Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Power Corporation of Canada (PWCDF, Financial) reported strong financial results for Q2 2024, with Great-West Life achieving record earnings exceeding $1 billion.
- IGM Financial showed year-over-year earnings growth across its wealth management and asset management segments.
- Power Corporation's Board of Directors declared a quarterly dividend of $56.25 per share, up 7.1% from Q2 2023.
- The company successfully integrated acquisitions such as Personal Capital, Mass Mutual, and Prudential, contributing to growth.
- Power Corporation has been active in share buybacks, purchasing $189 million year-to-date, enhancing shareholder value.
Negative Points
- Adjusted net earnings from continuing operations decreased to $761 million from $842 million in the same quarter last year.
- Adjusted NAV per share decreased from $53.10 at March 31 to $50.48 at June 30, primarily due to share price decreases in Great-West Life and GBL.
- High inflation and higher mortgage rates are negatively impacting client bases, affecting business flows.
- The macroeconomic environment remains challenging, with high interest rates and inflation impacting overall business performance.
- Lion Electric, one of Power Corporation's investments, is facing significant challenges, including a 30% workforce reduction and delays in federal funding for electric buses.
Q & A Highlights
Q: First question on the buyback activity. Seemed to have picked up a little bit of the pace post quarter with this recent sell off. You have the excess cash position you have today. More cash coming in the pipe over the next couple of quarters, especially with the extra divvy from GBL. Is that something you're looking to potentially accelerate in this environment? And how are you thinking about that?
A: I'm not going to telegraph all of our purchase activities ahead of time. I would get scorn from all of the traders I used to know when I worked at BMO and Nesbitt Burns. But having said that -- no, look, I said 20 -- if you like the stock at 22% discount, you got to love it at 28%. We've got some weakness here, so that's probably an opportunity. We'll play that. We try and be in the market throughout the year, but there's no question that when the stock is weak, there's more opportunity there and we're buying at better prices. So Jaeme, I'm not going to answer the question directly, but those are factors we look at when we decide the levels of buybacks that we're doing.
Q: On the carried interest disclosures, I appreciate the extra color around that and how you're thinking about the proprietary capital returns. That proprietary capital has been about $2.2 billion. You're highlighting carried interest as a more meaningful component today. They can obviously fluctuate, but is there a view to potentially dedicate more proprietary capital as you're continuing to build those strategies to drive some more of that carried interest upside or should we still take the view that that prop capital is fairly stable and really focus on bringing it third party?
A: So just a clarification and then I'll address your question on the seed capital. So the carried interest actually comes through the GP, not our LP investments. It comes through the general partner. So the general, as you know, on let's say private equity funds, there'll be a 2% fee and a 20% carry beyond a target return. In some of our infrastructure funds, that carry kicks in at a 15% return. And on some of the credit funds, it's at a lower target level, but there's carry typically on all the funds. And that carry gets paid to the general partner, Power Sustainable Capital or Sagard, of which we own an equity interest in the GP. We're controlling shareholder in both. Some of the carry gets paid to the portfolio managers. Some of them gets paid to the management of the GP and then the GP shareholders get the balance. So the 154 is the carried interest that we've accumulated to date as a GP in Sagard and in our alt businesses, not as an LP seed investor. So just to make that distinction. To your question on the seed capital, $2.2 billion, and whether we would increase it. That's not what we've been doing to date. As you know, we've told each of Sagard and Power Sustainable Capital that we will keep the overall capital level the same and they need to build their businesses based on third party capital, including Canada Life, which is a better way to say it is non-Power Capital. And that is our current view. Would we ever change that to facilitate faster growth? Yeah, I wouldn't say we never like -- that's not our current stance, Jaeme. But I hate to say we'd never do that, circumstances with -- either because we thought there was an opportunity to get great returns, or we thought it would really make a difference in moving them forward. We never say never to strategy. You're always open to changing what you do. But at this point, the $2.2 billion -- and I don't want to put too fine a point on it. That level of capital is what we expect to have invested in the businesses. It will also jump up and down a little bit with market values. All of a sudden, we just got a big realization. And we just got a big funding and a drawdown where we've been asked to put up funds. It'll bounce around, but managing it to that level is our current strategy.
Q: As Jaeme noted, you've got a very strong cash balance, more coming in from Peak in the Q3 and then in 2025, obviously, coming in from GBL. Jeff or Jake, this is a big cash balance. Should we be expecting deployment at some point over the median term, call it, the next three years, for something large or are we just holding cash balance because of the unpredictable nature of the market these days?
A: That's a good question. Let me go to prioritization of capital and, Jake, you're welcome to jump in in any way that you would like after I make the comment. So we try and keep a minimum balance of cash and then we have inflows and outflows that occur we and they're not always predictable. We have realizations because all of a sudden, Peak sells Rawlings, we sell Bellus. We get distributions from our investments in the private equity or in the VC world out of our proprietary capital. So you get cash that's coming in and you don't always see it coming two years in advance and it's market dependent in some ways as well. And then we get drawdowns. We've got commitments. The $2.2 billion is the funded, but we've made additional commitments to different funds. And as those funds deploy, we'll get drawn down. So the nature of our future cash generation is difficult to put a precise focus on it. So that's like -- that was really how do we generate cash. But we expect that that will continue to generate cash through those various sources going forward and add to the balances. Now on the capital allocation question, the number one priority, absent our different businesses requiring and wanting to look and needing capital to do something that's attractive to them and I'll give some examples of that, the number one priority will be to return capital to shareholders by way of a buyback and that relates to Jaeme's question is trading at 22% discount, trading at 28% discount. It's hard not to look at that as a pretty attractive place to put the capital. But we've always said and if you go back over the past 20, 25 years, if Great-West Life or IGM have an opportunity to make some acquisition and there's equity required, we have always jumped in and supported those issues. I go back to many of the equity issues they've done. It hasn't happened for a while. They haven't required equity, but we've always underwritten those with a lead order. That'll be a priority. Supporting our companies will be a lead order. It will be a lead priority, would trump in those circumstances buybacks. But we don't have -- we're not saving it up. If your indirect question is we're trying to build the cash up because we've got something -- that the curtain is going to open and -- we're not building it up. The fact that it's grown to this extent is we had some big realizations, particularly with the China strategy, as you know. And so to my point, the cash comes in on a lumpy basis sometimes and it happens to
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
