Power Corporation of Canada

Thank you, operator. Welcome everyone to our call.

Thanks for being with us this morning. I will dive right into the presentation to go through our perspectives on the second quarter and overall commentary on how we are thinking about the business.

Before I do so, I'll remind you on pages two and three of the cautionary disclaimer statements regarding forward-looking information and non-IFRS measures. On page 4, you have the happy mugshots of myself and Jake Lawrence, who is here with us today for your second call as CFO.

So we're happy to be with you. And we've got some other colleagues with us here as well in case we get some very technical questions.

The Q2 results then, right after that, you've got the various public disclosures on page 6 from our different operating businesses, which I just make reference to if you're looking for additional information. And with that, I'll start my remarks on the quarter on page 7.

Look, it was really from our perspective, a very strong quarter. Had really good financial results, broadly based, led by Great-West Life, for sure, who had record earnings again this quarter, exceeding CAD 1 billion for Great-West Lifeco.

But really broadly based all the businesses across Lifeco, IGM, all reporting either good financial results or good momentum in their markets. So we're feeling very good about the businesses.

And while market levels – the stock market levels and interest rates at the short end have helped at the margin, overall the macro conditions are not all positive. As you know, high inflation, higher mortgage rates are impacting a lot of our client basis.

So from a flow point of view, there's a number of our businesses that are – the macro conditions are not helping. But aside from what's going on the macro side, the earnings are based upon broad momentum across each of the businesses.

The businesses have got clear strategies. They're executing on those strategies.

They're building momentum from a revenue point of view, from a cost point of view, from a capital efficiency point of view. So it's great to see and it is happening across IGM and Great-West Life, but also our NAV-based businesses are also showing good momentum and good progress.

So overall feeling great about the businesses. On the alt side, we did continue to fundraise, but also work with partnerships at both the Power Sustainable Capital and Sagard to continue to build out their scale and their profitability and their revenue.

And as well, in terms of our ability to generate cash and return capital to shareholders, which continues to be a high priority, we had some good news at GBL, which we'll talk about, but they're going to make a meaningful increase in their dividend, which Power Corp will enjoy when that is paid. And we made progress on the standalone businesses.

Peak, which owns Bauer and Rawlings, disposed of Rawlings. And so, we, in the just start of Q3 here, received a check of CAD 83 million from that disposal and also I think recorded a gain, so we're around CAD 42 million on the investment in the quarter.

And we continue to be active on buybacks through the quarter, buying CAD 189 million year-to-date so far. So with that, I'm going to pass it to Jake to walk through the financials, the NAVs, over the next few slides.

Jake?

Great. Thanks, Jeff.

And good morning, everyone. Picking up on slide 8 of the presentation.

As Jeff noted, Power Corporation reported solid earnings off another strong quarter from our main operating entities. That's Great-West and IGM Financial.

As we often point out, these two companies generally form all of Power's recurring earnings. For Q2 2024, adjusted net earnings from continuing operations were CAD 761 million.

This compared to CAD 842 million in the same quarter last year. I'll address the breakdown of these results on the next slide, but we'll just note here that Q2 of 2023 included a few positive one-time items.

On a per share basis, adjusted net earnings in the quarter were CAD 1.17 compared with CAD 1.26 in the same quarter last year. I'll also point out that the reduction in average share count from our ongoing and active NCIB program contributed approximately CAD 0.03 to EPS.

Adjusted NAV at the end of the quarter was CAD 50.48 per share at June 30th compared to CAD 53.10 per share at March 31st. The decrease in NAV quarter-over-quarter was primarily due to the share price decrease in Great-West Life and GBL, which was partially offset by IGM's share price increase and fair value gains in some of our proprietary investments.

As of yesterday's market close, Power's NAV was CAD 50.24, reflecting a rebound in Great-West shares offset by decreases in IGM and GBL. Finally, this quarter, Power Corporation's Board of Directors declared a quarterly dividend of CAD 56.25 per share, in line with last quarter, and that's up 7.1% from Q2 2023.

Now turning to slide 9 to break down the earnings. Great-West once again delivered strong earnings of over CAD 1 billion with contributions to growth from each of its four segments.

And as Great-West noted yesterday, its US retirement and wealth business and Power is on track to becoming the largest segment in its business by year-end. And this is very much in line with the growth strategy that was embarked on several years ago, but further fortified with acquisitions such as personal capital, mass mutual, and prudential.

IGM also reported strong earnings this quarter, with year-over-year earnings growth across its two segments, wealth management and asset management. Average assets continue to grow despite a challenging macroeconomic environment.

This past June, IGM saw heightened growth flow and redemption activity in advance of the Canadian federal tax change, which came into effect during the quarter on June 25. In Q2, IGM wrote up its investment in Wealthsimple by 15%.

This reflects the strong business performance we saw in Wealthsimple, including revised revenue expectations, as well as an increase in public market peer valuations. This marks the third consecutive quarter in which Wealthsimple value was written up.

I'd like to remind everyone that Power Group's combined investment in Wealthsimple is now valued at CAD 1.5 billion, up from CAD 1.3 billion last quarter, of which Power's share is CAD 563 million, and that's up from CAD 490 million at Q1. Moving to GBL, whose comparative earnings contribution was impacted by a positive net recovery last year related to the decrease in Webhelp's NCI put-right liabilities.

As a reminder, these put-right liabilities no longer exist as they were extinguished as part of the Concentrix merger. As well, GBL received lower dividend income this quarter, following the sale of its investments in Holcim and GEA.

This is part of GBL's broader strategy of rotating its portfolio in favor of private assets and returning capital through buybacks and dividends to shareholders. As mentioned earlier by Jeff, this strategy was on full display as GBL announced a proposed record-high extraordinary dividend of €5 per share, funded by gains from its partial sell-down of its investment in adidas and strong cash earnings.

This dividend will of course be subject to approval at its next shareholder meeting. Moving to our alternative investment platforms, Sagard contributed positive earnings this quarter, driven primarily by performance in Power's investment and Sagard's private equity funds.

Power Sustainable continues to scale with two recently announced strategy launches. This quarter's results also include fair value decreases in its energy infrastructure strategy.

Sagard and Power Sustainable continue to deliver strong fundraising, despite headwinds in the fundraising for alternative assets. Continuing with the other investments in standalone business lines, this quarter saw a modest contribution to earnings as the gain realized on the disposal of Peak's minority interest in Rawlings was offset by a non-cash impairment charge taken on Lion.

On a comparative basis, Q2 2023 included a CAD 97 million gain on the sale of Power's investment in Bellus. Turning to slide 10, where we break down the CAD 50.48 net asset value per share as of June 30th.

As our publicly traded operating companies represent over 85% of our gross asset value, they generally account for the majority of the change in NAV. This quarter, the share price trading of Great-West and GBL accounted for the decrease in NAV per share.

As noted, this was partially offset by a share price increase at IGM as well as fair value increases in some of our proprietary investments. I'll note that the NAV closed yesterday at CAD 50.24, which does reflect that rebound in Great-West shares, partially offset by declines in IGM and GBL.

Looking at the balance sheet, Power's cash and cash equivalents stayed relatively stable at CAD 1.5 billion at June 30th. We did remain active, as Jeff noted, in buying back shares and spent close to CAD 100 million in the quarter under our NCIB program.

And this is reflected in the lower share count you see near the bottom of the page. With that, Jeff, I'll turn it back to you.

Okay, thank you, Jake. Then I'll just make a few high-level comments.

on our various businesses. On page 11, we have the financial results for the last five quarters for Great-West.

Again, extremely strong earnings. We've mentioned a 13% growth year-over-year in base earnings.

Led by Empower for sure, but across all of the businesses, Empower Canada, Europe, and the Capital and Risk Solutions businesses, we had good growth. Capital and Risk Solutions, looks like it's down year over year.

It had the implementation of the minimum tax – global minimum tax, which primarily hit that business so that they absorbed that in the results. But on a pre-tax basis, the business continued to grow.

So strong, broadly based earnings, which is great to see. It was a clean quarter as well.

I mean, there was not a lot of noise. A few items that offset.

For example, at Empower, there was a catch-up fee of approximately CAD 40 billion related to the Pru transaction. I think was the number, I may not have that exactly.

There was an offsetting impairment related to credit and the commercial mortgage portfolio. So you've got those two, but the underlying number was basically a sustainable number if you can put it, or a clean number is a better way to put it.

So the quality of the earnings we thought was great. There's not a lot of noise through them.

And just generally, since we've moved to IFRS 17, you have a lot less one-time items coming in and out, which I think is a positive in terms of all of us and all of you getting comfort around sustainability of earnings levels. The Pru transaction was completed in the quarter.

And so, that's behind us. That was successfully done.

Jake mentioned the three deals. All three have been successfully integrated, great client retention, synergies achieved, and the group's long-standing tradition of being all over the execution of M&A transactions continues.

It's one thing to get deals done. It's another thing to then successfully integrate them.

So declaring victory on the Pru transaction and the team focused on execution here at this point. And then I just finally point out that the ROE at Great-West Life is up over 17% and that is at the high end of where the company's target ranges are, but great to see the return on capital being produced by Great-West.

Turning then to 12 for IGM. IGM has produced really strong financial results, but also both IG Wealth and Mackenzie produced strong earnings.

Markets for sure have helped, but again here the macroenvironment on balance is hurting. High inflation over the last several years, very high interest rates, high mortgage rates are impacting both IG Wealth's business and Mackenzie's business and the fund business in general in Canada, as many of you would be aware.

A lot of clients, particularly in the mass market, mass affluent, where a lot of the existing business of IG Wealth and Mackenzie exists, a lot of clients are really feeling the pinch. They do not have the cash to invest or in fact they're drawing on their investments.

So you've got the industry basically which typically is in net inflows of a couple of percent per year in those segments have been in outflows for a while here and that's impacting the flows. But the markets themselves have helped the earnings levels.

The businesses continue to invest heavily in positioning their business for long-term future growth. I think across the investments, as you know, we have in each of wealth and asset management at IGM, we've got more mature businesses, IG Wealth, Mackenzie, producing the lion's share of the current income, but we've got investments that position the company well, as we look forward three, five, seven years out, and Rockefeller, well, simple, doing extremely well.

Jake mentioned Wealthsimple, I won't repeat that. And then ChinaAMC really performing well and Northleaf really performing well.

Great fundraising at Northleaf in an extremely difficult environment. CAD 1.8 billion in new commitments in the quarter alone.

So really great to see IGM's businesses all performing well. You were pretty thorough, Jake, in covering GBL.

I won't add too much to the story. Returning capital to shareholders has been something GBL has done for the last number of years.

We have not participated in the buybacks and neither has the Frère family, but with them now using dividends as a tool to return capital to shareholders, we're going to enjoy the benefit of an 82% increase. I think we take in, at current exchange rates, about CAD 90 million, CAD 92 million a year in dividends from GBL, so an 82% increase.

You can do the math. It should be somewhere around an extra CAD 70 million when we get to 2025 increase.

So starting to enjoy and participate in their strategy of returning more capital to shareholders, which will be able to flow through to the Power Corp shareholders. They have continued to be active on their re-purchases.

Okay, I'm going to spend a couple of minutes on alts then. Our alts strategy is not only a financial strategy, it's also a strategic strategy.

There's a lot of things that we are able to do at Power Corp that are synergistic with Great-West Life and IGM and participation with GBL as well. Where things that we can do, I'll give an example of the fintech strategy we launched in 2015, which has morphed into part of Sagard's business, an important part of their business.

But that is highly synergistic with what IGM and Great-West Life are doing. We think that we were able to do that by attracting a lot of talent into that business that we wouldn't have otherwise necessarily been able to do through our more traditional platforms, Great-West Life and IGM.

There's an example, but I can go across all of the examples, a lot of the strategies where there's a lot of cooperation and we can do some things in these platforms that are perhaps more difficult for Great-West Life to do. So there are strategic reasons, but from a financial point of view, we think it's also going to be attractive.

And we make money through both the asset management activities and the investing activities. I'm going to talk a little bit about each of those.

On the asset management activities, we spent a lot of time focusing on the fee related earnings, and we haven't spent as much time talking about the carried interest or in fact the returns we've made on our proprietary capital. We're going to try and change the narrative a little bit on that as we move forward and get a greater visibility into it.

It's probably, I think, our error in focusing a lot on fee related earnings when in fact they're not that meaningful at this point. And we've got businesses that are trying to get to scale or getting to scale, but where we have been making money is on the carried interest and on the proprietary capital.

So I flip you on the page to 15. You've got basically from when we announced the strategy at the end of 2019, we had CAD 3.7 billion on the left side of the page.

In funded AUM, it's now up to CAD 28.6 billion, which CAD 26 billion is fee bearing. So good growth, and you see the dark blue line.

Basically, as we said, Power Corp has still got CAD 2.2 billion of its own proprietary capital in there, which was just about the same amount we had five years ago. So we have succeeded in using third party capital, a portion of which is Canada Life and a little bit of which is some of the IGM strategies.

On the right hand side of the page, we do have CAD 154 million in accrued carried interest in the platforms from the different strategies. We would have recognized probably about half of that into the P&L, and another half is to be recognized.

There will be a minority interest in that because the minority shareholders in Sagard and Power Sustainable Capital will get some of that, but we are making money on the carry. That will go up and down.

There is some volatility of that. We get into a period where we get really weak markets that get into a drawdown, and you can see some of that going backwards, but over time we expect that to contribute.

If we flip over to page 16, the CAD 2.2 billion of prop capital that we do have is invested in different strategies. These are just the broad categories.

There are many, many more funds than that, and it's a mix between fixed income type fee, delivery income, credit, real estate infrastructure, which either produces steady cash, not always earnings, but steady cash flow, and then there are more venture capital and private equities, which the returns come in the form of capital gains and realizations. We have different targeted returns on each of those, but overall we expect to return over 10% when you look at the current mix.

We have around CAD 2 billion of strategy. We expect over time to make a couple hundred million dollars of value creation, and we have in the past five years realized distributions.

We've sold secondary positions. It's contributed to our earnings, contributed to our cash, even more importantly, and contributed to our share buybacks.

So, we will try to continue to focus on this and give greater balance to all of the areas that we think we're benefiting from our alt strategy. Speaking of returning capital to shareholders on page 17.

We've returned almost CAD 1 billion dollars year-to-date. I mentioned the 4.9 million shares that we had purchased up to June 30th, and we have very strong cash balances at this point.

We're in a strong position to continue to do so, and we'll continue to look for additional sources of cash flow to do buybacks. We think it's great value.

It's NAB accretive. It shifts the balance of our portfolio over time to more earnings-based and less NAB-based, which we think is a positive, and as well, it lowers the share count, which means we have more dividends and more earnings for the remaining shareholders.

So we'll continue on that as a priority. Page 18, we pay obviously close attention to our shareholder returns.

We are ultimately in business here to provide strong, attractive, risk-adjusted shareholder returns. They bounce around.

Obviously, these are all end date and start date sensitive, but we continue to be highly focused on our primary goal, which is to provide attractive long-term returns to our shareholders. And then moving to 19 on the discount, it bounces around.

We've been making really good progress over the past year on reducing the discount. It was down into the low 20s, and then it bounced back quite a bit in the last week or so through these choppy markets.

So a glass half full kind of attitude. If you loved it at 22%, we really love it at a 28% discount.

So we're not happy with the discount gapping out, but we'll view that in the positive light as being an opportunity. And then I'm going to conclude again where I started, on page 20, just talking about the business from a big picture point of view, feel really good about the way the businesses are positioned across Great-West Life and their various businesses, IGM and their various businesses, GBL and the platforms.

We've got clear strategies in every area. And we've got management teams that are highly focused on executing those strategies.

We're more in an execution mode than we have been, say, going back a couple of years ago, which is not to say – we always have our eyes open for the next acquisition, but the teams have got clear strategies they're executing and they're making progress. We have a mix of businesses, some of which are more mature, producing high income.

And we have a number of businesses that are creating the growth either today or into the future. So we've got a good portfolio mix of mature and income producing businesses.

The macroenvironment is going to be what the macroenvironment is going to be. We'll navigate through whatever comes our way.

And there's providing some tailwinds right now, but also some headwinds. So with that, prior to opening it up for questions, I just want to do one last thing, which is I just want to recognize Geoff Kwan, who I think is on the line.

He's not on the line. Okay.

I will recognize Geoff Kwan in any event who has covered the group going back to 2014. And Geoff has done a great job.

Appreciating that the role of an analyst is to inform the investor base about what's good, what's bad, what they don't like, what the opportunities might be. And that is the role of all of the analysts.

Nonetheless, Geoff has always been very thorough, very professional, very clear in his communication and always curious to learn and understand what's really going on in the businesses. So we thank Geoff and congratulate him and wish him good luck in his new endeavors.

And with that, I would like to – operator, if you could open up the lines for questions at this point.

First question on the buyback activity. Seemed to have picked up a little bit of the pace post quarter with this recent sell off.

You have the excess cash position you have today. More cash coming in the pipe over the next couple of quarters, especially with the extra divvy from GBL.

Is that something you're looking to potentially accelerate in this environment? And how are you thinking about that?

I'm not going to telegraph all of our purchase activities ahead of time. I would get scorn from all of the traders I used to know when I worked at BMO and Nesbitt Burns.

But having said that, no, look, I said 20 – if you like the stock at 22% discount, you got to love it at 28%. We've got some weakness here, so that's probably an opportunity.

We'll play that. We try and be in the market throughout the year, but there's no question that when the stock is weak, there's more opportunity there and we're buying at better prices.

So Jaeme, I'm not going to answer the question directly, but those are factors we look at when we decide the levels of buybacks that we're doing.

On the carried interest disclosures, I appreciate the extra color around that and how you're thinking about the proprietary capital returns. That proprietary capital has been about CAD 2.2 billion.

You're highlighting carried interest as a more meaningful component today. They can obviously fluctuate, but is there a view to potentially dedicate more proprietary capital as you're continuing to build those strategies to drive some more of that carried interest upside or should we still take the view that that prop capital is fairly stable and really focus on bringing it third party?

Just a clarification and then I'll address your question on the seed capital. So the carried interest actually comes through the GP, not our LP investments.

It comes through the general partner. So the general, as you know, on let's say private equity funds, there'll be a 2% fee and a 20% carry beyond a target return.

In some of our infrastructure funds, that carry kicks in at a 15% return. And on some of the credit funds, it's at a lower target level, but there's carry typically on all the funds.

And that carry gets paid to the general partner, Power Sustainable Capital or Sagard, of which we own an equity interest in the GP. We're controlling shareholder in both.

Some of the carry gets paid to the portfolio managers. Some of them gets paid to the management of the GP and then the GP shareholders get the balance.

So the 154 is the carried interest that we've accumulated to date as a GP in Sagard and in our alt businesses, not as an LP seed investor. So just to make that distinction.

To your question on the seed capital, CAD 2.2 billion, and whether we would increase it. That's not what we've been doing to date.

As you know, we've told each of Sagard and Power Sustainable Capital that we will keep the overall capital level the same and they need to build their businesses based on third party capital, including Canada Life, which is a better way to say it is non-Power Capital. And that is our current view.

Would we ever change that to facilitate faster growth? Yeah, I wouldn't say we never like – that's not our current stance, Jaeme, but I hate to say we'd never do that, circumstances with – either because we thought there was an opportunity to get great returns or we thought it would really make a difference in moving them forward.

We never say never to strategy. You're always open to changing what you do.

But at this point, the CAD 2.2 billion – and I don't want to put too fine a point on it. That level of capital is what we expect to have invested in the businesses.

It will also jump up and down a little bit with market values or all of a sudden we just got a big realization and we just got a big funding and a drawdown where we've been asked to put up funds, it'll bounce around, but managing it to that level is our current strategy. I hope that answers your question.

As Jaeme noted, you've got a very strong cash balance, more coming in from Peak in the Q3 and then in 2025, obviously, coming in from GBL. Jeff or Jake, this is a big cash balance.

Should we be expecting deployment at some point over the median term, call it, the next three years, for something large or are we just holding cash balance because of the unpredictable nature of the market these days?

That's a good question. Let me go to prioritization of capital and, Jake, you're welcome to jump in in any way that you would like after I make the comment.

So, we try and keep a minimum balance of cash and we have – and then we have inflows and outflows that occur we and they're not always predictable. We have realizations because all of a sudden, Peak sells Rawlings, we sell Bellus, we get distributions from our investments in the private equity or in the VC world out of our proprietary capital.

So you get cash that's coming in and you don't always see it coming two years in advance and it's market dependent in some ways as well. And then we get drawdowns.

We've got commitments. The CAD 2.2 billion is the funded, but we've made additional commitments to different funds.

And as those funds deploy, we'll get drawn down. So the nature of our future cash generation is difficult to put a precise focus on it.

So that's like – that was really how do we generate cash. But we expect that that will continue to generate cash through those various sources going forward and add to the balances.

Now on the capital allocation question, the number one priority, absent our different businesses requiring and wanting to look and needing capital to do something that's attractive to them and I'll give some examples of that, the number one priority will be to return capital to shareholders by way of a buyback and that relates to Jaeme's question is trading at 22% discount, trading at 28% discount. It's hard not to look at that as a pretty attractive place to put the capital.

But we've always said and if you go back over the past 20, 25 years, if Great-West Life or IGM have an opportunity to make some acquisition and there's equity required, we have always jumped in and supported those issues. I go back to many of the equity issues they've done.

It hasn't happened for a while. They haven't required equity, but we've always kind of underwritten those with a lead order.

That'll be a priority. Supporting our companies will be a lead order.

It will be a lead priority, would trump in those circumstances buybacks. But we don't have – we're not kind of saving it up.

If your indirect question is we're trying to build the cash up because we've got something – that the curtain is going to open and – we're not building it up. The fact that it's grown to this extent is we had some big realizations, particularly with the China strategy, as you know.

And so, to my point, the cash comes in on a lumpy basis sometimes and it happens to be at a higher level than it's been for a few years right now. That's as much color as I can give on you.

So prioritization is buybacks absent our companies needing us to support them on an attractive acquisition.

You did answer what I wanted. And then just as a quick follow on, as we've seen GBL kind of shift its strategy and kind of a bit surprised with the special dividend, is that something that the Power would ever consider given your cash balance?

I think our priority is buying shares back versus special dividends. That would be the view of the company right now.

I think we get better value for that long term. I think again, we're buying – we're doing a bunch of things.

We're buying the stock at a discount. We're shifting the mix to more earnings-based.

And while we really like our NAV-based businesses, our shareholders communicate to us that they struggle to value our NAV businesses and it's a lot easier for them to value the earnings-based businesses in those streams. So we're going to keep having the NAV businesses.

They do lots of things for us. But by buying shares back, if you do the math on it, we're actually shifting our mix over time.

And then it also produces, I think, more longer term benefits. If you take a billion dollars and buy a billion dollars of stock back and you eliminate 25 million shares, well, that's another CAD 50 million, CAD 60 million of cash flow that we have available to increase the dividend over time.

Whereas if you do a one time, it's one time, it felt great. Everybody's goes off and enjoys the quarter.

And then you're – our bias is heavily towards doing buybacks versus doing special dividends. But I won't speak for the GBL board.

That's the whole other dynamic and they had their own rationale for doing it.

Just back to the Sagard discussion, just kind of three areas I want to dig into. The carried interest, so it sounds like CAD 77 million not realized, so call it CAD 75 million not realized.

That's net of comp. How much of this would be attributed to Power?

Is it CAD 50 million? And assuming no change, and I fully get this can bounce around, but like how long does it take for this to kind of flow through into earnings?

So that would be after – that would be the share of the shareholders after employees. [indiscernible].

But it is for all the GP owners. And I think Sagard is really the very contributor to that.

And on an undiluted basis, we would own 60 odd percent, I think somewhere around there. Fully diluted, we're at 52%, 53%.

So the realizations of it, I can't answer that question. There's going to be some of that, which is venture capital, private equity.

And that's the question of when is it realized and when does it get paid? It'll be in future years.

I hope the balance is a lot bigger by the way. Is that gross?

But I don't have a good visibility and probably Sagard themselves doesn't have good visibility on the realizations. But we would share in that pro rata to our equity ownership in Sagard.

It's the way to think about it. So it's not – there'd be a minority interest that would participate in that.

Point of illustrating, it wasn't to say – and half of it's flown through the P&L, approximately always. So there's CAD 75 million with the minority interest in there.

Wow, there's CAD 40 million there that you should all be getting excited about. Now, the point was to illustrate that the economics that are being driven out of the GP are not just from the fee related income, because we have – as I said earlier, we're probably guilty in our communication of having put a lot of emphasis on the fee related income.

And the reality is building up these businesses to get them to scale where they're going to make a meaningful contribution to Power Corp. is a long road.

But you step back and say, well, yeah, but we've got other drivers of – aside from the strategic reasons we're doing it, we've got other drivers or drivers of economics. It's carry.

We hope to make a lot more money on carry going forward. And again, the CAD 2.2 billion, we've kind of not really focused on.

In the short to medium term, that's going to be the prime driver of the earnings coming out of these strategies and we've kind of neglected that in our communication. As we've discussed that, we're realizing we probably put the emphasis on the wrong salable here for a while and we're going to try and be more complete in our disclosure.

You went to where I was going next, and that CAD 2.2 billion, I think you've – and I know this isn't going to be consistent, but you're aiming for a 10% plus return on that. That's CAD 220 million.

Let's say you don't increase that CAD 2.2 billion, stays constant, CAD 220 million of cash coming in, there's really no offset or use. So, that's really what you could think of in terms of funding buybacks at the minimum.

Is that the right way to kind of think of it?

Yes, but what I would say is that the realizations of that cash are different, but that's why I pointed out that half of it is in equity infrastructure, private credit, royalties, those kinds of strategies which are designed for income investors to produce steady income, not always net income or equity infrastructure – or excuse me, the infrastructure funds, for example, have actual P&L losses to them, but they produce a lot of cash. So I won't get into the detail, but – so we're looking at this on a cash basis.

They produce – that part of the portfolio produces steady cash returns. The private equity and the VC is through realizations.

And if you just follow the private equity market or the VC market, you go through – like, the last two years have been – they've been very difficult to do realizations, right? That's why the whole private equity in the alts market is backed up.

It's not just there's difficulty in funding. The reason there's difficulty in funding is that there's difficulty in realizations.

And so, the money's not getting deployed, so the whole system's backed up. Starting to loosen up now, if you have been following that.

So the realizations on that portion of it are dependent on you creating capital gains, and then they're actually being sales of the portfolio, which can sometimes drag out. You get two years where you get a lot and it rains.

And then you get a couple of years where it all dries up. And so, they are not steady, they're episodic.

So the CAD 220 million or CAD 250 million, depending – we said we think we're going to get – we're hoping to get a little more than 10% on the mix, but it's around there – will not be CAD 250 million every year. It's going to be a portion of it that's going to come in steady income and a portion of it will come episodically.

Now there is one other way we can realize cash on that, which we've also utilized as a tool. You'll remember a couple years ago we sold for, I think, about CAD 300 million, I'm not too far off, a secondary position in Sagard 3, I think it was.

And there's a big secondary market, as you know, in the alts. I could go on a lot about that for you, but there's buyers of secondary positions.

And sometimes we get a bid for a position we have for a fund position, and we just kind of liquidate it. That's a third source of cash which can create, again, kind of episodic, if I can use that word, realizations.

So it's not just straightforward, as we're not buying a bond here and collecting it every quarter. That money will come in different ways.

And back to my comment about predicting the cash flow here, we're confident we're going to get a lot of cash out of it, but it's hard to exactly put a timetable on when it comes in.

The accounting geography will also be complicated just a little bit. The energy infrastructure will have some amortization of the assets flowing through, and so that'll offset some of the earnings you see, just given consolidation.

But to Jeff's point, they are economically profitable. They will be producing cash flow.

The top part, the income strategies will have more of a consistent flow to them with the bottom portion around capital appreciation really being dependent on those episodic activities Jeff noted.

No, that makes sense. And then can you remind me, I don't think you do, but do you actually hold Sagard as a business, like the actual business itself, not the funds?

Do you hold that? Is there a value of that in the NAV?

Yeah, there sure is. And we have been – it's been written up with the ADQ now, Lunate-BMO transaction last year.

That was done at a value – I think it valued Sagard over, I'm going to say, US$500 million for the entire GP. I'm looking at my colleagues here.

US$500 million. And our share in that is on the books for 200 million and – something over a quarter of – 290 US or Canadian?

Canadian.

CAD 290 million is what we have in our NAV for our GP position in Sagard. And we have not – that's a nice capital gain on that.

Lastly, Jeff, maybe you could put your investment banker hat back on here, but you get the feel that the market's more conducive to getting the rest of the non-core businesses off your books, like you've done some within Peak, there's still some left in Peak. Now you've got Lion, Lumenpulse is, I think, still in there.

Like, what's your feel in getting some of those non-core businesses off the books?

Your crystal balling on this thing is difficult because – so if you're asking me whether the Fed is going to be able to land the economy – work interest rates down quickly enough and avoid a hard landing versus a soft landing, I'm not going to answer that question, but that has a bearing on what the market is going to be. So obviously, if we go into a recession, it's going to be tough to do things.

I think the business of – maybe looking at it another way, I think the business of Peak is doing well across the board. They were doing well in their sports business, they're doing well in their hockey businesses.

I think that Lumenpulse business has gone through fits and starts, but they've got a growing backlog and growing momentum on their business. So I think rather than talk about the market environment, which I cannot predict, I think the business of Lumenpulse, we think, is picking up momentum, which is a good thing.

And Lion is facing challenges, as you would have seen, a big reduction in their workforce a couple of weeks ago of 30%. They've got a nice position in the electric bus market.

A big, big issue for them is that the subsidy programs for the various municipalities that were announced across Canada have not been put in place in a way that the different municipalities can access them. So they built out a lot of capacity and buses with a lot of demand for their product that is backlogged because they can't get the federal funding that was expected.

And like you've seen in the electric car business where you've had subsidies to buy Teslas and whatnot, the economics of the business are dependent on public policy helping the sale of buses and that's backlogged at this point. So they have got challenges in cash flow.

So does that get resolved? How does that get resolved?

I think that's a difficult one to see us trying to be making any moves there with Lion given the current state of their business. So we'll just wait and see on that one.

Anything to add on that, Jake?

Doug, what I would point out is when the pivot was made back at the end of 2019 towards financial services, as you correctly note, these were identified as essentially non-core standalone businesses. The following four years, I'd say, were extremely challenging, right?

We had a pandemic. We had a massive spike in rates, which obviously hurt financing and valuation activities.

Assuming the next four years aren't as challenging, I would expect further progress would be made than what we would have had in the last four years.

There's no question. I've said this before.

Had you told me or us back in December 2019 when we announced the strategy that we would still own these businesses, I would have said, no, come on. So, that's another way of saying what Jake said.

We went through a few challenges here in terms of market ups and downs. But it doesn't matter.

In the grand scheme of things, we continue to execute on the strategy and the opportunity to realize those funds will present itself and we'll take advantage of it when it's there. So we're very committed to getting it done.

I just wanted to maybe talk about the alts platform that you have and the idea of penetrating the retail channel. It seems to be an opportunity or a focus for a lot of alternative asset managers in the market.

So how much of a priority is that for Sagard or Power Sustainable? And if so, how are you going about that potential opportunity?

Yeah, great question. And we do view – the buzzword is the democratization of alts.

So that is, no question, a priority not just for Sagard, Power Sustainable Capital, but also for Northleaf, for Mackenzie, for IG Wealth, for Empower, both as distributors and as manufacturers. We view that as a big opportunity.

The more you go into – to do so requires different structures. So in a traditional alts business, you go out to an institutional buyer or a very large family office and you say, we're going to launch a fund and it's going to draw down over the next four years and we're going to call on you every time we need money.

So going out to thousands of investors and millions of investors, you need to have different structures to manage that. And as well, you end up with different products.

Hence secondaries, which don't have long drawdown periods, secondary funds tend to deploy their capital very quickly and have also the benefit of diversification, can be highly attractive as you move into smaller markets. And by the way, Northleaf has got that and that's what the Premier – what is that that Sagard purchased?

I got the name wrong there, excuse me, but that's why Sagard has gone into secondaries. Northleaf is already in the secondary's business.

That has a lot of appeal. Secondly, when you then look at it from a retail kind of smaller investor, their multi-asset programs and multi-asset strategies are probably the easiest way to think about it.

So rather than them going out and buying a fund itself, if they're in a fund of fund structure or they've got a portfolio approach where they've turned over the management of their overall portfolio to the house, like IG Wealth has – as you may know, IG Wealth has got 82% of its flows coming into managed assets where the investor has simply said to IG, you manage the portfolio, or in many of Power – excuse me, in Power strategies where the money is in multi-asset, you can allocate 5% of the multi-asset or 10% of the multi-asset to alts. Because it's not a single fund where you're going to get liquidity concerns that there's a run.

You're in a multi-asset strategy that's got a long duration to it. So there's lots of work that needs to be done to think about that.

And the final thing I'll say, I may be going on too long here for your answer, but Mackenzie's launched a bunch of alt funds. And in order to deal with the liquidity issue, they've got basically windows where you've got liquidity.

You can take 5% out every quarter. You've got to give notice, et cetera.

There's different structures, but this is a huge focus across our group. And our Canadian firms, Sagard, Power Sustainable Capital, Northleaf are also touching base with our US distribution platforms, including Empower, including Rockefeller, and looking for distribution into different markets.

So we are leveraging that across the group. Hopefully that answers your question there, Graham.

Probably just a quick one, but you touched on the targeted returns slide. Just from your CAD 2.2 billion of capital that's proprietary, roughly 10% plus.

What has your track record been over the last five years? Have you been able to hit those targeted thresholds?

Yeah, I think if we went through all of these existing strategies, they've all got track records. I want to be careful to make a blanket statement.

All is too strong. The reason we feel good about our ability to grow these businesses is that they've got track records in these various areas that have demonstrated these returns.

We've got some new strategies where their fund managers that have joined our group – in in particular, I'll point out Tom Murray in Power Sustainable Capital, who's got an infrastructure debt fund. But he's got a record with I Squared and with Apollo.

It's not our record, it's his record, but he's got a very, very long-term track record for his credibility with investors. So the reason we think we'll be able to go out and continue to raise money is these existing strategies have produced attractive returns.

And the ones that we've had some other strategies that haven't done as well that have been closed that we're not in anymore.

Okay. Thank you, operator.

Thank you again for being with us. Thank you for your interest and your coverage.

And we look – we wish you all – hopefully, you get a little bit of time to enjoy what's left of the summer and we'll look forward to talking to everybody in the very near future. Thanks, everyone.

Operator, back to you.