive cash flow and earnings and to the extent that you are launching new strategies you go through a J curve.
And the J curve is typically youre going to lose money for two three years in the particular strategy. So.
If you have got all the strategies you would like to have and you're out there doing fund number two number three number four the strategy as you start to make a lot of money.
Our platforms are at a stage, where they are still building out their product suite and you can imagine that that is something that makes you more enticing to investors if you're walking in and you have one credit fund.
And one category. That's that's an interesting conversation, but if you have two or three different strategies around the same strategies that might be lower credit it might be an adjacency youre more relevant to investors. So our groups cigar is very close to breakeven. It's got a very good revenue base.
But it continues to and to launch new products that are adjacent to its current product suite, which delays, it's breakeven, but ultimately creates greater value and 234 or five years down the road. So that's the trade off.
That that's the discussion that we have all the time is that we're going to build stronger more valuable businesses overtime. If we enhance the suite of products and that delays the E. R. The breakeven point.
I'm not trying to avoid the question, but that is that's what it is that so if we tried to if we want it to get to profitability here.
I turn it back to you if we wanted to get the profitability quickly. We can just stopped new product launches and and kind of pair. They the opex growth that comes with that and you get profitability more quickly, but have you maximize value over a three or four or five year horizon I don't think so so I hope that helps.
Yes.
Helpful and my other question was looking at it at the corporate level and the Opex there after adjusting for the share appreciation rates hadn't in the past couple of quarters. So it keeps you in Q3, I think it's been roughly about $40 million and prior to that I don't see I guess, the past year a bit.
That quarterly Opex number was kind of in the low 30 days. So I'm. Just wondering is that 40 million kind of a new.
Kind of Opex figure.
And if so what explains the increase that we've seen.
I'll, let danny handle it but there's been there is a little bit of noise around the edges that Jimmy do you want to get but I think packet.
Jeff as I mentioned without the hedges. So just a $41 million I think that would be our new ongoing a number that we would be looking at it it is a bit higher than last year.
It is very consistent with what we've seen during the year here. So there's been a bit of a jump from last year does that as inflation.
We're in full travel mode and so on now we're back to really back to normal. So at 41 million I would look at that as being more of the ongoing number.
That's pretty precise.
Or do you want it.
Okay.
But you do and even the 32 that we had some noise going the other way and some of the quarters Dania, we had some noise going on and we have noise going.
And this one also there's a there's a couple of million dollars that is not recurring and our expenses. So that's why I put it around 40% 41 42 million.
Number yeah I have my memory, we were at about $150 million.
Run rate annual if you go back a couple of years and so if we're in around a little over 160, right now theres been some inflationary growth, but we're not far off the mark in terms of the basic business model, Jeff hasn't changed it's not like we built up a whole bunch of people or anything, but we do have extra travel and we have we do have some inflation pressure going on.
Okay.
Okay, great. Thank you.
Our next question.
Comes from Graham Ryding of TD Securities. Please go ahead.
Hi, good morning.
Maybe I could just touch on your your cash levels, you've been very active with your your buybacks, but your cash level is down a bit lower now compared to maybe where it was earlier in the year. So maybe just some color on how you're feeling about your.
The discount to NAV, how much excess cash you feel like you have and what's your appetite to continue to buy back shares.
So hope feeling about the discount is not great is the honest answer.
But it is what it is so in these things jump up and down.
So that doesn't in any way diminish our conviction and enthusiasm to lower that discount over time. We're enthusiastic also to buy shares back and the cash is a little bit lower as we have been active in the last.
Several months buying shares back so we're going to continue to look at share buybacks as one of the key tools to to arb, the discount and to lower the discount and then create AAV of course as we buy shares back at a discount youre actually increasing the navy as you do so.
And in terms of our cash position I wouldn't make a specific comment other than you're right. It is lower and so you know we've got two things on that is not just.
There's a number of things working there is share buybacks, we'd have some commitments that we make to our platforms that sometimes some quarters weren't inflows some quarters, we're putting money into seed capital. So it's not kind of consistent and we'll be looking at our cash flows and our sources of cash in the upcoming quarters to figure out how we can continue to <unk>.
And buybacks at a at a regular irregular pace that is the goal and that's what we said we're going to do and when we will that we will do that.
I wouldn't anticipate kind of a.
Hi, a much higher level or a more a much lower level of buybacks in the upcoming periods, if that's where you're trying to get to.
With your question.
Okay.
That's helpful.
So I saw that you flagged that the garden asset management company you are now holding at fair value.
Is that the 270 million that you flag within your NAV.
And like.
Am I looking at the right number there and is that does that reflect your 55% ownership stake in regard.
Yeah, that's exactly right yeah, that's exactly what it is a 270 is there are 54% share.
Okay.
Yeah Okay.
And my last question, Jeff just for you.
I know youre always close with empower.
They did see some outflows I think in the quarter.
Is that just.
A reflection of the headwinds on retail flows broadly in the industry or is that is that also maybe related to some attrition on some assets just given.
Active acquisition.
Activity, that's been going on in last couple of years on that platform.
Great grandmother, you just broke at one point did you say empower is that what you were talking about yeah. Yeah. There was some outflows there. So I just wanted some color on what's what do you think is driving that.
Yeah sure absolutely so.
There is nothing systemic about that at all empower continues to win in the marketplace on an organic basis and as is in strong inflows. So theres a couple of things going on in the quarter in particular in a large market. There were some de conversions and no large wins that were brought on the platform and some of those <unk>.
<unk> are related to the.
The assets that have been brought on from Prudential I think it would be better if they broke though the outflows from Prudential out and it would give you a more normal number because you bring assets on and you have an attrition rate that the company I think has published that they expect over a period of time that they're going to lose X percent of the assets.
And they do but then they don't break them out of the flow number so it kind of masks, what's actually happening in the open market.
But this quarter and specifically addressing your question in this quarter. It was in the large market I think there were a number of.
Oh D conversions basically companies that were going to other platforms no large wins and it resulted in a blip in the large market sector and a good part of that was related to Prudential. So nothing the underlying message is no change in the confidence in the growth and what's happening in the marketplace continued strong organic growth.
And in terms of the the actual Prudential conversion and retention of assets, where they are ahead of us of what they had anticipated and at the time that we underwrote the transaction.
Yeah.
Okay.
That's it for me. Thank you mentioned wealth management I thought in your question. You mentioned wealth. This is this is a D. C issue not the wealth management, the wealth management isn't strong inflows.
Okay understood.
Yeah.
Great. Thank you grant.
Our next question comes from James <unk> of National Bank Financial. Please go ahead.
Yes. Thanks.
First question, just a while it doesn't I missed this but the the.
The cadence on the dividend as has suggested that next quarter, we might see a little bit of a.
The bump.
Do you anticipate maintaining that cadence and just refresh us on your at your dividend payout.
Ratio targets or otherwise.
Yes, so I.
I think this is the third quarter in a row that we've been at 52 and a half cents. So we would have been in a cadence for the it's the fourth veneer correcting me. Thank.
Thank you.
So the.
We would follow our dividend policy as we follow the dividends that we receive from our principal operating subs and the bulk of it almost overwhelming when it comes from great West life and I G. M. So we'll take our cues from great West Lifeco.
N I G M as to what they do with our dividends and then we typically flow through the increase directly to shareholders. So we'll I don't see any reason I'm not don't want to get ahead of the boards in terms of them declaring dividends in the future, but an overall expectation would be we'd do it on cycle and they're in the ordinary course and.
And see where our subs are on their dividends.
So great West life is the biggest part of it and you mentioned our payout ratio. So we don't we don't think of it at power first of all as a payout ratio, we think of it as a flow through on the dividends. When you look to great West life, I think they've been clear in their own communications that they see they've given.
Medium term objectives for earnings per share growth in the 8% to 10% range.
Communicated going.
Going back a couple of years ago that the dividend payout ratio. They were targeting was in the 45% to 55% range.
They are at the high end of that band right now all things being equal you would therefore expect that if theyre targeting around 50, you might see a little bit of of that.
The dividend growth may lag the earnings growth a little bit I mean, that's a logical conclusion, but it's not a big deal like if they were at 54 and Theyre targeting the center of the range around 50, you might expect a little bit of lagging on the AR on the growth in the dividend over the next few years that's.
So that's.
That's everything I can tell you about our dividend payout ratio I would expect it to continue to happen in the ordinary course.
Yeah, great. Thank you.
In terms of.
G B L.
We don't think into this.
Often a lot, but I'm just curious.
It's not a great market for monetization is necessarily in North America, and I'm curious to get your.
Take on the European market or or any specific themes or asset classes within the GPL portfolio.
Some nice gain obviously from web helped us this quarter.
And just looking to get a broad take on that on what youre seeing over there that you'd be out portfolio.
Yeah, I mean, I think the themes are consistent they are continuing to move into more private.
Less public and so realizations on the public side or are less of an issue than they would be if you're in a private equity business.
And so that's one theme I think investments they've made from everything I see how they've done a couple of large health care acquisitions, and those are panning out well, but their early days.
So they're being that side of their business is doing well, but theres nothing particular from a liquidity point of view this.
It's different in the European market than we see in the in the North American market and again a lot of their portfolio is listed and are in our liquid so liquidity is not necessarily the issue there.
Yeah.
Got it.
And then lastly.
We're looking at CAGR it on a on a fair value perspective.
Are there are there are some key investments in our in the safeguard portfolio like Portage or private equity that we should be yet.
<unk> just sort of get ahead of what those movements in fair value could be on a quarter to quarter basis.
More some broader macro indicators that would that would help to sort of guide how that moves on a on a quarterly basis as well.
Well the fair value the fair value that we gave it and that is really the fair value of the management company is that the.
Is that the investments that the LP investments themselves. So this is.
This was the valuation of the management company following the investment by <unk> and BMO. So it is only tied to the stream of management.
Management fees that are the management company is getting.
So you're thinking about it and we do think about it they're related but they are different. So we have an asset manager, which is what we report on when we do the FRE and then we show you the carry and that is where <unk> BMO and also Canada life put in some more investment as part of that as well and that round of equity raise at the.
Asset manager level gave rise to a mark which allowed us to to market in our books away we have this quarter.
Then we have the seed capital that power invests in cigar and power Sandwell capital and that's roughly little over $2 billion and that's a myriad of investments I haven't counted how many different strategies, but its across the spectrum from from VC Fintech too.
The debt funds private equity infrastructure, it's across the board basically when most of the strategies of which there would be 'twenty I'm guessing, there's if you've added somewhere it's in the twenties.
We've got we're typically a lead seed investor as they're launching products so that would be.
Along a long question I don't think you are asking the question on our L. P investments as a seed investor because that's just a broad broad based across their portfolios.
Yeah, no that answered.
Yeah, Yeah, Yeah, and I'll talk about thank you.
Okay, great. Thank you.
Our next question comes from Nik Priebe of CIBC capital markets. Please go ahead.
Okay. Thanks.
On slide 16 of the presentation, there's still $2 3 billion of power Corporation's proprietary capital invested across the alternative asset management business.
The proportion of third party AUM has grown over time.
So do you foresee that commitment declining further over time or is $2 3 billion roughly speaking consistent with what your expectation would be for the long run commitments that platform just some updated thoughts on capital intensity of the asset manager would be great.
Thank you Nick that's a great question.
And we've been explicit in.
Our communication with the market in our communication with both the garden power sustainable capital that power was going to was not looking to put more net new capital into the Lps into our into our LP positions.
We were looking for those.
For the two platforms to grow using capital away from power. So the 2.3 billion is roughly the same as what it was when we launched the strategies are when we changed the strategy four years ago. It was right around a little over $2 billion.
And our plan going forward is not to see that increase is to recycle. It now it doesn't go in a straight line. So sometimes you've got four funds that are being launched over two quarters and you don't have a lot of realizations in your net net adding 200 million I'm I'm, making up the numbers here over a couple of quarters and then you go a couple of quarters.
Where there's where youre getting realizations and youre getting capital back, but roughly speaking we're expecting that at this point to stay in the low twos and hoping that the bars on pace or not not dark blue under the funded AUM bar, there, where you've got the 16 eight but that gray 14.5 continues to grow in the 2.3.
It is just about where it is and and as we do that.
Then the G P.
Our fee related earnings should grow and ultimately get the profitability, we don't have lots and lots of comments on cigar.
You know it Wednesday getting to break even and those are good questions, but the fact is is that.
That it was not a very big business going back four years ago, and we just had some third party investors come in and validate our value that we mark the G. P now up to $270 million in harsher sure. So you know that's that's evidenced the value creation and its been done with other People's capital. So that's.
That's the way I'd answer the question.
Got it Okay, that's very clear and then with the sale of the minority interest in <unk> are being completed in the quarter have any of the proceeds been upstream to the holding company or where would that reside in terms of its geography on the NAV schedule.
It would be not it would be in the 270.
The investors bought into treasury and they didn't buy it we power carpet and sell any shares and that would stay in the G. P.
And the G. P would use that to build out its business, including potential other strategies or acquisitions that they might want to make.
Understood.
That's it for me thanks very much.
Okay. Thank you.
Our next question comes from Tom Mackinnon of BMO capital. Please go ahead.
Yeah. Thanks, very much so just to be clear with respect to the the movement in the cigar on a N. A the schedule from 970 to $4 44 to 970 was a carrying value number reflecting your 78, 5% ownership and the 12 44 is that fair.
Are you, reflecting your 54.5% ownership.
That correct then.
No I. Thank you again.
These are the L. P a.
These are the assets the proprietary capital that Youre looking at it.
The.
With the transaction, we're really looking at the asset manager itself. The 270 <unk> that went up from something like $60 million last year due to 70 last year was carried at book value.
And this year, we marked it at fair value, but does the other numbers that you're quoting are the asset.
So we're holding the L. P. L. P. L. P. Yes. Thank you very much think.
Think of it Tom is that we when we launched the strategy or when we announced the new strategies to two years ago, We had about $2 billion invested under cigar and under car sustainable capital and.
And investments in different different funds and different strategies. Most of those were a lot of those were just for our own account we were the only investor when we launch these businesses and we have with the goal of making the asset manager the general partner the GP more valuable and the GP has been marked up in the case of cigar.
From roughly $60 million.
Previously to $2 70, and that is as a result of our third party investors coming in and validating the value of the asset manager.
And the asset manager as well, yeah, and that's what we report.
At 970 movement in cigar quarter over quarter to 12 44, what's that what's driving that movement then.
I don't see that.
All 497 four.
Yeah, well so in your second quarter you had in your any adjusted NAV statement, you had second quarter for cigar you had it at 970 isn't that any of these statements are that was on page six of your second quarter Press release, and then page six of your third quarter press release, you have cigar at 1.24.
For so what drove that increase.
Okay. The one to four four.
Is the one to four four as you have noticed at 974 of the investing activities.
Plus the management company up to 70.
If you look at it it's a lot clearer if you look at our MD&A on page 862. It is clearly a divided into the asset management company to 70, and the investing activities of 974, yeah. Okay. So on that summary page, we combine the L P investments with <unk>.
The G P value on that summary page and most of the growth in that 977 to 244, it will come from the markup on the GP, but as you say you get it broken down with pages on the MD&A 860 to 862, you'll get a broken down between what's the LP investments and whats the GP value.
Yeah, so that and that 270, sorry, just was in the area of what was that in the in the sector.
Is that fixed business.
In the second quarter would have been about 160 <unk> waiver.
At the end of the year.
And it did not really move this is a book value. This is a book value figure. It was it was a book value if you haven't yet.
So really the 200 movement is the markup.
That's yeah, Okay, Yeah, that's right and and and now this okay. So now you've got the 270 sitting at fair value, then and before you had it at a carrying value right.
That's what I understood is that and if.
If I look at the treatment of the 1.37 billion that you have for power sustainable that sits on this statement is that.
It is what do we have on that is there any carrying value fair value.
Is that kind of held the same way you have got for cigar or is there any well difference there in terms of the treatment of that number.
Okay.
The difference here with Sungard.
The 10.
As a book value figure, we have not marked up to fair value our sustainable manager yet because we don't have a we are waiting for is for third party.
Confirmation say on that transaction to market up to fair value. So the 10 is more similar to the 60 of last year and so guard you'd have to go back to the M. D and you will find power sustainable the G. P is valued at $10 million.
Which is it split the rest so the 1 billion 370, the bulk of it is our LP investments correct. Okay. Alright. Thanks for that I. Appreciate you walking me through that piece and.
Maybe just one other quick numbers question.
One point to seven 6 billion in euros that GPL made in the quarter.
Yeah, if I multiply that by your 15, 5% ownership and the AR and the Euro Canadian dollar rates that you disclose I get something in and around 288, yet you've got a 315 contribution from that is that is there something that I'm missing here or was there something else that would have made that capital.
There also.
This under earnings in N G. B O. The game itself will yield $323 million, that's at 15% and I would say at an exchange rate of something like one five.
But there is other activity in GBM that will lead to.
So the figure that Youre getting.
No not just the gain of one point to seven 6 billion euros that they reported as earnings.
The one point to seven six if you simply took 15% of that at the exchange rates at the average exchange rate for the quarter, you should get to a figure.
Oh, Okay, I didn't sorry, maybe I'll take that one offline.
Okay, Thanks, but theres no other noise other than multiplication of two figures and one being 15 and a half and one being the 1.458 exchange rate that you guys disclosed in the report that should by definition that should give you that should do it.
Okay, we'll have to.
Arithmetic discussion offline that okay. Thank you so much.
Thank you Tom.
Once again, if you have a question. Please press Star then one.
Our next question comes from Doug Young of Chardan capital markets. Please go ahead.
Good morning, hopefully these will be a few quick ones I don't want to beat a court.
To death here, but just a few additional ones on onside garden I kind of get the fair.
Fair value versus carrying value, but I guess my question is twofold I mean, how do you drive fair value I assume youre going to do that every quarter.
Is it off assets as it off just cash flow just trying to understand that and then Jeff maybe as you look out over the next few years and I understand how the mechanics are going to work in terms of driving towards breakeven, but what is the proper margin for this business.
Well on the valuation I think it is really done on a cash flow basis.
Our projected cash flows and discounted back.
To do it every quarter I don't think it's going to be done every quarter, it's more something that we would do at yearly.
And on a quarterly basis, just to ensure that there's no major change, but we would probably keep a we will probably keep the the value.
Constant throughout the year.
Quarters until year end, unless something major as occurred.
And Doug I'm going to I'm going to defer on your question on on margin because I can talk about where.
Asset managers get to when they're mature about I don't want to.
Offer I don't want to offer a margin and I'm not trying to be evasive, but I already mentioned in the question of how quickly do we get to breakeven depends on external factors depends on how the AUM grows let alone the company still a fair ways away from full maturity, so I'm going to I'm going to defer on that and maybe we can have a.
I have a more informed discussion where I don't want to mislead anybody in terms of putting out a number there and having everybody expected.
Because.
We're still at a pretty early stage of development with these businesses, even though that doesn't mean, we're not I think the I think the most important thing I can say is we had some very sophisticated third party investors come in and say.
This businesses is worth money, even though it's not yet breakeven. So so Doug if that's all right I'm not going to I'm not going to offer you a margin at this point.
No. That's fair and then just I know, it's early days and you had a transaction go through I'm trying to think about the evolution of carried interest in <unk>.
You know I understand how the mechanics work down the road and when it kicks and do you share the carried interest and all the existing products with these investors like they they would get full ownership of everything that's in the pipeline is that correct, you're not leaving some with yourselves now only on new product launches like just.
Yes, so no. So the way the business works is that we've got a G P and the and the owners of the GP, which includes power. It includes a disappoint <unk> BMO in Canada life and it includes management through a true ownership of GP, some of which is awarded to them.
Others of which they put up cash and buy shares case, so those of the shareholders and they share in all of the fee related earnings which are basically your your annual fees, whether its anywhere from 75 basis points to two percentage points on an equity fund and then the carry is is awarded as it is.
As in the industry. The carry points are awarded and that those are a mix between the investment management teams that are working on their specific strategies. The management team at the top of cigar would get those points and then power I Shouldnt say power excuse me all of the the GP shareholders would share in the AR and the carry points.
So you'd have carry.
On an equity funding you've got 20% carry it'll it'll be lower as you move down into fixed income that carries got points attached to it and the GP is.
Has a good chunk of that Carey, it's and that is shared equally amongst the G. P shareholders I don't know if.
Alright.
That's clear it's just like some very standard we would we would look like we would look like the other alternative asset manager.
On the plant I think on that one.
Yeah, and Danny I guess on <unk> any additional noise on web help like that's done I assume like we're not going to have any further adjustments going forward.
It's all done.
It is finally done if I can say, but we do own an equity and do own equity in the merged company yet, but the transactions closed.
But the transaction noises is done Okay, and then just.
Cash and the puts are behind us.
Yes, Yeah, that's okay, and then I noticed I want I want.
I want to say, we havent crowd on the big gain because we for the last two three years, we've been saying you know we had a we had to put liability that hurt our net income, but it's just to put liabilities because of the value went up on web help and so we're not crowing about the reversal either because it's it is what it is it's just the reverse.
A bunch of pain that we unfortunately have to go through and there are no put liabilities left on these investments.
Correct no no I get that and then just lastly, the cash down quarter over quarter. I guess, we went through some mechanics, just looked lower than what we would have thought and I get the buybacks.
Get some cash in from Dallas, It doesn't seem like the cash and the staggered.
<unk> went up to the Holdco is there anything else unusual it sounds like maybe there was just some funding of some staggered.
And I think that's right I think we've got as I was trying to say earlier, even though on the earlier question about are we increasing our LP investments.
And we're not.
<unk> goal is to keep them flat out third party parties grow.
AUM, but that doesn't mean that we're not seeding new strategies and the seating comes from overtime realizations that come out of the existing strategies, but it's not a straight line and we will go through a few quarters, where all of sudden we're net cash out and other quarters, where net cash in its kind of lumpy. So we don't want it.
Well that's it we just have to manage that but the goal is to keep it flat so.
So that's effectively it if you think about it we take dividends up from our three public subs, we pay our expenses, we pay a lot of that out in dividends and then we have our realizations and reinvestments into the seed capital and hopefully and then we've got other assets that we monetize.
But that's the equation, but quarter to quarter it can be a little lumpy.
Perfect I appreciate your time.
Thank you.
Ladies and gentlemen, there are no further questions. So this concludes the conference call for today. Thank you for participating you may now disconnect your lines.
Okay.
Yes.
Yes.
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