CI Financial Corp

TSX:CIX

Earnings Call Analysis

CI Financial Q4 2023 Highlights

CI Financial reported adjusted earnings of $0.81 per share, showing stability despite top-line pressure and increased depreciation. Capital allocation included M&A investments and issuer bids totaling $185 million. Inflows of $340 million were achieved for the year, contrasting industry outflows. The company focused on strategic priorities like modernizing asset management and global expansion, with notable acquisitions. Financially, adjusted net income was $128 million, assets increased by 5% to $445 billion, and revenue adjustments were made to enhance managed accounts. Debt reduction and shareholder returns remained key priorities, with future obligations strategically managed.

Stable Earnings Amidst Sector Challenges

CI Financial reported an adjusted earnings of $0.81 per share for the fourth quarter of 2023, holding steady from the previous quarter. This consistency came despite challenges across the industry, where a risk-averse sentiment resulted in significant industry outflows. Nevertheless, CI Financial demonstrated resilience, with $340 million of inflows for the full year, in contrast to nearly $20 billion in combined industry outflows.

Asset Growth and Financial Health

The company's global assets experienced a 5% increase to $445 billion by the quarter's end, benefiting from positive market movements, net inflows, particularly in their Canadian and U.S. Wealth Management businesses, and strategic acquisitions. CI Financial displayed robust fiscal health with an adjusted EBITDA margin of 41.7%, evidencing the efficiency of operations.

Strategic Capital Allocation

CI Financial remained committed to active capital allocation, directing $223 million towards mergers and acquisitions which contributed to their strategic expansion. In the same quarter, they made a significant move to repurchase shares through a $100 million substantial issuer bid and announced another bid of up to $85 million.

Performance Across Business Segments

Asset Management saw its EBITDA remain stable, with an impressive margin of 61.6%. Both the Canadian and U.S. Wealth businesses exhibited growth in inflows, with a notable EBITDA growth of 33% stateside, indicative of strong operational performances in these segments.

Revenue Adjustments and Cost Management

Revenue on a comparable basis slightly declined to $664 million, with some decrease in Asset Management revenues due to shifts to lower-fee products and adjustments made to enhance managed account programs. Nonetheless, there were areas of increase in Wealth Management fees, with expected cost reductions to balance out fee adjustments made.

Tending to Liabilities and Interest Expenses

CI Financial reduced acquisition-related liabilities by over $200 million and renegotiated their credit facility to a higher capacity, concurrently managing a slight increase in their leverage ratio to 3.5x. Their proactive approach to managing debt also presents the opportunity for accelerated deleveraging, particularly with an attractive average debt rate of 4.4% and potential unrealized gains from long-term bonds.

Resolving Acquisition Obligations

The company has streamlined their acquisition obligations, separating U.S. and Canada responsibilities. With Canada due to repay $281 million in U.S. obligations for 2024, a plan is in place for these to be covered by free cash flows and the expanded credit facility. Post-2024, CI Financial anticipates increased capital flexibility and a fast-track to deleveraging after meeting these obligations.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to today's CI Financial Q4 2023 Earnings Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Kurt MacAlpine, CEO of CI Financial. Kurt, please go ahead.

[Kurt MacAlpine, executive]

Good morning, everyone, and welcome to CI Financial's Fourth Quarter Earnings Call. Joining me is our CFO, Amit Muni. Together, we will cover the following: an overview of the highlights of the quarter, a review of our financial performance during the quarter, a discussion on our near-term obligations and go-forward capital management priorities, a recap of our 2023 accomplishments, business positioning and 2024 priorities, then we will take your questions.

Our adjusted earnings of $0.81 per share is unchanged sequentially, reflecting top line pressure on our business and increased depreciation and amortization, offset by the benefit of recent share repurchases. Adjusted EBITDA per share attributable to shareholders increased 2% from Q3, to a record of $1.51 per share, while free cash flow of $1.08 per share was down just $0.02 from the record level of Q3.

Capital allocation remained active during the quarter. We deployed $223 million towards M&A, including deferred and earn-out payments.

In December, we completed a $100 million substantial issuer bid, repurchasing 6.5 million shares. Today, we announced another substantial issuer bid of up to $85 million, at a fixed purchase price of $17.50 per share, and we returned $31 million to shareholders through our dividend. The Board also declared a dividend of $0.20 per share payable in July, reflecting our normal cadence of declaring dividends one quarter ahead.

Over 2023, our capital deployment was nearly perfectly balanced between debt reduction, M&A and returning capital to shareholders through buybacks and dividends.

Risk-averse sentiment continued during the quarter, which was consistent with 2023 overall. While our retail channel and dirt outflows for the quarter, we managed to generate $340 million of inflows for the full year. This is against the backdrop of nearly $20 billion of combined industry mutual fund and ETF outflows, the worst year on record for the Canadian mutual fund industry.

Our Wealth businesses in both Canada and the U.S. generated positive inflows throughout the year, which continued through the final quarter, again, highlighting the strength of those businesses. We also continue to execute against our three strategic priorities to modernize asset management, expand Wealth Management and globalize the company. The significant improvement in investment performance since integrating our investment platform was recognized with an industry-leading number of fund grade and Lipper awards.

We completed the previously announced acquisitions of Coriel Capital in Canada and Indianapolis-based Windsor Wealth Advisors, which was rebranded as Corient at closing. Later in the presentation, we will review in more detail some of our 2023 strategic accomplishments and discuss our 2024 priorities.

I'll now turn the call over to Amit to discuss our financial results.

[Amit Muni, executive]

Thank you, Kurt, and good morning, everyone. Turning to Slide 4. Our global assets ended the quarter up 5% to $445 billion, driven by positive markets, net inflows into our Canadian and U.S. Wealth Management businesses and two acquisitions in the quarter.

For the full year, our AUM was up $61 million or 16% due to a combination of flows, markets, our custody conversion, partly offset by the sale of one of our minority U.S. Wealth Management investments.

Turning to our financial results on the next slide. I'll focus my comments on our adjusted results. Adjusted net income for the quarter was $128 million or $0.81 per share. Adjusted EBITDA was $239 million for the quarter, and our adjusted EBITDA margin was 41.7%.

Turning to the next slide, I'll highlight the segment results. Asset Management EBITDA stayed roughly flat at $156 million, and margins have increased to 61.6% The increase in margins was primarily due to a year-end true-up to full year incentive compensation for the segment. Canada Wealth EBITDA was also roughly flat at $20 million and margins were 9.7%.

In the U.S., pre-NCI EBITDA increased to $100 million, and margins expanded slightly to 42.3%. We experienced strong EBITDA growth of 33% for the year, more than double the invested group's preferred return.

For purposes of modeling noncontrolling interest for our U.S. segment for future quarters, we estimate noncontrolling interest of 38% of U.S. adjusted EBITDA when calculating our U.S. segment adjusted EBITDA. For purposes of modeling noncontrolling interest for our U.S. segment's contribution to EPS, we estimate noncontrolling interest of 32% of U.S. segment adjusted EBITDA.

Turning to the next slide, I'll walk through the changes in revenue. Revenues on a comparable basis decreased slightly to $664 million. Asset Management revenues declined by $10 million. This decrease was due to two factors: continued mix shift to flows into lower fee, short-duration products. Second was due to fee adjustments we made to enhance our managed account program. The fee adjustments we made will be mostly offset during the year through cost reductions and running the program.

Canada Wealth Management fees increased due to higher asset levels. U.S. Wealth revenues decreased slightly due to negative markets and our method of billing. Approximately 50% of these revenues are based on asset levels at the beginning of the quarter. Given asset levels at the beginning of the fourth quarter, revenues were lower and didn't benefit from the market recovery.

However, as we enter Q1 of this year, we started with higher asset levels and will now benefit from the market tailwinds. Acquisitions added $3 million in additional revenues in the quarter.

Turning to expenses on the next slide. On a comparable basis, total expenses increased less than 1%. SG&A decreased primarily due to year-end true-ups in incentive compensation in our Asset Management segment. Adviser and dealer fees increased due to higher revenue earned in our Canada Wealth segment. Interest expense increased due to additional borrowings to fund acquisition-related obligation and our substantial issuer bid.

Depreciation and amortization increased due to higher depreciation of hardware and computer equipment as part of integration and new leased office space at Corient. Acquisitions added $2 million in expenses in the quarter. We anticipate interest expense to be in the range of $42 million to $44 million in the first quarter of '24.

Turning to the next slide, we can review our debt levels. During the quarter, we reduced our acquisition-related liabilities by over $200 million and closed on a $100 million substantial issuer bid, repurchasing 4% of our outstanding shares. We also renegotiated our credit facility and increased its capacity from $450 million to $800 million, and extended its maturity to May 2025.

The face value of net debt was $3.4 billion at the end of the year, and our net leverage ratio increased modestly to 3.5x on a reported basis. The fair value of our debt at the end of the year was $2.6 billion, which results in a net debt leverage ratio of 2.7x.

Turning to the next slide, I'd like to dig a little deeper on our bonds. As we have discussed previously, we have a very attractive 4.4% average rate on our debt as compared to today's rates. The timely issuances of long-term bonds in 2020 and 2021 has generated a $750 million unrealized gain for our shareholders. We could crystallize this significant gain if we decided to repurchase these long-dated bonds, which would reduce the face value of our debt without deploying an incremental dollar, which would lead to accelerated deleveraging.

On the next few slides, I'll review our acquisition-related obligations by segment and our plans for funding these payments.

In May of last year, we separated the U.S. acquisition obligations between Canada and the U.S.. Canada was obligated to pay any guaranteed-related payments, which totaled $281 million in 2024. The U.S. assumed acquisition-related contingent obligations which currently totaled $116 million in 2024.

Going forward, the U.S. will be responsible for paying for its own future acquisitions. We anticipate that by the end of 2024, Canada will have fully repaid its U.S. obligations as reflected on the next slide.

This chart reflects the uses of Canada's cash flows. As reflected on the previous slide, Canada has $281 million in U.S. acquisition-related obligations, $118 million in projected dividend payments, and as announced this morning, a substantial issuer bid of up to $85 million. This generates 2024 obligations of $400 million to $485 million, which we believe Canada can fund these obligations with its free cash flows. The expanded capacity of our credit facility can fill any temporary gaps.

Once we get past 2024, Canada will have completed its U.S. acquisition obligations and will have considerable capital flexibility to rapidly deleverage, especially if the bonds with the greatest embed gain for our shareholders are targeted first.

On the next slide, I'd like to review Corient's capital plans. Corient has experienced strong growth and generated $1.5 billion for our shareholders from the sale of a minority stake and the sale of a minority-owned wealth manager, as well as strong and growing EBITDA generation. On the back of the minority stake sale last year, we announced our intentions to fully separate the Canadian and U.S. business, which has largely been completed with the exception of the separation of our debt.

To complete the next step, we announced this morning that Corient has obtained its own independent credit rating. Kroll has rated Corient, A- stable, which we believe is reflective of the growth and profitability profile of the business. We believe this significant rating advantage versus peers best positions Corient to access capital to fund their future inorganic growth.

Thank you. Let me turn the call back to Kurt.

[Kurt MacAlpine, executive]

Thank you, Amit. Prior to discussing the positioning of each of our businesses and their 2024 priorities, I want to touch on some of our 2023 milestones and the strategic progress we've made transforming our business over the past 4 years. I won't talk through all the bullets, but I do want to highlight a few key points.

At the corporate level, we completed the sale of a minority stake in Corient, which created capital separation between the businesses. We accretively used the capital we received to reduce our debt and buyback stock. Our Asset Management business continued to exhibit the benefits of operating as an integrated platform, generating strong investment performance, driving industry-leading product innovation and increasing scale in key areas. I will discuss this in more detail in a few minutes.

Our Canadian Wealth business significantly improved its profitability, driven by the midyear custody conversion of Aligned Capital's assets to CI Investment Services.

In the U.S., we made considerable strategic, operational and financial progress. Financially, it was a successful year with the combination of organic growth, inorganic growth and synergy realization, which drove 42% year-over-year growth in adjusted EBITDA and margin expansion of 4.4 percentage points.

This slide highlights how far we've come as an organization in a very short period of time. We've made remarkable progress in diversifying the business in the 4 years since we implemented the strategic transformation of CI. As shown in the chart on the left, we've transitioned from having essentially 100% of our economics being generated by our Asset Management business, to a diversified firm, generating over 1/3 of our economics in U.S. and Canadian Wealth Management.

As shown in the table on the right, our AUM composition has completely reversed. In 2019, we were $172 billion business, with 72% of our assets in Asset Management. And today, we're a $450 billion business, with 72% of our assets in Wealth Management.

Spoken several times before about the transformation we've made to our investment management platform, where we shifted from a series of boutiques that operated in silos, into a fully-integrated, institutional-grade investment platform. The impact has been undeniable. CI currently has delivered its best relative performance in over 7 years, with 77% of our AUM beating our peers on a 3-year basis, and 48% are in the top quartile.

89% of our balance assets rank in the top quartile and 67% of our equity assets are beating their peers. This strong investment performance was recognized, by us receiving an industry-leading number of fund awards in 2023. Our products received 35 FundGrade A+ awards and 19 Lipper awards, in both cases, the most of any asset manager in Canada. This is a stark contrast to our position before we embarked on the transformation where we had the worst investment performance of any of our Canadian peers. We believe our strong results position CI extremely well for when the sizable cash that is sitting on the sidelines moves back into long-term products.

In addition to the changes in investment management, we've completely revamped our approach to product developments and have launched a number of first-to-market strategies for Canadian investors, including the first retail private markets fund-to-fund, which brings the world's leading alternative managers to Canadian investors.

In 2024, CI Global Asset Management is well positioned to leverage our new foundation and strong performance to drive long-term product inflows when retail risk aversion abates. We are very focused on growing our private markets products by continuing to obtain platform approvals and driving adviser adoption. We will maintain our operating discipline to combat secular pressures.

Canadian Wealth has emerged as a real contributor to our earnings with significant potential to continue to grow. To date, we've grown from $15 million of EBITDA in 2019, to over $70 million in 2023. This EBITDA growth is attributable to improving efficiencies in our existing businesses expanding our presence in the ultra-high and high net worth segments, recruiting adviser teams and growing organically. We also invested in building an industry-leading technology backbone for our custody platform to disrupt the wealth custody market. We've already begun rapidly scaling that business.

In 2023, our assets grew to $26 billion, from just over $1 billion in 2019. In 2024, we seek to continue to achieve strong organic growth across the business and accelerate our recruiting efforts in our core Wealth Management businesses. We also look to continue to scale our custody platform by executing on our robust internal and external pipeline.

Less than 4 years into our expansion into U.S. Wealth Management, Corient has grown into a truly unique wealth management business with a highly-differentiated operating model. We are now the largest fee-only, ultra-high and high net worth focused RIA in the U.S., with nearly $150 billion in client assets. We have acquired the leading RAs in the industry and collectively have built an integrated world-class business for our clients and employees.

Nearly all wealth management businesses are providers of real estate, operations and technology and other back-office services to independent advisers and/or teams, where the expertise delivered to the client is limited to the expertise of the individual or the small team of advisers that serve them.

In addition to competing with other internal advisers for clients, advisers at other firms are typically only compensated by receiving a portion of the personal revenue they generate. The lack of alignment to the overall success and profitability of the business, often creates cultural divides across adviser teams and with the individuals responsible for the operating platform. Advisers rarely have equity participation in the firm.

By contrast, Corient could not be more different. We, to our knowledge, are the only true national private partnership in wealth management, where 252 of our colleagues are equity owners of the firm. Our clients have access to the full expertise of Corient at all times, and we are incented to work together to deliver an unrivaled client experience. We are confident that our private partnership improves Corient's culture, aligns everyone in our organization, creates better career trajectories for our employees, significantly improves wealth creation, and allows us to invest more strategically in our business.

Our results support our belief. We have exceptional organic and inorganic growth. We've delivered the leading operating margins of all wealth managers that disclosed publicly. Have unified our middle and back office, and have built a full suite of exceptional products and services for our clients that we didn't have before. The scale, growth trajectory, strong cash flows and clean balance sheet has helped Corient achieve an A- stable bond rating by Kroll. This rating will enable stand-alone capital flexibility for Corient going forward.

In 2024, our priorities are to build on the strong foundation that we have worked so hard to develop. We expect to continue to generate strong organic growth, strengthen our middle and back office platform, recruit exceptional talent and increased adoption of our new capabilities.

Finally, we will take advantage of our capital flexibility to selectively pursue M&A opportunities of the highest quality RIAs in the industry. We are very excited about what 2024 holds for all three of our business lines.

By executing on our three stated strategic priorities, we've been able to transform each segment of the business. We expect to continue to see the benefits of that transformation in 2024 and beyond.

Thank you for your interest in CI, and we'd be happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Kyle Voigt of KBW.

[Kyle Voigt, analyst]

First question just on the U.S. Wealth business. You noted the 440 basis point improvement in margins for that segment in 2023. And margins are now hovering near this 42% level for the last few quarters. You also highlighted the integration work that was completed in 2023. I guess, how should we think about the remaining 2024 integration priorities and opportunities that are left? And how much margin expansion potential is still remaining from those integration efforts?

[Kurt MacAlpine, executive]

Sure. So we've done, as I mentioned in the prepared remarks, considerable lifting to take a series of businesses that we had acquired that operated independently and created a fully-unified operating platform, which you see in the margin expansion that we've delivered to date. I'd say the vast majority of the components that need to be integrated have been fully integrated, and there's a couple of other areas that we will continue to integrate through the course of 2024.

As it relates to margin expansion, I won't give specific guidance. But if you think about the platform that we've put in place, the structure that we've built for our Wealth Management business, the operating leverage accrues to the business. So as we continue to scale up, we do anticipate seeing margin expansion continue going forward.

[Kyle Voigt, analyst]

Understood. And then if I could just ask a follow-up on capital deployment. Just given the rapid deleveraging comments in the slides for 2025, it seems like there may be a preference for debt repayment once you get to 2025, and deploying cash flows from the Asset Management segment towards buying back your debt given where it's trading on a fair value basis.

Just wondering if you could comment on that and how you're thinking about the balance between that and a buyback in 2025 when deploying capital from that Asset Management segment.

[Kurt MacAlpine, executive]

Sure. So as Amit had mentioned, our obligations -- the Canadian business's financial obligations for the U.S. business run off in the next few months, and that's going to open up a significant amount of free cash flow for us to deploy. I anticipate we'll continue to take a dynamic approach. We've highlighted today the $750 million in unrealized gains that we've generated for shareholders through the bond issuances that we've done in the past, which creates a unique opportunity to disproportionately deleverage as we target those bonds.

But at the same time, we'll also opportunistically take advantage of disconnects that we believe exist in our share price. And if you kind of look at the free cash flow generated by the business as these liabilities run off. We have plenty of capital to pursue those two things in parallel.

[Operator]

Our next question comes from Graham Ryding of TD Securities.

[Graham Ryding, analyst]

Just on that deleveraging in 2025 theme, you have some existing debentures that mature in 2025 and 2027, but you're also clearly flagging here that you've got these 2030 and 2051 bonds that are trading at a large discount. So where should we think you're going to focus your efforts on deleveraging? Or does it matter?

[Kurt MacAlpine, executive]

No, it certainly matters. We're going to monitor how the trading of those bonds evolve, and we're going to target the tranches that allow us to deliver the most accretion for our shareholders at that point in time. So we'll be looking across the different tranches of bonds, looking for the greatest opportunity for value creation for our shareholders.

[Graham Ryding, analyst]

And then in terms of raising debt at that U.S. subsidiary, if you still have the outstanding '25, '27 debentures, do you just raise money in Canada in the interim? And then pay that back over time. How do you mitigate that?

[Amit Muni, executive]

Yes, we have -- yes, it's a great question. We have a lot of flexibility. I mean, one scenario could be, as you mentioned, to raise debt at Canada in the interim. And then as those liabilities run off, appropriately transition the debt to the U.S. business, another one could be to take efforts to clean up some of those covenants as well.

So really, the first step for us was going and getting an independent rating for Corient, continuing the next step of the journey for the capital separation. But yes, we have either kind of one of two options, borrow at the parent and assign it to Corient or free ourselves of those modest covenants that exist on a couple of tranches of bonds.

[Graham Ryding, analyst]

Okay. Understood. The Canadian Wealth business, the custody side has been contributing to your EBITDA growth there. Are there any targets or what are you planning for 2024 in terms of moving further Wealth assets onto that custom platform? And then what could that potentially add to your run rate EBITDA?

[Kurt MacAlpine, executive]

Sure. So as we discussed, the business sat at a little north, right around $1 billion of custody assets in 2019 through a combination of third-party demand and internal conversions, that business is north of $25 billion today.

As you know, $25 billion represents a fraction of the custody potential of CI's Wealth Management businesses, and we do have a priority to continue to transition assets internally in addition to growing demand from third party as well. So I expect you'll continue to see strong growth of both internal and external clients of custody business through 2024. We haven't given, and don't intend to give any guidance, but we will keep you updated on integration and transition plans across the business and provide more visibility into what that looks like as those start to onboard.

[Graham Ryding, analyst]

Okay. Understood. One last quick one, if I could. You mentioned organic growth in the U.S. like your organic flows. Is there a number that you could give us in terms of what you're adding in like a flows rate or an absolute amount?

[Kurt MacAlpine, executive]

Yes. We haven't shared the specific number, but it was several billion in 2023, but we haven't given the exact number.

[Operator]

Our next question comes from Nik Priebe of CIBC Capital Markets.

[Nikolaus Priebe, analyst]

Just on the Asset Management side of the business, are you able to give us a general sense of what you're seeing in terms of long-term fund flows, just on a quarter-to-date basis and through the peak RSP season here in February?

[Kurt MacAlpine, executive]

Nik, we haven't given any inter-quarter guidance on fund flows.

[Nikolaus Priebe, analyst]

Okay. I guess moving to the U.S. then. I mean, now that you've secured a debt rating for the U.S. entity, you've got that additional flexibility to continue scaling that platform inorganically. Can you just update us on the M&A pipeline for the U.S. business and how active you might expect to be this year?

[Kurt MacAlpine, executive]

Sure. I mean our approach to M&A has been consistent since the onset. The goal is to acquire the highest quality RIAs in the industry that align with our strategy and vision for the business, the culture that we've created at Corient and the unique, call it, financial opportunity through our private partnership model.

I spent a few minutes in the prepared remarks, just talking about the stark differences between how we've built this business relative to how the majority of wealth management businesses have been built. And that's created a lot of demand for people joining our platform, which is very exciting for us. Our M&A efforts to date had been focused on acquiring RIAs, obviously, building the integrated operating platform, which we've now done, and really, really focused on scaling that up.

In addition to M&A, we've started to become a very attractive destination for advisers that are just looking for a new home. So call it unlocking a recruiting angle for us that didn't exist before we had fully integrated and unified the platform as well. So I feel, we have solid prospects in front of us. The standards of the bar for a firm joining us remains extremely high, and we'll be very disciplined in that process. But I'd say that the market is certainly slower than it was in a peak in 2021, but there are a series of high-quality conversations we're having out there.

[Operator]

Our next question comes from Geoff Kwan of RBC Capital Markets.

[Geoffrey Kwan, analyst]

My first question, just following up on the price of your debt and how you're kind of thinking about it. And I get that this is more, I guess, a bit of a theoretical question, but if you didn't have the cash obligations that you have for 2024, given where the current share price is, where the prices of the debt are, I know you talked about being able to do share buybacks and buyback debt. But is there one of them that you would have a bit more of a preference for or maybe more clear preference for at the current time?

[Kurt MacAlpine, executive]

So if you're saying in the hypothetical scenario, if we didn't have the $280 million of final obligations to Corient, I would say we would be doing both. In that theoretical scenario, we'd be taking advantage of in crystallizing that embedded gain that I had mentioned to rapidly delever, while at the same time pursuing the SIB that we have in place today. I think as people have noticed, this is the second SIB that we've done. We've been very thoughtful with the sizing of the SIBs and each of them is fit well within the free cash flow generated by each of the businesses. And I expect that discipline to continue.

So I'd say that -- to answer your question, I guess, specifically, all things equal in the conceptual scenario, we'd be doing both. And if you ask me today, we'd be targeting the long-dated bonds, crystallizing that massive gain and getting the disproportionate deleveraging per dollar that we buy back.

[Geoffrey Kwan, analyst]

Okay. And just my second question is just with the growth and expansion of your business over the last several years, also from a financial reporting standpoint, it's kind of more clear in terms of your U.S. business and your Canadian business. When you think about the long-term future of CI and maximizing shareholder value, do you see it as having this joint Asset and Wealth Management strategy? Or do you think maybe it's also just kind of continue to shift that kind of business mix to be more balanced?

[Kurt MacAlpine, executive]

Yes, it's a great question. I mean when I think about CI, I mean, if you look at the slide that I showed earlier, I mean, effectively, in 2019, we were $172 billion business that was economically entirely a Canadian mutual fund company. And if you look at the business today, we're $450 billion, 70% of our assets sit in Wealth Management in a large and rapidly growing portion of our earnings.

So we've fundamentally changed the profile of the business in the past 4 years. When I think about our company, we really operate four distinct businesses. We run a Canadian Asset Management business. And to your question, that comes obviously with certain valuation or multiple as it relates to its peers. We run a Canadian Wealth Management business that is as scaled as they get in the independent space in Canada, with very large and very fast-growing operating margins that would certainly trade at a different multiple to the asset management business.

We have a nascent custody platform with very unique licensing, a digitized platform with scale for hundreds of billions of dollars of extra capacity, which would trade also at a differentiated and likely significantly more attractive multiple. And then I think everybody is familiar with Corient, the EBITDA that, that business has generated in the multiples by which those businesses traded over time.

So when we're doing our analysis, we look at those four different pieces and say, this is a fundamentally-different business than what it was 4 years ago. We have four incredibly valuable assets that all have slightly different sources of differentiation, growth prospects and value. And that's why we're so confident in buying our shares back because we see that value differential that exists, that we believe exists, and we're happy to continue to buy shares as long as it takes place.

As you think about the strategic kind of mix shift of our business, I would anticipate seeing a continued shift of both of our earnings growing and the proportion growing that comes from Wealth Management, and I would expect us to continue to increase our scale, and you'll see an even greater portion of our overall assets in Wealth Management. And at some point, we're hopeful that the trading multiple will not reflect that of the multiple of a mutual fund business, but a multiple of a Wealth Management business that more closely resembles our asset mix and our growth.

[Operator]

The next question comes from Stephen Boland of Raymond James.

[Stephen Boland, analyst]

Maybe you could just run through those two scenarios, Kurt, that you talked about, with the shorter-term debentures and possibly raising debt. I guess the first scenario is raising money at the Canada level and then loaning it down to the U.S. And I presume then that debt would be backstopped by the Canadian balance sheet, which would entail a more favorable interest rate. Is that the way to look at it?

[Amit Muni, executive]

So look, look, Stephen, let me add a little bit more color to what Kurt said. There's various ways for -- we have these covenant, we're trying to separate the debt between U.S. and Canada, and we're well on our way to do that. We have some covenants that prevent us from taking on debt at the U.S. level. There's various paths that we can take to alienate that hurdle, and we're currently going through that, and we'll provide more updates to that as maybe next quarter or the quarter after that, getting the Kroll rating was step one going down that process.

So the way we think about it going forward, think about it as two separate debt stacks, one for Canada and one for the U.S. And we think we're -- we have a path that we can properly separate it.

[Stephen Boland, analyst]

Okay. So I guess the second part of that question I was going to ask is the removing of the covenants, what does that entail? If I'm a holder of the 2025 debt or 2027 debt, I've got protection, I presume built in the debenture that would prevent you going down to the U.S. and locking up more debt. Would I have to be compensated to give up that right? Is that a voting type of scenario that -- or you just go out individually to all the debenture holders and get that covenant removed? Like what's the process there?

[Kurt MacAlpine, executive]

Yes. Sure. I mean, so to Amit's point, you really have two choices, right? One -- so to answer your question specifically, we have a very small portion of our overall debt. So the tranches of bonds you're referencing are less than $300 million of total value. One path would be to go get consent to have the covenant pattern of those bonds match the covenant pattern of the majority of our bonds, which do permit subcompany borrowing. And we could obtain that through a consent process. If, for some reason, the consent process doesn't play out, that doesn't prevent us from borrowing. We would just borrow at the parent company level. assign the debt to the U.S. and then formally transfer the debt as those covenants run off in the future.

So to us, we're totally agnostic, at the end of the day, the debt's going to be the obligation of Corient in either scenario. One would be the full obligation of Corient today. The other one would be transferred to Corient as those covenants run off if we don't achieve consents. So it's not limiting to us in any capacity. It's just a matter of the positioning in the path that we ultimately choose to take.

[Stephen Boland, analyst]

Okay. And then I guess my second question is when I look at your 2030 debt, maybe 2051, it's 4% roughly paper. It's been termed out, which was a great move. And so basically, I always think there's a -- it's part of your leverage, but really not part of your leverage, like even though it does count, but it's such a cheap paper.

So I guess, how do you balance the accretion that you mentioned of buying back some of that paper versus the comfort of maybe buying back the shorter term or the maturing debt, the '25 or the '27, and giving up some of that accretion, but maybe providing more comfort to shareholders that you're not going to have cash flow requirements within the next 12 to 36 months. So how does that balance out in your mind?

[Kurt MacAlpine, executive]

Yes, we're just going to look at it dynamically. I mean the way that we look at our debt, we're not viewing it from operators of the business as the face value that gets realized in 27 years. We're looking at it as, what the debt is currently trades at today, and Amit shared the numbers, and that puts our leverage at 2.7x. And we could effectively, without deploying $1 of capital, theoretically at these prices, swap that entire debt and our face value of our debt would be 2.7x.

So we're going to look at that. I mean we're running the business for the long-term success of the business to maximize shareholder value. So we're going to look and closely monitor that and determine which of those tranches of bonds makes the most sense for us to target at the specific -- in time that we ultimately go to execute. But I think it's important when people look at the debt, I think you've positioned appropriately. I mean, this is a real asset where we're sitting on a $750 million gain given the thoughtful issuance of those bonds, the size, the market and the time at which we did it, which gives us a lot of flexibility in terms of how we choose to delever, which we intend to do rapidly once these obligations run off.

[Operator]

Our final question comes from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, analyst]

You mentioned the capital separation between the Canadian and the U.S. businesses or the U.S. Wealth Management business and the rest of the business. Do you have -- can you share with us any way we can look at separating the -- a $170.9 million in free cash flow that's generated between the U.S. Wealth Management business and the rest of the business?

[Amit Muni, executive]

Tom, we haven't disclosed the free cash flows of the U.S. business separately from Canada. But if you look at the EBITDA, you look at the conversion of EBITDA-to-cash just at the CIX level, it's not so different than the various segments, call it, 65%, 70% conversion rate. So you can use that as a guide. Something we'll think about going forward as we think about -- as we continue to execute the capital separation debt separation of the businesses of potentially disclosing the free cash flows of the segment separately.

[Tom MacKinnon, analyst]

Yes. If I look at the noncontrol interest in that free cash flow table, it's just $0.8 million of the $171 million in total free cash flow, assuming all this noncontrol interest is related to -- in the U.S., you mentioned, I think the NCI is like 38% of the adjusted EBITDA in the U.S. How should I read that if this 0.8% is supposed to be? Is -- from that, it would suggest that the free cash flow that gets generated in the U.S. isn't very big.

[Amit Muni, executive]

I would look at it on a pre-NCI -- if you look at it on a pre-NCI basis, I think it will be much easier to go through. But maybe why don't we take that offline and we can kind of go through the financial tables with you and help you with that conversion.

[Tom MacKinnon, analyst]

Okay. Then if I -- just with respect to the U.S. Wealth Management business, you had some good positive operating leverage. The third quarter, it was flat. The fourth quarter, it was negative. Do you think you need to do anything organic here to spur this growth? Or was this noise we're seeing here just due to this fee billing issue that you talk about, maybe just the appetite to hit your target here for growth in U.S. Wealth Management? Do you need to do something organic or something inorganic?

[Kurt MacAlpine, executive]

No. So I think, Tom, what you're referring to is the revenue kind of quarter-over-quarter. So we have a large portion of our assets for clients that could bill on the first day of the quarter. And if you look at the market pricing on October 1 relative to the average or the market pricing at the end of the quarter, that just kind of, call it, for that period of timing in the market, call it, an unfortunate cycle from a pricing standpoint.

But if we step back, I mean, we did 42% adjusted EBITDA growth on a year-over-year basis. I mean, clearly, that's triple the expectations of the return. Once again, the 14.5% return assumes we never pay out $1 of the cash flow that the 20% owners are entitled to. So if you factor that into the equation, I mean, we're well ahead, and then the margin expansion and operating leverage.

So now, look, we'll do M&A to the extent that it makes sense to strategically advance our business, but we feel very, very, very good about the performance of Corient, which I think is fully backed up in the financial results that we've delivered. So I'd say Q4 was just a one-off kind of timing piece as it relates to markets on October 1 when a large chunk of our assets were built.

[Tom MacKinnon, analyst]

Okay. Yes, and just look forward to some improved disclosure of free cash flow, both pre- and post-NCI by the two -- with respect to the two businesses, I think that would be helpful.

[Operator]

With that, we have no further questions on the line, so I'll hand back to the team for any closing remarks.

[Kurt MacAlpine, executive]

Just wanted to thank everyone for your participation in today's call. We look forward to chatting with you next quarter.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.