Power Corporation of Canada

Good morning, ladies and gentlemen, and welcome to the Power Corporation third quarter 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 here in the conference, please press star then zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on Tuesday, November 14th, 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. Thank you for joining us this morning for our Q3 results call. And I am joined by Denis Levasseur, who is the principal financial officer at this point of PowerCorp. Denis has been with the group for over 30 years and is going to be covering off on the financials with me today. A number of you have asked about Greg Tretziak, and I'll just make a brief comment. Greg is doing well. He is at home. He's recovering. in good spirits, and that's about all I can say at this point. So that's all good news and nothing further to comment at this point. So with Denis and I, we'll go through the regular presentation. You've got the forward-looking cautionary statements on pages 2 and 3 regarding forward-looking information and non-IFRS information. On page 4, you have a picture of Denis. Denis, I don't know whether that's your A recent photo, I'm looking at you and looking at this picture at this time.

It's a little different.

That's what I was going to say. So we've got Dini and I, and I'll go right through then to the rest of the information. You've got on page six a number of other recent disclosures by our group companies. And with that, I'll spend a few minutes on page seven. So the highlight for me is just continued strong financial performance by our two main operating companies. and income-producing businesses, Great West Life and IGM. And Great West Life Co. continues to show very strong growth in earnings, and the quarter in particular was well-balanced. It was very clean. There was a lot of noise, and sometimes on the insurance side you do get noise going one way or the other. It was a very clean quarter. And just demonstrating what we've been saying to the market for some time, that we see strong growth. in organic earnings coming from Great West Life Co. IGM as well produced very solid results. Not the easiest environment, both asset management and wealth management are in outflows at this point, and the markets have been very choppy. And they produced very solid results and continue to demonstrate that they can invest in the future growth of the business while managing their costs very effectively. So for me, those were the two kind of highlights in the quarter. Just moving towards the bottom part of the page, it is noteworthy, however, Great West continued to make good progress on its previously announced acquisitions. Prudential is on track, in fact, ahead of track in terms of a number of the metrics. And Great West Live also focusing on the wealth side with some acquisitions that they are in the process of completing. GBL, a big earnings quarter for GBL. Denis is going to comment on that in the middle, in a moment, excuse me. But GBL continues to be active on returning capital to shareholders through buybacks. Sigard closed the transaction that we announced in the last call with ADQ and BMO, and so bringing in outside partners to continue to grow the Sigard franchise. The Alternative platforms had good fundraising in the quarter, $1.2 billion of new commitments in Q3 in a very difficult funding environment, but continued solid progress there. And Power itself continues to be active on the buyback side. Page 8, the environment is one where money is still flowing into cash products, slowing into CDs and the money market funds. It's also, you know, Canadians and Americans are engaged in debt repayment. And so you've got, obviously, interest rates are having a big impact on the behavior of consumers, the behaviors of investors, where it's not flowing. So you've got outflows going on in asset management. You've got outflows going on in long-term investments. And that's showing up in some of the headwinds that we're getting at this point in the cycle. in our various franchises. With that, I'll turn it over to Denis to address some of the financials over the next few pages.

Well, thank you, Jeff. And good morning, everyone. Please turn to page nine. And as Jeff just noted, we saw strong earnings contributions from both LIFCO and IGM this quarter. Adjusted net earnings from continuing operations were $1.7 billion, up versus $520 million in the same quarter last year. This translates into $1.52 per share compared with 78 cents in Q3 of 2022. I'll address the drivers of this increase shortly. Our adjusted net asset value was $48.26 per share at September 30th and ended just under $50 at $49.98 yesterday. This is $1.12 higher than June 30th and at $8.07 yesterday. higher than the year-end 2022. And finally, the board declared a quarterly dividend of 52 cents and a half per share yesterday. Turning to page 10, Great West's strong performance across the segments, including an increase in year-over-year earnings from the U.S., Europe, and capital and risk solutions, partly offset by Canada, but it should be noted that For Canada, the pre-tax earnings were up this quarter when you compare to the third quarter of 2022. The combination of recent acquisitions, operational improvements, and disciplined expense management has translated into solid results for Great West this quarter. IGM earnings, they were consistent year over year and supported by strong performance from both IG Wealth and McKinsey. Contributions from IGM's strategic investments included a year-over-year earnings increase from China Asset Management, CAMC, and decrease in its proportionate share of Great West earnings. This was driven by IGM's partial sale of its Great West shares in Q1 of this year, as well as a true-up related to the actual Q2 earnings disclosed by Great West. Moving to GBL's contribution this quarter, WebHelp announced completed this previously announced combination with Concentrix. As you may recall, GBL had built a non-controlling interest liability over time related to put options extended to founders and management of WebHelp. As the fair value of WebHelp increased, GBL was required to recognize an accounting expense related to the fair value of these put rates. This totaled $1.2 billion at GBL. This liability was extinguished without any cash impact and GBL recognized a meaningful gain on deconsolidation of 1.3 billion euros of which PCC share is recognized this quarter in the amount of $323 million. In other investments and standalone businesses, this quarter's results was comprised largely of interest on cash and cash equivalents. Finally, I'll highlight the corporate operating expense line, where this quarter we have an $8 million loss from our cash settled compensation liabilities versus a $2 million gain in Q3 of 22. Going forward, we would expect less volatility from this item due to the edging actions that we have taken to date. I will now turn to page 11. We break down the 4826 net asset value as of September 30th. Great West remains a large component of our NAV, and modest gains in its share price this quarter were more than offset by the impact of IGM's trading performance. I'll note that following the completion of the ADQ and BMO strategic partnership, where both parties acquired minority interest in Sagar Holdings Management, we have begun recording in our NAV the Sagar Management Company at its fair value. So this is NAV. This is not in the earnings. And the prior quarter's NAV was at carrying value. So we get a bump there in our NAV. With that, I will turn it back to Jeff.

Thank you, Denis. So moving along to page 12, we'll just pick up a few highlights for the various companies. Great West Life Co. has been putting emphasis with its communication with the markets to reflect its internal focus on building up its wealth management businesses. But the new disclosure that Great West Life Co. has been doing around its value drivers, it highlights the size of the wealth business within Great West Life Co., and they are very focused on building that across their various geographies. In Canada, obviously, a couple of acquisitions, a small one with value partners, but also the IPC acquisition, which the closing is still pending, builds up their position and their breadth in wealth in Canada and makes a pretty loud statement about their commitment to the sector. In the U.S., Empower Personal Wealth is one of the key drivers of growth around that business, fed largely by the rollovers coming from the DC platform, but also there's a very important direct-to-consumer market there, and that business has grown 30% year-over-year and is now at $65 billion U.S. of AUA on the Empower Personal Wealth platform. And in Europe, they've been making a number of moves, including in Ireland with the launch of Unio Wealth and a new joint venture with AIB. So a lot's going on on the wealth side, and you'll hear more about that from Great West Life as we move forward. I'll turn to page 13. This is just a vignette, a snapshot of one element of a broader story. The broader story that we have been talking about, IG Management has been talking about, is that the IG Wealth Platform, formerly known as Investors Group, has really undergone a very significant transformation over a number of years here. And we've talked about the difference in the recruiting model, the difference in the products, the pricing, the basically whole value proposition. One element we haven't talked that much about is how much has been done on the technology front and on the a platform that advisors and clients experience. And this is a snapshot out of the recent investment executive dealers report card. And you can see in the upper left, the scores that the advisors at IG Wealth Give IG have been continually improving over the last five years. And then you've got a relative positioning against some of the major dealers. The platform has really been digitized over the last five years in a significant way. And it's one of the great strengths, and the company continues to invest in its technology delivery for both advisors and for clients. On page 14, so just as I mentioned earlier, the EDQ and the BMO investment into CIGAR was completed. So this will provide greater funds within CIGAR. the GP in order to invest as well as LP capital and as part of CIGAR's strategy to give itself greater strength, greater breadth. And that's important in what is a pretty challenging fundraising environment and is going to help them, I think, over the next couple of years tremendously. I'll turn to page 15. This is just a slide you've seen before, say we continue to be active on the transactional front, notwithstanding the amount of time we focus on organic growth, we continue to look at external transactions to reposition the group for greater growth. And with that, I'll go to 16. So in terms of the fundraising platforms, $1.2 billion was raised in the quarter, 600 million U.S. was in Power Sustainable's launch of its US infrastructure credit fund. We've got a great team that has been hired. Cigard Healthcare did an additional closing, and then the Power Sustainable Equity Infrastructure Partnership, which is a Canadian venture, had additional fund commitments. But notwithstanding that, the environment is difficult, and it's difficult not only on the fundraising side, but the deployment side is challenging as well. You'd all be aware there's less transactional activities, there's less M&A going on. We read about it all the time. That also means that investment managers and alternative investment managers are putting less capital to work than they would be in a more active environment. And of course, when you turn around and do your next fundraising and your next product, which adds AUM to your platform, you do that once you've deployed or mostly deployed the previous fund. So if you're deploying at a slower rate, It's not only fundraising that's slower, but your ability to go out and launch new products is lessened. So it's hard business. Our group is not alone in that. It's a factor across the industry. Page 17 just speaks to the ongoing financial results, and we've got Cigar at the top, which has got, from an FRE point of view, the third line, so $42 million in fees. And it's just operating slightly below the break-even level from an ongoing basis. And Power Sustainable making progress on the revenue side, but still ways to go before it is at a break-even point. And again, we talk about the overall AUM of our platforms being just under $24 billion, but the fee-bearing is the one that actually pays the bills, and we're at $16.7 billion across the fee-bearing capital. On page 18, our group has been active returning capital to shareholders. We continue that through Q3 and post-Q3. We've purchased 452 million of shares so far in the year. 12.6 million shares or 1.9% of the participating shares. And our cash position at the end of the quarter is 1.2 billion, and that would be prior to having acquired the additional 112 million shares. in the subsequent to the end of the third quarter. We do have a loose target of roughly two times six charges, including financial charges that we like to keep on the balance sheet. So that's about $800 million. And our ratings continue to remain very strong with our principal rating agencies. Page 19, Power has delivered over the last five years, three years, 12 months, strong relative returns compared to our principal benchmarks. So that is good. And that is notwithstanding what is on page 20, which is that our net asset value discount has gapped out in the past year and a bit, going back to the middle of 22. So we had worked hard through the period around the announcement of the reorganization made good progress on decreasing the discount and it has gapped out in the past 18 months. So I guess if I look at that from a glasses half full point of view, we've delivered competitive returns not standing that we've had the last year and a half where the discount has gapped out. And so I view that as an opportunity. Having said that, this is on us. We've got to continue to communicate the value that we have in our different parts of our businesses and make sure that investors understand how that value is going to translate into value for them. And so we will continue to be highly focused on communication as well as looking at our strategies to realize value to ensure that they meet with our investors' expectations. But that's going to be a focus of our group, an increased focus of our group, I suspect, in the quarters ahead. And then I'll just conclude and wrap it up on 21. The fundamental strategy hasn't changed in the last number of years. I will say that I am really, really pleased with the repositioning that has taken place at Great West Life and IGM over the last number of years. I think that's 80% of our gross asset value and a much higher percentage of the part of the portfolio that is earnings-based And if I go back to 2019, prior to us announcing the reorganization, and then look today, both Great West Life and IGM have been significantly repositioned for growth. Great West Life, if you go back to 2019, going into the year, in the United States had three businesses, being our insurance business, Empower, and Putnam. Collectively in 2018, they earned I think $385 million Canadian after tax. You fast forward to today, there's one business in the United States with the sale of our insurance business, the pending sale of Putnam, and the three acquisitions we did at Empower. And over the last couple of quarters, the U.S. business of Great West has earned in excess of $260 million Canadian a quarter. So you annualize that compared to where we were four or five years ago. It's now 30%. of the business of Great West Life. It's one business. It's growing very strongly organically and still, as we move forward, potential future acquisitions. And that's, at the same time, the rest of the businesses of Great West Life have been strengthened. So Great West Life really repositioned over the last four or five years. And I would say equally with IGM. IGM has got two strong areas, wealth management anchored by a repositioned IG Wealth not the greatest environment today, but well positioned for growth in the future. And then two other avenues with Rockefeller in the United States and Wealthsimple in Canada. And on the asset management, a very strongly positioned McKinsey with a large position in the Chinese market through CMAC, and then as well in the alternative asset management space. So IGM and Great West are two principal assets have been repositioned for significant growth. So then the focus comes to the 20% of the portfolio, which is NAV based being a GBL and across our different power platforms. We've got good value there and we're going to double our efforts to communicate that and to make investors realize the value that we've got. And with that, I will wrap up my comments operator and open it up to questions. the audience or anyone who's got questions and would be pleased to address them.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll 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 two. We will pause for a moment as callers join the queue. Our first question comes from Jeff Kwan of RBC Capital Markets. Please go ahead.

Hi, good morning. Hi. My first question was on the alternative platforms with regard to power sustainable. What kind of AUM do you think would kind of get you to scale or that level of profitability for each of them? But also, too, just trying to understand how to think about OpEx growth. at each of the platforms as you get to scale? Is it, you know, how does that grow? Is it, you know, some sort of, you know, OPEX ratio? Or is it how does that OPEX growth compare to revenue growth? Or how should we be thinking about that?

Thank you. Hi, Jeff. Good question. And I'll try not to be evasive, but the answer is it depends. If I look to Cigar, actually both of them, it depends on how you get the growth. So if you're getting the growth by launching additional strategies in the same buckets, in the same categories, you scale them and you get positive cash flow and earnings. And to the extent that you are launching new strategies, you go through a J curve. And the J curve is typically you're going to lose money for two, three years, in the particular strategy. So AUM, if you have got all the strategies you would like to have and you're out there doing fund number two, number three, number four in those strategies, you start to make a lot of money. Power platforms are at a stage where they are still building out their product suite and you can imagine that that is something that makes you more enticing to investors if you're walking in and you have one credit fund and one category, that's an interesting conversation. But if you have two or three different strategies around the same strategies, it might be lower credit, it might be an adjacency, you're more relevant to investors. So our group's cigar is very close to breakeven. It's got a very good revenue base, but it continues to launch new products that are adjacent to its current product suite, which delays its breakeven. but ultimately creates greater value two, three, four, five years down the road. So that's the trade-off. That's the discussion that we have all the time is that we're going to build stronger, more valuable businesses over time if we enhance the suite of products, and that delays the break-even point. I'm not trying to avoid the question, but that's what it's at. So if we wanted to get to profitability, and before I turn it back to you, If we want to get the profitability quickly, we could just stop new product launches and kind of pair the OpEx growth that comes with that, and you get the profitability more quickly. But have you maximized value over a three-, four-, five-year horizon? I don't think so. So I hope that helps.

No, that's helpful. My other question was, looking at it at the corporate level, the OpEx there, after adjusting for the share appreciation rates in the past couple of quarters, so K2 and K3, I think have been roughly about $40 million. And prior to that, I guess the past year or a bit, that quarterly OpEx number was kind of in the low 30-dish. So I'm just wondering, is that $40 million kind of a new kind of OpEx figure? And if so, what explains the increase that we've seen?

I'll let Denis handle it, but there is a little bit of noise around the edges that Denis, you want to... Yeah, but I think Jeff is mentioning without the hedges.

So just the $41 million, I think that would be our new ongoing number that we would be looking at. It is a bit higher than last year. It is very consistent, though, with what we've seen during the year here. So there's been a bit of a jump from last year, this inflation, and we're in full... travel mode and so on now we're back to we're really back to normal so at 41 million i would look at that as being more of the ongoing number that's pretty precise that's 41 and a half yeah but you do and even the 32 that we had some noise going the other way in some of the quarters didn't we have some noise going and we have noise going uh And this one also, there's a couple of million dollars that is not recurring in our expenses. So that's why I put it around 40, 41, 42 million as an ongoing number.

Yeah, I have by memory we were at about 150 million run rate annual if you go back a couple of years. And so if we're in around a little over 160 right now, there's been some inflationary growth, but we're not far off the mark in terms of the basic business model, Jeff, hasn't changed. It's not like we built up a whole bunch of people or anything, but we do have extra travel, and we do have some inflation pressure going on, obviously.

Okay, great. Thank you.

Our next question comes from Graham Riding of TD Securities. Please go ahead.

Hello. Good morning. Hi. Maybe I could just – touch on your cash levels you've been very active with your buybacks but your cash level is down a bit lower now compared to maybe where it was earlier in the year so maybe just some color on how you're feeling about you know your discount to NAV how much excess cash you feel like you have and what's your appetite to continue to buy back shares so how feeling about the discount is not great is the honest answer but

But it is what it is. And these things jump up and down. So that doesn't in any way diminish our conviction and enthusiasm to lower that discount over time. We're enthusiastic also to buy shares back. And the cash is a little bit lower as we've been active in the last several months buying shares back. So we're going to continue to look at share buybacks as one of the key tools to arb the discount and to lower the discount and and create nav of course as we buy shares back at a discount you're actually increasing the nav as you do so um and in terms of our cash position i wouldn't make a specific comment other than you're right it's lower and so you know we've got two things on that it's not just uh there's a number of things working there's share buybacks we have some commitments that we make to our platforms that sometimes some quarters were an inflow, some quarters were putting money into seed capital, so it's not kind of consistent. And we'll be looking at our cash flows and our sources of cash in the upcoming quarters to figure out how we can continue to fund buybacks at a regular pace. That is the goal. That's what we said we're going to do, and we will do that. I wouldn't anticipate, you know, kind of a a much higher level or a much lower level of buybacks in the upcoming periods, if that's where you're trying to get to with your question. Okay.

That's helpful. So I saw that you flagged that Cigar Asset Management Company. You're now holding it at fair value. Is that the $270 million that you flagged within your NAV and Like, am I looking at the right number there? And does that reflect your 55% ownership stake in Cigar?

Yeah, that's exactly what it is. At 270, is there a 54% share? Okay. Yeah, maybe.

Yeah, okay. And my last question, Jeff, just for you, I know you're always close with Empower. They did see some outflows, I think, in the quarter. Is that just a reflection of the headwinds on retail flows broadly in the industry, or is that also maybe related to some attrition of some assets just given the active acquisition activity that's been going on the last couple of years in that platform?

Graham, you just broke at one point. Did you say Empower? Is that what you were talking about?

Yeah, there was some influence there, so I just wanted some color on what you think is driving that. Yeah, sure, absolutely.

So there is nothing systemic about that at all. Empower continues to win in the marketplace on an organic basis and is in strong inflows. So there's a couple of things going on in the quarter, in particular in the large market. There were some deconversions. and no large wins that were brought on the platform, and some of those deconversions are related to the assets that have been brought on from Prudential. I think it would be better if they broke the outflows from Prudential out, and it would give you a more normal number because you bring assets on and you have an attrition rate that the company, I think, has published that they expect over period of time that they're going to lose X percent of the assets than they do, but then they don't break them out of the flow number. So it kind of masks what's actually happening in the open market. But this quarter, in specifically addressing your question, in this quarter, it was in the large market. I think there were a number of deconversions, basically companies that were going to other platforms, no large wins, and it resulted in a blip. in the large market sector, and a good part of that was related to Prudential. So nothing, the underlying message is no change in the confidence in the growth and in what's happening in the marketplace. Continued strong organic growth, and in terms of the actual Prudential conversion and retention of assets, they are ahead of what they had anticipated at the time that we underwrote the transaction.

Okay. That's it for me.

Thank you. You mentioned wealth management. I thought in your question you mentioned wealth. This is a DC issue, not the wealth management. The wealth management is in strong inflows. Okay. Understood. Yeah. Good. Thank you, Graham.

Our next question comes from Jane Gloin of National Bank Financial. Please go ahead.

Yeah, thanks. First question, just apologies if I missed this, but the cadence on the dividend has suggested that next quarter we might see a little bit of a bump. Do you anticipate maintaining that cadence and just refresh us on your dividend payout ratio targets or otherwise?

Yeah, so we... I think this is the third quarter in a row that we've been at 52 and a half cents. So we would have been in a cadence for the, it's the fourth? Vinny, you're correcting me. Yes, thank you. So the, you know, we would follow, our dividend policy is we follow the dividends that we receive from our principal operating subs and the bulk of it, almost overwhelmingly, comes from Great West Life and IGM. So we'll take our cues from Great West Life Co., and IGM as to what they do with our dividends. And then we typically flow through the increase directly to shareholders. So I don't see any reason, I'm not going to get ahead of the boards in terms of them declaring dividends in the future, but an overall expectation would be we do it on cycle in the ordinary course and see where our subs are on their dividends. So Great West Life is the biggest part of it. And you mentioned our payout ratio. So we don't think of it at power, first of all, as a payout ratio. We think of it as a flow-through on the dividends. When you look to Great West Life, I think they've been clear in their own communications that they've given kind of medium-term objectives for earnings per share growth in the 8% to 10% range. They also communicated Going back a couple of years ago that the dividend payout ratio they were targeting was in the 45 to 55% range. I think they're at the high end of that band right now. All things being equal, you would therefore expect that if they're targeting around 50, you might see a little bit of the dividend growth may lag behind. the earnings growth a little bit. I mean, that's a logical conclusion, but it's not a big deal. Like if they're at 54 and they're targeting the center of the range around 50, you might expect a little bit of lagging on the growth and the dividend over the next few years. So that's everything I can tell you about our dividend payout ratio. I would expect it to continue to happen in the ordinary course.

Yeah, great. Thank you. In terms of GBL, we don't dig into this often enough, but I'm just curious. It's not a great market for monetization necessarily in North America, and I'm curious to get your take on the European market or any specific themes or asset classes within the GBL portfolio. Some nice gain, obviously, from WebHelp this quarter, and just looking to get a broad take on what you're seeing over there at the GBL portfolio.

Yeah, I mean, I think the themes are consistent. They are continuing to move into more private and less public. And so realizations on the public side are less of an issue than they would be if you're in a private equity business. And so that's one theme. I think investments they've made from everything I see, they've done a couple of large health care acquisitions, and those are panning out well, but they're early days. So that side of their business is doing well. But there's nothing particular from a liquidity point of view that's different in the European market than we see in the North American market. And again, a lot of their portfolio is listed and are liquid. So liquidity is not necessarily the issue there.

Got it. And then lastly, as we're looking at SAGART on a fair value perspective, are there – Are there some key investments in the SAGAR portfolio like portage or private equity that we should be zeroing in on to just sort of get ahead of what those movements in fair value could be on a quarter-to-quarter basis or some broader macro indicators that would help to sort of guide how that moves on a quarterly basis as well?

But the fair value that we gave at the NAB is really the fair value of the management company. It's not the investments, the LP investments themselves. So this was the valuation of the management company following the investment by ADQ and BMO. So it is only tied to the stream of management fees that the management company is getting.

Yeah, so you think about it, and we do think about it, they're related, but they're different. So we have an asset manager, which is what we report on when we do the FRE, and then we show you the carry. And that is where ADQ, BMO, and also Canada Light put in some more investment as part of that as well. And that round of equity raise at the asset manager level gave rise to a mark, which allowed us to market in our books the way we have this quarter. Then we have the seed capital that Power invests in Cigar and in Power Stainable Capital, and that's a little over $2 billion. And that's a myriad of investments. I haven't counted how many different strategies, but it's a cross-spectrum from VC, fintech, to debt funds, private equity, infrastructure. It's across the board. Basically, most of the strategies of which There would be 20, I'm guessing. If you added it up somewhere, it's in the 20s. You know, we're typically a lead seed investor as they're launching products. So that would be a long question. I don't think you're asking the question on our LP investments as the seed investor because that's just a broad, broad base across the portfolios.

Yeah, no, that answers it. Yeah, yeah, yeah, no, totally.

Thank you. Okay, great. Thank you.

Our next question comes from Nick Preeb of CIBC Capital Markets. Please go ahead.

Okay, thanks. Just on slide 16 of the presentation, there's still $2.3 billion of Power Corporation's proprietary capital invested across that alternative asset management business. The proportion of third-party AUM has grown over time, so do you foresee that commitment declining dramatically? further over time, or is $2.3 billion, roughly speaking, consistent with what your expectation would be for the long-run commitment to that platform? Just some updated thoughts on capital intensity of the asset manager would be great.

Thank you, Nick. That's a great question. And we've been explicit in our communication with the market and our communication with both Cigar and Power Sustainable Capital that Power was going to was not looking to put more net new capital into the LPs, into our LP positions. We were looking for those, for the two platforms to grow using capital away from power. So the 2.3 billion is roughly the same as what it was when we launched the strategies or when we changed the strategy four years ago. It was right around a little over 2 billion. and our plan going forward is not to see that increase, just to recycle it. Now, it doesn't go in a straight line, so sometimes you've got four funds that are being launched over two quarters, and you don't have a lot of realizations, and you're net adding $200 million. I'm making up the numbers here over a couple of quarters, and then you go a couple of quarters where you're getting realizations and you're getting capital back, but roughly speaking, we're expecting that at this point to stay in the low twos, and hoping that the bars on page two that are not dark blue under the funded AUM bar there where you've got the 16.8, that that gray 14.5 continues to grow and the 2.3 stays just about where it is. And as we do that, then the GP, the fee-related earnings should grow and ultimately get to profitability. We don't have lots of comments on Cigar you know, when's it getting to break even? And those are good questions. But the fact is, is that it was not a very big business going back four years ago. And we just had some third party investors come in and validate a value that we marked the GP now up to $270 million in our share. So, you know, that's evidence of value creation and it's been done with other people's capital. So that's the way to answer the question.

Got it. Okay, that's very clear. And then with the sale of the minority interest in SAGAR being completed in the quarter, have any of the proceeds been upstream to the holding company, or where would that reside in terms of its geography on the NAV schedule?

It would be in the 270. The investors bought into Treasury, and they didn't buy it. PowerCorp didn't sell any shares, and that would stay in the GP, and the GP would use that. to build out its business, including potential other strategies or acquisitions that they might want to make.

Understood. Okay, that's it for me. Thanks very much. Okay, thank you.

Our next question comes from Tom McKinnon of BMO Capital. Please go ahead.

Yeah, thanks very much. So just to be clear with respect to the – the movement in the cigar on the NAV schedule from 970 to 1244. The 970 was a carrying value number reflecting your 78.5% ownership, and the 1244 is a fair value reflecting your 54.5% ownership. Do I have that correct then?

No, I think you're good. These are the LP, these are the assets, the proprietary capital that you're looking at. It's the... With the transaction, we're really looking at the asset manager itself, the 270 that went up from something like $60 million last year to 270. Last year it was carried at book value, and this year we marked it at fair value. But the other numbers that you're quoting are the assets that we're holding.

The LP. Yeah, think of it, Tom, is that we – When we launched the strategy or when we announced the new strategies two years ago, we had about $2 billion invested under Cigar and under Power Sustainable Capital in investments in different funds and different strategies. A lot of those were just for our own account. We were the only investor. We launched these businesses and we have, with the goal of making the asset manager, the general partner, the GP, more valuable. And the GP has been marked up in the case of Cigar from roughly $60 million previously to $270 million. And that is as a result of third-party investors coming in and validating the value of the asset manager. Okay, major risk. Yeah.

If 970 movement in cigar is quarter over quarter to 1244, what's driving that movement then? I don't see the 1244. I see the 974. Yeah. Well, so in your second quarter, in your adjusted NAV statement, you had second quarter for cigar, you had it at 970 in that NAV statement. That was on page six of your second quarter press release. And then page six of your third quarter press release, you have cigar at 1.244. So what drove that increase?

Okay, the 1.244 is – the 1.244, I see it now. It's a 974 of the investing activities plus the management company of 270. So if you look at – it's a lot clearer if you look at our MD&A on page 862. It is clearly divided into the asset management company, 270, and the investing activities of 974.

Okay. So, Tom, on that summary page, we combine the LP investments with the GP value on that summary page, and most of the growth in that 977 to 244 will come from the markup on the GP. But as you say, you get it broken down. What page is it on the MD&A?

A62.

A62, you get it broken down between what's the LP investments and what's the GP value.

Yeah, so that, and that 270, sorry, just was in the area of, what was that in the second quarter?

In the second quarter, it would have been about 100. It's 60, sir. Well, it was 60 at the end of the year, and it did not really move. This is a book value. This is a book value figure.

It was. It was a book value figure, yeah. Okay, so really the 200 movement is the markup. Is that correct? Okay. And now this – okay, so now you've got the 270 sitting at fair value then and before you had it at a carrying value, right? Yeah. Understood. And if I look at the treatment of the $1.37 billion that you have for power sustainable that sits on this statement, is that – What do we have on that? Is there any carrying value, fair value? Is that kind of held the same way you've got for Cigar, or is there any difference there in terms of the treatment of that number?

Okay, so there's a difference here with Cigar. The 10 is a book value figure. We have not marked up to fair value Power Sustainable manager yet because we are waiting for a third-party confirmation, say, on a transaction to mark it up to fair value. So the 10 is more similar to the 60 of last year in Cigar.

You'd have to go back to the MD and you will find Power Sustainable, the GP, is valued at $10 million. Yes.

Which is its book value.

So the billion 370, the bulk of it is our LP investments.

Correct.

Okay. All right. Thanks for that. Appreciate you walking me through that piece. And maybe just one other quick numbers question. The 1.276 billion in euros that GVL made in the quarter, if I multiply that by your 15.5% ownership and the and the Euro to Canadian dollar rates that you disclose, I get something in around 288, yet you've got a 315 contribution from that. Is there something that I'm missing here, or was there something else that would have made that calculator?

There's other earnings in GBL. The gain itself will yield $323 million. That's at 15%, and I would say an exchange rate of something like 1.5%. but there's other activity in JBL that will lead to the figure that you're getting.

No, not just the gain, the 1.276 billion euros that they reported as earnings.

Correct. The 1.276, if you simply took 15% of that at the exchange rate, at the average exchange rate for the quarter, you should get to our figure.

Okay. I didn't. Sorry. Maybe I'll take that one offline. Okay. Thanks, David. But there's no other noise other than multiplication of two figures, one being 15 1⁄2 and one being the 1.458 exchange rate that you guys disclose in the report. That should, by definition, give you... That should do it. That should do it. Okay. We'll have to have a therapeutic discussion offline then. Okay. Thank you so much. Thank you, Tom.

Once again, if you have a question, please press star, then 1. Our next question comes from Doug Young of Desjardins Capital Markets. Please go ahead.

Good morning. Hopefully, these will be a few quick ones. I don't want to beat a horse to death here, but just a few additional ones on SAG or it might kind of get the fair value versus carrying value. But I guess my question is twofold. I mean, how do you derive fair value? I assume you're going to do that every quarter. Is it off assets? Is it off just cash flow? Just try to understand that. And then, you know, Jeff, maybe as you look out over the next few years, and I understand how the mechanics are going to work in terms of driving towards break-even, but what's the proper margin for this business?

Well, on the valuation, I think it is really done on a cash flow basis, projected cash flows and discounted back. To do it every quarter, I don't think it's going to be done every quarter. It's more something that we would do yearly and on a quarterly basis just ensure that there's no major change, but we would probably keep the value constant throughout the quarters until year-end unless something major has occurred.

And Doug, I'm going to defer on your question on margin, because I can talk about where asset managers get to when they're mature, but I don't want to offer a margin, and I'm not trying to be evasive, but I already mentioned in the question, how quickly do we get to break even? Depends on external factors, depends on how the AUM grows, let alone the company's still a fair ways away from full maturity. So, I'm going to defer on that and maybe we can have a more informed discussion where I don't want to mislead anybody in terms of putting out a number there and having everybody expect it. Because we're still at a pretty early stage of development with these businesses, even though that doesn't mean we're not. I think the most important thing I can say is we had some very sophisticated third-party investors come in and say this business is worth money, even though it's not yet breaking even. So, Doug, if that's all right, I'm not going to offer a margin at this point.

That's fair. And then just I know it's early days and, you know, you had a transaction. I'm just trying to go through. I'm trying to think about the evolution of carried interest. And, you know, I understand how the mechanics work down the road. And when it kicks in, do you share the carried interest in all the existing products with these investors? Like they would get full ownership of everything that's in the pipeline. Is that correct? You're not leaving some with yourselves and only on new product launches, like just?

Yeah, so the way the business works is that we've got a GP, and the owners of the GP, which includes power, it includes at this point ADQ, BMO, and Canada Life, and it includes management through ownership of GP, some of which is awarded to them, and others of which they put up cash and buy shares. Okay, so those are the shareholders, and they share in all of the fee-related earnings, which are basically your your annual fees, whether it's anywhere from 75 basis points to two percentage points on an equity fund. And then the carry is awarded as it is in the industry, the carry points are awarded. And those are mixed between the investment management teams that are working on their specific strategies. The management team at the top of CIGAR would get those points. And then power, I shouldn't say power, excuse me, all of the GP shareholders would would share in the carry points. So you'd have carry, you know, on an equity fund, you've got 20% carry. It'll be lower as you move down into fixed income. That carry has got points attached to it, and the GP has a good chunk of that carry, and that is shared equally amongst the GP shareholders. I don't know if that was clear.

No, that's clear. It's just like some standard.

We would look like the other alternative asset manager, by the way, on the plan, I think, on that one, yeah.

Yeah. And, Danny, I guess on GDL, any additional noise on web health? Like, that's done, I assume? Like, we're not going to have any further adjustments going forward?

No, it's all done. It is finally done. But we do own equity in the – We do own equity in the merged company. Yeah. But the transaction is closed.

But the transaction noise is done. Okay. And then just, you know, the cash – And the puts are behind us. Yeah.

Yeah, that's okay. I want to say we haven't crowed on the big game because for the last two, three years we've been saying, You know, we had a put liability that hurt our net income, but, you know, it's just a put liability. It's because the value went up on WebHelp, and so we're not crowing about the reversal either because it is what it is. It's just the reversal of a bunch of pain that we, unfortunately, had to go through, and there are no put liabilities left on these investments. Correct.

No, no, I get that. And then just lastly, the cash down quarter per quarter, You know, I guess we went through some mechanics. It just looked lower than what we would have thought. And I get the buybacks. You know, you get some cash in from Bellis. It doesn't seem like the cash from the Sagard went up to the Holdco. Is there anything else unusual? It sounds like maybe there was just some funding of some Sagard.

Yeah, I think that's right. I think we've got, as I was trying to say earlier, even though on the earlier question about are we increasing our LP investments, and we're not. The explicit goal is to keep them flat and have third parties grow the AUM. But that doesn't mean that we're not seeding new strategies. And the seeding comes from, over time, realizations that come out of the existing strategies. But it's not a straight line. And we'll go through a few quarters where all of a sudden we're net cash out and other quarters we're net cash in. It's kind of lumpy, so we don't want to take So that's it. We just have to manage that. But the goal is to keep it flat. So that's effectively it. If you think about it, we take dividends up from our three public subs. We pay our expenses. We pay a lot of that out in dividends. And then we have realizations and reinvestments into the seed capital. And then we've got other assets that we monetize. That's the equation. But quarter to quarter, it can be a little lumpy.

Perfect. Appreciate your time.

Thank you.

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