IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial First Quarter 2023 Analyst Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kyle Martens, Treasurer and Head of Investor Relations. Please go ahead.

[Kyle Martens, executive]

Thank you, [Arial], and good morning, everyone, and welcome to IGM Financial's 2023 First Quarter Earnings Call. Joining me on the call today are James O'Sullivan, President and CEO of IGM Financial; Damon Murchison, President and CEO of IG Wealth Management; Luke Gould, President and CEO of Mackenzie Investments; and Keith Potter, Executive Vice President and CFO of IGM Financial. Before we get started, I would like to draw your attention to our cautions concerning forward-looking statements on Slide 3 of the presentation. Slide 4 summarizes our non-IFRS financial measures and other financial measures used in this material. And on Slide 5, we provide a list of documents that are available to the public on our website related to the first quarter results for IGM Financial. And with that, I'll turn it over to James.

[James O'Sullivan, executive]

All right. Thanks, Kyle, and good morning, everyone. On Slide 7, we show IGM highlights for the first quarter. Adjusted EPS of $0.87, another strong result in the current environment. We ended Q1 with AUM&A of $260.4 billion, an increase of 4.4% quarter-over-quarter. IGM's overall net flows were $990 million in the first quarter, with positive net flows at each of IG Wealth Management, Mackenzie and IPC. IGM Financial was named among Canada's best diversity employers and one of Manitoba's top employers. We're proud of these achievements and believe these recognitions demonstrate the focus and investments we've made in our employee experience and significant progress on our diversity, equity and inclusion journey. Last and certainly not least, on April 3 we announced IGM's acquisition of a 20.5% stake in Rockefeller Capital Management, which we will begin including in our results next quarter, as well as the sale of Investment Planning Counsel to Canada Life, which is expected to close later in 2023. To reiterate some of what was said on the call in early April, the investment in Rockefeller is a risk-smart entry into the U.S. wealth management market with a meaningful stake in a high-growth company with a management team with whom we have a shared vision. Over time, Rockefeller has the potential to drive meaningful earnings growth for IGM and, in a measured way, will help shape the future of IGM. Turning to Slide 8. The first quarter in the financial markets was characterized by volatility. Still, Q1 proved to be a strong overall quarter for global equity and fixed income markets, and IGM's client investment returns averaged 4.4%. This marked the second straight quarter of strong gains for investor portfolios, adding to a positive 5.4% in the fourth quarter of 2022. Global equity markets continued to gain ground during April. Still, we remain somewhat cautious given the continued macro uncertainty. We believe that market volatility will remain an important factor throughout the year but continue to position our businesses for an improving operating environment later in 2023. Turning to Slide 9 on the industry operating environment. Market volatility over the past 12 months has continued to weigh on industry flows, with $4.2 billion in net redemptions for long-term funds during the first quarter. Industry asset management peers saw net redemptions across equity and balanced categories. However, fixed income flows turned positive during the first quarter. Turning to Slide 10 on IGM's results for the first quarter. Net earnings per share of $1.60 includes the accounting gain on the partial sale of IGM's equity interest in Great-West Lifeco to Power Corporation of Canada, which closed on January 12. Adjusted net earnings per share were $0.87, down slightly from last year's record-breaking first quarter. On Slide 11, we highlight earnings across our businesses, which did reflect the declines in AUM and AUA year-over-year for IG and Mackenzie. Our earnings pickup for Lifeco and China AMC reflect the 78 days of IGM's increased ownership in China AMC and decreased ownership in Lifeco. I'd also note that we are now reporting IPC as discontinued operations, reflecting the sale of that business to Canada Life subject to regulatory approval. Turning to Slide 12. While the softness in global equity and fixed income markets over the past 12 months have weighed on our AUM&A levels across our operating companies, China AMC and Northleaf, as you can see, have both grown their AUM through strong business performance over the past year. Slide 13 presents IGM's net flows for the first quarter across IG Wealth, IPC, Mackenzie, as well as Northleaf's fundraising efforts. On Slide 14, I'd like to highlight IGM's Annual Sustainability Report released today. We prepare this report for all stakeholders, but also to address the ESG needs of our investors, analysts and the ESG community. We are committed to transparent disclosure, and you'll find we include both TCFD and SASB disclosures in our report. Sustainability matters and is important to our business. The appendix of this presentation contains some additional highlights from the 2022 report, and I'd encourage each of you to take a look at the full report available on our website. I'll now turn the call over to Damon to discuss IG Wealth Management's results.

[Damon Murchison, executive]

Thank you, James, and good morning, everyone. Turning to Slide 16 and IG Wealth Management's first quarter highlights. We ended the quarter with AUA of $115.9 billion, an increase of 4.6% during the quarter, driven by client returns of 4.3%. Gross inflows of $3.7 billion were the second best first quarter in our history. We achieved our 10th consecutive quarter of positive net flows at IG Wealth with $504 million during the quarter. IG's gross outflows as a percentage of AUA over the past 12 months remained well below the industry and ended the quarter at 9.7%, while the industry redemption rate was 16.7%. We continue to see strong new client acquisition in high net worth and mass affluent and client segments with inflows from newly acquired clients over $500,000, totaling $442 million in the quarter. Our product suite continues to be strong, with 58% of our assets ranked 4 or 5 stars by Morningstar, making it that much easier for our advisers to work with their clients to (indiscernible) our average cost back into the markets in future quarters. Turning to Slide 17. You can see our Q1 2023 flows were solid in the context of a challenging first quarter across the industry. As a reminder, and to put April results into context, March and April are months in which our advisers put significant focus on working with their clients on tax planning and optimization, which traditionally makes these months weaker seasonally. April flows were also influenced by tax payments by our high net worth clients. As our advisers focus on tax planning this year, the environment was vastly different than last year for a few reasons. Number 1, continued uncertainty in volatility fatigue was front and saying are reinforcing the importance of having a financial plan; and 2, client assets and short-term solutions remain elevated as they're being paid to wait. Given the current market environment, it's natural and prudent for our advisers to build short-term positions and to dollar average cost into the markets over time. With this in mind, we fully expect there comes to quarter where AUM growth exceeds AUA growth noticeably as short-term money is redeployed as a function of our clients executing their financial plans. Turning to Slide 18. I'll reiterate that, in Q1, we achieved the second-best growth inflows in our history of $3.7 billion, and our net flows remain solid. I'll remind everyone that we are looking at a very tough comparable in Q1 2022. That was our best Q1 in our history in a quarter that was riding vastly different tailwinds in terms of operating environment. In Q1 2022, we illustrated what success could look like in a strong market environment, while, in Q1 2023, we're illustrating the strength of being there and helping our clients navigate turbulent markets and maintaining focus on their long-term financial plans. We continue to firmly believe that we're winning market share through new client acquisition and greater share of wallet with our 12-month net flows rate of 1.6% to end the quarter. Slide 19 provides clear context of the current operating environment. We have sustained higher redemption rates in the industry and a substantially low rate at IG Wealth Management as our clients remain committed to executing their financial plans even during these markets of volatility. IG Wealth's last 12-month gross outflows rate of 9.7% remains low relative to the industry, and the overall industry redemption rate for long-term funds, on the other hand, remains at 6.7% at the end of the quarter. Turning to Slide 20. We demonstrated our success in new client acquisition, particularly with clients with assets over $500,000. We had $442 million in growth inflows from new acquired clients over $500,000, which represents a 142% increase over the past 5 years. Of note again this quarter, gross inflows from new acquired clients with over $1 million represented 24% of the newly acquired clients during the quarter, up slightly from Q1 of last year and significant increase from the 13% in Q1 2018. This remains a testament to our strong client value proposition and our ability to execute our high net worth strategy, especially during the current market environment. Turning to Slide 21. This represents the productivity of our advisers. Both our newer advisers and more experienced adviser practices are continuing to deliver strong productivity numbers as measured here by growth inflows per adviser. We have undertaken several initiatives over the past 5 years to drive productivity gains and expect continued momentum in future quarters. Now to Slide 22, I'd like to highlight the strength of our investment [shelf]. 58% of our assets have a Morningstar rating of 4 or 5 stars, while 88% have a Morningstar rating of 3 stars or better. We continue to work with world-class asset managers as we build our investment capability. Our investment strength and performance provides strong back-and-forward (indiscernible) as we work with our existing clients to put their cash to work in silicate new mass affluent high net worth clients to bring to the firm. Now I'll turn the call over to Luke.

[Luke Gould, executive]

Great. Thanks, Damon. Good morning, everyone. First, I'd like to comment that, over the last number of days, we became aware that, through a cyber incident with one of our suppliers, that certain personal information of our clients was exposed; the suppliers' InvestorCOM, who Mackenzie and many wealth and asset managers use for printing and delivery services of client materials. The incident at InvestorCOM related to an incident with one of their software providers, GoAnywhere, which has had a lot of publicity. Through our investigation, we determined that exposed information included name, address and social insurance numbers. Importantly, financial information like client holdings and account balances were not exposed, Holdings and Mackenzie Funds were not impacted, and our systems have not been compromised. And importantly, we have no evidence of any misuse of any client data at this time. We immediately took appropriate actions to be there for our clients and advisers and dealers. We stood up a separate contact center and commenced outreach to notify all impacted investors and the dealers and advisers who serve them. We've offered comprehensive credit monitoring and identity theft insurance to all impacted clients, and we've worked with the vendors to ensure that the environment is safe and to ensure that something like this does not happen again. We view this as a financial service industry issue, and a number of other clients of InvestorCOM were impacted. We've reported the incident to the office of the Privacy Commissioner of Canada as well as to the applicable privacy commissions. I'd say that, while we regret that this breach of our supplier occurred, we're very proud of what we've stood up and rolled out to support our clients over the last number of days, and we're going to continue to do everything we can to support our clients, advisers and dealers over time. Turning to Page 24. A few comments on the quarter. Assets were up by 3.8% in the quarter, driven by continuing strong client investment returns. As said by James and Damon, this quarter, clients earned 5%, and this follows 5% during Q4. As James reviewed earlier, investor confidence has not yet returned for the industry, but importantly, we've seen industry gross sales, redemption rates and net sales stabilized during the quarter. You have to walk before you run, and these are good indicators that should bode well for the back half of the year if trends continue. During the quarter, Mackenzie gained market share with investment fund net sales of $72 million and overall net sales of $170 million. This is in the context of industry peers and net redemptions. And each of China AMC and Northleaf experienced good growth in the period. China AMC long-term mutual fund assets were up 2% in the quarter and 11% in the last year, and this reflects market share gains, with the industry being up 5% and a bolstered China AMC ranking of being second largest in the Chinese domestic mutual fund industry with a 4.6% market share. And Northleaf continue to average around $1 billion of new commitments during the quarter, with $800 million commitments diversified across asset classes. On Page 25, you can see our investment fund net flows and the trending. And as mentioned on the right, you can see the net sales stabilizing, with solid retail net sales results in February and March. This is encouraging. We have a very engaged sales organization, and we have strong demand in the [period] across a number of our boutiques that supported these market share gains. This includes Greenchip, Global Equity and Income, Bluewater and Fixed Income. On Page 26, as mentioned in the top left, we had retail gross sales down around 21% relative to industry peers down 26%. So we had sales capture rate gains, and we've begun to see gross and net sales stabilize. You can see this in the last 12 months trailing chart at the bottom left. I'd remark on the bottom right, you can see the percent of our AUM in 4- and 5-star funds declined to 44% at March relative to 57% in December. We're feeling very good about investment performance right now across our boutiques, and I'd comment that a meaningful part of the decline is due to a move to 3 star on 1 series of our 2 Bluewater flagship funds due to having an exception date that anchors to the 3-year performance. The F&A class ratings on these 2 funds are 5-star and 4-star respectively, and the 1-year, 5-year and 10-year are strong first quartile. A few comments on Page 27 that shows investment performance in net sales by boutique. Under the asset-weighted percentiles near the middle of the page, you can see that the last 6 months and the last year have been very good across most boutiques. I'd also call out that North American Equity, Bluewater, Greenchip, Global Quant and Global Equity and income and fixed income all have very compelling performance across all time horizons. And on the flows, you can see the Greenchip, Global Equity and income and fixed income sold very well in the quarter, with compelling performance in relevant categories. Turning to Page 28. I want to take a moment to focus on sustainability as a theme, following up on James' earlier comments. On the previous Slide, I highlighted that our Greenchip boutique, which is focused on thematic investing to combat climate change, is our current top-selling boutique. On the left-hand side of the slide, I'd highlight that you can see we introduced our 2022 Sustainable Investing Report during April, and it's available to you on our website. And I note that we had a number of events and content in the second quarter focused on education around sustainable investing. On the right, we launched the Mackenzie Corporate Knights Global 100 Index ETF and mutual fund 2 weeks ago, and we rang the bell on the Exchange. As highlighted last quarter, this index invests in the 100 most sustainable companies in the world as assessed by Corporate Knights. We believe this index is such a compelling investment product, as it's diversified by industry by design. And you can see, as a consequence on the right, it tracks very well to the MSCI All-Cap World Index. We believe the investment thesis is clear. Responsibly run businesses are consistent with shareholder value creation, and you can see that it has a very strong track record over its 18 years of history. Turning to Page 29. I'd highlight continued growth in Chinese mutual fund industry assets, up 2% in the quarter and 7% in the year. During the quarter, net sales were driven by money market funds, and there were slight redemptions of long-term funds. Growth has been very robust throughout the last 3 years, and we expect this to continue as China continues to emphasize growth in their retirement system. On the right, I'd highlight that China AMC's position remains very strong as the second largest fund manager in terms of long-term funds. Their market share increased year-over-year from 4.3% to 4.6% within a very robust market. Turning to Page 30, you can see China AMC's growth in AUM over time. Total assets are now at RMB1.77 trillion, or CAD350 billion. Total assets were up 11% year-over-year and long-term mutual fund assets were also up 11% in the same period, driven by strong net flows. I'd note that, sequentially and year-over-year, for both money market and long-term funds, China AMC's AUM growth rate has been double that of the Chinese industry as shown in the previous slide, reflecting very good market share gains. And on Page 31, you can see continued strong fundraising of $0.8 billion in Q1 2023 at Northleaf. Fundraising continues to be diversified across private credit, infrastructure and private equity offerings. And I'd also highlight Northleaf's averaged about $1 billion in fundraising during each of the last 9 quarters since we've begun our partnership with them and acquired our stake, and we're so pleased with their ongoing success. I'll now turn the call over to Keith Potter.

[Keith Potter, executive]

Great. Thank you, Luke, and good morning, everyone. On Slide 33, you can see our AUM&A. The chart on the left shows ending assets were up 4.4% during the quarter, driven by investment returns. With the sale of IPC to Canada Life, it is now classified as discontinued operations and presented in our P&L as a single after-tax line item. And we, of course, finally adjusted our presentation relative to prior quarters. And you can see the chart we have added a line for AUM&A, excluding IPC, which will tie into the next 2 slides. Slide 34 shows quarterly EBIT in millions of dollars on the left and as a percentage of AUM&A on the right. I have 2 comments for the left chart on adjusted EBIT. First, net wealth and asset management fee revenues are flat in Q1 relative to Q4, primarily from higher advisory and product and program fees at IG, offset by lower other financial planning revenue. And second, we had a small sequential increase in expenses between Q4 and Q1 that were largely seasonal related to the RSP season, as well as compensation adjustments for employees which take effect in the new calendar year. On the right, you can see adjusted EBIT margin is down slightly versus last quarter, and that's due to the point I just mentioned. Turning to Slide 35. We have our consolidated earnings at IGM. We had another quarter of higher net investment income and other of $11 million, which is driven mostly by interest income earned on cash and from favorable seed capital marks at Mackenzie, which accounted for $3.4 million of the total. Second, we had an increase in proportionate share of associate earnings year-over-year. This was driven by higher contributions from China AMC, partially offset by reduced contributions from Great-West Lifeco. And as a reminder, China AMC and Lifeco share of earnings were prorated this quarter based on the January 12 closing of the transaction. Also of note for 2023, Great-West Lifeco will be reporting results after IGM, and we are now recording our proportionate share of their first earnings based on analysts' consensus with a true-up based on reported earnings in the following quarter, and we will complete restatements related to Lifeco's transition to IFRS 17 in our Q2 results. On point 3, operations and support and business development expense combined decreased 1.1% year-over-year. This is partially due to lower business development expense at IG. Also, if you recall at this time last year, our expense guidance was 5%, and it was after the first quarter where we focused on additional expense management initiatives. And so the efforts in Q2 through Q4 of last year set us up for lower expenses in Q1 of this year. Excluding IPC discontinued operations, our full year expense guidance remains at no more than 3% growth. And having said this, we are assessing opportunities to manage our expenses further, balanced with continued investment in the business. And lastly, our dividend payout rate on the last 12-month basis is 74% of cash earnings. Turning to Slide 36. You can see a summary of IG Wealth's AUA and the key revenue and expense rates. On the top right, our advisory fee rate is up 0.4 basis points quarter-over-quarter driven by higher interest spread on client cash and offset by a mix shift of clients' rate bands due to strong Q1 client returns. Going forward, we continue to expect downward pressure of about 0.5 basis points per quarter from a mix shift as we acquire high net worth clients. And the rate will also continue to be impacted by a mix shift in client cash balances, the spread on these cash balances as well as other short-term products. Asset-based compensation rate is down 0.6% in the quarter and is due to an annual reset in our adviser qualification tiers, and we have AUA increases in assets with lower rates such as GICs, cash and HISAs. As I've commented in the past, we continue to expect moderate upward pressure on the rate for maturing DSC units until the end of 2023, at which time the units will have matured, and the rate will also continue to be impacted by the mix of cash and other short-term products. On Slide 37, you can see IG's overall earnings of $104.6 million. It is down 11% relative to Q1 2022, primarily due to lower average AUM&A and the impact it had on revenue, as well as $14 million in lower contribution from other financial planning revenue. The mortgage business was the primary driver just from the lower volumes, lower interest margin and unfavorable accounting marks on our securitization structures. But we also had a lighter quarter in insurance and banking.Finally, we continue to remain focused on expense management. The combination of business development and operations and support for Q1 2023 were down 3% year-over-year, and this was driven by lower pension expense, discretionary spend and some lower field programs. Moving to Slide 38. You can see Mackenzie's AUM by client and product type as well as net revenue rates. On the right, focusing on the blue line, you can see that the net management fee rate for third-party clients, excluding Canada Life, at 80.8 basis points, and this was relatively in line with what we communicated last quarter. And just as a reminder, we have 2 fewer days in Q1 upon which we charge revenue. However, our asset-based compensation paid to distributors and advisers is based on 1 quarter of the year, and this had a negative impact on our revenue rate in Q1 as it has in past years. Turning to Slide 39. You can see Mackenzie earnings of $48.4 million is down 7.2% from Q1 2022, primarily due to lower average AUM and the impact it had on revenue, and this was partially offset by higher net investment income and favorable returns on seed capital. We also contained expense growth with operations and support and business development expense up 1.7% year-over-year. Slide 40 has China AMC results on the left. Total AUM was RMB1.77 trillion, up 11% from last year and up 3% quarter-over-quarter. With respect to earnings on the right, Q1 2023 earnings were up 11% relative to Q1 2022, adjusting for the increased ownership stake and timing of close. And just to be clear, China AMC's share of earnings were prorated this quarter based on the January 12 closing of the transaction. During the quarter, China AMC also declared an annual dividend of $69.2 million, reflecting our 27.8% interest, and this represents a dividend payout ratio of 60%. On Slide 41, for those familiar with the slide, we have adjusted the format to incorporate the pro forma view, including Rockefeller, while maintaining all the other details that we've had historically. In relation to Rockefeller, and as a reminder, earnings pickup commenced on April 4, and the payment for the Rockefeller transaction is due on June 2. As stated on the call on April 4, we expect the full year impact of the acquisition, including financing costs, to be approximately negative $20 million to $25 million, primarily driven by transaction financing of approximately $20 million and the remaining estimated proportionate share of RCM earnings, including amortization of intangibles. For Q2, it's a reasonable assumption the financing costs will start June 2 and have 1 month impact on the quarter. Second, on Northleaf, our proportionate share of earnings of $4.1 million were up 21% from $3.4 million last year. And as a reminder, Q1 earnings, including incentive fee income, and we continue to expect quarterly earnings contribution from Northleaf of approximately $3.5 million per quarter. On Slide 42, similar to the last slide, the format has changed, but the information provided is no different. We have adjusted the presentation on the slide to account for Rockefeller and the IPC transactions. At April 28, closing price of $41.58. The implied P multiple for IG Wealth Management and Mackenzie based on expected 2023 earnings is now 7.6x. And with that, I'll open up the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Nick Priebe of CIBC Capital Markets.

[Nikolaus Priebe, analyst]

I just wanted to start with the cyber incident there. What are the next steps forward? And would you anticipate any incremental investment in systems to better protect against events like that in the future?

[Luke Gould, executive]

Yes. Thanks, Nick, it's Luke. Yes, no investment required. Our systems are all okay. No breaches here at Mackenzie, and things are secure. Next steps, we've now finished all communication with clients, advisers and dealers, and next step is just to be there supporting them any way we can.

[Nikolaus Priebe, analyst]

And then just moving over to China AMC. It looks like long-term fund flows have been negative for 2 sequential quarters in the Chinese mutual fund industry. How would you attribute that? Or how does that break down by asset class? Is that just a product of recent market volatility?

[Luke Gould, executive]

Nick, it's Luke. What we saw in Q4 and again in Q1, it was actually a fixed income. And with rate increases, there was actually some movement out of fixed income products. So that's what's driven the outflows for 2 quarters. And we're viewing obviously the near-term, long-term, intermediate-term view is very positive for that industry.

[Nikolaus Priebe, analyst]

And then last one for me. Just operating expenses were down slightly in the quarter versus full-year guidance, which is positive. If net flows remain in redemption territory for the balance of the year, would you still expect those operating expenses to be up year-over-year?

[Keith Potter, executive]

It's Keith here. I think you're referring to Mackenzie and the variable component for the compensation, Nick, is that correct?

[Nikolaus Priebe, analyst]

Just the consolidated guidance of 3% growth on the OpEx side. Okay.

[Keith Potter, executive]

Thanks for the question. As I mentioned in my comments, when you look back to last year, we really started our expense initiatives in Q1. And so they had more of the effect in Q2 through Q4. So as we look at the comparative period for Q2 moving forward, it's based on a period last year where we actually implemented expense management initiatives. So you can think about things like natural inflationary pressure, that we will feel that relative Q2, Q3, Q4 moving forward, relative to last period.We're also hitting full stride on face-to-face interactions within our businesses as we continue to grow our businesses. And the first comment I made, we do expect an improved sales environment, and they're a variable component to the Mackenzie expenses moving forward.

[James O'Sullivan, executive]

And Nick, it's James. We will look specifically at your question. I follow the question. Let us run the math.

[Operator]

Our next question comes from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, analyst]

Just another question with respect to the cyber breach. Luke, maybe you can give us the scope or the potential impact on clients. You mentioned that advisers were informed. How do you know that the clients were then informed? What are you seeing with respect to retention or any kind of reaction with respect to both advisers and clients? And I have a follow-up.

[Luke Gould, executive]

Yes, great question. So we've sent out communication to all impacted clients directly, and we've been working with advisers and the dealers who serve them to make sure that they've got line of sight and are fully equipped to engage with clients. So we've now completed all that outreach over the last few days, so that's all in order.On retention and ongoing activity, we're doing everything we can to rise to this occasion and to be there for clients and to show what we're about and what we're made of and that we're there for them. So right now, we're hopeful, obviously, that business continues, and that's what we're seeing as of [singular] right now, and we're going to just keep on doing all we can to help people on this incident.

[Tom MacKinnon, analyst]

And then just a question with respect to the dividend payout ratio here at 63%. Can you remind us what would be the trigger for an increase in the dividend?

[James O'Sullivan, executive]

Yes. What we've said in the past, Tom, and we continue to say it, is that we will assess or reassess the dividend when the payout rate on a cash basis is at or near 60%. And I think that's pretty clearly at least several quarters away.

[Keith Potter, executive]

Just to add, Tom, the cash dividend payout ratio is currently sitting at 74%.

[Tom MacKinnon, analyst]

And so you want that to be consistently above 60% and it's 74% as of now?

[James O'Sullivan, executive]

Yes. As the payout ratio approaches 60%, we will revisit the dividend with a view to potentially increasing it.

[Operator]

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

[Geoffrey Kwan, analyst]

Maybe if I can follow up on Tom's question on the dividend, just on capital allocation. Obviously, you've got organic growth opportunities and M&A that you've talked about. Your balance sheet is healthy. How are you thinking about both share buybacks, given where the share price is today? And then maybe asking the dividend in different way, is do you think increasing the dividend a bit earlier than the 60% adjusted payout ratio that you've got might be a lever that might attract additional investor interest if given the dividend itself has been unchanged in the last 8 or so years? Yes.

[James O'Sullivan, executive]

Look, it's a great question. A couple of thoughts, Geoff. I guess, first on capital, we've deployed a lot of capital. So in this quarter alone, of course, we closed on the purchase of China AMC. We announced the acquisition of Rockefeller, and we launched the sale of IPC to Canada Life. My strong inclination here is to have a period of digestion. By digestion, I mean I think we will be less focused for a period on what I'll call external opportunities. So I'm quite inclined in that environment to look for opportunities to invest in our businesses, to invest in IG Wealth and to invest in Mackenzie in particular. And so that is something that I'm starting to pay more and more attention to.On the NCIB, I believe our current filing will expire shortly. We have no current plans to renew it. But that is something that we could put back in place on very short notice if we so chose. And on the dividend, that's a very interesting question. Over the summer, or the Christmas holidays, actually, Geoff, my younger son pointed out to me that, day after day, we were one of the highest yielding stocks from the Toronto Stock Exchange. And for the first couple of days, I thought that was wonderful. And then a couple of days into it, I thought, well, maybe it's not so wonderful. If I have to point to what IGM Financial needs over some reasonable period of time, I would say it's less dividend growth and it's more earnings growth. And I think if we generate earnings growth, we can clearly grow the dividend over time. But when you think about our investment in China AMC and our investment in Rockefeller, what we're really trying to do in a measured way, in a measured way, is inject a little bit more growth into this company. And I'm hopeful that if we do that smartly, as the earnings from those opportunities and others start to surface, then we can get out the dividend and increase it. But I do continue to think that we present to the market a very defensive play, a very conservative play with an attractive dividend yield. And all else being equal, what I'd love to do is really try to inject a little bit more kind of thoughtful growth into this company over the earnings growth into this company over the next few years.

[Geoffrey Kwan, analyst]

And this next question I had was a little bit more for Luke, but happy if anyone else one else wants to chime in on it. But just a question is whether or not you think the timing of any of the rebound in industry net sales might take a bit longer this time than, say, prior downturns of the century, given interest rates were in a kind of continued decline historically. At this time with the increase in interest rates, investors have reasonably decent absolute investment return solutions that they can put their money into, even if it may not keep up with inflation.And if so, does this have any implications at the margin, how you think about your product lineup?

[Luke Gould, executive]

Thanks, Geoff. Great question. So yes, as you saw in the numbers, things stabilized, and we're viewing that as a very healthy indicator and one that we are waiting for and looking for and with, again, 2 quarters of strong investment returns, we've got things moving in the right direction.What we also saw in the first quarter was a big movement back to fixed income funds. And so I'd say, when you think about our roster and when you think about the investment fund industry, lots of asset classes, lots of different needs. And what's happened in 2022 is a lot of movement to demand deposits and term deposits and high-interest savings accounts. So when we talk about recovery in the back half of the year, it's to all asset classes. We're already seeing it in fixed income and coming back. And as you point out, there's some very healthy yields there in those asset classes. And again, equities and other asset classes are also delivering. So we are feeling investor confidence is returning, and there's a broad suite of asset classes and products to meet different client needs. But yes, that's informing our thinking. And will it bounce back in terms of industry flow as the way it did in 2021? I don't know if we're going to have that same, quote, spring, but we are seeing all the indicators of A; investor confidence improving, and B; a lot of great yield in our investment fund offering for those looking for it.

[Operator]

Our next question comes from Scott Chan of Canaccord Genuity.

[Scott Chan, analyst]

My first question is for Luke. Just curious if there's any update on the new Primerica partnership, what you're seeing so far, like any pivot in the strategy or kind of targets that you talked in the past that might have been impacted in the very start of this partnership?

[Luke Gould, executive]

Scott, yes, we had about $100 million of net sales from the Primerica relationship in the quarter. We're out there building relationships with their 7,000 advisers and trying to serve them best we can. And right now, one of the key measures that we look to, and it's published through (indiscernible) investor economics numbers is our share of their sale activity. And right now, we've broken through 25%, and through our eyes, things are going very good, and we're serving them the very best we can.

[Scott Chan, analyst]

Then maybe just to go to Northleaf. Very solid net sales trends since you started it, and you talked about the diversification in all classes and in private credit, infrastructure and private equity. Is there any anecdotal data or performance? I'm assuming that the platform has very, very strong (indiscernible) performance for you to deliver this asset growth. And I just haven't seen anything in the past, but wondering, maybe qualitatively without numbers, if you can maybe kind of describe some of the performance there.

[Luke Gould, executive]

Actually, so they've focus primarily on 3 asset classes - private equity, private credit, infrastructure. I'd say when you look at the origination activity in the quarter and the last few, private credit has done very well, and we've also seen some good infrastructure, and both of them have very attractive yields. We view private credit, obviously, it's all floating. And as a credit spread, the credit performance has been very good in Northleaf's portfolios. So there's some very attractive yields there. And in the case of the inflation, these are inflation-resilient asset classes on infrastructure. And so there's a lot of compelling reasons why they should be doing well, and we're pleased to see that activity.The other thing I mentioned on the last call, and it continued into this quarter, is in spite of IGM and Great-West Lifeco supporting Northleaf, because they're so relevant for so much of what we're trying to deliver to clients, we remain about 20% of the origination activity or less. And most of this is coming from third parties, which we also view as very healthy.

[Scott Chan, analyst]

And maybe last question for James. Just on capital, the unallocated capital in the quarter was $298 million versus $197 million last quarter. Just what was the delta quarter-over-quarter? And then, in terms of that unallocated capital, can you remind us, do you need kind of a certain buffer on that when you think about strategy? Or is that kind of potentially used for deployment?

[James O'Sullivan, executive]

Yes. So the unallocated capital this quarter, I believe, was $298 million. And in calculating that $298 million, there's actually a $100 million buffer beneath it. So it's actually $398 million, but we always put $100 million aside. It is up meaningfully quarter-over-quarter, and that reflects a whole bunch of kind of puts and takes in different parts of our business that consume capital. And I think, look, it gives us, I suppose, potentially some firepower, although I stand by what I said earlier, which is I think we're entering a period year of digesting capital deployment, redeployment, all of which was closed or announced in Q1.But if we do anything further, I can assure you, it will be very congruent with the kind of the 3-pronged strategy we've laid out. Number one is to position this business to be a stronger player still in the high net worth and ultra-high net worth segments across now North America. Number two would be to position Mackenzie in the context of Mackenzie being a competitor in a truly global industry, position Mackenzie for further success within that industry. And number three is make some money for our shareholders. Those are our 3 guideposts. Those haven't changed. Those aren't going to change. And so, as we look at that unallocated capital number, to the extent we were to start to consume it, I can assure you we would start to consume it consistent with those 3 priorities.

[Operator]

Our next question comes from Graham Ryding of TD Securities.

[Graham Ryding, analyst]

Luke, maybe I'll just touch on the fund performance of Mackenzie. You did flag that it's fallen below, I guess, the industry average for those 4- and 5-star AUM. Is there any concern in your part that this could be weighing on sales or could weigh on sales, going forward, once retail appetite starts to come back? Or just any thoughts on the overall fund performance?

[Luke Gould, executive]

Thanks, Graham. And the answer is not at all. If you go to Page 27 in the presentation, if you look at the asset weight per sales, we've got strength across so many of these boutiques. We've got a really compelling roster. We're as strong as we've ever been, and the sales team is very, very engaged as we're in the market right now.And I'd just highlight one. If you look at Bluewater and many of our boutiques, on the 3-year number, we actually had a very good March 2020. We had very defensive portfolios when the pandemic came, and we've lost that in a moment in time from the track record for somewhere of 3 years. And when I spoke about one of the series in our flagship Bluewater funds that was moved to 3-star is because that series has an inception date that weighted the 3-year. But if you look through that Bluewater column on those 2 large Bluewater funds, the track record is just exceptional. So we're very pleased. We're very confident and we're feeling very, very good about our roster right now.

[Graham Ryding, analyst]

And I think you launched a private credit fund last year with Northleaf, if I'm not mistaken. If that's correct, any color on sort of how the retail uptake has been on that fund?

[Luke Gould, executive]

Yes. I think for all 3 of the Northleaf products and as well as the interval fund, this is a long sales cycle. So we've got the products in the market. We believe they're great diversifiers for Canadians, really enhanced risk-adjusted returns and certainly in the private credit infrastructure really provide compelling yield and something that's very well-suited to an inflationary environment.It's a long education and sales cycle, and we're investing with all we got and working with dealers and advisers to make sure they understand the products, they understand the liquidity profile, and that they're actually being placed within Canadians' portfolios. So right now, the uptick has been low, but the engagement has not been, and we're going to continue pushing with all we got because we believe these asset classes should be brought to retail and do properly belong in Canadians' portfolios.

[Graham Ryding, analyst]

And then just broadly speaking, James, this is probably for you, but I guess anybody feel free to chime in. Just with industry flows still being weak, is there any evidence or thought that Canadian households are perhaps putting more capital towards deleveraging, just given the higher interest rate environment, and that is a factor that's weighing behind that weighing against investing in funds?

[Damon Murchison, executive]

Graham, it's Damon. Yes, we are seeing clear indications that clients are taking money off the table and paying down debt, given the high level of interest rates. We've gone from an environment where, quite frankly, it was shame on you if you didn't borrow because it was free money to a point where now it's quite expensive. So just by the nature of who we are as a financial planning shop, you've got to make sure that, from a cash management standpoint, your clients are focused on doing the right things longer-term. And having nondeductible interest debt is a huge issue for the industry. So we see that trend continuing as long as these levels of interest rates persist.

[Operator]

[Operator Instructions] Our next question comes from Jaeme Gloyn of National Bank Financial.

[Jaeme Gloyn, analyst]

Question on the IG Wealth business, looking at the April flow data, actually, and other dealer flows turning negative, which doesn't usually or really happen a whole lot in your recent history. So just curious if you could give just a little bit more color on perhaps what's driving that outflow on other dealer flows?

[Damon Murchison, executive]

Yes, it's Damon here. So you're looking at really a few things. Number one, traditionally in March and April for us are slower months on the sales side just because our advisers do turn their attention to tax planning and optimization with our clients. They're less focused on bringing on new clients because of that, particularly at a time right now, just as the previous question was asked just around debt and interest payments. There is a lot of work to be done this year to make sure our clients were in a good position.So seasonally, we've, as I said, it's always been a weaker time. And then you compound that with the fact that we're in our fifth straight quarter of market volatility and noise in the marketplace. And when you go past 3, 4 quarters, you can't be immune to that, regardless of the shop that you're talking about. When you look at the IG business, what I tend to look at is this. We had our second best quarter ever in growth flows in Q1 this year. In 2021, we had our best quarter ever in our history and flows. And in 2022, we had our third best quarter. So over the last 3 first quarters, we've had our best 3 years in growth flows, and they've been 3 completely different operating environments. In 2021, we were in the heart of COVID. You had to be digital. You have to be able to service your clients digitally, bring on new clients digitally. You were in a low inflation, low interest rate environment and everything looked flushed with cash, and we had our best year ever. You fast-forward 1 year, and let's just call it the end of the [bowl], higher inflation but low interest rates. It's the new normal in terms of an operating environment and how you see your clients and prospects. And we had our third best year ever. And then this year, high interest rates, high inflation, volatile markets, holding hands ,and we hit our best year ever. So when you look at this model, we've proven the resiliency of this model over the last 3 years. And to me, I'm very, very confident in our ability to drive this business going forward.

[Jaeme Gloyn, analyst]

And still maybe for you, Damon, just wanted to get your perspective. I'm seeing redemption rates at IG Wealth continue to increase, and it seems as if the industry perhaps has plateaued and maybe even turning lower. Maybe some commentary or color around those 2 data points, and maybe a narrowing of that gap that right now you enjoy a quite sizable gap.

[Damon Murchison, executive]

Yes. That's what I would focus on, is the gap. We've always prided ourselves on that gap, and the gap continues to remain consistent here. Once again, we're not immune to what's taking place in the marketplace, given the fifth straight quarter of volatility. But I will say, once again, we're planners. So we want to make sure we're doing the best interest for clients. So if it's in the best interest for their clients to take money out of their accounts to pay off debt, then we're going to do that.And then, number two, something that's changed over the past 4 years is our ability to be in cash. And when you're talking about bringing on more high net worth clients and you're wrapping your arms around them and you're leveraging cash, then you're going to be able to work with them to make their tax payments. And high net worth clients, particularly those that own businesses, have to pay their taxes in April and early May. So we're seeing that as well. I think that the future outlook for the firm in terms of redemptions, I'm quite confident that we're going to continue to [remain] a strong gap relative to the industry.

[Operator]

Thank you. This concludes the question-and-answer session. I would like to turn the conference back over to Kyle Martens for any closing remarks.

[Kyle Martens, executive]

Thank you, Arial, and thank you, everyone, for joining the call and for the questions this morning. And Arial, with that, we'll close out the conference call.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.