We are going to start our next presentation. And joining us from IGM Financial is Keith Potter, EVP and CFO. So Keith, thanks for taking the time. Keith joined IGM in 1994, so being with the company for quite a few years, and appointed to CFO in 2022. So let's start by taking a high-level view of IGM in the context of its medium-term targets that you laid out at the last Investor Day. So that included 9% earnings growth, powered by 7% growth in the core business, and then 15% growth in strategic investments. First question, how has progress been since the Investor Day with respect to both of those objectives? And what is contributing to the sense of optimism is what we picked up in the latest conference call. Sounds pretty positive.
Sure. In terms of targets, I'd say we're on track or even ahead of our targets that we set in 2024. We had adjusted earnings EPS growth of just over 11%, and so far year to date, just over 10%, so I'd say overall on track. Interesting on the optimism, we came out of Q1, I'd say, with a more cautious tone. Obviously, the trade disputes and geopolitical environment that we were in, and we saw financial markets quite unstable at the beginning of April. As we moved through the quarter, we saw stronger markets return, investor confidence, improving flows in the industry, as well as at IG and Mackenzie. And at the same time, we also saw strong performance within our strategic investments across the board, not just from an earnings perspective, but the key drivers of their business.
At the end of Q2, we had earnings EPS growth of 15% relative to the prior year, which was also a record. It gave us kind of that perspective of the core operating companies performing well, Mackenzie, IG executing well. We also saw our strategic investment portfolio gave us kind of a full potential of what IGM could look like. That's the optimism that you saw. Having said that, there's things we can't control. I mean, we can't control markets. They've been very good to us. Can't control the economy and investor sentiment. But what we can control is executing against our priorities. I think we're doing well there, and we're going to continue to do that.
One of the big areas of focus always from investors when they look at wealth and asset managers is the net flows. I would argue probably a little bit too much emphasis on net flows, but it is what it is. Let's ask a question there. Sort of give us an update on the net flows, both Mackenzie, IG Wealth, and sort of the outlook for your outlook for the industry and what role you play there.
So we certainly saw net flows improving during the second quarter. I mean, we're coming off 2022, 2023, beginning of 2024 with record industry outflows. We've also now seen a period of time where we've had, call it six quarters of strong markets, investor sentiment coming back, and seeing positive flows. So at IG, we're running a 12-month trailing net sales rate or net flows rate of about 1.3%, net sales rate 1.8%. Success in our core strategy, which is growing in the high net worth and mass affluent segment. And so that's driving our growth there. And we continue to see momentum. So things going well and moving in the right direction at IG Wealth. And at Mackenzie, they've also had momentum. Last quarter, investment fund net flows just under $ 200 million. And we're starting to see positive flows in retail over the past four months.
A lot of that's been driven by bringing that redemption rate and some success they're having with some of the smaller boutiques, their quantitative equity boutique, global equity and income. So I know that Luke and their team are excited about that opportunity for that momentum to continue. Another notable development at Mackenzie is success they're having in the traditional institutional market. They had $ 5 billion in wins. We talked about that on the last call. There's line of sight on a pipeline and really built around that success they're having with their quantitative equity strategies at Mackenzie. So I think we're moving in the right direction and see momentum.
Okay. I think one of the other areas of success, I believe on the flows, is the ETFs. Maybe a little bit of an update there. It's been a while since I've looked at IGM and the ETF strategy. But I recall you rolling out active ETFs and being one of the first to do so. So an update there in terms of success in active ETFs and where you're currently at.
Yeah. So when we think about active ETFs, the focus for retail is active, active strategies, whether it be in ETF form or they're in the form of a mutual fund. ETFs, this past couple of quarters, we saw net flows coming from the ETF business, especially in that quantitative equity product that we've put some new products in place there. From an overall margin perspective, you think about ETF versus mutual fund, we kind of look at them as interchangeable. Whether we produce something in a mutual fund or we produce something in an ETF, we're going to charge the same management fee. So they have a lot more success in the retail brokerage channel, securities licensed advisors. So you think about all the channels at Mackenzie, whether it be securities licensed advisors, planning advisors, or insurance advisors, there's a place for ETFs and a place for mutual funds.
As we think forward for the ETF business, it's going to be an important part of Mackenzie's growth. I think you're going to see that story continue over the next several quarters with product launches, both in ETF format as well as mutual fund format.
Wow. Okay. Well, I think the margin question is an important one to address because I think there's usually, from the outsider's perspective, there's always this impression ETFs are lower fee and thereby lower margin, which isn't necessarily true. What about on the quant strategies? You're talking about good flows there, good growth in quant. Are the economics any different, better, same?
Yeah. I mean, again, it's pricing our products and a consistent pricing approach for active management. And I would say you can kind of think about the quant equity offering being priced in the range of active management.
Okay. And then you talked about improved flow in some of your active global equity mandates. So one thing we're taking what's taking place in the market is you are starting to see more interest in ETF mandates, more interest in global, more interest in emerging markets. U.S. equity markets are still doing well, but they're not dominating as much as they have in the past. Does that help Mackenzie?
Yeah. Well, Mackenzie has a boutique structure. And so they have a variety of mandates, fixed income, global equity, Canadian equity, balanced categories. And so I think that is an advantage for Mackenzie where you can rotate into different categories and are not just focused in one particular area. Also an opportunity for launching products in emerging spaces. So stripping out the US, just international only mandates. And so with the quant equity boutique, have innovated and put products in place there. Broader balanced categories are popular. So as we're starting to see a rotation, Mackenzie has a real broad product shelf to be able to lean into.
Okay. Fee pressure remains a key theme and key question for the industry. We've addressed it a little bit as it applies to ETFs and quants and your pricing strategy. Where do you think we are bigger picture in terms of those? And I'll talk about the asset management business to start. Where do you think we are in sort of that structural decline in fees and margins on the business? Is it ongoing? Is the pace of change slowing? Could we be sort of close to an equilibrium point where less pressure going forward?
Yeah. You know, I would say I can start in the wealth business. I would say the fee rates in the wealth business at IG Wealth, you have product and program fees as well as advisory fees. Product and program fees have been very stable over the recent past. Advisory fees have also been stable. At the client level, what we are finding though at IG, as we've had success in our mass affluent high net w orth strategy, we have significantly shifted our client base to high net worth and mass affluent. And therefore, you're seeing a decline in the advisory fee rate, which is a mixed shift versus what we're actually charging a client. So fairly stable there. And I'd say at Mackenzie, again, it's a similar story. It's a mixed shift. They've had a lot of success in institutional strategic partnerships.
And so that's where a lot of the flow is coming from, tend to be lower fees than retail. In terms of on a product-by-product basis, there hasn't really been a meaningful change in fee rates across product categories. I think the last time there was a meaningful shift would have been back in 2018, where Mackenzie did simplify its product structure, did have fee rate changes. And generally in the industry, I think 2018 was the last real inflection point as it relates to active management and meaningful fee rate changes. But most of what we're seeing in Mackenzie and IG is a mixed shift versus fee rate changes.
Okay. And so that's a mixed shift towards lower top-line fees, but not necessarily a mixed shift towards lower margin.
Yeah. So you can think about if you step back and say, well, what's EBITDA margin at IG Wealth Management? High 30s. It's been in that range for some time now. And Mackenzie is, call it mid-40s and been in that range for a while now. So from an EBITDA margin perspective, just taking a step back, that's what we're seeing.
Okay. Good. So let's talk about some of the growth you're seeing at IG in particular, as you said, the high net worth, mass affluent. There's a lot of competition for those clients. So clearly you're having success with the customer acquisition story. What are the key elements of that strategy that you believe are working to draw in those clients?
Yeah. So the strategy we really put in place in 2017 and said, we were focused very much on mass market, mass affluent. We always had high net worth. Clients said, well, we need to focus more on mass affluent and high net worth. And the key pillar of our strategy is focusing on financial planning and all the elements of financial planning, not just investment planning. And so in doing so, it's sort of the best match for financial planning or the clients that have the need for it, whether it be tax planning, estate planning, insurance planning. And so that was the whole strategy to move upstream. And we've been building a capability to do that at IG Wealth. We've had success in doing that. When you look at the focus of IG Wealth Management, it really has led to our asset base moving upstream.
So if you look at our AUA today, we have about 46% of our AUA with client households that have over a million dollars. And we have about 39% of households between 250,000 and 1 million. That's about 85% of our AUA and AUM now is mass affluent and high net worth. That looks very, very different than what it did three years ago or even five years ago. And the fastest growing part of our business is the acquisition of households that have over a million dollars. And the key to that strategy is financial planning, managed solutions, and segmenting our advice model to free up the productivity of our advisors to better serve that high net worth and mass affluent. And the real focus is on financial planning. And Damon has spoken quite a bit about this at Investor Day and continues to speak about it.
But it's not just about investment planning. It's about all the wealth themes that are going to drive the market over the course of the next several years, some of them being wealth transfer and estate planning. So that's a key theme that we're focused on. We stood up a service with ClearEstate to provide estate planning and will planning with our clients, tax optimization. We have a significant number of clients that have small businesses. There are certain types of professions where do you incorporate, don't you incorporate. So tax planning is really important, tax optimization, retirement readiness. It's not just about accumulation. It's also about income and the broader view on retirement. Another key theme is the transfer of small businesses and small business monetization in this country. There's probably $ 2 trillion of small businesses that are going to be changing hands over the next decade.
And so we've stood up a team, an advisory team that can work with clients and advisors and prospects to assess the value of their business. How do you get it ready to monetize? And to the extent we have clients that are ready to monetize their business, we can support that. And then the other big one, philanthropy, charitable giving, really important to the high net worth segment, as well as just general financial literacy. So as we think about what IG is and what differentiates us, that's a key area of focus is on financial planning and not just investment planning.
Okay. And then going back to sort of a margin type question, we often hear from those in the financial services industry that mass affluent and high net worth generally carry higher margins, more profitable customers as well, right, because of the critical mass they bring in terms of assets. Is that, in your experience, is that true? Or have you had to make additional investments in the business that's kind of offset maybe those margin benefits and they're yet to come? Or how do we think about the margin impact?
Yeah. I mean, stepping back, we've invested a significant amount of money in the platform over the past five years. We've done this in a way that we've managed expense growth at IG Wealth Management at about 2%, but invested in the business to keep margins up. And I mentioned EBITDA margin in the high 30s. And so from that perspective, we've managed to invest in the business and grow from just on a per unit basis. Obviously, when you look at a high net worth client, our product and program fees are about the same. You're charging a lower advisory fee rate, which is typical in the industry. But the other benefit you get from a high value client relationship is stickiness, stickiness of the relationship, stickiness of the assets, and retention is higher. And what's that enable us to do with our entrepreneurial network?
Focus on mass affluent, high net worth clients. You're going to have fewer of them, but free up productivity to focus on growing that part of the business, and you have longer-term stickier relationships and higher volume.
Okay, so let's go in a little bit of a different direction and talk about capital allocation for the business, and we'll drill down into some of those sort of strategic investments a bit later, but I mean, one of the benefits always of the asset management wealth business, wealth management business has been the amount of cash flow you generate, right, the free cash flow, so how are you thinking about capital priorities in that context?
Yeah. You know, I think reflecting back is a good place to start. When you look at where we've been over the past five years, and we talked about this at Investor Day as well, repositioning the company and repositioning IGM for growth, and we allocated meaningful capital to our strategic investment portfolio. We increased our stake in ChinaAMC, acquired Northleaf, a percentage of Northleaf back in 2020, and then Rockefeller. We think we're very well positioned today when you think about our wealth management business with IG at the core, and we have Wealthsimple, Rockefeller, and in asset management, we have Mackenzie at the core with Northleaf and ChinaAMC. So we're very comfortable with the current positioning. We're also in a relatively strong position from where we've been for a long period of time financially with record cash earnings.
We have unallocated capital on our balance sheet of over $ 600 million. Our dividend payout ratio has been dropping. We're down to about 62% on a cash basis on relatively modest leverage. And so as we sit here today and in terms of capital allocation, share repurchase is something that we're really focused on. We have an NCIB for five million shares. We're going to execute against that this year. We still have an attractive dividend yield. And as we think about heading into 2026, probably increasing that repurchase activity and returning capital to shareholders in the range of, call it $ 800 million-$ 1 billion. We've also, in the past, have talked about once we hit that kind of 60% cash dividend payout ratio, we'd have a discussion with the board on what to do with the dividend.
If things keep going the direction, that discussion should happen soon. But in the short term, really focusing on share repurchases is a good use of our capital.
Okay. So let's talk a little bit more about the strategic investments. And I think this was an interesting data point I found was the value of the strategic investments, I think by your own marks, is $6.6 billion. Market cap of IGM is $12 billion. So obviously, you've had a lot of success growing the value of those strategic investments. And maybe it also speaks a little bit to the valuation on the core business, right, being undervalued. But let's drill down on the strategic investments and starting with Wealthsimple. It seems like it's really hit this inflection point where assets are taking off at Wealthsimple. How are you thinking about, I don't know, further capital allocation to Wealthsimple? Does it require more capital? And is there anything you can share in terms of sort of the rapid growth there going forward?
Yeah. Well, maybe I'll start with the rapid growth. Wealthsimple has done an incredible job. They're very innovative. They move very quickly, very client and customer focused. And they've done an incredible job at building a brand that really has resonated with millennials. And they dominate the millennial segment. And they're growing other categories of their client base. And so they've done a great job at building a strong business. They've also executed well. So you can build a brand. You can invest in a brand. You can put all these products and services out there. But they also have done a very good job at satisfying their clients. And so I think that's where you're seeing the rapid growth. And to date, they've been able to fund their growth from their own cash flows.
They have a great problem in front of them right now. There are so many high ROI opportunities in whether it's developing their product or service platform, whether it's client acquisition, how much do they reinvest of their cash flow to drive future growth versus what they would do to drive profitability of the firm going forward. It is interesting. At Investor Day, I was reflecting in 2023, Wealthsimple had about $ 25 billion in assets. Michael Katchen got up on the stage at our Investor Day and said, you know what, my target, my target is $ 100 billion in assets. His $ 100 billion in asset target was for 2028. Here we are midway through 2025, and they are at $ 85 billion. Growth and investing for growth has really been the focus for Wealthsimple. They are doing a very good job.
Okay. Okay. So it doesn't sound like they're going to be needing more capital.
Yeah. You know what.
They've reached kind of that point where they're funding.
Yeah. You know what? Yeah. They have self-funded their growth. I mean, it's a fairly capital-like business to the extent they wanted to accelerate growth. They wanted to enter lines of business that require higher capital intensity. They wanted to participate in M&A. They've done a couple of small transactions recently. Then it's always possible that they could look for external financing. But right now, they have funded the growth that we've seen.
Okay. So let's talk a little bit then about ChinaAMC, another successful investment that you took. I can't remember how long ago, at least 10 years ago, if not.
You know what? 2016 was our first acquisition. And then we increased our ownership and closed that at the beginning of 2023.
Yeah. So that's also a rapid growth story. So talk about some of the drivers there, what you're seeing in terms of asset growth, and then also, I believe, some fee pressure maybe sneaking into that market as well. So talk about that dynamic between asset growth and profit growth.
Sure. Yeah. So there have been, I'd say, short-term headwinds and tailwinds with China AMC. The short-term headwinds have been some fee restructuring within the industry. First, it was active managed funds, and then more recently, in 2024, reductions to ETF fees, and so those were some of the headwinds that we saw with China AMC, and quite frankly, equity markets have been very difficult for a long period of time up until recently. The remarkable part of the other side of the story is the ability for China AMC to grow AUM. They've grown their AUM at about 25% over the past five years, well in excess of the industry, and they've been able to do this through net flows in their institutional business, into their money market business, and to their long-term fund flows business.
And so when we've headed into 2025, we've guided that, listen, we'd expect earnings to be equivalent to 2024, knowing that there were these headwinds and fee rate changes, but they're going to offset it with asset growth. And I'd say year to date, that's what we've seen. They're a little bit ahead of plan. And we would expect that for the course of 2025, they're going to achieve that objective. So that's been a little bit of pause in the earnings growth story that we've seen there. But they're the number two company in China closing on a number one in terms of market size. And we would expect ChinaAMC to resume growth and growth in earnings as we move forward past 2025 and be a key contributor to our overall target at IGM, which is 9% growth and 15% growth from our strategic investments.
Okay. And then Northleaf is the other big strategic investment you've made in the private asset industry. Talk a little bit there about the success Northleaf has generated and what role it might play in distribution or what role Northleaf products can play in IG Wealth distribution.
Yeah. So Northleaf has worked out really well for us. We acquired the initial stake in 2020. Part of the strategy was private markets is something in asset management that we saw a lot of growth potential. And the synergies between IGM Group of companies, as well as Lifeco, we saw as the other benefit to that acquisition. So it's been some of the parts of the private markets business have been relatively difficult. The one advantage we'd say that Northleaf has is they're diversified. They're in private equity. They're in infrastructure and private credit. And these past couple of quarters, it's actually the second best fundraising that they've had since we acquired our stake in 2020. In terms of the synergy potential that we see within IGM Financial, it's well suited for our strategy, mass affluent, high net worth.
We've been working with Northleaf to incorporate private market investments into our high net worth solutions. We've been able to do it in a way that you don't have to worry about capital calls and the liquidity associated with private markets because we've incorporated them into sleeves of our managed solutions, so it's just part of the overall IG Wealth Management story. I think we're approaching about $ 1 billion in private market investments with Northleaf in that part of the channel. The other part of it is with Mackenzie, and Mackenzie bringing privates to retail, and they've created products in private equity, private credit, and infrastructure. They're approaching about $ 500 million there. I'll be perfectly honest. It's been a slower boat than we would have expected when we took this on in 2020. There's a lot of advisor education that has to occur.
There were a few hiccups within the industry and some of the private market investment firms, and so that kind of put a pause on things, and then it's taken a while for dealers to sort out, well, what is their strategy around private markets and private investments and retail, but we're starting to see the traction, and we're starting to see a bit of an inflection point here with improving flows into those categories, and we'd see the opportunity for privates and retail to continue to grow and be a really important story over the mid to long term for Mackenzie and for IG Wealth Management.
Okay, so we're going to put that all together, a number of successful strategic investments. How do we think about, I don't know, the longer-term strategy, the end goal here with these investments? Keep growing with them or monetize at some point in time?
You know, very, I'd say in the near term. And when we report, our strategic investments are saying, combined with our excess capital, $ 6.5 billion. It's about $ 28 per share. That's the value. I'd say that's conservative. That's carrying value for some of the investments like Rockefeller for Northleaf. And so we're not necessarily pricing the business. So we got to continue to focus on providing the best lens we can to investors on what is the value that we have in these investments. Knowing that IGM does trade on earnings and an earnings multiple over the mid to longer term, we want to demonstrate and grow earnings through our strategic investment portfolio. Investor Day, we had a target of 15% overall earnings growth. And we think we're going to need to demonstrate that to get the full value.
But at the same time, we'll do what we can to help investors like yourself get a determination on what is the value of that strategic investment portfolio. So that's what we're going to focus on. And in the meantime, we're going to also repurchase our shares.
Good. Well, that takes us to time. Keith, thank you very much.
All right. Thank you.
All right. If everyone wants to grab a seat, we are going to start our next presentation. And joining us from IGM Financial is Keith Potter, EVP and CFO. So Keith, thanks for taking the time. Keith joined IGM in 1994, so being with the company for quite a few years and appointed to CFO in 2022. So let's start by taking a high-level view of IGM in the context of its medium-term targets that you laid out at the last Investor Day. So that included 9% earnings growth powered by 7% growth in the core business and then 15% growth in strategic investments. First question, how has progress been since the Investor Day with respect to both of those objectives? And what is contributing to the sense of optimism is what we picked up in the latest conference call. Sounds pretty positive.
Sure. In terms of targets, I'd say we're on track or even ahead of our targets that we set. In 2024, we had adjusted earnings, EPS growth of just over 11%. And so far year to date, just over 10%. So I'd say overall on track. Interesting on the optimism, we came out of Q1, I'd say, with a more cautious tone. Obviously, the trade disputes and geopolitical environment that we were in, and we saw financial markets quite unstable at the beginning of April. As we moved through the quarter, we saw stronger markets return, investor confidence, improving flows in the industry, as well as at IG and Mackenzie. And at the same time, we also saw strong performance within our strategic investments across the board, not just from an earnings perspective, but the key drivers of their business.
And so at the end of Q2, we had earnings, EPS growth of 15% relative to the prior year, which was also a record. And it gave us kind of that perspective of the core operating companies performing well, Mackenzie, IG executing well. And we also saw our strategic investment portfolio gave us kind of a full potential of what IGM could look like. So that's the optimism that you saw. Having said that, there's things we can't control. I mean, we can't control markets. They've been very good to us. Can't control the economy and investor sentiment. But what we can control is executing against our priorities. And I think we're doing well there. And we're going to continue to do that.
One of the big areas of focus always from investors when they look at wealth and asset managers is the net flows. I would argue probably a little bit too much emphasis on net flows, but it is what it is. Let's ask a question there. Sort of give us an update on the net flows, both Mackenzie, IG Wealth, and sort of your outlook for the industry and what role you play there.
So we certainly saw net flows improving during the second quarter. I mean, we're coming off 2022, 2023, beginning of 2024 with record industry outflows. We've also now seen a period of time where we've had, call it six quarters of strong markets, investor sentiment coming back, and seeing positive flows. So at IG, we're running a 12-month trailing net sales rate or net flows rate of about 1.3%, net sales rate 1.8%. Success in our core strategy, which is growing in the high net worth and mass affluent segment. And so that's driving our growth there. And we continue to see momentum. So things going well and moving in the right direction at IG Wealth. And at Mackenzie, they've also had momentum. Last quarter, investment fund net flows just under $ 200 million. And we're starting to see positive flows in retail over the past four months.
A lot of that's been driven by bringing that redemption rate and some success they're having with some of the smaller boutiques, their quantitative equity boutique, global equity and income. So I know that Luke and their team are excited about that opportunity for that momentum to continue. Another notable development at Mackenzie is success they're having in the traditional institutional market. They had $ 5 billion in wins. We talked about that on the last call. There's line of sight on a pipeline and really built around that success they're having with their quantitative equity strategies at Mackenzie. So I think we're moving in the right direction and see momentum.
Okay. I think one of the other areas of success, I believe on the flows, is the ETFs. Maybe a little bit of an update there. It's been a while since I've looked at IGM and the ETF strategy. But I recall you rolling out active ETFs and being one of the first to do so. So an update there in terms of success in active ETFs and where you're currently at.
Yeah. So when we think about active ETFs, the focus for retail is active, active strategies, whether it be in ETF form or they're in the form of a mutual fund. ETFs, this past couple of quarters, we saw net flows coming from the ETF business, especially in that quantitative equity product that we've put some new products in place there. From an overall margin perspective, you think about ETF versus mutual fund, we kind of look at them as interchangeable. Whether we produce something in a mutual fund or we produce something in an ETF, we're going to charge the same management fee. So they have a lot more success in the retail brokerage channel, securities licensed advisors. So you think about all the channels at Mackenzie, whether it be securities licensed advisors, planning advisors, or insurance advisors, there's a place for ETFs and a place for mutual funds.
And as we think forward for the ETF business, it's going to be an important part of Mackenzie's growth. And I think you're going to see that story continue over the next.