CA - Power Corporation of Canada (PWCDF) Q3 2023 Earnings Call Transcript
2023-11-14 13:00:32 ET
Power Corporation of Canada (PWCDF)
Q3 2023 Results Conference Call
November 14, 2023 08:30 AM ET
Company Participants
Jeffrey Orr - President and CEO
Denis Le Vasseur - Principal Financial Officer
Conference Call Participants
Geoff Kwan - RBC Capital Markets
Graham Ryding - TD Securities
Jaeme Gloyn - National Bank Financial
Nik Priebe - CIBC Capital Markets
Tom MacKinnon - BMO Capital
Doug Young - Desjardins Capital Markets
Presentation
Operator
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. [Operator Instructions] I would like to remind everyone that this call is being recorded on Tuesday, November 14, 2023.
I would now like to turn the conference over to Jeffrey Orr, President and Chief Executive Officer of Power Corporation. Please go ahead, sir.
Jeffrey Orr
Thank you, operator, and welcome, everyone. Thank you for joining us this morning for our Q3 results call. And, I am joined by Denis Le Vasseur, who is the Principal Financial Officer at this point of Power Corp. 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 Tretiak. And I’ll just make a brief comment, Greg is doing well. He is at home. He is 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, Denis and I will 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 a recent photo. I am looking at you and looking at this picture at this time.
Denis Le Vasseur
It is a little different.
Jeffrey Orr
That’s what I was going to say. So, we’ve got Denis and I. And I will go right through then to the rest of the information. You have got on page 6 number of other recent disclosures by our group companies. And with that I will spend a few minutes on page 7.
So, the highlight for me is just continued strong financial performance by our two main operating and income producing businesses, Great-West Life and IGM. Great-West Lifeco continues to show very strong growth in earnings, and the quarter in particular was well balanced. It was very clean, having a lot of noise. And sometimes in the insurance side you do get noise going one way or the other, it’s a very clean quarter and just demonstrating what we have been saying to the market for some time that we see strong growth in organic earnings coming from Great-West Lifeco. 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 produce 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 Life also focusing on the wealth side with some acquisitions that they are in the process of completing.
GBL, a bigger earnings quarter for GBL. Denis is going to comment on that in a moment. But GBL continues to be active on returning capital to shareholders through buybacks. Sagard 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 Sagard franchise.
The alternative platforms had good fund raising 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, flowing into CDs and the money market funds. It is also Canadians and Americans that 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 slowing. So you have got outflows going on in asset management, you have 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.
Denis Le Vasseur
Thank you, Jeff. And, good morning, everyone.
Please turn to page 9. And as Jeff just noted, we saw strong earnings contributions from both Lifeco and IGM this quarter. Adjusted net earnings from continuing operations were $1,007 million, up versus $520 million in the same quarter last year. This translates into $1.52 per share, compared with $0.78 in Q3 of 2022. I will 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 30 and $8.07 higher than the year-end 2022. And finally, the Board declared a quarterly dividend of $0.525 per share yesterday.
Turning to page 10. Great-West 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 MacKenzie. 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 completed its 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 rights. This totaled $1.2 billion at GBL. This liability was extinguished without any cash impact and GBL recognized a meaningful gain on de-consolidation of €1.3 billion of which PCC share is recognized this quarter in the amount of $323 million.
In other investments and stand alone businesses, this quarter’s result was comprised largely of interest on cash and cash equivalents.
Finally, I’ll highlight the corporate operating expense line, where this quarter we had 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 hedging actions that we have taken to-date.
I will now turn to page 11. We break down the $48.26 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 Sagard Holdings Management, we have begun recording in our NAV, the Sagard 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.
Jeffrey Orr
Thank you, Denis.
So moving along to page 12, I’ll just pick up a few highlights for the various companies. Great-West Lifeco has been putting emphasis with its communication with the markets to reflect its internal focus on building up its wealth management businesses. With the new disclosure that Great-West Lifeco has been doing around its value drivers, it highlights the size of the wealth business within Great-West Lifeco 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 and wealth in Canada and makes 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 is a very important direct to consumer market there. And that business has grown 30% year-over-year and is now at US$65 billion 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 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 price -- the difference in the products, the pricing, the -- basically whole value proposition.
Well, one element we haven’t talked that much about is how much has been done on the technology front and on the 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 we’re -- 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 to -- as I mentioned earlier, the EDQ and the BMO investment into Sagard is completed. So this will provide greater funds within the GP in order to invest as well as LP capital and as part of Sagard’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 be -- help them I think over the next couple of years tremendously.
I’ll turn to page 15. We can -- this is just a slide you’ve seen before. So, 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, US$600 million was in Power Sustainable’s launch of its U.S. infrastructure credit fund. We’ve got a great team that has been hired.
Sagard 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, our group is not alone in that, it’s a factor across the industry.
Page 17 just speaks to the ongoing -- the financial results and we’ve got Sagard at the top, which has got -- had from an FRE point view of the third line, so $42 million in fees, and it is just operating slightly below the breakeven level from an ongoing basis and Power Sustainable making progress on the revenue side, but still ways to go before it is at a breakeven 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 are at $16.7 billion across the fee-bearing capitals.
On page 18, our group has been active returning capital to shareholders. We continued that through Q3, and post Q3 we 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 in the -- subsequent to the end of third quarter. We do have a loose target of roughly 2 times fixed 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, a strong relative returns, compared to our principal benchmarks. It has been -- 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 2022. 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 have delivered competitive returns, notwithstanding that we have 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, C$385 million 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 C$260 million 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 there’s still, as we move forward, potential future acquisitions. And so -- 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 Mackenzie, with a large position in the Chinese market through CMAC and then with, 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, 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 the audience if anyone who’s got questions and would be pleased to address them.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Geoff Kwan of RBC Capital Markets. Please go ahead.
Geoff Kwan
Hi. Good morning. My first question was on the alternatives platforms, with Sagard and 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 -- how does that grow? Is it some sort of OpEx ratio, or is it -- how does that OpEx growth compared to revenue growth, or how should we be thinking about that?
Jeffrey Orr
Thank you. Hi, Geoff. Good question. And I’ll try not to be evasive, but it’s -- the answer is it depends. If I look to Sagard, the -- 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 are 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 are out there doing fund number 2, number 3, number 4 on those strategies, you start to make a lot of money. Our 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 are 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 are more relevant to investors. So, our group’s Sagard 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 are going to build stronger, more valuable businesses over time, if we enhance the suite of products and that delays the breakeven point.
I am not trying to avoid the question, but that’s what it’s at. So if we tried to -- if we wanted to get to profitability, here is -- and before I turn it back to you, if we want to get to profitability quickly, we could just stop new product launches, and kind of pair the OpEx growth that comes with that and you get to profitably more quickly, but have you maximized value over a three, four, five year horizon? I don’t think so. So I hope that helps.
Geoff Kwan
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 of Q2 and Q3, 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-30s-ish. So I am just wondering is that $40 million kind of the new kind of OpEx figure. And if so, what explains the increase that we have seen?
Jeffrey Orr
I will let Denis handle it. But, there is a little bit of noise around the edges that, Denis, do you want to...
Denis Le Vasseur
Yes. 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 has been a bit of a jump from last year. There is inflation, and we are in full travel mode and so on now. We are back to -- we’re really back to normal. So at $41 million, I would look at that as being more of the ongoing number.
Geoff Kwan
That’s pretty precise.
Jeffrey Orr
41.5. But you do -- and even the 32, we had some noise the other way and some of the quarters, Denis.
Denis Le Vasseur
We had some noise going -- and we have some noise going in this one also, there is a couple of million dollars that is not recurring in our expenses. So, that’s why I would put it around $40 million, $41 million, $42 million as an ongoing number.
Jeffrey Orr
Yes. 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 million, right now, there has been some inflationary growth, but we are not far off the mark in terms of the basic business model, Geoff hasn’t changed. It’s not like we’ve 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.
Geoff Kwan
Okay, great. Thank you.
Operator
Our next question comes from Graham Ryding of TD Securities.
Graham Ryding
If you 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 your discount to NAV, how much excess cash you feel like you have, and what’s your appetite to continue to buy back shares?
Jeffrey Orr
So how -- feeling about the discount is not great is the honest answer. But it is what it is, so. 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 create NAV. Of course, as we buy shares back at a discount, you’re actually increasing the NAV as you do so.
And in terms of our cash position, I wouldn’t make a specific comment other than you’re right it’s lower, and so we’ve got two things on that, it’s not just -- 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 we’re in inflow, some quarters we’re 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 kind of 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.
Graham Ryding
Okay. That’s helpful. So, I saw that you flagged that Sagard 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 Sagard?
Jeffrey Orr
Yes. That’s exactly what it is. The $270 million is our 54% share in NAV.
Graham Ryding
And my last question, Geoff, 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 in the last couple of years in that platform?
Jeffrey Orr
Graham, you just broke at one point, did you say Empower? Is that what you were talking about?
Graham Ryding
Yes. There were some outflows there, so just wanted some color on what you think is driving that.
Jeffrey Orr
Yes, 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 though 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 a period of time that they are going to lose x percent of the assets and 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, and 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 then 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.
Graham Ryding
Okay. That’s it for me. Thank you.
Jeffrey Orr
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.
Operator
Our next question comes from Jaeme Gloyn of National Bank Financial. Please go ahead.
Jaeme Gloyn
Yes. 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.
Jeffrey Orr
Yes. So I think this is the third quarter in a row that we have been at $0.525, so we would have been in a cadence for the -- it’s the fourth -- Denis, correct me?
Denis Le Vasseur
Yes
Jeffrey Orr
Thank you. So, 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 will take our cues from Great-West Lifeco and IGM, as to what they do with our dividends. And then we typically flow through the increase directly to shareholders. So, we’ll -- I don’t see any reason, I’m not going to get ahead of the Board in terms of them declaring dividends in the future, but 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 see -- they’ve given kind of medium-term objectives for earnings per share growth in the 8% to 10% range. And 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 are at the high end of that band right now. All things being equal, you would therefore expect that if they are targeting around 50%, you might see a little bit of the -- dividend growth may lag the earnings growth a little bit. I mean, that’s a logical conclusion. But it’s not a big deal, like if they are at 54% and they are 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.
Jaeme Gloyn
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 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?
Jeffrey Orr
Yes. 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 healthcare acquisitions and those are panning out well, but they’re early days. So they’re being -- 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.
Jaeme Gloyn
And then, lastly, as we’re looking at Sagard on a fair value perspective, are there some key investments in the Sagard 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 just sort of guide how that moves on a quarterly basis as well?
Denis Le Vasseur
The fair value that we gave at NAV 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.
Jeffrey Orr
Yes. 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 Life 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 Sagard and in Power Sustainable Capital, and that’s rough -- a little over $2 billion, and that’s a myriad of investments. I haven’t counted how many different strategies, but it’s across 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 there’s, if you’ve added it up somewhere it’s in the 20s.
We’re typically a lead seed investor as they’re launching products. So, that would be a long question to -- I don’t think you’re asking the question on our LP investments as a seed investor because that’s just a broad, broad base across through the portfolios. Does that your question?
Jaeme Gloyn
Yes, totally. Thank you.
Jeffrey Orr
Okay, great. Thank you.
Operator
Our next question comes from Nik Priebe of CIBC Capital Markets. Please go ahead.
Nik Priebe
Okay. Thanks. Just on slide 16 of the presentation, there is 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 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.
Jeffrey Orr
Thank you, Nik. That’s a great question. And we’ve been explicit in our communication with the market and our communication with both Sagard 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, it is 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 have net-net adding $2 billion, I am making up the numbers here over a couple of quarters, and then you go a couple of quarters where there is -- where you are getting realizations and you are getting capital back. But roughly speaking, we are expecting that at this point to stay in the low 2s, and hoping that the bars on page 2 that are not dark blue under the funded AUM bar there, where you’ve got the 16.8, 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 Sagard, when is it getting to breakeven. And those are good questions. But the fact 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 $270 million -- our share. So, that’s evidence of value creation and it’s been done with other people’s capital. So, that’s the way I’d answer the question.
Nik Priebe
Got it. Okay. That’s very clear. And then with the sale of the minority interest in Sagard 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?
Jeffrey Orr
It would be in the $270 million, the investors bought into treasury, and they didn’t buy -- Power Corp 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.
Operator
Thank you. Our next question comes from Tom MacKinnon of BMO Capital. Please go ahead.
Tom MacKinnon
Yes. Thanks very much. So, just to be clear with respect to the movement in the Sagard on the NAV schedule from $970 million to $1,244 million. The $970 million was a carrying value number reflecting your 78.5% ownership and the $1,244 million is a fair value reflecting your 54.5% ownership. Do I have that correct, then?
Denis Le Vasseur
No, I think you’re -- these are the LP -- these are the assets, the proprietary capital that you’re looking at. With the transaction we’re really looking at the asset manager itself. The $270 million that went up from, something like $60 million last year to $270 million last year was carried at book value. And this year we marked it at fair value. But the other numbers that you’re quoting are the asset -- the asset that we’re holding, the LP.
Jeffrey Orr
Yes. Think of it, Tom, is that we -- when we launched the strategy - or when we announced new strategies two years ago, we had about $2 billion invested under Sagard and under Power Sustainable Capital in investments in different funds and different strategies. Most of those -- 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 Sagard, 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. And the asset manager is -- yes. And that’s what we were…
Tom MacKinnon
The $970 million movement in Sagard quarter over quarter to $1,244 million, what’s that -- what’s driving that movement then?
Jeffrey Orr
I don’t, see the $1,244 million.
Denis Le Vasseur
I see the $974. Yes.
Tom MacKinnon
Yes. So, in your second quarter you had -- in your adjusted NAV statement, you had second quarter for Sagard, you had it at $970 million 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 Sagard at 1.244. So, what drove that increase?
Denis Le Vasseur
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 -- it’s a lot clearer, if you look at our MD&A on page A62, it is clearly divided into the asset management company, 270; and the investing activities of 974.
Tom MacKinnon
Okay.
Jeffrey Orr
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?
Denis Le Vasseur
A62.
Jeffrey Orr
A62. You get it broken down between what’s the LP investments and what’s the GP value.
Tom MacKinnon
Yes. So that -- and that 270, sorry, just was in the area of -- what was that in the second quarter?
Denis Le Vasseur
In the second quarter would’ve been about a 100 -- 60, sorry. 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.
Jeffrey Orr
It was. It was a book value figure. Yes.
Tom MacKinnon
Okay. So really the 200 movement is the markup. Is that?
Jeffrey Orr
Yes.
Tom MacKinnon
Okay. That’s it. And now this -- okay, so now you’ve got the 270 sitting at fair value then, and before you had it at a caring value, right?
Jeffrey Orr
Yes.
Tom MacKinnon
Understood. Is that -- 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 a -- 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 Sagard, or is there any difference there in terms of the treatment of that number?
Denis Le Vasseur
So the difference here with Sagard, the 10 is a book value figure. We have not marked up to fair value our sustainable manager yet because we don’t have a -- we are waiting for third-party confirmation, say, on a transaction to mark it up to fair value. So, 10 is more similar to the 60 of last year in Sagard.
Jeffrey Orr
You’d have to go back to the MD&A and you will find Power Sustainable, the GP is valued at $10 million.
Denis Le Vasseur
Which is its book value.
Jeffrey Orr
And the rest of the $1.370 billion, the bulk of it is our LP investments.
Tom MacKinnon
Okay. All right. Thanks for that. I appreciate you walking me through that piece. And maybe just one other quick numbers question. The €1.276 billion that GBL made in the quarter, if I multiply that by your 15.5% ownership and the euro to Canadian dollar rates that you disclosed, I get something in around 288, yet you’ve got a 315 contribution from that. Is there something that I am missing here, or was there something else that would have made that calculation?
Denis Le Vasseur
Just the earnings also -- just other earnings and 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 is other activity in GBL that will lead to the figure that you are getting.
Tom MacKinnon
No, not just the gain, the €1.276 billion that they reported as earnings?
Denis Le Vasseur
Correct. The €1.276 billion, 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.
Tom MacKinnon
Okay. I didn’t. Sorry, maybe I will take that one offline. Okay, thanks. But there is no other noise other than multiplication of two figures, one being 15.5% and one being the 1.458 exchange rate that you guys disclosed in the report, that should by definition give you…
Denis Le Vasseur
That should.
Tom MacKinnon
That should do it. Okay. We’ll have to have that arithmetic discussion offline then. Okay. Thank you so much.
Jeffrey Orr
Thank you, Tom.
Operator
[Operator Instructions] Our next question comes from Doug Young of Desjardins Capital Markets. Please go ahead.
Doug Young
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 Sagard, and I kind of get the fair value versus carrying value? But I guess my question is two-fold. I mean, how do you derive fair value? I assume you are going to do that every quarter. Is it off assets? Is it off just cash flow? Just trying to understand that. And then, 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 breakeven. But what’s the proper margin for this business?
Denis Le Vasseur
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 is going to be done every quarter. It is more something that we would do yearly and on a quarterly basis, just to ensure that there is no major change, but we would probably keep the value constant throughout the quarters until yearend, unless something major has occurred.
Jeffrey Orr
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 of how quickly do we get to breakeven depends on external factors, depends on how the AUM grows, let alone the company still look fairways 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.
Doug Young
That’s fair. And then just -- I know it’s early days and you had a transaction. I’m just trying go through, I’m trying to think of the evolution of carried interest. And 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…
Jeffrey Orr
Yes. So no, 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 annual fees, whether it’s anywhere from 75 basis points to 2 percentage points on an equity fund. And then the carry is awarded as it is in the industry, the carry points are awarded and that those are mixed between the investment management teams that are working on their specific strategies. The management team at the top of Sagard would get those points. And then Power -- I shouldn’t say Power, excuse me, all of the GP shareholders would share in the carry points. So, you’d have carry, 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 is -- has a good chunk of that carry. And that is shared equally amongst the GP shareholders. I don’t know if that…
Doug Young
No, that’s clear. It’s just like some…
Jeffrey Orr
We would look like every other alternative asset manager, by the way, on the plan, I think on that one.
Doug Young
Yes. And Denis, I guess on GBL, any additional noise on Webhelp? Like that’s done, I assume, like, we’re not going to have any further adjustments going forward?
Denis Le Vasseur
No, it’s all done. It is finally done, I’d say.
Jeffrey Orr
But we do own equity in the…
Denis Le Vasseur
We do own equity in the merged company.
Jeffrey Orr
But the transaction’s closed.
Doug Young
But the transaction noise is done. Okay. And then just -- the cash.
Jeffrey Orr
And the puts are behind us.
Doug Young
Yes. That’s -- okay. And then…
Jeffrey Orr
If you notice -- I want to -- Doug, I want to say, we haven’t crowed on the big gain because, we -- for the last two, three years we’ve been saying we had a put liability that hurt our net income, but it’s just to put liability, it’s because the value went up on Webhelp. And so we’re not crowing about the reversal either because it’s, 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, so.
Denis Le Vasseur
Correct.
Doug Young
No, I get that. And then just lastly, the cash down quarter-over-quarter, I guess, we went through some mechanics, it just looked lower than what we would have thought. And I guess the buybacks, you get some cash in from Bellus, doesn’t seem like the cash on Sagard went up to the HoldCo. Is there anything else unusual? It sounds like maybe there was just some funding of some Sagard…
Jeffrey Orr
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 are not. The explicit goal is to keep them flat and have third-parties grow the AUM. But that doesn’t mean that we are 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 are net cash out and other quarters we are net cash in. It’s kind of lumpy. So, we don’t want to take -- 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 hopefully -- and then we have got other assets that we monetize. That’s the equation. But, quarter-to-quarter, it can be a little lumpy.
Doug Young
Perfect. I appreciate your time.
Jeffrey Orr
Thank you.
Operator
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.
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Power Corporation of Canada (PWCDF) Q3 2023 Earnings Call Transcript