Power Corporation (TSX:POW) has concluded its fourth quarter of 2023 with a strong financial performance, as disclosed by President and CEO Jeffrey Orr during the Q4 2023 Earnings Conference Call. The company witnessed significant strategic developments, including a 7.1% dividend increase and the largest year of share buybacks in its history. Adjusted net earnings from continuing operations stood at $579 million, with an adjusted net asset value per share of $53.53.
Great-West Life's U.S. retirement and wealth business, Empower, surpassed $1 billion in base earnings for the year. Power Corporation has also made notable transactions such as IGM's acquisition of the Rockefeller position and the sale of Putnam to Franklin. Sagard Holdings, a subsidiary, has expanded its scale with acquisitions in the fund to fund, secondary, and co-investment space, as well as in the credit market.
Key Takeaways
- Power Corporation announced a 7.1% dividend increase and the biggest year of share buybacks.
- Adjusted net earnings from continuing operations were $579 million, with an adjusted net asset value per share at $53.53.
- Empower, a part of Great-West Life's U.S. operations, exceeded $1 billion in base earnings in 2023.
- IGM acquired the Rockefeller position and sold Putnam to Franklin, while Sagard Holdings completed significant acquisitions to enhance its growth prospects.
- Power Corporation is focused on maintaining a strong credit rating and plans for future buybacks using various financial strategies.
Company Outlook
- Power Corporation has repositioned itself with a simpler structure and strategic focus on wealth and asset management.
- The company is committed to maintaining a strong credit rating and delivering shareholder value through strategic transactions and share buybacks.
Bearish Highlights
- The market environment remains challenging with high inflation and interest rates impacting wealth channels and asset management products.
- There is a potential negative impact of $48 million that may require future financial adjustments.
Bullish Highlights
- Great-West Life, particularly Empower, reported strong growth and market share gains in the U.S.
- IGM and Sagard Holdings have made strategic acquisitions to bolster their market positions and growth potential.
- Power Corporation's strategy of selling secondary positions has allowed for significant capital reallocation towards share buybacks, enhancing NAV and earnings.
Misses
- Specific details regarding the purchase prices for Sagard's acquisitions were not disclosed, but they are stated to be non-material to Power Corporation.
- The challenging market environment and macroeconomic factors continue to pose risks to asset management and wealth channels.
Q&A Highlights
- Discussions in the Q&A session included the company's strategy for buybacks, the use of the $2.5 billion seed capital pool, and the impact of selling standalone businesses on operating EPS.
- The CEO confirmed that the cash used for Sagard's acquisitions is not from the $0.9 billion held by Power Corporation and that the company is evaluating various financial strategies for future buybacks.
Power Corporation has demonstrated a strong close to 2023 with a focus on strategic growth and shareholder returns. Despite the challenging market conditions, the company's diversified portfolio and strategic acquisitions have contributed to its robust financial performance. The company's proactive approach to capital management and strategic transactions positions it for continued success in the future.
Full transcript - None (PWCDF) Q4 2023:
Operator: Good morning, ladies and gentlemen and welcome to the Power Corporation Q4 2023 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. [Operator Instructions] I would like to remind everyone that this call is being recorded on Thursday, March 21, 2024. I would now like to turn the conference over to Mr. Jeffrey Orr, President and Chief Executive Officer of Power Corporation. Please go ahead, sir.
Jeffrey Orr: Thank you, operator, and welcome, everyone. Thank you for joining us this as we go through our results for the quarter and a little bit of a look back on the year as well, and maybe even a few comments as we look back over the last several years as to where we are at Power on our journey, as we execute on our strategy. I'm going to just remind you of the disclaimers on Pages two and three regarding forward-looking information and non-IFRS measures. I'm here today with Denis Le Vasseur, who is VP and has been acting as our Chief Financial Officer effectively over the last several quarters and Denis will be working with me today to go through the presentation. We're also joined by Jake Lawrence, who is on day four with Power Corporation, to welcome Jake. We're not going to ask Jake to play a starring role in today's presentation, but just to say he is here and we're delighted to have him on board. As we move forward here, I'm going to start off with the Q4 results and remind you, we'll make some high-level comments on Great-West Life, IGM, and GBL in terms of our perspectives, but each of those three companies have just recently come out with their results and gone through with extensive earnings releases, review results. GBL was just a few days ago. IGM and Great West Life, a few weeks ago, plus, IGM had its Investor Day in December. So there's lots of material if you're trying to dig deep into any of the three public companies that you can reference or speak to those management teams. So if I go to Page seven, just kind of reflect on where we are from an earnings point of view, and from both quarter and the year, we had really strong results at Great-West Life and they were broadly based, clearly led by the emergence of Empower, but strong growth and strong results across a diversified portfolio. IGM reported really solid results with an environment of headwinds with what's going on in their businesses right now, but we thought the results were very, very solid and then, as I move down on to some of the key points as we reflect on the quarter and the year, the first one is with the Prudential (LON:PRU) integration coming to a successful close here, the sale of Putnam that happened on January 01. It really highlights and is the completion of a five-year repositioning of Great-West US business and I'll make some comments in the presentation on that. Great-West Life's financial performance really for this year and over the last five years has been great. I'm going to touch on that. We're really pleased with the positioning of IGM and I'm going to make a couple of comments on the way we think about their positioning going forward and as I mentioned, they had an Investor Day where they laid out medium-term financial objectives the way Great-West Life had done back in 2021. GBL continues to focus on executing its strategy and had a record year in terms of returning money to shareholders and then we've continued to build a scale of Sagard and Power Sustainable and Sagard has entered into a number of transactions, which I'm going to walk you through very, very briefly to enhance its growth and then not to be forgotten, we had our biggest year of share buybacks in 2023 and in Q4 and we announced a 7.1% dividend increase yesterday. So lots going on and we're excited to share it with you and get into questions that you might have. On Page eight, the market environment hasn't changed too much and we've got high rates and in some ways that's good and like a lot of financial institutions, when you've got some parts of your businesses where you have cash, you have short-term investments, obviously earnings from those parts of the balance sheet helps on the earnings front, but then we all know what's going on overall in the market. You've got high inflation, high interest rates. That's squeezing a lot of people that are clients. Also, clients of our various businesses. It means that for a lot of the client bases, people are trying to figure out how they make ends meet. So you've got less money flowing into wealth channels, less money flowing into the asset management products that are on those channels and where is money going? Money is either going to repay debt to try and pay bills for certain parts of our client base. If they are investing, there's more flows on an absolute basis going into new money products, including bank CDs and out of traditional wealth channels. So I guess bottom line, rates being higher can help your earnings here and there, but from a flow point of view in wealth channels and in asset management, on balance it's a negative and you've got a couple of indicators there of that in the Canadian channel, but we're seeing that across the markets where we operate. So let me then turn the baton over to Denis to walk us through our financial results and net asset values.
Denis Le Vasseur: Thank you, Jeff. Good morning, everyone. I will go to Slide nine. This is our Q4 financial highlights. Adjusted net earnings from continuing operations in the quarter were $579 million. This is up from $395 million in the same quarter, the corresponding quarter of last year. Translates into $0.89 per share compared to $0.59 in Q4 '22 and I'll address the breakdown of earnings shortly. Adjusted net asset value per share was $53.53 at year end compared to $48.26 at the end of Q3 and our net asset value per share yesterday was $52.93. At its Q4 meeting yesterday, as Jeff mentioned earlier, the Board of Directors declared a quarterly dividend of $0.5625, or $2.25 on an annual basis and this represents an increase of 7.1%. Turning to Slide 10, Great-West once again delivered strong results across all segments, including an increase in year-over-year base earnings from Canada, the U.S. and the capital and risk solution. Notably, you'll see that Great-West's U.S. retirement and wealth business empower surpassed $1 billion in base earnings in 2023, exceeding the objective announced at the beginning of the year. IGM's earnings had a solid performance, reflecting a challenging market environment. Earnings at IGM were impacted by the partial sale of Great-West shares to power as part of the CAMC transaction and IGM also recorded losses in Q4 on edging instruments. However, we must consider this as a timing issue and going forward, IGM will realize higher income, which will offset these losses. As a reminder, IGM's Q4 adjusted net earnings exclude the gain on its sale of ITC to Canada Life, which in turn is eliminated on consolidation at Power Corporation as it is an intercompany sale. Moving to our now focused businesses, GBL's contribution in Q4 includes an impairment recorded by Imerys and note that while GBL's private assets saw fair value increases during the quarter, these are not entirely reflected in the results as some of these companies are consolidated. Sagard contributed positive earnings this quarter, driven primarily by the fair value increases in our investments in the private equity funds and Sagard's manager continues to make strong progress despite market headwinds, slowing down capital fundraising and deployment. Finally, as we have seen in the past, Power Sustainable's negative contribution was driven by an increase in the fair value of third-party capital in the infrastructure fund. This loss in our P&L results from consolidating the infrastructure fund where the corresponding fair value increase of assets is not reflected. However, we must recognize the increase in value of the units held by the non-controlling unit holders of the fund. If I turn to Slide 11, we break down the $53.53 net asset value per share as of December 31. The shares of our publicly traded operating companies performed well in Q4 with Great-West delivering a 13% increase. Great-West remains a large component of our net asset value and its performance essentially explains our quarter-over-quarter NAV per share growth. As a reminder, we now record Sagard's management company, the value of the management company at fair value, and our NAV in Q4. Power's share of the management company value was $265 million with quarter-over-quarter changes only due to foreign exchange movements. Power Sustainable's management company remains at carrying value. Cash and cash equivalents decreased quarter-over-quarter as we bought back shares at a higher pace in Q4 and this is also reflected in our participating share count, decreasing from 658.9 million shares in Q3 to 652 million shares in Q4. And with that, I will turn it back to Jeff.
Jeffrey Orr: Okay, Denis. Thank you. So then, I'm going to move forward to just a bit of a look at the last four, five years, really and even though this is a quarter-end report, it's also the end of the year. We're at the fourth anniversary of the completion of our reorganization and in my mind, I go all the way back to 2019 where there was a lot of activity in 2019 through the year that led to the reorganization. So, a little bit of a look back here and the overall comment I'd make is that over the last five years, our company has really repositioned itself. There's been a ton of work done and we've been describing it through the three levers of our value creation, but we really have repositioned each of the businesses. If I start with Great-West Life, it's a different company than where it was five years ago. I think it has got strong businesses across its different platforms and its different markets and of course, the emergence of Empower, which was not a large contributor five years ago in our business in the United States, with now the US emerging as the largest part of Great-West Life, is probably the most significant change, but there's been very significant investments across the rest of the platform as well. IGM, again, right now we're in an environment where wealth channels are generally in outflows. Asset management channels are in outflows in Canada and so, people are going well. You've got a lot of macro headwinds, but when you look at it from a multiyear position here, this business has repositioned itself as well for much higher future growth. In its wealth channel and its wealth segment, it's got the core business of IG Wealth, and that's got a couple of very high growth drivers for the future and in its asset management segment, it's got its core business of McKenzie, which is in a strong market position, and then some very high strong growth drivers and I'm going to come back to that as we go through the presentation. And then at Power, really, really big change from where we were five years ago. Obviously, a simpler structure, a much simpler strategy and I would say, as I look back, lots of great progress made in terms of raising funds, selling assets, buying shares back, enhanced communication, but I would also say, unfinished work here, lots of work still to do. There's a lot of opportunity, I could put it in a positive way, but lots of things that we had set out to do, and some of them were difficult over the last four or five years, if you think about the environment we've been in. But just overall, it's a different company, and we still have lots of opportunity ahead to execute on the strategy. I'll flip over then to the next page, which is Page 13, just to remind folks, we did have another busy year from a transactional point of view. It was highlighted by the acquisition of the Rockefeller position by IGM, by Canada Life Acquiring Investment Planning Council, which really enhances its position and its scale in the wealth business in Canada, which is going to be a key focus for them going forward and then, ultimately, the sale of Putnam, which closed on January 01 of this year, to Franklin. So those were the three highlights, but I'm going to come back to the three on the bottom, and what Sagard has announced over the last little bit here, because it's interesting how Sagard is using transactions in a difficult fundraising environment to enhance its scale and its growth prospects. Page 14 is just kind of a look back on Great-West. Great-West had, I think, a version of this slide in their deck, so I'm not going to belabor each of these points. Notwithstanding the very difficult market in wealth, they had a lot of positive flows. A lot of that, or the majority of that, was in the U.S., because Empower is gaining market share and growing organically in the D.C. market, and they've got a wealth business, of course, which I think is up to now somewhere around $70 billion U.S., with the combination of the personal capital acquisition and the existing wealth business they had and they've got strong, strong flows into that business. So that is a bright spot in terms of a difficult wealth market. And then down at the bottom of the page, just to highlight, we are in both of Canada and the United States, we've got much stronger brands than we had even a few years ago. Remind folks that have followed us for a few years, go back three, four years ago, Canada Life, we were operating as Canada Life, Great-West Life, and London Life. So, it's only been a few years that we've emerged with the Canada Life brand, and then Empower is investing heavily and will continue to invest heavily in building up its Empower brand in the U.S. So, we've got two strong positions here, and we are very much working under what we think are very strong brands. Okay, Page 15 is probably the page in terms of change. As I mentioned a few slides ago, there's been change across power. I think nowhere more dramatically, if I can use that word, I don't think it's too strong a word as in Great-West U.S. business. If you go back to the end of 2018, Great-West on the left-hand side of this page had three businesses. It had Great-West Financial, which was its insurance business for those that followed us. It was Coli Boli, there was some closed Life Locks. It was actually the largest earnings contributor at that time. It had Empower, and it had Putnam and all three of those businesses in 2018 were earning less than $400 million Canadian. I think I've got $388 million in my head, but someone will correct me if I'm off, but if I'm off, I'm not off by much. If you go through what happened over the next five years, we kicked off 2019 in January with the announcement of the sale of the insurance business to Protective Life. Great-West followed that up with three acquisitions over the next couple of years. Two defined contribution acquisitions, MassMutual and Prudential, and the personal capital acquisition and then in the middle of this year, announced the sale of Putnam, and also the merging of personal capital and Empower's own wealth business into what's now branded as Empower Personal Wealth and where are we today? We have one business, Empower. It's the second largest retirement provider in the United States. It has got 18.5 million clients. It's got 1.5 billion U.S. on its platforms. It's growing organically at a very strong rate and in 2023, as Denis said, it earned more than a billion dollars and Great-West, at their recent call, are calling for that growth to be somewhere in the 15% to 20% range for 2024. So Empower is now the largest single business unit contributor in Great-West and the U.S. is approaching somewhere, 30%, 32%. It's the largest segment. So, the whole group has changed, but this is really the biggest piece of the story. And then we talked four or five years ago about, at the time of the reorganization, really upping our game in terms of communication with the market, transparency, accountability. Part of that was in June of 2021, Great-West came out and for the first time in our group, announced their medium-term financial objectives, which you have on the left-hand side of the page and at their recent call, they reported, which you have on the right-hand side of the page, their performance in terms of EPS growth, 11% for 2023. Five-year growth is 11% on a CAGR compounded growth rate, which is above the growth targets they set. You got their ROE performance there and their dividend payout ratio, which was above their range and will work its way down slowly, as we expect. The rally has been that the earnings growth has been higher than the dividend growth and through that, a little bit of noise as they went to IFRS 17. But our expectation is that we'll move over time that payout ratio down towards the middle of the range. It'll bounce around from year to year, of course. Over on the 17, just some comments on IGM and what they achieved in 2023. I think the Rockefeller acquisition is a significant transaction. It will offer them the opportunity to have a much larger exposure to the high net worth, ultra high net worth business and it starts to give them much more of a North American wealth presence. As we forget, but the China AMC deal, which we talked a lot about, I guess, back in 2022, it actually closed at the start in the first quarter of 2023 and we think that's the right place to concentrate that position. And notwithstanding the challenges that China is facing right now and investor apathy, I don't know. I don't think that's a strong enough word in terms of their views of China. That business continues to do really well. There's a lot of savings going on in China right now and China's relative position continues to strengthen. So that's going to turn out, I think, over the long term to be a great acquisition for IGM. And then they sold IPC, as we mentioned, to Canada Life to allow them to focus their time, their energy, their capital on building up the businesses that they had. Importantly, there was an Investor Day held in December by IGM and a couple of things were announced there. They recast their segmentation into wealth and asset management and basically no longer segmenting around their strategic investment segment, which I think is the way we think about it and they think about it and the right way to do it and they came out with medium term objectives for the first time, very much the way Great-West Life, I just mentioned, did in 2021. And the best slide to describe that is the following one, Page 18, where you see the segmentation on the left and I just go back to my comments earlier. They got a core franchise in each of wealth and asset management and then they got some very much high growth drivers for the future and their earnings EPS objectives on a five-year basis are 9% overall earnings growth and that's a specific number. It will obviously, if they execute, be a range around that and it's 7% coming from the core franchises, more mature. Those are the bigger franchises paying the bills right now, if I can use that expression. But they're more mature franchises and then they're expecting higher growth out of the other parts of the portfolio here. These assumptions assume normal market growth. There's normal stock market and growth assumptions in that. There's obviously some volatility on a year-to-year basis in those businesses. Okay, a couple of comments on Page 19 on GBL and just to say, record year for returning capital to shareholders. Second point is they're refocusing their portfolio, basically putting more emphasis on private assets. They've sold out of three positions and they reduced their position in Pernod Ricard (EPA:PERP) and they created a value in their private asset portfolio. So they continue to drive forward with their strategy. A couple of slides on our investment platforms. Just a little bit of a look back here to when we announced the new strategy. We said at that time we were going to try and grow the investment platforms without putting additional seed capital from Power into it. We were going to rely on parties other than Power and you get a look back there on the funded assets under management. $3.7 billion to $17.6 billion. That's over just slightly less, end of Q1 to the end of Q4. So it's a little less than four years. And then the dark blue bar, Power Corp has got effectively the same amount of capital invested in it. There's some mark-to-markets in some of those numbers. We've effectively done what we said we were doing, but still a long way to go clearly to get these platforms into a point where they're contributing from a value point of view and the way we're able to communicate that contribution to the market effectively, but lots of progress. Page 21 I think is really interesting. Sagard. Everyone following the alt market -- the private asset market knows it's been difficult. It's been difficult to fund. It's been difficult to actually deploy capital. So the businesses across the world where they are kind of finding this has been 2023 has been a difficult year from a growth point of view. Sagard has done three transactions. So there's one thing to go out and ask people to invest in your fund, but they've done three transactions to expand their scale and their funding and their growth going forward. We talked about ADQ and the BMO (TSX:BMO). ADQ now called Lunate. Coming in as a GP and committing to provide future seed capital for the funds, but also investing capital and cash into Sagard. So that was a growth strategy. But then in December and closing in January, Sagard announced the acquisition of a strategic interest and that means we've got a significant equity interest and there is a path to control eventually in that transaction of a US $9 billion AU manager called Performance Equity Management and basically gets Sagard into the fund to fund, secondary and co-investment space, which is a very important space. Particularly if you think about the shifts and flows going forward, in the alt space from having been historically institutional and endowment led and now moving more into high net worth family office and ultimately into retail. Those products are very well suited for that. And then they just announced a couple of weeks ago the acquisition of a 40% stake in HalseyPoint, which is a CLO manager out of the United States and Sagard has got credit products. This will extend their range in the credit market and again will give them other avenues for growth. So difficult funding environment, but they've got the capital and they're doing the transactions to expand their scale and expand their growth prospects through a different form which is using M&A. Okay. And back to wrap it up here. Before I open it up for questions. So Power, you see our buybacks across the top of the page. Remind you we had COVID. We're a little slow out of the blocks getting transactions done and monetizations and has picked up in 2022 and 2023. We increased the dividend as I mentioned, for buybacks going forward. Our cash at $900 million is just a little bit above where we like to keep it. So we are very much focused on getting additional buybacks through 2024 and we'll be looking to continue the monetization of non-core assets as a key funder for that and all the same time maintaining our very strong credit rating. I have to at least pause on Page 23 for a second. On our total shareholder returns, we're long-term shareholders, but we are very much in business to create shareholder returns and while all of these numbers are always very sensitive to start dates and end dates as you know, we do very much keep our eye on what kind of total shareholder returns we're providing to shareholders and then you've got some benchmarks there. We've done very, very well against the key benchmarks that we look at in terms of those time periods of outperformance. On Page 24; notwithstanding that the discount has widened out over the last 18 months or so and we're working hard on ensuring that shareholders see the value across all of the assets we have, including the assets that are at Power and we do believe that we don't ultimately control that, but our behavior and the actions we take can certainly have an impact on it. So those returns were created even though we have widened that discount out a little bit and again I view this as in the opportunity category. Page 25 just kind of summarizes and the operator will be going to questions in a second. Our three key drivers and walks through where our businesses are today and I'll summarize the way I started. We've got lots of work done here, but lots of opportunity to keep driving the strategy going forward. With that operator I would ask you to open it up for questions.
Operator: [Operator instructions] The first question comes from Graham Ryding with TD (TSX:TD) Securities. Please go ahead.
Graham Ryding: Hi. Good morning. Just on the Sagard and the minority stakes year-to-date and to those private equity and private credit managers or CLO manager, what's the thought process there in terms of taking minority stake positions here as opposed to controlling majority positions?
Jeffrey Orr: I think you should think of it as a path along the road. So I mentioned for example we've got a path to control in the first instance. So these are people businesses you buy in. You establish a major position and then you negotiate your ability over time to take a controlling position. So I don't think the intent is to stay in a minority position is the bottom line, but to work with those platforms and ultimately be in a position to control, but it's tactical is what it is.
Graham Ryding: Okay. Understood. There were some I think fair value gains within power sustainable that triggered you booking some non-controlling interest charges. Can you maybe just give us some color on what drove the gains and just make sure we're understanding that correctly?
Jeffrey Orr: Denis, do you want to take that?
Denis Le Vasseur: Yeah. Well the gains were primarily in the portage and the private equity.
Jeffrey Orr: It was a power sustainable capital question. It's a non-controlling interest in the infra fund.
Denis Le Vasseur: In the infra fund the non-controlling interest is we've explained before the accounting mismatch that when you have an increase in the value of the fund itself we have a redemption feature from the non-controlling unit holders and that turns into what we call the non-controlling interest charge because we have to record on our books the increase in the value that goes to the NCR (NYSE:VYX).
Jeffrey Orr: So put another way, we consolidate this fund because between our position and Canada Life's got a position in it where we consolidate it. When the value of the fund goes up we don't recognize the increase in the value of the fund, but we do recognize the value of the minority non-powered non-Canada Life shareholders in it. That value flows through as a liability and flows through the P&L. So every time we have good news and the value goes up we have a P&L loss with the current accounting. Is that a non-control description of the outcome as opposed to the technical description?
Denis Le Vasseur: Yes, but I think the gist of it is good news on the value side results and bad news on the earnings side.
Jeffrey Orr: Yes, we should start every presentation, Graham, by going and really good news in Power Sustainable Capital we had another loss. It is what it is, but the bottom line is the value went up and we don't recognize that and we recognize the minority shareholders' increase in value as a liability through the P&L.
Graham Ryding: What drove the increase in the fair value gain within the fund?
Denis Le Vasseur: In the quarter itself the fair value gain in the fund was essentially looking at the future electricity rates and there has been a shift in the electricity rates. So that when you do your DCF of all of your projects that did turn into increases in the value of the funds. At other times, you will see de-risking events as we have seen in the past but that was not the case in the current quarter.
Graham Ryding: Okay. Understood. And my last one if I could. I think you mentioned $0.9 billion in cash, so slightly above that minimum level that you like to sit at. So if you are able to continue buybacks this year at a similar level to what we have seen in 2022 and 2023, what are the assets to stand alone or otherwise? What are the assets you are most likely to monetize if you are going to be able to continue to buy back shares at this level?
Jeffrey Orr: Graham, I don't want to name any specifics because you have got in the portfolio a series of assets that are clearly non-financial services. So we have said for some time that those long-term are not in place. I have said before publicly that I don't think I would have anticipated four years ago that we would still have as much capital tied up in those, but the world unfolded the way it did. So those are there. You have seen in the past that we seed capital into the strategies of Power Sustainable Capital and Sagard and when there are opportunities to do secondaries, we have done that. So we have sold out of positions because we seed them and ultimately they get to a more mature state and there are lots of secondary buyers for positions. So that is another tool that we have. So we have a bunch and how we execute on them will depend on markets, buyers, negotiations and all of that. So I don't want to pre-anticipate that. So I don't mean to be evasive, but I think it would be misleading to name one or two because the year will unfold the way it is going to unfold and we will succeed at doing what we do and that will have a bearing on the rate of buybacks that we execute on.
Operator: [Operator instructions] The next question comes from Doug Young with Desjardins Capital Markets. Please go ahead.
Doug Young: Good morning. Just back to the acquisitions in Sagard and Performance Equity [indiscernible], can you talk about purchase price or what this should add in terms of financial terms and earnings and I know it is at the margin but what I am trying to understand is the amount of capital that is being deployed, the potential return on the capital and what are the metrics we should be using to gauge your progress as you build this franchise out? Is it earnings, EBITDA? Hoping to get some color.
Jeffrey Orr: Thank you. We are not in a position. It is not material to Power. We would have disclosed it and then secondly, we would have liked to disclose it, but as I mentioned in Graham's question, you are dealing with people, businesses here and often in these circumstances the principals are the founders and in the agreements we have confidentially agreements to state that we cannot state the purchase price at this point. So that is awkward from a disclosure point of view, but it is not material amounts of money. So that is a polite way of saying I cannot tell you the answer to the first part of your question. I think where you went there is with the metric system what we are looking for. I think at this point when Sagard is doing these transactions, it is about value creation right now and ultimately it is going to be at the GP level about earnings. They are building up their scale big time and so they are at $15 billion of AUM. They get another $9 million out of the performance equity transaction, but also in a great new sector. The CLO is a smaller AUM than that, but gives them additional products and the ADQ, Lunate and BMO deal they bought an equity position and diluted us in that process, but put cash into Sagard and that validated the value creation. So remember we marked Sagard up on our books. I think it was a double in terms of the value, somewhere around double. So there is a metric of success. It's not producing earnings that move the dial at Power for the time being but the value validated two third parties coming in and doubled the value we had at Sagard, but they also put cash into Sagard. So the acquisitions that they are making of Performance Equity and healthy point we didn't have to throw cash in there as power that is cash that Sagard now has in its treasury through those transactions and other sources through the ADQ and BMO and they had some cash in there. So we haven't been injecting capital, but they are building out their scale. They are building out their value and therefore what do I expect out of that? I expect you that you are going to see continued increase in the value of our position in Sagard over time as they build out their scale and position and ultimately it will be producing earnings. The final thing I will say is that there is a little bit of how much do we want to show profit today versus how successful do we want Sagard ultimately to be and so we are at a point where if we wanted to drive some earnings through it, there is enough revenue there that we could drive some earnings out, but is it going to make a difference to Power Corp for our P&L? No. and so he ends up saying, well, let's keep investing. We have some cash here. Let's keep building out the scale and make this into a much bigger business three, four, five years from now and that is kind of the internal discussions that we have. The final thing I think, we disclosed the fee revenue for Sagard and I think it was like, and I am looking at someone here within our statements. I think, if you go back, correct me if I am wrong, just in the past year, it was USD135 million, USD137 million -- CAD175 million. So USD137 million and USD135 million. I am just going back memory here. So that's the run rate for the last year. Sagard has built -- we've just on the steady fees they are earning from their funds. They have $175 million. This is a real business. They have got scale and they are trying to build that scale by these transactions and something even bigger and ultimately that is a contribution. Long answer to that Doug.
Doug Young: I appreciate it. So the cash that you are using to buy these entities or the stakes in these entities is actually not part of the $0.9 billion that at the HoldCo. This is coming out of liquidity at Sagard. Do I have that correct?
Jeffrey Orr: Yes. That's correct.
Doug Young: And then just on Graham's question, just follow-up on that one in terms of buybacks, it sounds like either you are going to use liquidity at the HoldCo which is about $100 million in excess of what you want to hold it sounds like and then otherwise, standalone businesses being sold. Is there any other lever you can pull to finance buybacks?
Jeffrey Orr: For sure. Secondaries, capital out of some of our positions in the strategies that we have. That was part of what I answered to Graham. We raised I think over $300 million by doing a secondary of our position in Sagard 3, which is Sagard 3 fund is a European private equity fund. I'm looking around and it is over $300 million. So we raised $330 million that was a couple of years ago. We have done some other small secondaries. We look across the funds. So we end up happening, you're launch a new fund Doug and the sponsor, especially on the first fund says, well, we want to see the sponsors put up $200 million of capital. If you raise this $500 million fund. So we end up putting up a bunch of capital on the first fund and then it grows and three, four years later, the fund has done really well. We are under the second fund. We only had to put up $50 million in the second fund because we were successful and now our $200 million has a position of $350 million because I'm making these numbers up, that's like I am just giving you an example and the fund is three-four years old and there is a lot of buyers of secondary positions because a lot of, for a bunch of reasons I won't get into, but a lot of buyers in secondary positions. And we at that point can take our $300 million off the table and go and sell it. So we are always looking at the $2.5 billion that we have in the seed capital pool and saying where can we harvest that and where can we take a couple $100 off here or $200 off? It is not just a standalone. It's actually harvesting and some of that goes back into seeding new funds and some of that comes back to Power Corp and we buy shares back.
Doug Young: That makes sense. And then just on standalone businesses, just correct me if I'm wrong. If you were to sell them and you kind of show what you hold them at carrying value, that would be marginal, but be marginally positive to operating EPS and that frees up cash to buy back shares. Do I have that right?
Jeffrey Orr: You have it perfectly right. So to make your point, when we closed the reorganization in February of 2020, we had on closing 683 million shares outstanding and we bought back 38 million over the last three, call it four years. We had seven million options exercised. So we net bought back 31 million shares. So we have 652 at the end of the year. So that is 31 million less. We have a dividend at 2.25. So you can do the math. We have about $70 million less in dividend obligations in the aggregate, which flows through our cash flow and we have raised $750 billion or whatever it is on selling a bunch of other assets, so we put that back into cash flows. That is another 25 million shares at $40. You can do the math. So every time we do this, we are increasing not only our NAV, but when we are buying back shares at a 25% discount, we are increasing our earnings because we have less shares outstanding and we create a lot more cash flow. So you have it exactly.
Doug Young: Just lastly, this question on this statement, but it's like the $48 million negative impact, I understand the mechanics of how it works, why is that not an adjusting item?
Denis Le Vasseur: I am not touching that one. This is the one for Jake. Jake, you have been here for years.
Jake Lawrence: I think that is a fair question. That is one we have played with in the past. That could be a candidate for just putting it into the adjustments and it would be more in line with what we see as the type of adjustments that Great-West does and just on fair value, unexpected fair values, how they affect your earnings as opposed to your run rate. So it would be in our earnings, but it could be, I am not saying, it will be, but it could be part of the adjustments.
Operator: There are no further questions. I would like to turn the conference back over to Mr. Jeffrey Orr for any closing remarks. Please go ahead.
Jeffrey Orr: Okay. Thank you again everyone for being with us this morning and we look forward to talking to everyone soon. Have a great day. Thanks a lot. Thanks operator. You can terminate the call.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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