CI Financial Corp

TSX:CIX

Earnings Call Transcript 2022-Q3

[Operator]

Good morning. Thank you for attending today's CI Financial's Third Quarter 2020 Earnings Conference Call. My name is Melexis, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. [Operator Instructions]

I would now like to pass the conference over to Kurt Metalpine, our CEO of CI Financial. Please proceed.

[Kurt MacAlpine, executive]

Good morning, everyone, and welcome to CI Financial's third-quarter earnings call. Joining me this morning is our CFO, Amit Muni. Together, we'll cover the following: An overview of the highlights of the quarter, a review of our financial performance during the quarter, an update on the execution of select items of our corporate strategy, then we will take your questions. We executed well amidst the volatile and uncertain market environment.

Our adjusted EPS of $0.73 a share reflected lower revenues as a result of pressure on our average assets driven by market decline, which masked strong net flows across all our business lines. EBITDA per share was essentially unchanged from a year ago, reflecting the transformation of our business and sizable contributions from wealth management, which represented nearly 30% of adjusted EBITDA.

Our capital deployment in the quarter was focused on completing previously announced M&A obligations as well as buybacks to take advantage of the market dislocation in our shares. Our net leverage, excluding the noise associated with unrealized currency movements, was flat. Our Asset Management business generated net inflows for the quarter. Within Canadian retail, our $600 million net flows stand out when compared to the billions of outflows injured by the Canadian mutual fund industry. We saw the strongest demand for shorter-duration fixed-income funds, liquid alternative strategies, and a range of our EPS.

The transformation of our investment management platform continues to deliver the best investment performance and net flows that we've seen in several years. Our wealth businesses continue to generate consistently positive inflows despite market volatility with both our Canadian and U.S. wealth businesses continuing to produce positive organic growth in the third quarter. This success illustrates the strength of our differentiated businesses, both north, and south of the border. We also continue to execute against our 3 strategic priorities to modernize asset management, expand wealth management and globalize the company. We are progressing towards the IPO of our U.S. wealth business and will submit an S-1 to the SEC this month.

We expect to go public following the completion of the regulatory review process. Post-IPO, our Canadian business will trade exclusively on the Toronto Stock Exchange, and our U.S. business will trade exclusively on the U.S. exchange. The listings will be reflective of the primary market that each business operates in. As a result of this, at or prior to the IPO in the U.S., we will delist the Canadian business from the New York Stock Exchange. Our strategic momentum has continued in the fourth quarter. In October, Lenny Dolan joined the U.S. Wealth business as our COO. Previously, Lenny was at Citadel, where he held a number of senior leadership positions, including Chief Operating Officer of Global Equities, CTO and COO of core engineering, and most recently, he was responsible for leading the firm's strategic, operational and transformational objectives.

At CI, he will oversee our operations and technology platform, our trading functions and lead our integration and transformation efforts. We're excited to have Lenny on board. In October, we closed on our previously announced acquisition of Eaton Vance Investment Council, adding over USD 9.5 billion of assets to the platform. We also recently closed on the acquisition of Inverness Council, a USD 3.5 billion ultra-high net worth wealth manager based in New York. We're very excited to welcome both firms to CI Private Wealth. I'll now turn the call over to Amit to review our financial results.

[Amit Muni, executive]

Thank you, Kurt, and Good morning, everyone. Turning to Slide 4. Our global assets ended the quarter at $338 billion, up due to net inflows and the FX movement, partially offset by global market declines. Despite the negative market backdrop, we have seen an 8% increase in AUM from last year due to a combination of organic and inorganic growth. Turning to our financial results on the next slide, I'll focus my comments on our adjusted results. Adjusted net income was $136 million or $0.73 per share in the quarter. Net income declined 9%.

However, adjusted EPS was down only 6% due to buybacks during the quarter. While revenues declined 2%, expenses increased only less than 1%. I'll now highlight revenue drivers from our 3 segments. Turning to the next slide. Asset management revenues declined due to negative markets. Our Canada Wealth and U.S. Wealth segment revenues declined primarily due to lower asset levels, which were partly offset by net inflows in both segments. Other income increased primarily due to higher interest income from client account balances in our Canada Wealth segment. Our net interest income increased more than 50% due to higher client balances and interest rates. Turning to expenses on the next slide.

Despite the inflationary environment on a fully comparable basis, total expenses remained essentially flat, increasing less than 1% due to expense management and SG&A costs. Advisory and dealer fees declined due to lower asset levels in our Canadian Wealth segment. Other expenses increased due to interest credited on client account balances in our Canada Wealth segment. Expenses increased by $2.1 million due to the full quarter impact on previous quarter acquisitions. Turning to Slide 8. We generated free cash flows of $152 million for the quarter. We bought back 5.6 million shares for $80 million at a 4.4x price-to-earnings multiple, which we view as an efficient use of capital ahead of the IPO of our U.S. business.

We also continued our $0.18 per share dividend to shareholders. Turning to the next slide, we can review our debt and leverage. At the end of the quarter, we had approximately $3.7 billion of net debt outstanding. As you can see from the chart, excluding currency translation, our net debt only increased by $7 million. The majority of the increase in our net debt was due to $185 million in currency translation adjustments on our U.S. debt. Excluding the FX noise, net debt was 3.7x. Half of the $185 billion currency translation is for debt due more than 25 years from now. Lastly, we recently amended our credit facility to a maximum net debt covenant of 4.5x. The actual leverage per our credit facility definition was 3.7x. As we have previously stated, we intend to use the proceeds from the IPO to reduce our debt and leverage, and we are considering selling a larger portion of our ownership in our U.S. business. Thank you, and let me turn it back to Kurt.

[Kurt MacAlpine, executive]

Thank you, Amit. I'd now like to discuss the progress that we've made against our 3 strategic priorities. Starting with our global investment management platform. We made a very deliberate and strategic choice to transform our legacy multi-boutique model into a modern, fully integrated global institutional-grade investment platform. A new process starts with extensive in-house research, which is at the core of everything that we do. Our research team is organized by asset class, then by sector, and this team provides research to all our portfolio managers.

The best ideas generated by our research process are translated into investment strategies for clients using a rigorous approach to portfolio construction. All our funds are now managed by teams, not individuals, improving decision-making through more breadth and diversity of thought. Our trading is fully centralized and is now embedded within our investment team. The scale drives better execution for our clients. We built a new 11-person risk and portfolio analytics team to improve our processes, better monitor and assess risk and constantly challenge our portfolio management teams.

Finally, we've added an investment advisory function designed to help advisers better understand our strategies and how they fit in their client portfolios. This has resulted in an investment function that is larger than it's ever been and all overlaps and redundancies that were present in the old model have been eliminated. This new approach is a stark contrast to our starting point, and we had directly attributed it to our rapid turnaround in performance inflows. When we initiated the transformation in Q4 of 2020, only 37% of our funds were outperforming their peers over the previous 3 years. Today, we're at approximately double that amount with 73% of our funds outperforming their peers.

As I discussed earlier, we delivered $600 million in positive net flows in Canadian retail in the third quarter despite the industry seeing billions in net redemptions. Q3 marked the first quarter in the past 30 quarters, where we delivered the best retail net flows of our peers who have disclosed publicly. The momentum has continued into the fourth quarter, and we have $87 million in net flows in Canadian retail. Consistent with our strategic priority of expanding our wealth management business, we've been investing to grow our CI Investment Services.

In the second quarter of next year, CI Investment Services is scheduled to begin providing custody for over $14 billion of Aligned Capital's assets. This allows for a better service experience for Aligned Capital Advisors in addition to attractive economics in the current interest rate environment. We anticipate the asset onboarding can drive at least $10 million of annual incremental EBITDA. Upon completion of the aligned asset migration, we will have over $20 billion of assets on the platform, up from under $2 billion when we initiated our corporate strategy. As one of only 3 companies licensed to provide these services in Canada, we are very optimistic about our ability to scale this platform considerably in the coming years.

Next, I want to highlight the progress that we've made within our U.S. Wealth Management business. Since launching in 2020, we have quickly created the largest integrated RI business in the U.S. with USD 126 billion in assets under management. Our definition of an integrated business is one where an entire employee base works together collaboratively to drive success for the entire business. Across CI Private Wealth, we have created a model that enables total strategic, cultural and financial alignment across the organization.

This business model is fundamentally different from other public wealth management models, which can either be classified as platforms where individual advisers share common brands, technology, and real estate for multi-boutiques that make financial investments in individual firms. This differentiated model has allowed us to deliver the highest profit margins of any wealth manager that reports publicly, the fastest inorganic growth rate in the industry, and strong and consistent organic client flows. Stepping back to put our performance in perspective, out of the 1,800 public financial services companies, only 3 others have achieved our combination of revenue, revenue growth, and profit margin.

We worked very hard to drive integration to build a world-class operating platform and are seeing great results. Here are just a few of the many examples. We now have over $30 billion of our assets under management on one consolidated EDV with the majority of the remaining assets to follow by year-end. All of our local offices either are or will be CIPW co-branded by year-end.

We have centralized reporting for corporate functions, including marketing, finance, legal, compliance, and HR with others to follow. We've renegotiated or are renegotiating all our vendor agreements, and we're centralizing real estate in markets where we have more than one presence. We believe we have established the most differentiated business in wealth management and feel we're very well positioned for continued strong organic growth, inorganic growth, and margin expansion. Given our submission of the S-1 this month, I want to spend a minute discussing our balance sheet and capital management priorities post-IPO.

While the Canadian and U.S. businesses will be initially consolidated for accounting purposes, we will think about them and manage them as separate entities. First, in Canada. The Canadian business will retain the existing debt, which includes the deferred acquisition payments. The Canadian business was granted shares of CPW in exchange for contributing the businesses to the partnership, so it makes sense for these liabilities to be retained and paid by the Canadian holding company.

As previously disclosed, the proceeds from the IPO will be used to reduce our debt in the Canadian business. Post-IPO, the Canadian business will not fund any future U.S. acquisitions, and that business will not be pursuing meaningful M&A opportunities. Going forward, our plan is to deploy the cash flows generated by the Canadian Asset and Wealth Management business to further deleverage to a target level of 1.5 to 2x and to effectively privatize our business through our normal course issuer bid.

The Canadian business, given its sole focus on Canada, will be listed exclusively on the Toronto Stock Exchange. As a result, at or prior to the IPO, we will delist from the NYSE. Moving to the U.S. From a balance sheet perspective, the public U.S. company will IPO debt-free as the existing debt is remaining as an obligation of the Canadian business. Launching our U.S. business debt-free provides us with a unique strategic advantage and maximizes our ability to continue to build on our industry-leading growth, scale, and margin.

The contingent earn-out payments will be an obligation of the U.S. business, given the nature of the obligation and the longer settlement periods, which are generally 18 to 36 months. With the U.S. business in growth mode, we don't anticipate paying a dividend and will utilize the cash flows of the business for continued inorganic growth. Given the U.S. business, the sole focus on the U.S., this entity will be listed exclusively on a U.S. exchange. Thanks for your interest in CI, and we'd be happy to take your questions now.

[Operator]

We will now begin the Question-and-Answer Session. [Operator Instructions] The first question comes from the line of Kyle Voigt with KBW.

[Kyle Voigt, analyst]

Maybe just in terms of the custody conversion, you mentioned you're planning to onboard $14 billion of client assets in the second quarter. I guess, are there any other internal assets that you might have identified that are eligible to move onto the custody platform thereafter? And I just wanted to also confirm whether this is going to be a Canada-only offering or whether there's a thought that you could potentially expand this into the U.S. at some point as well.

[Kurt MacAlpine, executive]

Sure. So yes, there are other internal opportunities. We decided to lead with the Line Capital Assante will follow. So significant internal opportunities in addition to what we think is going to be strong third-party demand as we made a number of strategic investments in that platform over the past couple of years to really ready it for scale to exceed $100 billion of assets. So we're very well positioned from a platform perspective, we're now in the onboarding process, which we plan to take place. As I mentioned, the conversion is already underway and should be effective in the second quarter and then other internal assets will follow. At this point, the custody business is focused exclusively on the Canadian market and on health plans to take that to the U.S.

[Kyle Voigt, analyst]

And then for my follow-up, just maybe on the U.S. wealth side. Just given what's happened with risk-free rates and wax over the past 2 quarters. Wondering if you're seeing any notable changes to U.S. wealth acquisition multiples or even changes to deal structures. There's been some talk of changes to deal structures in the market now versus what we're seeing even at this point last year. So maybe you could just talk about that a bit and the multiples as well, that would be helpful.

[Kurt MacAlpine, executive]

Sure. So first on multiples. Multiples for private market businesses have effectively contracted in lockstep with what you've seen in the public markets. I think there's this misunderstanding that while public markets have experienced a tough run, private markets have held up that has absolutely not been our experience. And so first on multiples, they're reflective of the current market environment, which is a different market environment than what existed in the past. Given that, from a structuring perspective, deal structures have evolved a bit. I'd say more of the assets are at risk and the deferred payments and contingent considerations have been sequenced accordingly. So just in summary, I guess, lower multiples are reflective of the environment and evolving deal structures given the current environment.

[Kyle Voigt, analyst]

And Kurt, just to clarify, you're saying that the total multiples inclusive of the contingents have also moved lower. It's not just the upfront payment multiple that has moved lower.

[Kurt MacAlpine, executive]

Correct.

[Operator]

The next question comes from the line of Scott Chan with Canaccord Genuity.

[Scott Chan, analyst]

Just maybe a quick follow-up, Kurt, on that line. With public or private multiples contracting in tandem and then you're talking about a U.S. Wealth Management IPO in 2023. What do you think obviously, very tough margin environment, but what would you think the market would need in terms of the market may be from the CI side or yes, one to facilitate an IPO at the earliest point, which I guess suggests might be back here.

[Kurt MacAlpine, executive]

Sure. So I mean we're focused, Scott, on the inputs, which is getting our S-1 filed, which we're doing this month and we go into the review process. So I don't have clarity in terms of timing and how long that will take. So I'd say that's kind of the first step. In parallel, we've been like many closely monitoring the IPO market. We've seen a number of, call it, relevant transactions. Core Bridge came out of AIG. Porch came out of Volkswagen. Mobileye came out of Intel, and I believe Brookfield is still on track for the separation of their businesses as well. So while our S-1 is under the review process, we'll be fully ready to go. And when the market conditions present themselves, we'll take advantage of that. So I guess I'd say we're focused on everything in our control, and we'll be ready to go as soon as we're able to.

[Scott Chan, analyst]

Got it. And then maybe for Amit. In your opening remarks, you talked about the higher interest income this quarter. And I think you called out a higher rate benefit to Canadian Wealth Management. One to guess, like is that if the rate environment still is going higher? Is that going to kind of support that line? And were there any other items within there that were distributed to it, maybe like FX or something? I just haven't looked at it yet.

[Amit Muni, executive]

Yes. No, the other income and the other expenses were primarily affected by the higher cash balances that we've seen on the Canadian wealth segment as well as higher interest rates. So the interest rates are continuing to rise. So we are expecting to see higher net interest income in Q4 compared to what we saw in Q3.

[Kurt MacAlpine, executive]

And Scott, that's why it was also important for us to highlight the progress we're making in our custody business. Right now, that's on a third-party custodian where we're participating partially in the economics, very different from when we're the custodian of the business. So it's actually the conversions are lining up nicely with this rate environment.

[Scott Chan, analyst]

And then you talked a lot about the Canadian retail improvement. I'm wondering about the distribution channels. If you've noticed what you must have noticed, probably in most cases, better traction maybe like in the RR with the FDA versus your own internal Assante. I don't know if you can qualitatively talk if certain distribution channels have improved over the past couple of years.

[Kurt MacAlpine, executive]

Yes. I mean it's a great question, Scott. I mean, the starting point a couple of years ago when we embarked on the transformation, I mean we were losing from a redemption standpoint, billion, effectively $10 billion a year, and now we're in positive net flows. So if you think about the velocity and magnitude of the changes, I mean, success really needs to come across the board. This is absolutely not an internal flow story where we're not getting external traction. We're improving in third-party MFDA channels. We're improving in third-party IIROC channels.

And I think it just speaks to all the hard work that the team has done to take legacy potentially antiquated boutique model and turn it into a modern global process-driven investment platform. So I'd say the process, the structure, the discipline, the approach that we're taking today is resonating everywhere in a way that the legacy process wasn't, which has opened up lots of new distribution opportunities. We've also spent a lot of time on our product development platform and launching new and relevant strategies for the marketplace has created opportunities for us to get in front of clients, we were unable to do so beforehand. So when we look at our success, I'd say it's been cross-channel. It's an existing client, but it's also been a lot of new clients. And I think you'll see us continue to push ourselves on bringing new and innovative products to the Canadian marketplace in the coming weeks, months, and years.

[Operator]

The next question comes from the line of Nikolaus Priebe with CIBC.

[Nikolaus Priebe, analyst]

When you look at the pattern of Canadian retail flows, how does the average fee rate on inflows compare to the fee rate on outflows? Is there any mix shift to be aware of just in terms of the strategies that are either selling or being redeemed?

[Kurt MacAlpine, executive]

Great question, Nick. I think it depends upon the time period by which you're looking at it. So let's just take the most recent quarter where we stood out in fixed income, liquid alts, and ETFs I'd say there was, call it, a slight fee erosion in that quarter. I believe the previous quarter and the one before that, we actually had fee expansion. So I wouldn't look to -- it's hard to look within a specific quarter and draw a trend line. Across the board, I'd say fees have been, so I'd call it a relatively modest decline to flat, but it's really a function of what people are buying as opposed to us changing our pricing strategies or adjusting prices on things.

[Nikolaus Priebe, analyst]

And then you pointed out that U.S. wealth flows remain positive. And I'm just wondering if you can help us understand why that might be. And the context for this question is that when we look at the sale of long-term mutual funds, which is largely a reflection of retail investor behavior, redemptions have accelerated this year against the backdrop of volatile market conditions. Why haven't U.S. wealth clients also been derisking their portfolios as well?

[Kurt MacAlpine, executive]

Sure. I think it's just an important kind of classification difference. So first, every one of our businesses is net flowing positively. So Canadian Asset Management, Canadian Wealth has positive flows and U.S. is very strong flows. Part of the reason we like the wealth management business so much is the fact that you're at the center of the client's financial life, right? If you're an asset manager, you're selling effectively through an intermediary to deliver your products. So when market conditions change for the positive or the negative, you see a meaningful rebalance in client portfolios. So it could be on or risk off.

When you're the wealth manager and you own the entirety of that client relationship, you're not like whether we redeem someone's mutual fund and buy somebody else's or redeem a mutual fund and move the cash or something shorter duration, we keep all of those assets. So our retention in our wealth businesses is north of 99%. So when you see organic growth, that means we're just adding new clients, and our clients are adding assets from business sales compensation, other liquidity events that they might be realizing. And I think this is one of the real strengths of wealth management in general in an area that we stand out among, I think, all wealth managers as it relates to our ability to retain assets and grow those assets.

[Operator]

The next question comes from the line of Geoffrey Kwan with RBC.

[Geoffrey Kwan, analyst]

I just wanted to ask about -- I think you made a comment of willing to IP more than 20% of the wealth business. I guess to reduce leverage, I'm just trying to understand, I guess, what was the reason for the change versus prior whether or not it was some indications you've got from people that might have interest in participating in the IPO and whatnot. But anyway, like I just wanted to get some insight as to what the change is in terms of view on how much you wanted to take public.

[Kurt MacAlpine, executive]

Yes, Jeff, I think -- yes, I don't think there's necessarily a change. When we announced our intention to IPO we said initially or currently 20%. The 20% was a reflection of ensuring the business was set up well for success recognizing typical size at an IPO, our ability for index inclusion, getting enough scale in the market for it to be liquid in trade well. But there was never a stated intention of sitting on an 80% stake forever. So we're flexible. So whether that's at the IPO or whether that's from follow-on secondary offerings in the future. I mean the goal is to set up both businesses for incredible success and deliver great value to our Canadian shareholders as a result of the ownership in the U.S., whether that's through a sale or through ongoing strategic ownership. So the intention has always been to be flexible. I think that's what was reflected in my comments.

[Geoffrey Kwan, analyst]

And just a question -- second question I had was it's a bit of a multi-pronged one. It's just, obviously, the markets aren't particularly helpful right now. Just wondering in the scenario if this kind of persists for quite a while. How does that ultimately impact your M&A activity? Because from the debt covenant standpoint, I think you've already had a couple or a few increases in the debt covenants. Obviously, the FX is distorting it to a certain extent. But if you were not able to get the IP off because of market conditions, how much more could you push the leverage? And again, how much that kind of ties into your appetite and interest to do further M&A?

[Kurt MacAlpine, executive]

Sure. So I mean, our appetite and interest in doing an M&A has always been a function of the quality and the availability of businesses that are ultimately coming to market. So from our standpoint, I think the industry, or at least as it relates to the RA marketplace, people are geared towards tying success to M&A. I mean, as I mentioned, we have the most profitable wealth manager of anyone that discloses. We've demonstrated every single year we've been in the market that we have the leading inorganic growth when we apply it, and our organic growth rates are fantastic.

So we don't feel compelled to buy anything. Like our success is not at all dependent on a need to buy anything to keep an engine going. We're delivering great results from a business perspective. So I would say we do have room. We're being very thoughtful and prudent with our capital allocation as we go. And then the market environment for the question from Powell before is, look, I mean, things have contracted a lot of people that were selling businesses in 2020 and 2021 are rethinking those decisions now. I mentioned this a few times prior as well. Because of the pending tax changes that were supposed to take effect in the U.S. that never materialized at the beginning of 2022, a lot of the activity from that year -- from future years was pulled forward.

We were obviously the biggest beneficiary, which allowed us to build the business that we have. But I think going forward, M&A is going to be more moderated from an industry perspective anyway. We're already seeing that in the numbers. I mean, this year, there's been a few large flagship transactions. I believe we've been fortunate winning party of all of them. And then the majority of M&A tends to be sub-$1 billion firms, which are less M&A and more recruiting of assets, as I would describe them. And I think that, I mean, those are just kind of different nature and construct. So I guess back to the initial question, we have the flexibility to do M&A. We're not going to be doing anything that would push us beyond our comfort level. That's for sure. And we're just being very thoughtful and diligent with what comes to market and placing bids on things that we have high conviction in that reflect the market and how they fit into our platform.

[Geoffrey Kwan, analyst]

Maybe just if I can just one last thing to your land point on the leverage and your comfort level. Like where would that profit level, like if you exceed the noise that you can have from FX on your leverage ratio, like where would your comfort level be?

[Kurt MacAlpine, executive]

Yes. I mean the FX noise has hundreds of millions of dollars of impact, which is distorting the overall leverage. Like I said, the plan for our business is to delever. We're using the cash flows now to work on delevering. We have the IPO proceeds going to that. And then each business kind of post-IPO will have different capital allocation priorities. But I mean, the goal we're working our Canadian business to is 1.5 to 2x leverage.

[Operator]

The next question comes from the line of Tom MacKinnon with BMO.

[Tom MacKinnon, analyst]

The press release mentions that you acquired... I'm not sure I got on the call late, so maybe this question was answered, but -- or maybe you talked about it. The press release mentioned you acquired 2 IRAs in October, and that's adding about $18 billion in assets, increasing your U.S. wealth management assets by about 10% or so. What are the -- how are you funding that? Can you give us some details as to what was purchased here? And any increment in EBITDA that might lead to?

[Kurt MacAlpine, executive]

Sure. So the 2 purchases, one of which was previously disclosed, which was our acquisition of Eaton Vance Investment Council, which is ultra-high as a business -- we announced that in February, we were extracting or lifting that business out of Eaton Vance or effectively Morgan Stanley. So that was an extended close period. The second acquisition was an ultra-high-net-worth wealth manager in New York called Inverness. And that was the second acquisition. As it relates to acquired EBITDA, we don't disclose individual firm EBITDA. So you'll see that reflected in our results going forward. In terms of how we pay for it, a combination of cash, some upfront, and deferred. And then we equitized partners in our integrated private partnerships, CI Private Wealth, which I've talked through extensively in the past. And then there would also be some earnout considerations that the business would have to perform at a level better than its current run rate for those to kick in over the coming years.

[Tom MacKinnon, analyst]

And just remind me, the assets from the Eaton Vance Feb announced, are they a substantial portion of this $17.8 billion that you note here?

[Amit Muni, executive]

Yes, yes. I mean in U.S. dollars, Tom, the Eaton Vance is effectively $10 billion. So that's -- and then the Inverness council was a $3.5 billion acquisition.

[Tom MacKinnon, analyst]

And just comfortableness with this leverage ticking up over 4x now. Certainly, currency isn't helping. But where do you -- is there -- I think you want to get down to at least in the Canadian thing down to 1.5% to 2% and that will be certainly substantially higher that post the spin. What is ongoing with discussions with rating agencies on that? How long do you think you're going to be able to maintain that high leverage? And when do you think you'll get back towards this 1.5 to 2x maybe on a consolidated? You might think you'll get below 3.

[Kurt MacAlpine, executive]

Sure. So I think, Tom, I think Amit may have touched this before you. But yes, most of our noise on our leverage is tied to FX. So I mean, our net leverage quarter-over-quarter is flat, and we were picking up stock at a multiple of 4.4%. We were servicing existing obligations of previously closed transactions, paying our dividends, and things like that. Your comment on the IPO leverage will go up. Leverage will actually go down because we're using the proceeds of the IPO to delever in Canada and the U.S. business is going to launch with no existing debt.

So on -- with the accounting consolidated results, we will be in a lower leverage position at the IPO than what we are today. As that business continues to evolve to the extent that we do secondary sales of shares, those will go to further delevering. And I also made a comment in my prepared remarks that post IPO, the Canadian business will not be funding any more acquisitions on behalf of the U.S. and the Canadian business will not be pursuing any M&A period. You're obviously very familiar with the cash flows that we have and those cash flows will be used to delever as well. So I think when you look at IPO proceeds, potential secondary proceeds, very strong cash flow, and the fact that the Canadian business is no longer participating in the U.S. business transactions, we have a pretty fast pathway to delivering.

[Tom MacKinnon, analyst]

Yes. And to be fair, though, the spin out of the U.S. Wealth Management business was not done on the premise of reducing leverage. It was done on the premise of increasing value. So this is just a byproduct thereof.

[Kurt MacAlpine, executive]

Correct. Yes, absolutely. I mean, yes. But the proceeds, as we've indicated, are going entirely to reducing leverage. But yes, the rationale was we believe the value is nowhere near being reflected in our share price, and we think that we owe that to our shareholders to get fair value for this incredibly unique wealth platform that we've built.

[Tom MacKinnon, analyst]

And just with respect to the October release on flows, any color with respect to the institutional outflow of $63 million. Is that -- can you -- I mean, that was the only one that seems to stand out here. Can you give us any color with respect to that?

[Kurt MacAlpine, executive]

Absolutely. I mean, the institutional business in Canada, for the most part, is sub-advisory mandates where we have assets at banks or insurance companies. As you know, banks have a -- those businesses have a very concerted effort to internalize everything. So this is just a byproduct of assets getting internalized where we have no real meaningful shot to keep them, right? If you -- if someone has indicated that they want to run the money in-house for free, there's no ability for you to participate in those assets.

Yes, that's where I was going, exactly. I mean, we had a redemption last quarter that actually we became more profitable post redemption because the revenue that we are receiving when you applied the appropriate operating cost, was actually negatively contributing to EBITDA. So just for the most part, isn't particularly a great business from an economic standpoint. It's not something that we're focused on extensively, and we've been deploying our efforts to our retail business, which comes at much better economics. And you've seen that obviously reflected in our flows, both from an improvement standpoint, but also how we're doing relative to everybody else in the industry.

[Operator]

The next question comes from the line of Graham Ryding with TD Securities.

[Graham Ryding, analyst]

Maybe we could start with the -- you talked about organic growth at your Canadian and U.S. wealth. Is there any sort of numbers you can give us on sort of what rate of growth you're experiencing either in the quarter or year-to-date? And how that compares to what you saw in 2021?

[Kurt MacAlpine, executive]

Sure. So we haven't been disclosing on a quarterly basis just given it's a different -- for 2 reasons. One, it's a different business than our asset management business. And then second, there's a variety of different definitions for how people disclose organic growth, particularly as it relates in the wealth management space. So some of our competitors include recruited assets. They include M&A. There's even instances where people include market moves. Like so when we talk about organic growth, we're talking about net increases in balances from existing clients and net new clients that we bring in the door.

On a year-over-year basis, both businesses have performed very well, both are in positive flows. And I think it speaks to the differentiation of the wealth managers that we've created, the focus on financial planning and holistic advice, and the ancillary services that we've been able to provide to them, whether that's the tax, the estate, the retirement planning, our incoming trust services, our concierge services and things of that nature. So it's been despite a very different market environment than last year, the flows have been very constant and positive.

[Graham Ryding, analyst]

Just going back to your leverage after these 2 acquisitions that you closed in October, and I'm assuming this FX headwind might have reversed somewhat in Q4 to date, can you give us an update on where leverage would stand today, pro forma those 2 areas?

[Kurt MacAlpine, executive]

No. I mean we disclosed leverage on a quarterly basis. So like we said, I mean, net leverage quarter-over-quarter was up. Sorry, we had Timco there. So yes, our net leverage quarter-over-quarter was effectively flat. So yes, the noise in the increase was a function of FX and the business has very good cash flow. So I mean, we knew these acquisitions are coming, and we planned appropriately from a capital allocation perspective to bring them in.

[Graham Ryding, analyst]

And then FX noise that we're seeing on the debt side, is that just reflecting you deliberately issued some U.S.-denominated debt to sort of match up with your U.S. business in the U.S. earnings that you're getting from your U.S. wealth. Is that why you have U.S.-denominated debt?

[Kurt MacAlpine, executive]

Correct. And then -- but we service that -- and this is why the currency noise is just noise in kind of, I call it, a miscategorized distraction is we service that out of the U.S. as well. So we actually don't take currency risk on the debt servicing the debt itself is a very long-dated debt as well. So that noise is exactly that. It's a function of just having U.S.-denominated debt. We report in Canadian dollars have to convert, and that creates the noise. Like I say, we know how to take the currency risk because we service it out of our U.S. cash flow.

[Graham Ryding, analyst]

On the IPO front, just it sounds like you're moving forward with the S-1. Initially, I thought you were targeting sort of either a late 2022 or early 2023 IPO. Has that now been pushed out somewhat from your original timeline? And if so, is that just the S1 process? Or are you deliberately sort of looking at the market volatility and pushing out the timeline until maybe IPO markets improve?

[Kurt MacAlpine, executive]

No. I think it might have been a misunderstanding. So we're not actually able to comment on the timing of the IPO. All we can comment on is when we submit the S-1, which will put it into the review process. So our initial commentary was in Q4, we've actually tightened that up and pulled it forward a bit to this month. So we were initially planning the back half of Q4. We'll get it in November.

And then we're subject to the review process. So yes, we were never able to speculate on the timing for the actual IPO only on when we would be ready to enter the review process to be able to IPO. Like I said, look, it's a different IPO market this year than last year, but we have seen some glimpses of success, particularly from companies that have kind of spun out or been separated, right? The Force IPO from within Volkswagen performed very well. Mobileye separated from Intel, I believe Brookfield is doing a separation this quarter as well. And when you think about the fundamental differences between -- a lot of those businesses have a lot of similarities.

I mean, ours are kind of different across the board. One business is Canadian and the other one is U.S. One's more value-oriented. The other one's kind of rapid growth-oriented, one's asset management, one is wealth management. So I mean, we feel like -- I mean, we won't make a call when markets per se, but we feel like the business differentiation is there. We're subject to the review process, but we're closely monitoring and seeing the success that firms like Porsche and MobileIron potentially Brookfield will have.

[Graham Ryding, analyst]

And then my last question, if I could, just certainly an improvement here on the Canadian retail sales side. Yes, I think you flagged better investment performance improvements that you've made to your whole distribution process over time and then product development. Would you sort of say all these areas are equally contributing? Or would you flag one area, in particular, is doing the heavy lifting here and the improvement in your sales?

[Kurt MacAlpine, executive]

I mean, look, everything starts with investment performance. And we've -- 2 years ago, we embarked on a very important transformation where we took the multi-boutique model with all these sub-brands, funds were entirely run by individuals and created what we would call an institutional grade fully integrated investment platform. I mean, that change in and of itself, I attribute most of our success to. So everything about our investment platform looks different. Our approach to research, how that informs portfolio construction, how we think about risk and analytics, and the integration of trading.

So I mean, almost everything changed there. And the great news is we have a bigger, better-performing investment function than we've ever had. We've reduced all the redundancies and overlap and internal, call it, competition that gets present with the boutique. And clearly, from our performance and our flows, it's resonating with clients in a way that our platform hasn't for a very long period of time. So I'd say that it starts with, we needed to fix the investment platform. We made a lot of bold decisions to put ourselves in a position to generate success. Like I said, our platform is bigger than it's ever been. So it's resonating in the marketplace from a recruiting standpoint, adding top talent has been easy with the new vision and model in place. And then we've supplemented that with great new products, the revamped distribution process, which started in 2020 as well.

[Operator]

That concludes the question-and-answer session. I will now pass the line back to Kurt MacAlpine for closing or additional remarks.

[Kurt MacAlpine, executive]

I just wanted to thank everyone for their interest in CI, and we look forward to speaking with you next quarter.

[Operator]

That concludes the CI Financial Third Quarter 2022 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.