All right, afternoon, everyone. Welcome back from lunch. Hope everyone enjoyed the presentation from Avi Scheinfeld and his perspective on the economy. My pleasure to host this session and introduce Jake Lawrence, EVP and CFO of Power Corporation of Canada. Jake, you joined Power roughly a year and a half ago.
Correct.
I think as most people in this room would know, you had a long and successful career at Scotiabank.
Thank you.
Prior to that, I guess that kind of leads to the obvious question. Okay, long history at Scotiabank in a bank and now going over to Power Corporation of Canada. There must have been a lot of learnings.
Yeah.
Maybe some surprises.
Yeah.
Tell us kind of what you've learned and how you feel about it.
Yeah, no, it's an interesting question. Before I get going, just thanks to CIBC for having us here today. We really appreciate it. I know my colleagues from IGM are here. We really enjoy it and we value the relationship with your firm. Thanks for having us and thanks for stepping in while we go through a coverage transition before Scott Fletcher launches, but we appreciate you doing this. Yeah, bang on. It's been about 18 months now, started in March of 2024. It was quite interesting. I was just sitting down at lunch with Harry, who runs your Capital Markets Incoming CEO, and he was asking me, what's different? You go from being in an operating company to a holding company, and lots of things change. Your average day looks a lot different.
I used to be wired to a daily P&L, and one of the biggest changes I've seen and one of the greatest strengths, I think, of Power Corporation of Canada, which is an iconic Canadian company, is really the long-term approach they take to doing business and the willingness to focus on long-term trends. Obviously, you know it's important to deliver short-term results for our shareholders, but having the capability, not having large operations within the holding company, to really focus on that long term. In the past 18 months, I've had the chance to see that firsthand in how we approach certain strategies, how we think about capital allocation, how we think about managing risk, and also how we think about talent and people.
Those are four pillars we'll probably come back to around Power Corporation of Canada, but just the long-term approach is something I think is truly unique. I hadn't experienced that at my prior employer, but I also hadn't experienced that much in companies I advised over my career.
Interesting. One other thing I want to ask you about, because a little bit of your career at Scotiabank is the investor communications piece. Yeah.
I did used to cover Power Corporation of Canada as an adolescent. I have seen improvement over time.
That's great.
With the communications and disclosures, how important do you think that is for Power Corporation of Canada, and is there room to do more?
Yeah, I think it's really important, and I think markets have evolved over the past 20, 30 years. Market structure, how people engage with the investment community, the investment community itself is involved, right? How a sell-side analyst does their job, how they interact with the buy-side, and then all the different types of buy-side firms that now exist, right? It used to be a lot of a long-only world. There's a lot of passive money now. There's private shops, there's family offices, there's multi-strategy, multi-boutique as well. I think that's one thing that coming in, and something that I know Jeff has been committed to, Jeff Orr, since the reorganization five years ago, is really stepping up that part of the activity. We have our first Head of Investor Relations, Steve Hung, at Power Corporation of Canada. I think that's been an important addition.
It now gives us someone who's fully dedicated to that engagement with the buy-side, both equity and fixed income, but also with the sell-side. We think that's been an important addition, something we want to continue to do. I think it's also been apparent, that theme, and I know the management team at Power has been driving it. You see that theme play out down at the operating company. Great-West Lifeco had a, I think, a really well-attended and really thoughtful investor day earlier this year. I know before lunch you had Keith Potter, the CFO at IGM Financial, up here referencing some of their investor day content from back in December of 2023. We think it's important. We're committed to it, and we want to continue to get better at it.
Okay. One of the things I do want to drill down on too is sort of that long-term approach you talked about.
Yeah.
Governance is one aspect of that and the involvement of Power Corporation of Canada as a holding company, but the involvement of Power across the multiple subsidiaries. I was going to read off all the entities in which you're a director, but we only have half an hour, so.
Yeah, no need to go through that.
You sit on a lot of boards.
Yeah. Right?
You're seeing it firsthand. Tell us about how that works and the influence that Power can play in terms of the performance of those subsidiaries.
Yeah, I'll speak to a couple of them. It's really an active ownership model. For everyone's benefit, Power Corporation of Canada would own, call it just under 70% of Great-West Lifeco, would own just over 65% of IGM Financial. I'll use those two as good reference models. I'm on the board of both. I chair the Risk Committee at Great-West Lifeco. I think traditionally, and in prior lives, you see boards, obviously they meet with some cadence quarterly around earnings. Sometimes there are additional sessions that are required depending on the nature of the company. We're constantly in active dialogue with the teams. It's really a partnership model is the way I think about it. I think Jeff would probably explain it the same way. We're really cheering on those management teams.
They're very competent people, whether it's James O'Sullivan and Keith Potter and Luke Gould and Damon Murchison at IGM Financial, whether it's David Harney, the new CEO, John Nielsen, the new CFO, recently new CFO at Great-West Lifeco, and the rest of that leadership team. We're here to support and partner with them. It's really a nice engagement model where they can come bounce ideas off us. We can support them with resources we have on special projects, whether it's on the strategic angle, whether it's thinking about capital allocation, and really have a good two-way discussion. Often they say these executive jobs can be quite lonely, whether it's a CEO or a CFO. I think I'm very fortunate. When I've got ideas, I can bounce them off other CFOs within the group.
I think it's, in addition to the long-term thinking, that partnership model is a real asset at the end of the day to get to good decisions.
You talked a little bit about being on the risk committee. When I think about Power Corporation of Canada, the success of the entities over time, Great-West Lifeco, I think, is a great example of that.
Yeah.
Very good at sidestepping risks that have caught up some of the competitors.
Yeah.
Maybe talk a little bit more about that lens and the importance to the long-term shareholder value creation from a risk perspective.
Yeah, I think you can manage risk in many different ways. One way would be to say no to all risk, and I think it takes some of the reward out of the game. I think at Great-West Lifeco, they recognize, and we recognize it across Power Corporation of Canada, there's no real free lunches. You have to do your work. Maybe one of the things I could have answered off the top, I've been very impressed by the thoroughness and the diligence of the company. When they make decisions, they're very thoughtfully done. Whether those decisions are on the investing side, around a specific transaction, whether they're around investment policies, whether it's around new product expansion, they're done very thoughtfully with a lot of constructive debate to get to the right answer.
I think that type of rigor and diligence, really in the insurance business, is probably where you're referring most, allows you to sidestep, to use your words, some types of risk because you've been very thoughtful about approaching them. You've done a lot of work. You're not chasing the latest product or the latest trend, right? You're being very disciplined on how you build your customer franchise. We think we get rewarded for that over time. Through the financial crisis, Great-West Lifeco was the only insurance company to maintain a AA rating. We think that speaks to that strength and that type of culture that takes very thoughtful risk and appropriately priced risk at the end of the day. As the risk chair, I know I need to maintain and uphold that type of discipline and rigor.
Yeah, okay. Of course, you know, one of the things I wanted to do before talking to you, Jake, is like I normally do, take a look at the share price, stock chart, right? It's done. Power's done quite well.
Yeah.
Coincidentally, roughly around the time you joined.
Yeah.
We won't correlate those two too much yet.
A lot of luck.
It has done very well. One of the keys to that, I think, is also Great-West Lifeco.
Yes.
As a stock, right?
Yep.
You know, again, look at the long-term chart. It kind of went, oscillated around the same level for a very long period of time. Now it's kind of broken out and is looking much better.
Yep.
I think for a number of good fundamental reasons. Maybe provide, we don't have Great-West Lifeco here today, so maybe you can fill in and help provide some of those reasons.
Sure.
Why Great-West Lifeco, in your view, is a better company, getting a better valuation, and getting attention from shareholders.
Yeah, so this is run the Great-West commercial. Right now is, I guess, what you're looking for. I do think Great-West is a fantastic business. It's well diversified. It's diversified by product. It's diversified by geography. I think when I look around, it's tough for me to identify a Canadian financial services entity with a better U.S. business than the Empower business that Ed Murphy and team lead down there. A number two position in the U.S. market. Very rare to see a Canadian-based company do that. Great growth prospects organically, great growth prospects also through inorganic. They've done a couple transactions in recent years, Prudential's 401(k) business, MassMutual, and really in a great position to also capture growing wealth flows as people roll out a 401(k) program. I look at that and I think it's been fantastic.
I think the investor day, coming back to what I mentioned earlier, that they did earlier this year, they introduced earnings guidance of 8% to 10%. They introduced ROE of 19%. They've also introduced a cash generation target of around 80%, which I think the street really, and yourself really appreciated. When we look at why Great-West has performed well, earnings growth in the double digits over the past four years, so stable, consistent earnings growth, I think that's been very positive. The cash generation is a really positive story. It fuels both dividend growth. It also fuels buybacks. We may get to that in this discussion today. All of these things coming together, I think, have been fantastic news for Great-West, and it's led to really people warming up to Great-West, liking it within the relative sector.
I think they also look at Power as a potential way to also play that great performance in Great-West we've seen playing out. I will note Great-West PE hasn't really moved a ton over that period, right? When you look at the high ROE business, when you look at the predictability of the earnings, which continues to increase, only about a third of the business is insurance premium. Many of the Canadian life cos are known as life cos, but the life piece continues to shrink, as whether it's asset management or other parts grow, in our case, retirement and wealth. I think it's a business that's under probably appreciated and continues to drive their profitability higher and has great cash generation.
Yeah, that's good. Let's talk about the other major public sub, IGM. Now they did present here, as you mentioned, Keith. They did.
I'm still going to ask you to run a little bit of that commercial, as you said, on IGM, because it's a bit of a different situation, right? Like the earnings growth, as Keith highlighted, it's actually been pretty good. The valuation multiple is going to be moving the other way. What are the parts of the story either you think the public market or shareholders are missing, or what do you think it is that Power and IGM can work on together to get a better valuation for that business?
Yeah, great question. They have too stepped up their communication. I've referenced their investor day a couple times. I think something else that's important is often when I have dialogues around IGM, I think many people have in their mind an IGM of probably years gone by. One that's very heavy on asset management, right? Asset management is only about a third of the business. It's actually two-thirds wealth management. Keith did a great job speaking to it earlier. How those assets have moved to kind of 85% plus being $250,000 of investable assets up, so mass affluent and high net worth, has really been impressive. I think continuing to educate people on the story around the core wealth management and asset management business is important. Hopefully, as the appreciation for that great wealth, independent wealth franchise grows, you'll hopefully see some multiple growth with it.
I also think it's tricky. It's tricky for the sell side. It's also tricky for the buy side. Keith, I think, also did a good job talking about this is the strategic investments, right? He highlighted those plus cash work out to be about $6.5 billion of the $12 billion market cap you mentioned in the presentation. I think people starting to figure out how they want to attribute value to those pieces that may not be driving earnings at this stage, but are definitely creating value and growing in value. I think IGM, with Power as a controlling shareholder, is able to take those investments, right?
Look at and say, you know, yes, these may be net asset value growing, and they may not immediately accrete to our earnings, but we see the long-term applicability to our wealth franchises as it relates to Wealthsimple and Rockefeller, and then on the asset management side, both Northleaf and China AMC. I think over time, people are starting to get it. One of the questions we get most often is actually around Wealthsimple. I think that's a good leading indicator that people are starting to look closer, particularly at the businesses that don't produce earnings.
Yeah, good. I'll stick with the valuation theme for a second because there's been a big valuation change for Power Corporation of Canada.
Yeah.
Most people view it in the lens of NAV discount, which is probably a fair way to measure it, one way, but a fair way to measure it. We haven't seen a significant tightening of that discount. In your mind, why do you think that is? Are there arguments you can present on why you think that's sustainable? Maybe even you would argue it should get tighter?
Yeah, I've had lots of discussions around why it should get tighter, and I may preview a bit of it here, but also I do in some of the one-on-one sessions. You're right. The first thing I'd point out, and I think everyone who manages money in this room knows the disclaimer, past performance is not an indicator of future performance. Every time someone raises, oh, the discount to NAV has averaged 25% over the past five years, and it's at 16.1% as of last night's close, I think they're missing the story. The reorganization that took place announced at the end of 2019 really focused on three value creation levers. The first one was growth down at the organic growth down at the operating companies. The second value creation lever was around operating company growth through M&A.
I've touched on both the organic growth happening down at Great-West Lifeco and IGM Financial, as well as some of the M&A around Prudential and MassMutual. The third one was levers up at the holding company, Power Corporation of Canada. Some of that's been simplification. Standalone businesses like Lion or Peak Performance, which was Bauer as well as Rawlings, are no longer in our portfolio. We've been able to turn those to redeploy and to either help businesses grow like Sagard and Power Sustainable, or we've been able to buy back stock north of $2 billion in recent years. I think using old valuations to value the new Power Corporation of Canada is a tricky exercise to do. If I take you to your full-time day job, it's like using the mean reversion theory on bank trading.
The banks look a lot different than they once did, and I'm not sure it works anymore. I think my argument would be we've got a great collection of assets. We're a TSX 60, out of the group, we're the TSX 60 listed instrument. We've got great liquidity in our instrument. You get exposure to our growing alternative asset platform. You get exposure to a portion of Wealthsimple through us as well. It's a great way to buy some great companies.
What we haven't talked about, I think, is the third component you listed there, right? We just talked about the non-public entities you own and invest in. Maybe we'll start with the alternative asset management business. Can you give us some updates there in terms of what's happening with Sagard, the fundraising, the outlook? I guess the other question, I think Sagard's roughly reached breakeven, so it should start contributing to the earnings at the holding company level as well?
Yeah, it could. We have two platforms. One would be Sagard, which their goal is, and they're well on their way. They're a leading middle market alternative asset manager. We've got Power Sustainable, which manages assets around the sustainable space. They've got infrastructure investments, they've got infrastructure credit, they've got sustainable foods under LEIOS, and they've also got a new fund that was launched this year around DCARB. I'd say the two funds or the two managers are at different stages. Sagard announced an acquisition just earlier this week of Unigestion in Europe. That takes them to $44 billion in AUM, just under $60 billion. Power Sustainable would be closer to $4 billion. They've got three fund ones out in the market around infrastructure credit, around DCARB, as well as sustainable LEIOS is now deploying. Those are early stages. They're a bit further behind on the J-curve.
Sagard is further along. They are starting to scale up. You're right about the management fees on the asset management side. They're producing about $200 million a year in asset management fees. They're roughly breakeven. Scale is hugely critical in this business. They've been working to get to scale. They've done it through a distribution partnership most recently with Baird, a U.S. wealth manager with about $350 billion in AUM. It gives them a chance to partner with Baird to use their product within the Baird channel as increasingly you see alternatives get more retail-oriented. We think that's a positive. Unigestion helps them expand their reach into Europe and really build a leading private equity solutions group that can participate in primaries, secondaries, as well as co-invest opportunities. They've got strategies that are increasingly starting to scale up.
Often, sell-side, yourself, others will look at, well, what's that mean for the P&L? I think the P&L will come on these businesses. It'll come in time. It'll come at a different stage. There is economic value being recognized today. When we look at something like the general partnership that we own roughly 40% of in Sagard, we've made, since it started in 2000, we've made three plus X times our money. We're making economic returns on the general partnership going up in value. We've got about $2 billion in capital allocated to LP strategies. They return about 10% a year. On average, it's not always, it's not $200 million straight lines. Some's in real estate, that's predictable. Fixed income, private credit, more predictable. PEs, lump years, we all know in the space.
That $200, if we're buying back about $400 million a year in the market, there's a good source of capital, and it's having an economic impact. It doesn't show up as FRE and get the 20 to 30 times multiple, but it is having an economic impact on us. We obviously receive carry and other benefits from owning the company. They are having an economic impact on our business to date. It doesn't show up in the traditional way. As they move along the J-curve, as they get up to scale, both Sagard and Power Sustainable will add different value, likely FRE, into the P&L of Power Corporation of Canada.
As you think about those alternative investments and some of your public subsidiaries, Great-West, IGM, is there room for all of these entities to work together and how?
Yeah, we're very thoughtful on related party. We've got committees that will review that. Canada Life chose to invest in the general partnership of both Power Sustainable and Sagard because it gives them access to alternative product that's useful for their general account and other investment products. There are ways to partner. Within IGM, there's the Northleaf platform led by Stuart Waugh. They have a great way, they have great product around the infrastructure space and secondaries that can also fit nicely, not only into IG's wealth clients, but also into the balance sheet of Canada Life over time. There's definitely opportunities. I think having these capabilities within the broader Power Group helps educate us and bring us up the curve and really monitor the space as you see greater convergence around the insurance businesses globally and the alternative asset managers globally.
Okay. Talk a little bit more about capital allocation, maybe stick with the alternative assets for now. I think you have $2.7 billion invested in the alternative assets.
Yep.
As you said, high ROE, generating good value, capacity to invest more, really an appetite to invest more in the alternative asset management investments.
Yeah. So the $2.7 billion, just to break it out, just under $2 billion is in LP strategies, about $1 billion is in Wealthsimple. I'd say Jeff and the team invested the first $300 million in Wealthsimple. It's got a $6 billion valuation today. They sold a piece a few years ago for $500 million. I give them credit for having a cost base of minus $200 million on that $1 billion investment. Well done by them. Puts us in a fortunate position as a group. As it relates to the LPs, we will continue to seed strategies and recycle capital within those strategies. We think it's important to help the managers get strategies rolling, put some seed capital in, and then as we've shown over time, we'll recycle that.
If you look back in some of our disclosure, you'll note that the number that we've got as seed capital in these strategies has been about $2 billion for several years. Our job is to help them get started, but then ultimately attract third-party capital. We want them to be standalone businesses that have external investors that are validating their strategies, allocating capital to them. I think we will continue to support them, whether it's through seed capital and LPs. It could be through M&A. It could be making sure we maintain our ownership. As Sagard has gone out and grown their business, we want to make sure we pro-rata participate in acquisitions like Unigestion, so we appropriately maintain our ownership in a business we like and a business we see having good prospects long term.
You mentioned share buybacks at least once, if not a couple times now in your earlier answers. I look back historically at Power Corporation of Canada, I don't remember Power really buying back stock. Something there has kind of changed. Why has the mindset changed to this is a good use of capital?
It's something Power should be doing.
I wish I had a large strategic answer for you. A lot of it is math, right? With the shares trading at a meaningful discount to NAV, we view it as an opportunity buying back our stock that has several virtuous and positive impacts once we do it. We go back and buy back a share. It immediately increases our percentage of earnings per share that are earnings-based, obviously, and not NAV contributing businesses. It reduces the number of shares for our pool of distributions on dividends. It helps us grow our dividend per share over time as well. We think it's a great opportunity. The math lines up. We have lots of capital allocation choices, whether it's supporting the operating companies or supporting the alternative asset managers. We try to balance all those.
In addition to offsetting dilution, I think we've bought back about $2 billion in stock in recent years. It's based off some of the numbers you gave up front. It's worked out well for us. We think it's a very easy trade for management to look and see how it can generate returns for all of our shareholders at the end of the day. Expect it to continue.
That's good. The other thing that's kind of changed is with Great-West Lifeco buying back stock. Power Corporation of Canada has decided to participate in that, where again, historically, I don't think that's been the case.
Not really.
What's the change in view there?
This speaks a bit to the operating model and the partnership that exists between them. Great-West Lifeco had announced a normal course issuer bid earlier this year for $500 million, and I think they exercised on most of it. With their latest quarterly earnings, they announced an additional $500 million. They have north of $2 billion of cash up at the holding company. They look, and they've got their medium-term objectives that I referred to, earnings growth, ROE. Sitting on large amounts of capital isn't necessarily the most constructive way to achieve some of those. They wanted to increase their share buyback. Obviously, they bring that to the board. There's discussion. The other thing we want to be cognizant of is the minority shareholders that exist within Great-West Lifeco, right? I mentioned earlier about 70% is held by the Power Corporation of Canada group.
You end up in a spot where 30% is public float. Each time they're out buying back stock, it's shrinking the public float and increasing our ownership. We love Great-West Lifeco, so we don't want to reduce our ownership, but they came and said, would you be willing to participate pro-rata? It's our intention to be doing that and participating. It's back to math, right? If you buy a share of Power Corporation of Canada today, you essentially get 0.99 of a Great-West Lifeco share, plus the ownership in IGM Financial, plus the ownership in GBL, plus the ownership in Sagard, Power Sustainable, and our interest in Wealthsimple, as well as our cash balance. Every time Great-West Lifeco buys back a share and we participate, we get a dollar back. We're able to turn that into something more. It's a pretty simple trade to execute.
It doesn't require regulatory, you don't have to go into a new market, you don't have to acquire customers. It's a great economic value add for our shareholders at the end of the day.
Okay. We're almost out of time. Jake, has gone by fast. I think I've asked most of my questions, maybe not quite all, but I don't know if there's anything you think we missed or any sort of highlights you want to provide as closing thoughts.
Yeah. Jeff and I were doing some investor meetings earlier this month, and he was like, oh, we keep talking about our three value creation levers. It almost feels boring. I said, you know what? It's consistent, right? I think there's consistency of the management strategy that exists at Power Corporation of Canada. The three value creation levers I referred to are around our organic growth at our operating companies, potential inorganic growth at the operating companies, and continued simplification and capital allocation and communication up at Power Corporation of Canada. That remains in place. It's about execution. We've been focused on that with the medium-term guidance of 8% to 10% growth in earnings at Great-West Lifeco, 9% at IGM Financial, call it double-digit returns and total shareholder returns sitting at GBL.
We think all else being equal, and we obviously live in a world of uncertainty, that should help us produce earnings growth in the high single digits in that 8% to 10% range. Our dividend yield's just above 4%. There's 12% in returns between those two factors. If we continue to buy back stock, it can add in another percent. You get to low teens returns on the company. Expect us to continue to focus on executing the strategy that's been communicated. I think that consistency is a good thing. I think it's been rewarded in the market of late. We're going to continue to allocate capital and take the steps that are important to drive great returns for the shareholders.
Fantastic. Great closing thoughts. Oh, thanks. Anyways, Jake.
Thanks, Paul.
Thanks for the time. Really enjoyed it.
Thank you.