All right. Listen, it's a pleasure to introduce our next guest at the event, Mr. Jeff Orr, President and CEO of Power Corporation. Jeff, it's great to have you here.
Great to be here. Thanks very much, Phil.
All right. So I think over the last 12 months, I think it's been another relatively active period for Power subsidiaries. I thought if we can kind of start out, maybe kind of put some of those changes into context of Power Group's evolution.
Thanks. The last 12 months have been, to my mind, kind of a validation of a lot of what we've done and in many ways a kind of pause. It's been almost four years since we announced the new strategy at Power Corporation. I'm at the point where whenever I talk, I'm always looking forward, looking forward, but I'm actually starting to kind of reflect on, if you go back four years, Great-West Lifeco's positioning and IGM's positioning has dramatically changed in the market. They are 80% of the value of Power Corporation. So I always say to anyone when they're looking at Power Corporation, 80% of our value is Great-West Lifeco and IGM, and it's more than 80% of our earnings, substantially more than that.
So we at Power Corporation spend a lot of our time working with the management team of Great-West Lifeco and of IGM with respect to strategic positioning and with respect to capital allocation, among other things. So if I just highlight that point for you, if you go back, I think nothing more important in terms of what's Great-West Lifeco's repositioning. So if I go back to four years ago, start of 2019, we had three businesses in the United States. We had the individual insurance business, which was the largest earnings driver. We had Empower, which was earning a little under CAD 200 million. Can people hear me there? I don't know if the mics are working. A little under CAD 200 million in 2018. We had Putnam that was losing money, and the whole thing was earning less than CAD 400 million.
You fast forward right now, after five transactions. We have one business in the United States for Great-West Lifeco. It's Empower. It is a leader in the retirement space. It's got 18 million clients. It earned CAD 250 million in the last quarter alone and is just a smidge under 30% of Great-West Lifeco's earnings. So Great-West Lifeco has done a lot across the portfolio, but nothing is more evident than what's happened in the States. We've repositioned our U.S. business. We have a strong driver of growth, and we have a meaningful position in a growing market. And we think that's going to be an even bigger part of Great-West Lifeco going forward. The same thing. I look back at IGM, and I look at IGM, and they have three strong wealth businesses and three strong asset management businesses.
Wealth being by far the biggest component of IGM, but they've got a leading franchise in IG Wealth, substantially a different business than Investors Group five or ten years ago. In Canada as well, Wealthsimple, which is small, but a digital option on the future. And now with the Rockefeller acquisition, we have got an opportunity over time to build a meaningful position in the United States. And on the asset management side, Mackenzie in a difficult flow market right now, but very strongly positioned. You've got China Asset Management. Nobody wants to talk about China these days, although Kevin was just given some questions on China here. But still a strong position in that market. And then Northleaf. So kind of very strong wealth management positions and asset management positions in Canada and in the two biggest economies of the world.
So I go back over the last several years, and I say in the last 12 months, these last few transactions, and you reflect on it and say, we've really repositioned these businesses, and I really like the position that we've got relative to where we were, so I feel very good about that.
Excellent. And how do you see Power's core markets transforming over the next decade? And how well do you think the companies are positioned to lead in those?
Yeah. It's a good question. I think that if you go to the macro level, you're going to continue to see individuals having to take greater responsibility for their savings, for their health, for their well-being, because governments are basically tapped out. And the needs, obviously, in an aging population across the markets in which we operate are not going up. They're not going down. So the private sector is going to pick up coverage because individuals are going to end up being more and more responsible. So look at our businesses. We're in the business of helping people save and plan for retirement through group channels and individual channels. And we're in the business of providing healthcare, wellness, benefits, disability, et cetera. And we do that through, as I said, group channels, advisory channels, and increasingly digital channels. Although every channel is digitalizing, obviously.
You've got to be digital everywhere. But the Wealthsimple and the Personal Capital. We're in Canada. We're in the United States. We're in Europe through England, Ireland, and Germany. And we've got a position in China, which is the second largest economy in the world. I think we are really well positioned. We have got leading franchises for the most part. They're leaders in their sectors. We're conservatively financed. We always have been. We're diversified, and we're very risk-aware. And we've shown that over time as you go through bad markets. So I look at our positioning and I say we are very well positioned for the macro trends. And then the question is execute well and create the value through that.
Okay. And what kind of capabilities would you look to add in this context?
So I think all of us in the business are scrambling to digitize their businesses as quickly as possible. And we've made great progress. But even businesses, when I look at Empower, I say Empower is winning market share in the United States organically because it's got such a great client offering. And yet we still look at it and say, where do we? We have manual processes all over the place. And every business has that. So I don't think in a world going forward where you're going to have, it's not going to stay on the macro side here, you're going to have less and less labor in the labor force and more and more people that are either in some form of retirement or needing to be provided services, not contributing. And you've got technology advancing. So you just kind of, how fast does digitization happen?
What does AI do to all of that? So I would say the first capability is a broad one of continuing to put our very strong emphasis on that. If you're talking about what other capabilities, it becomes, I'd have to go market by market. So if you go into the United States, for example, again, I'll talk about Empower. We're in the savings business. We've created a significant wealth management capability on the side to take advantage of that. What about wellness in plans? What about some of the, where does the client offering go from the competition? Do we broaden that out or we just kind of stay concentrated in wealth and in savings? Those are the kind of issues that we talk about. But generally speaking, I think we're actually, I think my broadest theme though is aside from those, we are pretty well positioned.
We've done a lot of change, and I like the capabilities that we have in our core markets. That's the bottom line.
Okay. And maybe you kind of turn in a bit more kind of internally, then. Do you feel you've maximized all the operational efficiencies between Great-West and IGM?
I think the operational efficiencies, I would say the answer to that is yes. I would say that the distribution opportunities continue to present themselves. And that is a forever dialogue. But I don't look to the IGM, Great-West Lifeco, "potential synergies" as being the key value drivers. It's an interesting question, but I look at Great-West Lifeco and IGM and their management teams are kind of masters of their own destiny and they're in their markets and they're spending 99% of their time focused on that. There are benefits that work together a lot. But when you did the math on it, that's not where the value is going to come from. It's from executing their own business models.
Okay. I guess there seems to be a disconnect. Again, if you look at consensus estimates or investor expectations, there's a bit of a disconnect between management's midterm growth outlook, I think, for Power subsidiaries. And again, the investor expectations. So the question here is, I mean, first, I mean, why do you think that gap exists? And what do you have to do to kind of narrow that?
First of all, I agree with you. I was just looking at the analyst estimates for growth for Great-West Lifeco. And every analyst covering Great-West Lifeco has Great-West Lifeco's 2024 earnings growth as the lowest percentage growth of any of the four companies that they cover. So there's evidence that, and in every case, it's when you back out where Lifeco is earning right now, it's kind of lower than management's guidance. So the Street for sure has got, I don't know whether you call it skepticism or they're not convinced that the earnings growth is there. So I don't know that our, we have a lot of big investors at Power Corporation and Great-West Lifeco who are not analysts and who are buying the stock and own the stock and are pretty strong believers in what we're doing.
But the analyst community is not convinced at this point. I don't get negative on it. I turn to, can we do a better job of communicating? We've come a long way in terms of communicating where our earnings are coming from and creating greater transparency. We've also, by the way, delivered on our earnings in the last five years. So if you go back, and I don't think the Street has been particularly bullish on our earnings prospects for the last five years. But if you go back over five, three, one year, Power and Great-West Lifeco have substantially outperformed the financial services index, the overall broader indexes, their peers on a total shareholder return. And some analysts are saying, yeah, but it's run pretty far. The valuation of Great-West Lifeco or whatever is quite high. And I go, what?
The PE hasn't changed at all. I went back and looked. It was kind of 10 times forward estimates five years ago, and it's just about 10 times forward estimates today. It's actually a little less than 10 times 2024 estimates. I go, the valuation metric hasn't changed, but we've outperformed all of the benchmarks. Why? Because our earnings have grown faster than others, and our earnings have grown faster than what the Street has thought they're going to. So I just, that's the reality. We're just going to have to keep proving it. We'll just kind of keep delivering it. And I think if we keep delivering on earnings, I think eventually you'll get more confidence in the analyst community.
I want to make one other comment on it, which is that I think, as I said, IFRS, Great-West Lifeco, 65% of our asset value, IFRS 17, I think is going to, well, it creates some volatility. I don't want to get into an accounting lecture. It creates some volatility on the disconnect between assets and liabilities. But the base earnings metric, there's no longer really a lot of reserve releases or reserve strengthening that are going to run through the P&L. And there's a lot less of fronting of kind of investment gains. They're going to be more amortized over the life of the book. And I think that will help us in allowing people to see that the earnings that we have are sustainable.
As we add business, we're growing our earnings as opposed to maybe there was a mistrust and a lack of clarity around where the insurance earnings were coming from prior to IFRS 17. I'm hopeful that will actually help. We'll see.
All right. Again, a bit of a theme this morning and probably it'll continue on through the day. We'll turn our attention to the alternative asset management. And kind of what's unique here is, I mean, obviously owning a leading wealth manager and a large insurance company, I think probably offers you some unique opportunities to significantly scale an alternative asset management platform. So how does Power plan to leverage that?
I think we do leverage our distribution irrespective of where the asset manager is sitting. So you've got Northleaf sitting at IGM, and you've got Sagard and Power Sustainable Capital at Power. Those companies are where they are because historically that's where the strategies at Power grew out of the capabilities that we had at Power Corporation. The Northleaf relationship was one that was started in dialogue with IGM and the Northleaf team. They worked on, hey, we can do something great together here. Then Canada Life actually wanted to invest in their products. That was great for Northleaf, so it came together at IGM with Canada Life taking position. We've got our positions at Power. The people that work there and are in those shops work there because that's the place they want it to work.
They've chosen to be there. But that doesn't stop us from getting distribution. The leverage isn't necessarily in putting three different firms together into one. There's some expense savings. But you've got cultural issues there too that are serious. So you don't want to kill the businesses by forcing things together. What you really want to do is leverage the distribution that you have. And there we're all about that. And maybe that's a different answer to what I said in terms of your question on IGM and Great-West Lifeco. And you were really on operational synergies. And I said, well, not so much operational synergies. Distribution synergies are totally different. And we are all about the Power capabilities. Are they good for Canada Life? Are they good for IGM? Are they good at Empower? Are the Northleaf capabilities good at Canada Life?
Where can they fit into Empower? And in fact, if I talk about another alternative capability within the group, we've just done a deal with Franklin in selling Putnam to Franklin. And they've got lots of capabilities. And what were they interested in in a large measure? It was how do we get on the Empower shelf? What can we do with Canada Life? So we are very, very active in facilitating our group companies, looking across our group and trying to get the distribution leverage from all of the money that we have on our platforms around the globe. We're very active at doing that. We never force the independent companies to do what they don't want to do. But we certainly encourage people coming together and trying to look for distribution opportunities. That's a big source. So I don't know if that answered your question.
We've got the managers in different places, but we're leveraging the distribution actively, and I could give you the numbers. The proof is there.
Okay. Maybe if you can also maybe give us a sense of the growth aspirations? Five years' time, how much AUM? How big could this alternative platform be?
I'm going to. I'm not going to answer that question directly because I think it's difficult. What's the environment? What's the competitive environment? Where are the flows? Let me talk about the individual businesses. If I go to, you're talking about all the businesses now. At Power Corporation, if I start with Sagard, you know, it is right now. I think in our public disclosure, we had 16 billion of committed capital. I think about 14 of that is fee-paying, and they had CAD 45 million of just run rate fees, Canadian dollars in the second quarter. So call that CAD 180 million of fees. That's pretty good from something that was kind of pulled together from different strategies that we had, and all of the growth really has not come from Power capital. It's come from third parties and some of it Canada Life. It's at break-even right now.
And it's continuing to build out strategies. So we need to get that business and all of our businesses to the point where they've got enough scale that they're making money. Northleaf at CAD 20 billion is profitable. And it continues to grow well. And Power Sustainable Capital is smaller at this point with about CAD 2.5 billion of capital and still not at profitability. So I'm going to answer your question by saying we're very focused on getting all of these businesses to scale and to profitability. And the deal that Sagard announced with ADQ and BMO in the last quarter to bring them in as general partners was accompanied by capital commitments on behalf of those firms to put capital into existing and new strategies that Sagard had. So that was a move to ensure that Sagard gets to an even greater scale of profitability.
The internal discussion we have and the debate we have is, do we want to own a bigger chunk of a smaller company? Or do we want to bring partners in who are going to bring capital and potentially distribution and scale the businesses to be worth more money? And do we want to own a smaller piece of something that's going to grow faster and be worth more money? Or do we want to hold on to a bigger chunk of it, but potentially not have it grow as quickly? And that's the internal discussion that we've been having. But it's all the goal. So my core answer to your question, the goal is to get these businesses to scale and to profitability and create value. But I'm not going to tell you whether it's CAD 50 billion or like that's hard to put a number on.
In terms of kind of scaling or accelerating, kind of the scaling is, you know, how big or is there an opportunity to manage Lifeco assets through the Power alt company?
It's happening. So Canada Life is a shareholder in Sagard. They're a shareholder in Northleaf, and why do they like that? Because they're in a position to go in and say, we need this capability and we would like to have that capability, and if you can create that for us, we can put more capital to work and potentially seed some of your funds. That's going on, so Canada Life is a shareholder and is an investor in Sagard products and an investor in Northleaf and an investor in Power Sustainable Capital. It is happening, and then that's not counting bringing products to their clients as well, and I caught the tail end of Kevin's comments as he was being asked. Kevin Strain says he was being asked about alternative asset management.
You know, when you look at the market right now, institutions around the globe do look like they're fully allocated to alts. It's a broad statement. It's not true of every category, but that is a broad statement. I think when you look at where the growth is coming from in the future, it's going to be ultra high net worth. It's going to be high net worth and it's going to be mass affluent, and it's going to be in retirement channels as well, not just individual channels as people have multi-asset products and have an allocation of alternatives in it. I think that's where a lot of the growth is going to come going forward in the businesses.
Okay. Maybe you can dig in a little bit deeper to that side. Maybe kind of talk about the opportunity and how you kind of position for private client capital attracting either through Power Corporation's own alts or within other capabilities within Mackenzie.
Yeah. So we have our own wealth management shelves. So that's the first place that you look to. So whether it's at Canada Life, whether it's in product offerings at Empower, whether it's at IG Wealth, whether it's in Mackenzie products. So the first thing you're looking at is those are our direct distribution channels. And we've got 2.5 trillion or whatever around the world here. So those are big channels. So where are the opportunities there? And then the rest of it is, I hate to say, beating the pavement and doing what everybody else is doing, which is going outside and getting distribution on other people's platforms, which is more difficult because there's a lot of players that are doing that. So you anchor yourself on the institutional investors that you have. That includes Canada Life. It includes ADQ. It includes many others.
Then you try and build out on your own wealth management platforms and retirement platforms. Then the next challenge is to get it onto third-party platforms.
Okay. And I think you touched on it before. And I'm going to kind of maybe put two concepts together here. You know, one obviously is the pathway to generate more meaningful fee-related earnings from the platform. And then part of that as well, I'll kind of dovetail into it, is there also an appetite to potentially use transformative M&A to accelerate that growth?
Yeah. And I think for sure that's in the group, the teams are looking at whether they can use acquisitions to grow. And you know, do I see that as being a significant use of capital? Probably not. Like we're not talking about the kind of capital we put to work at. If you look in the States, we spent CAD 10 billion over two years at Empower on three acquisitions. We're not talking about, I don't think we're talking about spending billions of dollars, but could you be spending, you know, in the hundreds of millions kind of thing to add to the capabilities? I think we could look at that. But it's going to depend on the opportunities and whether there's a cultural fit because these things are people like keep coming back to people businesses.
And you got to make sure whatever you're acquiring is going to fit into what you're fit into the firm that you're buying.
Okay. I'm going to shift gears a little bit and we'll talk about capital priorities. And first, I guess, is my math correct to think about Power Corporation having roughly CAD 450 million of excess capital?
Yeah. I think that's where it's at. That's net of we bought some more shares since the second quarter. So that's about where it is after having bought some more shares since Q2.
Okay.
But we continue to generate new capital, right? I mean, we're always, you know, we announced the sale of BELLUS for CAD 100 million. I'm going to jump ahead of your question. We're always looking for across our shelf, where can we realize value and where can we add to that? And ironically, we started this thing when we announced the strategy just under four years ago. And we highlighted ourselves. Well, we've got Lumenpulse and we've got Lion and we've got Bauer, you know, skates. And those were kind of the obvious ones. And we haven't sold any of those yet because, you know, COVID came and Lumenpulse's business was not attractive at that point. And Lion ended up going through the EV boom and then the EV crash. And so we haven't realized any capital there.
We've supported the business, but we've actually raised CAD 1.8 billion in asset sales since we announced the transaction by selling positions in some of our LP positions by selling BELLUS, which was the latest for CAD 100 million. So as we look at cash going forward, we're continuing to try and look at across what we have at Power Corporation and we'll continue to be very active in realizing value as the opportunities arise. Now your question, sorry, I jumped ahead of you.
It's okay. I was going to ask the next obvious question on that, is obviously if we talk about kind of what the current capital priorities are.
Yeah. I'm going to start with how I started my first answer. 80% of our business and more of our earnings are coming from Great-West Lifeco and IGM. I would say that the value equation that we have at Power Corporation is to make those companies grow as quickly as possible and to increase in value, to build out our alts, but to also clean and simplify what we have. And that's a job that hasn't been completed yet. And so our discount, which is an additional source of value creation, which was at 35% pretty well consistently from 2013 to 2018, which we got down to about 17%, gapped out a bit and starting to come down again.
When we're sitting there, we can buy all the assets and all the value that we have on our balance sheet at CAD 0.75 on the dollar. That's a pretty attractive use of capital. And so we'll put capital into building out the alts businesses. Everything else is a source of capital. And if we get an attractive opportunity at Power Corporation, of course, we're going to pursue it. But we got stock trading at a 25% discount. So that looks like a pretty good deal to me. And so that's where it's pretty simple. I still think when you, if you look at our overall value equation here, we've got really good growth. I've been saying this for four years and your earlier question, really good growth prospects organically at Great-West Lifeco and at IGM. I think the earnings will grow at a nice rate.
And I don't think the market's fully appreciated that. We're going to add to that through M&A. And then when people look at Power Corporation, there's another 20% of the NAV that's at Power Corporation. I don't think we're getting value for it. I still don't think in spite of our efforts to communicate, people understand it. And I get it. It's NAV. It's kind of up one quarter. It's down the other. It's hard to kind of get your hands around it. So I'm still on the theme that we've got a lot of simplification to do. We've got to get down to a simpler suite of assets. And if we had IGM, Great-West Lifeco, GBL, and a couple of alternative asset managers and that was it, and we could explain that in a simpler way, I think we would have greater valuation in the marketplace.
So that's what we're still focused on. Still work to do there.
Okay. Excellent. And again, I think over the past years, you've spent quite a bit of time interacting directly with investors. I think today we've got you a fairly full schedule. So I guess in terms of wrapping up our conversation and kind of thoughts here, after speaking with investors, I mean, what do you feel is the most underappreciated value creation opportunity available for the Power Group?
I don't think in terms of one lever. I try and tell our shareholders and our potential shareholders that we have about three or four things that are driving value. The first and foremost is Great-West Lifeco and IGM's organic growth. The second thing is adding to that through M&A. And I don't know how to hopefully people believe we can do M&A given what we've done in the last four years. And then we have good value at Power Corporation, which is not still well understood and is trading at a big discount. So, well, we own Great-West Lifeco and IGM. You can buy those companies. They're going to represent great value. We've got an additional source of additional total shareholder return up at the Power Corporation level that we've made great progress on, but still work in progress.
You put all that together and it's a very attractive shareholder return profile at Power Corporation. But it's not one thing. It's the combination of all of that. The part that's least understood is the Power Corporation piece, I think, obviously. That's not the investor's fault. We're still not simple enough for investors to understand it. That's our fault. I mean, our fault. That is who we've, that's what we've created over time. We're in the process of simplifying it. When we do, I think there'll be, I think we'll get value for the assets we sell. I think ultimately the discount will be at a lower level. That's it. That's the story. It's pretty, it is simple, but it looks complicated.
Excellent. Well, listen, on behalf of Scotiabank Global Banking and Markets, I'd like to thank you personally, Jeff, for taking the time and the Power Group of companies again for your continued support. So again, thanks again. We're going to convene for a short break and then reconvene at 10:40 A.M. with iA Financial.
Okay. Thank you very much, Phil, and to all of you. Thanks for attending. And this is a great conference. You do whatever you're, keep it up. It's a great event. Thank you. Bye.