... All right. Listen, it's my pleasure to introduce our next speaker, Mr. Jeff Orr, President and CEO of Power Corp. Jeff-
How are you?
Welcome.
Nice to see you, Phil. Nice to see everybody.
Listen, I thought that we'd maybe kind of start out our discussion with a bit of a recap, I think from some of the key developments across Power since the reorganization.
Thank you. It seems like it was almost six years ago, we announced it in December of 2019, and I feel really great about the progress that we've made over that period of time. We had a few basic tenets that we said we were gonna become. We're all financial services, not diversification. We said we're gonna simplify our structures, simplify the way we did business, presented ourselves to the market. We said we're gonna create value on three levers: organic growth, M&A, and then a bunch of tools at the holding company level that we could take. We said we're gonna communicate a lot more to the market, be available, be as transparent as we could, and I feel like we've made progress, really good progress on all of those fronts.
To the point that we're not changing the strategy, I think a number of you I've met with. I'm looking around the room. I know many of you. We're at a different stage. We're in much more execution mode. We've carried a lot of water. We've done a lot of change. We're on our front foot, and we're just executing at this point, but the strategy hasn't changed. It's working, and we don't see a reason for changing it. I can go through what we've done in each of those areas, if you'd like, but it's progress across all fronts, is the way I would describe it.
Sure. We'll follow along, too, and maybe again, the stock's done well, and I guess the thinking point after some of the progress and some of the key points you've made here, is really, like, what should investors view as maybe Power's normalized NAV growth rate based on, I'll call it, the targets or midterm targets of the subsidiaries at this point?
Yeah, so our value creation and our TSR is NAV growth, and on top of that, it's dividend repayment as well as share repurchases are kind of all of the three ingredients that drive the overall returns. The NAV growth starts with the 84% of our value that's in our position in Great-West Life, and you just heard from David Harney. That's almost two-thirds of the value of Power Corp and IGM, and each of those companies have announced and have public targets of growth that are EPS growth of 9% over a medium-term basis. Great-West Life has exceeded that over the last four years. IGM has been slightly short of that, but has done that in the last few years, and I'm very confident, under normal market conditions, they can achieve that. They're...
On top of that, they're producing a yield of 4.5%. So, you know, you end up, if they hit their targets, where you're 13.5-14%, total TSR coming from them, but the NAV growth will be about 9%, 8-10%, if, if they hit their targets. And I just want to add to that from a valuation point of view, five years ago, they were trading at a forward multiple of somewhere in the tens, and, for all the work that's been done and all the success that's been created, they're trading at, last time I looked, which was this morning, 10.6 times for both of them, consensus earnings for 2026. It has not been the valuation growth has not been a revaluation of our companies. There's been virtually no revaluation of the NAV for the 84%.
The rest of the portfolio, which is our seed capital, our position in Wealthsimple, our position in GBL, all have targeted growth rates that are public at this point of around 10%. In Wealthsimple's case, I think it'll beat that. Our seed capital is a mix of some fixed income, some equity. We think we can do about 10% on that. GBL's public on trying to create growth of 10%. So I look at it, and the NAV should grow around 10% if we hit our plan. And then we've got a dividend yield on top of that. Out of the portfolio of seed capital that we have and other steps and other assets we can still monetize, we can talk about those sources.
We're gonna continue. We think we continue to fund buybacks at the rate that we've been doing it, and as we're doing, we're buying shares back, we're also actually, particularly when we're doing so, even at a smaller discount, we're creating additional value through doing all of that. So your question was on NAV, NAV growth, like 10% is not a bad number. Obviously, the world will unfold the way it unfolds, and we target total shareholder returns 13%-15%. It's somewhere in that range, if the markets stay normal and we execute on our plans.
Excellent. And I think that the NAV discount's narrowed from recent peaks. So, I mean, what factors do you attribute some of the narrowing from, and what do you think needs to happen to see that tighten further?
Yeah, so I've stated to our board, to other shareholders, I get to 3% when I take the net present value of the expense load that we have at Power Corp. The dividends. We have no net debt, when you think about it. We've got more cash than we have a small amount of debt. We've got some preferred dividends, but all of that debt is all of that, those prefs are taken off when you do the NAV, so it's really just the expense load. So your question was, what does it take to keep narrowing it? We have seen a narrowing of the discount, and we were expecting that, hoping for that.
It's hard to get into the minds of all investors all the time, so if you ask me why, like, I'm not in the minds of all investors. What I do think is that we have demonstrated in the last five, six years, that the portion of the portfolio that is not Great-West Life and IGM is capable of creating value, and we're capable of taking that value and monetizing some of it and buying shares back, and creating when we bought the shares we bought back have created additional earnings per share and additional dividends per share. I think I've quoted on a call about a year ago with. We think we had CAD 75 million more in dividends that we paid because of the buybacks over the previous three, four years.
Just looking at taking the excess cash we've had and reducing the number of shares that we're distributing, the dividends that we get from IGM and Great-West Life and GVL up. So we're turning that portfolio, which is really mostly NAV-based, that the non-IGM Great-West Life is mostly NAV-based, not earnings-based in terms of valuation. But we're actually monetizing a portion every year and buying shares back, and creating earnings and dividend growth through that excess cash, and that is driving additional value.
And underlying all that comment, as I talk to investors, I just kind of go a different area here, which is that most of our investors that I speak to, they go, "That's really nice that you invest in Wealthsimple, and it's nice that our IGM is investing in Rockefeller, and you've got seed capital underpinning your alts businesses. You know, come and talk to me when it's creating earnings and dividends." A lot of our shareholder base would like earnings and dividend growth more than NAV-based. We are long-term shareholders, and we need to balance that need of our public shareholders, which, by the way, our controlling shareholders like dividend too. The Desmarais are not adverse to having dividends increase every year, so I don't want to oversimplify it. But we also have a view to being 5- and 10-year and 15-year shareholders.
So we make investments in things like Wealthsimple and things like Rockefeller, that may not produce income for, you know, many years, but we are confident can create a lot of value for the future, and ultimately can become big earnings producers of our franchise 10- of our business 10 years from now. So we're always making that trade-off and trying to be disciplined in the portion that we not do too much of that NAV base, so that we're able to continue to grow our earnings, but also have a, an eye for what's going to be out there five years from now, 10 years from now. That's the trade-off we're always doing. So that's a little bit of background as to the way we think. But and I think. So now back to your original question.
I think the discount is sourced a lot on the NAV piece, that not getting recognition for it. I think my initial answer, the market's seeing we've been able to create value, and we have been able to turn some of it into higher earnings and dividends growth through buybacks. Long answer to a short question, but a very, very important topic.
It's great, and again, we'll keep with the earnings momentum then. So earnings momentum, I think, across IGM, Great-West, have been really strong over the past 12 months. I mean, how sustainable do you think that is and kind of in light of a bit of an uncertain market environment?
Yeah, first of all, I think there was the returns, not quite your question, the returns in the last year and a half have been extraordinary. But I think it was, in some ways, a lot of disbelief around some of the Empower story at Great-West. And then the market finally going, "Maybe this is real, and what they've been telling us is real," and kind of coming to that, and that got reflected in our stocks. Our stocks had lagged for a period of time. And I think just kind of continuation of delivering earnings growth at IGM and Great-West Life has given increased confidence in what we've been saying. So I think that's what's happened in terms of the returns over the last few years. Your question was on earnings growth.
I mean, I am confident that both Great-West Life and IGM can achieve their earnings targets. That assumes normal markets. All the assumptions under that is that the market grows by, you know, 8% every year, and bond yields are what they are, and that it's kind of a straight line. Well, it's never a straight line. So we have all of the exposures you would think. IGM has got more short-term exposure to markets than Great-West Life. Great-West Life does have market exposure. It's got interest rate exposure. You know, if interest rates were to drop by 300 basis points, they just like banks and every other financial institution, then all of a sudden, they got less yield on the shorter end of their portfolio.
So, if we got into a big recession, there could be a credit... Like, we've got all the regular stuff. I don't think there's anything in our business model that is different from other major financial institutions. Our mix is different, but it's all the same factors that you would worry about could get in the way of growth.
I think if we did get into a situation where we got into a recession or some sort of pullback, and you know, it's macro risk, or it might be Canada-specific risk if trade negotiations with the U.S. don't work out, I think our group has been a relatively safer haven in down markets historically, and we would like to think that we would perform that way as well, which is not to say that we wouldn't have any impacts from it or wouldn't have any credit losses or anything if, at Great-West, we got into a big downturn. But I think we would be relatively better positioned in that kind of environment.
So when I look at it, both as a shareholder, talking to our board, talking to shareholders to outside investors, if we can produce a targeted return that's in the mid-teens, and we're a big, strong, diversified company that does better in a down market, that's a nice position to be in. I do not expect us to create 20% TSRs. I think that's unrealistic. I mean, it could happen if we pulled off some big deals that really worked over a short period of time. I don't think that's a realistic long-term expectation. And what we've done in the last year and a half has been valuation catch-up, 'cause we got caught behind, and I don't think shareholders should expect those kind of returns either.
Excellent. Let's talk about Empower. So, Empower's been identified, I think, as a significant growth opportunity. And I've had a few investors kind of pondering whether the growth opportunity really comes at a cost, potentially adding more market sensitivity, and potentially maybe reducing some of the economic resilience, and I'll call it defensive characteristics that Great-West is being kind of recognized for. So maybe kind of two-part question. You know, first, I mean, do you think that it's gonna add a material amount of market sensitivity? And then maybe kind of second, how does the board think about kind of balancing growth versus resilience across the company?
Yeah, so it's a good question, and I think we're now near being close to worrying about that as a kind of significant shift in the portfolio, such that Great-West Life would lose its resilience. We do like insurance. We will continue to... That's one of the three areas. For those that were listening to David Harney precede me here on stage, he talked about... and I know he Great-West Life and the board, and the whole company is still building out our insurance businesses, but there is definitely gonna be more growth, in our view, in the wealth management side, driven by what's going on at Empower.
And so the non-insurance businesses over the looking out over the next five years, if we meet our plans, could grow from somewhere like in the low 60s of Great-West Life's earnings base to potentially getting in the low 70s. So if you move the dial ten points over five years, you still have a significant insurance business there. And so I think at this point we are putting the emphasis on growth, and we think there's more growth in the wealth management business. And we just think those are resilient businesses. They just have a little more earnings volatility in the short term if you, they're more sensitive to stock markets. I don't think it's... I don't think it changes the composition in a big way.
Excellent. And again, I think you kind of alluded to in your introductory remarks, but I think Power's probably executed across all three pillars over the last few years. And I'm guessing the near-term focus really is on execution. Am I thinking about that correctly? So have there been any organizational changes to kind of align with this focus?
I don't think it's organizational. I think it's talent, and I think it's just kind of depth of management. If I look at the depth of management we have at Power Corp. itself, at Great-West Life, at IGM, at GBL with a new CEO coming in, what we've done at our alternative asset management platforms at Power, I compare that to five years ago, you know, I'm thrilled at how much stronger we are through internal promotions, external hires, and as always, we've taken the acquisitions that we've done and brought the best talent out of those acquisitions. And again, just saw David Harney out of Irish Life, Ed Murphy came out of Putnam, actually. You know, you look across the group, we've been... It's internal, but it's also acquisition.
So big, big growth in the talent. It's not structural, it's not boards, it's not organizational, it's just depth of talent.
Excellent. And at this point, how should investors think about capital allocation and return of capital, which again, are kind of key components of the Power investment thesis?
So, capital allocation is one of the four things that at Power we would focus on. The others being strategy, leadership, and risk as kind of the four priorities as Power Corp. And capital allocation, for the most part, is really a decision within Great-West Life and IGM, working with their management teams and their boards. So capital allocation at Great-West Life, the priority is clearly the U.S. market. It's not that we wouldn't like to buy things in Canada, but there's you know, so it'll be organic growth supporting product growth. But that's not a significant. It's gonna be a net capital generator, not a capital allocation. But the U.S. is still the opportunity that we would seek to expand capital and to deploy capital. And that would be around Empower.
Probably, the most obvious one is to continue to roll up the 401(k) business as opportunities arise. We're. I think the wealth management growth engine there is really an organic one. It's not to say we wouldn't make some acquisitions to add capabilities, but that's an organic, mostly organic. Our right to win in the US market in wealth management is not that, is the fact that we have the 18 million clients in the 401(k) business, and we're dealing with them as customers, and by the time they retire, if we're able to engage with them, we have an advantage there. That is what we're really leveraging to build the wealth business. Capital allocation at.
Which is not to say, by the way, if there was an opportunity somewhere else in Great-West Life's business, that we wouldn't do it. That's not to say we'd never do anything, but that's the priority. I think IGM is looking to build its core businesses, but it's also got some very high growth businesses in RCM and wealth management and Wealthsimple. It's not obvious in the short term we need to put more capital in there, but those would be two businesses that are very strong and high growth that could be capital priorities. At GBL, they're in the process really of switching their strategies, and with a new CEO, I don't think that's gonna take capital from us.
I would expect we're gonna get more capital out of that. You saw a big increase in their dividend last year, and so a lot of the capital we get at Power Corp right now, absent something that comes along, it's there to fund share buybacks at the Power level. That's right now our current priority is buybacks. I've said all the time, if Great-West Life, IGM, any of our subs came along with a big acquisition, and they wanted Power Corp to write a CAD 500 million check or a CAD 750 million check to underpin an equity deal, we've done that five, six times in the last several decades. That would be the number one priority. We would always support their growth ambitions, even if that meant we might slow our buybacks.
But that's episodic and opportunistic, and without that, it's share buybacks.
Okay. And again, I guess, speaking of share buybacks, I think I saw a press release, Power will be participating in Great-West's-
Yeah
... NCIB. So I guess we can kind of a bit of a read-through. We'll see Power accelerate its own share buyback with the excess capital or thoughts?
That would be plan number one, so the background on that, to this point, up until, historically, Great-West Life has only done buybacks to mitigate option dilution. They announced a CAD 500 million buyback earlier this year, and they've gone and been executing on that. Great-West Life is in a great position of producing a lot of capital, and they have enough capital and excess capital to be able to fund acquisitions, and the capital keeps building up, so rather than sit on a lot of excess cash, earning 2% or 3%, they've made the decision, which the board's fully supportive of, of we should buy back shares and be much more efficient, which is the right decision. If Power doesn't participate in that buyback, our position will grow. We'll just obviously our ownership position will grow, and the float will shrink.
Great-West Life are doing a great job of getting the interest of many shareholders who want to participate in their float, are looking to buy shares. All of a sudden, you know, Great-West Life is competing with them, buying shares back and also potentially shrinking their float as they do the buyback. So they actually engaged with us to say, "It would be great if you could support us in participating in the buyback. And if you took your pro rata share, you'd keep your same position." And that would meet our goals, too, of reducing our share count, not sit on a lot of idle cash, and keep our... And not have you or us competing with other shareholders looking to get in and shrinking our float.
So we discussed that and said, "Okay, that's a good thing, and we'll just be maintaining our pro rata share." It's not like we were looking to sell Great-West Life shares, but we'll maintain our shares. That'll transfer the cash to us, and then that can fund further buybacks to start your question. That's more than you asked, but I just thought I'd share with you and with the shareholders what the discussion and the thinking process was that arrived at that.
That's great color. Listen, I think investors probably tend to overlook, from a governance perspective, that Power is much more active, I think, engaged than a typical board. So maybe you can provide some specific examples of that and maybe how that enhances shareholder value.
Yeah, well, I don't want to go along and say, "Oh, you know, on this decision, we did this. Wasn't it great? And on that decision, we did that." I think I will describe more the process, which I think is different from any company that I've been involved in. We have a group of experienced financial services people who have been involved in the companies for a long time, including Paul and Andre, who have known these businesses for years, and then directors who are both on the Great-West Life board and the IGM board, who are also on the Power Corp board. And then we have directors at Great-West Life and IGM who are just not on any of our group boards. We've got this board makeup that has Power execs, directors who are on both boards, and fully independent boards.
And we are a shareholder who can take a 10 or 15-year view. So that's different from most public boards that have a kind of a rotational group of directors. And then the first thing it does is it provides a group of directors who know the companies intimately, know the risk intimately, know the businesses, and can add value and have their own experience. How that plays out, the first thing I want to say is we're not running the businesses. You know, having been operating CEOs, we know that the CEO and the management team has to run the business. You can't have the shareholder or the board walking around kind of inferring what the management team should be doing. You cut the legs out from under the management team. So the management team has to have responsibility.
But when it comes to key decisions, and those would be strategy, capital allocation, significant leadership, decisions that are made, and issues of risk, you know, we're gonna be engaged as a board, and that would play out in David Harney or James O'Sullivan having a regular dialogue with me in particular, but with Jake and other members of our team on. You know, it would be every other day, for example, we'd have a conversation about something. The nature of that dialogue is, "Hey, Mr. Chair, what can I do?" It's not that at all. It's, "We're doing this, we're doing that, and what are your thoughts?" And bouncing ideas off and being a partner more than anything else.
But it's also helping out when a significant transaction needs to get done and putting our shoulder to the wheel, helping it get done. Having when there's an issue of something's going bad from a risk point of view, being there, being supportive, trying to help. It's an engaged, experienced, knowledgeable shareholder who also can support financially when there's a deal to be done. So it's just hard to see from the outside. We are extremely active, but we never cross the line of walking up and down the halls and trying to pretend that we're running the businesses, because then we destroy management. I don't know if I give that color to it, but...
Yeah, no, that's great color. Change gears a bit and say, like, the world is changing quickly. Do you see the need for major investments within any of the operating companies, to adapt to it? And again, maybe how do you feel about their positioning, given the evolving landscapes?
I like the portfolio of companies we have a lot. We're always investing organically. A number of you heard this, IG Wealth is a good example. I think IG Wealth is in a fantastic position right now, even though the proof will be in the pudding in terms of them getting more inflows as the Canadian market comes back. You know, Canadian individual investing market in terms of non-fixed non-deposit type products has been in outflows for about two and a half years. It's coming back. I'm really confident that that business has been retooled, and the line I like to use, "It's not your mother's Investors Group." IG Wealth has completely changed from what it was 10 years ago, and it's through massive investments in technology.
And when I was there, I was CEO of IGM, you know, 20 years ago. Like, we didn't have good technology. We had a lot of things we had to fix. In the latest dealer report card, IG Wealth was, like, ahead of a lot of the major dealers in terms of the satisfaction of their advisors on the tech stack. It's unbelievable we've come that far. So there's an example. We're always investing to make our businesses stronger, and we still have a lot of areas where we have to keep investing. So that's gonna continue to be the priority, and a lot of it is around technology. If you go, what's new? What's changed?
Obviously, AI is the discussion that everybody is having about how will AI change the world, and I'm sure every financial services CEO, and probably every other industry, is having that discussion. We don't have any crystal balls, but it will massively change the productivity of our back office, our client interfaces, the way we support financial advisors. It's going to create huge efficiencies, and we have projects across Great-West Life and IGM. Some are still skunk works, some are in production. It's just a group-wide effort. So then all that's good, well and good. The higher-level questions are: Does it fundamentally change any of your businesses, and does it, does it threaten any of your businesses, or is it an opportunity for your businesses?
I don't have a better crystal ball than anybody else on that, and if any CEO in financial services says they do, I'd like to talk to them because you really don't know, huh? Every technology change that has existed, that I've seen, always came in that, "This is gonna... This is gonna replace an advisor. This is gonna replace people," and it never has. It's always made everybody more productive. It's meant everybody's had to go to a higher level of value added in financial services in all that you do, and it's also done one thing that's really important. It has allowed many, many more members of the population to get advice and to get access to the financial tools and the financial advice that only wealthy people could get before.
So Wealthsimple would be a perfect example of, you know, kind of, and what we're doing at Empower as well is basically bringing tools that bring what previously you needed a financial advisor to a much bigger mass market on a cheaper basis. Those have been all the benefits, but they've never, technology has never disrupted the fundamental business model. It's just kind of changed the way it works. So is AI different? Is it somehow gonna do something more than that? And, you know, my bet would be probably not. I don't know if that's a bet or a hope, but honestly, like...
That's the higher level question that I think, whether CEOs are sharing that, I think everybody's got to, everybody's kind of going, "Well, is it gonna be different this time?" Because it's so powerful, and it's moving so quickly. You know, that's a snippet on that. I am totally confident our companies will be just like all the other leading financial services companies all over the implementation and the efficiency tools, and we're doing that across the board.
But then, when you walk and you feel good after you've seen all the illustrations of all the things that are gonna make our business better, and then you sit back and go, "Well, you know, is there something here that's that we should be more worried about?" And so we just keep. We're always talking about that as well. That's-
Yeah, excellent. So we're running down the clock a little bit, but I just, I want to make sure we touch on the alternative asset management business.
Yeah.
Maybe a quick question on that is, I mean, you know, in terms of aspirations for the alternative asset management platforms, how big a player do you think Sagard could become in the next, let's call it, five to 10 years, and what are its biggest opportunities from here?
Yeah. So we launched this thing. Appreciate we don't have too much time. We launched it out of... These had been mostly there for our own capital, and we've got great track records. Let's see if we can't make an alt business out of this, and you know, without putting a lot more seed capital in, and we've done that. We've kept the seed capital at around $2 billion, and Sagard has grown from, like, $2-$3 billion to $30-odd billion. Done an unbelievable job. Fundraising is tough, as you know, and there's a lot of alt managers out there that are that size, and so they need to get bigger, I think. In a tough fundraising environment, management and Paul III, Waldemar III, has done a great job of turning to acquisitions and partnerships to grow.
I think I'm not gonna put a number on it. I think we will become a much larger firm through acquisitions, and so that's, but I can't answer your question to say whether it's gonna be 50 or 60 or... You know, I think it's gonna be. We need to be bigger in that business in order to ultimately be a long-term player. We haven't created a lot of earnings out of that other than the seed capital. We've done well out of the seed capital on our position. We haven't made money at the GP level yet, but we have marked. We had negligible value in Sagard five and a half years ago.
We have it marked on our books at CAD 300 million, our share right now, and we put CAD 20 million in back about five years ago to kind of saying, "Okay, you work with that as your working capital." So we put 20 in, and we got a 300, like a, you know, a very, very large gain on it. CAD 300 million in the context of Power, you might say, is not material, but it's like, it's been a very successful growth in value, even though it hasn't translated into earnings. We have taken a lot of capital out of the seed. We've done a lot of things, sell positions, stakes, and distributions, and that's funded buybacks, as per my answer to your first question.
... Excellent. Well, I mean, just in terms of closing thoughts, again, total returns for Power Shares, I think, significantly outperformed the S&P TSX over the past five years. I mean, in your mind, what factors need to align to extend that outperformance over the next few years, and what gives you confidence that may play out?
What gives me confidence is that we're in a stronger market position in all of our businesses than we were five years ago. We are on our front foot. I'm confident in the earnings growth. I'm confident in the management teams, and you know, how well we will do, the proof will be in the pudding as we move forward. But I am confident under normal market conditions that we can deliver the TSRs that I talked about, executing the current strategies. And if we get some breaks on the M&A front, and that means if there's some opportunities and we get to execute on them, we'll do better than what we have in our plans.
And to me, that's a great place to be, and I feel great about where we are. I feel good about our teams. I think our teams feel good. So, you know, is there wood here? 'Cause normally when you say something like that, something goes wrong. I appreciate that. I'm knocking on wood. We don't control the outside factors, obviously. The macro risks are probably the... The macro risks around the globe, Canada, what happens with the USMCA or negotiations, what happens globally on trade? Does inflation come back because of all the funding and the deficits in the United States?
I mean, there's lots of risks out there that could mean that we don't grow in the straight line that I'm saying, but those are macro risks that everybody else faces as well, and you just try and make sure you're well-positioned financially to weather those out if and when they come.
All right. Excellent. Well, Jeff, listen, great discussion. I'd like to thank you personally for taking the time out to talk with us. On behalf of Scotiabank Global Banking and Markets, I'd like to thank the Power organization for your continued support.
Great. Phil, thank you for your support. This is a great conference to be at, and I appreciate everybody's support, and those around the room that I'm looking at as well for your, our ongoing dialogue. Thank you. Thanks very much.
Excellent. So we're gonna, we're gonna take a short break, and then reconvene at 10 after 10 with my colleague Mike, who'll be talking to iA Financial. Thank you.