Power Corporation of Canada

Good morning, ladies and gentlemen, and welcome to the Power Corporation Q2 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. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on Friday, August 11th, 2023. 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.

Thank you, Operator, and welcome everyone to our earnings results call here. Happy Friday to everyone. Thanks for being with us. I would, before starting the presentation, just like to remind everyone of page three. We have our disclaimer regarding non-GAAP measures and forward-looking information. And with me today is Greg Kretziak, Chief Financial Officer of PowerCorp, and we're pleased to go through our presentation with you and open it up to questions later on. Just skipping forward several pages, you've got on page six other information from our various companies that's available to you regarding results and other recent presentations that have been done. With that, I'll go right into the guts of the presentation on page 7. We're really pleased with results and with developments since we last spoke at the end of Q1. First of all, from an earnings point of view, it was a very strong quarter for our group overall. To my mind, it really demonstrated the earnings power of our two key earnings-deriving companies, being Great West Life Co. and IGM. From Great West Life's perspective, really a broad-based earnings strength on a base earnings basis, and then led, of course, by the strong growth of the U.S. business through Empower. There wasn't a lot of noise in the quarter for base earnings strength, And so it really, to my mind, demonstrated the earnings power of Great West Life Co. And then when you go over to IGM, flat assets year over year, really solid earnings and really very, you know, kind of consistent performance. So very pleased with both the earnings at Great West Life and IGM. And then across the group, we had good earnings results as well. At the same time, as you go to the bottom part of the page here, continue to be extremely busy in executing on a number of strategic items that are part of our value creation strategy, including a number of key transactions, the sale of Putnam to Franklin, obviously, the largest of those, but also an important transaction for Cigar with ADQ and BMO. And along the way, we sold a position in Bellis for an after-tax proceeds of $97 million, which continues to be part of our strategy of selling non-core assets and creating funds for, in principle, for share buybacks. So I'll move over to then page eight. You would know all of this information, but just to say, you know, it's a difficult environment. It's not an impossible environment, but obviously with rates going up and with a lot of jitters around markets in the last several years, long-term fund flows have gone negative. And this is a Canadian example at the start of the page, but you've also got the same phenomena happening with individual clients across a lot of markets in the United States. And money's been flowing in with rates where they are into term deposits. You just have one example of that. Over the last couple of years, the change in term deposits at the big six banks in Canada. So clients are putting money with proactive rates or buying CDs at a far higher pace than they had been previously. and they're being fairly defensive in terms of their long-term flows. We'll see how that lasts. Markets have been strong in both the U.S. and Canada over the last period here, so we'll see whether that starts to change. But that's the environment in which we're operating in. And with that, I'm going to turn it to Greg to actually walk through the financial results over the next few pages.

Greg? Great. Thanks, Jeff, and good morning. Jeff had mentioned strong adjusted earnings across the group. You know, we're up $200 million, $847 or $127 per share versus the prior year of $647 or $0.97. Of course, the adjusted NAV is reflecting those strong earnings. And you can see that we were end of the quarter at 48.86 per share. And it traveled to August 10th to almost $50 at $49.95. So up sharply over 2022. And of course, we declared a dividend in the quarter at 52.50 cents. And that takes me to slide 10. Not to be too repetitive, but Great West Life, very strong quarter. And as Jeff mentioned, quality quarter in terms of good solid growth from the underlying segments, in particular the U.S. and the capital and risk solutions segments. At IGM, just a quick note, as Jeff had mentioned, AUM not changing all that much year over year, but still delivering comparable results. IGM did have a restructuring charge in the quarter. which they see leading to expense reductions on a run rate basis of about $65 million a year. And they guided that you should see expense growth of only 2% a year. And that will take us to JBL. $90 million contribution to PCC this quarter versus the minus 27 year over year. Strong cash earnings at JBL and also some fair value marks on their JBL capital portfolio in the quarter of about $17 million. And we had a reversal recovery of the Web help, non-controlling interest liabilities of about $37 million in the quarter. That, as you all know, has been going against the earnings statement for nine consecutive quarters as we recognized the liability increase as the Web help asset increased over those periods. Takes me to other investments and standalone businesses. We sold Bellas Health, which was a nice event during the quarter. We realized $97 million on that. And corporate expenses, pretty simple in terms of the changes there. We have a $17 million gain in the prior quarter from our cash settled liabilities in compensation, and this quarter it was a loss of $5 million. And the 46 looks like a good number if you're looking at where we should be coming in for the remainder of the year. That's about 46 per quarter is a pretty good number. The financing and income tax charges, last year we had a deferred tax benefit that we recognized, so that is basically the difference there. And with that, I think I'll just go straight to slide 11. And here we break down the net asset values. And, of course, the big driver in the quarter being Great West Life. Great West Life has had a very strong stock performance over the last couple of quarters. And since March 1st, It is up 7% and of course that's reflected in our NAV and as I said, at June it was almost $49 and yesterday it was almost knocking on the door of $50. So with that, I'll turn it over to Jeff.

Okay, thank you Greg. And I'll move forward to slide 12. Just make a few comments. Our first opportunity to speak about the sale of Putnam to Franklin. Just start by saying we're really pleased with this transaction. We think it's going to work out really well for all parties. Just a little bit of background. Putnam had – we had really created an amazing investment engine at Putnam. I think if you look at Barron's, they had Putnam as number two amongst the roughly 50 companies over their long-term 10-year track record. And I think the firm that was in number one was a sub-advised platform. So if you look at pure investment firms that are managing – their own funds. It's basically a fantastic long-term investment track record, which was starting to translate into better flows, but the economics, obviously, we had struggled with those for years, as many of you have pointed out to us and we were well aware of. This really unlocks that economic value with a really good fit with Franklin. And I think when I say all parties are going to benefit, I would start by clients of Putnam, This is, you know, the model of Franklin, what they did with Legg Mason and all their other acquisitions, they leave the investment engines essentially untouched as standalone investment engines. All the lead portfolio managers at Putnam had signed up to the deal and to be part of the new company going forward prior to the announcement. So it's great for the clients. It's great for the people at Putnam. I think it's going to work out extremely well for the shareholders as well, for Great West Life and ultimately up to Power Corp. I think Franklin are going to be able to do a great job with it and it will really benefit them in many fronts. They'll be able, over time, to get the economics, given their scale on so many functions, they'll get the economics out of Putnam that we were struggling to get. A good transaction from Great West Life's perspective, it unlocks the value of Putnam. It wasn't earning any money for Putnam. We end up with total potential proceeds over time of up to $1.7 billion to $1.8 billion. So that's a good transaction economically. It unlocks the value. It really allows them to focus on their retirement and wealth management business in the U.S., put all of their focus on it, which is another great benefit. We think the shares of Franklin will do well over time, and Great West is now a shareholder of Franklin. And then there's a distribution partnership that will benefit Franklin, but also benefit Great West in our group. As I said, for Canadian audience might think of Franklin as Franklin Templeton, but Franklin Templeton, which is a traditional business, it's changed a lot in the last several years under Jenny Johnson's leadership. And they bought Legg Mason, which is eight different investment platforms, really interesting performance and different capabilities. And then they've built out a great alternatives business, having purchased some of the leading private equity and debt shops around the US and Europe. So lots of capabilities that will benefit across our platforms. So we'll benefit from closer cooperation with them, and our clients will benefit from that as well. So just very pleased with the transaction. It took a long time to get done, obviously, but we're very pleased with the results. As I flip to page 13... I just want to kind of draw the lens back a little bit and give some perspective on what's happened in the U.S. If you go back to the start of 2019, so just four and a half years ago, Great West has completely repositioned its U.S. business. If I go back to the start of 2019, Great West's U.S. business was three businesses. And the largest of that was the individual life insurance and annuity business that was contributing the most profits. There was Empower and there was Putnam. The business was contributing, I think if you go in 2018, it was earning a little less than $400 million Canadian, contributing about 13% of Great West Lifesco's earnings. We kicked off 2019 by announcing the sale of the individual life and insurance business to Protective for a little over $2 billion. We then went on and did three significant transactions to enhance the position of Empower in their market and build it into the clear number two player in the U.S. market. Then we've just announced the sale of Putnam. Over about a four-and-a-half-year period, we've gone from three businesses to one market-leading business. If you go to the quarter that Great West Life just announced, Empower earned $265 million Canadian, or roughly 29% of Great West Life's earnings. That's in one quarter only. So this has been a huge transformation from a strategic positioning point of view, a focus point of view, and we now have, I think, a very competitive high-growth business in the U.S. that is very meaningful to Great West Life Co., and I think it will become even more meaningful, given what I think the growth prospects are for that business in the years ahead. So that's the story there. I'm going to then move to page 14 and just make a comment on IGM. It may be not quite as dramatic from a transactional point of view, but IGM, I think, also, if you go back over the last five or more years, has really changed its business profile, both internally through heavy investments in IG wealth and McKinsey and also through a number of transactions. I think they're now in a position where in their two key fields, which is wealth management, the largest part of IGM, and in asset management, They have two very strong Canadian players in IG Wealth and McKinsey. And then they have some very high growth prospect businesses as well in both wealth management and asset management, notably with significant plays in both the U.S. through Rockefeller and in China through China AMC. So a lot of change has gone on in IGM. We really like the way the business is positioned. And Greg mentioned the The initiative on cost, I think IGM are showing they can invest in their businesses, grow their businesses while being very disciplined from a cost point of view, and that continues to be compressive and something that we're very encouraged by. All right, the ADQ BMO transaction. ADQ and BMO have become general partners, and Great West Life also invested as well. They were already a partner in CIGAR. And I think this is really going to help the continued strong growth of Cigar and help them get to the next level. It's validation of what Cigar has become with third parties coming in and wanting to be part of it and wanting to play a bigger role in investing in their funds. I think it will help fuel Cigar's growth, which has already been very impressive. and is consistent with the strategy that Power articulated. We have said we are all about creating value and ultimately profitability in our investment platforms, but we were looking to do that through third-party capital. And so that third-party capital comes in the form of LP commitments to their funds, but it can also come in terms of participation through the GP. And by selling shares in the GP, we not only help the fund the growth of the GP and its own activities, but we also get more LP commitments. So, we're all about creating shareholder value here and this, I think, is a big step forward and a validation of what we've been creating in CIGAR. Page 16 is just a reminder we have, well, we do spend a lot of time focused on the organic growth of our businesses. We have continued in the last, in 2023, to be very active from a transactional point of view. As we've said, we were going to, as we talked about those three levers of value creation, number two is M&A at the operating businesses, number three is things we can do at the power level to create value, and you see on the page here just a listing of some of the things that we've announced over the last several months in pursuit of our value creation strategy. Okay, turning then a few pages on the platforms themselves. So on page 17, you have got $21.8 billion of unfunded AUM at Cigar and Power Sustainable. That's up from $19.2 billion a year ago. Pretty difficult funding environment out there, so we're pleased that they have continued to be able to raise funds And in the last quarter that just ended, Cigar had a couple of closings of their funds. That includes the Portage Capital Solutions Fund, which is a late-stage fintech fund. That's obviously a big position in fintech. This is actually to buy into fintech companies that are at later stages in what Portage has been investing in, as well as another healthcare partners fund. That's a Series 2 of fintech. of that particular strategy. At the bottom of the page, you see the $21.8 billion, of which $16 billion is funded, and you see PowerCorp's commitment to that is about $2.2 billion. We really have about the same amount of LP capital committed to those strategies as we had at the time we announced the transaction, the reorganization, back at the end of 2020. and yet the funded AUM has grown dramatically. And so, again, to reemphasize the message, we are trying to grow these businesses to profitability, to create value, and we're trying to do so without committing further capital to the strategies. We're recycling our LP capital. As the platforms look to us to be part of the seed as they launch new products, we're looking to recycle proceeds that we're getting from distributions that we're getting from our LP positions. And that is what the strategy is. And then flipping to page 18, you just get a breakdown on the fee-bearing capital at the bottom right, which is very close to the funded capital. And then you've got the economics there for cigar and for power sustainable. Cigars are run rate... A management fee is about $45 million Canadian in the quarter. That's just basically the fees before you get to carried interest. That can be a little noisy from quarter to quarter. Sometimes you get a closing in the quarter and there's a catch-up on fees. It's not quite like the fund business or the asset management business. They can go and invest in a fund and all of a sudden they get a closing and all of a sudden you get a catch-up fee. And so there's a bit of lumpiness, but it's not a bad indicator of run rate notwithstanding that. You'll see a bit of noise quarter to quarter. And then you've got Power Sustainable, which doesn't have the same level of AUM, but has nonetheless done some good fundraising through a number of strategies and is looking to launch a number of other strategies in the quarters ahead to give it more scale. Page 19. We won't spend a lot of time on this. We're doing a lot of work to try and get to the point where we can explain to you what our returns have been on our LP and our different LP's investments because it's hard to tell from our P&L so we're doing a bunch of work to try and be able to share that with you in the quarters ahead. This is us simply saying what we target in our different, or what the strategies themselves target. In the top half, you've got basically more of the equity-type strategies, private equity, venture capital, the China strategies. There's about a billion dollars of powers NAV is invested in that, and the targets of those funds range from 10% to 18% as LPs. And at the bottom half, you've got private credit, royalty, more of a real estate. It's hard to put a line on these things, but those would tend to be lower return, but still attractive return strategies, lower risk, And the returns on them, target returns tend to be 8% to 11%. Okay, page 20. You know, we've got a lot of questions on Lion and LMP and Lumen Pulse and when are we going to divest and, you know, what's our strategy there. I think we showed in a previous quarterly report result that we have raised a lot of capital, but it hasn't been through Lion and through Lumen Pulse. Even though you might have thought, we might have thought when we announced the strategy, they would have been at this point, we would have realized some capital on them. So we haven't done that. We focused on other things. We just announced Bellis. We continue to raise capital and monetize assets. But Lion and Lumen Pulse have It has not been opportune for us to do so at this point. But this page points out that, having said that, they've continued to grow their businesses, and we were, up until 2020, the primary sources of capital for those two companies, and that has completely changed since we announced the transaction. You've got at the top, you know, Lion did its SPAC, where I think Power put in something a little less than 20. I've got 17 or 18 by memory. I'm not off by much. And in 2022, we supported an offering they did, and then Lions just announced 142 million of financings, and we were not part of that. So the overwhelming bulk of the growth of Lion has been financed by third parties, and in the case of Lumen Pulse, it's all been financed by third parties. So again, we're trying to build up the value, help these businesses grow. We'll ultimately realize value on them, and we're doing our best not to be the funder of their growth and of their value creation. which allows us on page 21 to return capital to shareholders. We've been back more active on the buyback side recently. A total of $280 million invested in purchasing shares to this point, including about 160 post the end of the quarter, June 30th. Cash is a very respectable $1.4 billion. That's at the end of June 30th. So that does not include the $159 million there just above that's prior to spending the $159 million to buy some shares back. And as you know, we target about $800 million roughly in cash as kind of a standing position, and we are always very mindful of our credit ratings across the group. Page 22, just a quick shot. We are very focused on shareholder returns. Just to say, well... This is July 30th, our Power Corps return to shareholders relative to some of our key benchmarks. As you're all in the business, you know these things can be very sensitive to start dates and end dates, so you can't put too much emphasis on any one date. They can jump around. But nonetheless, we track this closely, and we're focused on absolute returns to shareholders, but we're also relatively competitive and keep our eye out as to how we're doing against our key benchmarks, and so that's just there for your edification. As I flip to page 23, those returns have been there, notwithstanding that the discount to NAV kind of gapped out over a period from the middle of last year up until recently. It's started to come back down again. We could talk for an hour about what causes that, and we're obviously not in the minds of all buyers and sellers of the stock, so we don't have any perfect crystal ball as to what creates it. I simply, rather than try to explain the ups and downs, I just look at the fact that when it goes up, it's an opportunity because I don't see the justification for where it is anywhere on these levels. I do understand through the period up to the end of 2018 why it was trading as high as it was, why the discount was as high as it was, but as I've said many times, other than the net present value of our expense load of roughly after tax of the 46 million that Greg talked about on the expense load, which gets you to about a two or 3% discount. I think the rest of it is all there for the taking and we're gonna continue to be out, communicate and broaden our shareholder base and tell our story and continue to use that as an additional lever to drive value. And page 24, the last page, as you've seen all this before, the strategy essentially remains unchanged, and we continue to be highly focused and very excited about the prospects for creating value. With that, operator, I will end my comments and would like you to open it up for questions from different people who would have questions.

Absolutely. We will now begin the question-answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. The first question comes from Graham Riding with TD Securities. Please go ahead.

Hi, good morning. Maybe I could just start with the CIGAR partnership with the institutional partners you brought in. Can you just flesh out sort of the, I guess, the pros and cons of why you see the benefits here of bringing in these partners? Is it more around sort of fundraising and growth potential in exchange for giving up some of the ownership of this alternative platform?

Yeah. Hi, Graham. Good morning. I think it is all about value creation and about creating scale. And those partners bring and will bring significant LP commitments that will help both existing strategies at Cigar as well as helping to launch additional strategies. and they will also bring capital into Cigar to fund its own operations, including potentially whether Cigar would ever add groups. You've seen that in the past where it was, in fact, the real estate group that Great West Life had in the U.S. where the group became part of Cigar. Are there opportunities for Cigar to add additional capabilities through other firms that might be out there. That's on the drawing board. It's not necessarily going to happen, but that provides some funding for that as well. But significant validation and significant LP commitments that will help to bring Cigar to the next level of growth, profitability, and ultimately create value for PowerCorp. And if we can own a smaller chunk of a bigger, more successful company, firm, and we can do that. We'll do that if that's what's going to maximize our value, and that's the way we think about it.

Okay. That answers your question. That's helpful. How do you go about determining value on this business, given it's obviously got a high growth rate, but it's not profitable yet? How do you go about putting a pin in valuation when you're bringing in partnerships?

Yeah, well, there's lots of valuation metrics that are used, and they've got AUM, they've got revenue, they've got growth prospects, and so, you know, you get your evaluators to do that, and you look at your strategies, you've got forecasts on fees, on revenues, funds that are existing, funds that are the second and third versions of funds, and there's new funds, and they all get discounted at different rates, and there's a whole massive profession around how to value a GP, and lots of firms that do that for a living because these positions trade a lot. There's a lot of trading of GP positions in the alts world.

Do you want to add to that, Greg? Yeah, I'd just add that both these platforms have a longer history than just the history that you may be aware of when the cigar platform was launched with Paul III. leading it and Power Sustainable and Olivier. They were legacy investments with several funds that had been successfully launched, for example, on the cigar side and Cigar Europe. We've been there almost 20 years. So, you know, there's a history of successful launches of these funds and also a track record in terms of their their ability to generate revenues for the GP. So, you know, it's not simply, you know, as a startup might be. So there's a track record as well that is useful in not only demonstrating to valuators, but also to participants. And so, you know, both the BMO and ADQ would be fairly sophisticated purchasers and are out there supporting ventures like this all the time. So we get feedback from them as well, obviously.

Okay, great. Just on the GBL piece, there was some gains this quarter around web help. Can you give us a little bit a color of what we should expect if anything going forward around either further for, you know, fair market value gains or um, these sort of reversals of these, these put liabilities. Cause I believe this deal, the merger of web help is still has closed by the end of the year, I think. Yeah.

You're, you're quite right about that. So concentrics, uh, is the, the, the purchaser and, uh, um, uh, we're hoping that, uh, successfully close, uh, And with that close, there will be a gain on the transaction. And at that time, you'll see a very significant reversal of that liability. And it's almost $1.6 billion on their books today. So that all goes away on the transaction. That should be the last, if you will, mark that we see when the transaction closes. So hopefully that's helpful.

Just to be clear, is that going to flow through to you as sort of your ownership position in GBL of that $1.6 billion gain or reversal?

Absolutely. Yes, yes. But, you know, the $1.6 that I quoted right now, I I think that's accurate. I'm just looking down the table. Jay, I think it's 1.6, isn't it? Yeah. Okay. So, yeah, so we'll pick up a share of that, our proportionate share, Grant. Okay.

Understood. That's it for me. Thank you.

Thank you, Grant. The next question comes from Jeff Kwan with RBC. Please go ahead.

Hi, good morning. Good morning. I just wanted to follow up also on the ADQ BMO transaction. You mentioned how it helps the growth from the LP and also maybe from the GP level, but just wondering is there any benefits that might be contemplated from a distribution angle, whether or not it's from relationships they may have with other LP-type investors, and then also, too, is there any plans to kind of grow distribution of your alternative strategies within the retail channel, kind of similar to what some other players in the industry have done?

I think yes and yes would be the answer if there were two questions. Two yeses, if there were three, three yeses, because I was sort of nodding throughout your question, Jeff. Look, I think the first thing, I use the word validation, and so the fact that ADQ is in there, I think will make a statement to... investors not just retail but investors institutional investors around the globe about the quality of what a cigar is and I think that I would be hopeful I think cigar people would be hopeful that that leads to other LP opportunities with a broader base of investors I think the focus on the not the ADQ itself would be providing any distribution it's a sovereign wealth fund I don't think that but the fact that they've invested will make a statement I think, to a lot of people and open up different markets. Very much, Cigar is focused on retail opportunities within our own platforms, but also on other platforms. And retail, I've got to be a little careful how I use that word. I mean, it goes from family office to high-net-worth shops to the democratization, as the word is used, of alts. products that firms like McKinsey and many others are doing across the world. So they're focused on doing that. You know, the BMO partnership might help there as well, but I'm not into the weeds as to all of the opportunities that may be there. But Cigar, like all of our alts platforms, are looking to broaden out their distribution and not just be focused on the institutional marketplace. because I think a lot of the growth over the next decade is going to come not from institutions, but it's going to come from high net worth, ultra high net worth, and retail channels. I don't know if that answered your question.

No, it does. Just the second question I had is, on slide 18 from the presentation, there's the mention of additional fund launches expected. Is that new strategies that you're referring to, or is it subsequent vintages of existing funds? And if it's the former, just any insight as to what those new strategies might be?

There are some new strategies being launched.

I don't know whether we've talked about them publicly. I'm looking at Greg here.

Go ahead.

There are a couple that have been announced, actually. Power Sustainables announced the... U.S. Infra Debt Fund is one, and also I think they have plans to do similar in the U.K., so I think that's been announced. And there are vintages, Jeff, as you quite rightly surmised, that are add-ons to some of the existing funds. But there are always others on the drawing board, but those are a couple... things to look forward to.

Okay, thank you. Thank you.

The next question comes from Tom McKinnon with BMO Capital. Please go ahead.

Yeah, thanks very much and good morning. Question on slide 18 with respect to asset management activities. investment platform expenses remain elevated here and I'm wondering is it just a matter of scale here that's needed before those management fees are going to be enough to significantly surpass those platform expenses and how should those platform expenses trend as you launch additional fund strategies and have a follow-up? Thanks.

Great question. I'll take a first cut and then Greg You can add whatever color you want. Yeah, I think in the case of cigar, they're effectively on a fee basis right around break even on a cash expense basis. But they have pretty significant scale at this point as you can just annualize the management fee. There's a good revenue base there. That's just the base fees, and their expenses are running at about that level. So more scale... more assets, scaling existing strategies, scaling existing strategies, that might mean the next vintage of it is the easiest way to get that to a profitability point of view and they're pretty close right now. What you end up always having a trade-off with is that the opportunity to extend the products into adjacent products. you've got a credit fund and you're in a particular part of the market. And if you can put a new credit fund, you know, right next door that's got a different tilt that might be less risk or higher risk, you know, you end up also scaling the core team. And then you try and add new strategies all together. And when you add new strategies all together, you create future value, but you go backwards on profitability because you go, there's a J curve here. So you go Every time you add a new strategy, you're probably two, three years where you're incurring at the margins and losses while you get the money to work and you get the scale going. So it's a continual trade-off of how big do you want to be in five years versus how quickly do you want to get to profitability. And the fastest way to get to profitability is to not launch any new strategies, but then you're curtailing ultimately your value creation three, four, five years down the road. So I'm not trying to be evasive. Cigar has got lots of opportunities. They're right at the cusp of being profitable on a fee-only basis, and there's a forever kind of discussion about new launches and the pace of profit going forward. Does that answer your question? Maybe you were looking for something?

No, that's good. The follow-up is there's a negative 10 in other on that slide. I'm just not sure what that is. And what's your ownership now in Cigar post the recent transaction with ADQ and BMO and GWL?

The other has got some noise in it. In fact, there are some transaction expenses, even though the transaction hasn't closed in it. That would be, I think, a big chunk of it. And there's some non-cash equity issues. amortization that is in that line, I believe, as well. But the biggest one is a one-time item. And you get, we have a debate about whether non-cash equity amortization should be above the line in terms of fee-related earnings or below the line. And we're doing a lot of work as to how others around the industry disclose that. But that's what that number is. Anything to add on the profitability? I'll come back on the equity. There's a little bit of noise in that number this quarter.

And the ownership now plus the transaction?

Yeah, so we are above 50%, but we're not much above 50% between management, which has got a significant chunk, Great West Life, BMO, and ADQ. Power is a majority shareholder. And I think we're going to look in terms of your questions and in terms of I think it was Graham's questions on on how do you value this thing. When we get to a close here, we'll talk about what we do with the mark, and we still got some work to do on that. It hasn't closed yet, but right now we're holding the GP interest at not a very significant interest, but we'll... What was the ownership before the transaction, Jeff? We would have been around 70%, 78%.

So you went from 78 to just over 50?

Yep.

Yep. Well, it's going to be creative right away because of the negative earnings here.

Yeah. Well, at this point, it's a value play, not an earnings play. I hope you could appreciate that. Yeah, I understand. I'm just being facetious.

Sorry. Thanks.

Yeah, no, but I think the value that's in cigar, we've created value that will become evident. Not that it's massively material to PowerCorp, but it is what it is. We've got a business here that's growing quickly, that's got great capabilities, and that we're creating some value. I think this is a big step. It was an important decision for us. Do we dilute ourselves or do we continue to own a bigger chunk? Again, it came down to what's the way we're going to maximize the value of our position. You put a value maximization hat on and you say this was a good thing for a Cigar and a good thing for Paracorp.

Thanks.

Okay, thanks, Tom.

Once again, if you have a question, please press star, then one. The next question comes from Doug Young with Desjardins Capital Markets. Please go ahead.

Hi, good morning. I think this goes back first to what I think, Jeff, you were alluding to in some of your prepared remarks, just trying to get a little bit more color you know, on the swings or the 18 million from SAG are in the investing activities. And that has been swinging all over the place, which is, you know, I guess that's as expected. Can you talk a bit about, you know, there's a big improvement sequentially, like what drove that, you know, what are some of the drivers there?

Thank you, Doug. And I'm scrambling here to find the 18 that you're referring to. And so is Greg.

It's under investment activities, proprietary capital. So you've got Saigert and Power Sustainable. It's page 846 in your shareholder report.

You have an answer to that question, Greg? I don't. I'm still trying to find the reference.

Yeah. You know, we can always kind of come back. I just, you know, just wanted to understand a little bit more about the drivers there. But more importantly, within SAGRED, I mean, you know, some of the things that I think about, you've got a real estate fund in there. You know, can you talk a bit about some of the exposure there? That's been a hot topic, you know, across the financial sectors. And then you've got a sustainable energy fund. And obviously, IPP valuations have been hit hard. And so just trying to, and then you've got, you know, fee caps coming through in China. whether that has implications at all for the SAG-Yard platform. So those are three areas there that are potential headwinds, but maybe they're not. So I'm just trying to get a little bit more color.

Yeah. Well, Greg, you look at those numbers. I'll just go to the fee caps in China that has no impact at all on our alternate asset platforms. We didn't mention that, but for those of you, I think it would have been discussed in the IGM call. That's really in the In the retail business in China, the authorities put on a fee cap, which resulted in a rollback of some of the fees in the mutual fund industry, and that would affect retail funds and will have a, I think IGM reported about a 12% impact on CMAC's profitability, but at the same time, the Chinese authorities are very conscious of having a healthy and profitable business. So that, you know, that's a That is what it is, but it doesn't impact at all the China strategies that Power Sustainable Capital has. Those are not mutual fund strategies. There's ourselves and some institutions in that strategy, but not retail. And with Greg, I hope I talked long enough to give you an opportunity to catch up to the page that Doug was asking about on the $18 million. Do you want to make a comment or do you want to follow up afterwards?

That's fine. And we can follow up later too, but... In the quarter, Doug, it was largely driven by gains on our European funds, and those are all fair value through the P&L these days. And, you know, also we had good performance in the private credit and the health care royalties. So... That's where most of it came from. There was some negative marks on the real estate, the Upper West real estate, but not significant in the quarter. They don't have a lot of exposure to commercial properties, so So that would be the key, I think, in terms of the quarter.

Okay. And you don't see anything on the sustainable energy side that's concerning to you from valuation or potential surprise impact within your funds at this point?

No, I wouldn't say so. Certainly, we are in the business... Western Canada, and I think the Alberta government did come out with an announcement the other day, but that's probably not going to affect what we have in the ground. So I don't see a particular headwind, but that's probably what you were alluding to.

So... Okay, and then I guess what everyone's trying to kind of ask around, and I'll just kind of ask it directly, I mean, what was the valuation implied with the transaction of the GP? Like, would you be willing to give that, or is that something that you would be willing to give potentially at close?

Yeah, that's what I was just referring to, Doug. Thanks. Sorry if I wasn't clear about that. I think we are considering that issue after close, once we close, as to what we do with the mark. We haven't aligned it exactly, but The bias would be to mark and disclose, but we're not at that position right now to make a comment.

Okay. And just maybe lastly, sorry, go ahead. No, that's it. Okay. Yeah, just lastly, maybe strategy-wise, big picture-wise, you know, Great West has been doing deals in the advisor space to kind of, you know, position itself and have better distribution, you know, against the big banks and, you know, IGM is competing fiercely, you know, against the big banks and we hear this time and time again. Now, would it be valuable for Power and within the Power Group of Company complex to have, you know, a Schedule 1 bank license or an entity that is in that space? And I know, you know, if you go back in time, Power has had you know, a banking franchise and whatnot doesn't have it anymore. But like when you think about strategy and things that are missing within the group of companies, is that something, is that a reasonable direction to go in?

I think you start with a client focus and say you want to be able to provide as much capability to your clients as you possibly can. And that flows back into the health of your distribution. And then that ultimately flows back into profitability. So if you just go that level, you'd say, like, we'd like to have more and we should have more products. And in the last 24 months, the flow back into banking products and CDs has shown that, right, that having cash products is important. People forgot about it over the period of interest rates going to zero and then staying there for so long and interest rates pop back up and all of a sudden cash products are important. But once you go beyond that statement of how do you bring it to your clients, you get to can you be competitive manufacturing it, and can you do it on a scale basis, and can you do it on a sustainable basis? And then the question gets a lot trickier, and the answer becomes less clear. And, you know, you've got, if anything has been shown in the last 12 months, it's basically a lesson of history, is having a strong, diversified deposit base as opposed to going out and building a business on kind of what I'd call hot money is maybe too strong, but kind of competing on rates. Having a strong, diversified deposit base is essential in my mind and in our minds to having a successful intermediary, you know, banking business, to having a banking business. And there, you know, looking at that from a Canadian landscape point of view or a U.S. landscape, from where we are, that's a tall order. It's a really tall order. So that's where we always get to in that discussion. It doesn't mean we're not interested in providing banking products and services to our clients and then trying to make some margin on it where it's important to our offering, but it might be more distribution margin than it is the actual manufacturing side. I don't know if that answers your question. That's the way we think about it.

Makes sense. Thanks for the color.

Okay, Doug, thank you.

Ladies and gentlemen, there are no further questions, so this concludes your conference call for today. Thank you for participating, and you may now disconnect your line.

Thank you very much.