IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2020-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Second Quarter 2020 Earnings Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Keith Potter, Treasurer and Head of Investor Relations. Please go ahead.

[Keith Potter, Head of Investor Relations & Treasurer]

Thank you and good afternoon, and welcome to IGM Financial's 2020 Second Quarter Earnings Call. Joining me on the call today are Jeff Carney, President and CEO of IG Wealth Management and President and CEO of IGM Financial; we have Barry McInerney, President and CEO of Mackenzie Investments; and Luke Gould, Executive Vice President and CFO of IGM Financial. Before we get started, I'd like to draw your attention to our cautions concerning forward-looking statements on Slide 3 of the presentation. On Slide 4 summarizes non-IFRS financial measures used in the material. And on Slide 5, we provide a list of documents that are available to the public on our website related to the second quarter results for IGM Financial. And with that, I'll turn it over to Jeff Carney.

[Jeffrey Robert Carney, Advisor]

Thank you, Keith, and thank you, everyone, for joining us today. We're still living in interesting time, and I hope all of you are staying well. At IGM Financial, we continue to keep our employees, advisers, clients and communities at the center as we navigate these unprecedented times where COVID-19 has impacted so many. We've continued to implement the initiatives we spoke about on our last call, to support and connect with these groups and are responding as the environment evolves. In the financial markets over the last 4 months, we've witnessed recovery that was almost as swift and extreme as a sell-off that took place in February and March. Meanwhile, the COVID-19 pandemic continues to impact the lives of Canadians every day, and we continue to focus on ways we can help. Turning to Slide 7 on Q2 2020 highlights for IGM. Total AUM and AUA were both up approximately 12% during the quarter, reflecting strong net sales and client investment returns. Investment fund net sales of $864 million are up significantly from net redemptions of $364 million last year. And overall, total net sales were $3.4 billion, including strong flows in the institutional business at Mackenzie. IGM's Q2 2020 earnings per share were $0.77, up 13% relative to the first quarter, driven by strong expense management and higher earnings from associates. Luke will speak to the noncommission expense guidance in his remarks. Late in the second quarter, we announced that IGM will sell its equity interest in Personal Capital to Empower Retirement for CAD 239.6 million with upside through an earn-out of up to CAD 33.4 million. Empower is a subsidiary of our sister company, Great-West Lifeco and is the second largest retirement service provider in the United States. We've been very pleased with the growth of the company and our contributions to its strategic development through our engagement over the last 4 years. Our economic gain based on the cost of our investment will be approximately CAD 50.5 million, up to an additional CAD 33.4 million from an earn-out. These amounts are subject to currency fluctuations. Personal Capital remaining with the Power group of companies is a great result. Empower is the right home given the significant synergy potential. The transaction is expected to close in the second half of 2020. We're also excited about the most recent announcement to acquire GLC Asset Management, which will add to Mackenzie's scale and expand our distribution reach. Barry will speak to this in his comments. Slide 8 highlights the performance of our major equity and fixed income indices. Q2 2020 saw strong equity markets increases in major indices with lower volatility. Fixed income also posted strong positive returns. IGM clients benefit from this with an average client investment return of 9.7% during the second quarter. The month of July added further positive return of 3.2%, with clients on average fully recovering the Q1 2020 declines as of July 31. Turning to Slide 9. The industry experienced long-term mutual fund net sales of $6.8 billion during Q2 2020, an improvement from $1 billion in net redemptions last year. The industry advice channel net sales were $2.4 billion during the quarter. Turning to Slide 10 on our results for the second quarter. Average AUM of $159.2 billion decreased 1.6% year-over-year. Investment fund net sales of $864 million during Q2 2020 were a strong improvement over net redemptions of $364 million last year. As I mentioned, IGM's Q2 2020 reported earnings per share of $0.77 were up strongly compared to the first quarter. Slide 11 contains the breakdown of our IGM's quarterly results across our segments. We'll discuss the IG Wealth Management and Mackenzie segment in detail on the coming slides. Turning to IG Wealth Management's Q2 2020 highlights on Slide 13. AUA at the end of June was $93.6 billion, up 9% during the quarter. As at July 31, AUA is now $96.9 billion, up 3.5% during the month. IG's Q2 net client flows were negative $62 million. As a reminder, Q2 is seasonally weak in terms of net flows. In the quarter, Canadians were less likely to change financial service providers. The consequence is that gross sales and redemptions are both down noticeably, but our net flows are up over $400 million relative to last year. We continue to build our financial planning capabilities in the quarter with the completion of our Advisor Portal rollout. We've also partnered with Conquest Planning to deliver enhanced financial planning software capabilities, which are expected to be rolled out starting later this year. Finally, during May, we launched a new program to support Canadian small- and medium-sized businesses and their communities as they navigate the COVID-19 crisis. This campaign includes no obligation consultations to business owners and matching dollar programs available to our consultants for support to provide in communities across Canada. Slide 14 highlights client flows and AUA. These metrics incorporate our internal funds and third-party investments such as high-interest savings accounts, cash, third-party funds and stocks and bonds. Gross client inflows to IG Wealth Management were $1.9 billion in the quarter. The annualized AUA redemption rate for the second quarter of 2020 was 8.7%, down noticeably from 11.5% in 2019, reflecting strong client and asset retention at IG Wealth Management. As I mentioned earlier, net flows improved by over $400 million year-over-year, driven by a lower redemption activity. Slide 15 shows IG Wealth Management's last 12-month trailing AUA redemption rate at 10.2%, which improved through the second quarter. Slide 16 includes some additional perspectives on Q2 2020 gross sales. Managed solutions continue to represent 80% of our long-term gross sales over the last 12 months. Sales into our high net worth solutions were $0.9 billion. The change relative to 2019 was in line with the total gross sales. With fewer Canadians changing financial institutions during the lockdown, we've been very pleased as our teams continue to deliver on our promise to existing clients and demonstrate an ability to acquire new high net worth clients in this environment. Turning to Slide 17. As we discussed on prior calls, we've been attracting a higher portion of experienced advisers and have included this group within the consultant practices category, which increased to 1,843 this quarter. As I mentioned, these consultant practices continue to have success during the pandemic, with Q2 productivity up relative to last year. I'm pleased to see this result considering the change in our consultants' operating environment and the impacts of the pandemic and that it's having on our clients and our prospects. Turning to Slide 18. Starting in Q4 2020, IG will be introducing a new financial planning collaboration tool created by Conquest Planning that will further enhance our capabilities. We're taking something that is more time-consuming today and making it digital, streamlined and more engaging. The software allows clients and advisers to make real-time updates to plans, and the easy interface will make it simple for our clients and consultants to collaborate remotely. Advisor Portal launched in Q4 2019 and the rollout is now complete. As a reminder, the Advisor Portal is the new customer relationship management platform powered by Salesforce that enables our consultants to be better, manage their clients' relationships and boost prospecting, improve efficiency through digitized workflows and access data-driven reporting to help better run their practices. Turning to Slide 19. During the quarter, IG Wealth Management launched Answering the Call, a new program to support Canadian small- and medium-sized business owners and their communities as they navigate the financial challenges presented by the COVID-19 crisis. As part of this initiative, we're bringing our greatest strength as our financial planning experts to serve business owners during this ongoing crisis with free one-on-one consultations and webcasts. The Answering the Call initiative was inspired by the fantastic work IG consultants have been doing in their own communities since the crisis began. I will now turn it over to Barry to cover the Mackenzie update.

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Thank you very much, Jeff, and good afternoon, everyone. If I could turn your attention to Slide 21. Earlier this week, we announced an agreement whereby Mackenzie will acquire GLC Asset Management Group from Canada Life for $175 million in cash consideration. This transaction further solidifies Mackenzie's position as one of Canada's preeminent investment managers with $172 billion in AUM, which includes the existing $67 billion in assets of advise to IG Wealth and an additional $36 billion of GLC assets. Mackenzie will become the core investment adviser to Canada Life's individual and group product offerings and will be a top 3 provider of investment advisory services in the fast-growing group channel, which is made up of defined contribution plans and other group retirement offerings. We are further adding to our investment capabilities, including a brand-new Canadian equity boutique. We expect the GLC acquisition to add annualized run rate earnings before tax of approximately $20 million. As part of the arrangement, Mackenzie will sell the fund contracts relating to the private label Quadrus Group of Funds to a Canada Life subsidiary for $30 million in cash consideration. The Quadrus Funds currently have $7 billion in assets, of which Mackenzie advises to approximately $2.5 billion today. Mackenzie will continue to provide administrative services to the fund family and will be positioned as core sub-advisor to the platform. Canada Life will assume fund oversight responsibilities. The purchase price was established having regard to lost oversight fee revenue to Mackenzie of approximately 10 basis points per year on the in-force block of Quadrus AUM. The transaction is expected to close by the end of 2020 and will be accretive to 2021 earnings. I'll begin my comments on Mackenzie's Q2 2020 results on Page 22. The Q2 financial market increases that Jeff spoke to earlier, combined with strong net sales, drove Mackenzie's total AUM up 16% to $73.2 billion. On a year-to-date basis, total AUM was up 4.3%. We saw Mackenzie's AUM increase a further 3.6% during the month of July, reflecting positive investment returns and strong net sales. We continue to gain market share with strength in retail and notable traction in the strategic alliance and institutional channels. The second quarter of 2020 saw record-high net sales of $3.6 billion at Mackenzie. Investment fund net sales were $1.1 billion, excluding investments made by IG and IPC mutual funds into Mackenzie ETFs. Our retail investment fund net sales were positive $439 million in the quarter as we mark the 15th and 17th consecutive quarter of positive retail net flows for mutual funds and ETFs, respectively. Mackenzie's investment performance relative to peers remained strong in the second quarter, with 55% of mutual fund AUM in 4 or 5 star funds as rated by Morningstar. Slide 23 highlights Mackenzie's operating results. Total mutual fund gross sales relatively unchanged year-over-year at $2.5 billion. However, we did see a slowdown in retail gross sales consistent with the industry trends Jeff spoke to earlier. Record-high total net sales of $3.6 billion included positive contributions from our retail, strategic alliances and institutional channels. Mackenzie's long-term investment funds net sales rate was 4.2% during the 12 months ending June 30, 2020. And investment fund net flows of $226 million in July was also very solid as the momentum continues. Mackenzie's institutional net sales of $2.5 billion reflected by a number of wins over an extended period that all happened to onboard in Q2 2020. These wins included global equity, U.S. equity, fixed income and currency overlay strategies. And as I mentioned on our May call, approximately half of the $2.5 billion related to the currency overlay strategy where investment advisory fees are typically lower. Our institutional pipeline continues to be strong with additional wins expected to fund during the second half of the year. Our retail results are highlighted on Slide 24. As mentioned, both mutual funds and ETFs attracted positive retail net flows during the second quarter. Retail flows remained strong across most asset classes, and the $47 million increase relative to last year was largely driven by higher flows in the income-oriented mutual funds and ETFs. Turning to Slide 25. Positive net creations drove Mackenzie's ETF AUM, up 26.4% during the quarter to $6.6 billion, and we surpassed $7 billion during July. Net creations included $221 million in retail distribution, which is the strongest result for the past year and was driven by sales into active fixed income ETFs. Institutional channel also contributed $460 million to Mackenzie's ETF flows during the quarter, which includes approximately $390 million generated from the 2 SRI products launched in partnership with Wealthsimple during the month of June. On Slide 26, we cover a few key statistics demonstrating Mackenzie's strong investment performance. Year-to-date 2020, Mackenzie had 80% of its mutual fund assets in the first or second quartile for all series types and 89% for Series F. Turning to the medium- and long-term metrics presented on the slide. At the end of June, 78% of Mackenzie's mutual fund assets were above median for all series over the past 12 months, 57% of assets from the first or second quartile over the 3-year period and 67% over the 5 and 10-year periods. Looking at Morningstar ratings, Mackenzie has 55% of fund assets in 4- or 5-star-rated funds. And out of our 20 largest funds, 17 are rated 4/5 stars for Series F and 7 of those are rated 5 star. Turning to Slide 27. You can see the strong Morningstar ratings across a number of our investment teams, including the growth, Bluewater, resources, global equity income and fixed income boutiques. These teams and others delivered strong short-term performance measured by 6-month and 1-year asset-weighted percentiles, the Ivy Team, Global Quantitative Equity Team and the Multi-Asset Strategies Team all had strong year-to-date performance. Switching gears a bit. Slide 28 highlights some of the favorable trends we're seeing in the Chinese asset management industry where China AMC operates. At IGM and Mackenzie, we've been following the asset management industry in China for a very long time. As many of you will recall, we acquired 13.9% equity interest in China AMC in 2017 alongside Power Corp. Collectively, the Power group of companies owns 27.8%, and CITIC Securities own 62% of China AMC. This decision to take a strong minority interest in a leading Chinese asset manager and define a strong local partner like CITIC Securities, followed careful consideration of the best way to participate in the secular trends set to drive this industry's rapid growth. Three years later, we believe the Chinese mutual fund industry has reached a notable inflection point. While money market funds have experienced growth for some time now, industry watchers have been waiting for signs of meaningful growth in the long-term fund categories as the Chinese capital markets continue to strengthen. Industry AUM now stands at CNY 9.3 trillion; when money market funds are excluded, up a staggering 55% during the last 12 months and doubling in under 4 years. And for some perspective on how China AMC fits into the industry landscape, a recent report from intelligence provider, Z-Ben Advisors, ranked China AMC in the top 2 in terms of market share, and the company has been maintaining their leading market position as the industry grows. Turning to Slide 29. China AMC's AUM and earnings growth is consistent with these positive industry trends, with June 30 AUM up 36% year-over-year and Q2 2020 net earnings increasing 29% relative to last year. We really look forward to providing you with updates on China AMC over the coming years as our thesis on this important strategic investment continues to play out. I'll now turn it over to Luke.

[Luke Gould, Executive VP of Finance & CFO]

Thanks, Barry. Good afternoon, everybody. I'll turn to Page 31, and I think Barry and Jeff did a good job of highlighting the components of the 12% growth that we had in AUM in the second quarter. On this slide, I'd highlight 2 things on the left. First, you can see that due to the timing of the significant recovery in financial markets, that our average assets in the period was actually down 4% from Q1 and 2% from Q2 '19. We've highlighted the further improvement in our asset levels so far during Q3, increasing by 3.5% in July to $170.7 billion. And I just remind everybody, should we remain at these levels, our average balance in Q3 2020 will be a record high and will be an increase of 7% from the average balance in Q2 2020. On Page 32, I'd highlight that while our average assets were down relative to Q1, earnings were up 13%. You can see here with the $258.9 million in adjusted earnings before interest and taxes, that a large part of the growth over Q1 was expense management with our noncommission expenses being reduced about $16 million relative to Q1. I'd also highlight the second stack from the top at $58.6 million and is net investment income and share of associates earnings. And I'll just highlight and remind that this line reflects our proportionate share of Great-West Lifeco earnings, our proportionate share of China AMC earnings, which Barry just spoke to and a proportionate share of Personal Capital, all of which are up. On the right, the only comment I'd make on the net fee revenue margin is that you can see it's 116 basis points, down from 119 basis in Q1, and a large part of this is the award of $2.5 billion in institutional mandates at the beginning of April that Barry referenced earlier. And I'll review this in more detail in the Mackenzie section. Turning to Page 33. A few comments on our consolidated income statement, where you can see our earnings were up 13% from Q1 in spite of lower average asset levels. On point two, which we have highlighted on the right, you can see the strong contribution to our earnings from our proportionate share on associates, which you can see here was $43.3 million in the quarter. And I'd remind that that's an after-tax number and it's up $23 million from Q1. You can see on this table, most of that was Great-West Lifeco, and they announced their earnings yesterday. I'd also echo earlier comments by Barry on the growth of China AMC. And you'll see in our disclosures, average assets, revenues and earnings were all up 30% from last year for China Asset Management in the quarter. I'd also note looking at Personal Capital, this will be our last quarter recording our share of Personal Capital earnings as we have reclassified this as held for sale effective June 30. Lastly, I'd highlight point three that our noninterest expenses are down $16 million from Q1. You all remember last quarter that we highlighted $50 million in expense reductions for the full year 2020 in relation to our original guidance for the year. This would see our expenses declined by 2% in 2020 relative to 2019. I'd note today, we're sticking to this guidance with the exception of a few volume-related items that have been impacted by the significant recovery in financial markets as well as the strong sale activity at Mackenzie. This includes things like sub-advisory fees, which are up as well as sales commissions to our Mackenzie wholesaling teams as a result of the sales growth that we experienced in the second quarter. Our full year guidance remains relatively unchanged and will now be $1.03 billion versus the $1.02 billion signal last quarter. Turning to Page 34. I don't have many comments here. You can see at the bottom of the left chart that high net worth continues to reflect an increasing share of our AUM, and the weighted average fee rate is down in line with expectations as this key segment continues to grow for us. I'd also make a very quick comment on the asset-based compensation rate of 56.9. And I'd note that while this will increase very marginally over time as legacy DSC units mature, there was a bit of noise in the second quarter of 2020 as a result of timing-related items concerning Q1 2020 net sales activity. So it was a bit higher increase than we would have expected. I just wanted to call that out for you. On Page 35, the only comments I'd make on IG Wealth's profitability is to emphasize in point two that there was good expense management in IG during the period. I'd also remark on the fourth row, net investment income and other, which you can see was $9 million in the quarter and which you know reflects our mortgage business. And I'd just highlight that there were some very temporary movements during April in some key interest rates, specifically asset-backed commercial paper yields as well as the spread between prime rates and CMB yields, and that reduced the income from this line by about $5 million below its run rate. Again, those interest rate movements were isolated to a few short weeks, but there was about $5 million of reduced earnings in this line from where it's actually running. On Page 36, I'd highlight Mackenzie's net revenue rate of 74.1 basis points. And as mentioned earlier, we've footnoted that most of the decline in the rate in the quarter relative to Q1 was a result of the funding of the $2.5 billion in institutional business, which occurred during early April. Excluding this, the rate was around 77 basis points and was down from Q1 as a result of a higher weighting of fixed income products with the equity market declines as well as the higher weighting ETFs. And then on Page 37, nothing to comment on, on Mackenzie's profitability which was really clean. I would just point out in the net investment income and other line that we did have $2.9 million in return on fee capital as a result of the strong financial markets during the period. Turn to Page 38. Lastly, I wanted to preview with you right now that as part of the announcement of the GLC acquisition earlier in the week, we're now able to launch our enhanced segment disclosures for IGM. Procedurally, we're going to be issuing a press release and 8 quarters of retroactive restatement of IGM's results towards the end of September. We're also going to be hosting a webcast to walk you through the specific changes. In the top left, you can see on this slide, we've made a point that we've developed a sub-advisory fee transfer pricing framework, that's the foundation of our relationship with Canada Life as part of the GLC acquisition. And this framework is also the foundation of the relationship between IG Wealth and Mackenzie. This transfer pricing framework is anchored off of posted fee rates by mandate for investment-only services within the eVestment database. The rates that we have arrived at also take into account the scale and the nature of the relationships that Mackenzie enjoys with each of IG and Canada Life. And these rates are reflected -- are intended to reflect market. So if anybody out there has a $70 billion or $50 billion block of business, we'd be happy to talk. You can see how Mackenzie's business is evolving in the chart on the left. And going forward, IG, importantly, is going to be presented as a client to Mackenzie, paying market rates for sub-advisory services versus our prior cost share arrangement, which has served us over the last 3 years. As a consequence, I would highlight now around $50 million per year in pretax earnings will be reallocated from the IG segment to Mackenzie as IG now pays market rates for these services as opposed to a cost share. On the right, you can see our new segments, which really showcase the distinct features and drivers of our wealth management business versus our asset management business. Importantly, a majority of IG's revenues are now advisory fees, which are earned on all of IG's AUAs as opposed to AUM. You can see we've highlighted here the primary drivers as well as primary measures for each of the segments. And we've also highlighted some secondary disclosures we'll have like AUM in the case of our wealth managers, which still is important, and you can expect to continue to get insight into those measures. We also think this will help the market, obviously, understand the value of the different segments and the drivers of their success. So with that, I'll turn it back over to Anastasia to take questions, and thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Gary Ho with Desjardins Capital Markets.

[Gary Ho, Analyst]

Maybe first question for Jeff. You monetized the Personal Capital of $248 million-ish. So I'd put some of that to work with GLC, plus you still have some $640 million of cash. How should we think about your uses of capital today? Thoughts on buybacks here or dividend increases? Or could you perhaps increase your stake in China AMC? I think outside of you, Power and the CITIC Group, there's still kind of 10% that's owned by a nonstrategic.

[Jeffrey Robert Carney, Advisor]

Yes. We're fortunate to have a lot of options on sort of cash question and where our capital is going, and so we've been looking at that. I'd probably ask Luke to give you some more on that question.

[Luke Gould, Executive VP of Finance & CFO]

Yes. Thanks, Jeff. And Gary, yes, I think you hit the nail on the head. We've been open on where strategy is focused and the things that we'd be interested in from an acquisition standpoint. We're pleased to bring GLC to market as it's enhanced our capabilities while expanding distribution reach and also bolster Mackenzie's scale. And you hit the nail on the head on some of the other things we'd be interested in and would consider China AMC, as highlighted by Barry, is certainly something that we're interested in and would be something that we'd consider. Also, on the menu of possibilities, anything to bolster our presence in key segments where we're absent, and that could include product capabilities that are lacking or distribution channels where we think we should have a bit more presence. I'd guide you that we are actively looking at a few opportunities in those spaces. And as far as dividend policy and share buybacks, right now, we won't be signaling any significant share buyback activity. That is something that if we did have excess capital, we would certainly consider. But at this time, we're really looking at things to help build our business because we see a very rich market opportunity across all of our segments. I'd also reinforce our dividend policy. As we approach 65% payout rate, we wouldn't be expecting to improve our dividends. And that's our commitment to you as we're focused on growing our earnings and focused on growing our dividends over time.

[Gary Ho, Analyst]

Okay. Perfect. And then, Barry, just on the GLC acquisition, you mentioned $20 million EBIT. I think that's just kind of GLC standalone. Kind of if you kind of look out 12 to 24 months post closing, what are the potential revenue and cost synergies with GLC or Canada Life? And any related restructuring costs we should build in?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. So on the cost synergy side, we think we're done with that in terms of going forward. So we're very comfortable with the talent coming over, and it really expands our capabilities. And as I mentioned in my opening remarks, we also are developing a brand-new Canadian equity-focused boutique, which we think is quite large, actually, and we think that can really drive growth for our channels as well as continue to drive growth through their channels. So we're more focused going forward on revenue synergy synergies and growth. And what this allows now the combine entity to, first of all, the core provider for Canlife's wealth channel. So just as we do the same now for IG Wealth and really pleased with those flows and we grow as they grow, to be able to have that now is almost like a second supercharged anchor client is a real competitive advantage for us. And you may have heard from Canlife and they're signaling on how they intend to have their wealth business to be a real strategic focus for them now and going forward. So we think we'll nicely -- as they to put more resources to grow, their wealth channels will naturally, as their core provider, will naturally grow with them. So that's another really nice big channel for us. And then, of course, as we mentioned in the press release, the group retirement marketplace in Canada. That would be an area that Mackenzie has historically had very little of no presence in. I've mentioned some select targeted institutional wins that we've received in the U.S., in Europe and here and there in Canada. But in the group retirement markets, strong contribution, group RSPs and other group plans, this is really a game changer for Mackenzie now because GLC is a top 3 provider in terms of assets in that area. And not only does that allow us to provide Canlife and Lifeco with continued strong performance and innovation, further innovation for them to gain market share on their retirement platform. It allows us, Mackenzie, to now fulsomely participate in the entire group retirement industry in Canada. And obviously, from an investment-only perspective, direct to the consultants and to the plan sponsors and on other third-party retirement platforms. So we're really -- when we look at this, wow, like the added distribution, it's actually quite unique, I think, for [ keen ] asset management company to have these 2 huge wealth anchor clients, now direct access, top 3 into the group retirement. And of course, you've seen the really sustainable growth that we've incurred at Mackenzie in the retail channel, which we're quite proud of, both of our mutual funds and ETFs. So look, going forward, and we'll continue to give you updates, obviously, on a frequently basis, look going forward this being a growth story, revenue synergies, expand distribution, and we'll report back on that as that unfolds. So obviously, we have to just wait for the approval of the transaction, which again, we expect to be done by the end of the year -- end of 2020.

[Gary Ho, Analyst]

Perfect. Perfect. And then just my last question, Luke, just on the new segmented disclosure here. Any ballpark like in terms of split between your wealth management segment and your asset management in terms of EBITDA or EBIT, like how that might look like?

[Luke Gould, Executive VP of Finance & CFO]

Yes. Absolutely, Gary. So right now the rule of thumb, simply take 2019 or a run to date in 2020 and reallocate $50 million a year from IG and Mackenzie. And that's the only change. What this really does do, though, is it positions the drivers better. And if you look at that slide that we posted, Slide 38, you can also see we've made some changes, not just on the revenues to make it easier to understand the drivers and how our business works, but also on the expense side, to really clarify what's asset driven, sales driven, what relates to advisory and business development as opposed to something like sub-advisory fees. We've never given some advisory fee disclosure before. So I think this provides a lot of great transparency to how the business works, and really does emphasize that the wealth business has evolved in a very different way. And the character of its revenues has really changed, and we'll be providing some really rich disclosure to help people understand.

[Gary Ho, Analyst]

And sorry, Luke, that's $50 million on top line?

[Luke Gould, Executive VP of Finance & CFO]

Well, actually, the way it will play out, $50 million is the incremental advisory fees that IG will be paying Mackenzie relative to the current cost share arrangement that it has. So you can think of Mackenzie having, call it, an extra $100 million of revenue and an extra $50 million of expense and there being a transfer of $50 million of pretax profit between the 2 segments.

[Operator]

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

[Geoffrey Kwan, Analyst]

Maybe just expanding on Gary's question with respect to like the GLC and acquisitions. We've seen obviously from the Power complex, a number of different transactions, whether or not it's been surfacing value, simplifying the structure. But with respect to IGM, there's the China AMC stake held at Power and there's also the one that's held by another shareholder that's not CITIC. Like does it make sense to have the CITIC stake -- it's not the CITIC, the China AMC stake that Power owns housed with an IGM? Or are there other assets like the funds that might make sense if we're thinking about assets within the Power complex as opposed to third-party acquisitions?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Luke, I'll start. Maybe Luke can jump in or -- and/or Jeff. Thanks, Geoff, for your question. The -- first of all, on the CAMC, so again, you'd probably tell, we remain very excited by that investment by IGM Mackenzie in that space in collaboration with Power. And I just want to emphasize, as you well know and everyone in the world know, well know, it's very important for us of that strong minority stake because that allows us to do is to let them be the best they can be as a preeminent Chinese company. Obviously, restrictions and regulations are opening up in China, that a lot of global asset management companies are going into China to build out their own plant, so to speak. We believe there's a huge competitive advantage for years to come for local. So we want to retain the minority. And Jeff mentioned on capital, if the opportunity arose, either for the Power stake and/or the additional 10% that's held by an external investor outside of CITIC and Power, then we would be open to consider that, yes.

[Luke Gould, Executive VP of Finance & CFO]

Yes, Barry, I'd add on. I think I mentioned earlier, we're considering it, and we'd certainly be interested in it. As you know, Geoff, we love this investment. It's for us a secular investment. We love the relationship that we have with China AMC and with CITIC Securities. So as far as your broader question of where do all the pieces belong, for IGM, we're certainly open to considering it and certainly interested in consolidating the investment or otherwise increasing our investment with various qualification. We really like being a strong minority shareholder within this company's ecosystem.

[Geoffrey Kwan, Analyst]

Okay. And then just my other question was on the IG Wealth side. Obviously, there's both the net sales, but there's also the client flows. But just wondering if there's anything you're seeing in terms of improvements? And when you see the timing of the improvement to getting back into the positive net sales territory at the IG Wealth side.

[Jeffrey Robert Carney, Advisor]

Yes. I think we're really close. We feel really good. We've got a lot of the projects that we've been working on for the last 2 and 3 years to become a great company with a modern experience for all of our clients and our consultants. And we've landed Salesforce for all of our consultants. We have done a relationship with a new provider in the marketplace on how to build a potential plan really simply and interactively. And so we've got some differentiated capabilities as a result of that, and the hit starts on it versus our competitors. And so we're really focused on our clients and making sure we have all the tools and the capabilities to make our consultants look great when they're in front of their clients, and we've come a long way there, too. And it's been a lot of work for everybody in our company, and it's great to see these new -- in the projects that have been going on for quite a while, landing. And we had a great board meeting this week, and we were really excited about sharing all of the progress that we've made and where we are in our company. And so I expect positive flows going forward for -- to 2020 and lots of growth onward.

[Luke Gould, Executive VP of Finance & CFO]

And maybe, Jeff, I'd add to that. Just for Geoff, on the -- and it speaks to the segment as slower change as well. So year-to-date, June, we're positive net flows of about $300 million. We reported positive net flows again in July. I'd anchor, again, we generate advisory fees now and it's generating in all of our assets. And so net flows is a primary measure. I'd also highlight as reviewed by Jeff, our net flows were up by just under $0.5 billion year-over-year in Q2 2020 versus Q2 2019. So that's significant improvement during a pandemic. One of the also -- the other trends that was in the IG slide, gross sales are down a lot as our redemptions. And Jeff mentioned, it has to do with Canadians not being as likely to change financial institutions at the distributor level during the pandemic. So what I would highlight to the market and to you is during January and February, we did see very significant improvement in new client acquisition, particularly in the high net worth segment. A lot of that new client acquisition has slowed during the pandemic. In spite of that, our net flows are improving significantly. And we don't feel, as things continue to improve, that, that momentum that we have on new client acquisition is going to slow down. So there is a bit of an interruption on client relationships being a bit stickier during the pandemic, but we see the business being much healthier than it was a year ago and a lot of momentum there. And I would remind you, for us, the measure is net flows. Right now that is driving the bulk of our revenue, and we are positive year-to-date.

[Operator]

Our next question comes from Scott Chan with Canaccord Genuity.

[Scott Chan]

Luke, just going back to the new disclosure coming in Q3. You talked about retroactive restatements. Is this something that you're going to provide to us before Q3 earnings in terms of the retroactive?

[Luke Gould, Executive VP of Finance & CFO]

Yes. Absolutely, Scott. So our plan is to have in either the third week of September or fourth week of September, we'll be issuing a press release. You can expect to receive a package of much like our supplemental disclosure package right now of 8 quarters of all of our metrics going out retroactively, and that should provide everybody with about 5 or 6 weeks to understand the changes and to anticipate our Q3 results before they come out in the first week of November. And we will be hosting a webcast to walk our way through it in late September.

[Scott Chan]

Okay. Great. And Barry, just on the GLC side. With the assets that are coming over, is there like a heavy skew towards certain assets? I just haven't looked at it too closely.

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. So the reason it's such a nice fit too -- and by the way, if I -- maybe give me an opportunity to say a few more thoughts on this because I think it's important. As you know, we employ a multi-boutique all at Mackenzie, so that always allows for these types of combining of teams to be very efficient. So we have bolstered up several of our existing Mackenzie boutiques with additional investment personnel from GLC member. As previously mentioned, we're going to create a standalone one. The other thing was a nice mix of being attuned was that we've been -- Mackenzie been, as you know, have had significant assets in the foreign and foreign global equities, whereas GLC, as they've been more focused in Canadian fixed income and Canadian equity. So if you're looking at a broad mix, their assets are mostly Canadian equities and fixed income. And so again, that's why we had the opportunity to build out a brand-new Canadian equity-focused only team based on combining 2 or 3 of their existing teams. So I look upon them as -- they look -- they were managing U.S., they're managing international, they're managing some [indiscernible], they're managing some olds, but a heavy weighting for them on the Canadian side, yes. Thank you.

[Scott Chan]

That's helpful. And just on China AMC. I appreciate the updated disclosure on it. If I kind of look at Slide 28 and look at the AUM split, like there's a good portion of money market. And then I think that's -- that was the same before when you announced it versus long-term funds. Is that a similar proportion when you look at kind of the peers on the right-hand chart? Or is this something that is just more China AMC specific in terms of that split?

[Luke Gould, Executive VP of Finance & CFO]

No. In fact, it's only -- they're shown on the right, Scott, so it's only long term.

[Scott Chan]

All long term. Okay. But just in terms of the right -- just in terms of the peers that are highlighted there, like a -- is there asset mix like have a heavy proportion of money market, too? Or is it just like China AMC specific?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. Luke, if you can jump in here as well. So the -- when you look at the top 10, 20 firms in China, there are a handful that have significant disproportionate weightings towards money market, and CMC is not one of them. CMC has a fulsome allocation to money market, but they're multi-channel, multi-asset class balance of fixed income equities so they would not stand out. I don't know the number offhand, but they're either average or below average in terms of the proportion of the total AUM in money market. And if I could elaborate on this point because it's a very important one, and Luke, you can help me out here. We've been saying this for years, and we saw this in North America, right, 25 years ago. We had heavy skewing at that point in time towards money market. And then that migration over to rotation and migration over the long term happened in Canada and U.S. So we obviously expect that to happen in China. What precluded from starting was a, interest rates being robust, nicely -- very high in relatively speaking in China for many years. That's come down. They've been -- their interest rates are really normalizing. I mean I think when we put the investment in IGM Mackenzie, interest rates probably were 5%, 6%, 7%, 8%. That's a healthy return, right? B -- and so that's normalized down to more like 2% or 3%. B, there's been some rule, changes in regulations. They used to have -- be some regulations that actually quite advantaged money markets, more so than even short-term nonmoney market investments, and those have been changed in China over time. And it's really just the maturation of the industry, right? It's only a 20-year-old industry. You can see the numbers on the left. If you look at the CNY 16.8 trillion, that is -- in total, that's double the size of the Canadian mutual fund industry already, and it's still young. And even if you look at just the CNY 9.3 trillion, which we alluded to which is long term, that in itself is the same or slightly bigger just by itself than the entire Chinese fund industry. So a lot of potential here. But we did want to -- we thought it was a good time to let you know that we've been studying this. Industry experts agree with us that this rotation won't be straight line, but this rotation now is happening. So not only are the long-term funds growing just from the natural forces of a large population, high savings rate, right, and a strong conviction by the government for a 3-pillar retirement system just like we have in Canada and here in the U.S., but also, we believe the long-term funds will now accelerate in growth because of the rotation from short term to long term. So it just takes -- it takes time and some catalysts like interest rate normalization, like some regulations and just the continued evolution and maturation of the industry in China.

[Scott Chan]

Got it. That's a great point. And maybe just lastly on China AMC. I recall they were a pretty big ETF player in China. Is that still the case?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

They are #1 market share. Yes, they have approximately -- we give a number for about 30% market share in ETFs, and that's been growing very well also in China. So it's a younger industry than Canada, but it's growing fast. And they're #1 market share, yes.

[Luke Gould, Executive VP of Finance & CFO]

If it helps you or anybody else, we can send the industry breakdown for money market funds as well. China AMC has got 3% share. Tianhong is the leader, and they're almost exclusively money market fund, and they've got CNY 1.4 trillion in money market funds. So that's the only conspicuous difference you'll see in relation to Page 28, but we can send to everybody the rankings, including money market fund, if it's helpful.

[Scott Chan]

That would be great. Okay.

[Operator]

Our next question comes from Tom MacKinnon with BMO Capital.

[Tom MacKinnon, MD & Analyst]

Just a question with respect to the GLC acquisition, and I'm trying to get to the accretion that we would expect in 2021. So on Slide 21, it mentions run rate of $20 million EBIT, but that's sort of before purchase price, amortization and financing costs. So just trying to wonder what some of those would be. And then the lost 10 bps from the Quadrus deal, as we apply that to $7 billion, to the $7 billion of assets and are there any other expenses that would have been related to that? Just sort of help me walk through the earnings accretion associated with that.

[Luke Gould, Executive VP of Finance & CFO]

That was actually really good, Tom. You got all the pieces. Yes. So we've got to book it. We got just over $20 million of incremental earnings at current asset levels coming over in relation to the GLC acquisition, and that's obviously pretax. We will have a component of purchase price amortization. You can think of that being, call it, in the $5 million range. We haven't finalized that yet, but we will be soon in publishing it. Some very slight financing costs in the deal. And -- but the biggest one you highlighted, it's the oversight fees on the Quadrus Group of Funds. So we've highlighted 10 basis points, and you can think of that being an in-force block that would have been declining over time. So think of that being about $5 million pretax in 2021 and declining beyond that. So I think you've got the right components, but I would qualify all of that, that's accretive and it's all at current asset levels. We expect further growth, not just from assets rising, but also from continuing to build the business. So -- but you got the right pieces. And I guess the headline is we're in the $10 million vicinity pretax. It's very small in relation to our billion dollars of pretax earnings a year.

[Tom MacKinnon, MD & Analyst]

Okay. And then as a follow-up, just with respect to the China AMC investment, what other kind of synergies do you get from China AMC? I mean obviously, you've got a slide here to show that's a good investment. But the strategic investment that you've made, you could have got some paying stocks, and those are pretty good -- they would have shown some nice slides as well. But what do you get other than just a nice share of their earnings? Do you learn anything about the industry from them? How does that translate into your earnings, excluding China AMC?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. I'll start with that one. The -- so put it in 2 buckets, well, 3, I guess, first is what you mentioned is that the fact that, obviously, we have a significant investment in them. So as they grow, we grow our proportion of the earnings. The other way we're working with them from day 1 is cross-selling of our own investment capabilities, their capabilities into Canada and our capabilities into China. And that's going to get larger and larger. It's been taking some time to get some traction. But for instance, their capabilities into Canada, we have the Mackenzie China equity mutual fund. It's up to about $75 million. That's all fresh money coming in from third-party retail. And that will only accelerate as investors -- and we're doing a lot of education around this. BMO does too, by the way, as we know. But the -- a lot of education around the fact that this is -- China equity is too big to ignore. You have now allocated into your portfolio a separate allocation even from a mature risk diversification perspective. So we're starting to see some traction flows every day, supposed to come in. So we look for that to grow. We have opportunities, obviously, at appropriate time, to do the same thing on their fixed income capabilities. So that will grow nicely over time. We are -- as Mackenzie, obviously, as we mentioned, part of our institutional sales strategy in Canada and outside of Canada is to selectively look for opportunities where institutional plan sponsors will hire us for mandates. In China, we are selling into China Mackenzie. And CMC is also, as we mentioned, #1 market share in ETFs. They are #1 or 2 in the institutional marketplace. And so they're great partners and looking for referrals for institutional Chinese investors in China, looking for global equity or fixed income allocation. And so the pipeline is growing. They're having good discussions there, so that's an opportunity. And then CMC also has -- they're obviously centered in Beijing and across China, Mainland China, but they also have a big business centered in Hong Kong with their own mutual fund and ETF platform in Hong Kong, selling into Hong Kong and then through the mutual fund recognition program, those funds being sold into -- northward into Mainland China. We, last year, so started to sub-advise one fund for them in that area. So you're going to start to see those connections being made early days, but we're really excited by those additional 2-way upselling opportunities. And then finally, the third bucket is, yes, just always transfer. We've been at that for 4 years now with them for IGM Mackenzie and longer for Power. And obviously, pre pandemic, they would come over all the time to Canada and we would educate them. We want to make them better, and we see leading trends on for this ESG. So now they're the first Chinese asset management company to sign United Nations principles for responsible investing (sic) [ Principles for Responsible Investment ]. And surprisingly, ESG is growing very strong now in China, so we're helping them in that area. Alts will come not modest right now in China, that will come. So we're helping them with liquid alternatives, what to do in that space. So a lot of knowledge that way. And I think another way, they're quite ahead on AI as all of China is. And so how do you implement AI into investment processes as well as distribution data. And their technology, I think we mentioned in prior calls, they are not beholden to legacy investment systems, and we're working very hard, as you know, at IGM, with our transformational projects to leapfrog ourselves into a more modern technology platform, but they're already there. So the first bucket is the strongest for sure, Tom, as you know, because that industry, China is going to represent half of all the global flows for the next couple of decades. But we're really pleased early days about the cross-selling of investment capabilities as well as the knowledge exchange.

[Operator]

Our next question comes from Graham Ryding with TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Just with GLC, the revenue synergy side that you're talking about, can you give us some context on what are the distribution opportunities that you see now that you own GLC or assuming the deal closes as opposed to before when they were still a sister entity under the Power Corp. umbrella? I assume there would have been some opportunities there for distribution opportunities.

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

It's very good. And we actually think it's very timely, too, but it is a very good point because, as you know, we're all sister companies under Power. And we've been working Mackenzie with GLC and Canada Life overall for years. They were, prior to the transaction, a significant client for Mackenzie. We know them very well. So by the way, another reason why we think this transaction will go very smoothly because we're just culturally know each other already, and we're all part of the big family. But the timing is -- from a IGM Mackenzie perspective, it's just absolutely perfect, right, because -- and again, I don't want to speak on behalf of Canlife, but you know that they've been messaging how they are now going to put more resources towards their wealth business. And so -- and we think we -- for Mackenzie and now added with the GLC professionals, we think we're in a very good position to help them really get those modern institutional quality portfolios in the hands of their wealth clients as we've been partnering with IG Wealth for several years now in the areas of risk budgeting, China, EMD, active, passive, smart beta, liquid alts, all those things that we do. Now that will be at their disposal to get through their wealth channels which again, they expect to put more resources. They're already starting that process. And then we're very excited about the group retirement, as I mentioned, and I just do want to emphasize the fact that we want to continue to be a core provider for them on Lifeco and Canlife's retirement platform. But that now allows us, we believe, to have a pedigree to go talk to the institutional consultants and platforms and plan sponsors in the group retirement space outside of the Canlife ecosystem also to gain traction. So we've got -- we've been studying this, and we've been looking at this for almost a year now and putting together our expectations, multichannel, right? And we've got targets that we'd like to hit. And so we'll obviously refer back to our progress. But yes, it's a good time. I think we've been asked that question, too. It's -- time is never perfect and why now, but we think it's actually -- the timing is -- couldn't be better right now for us to go ahead with the merging of these 2 teams.

[Graham Ryding, Research Analyst of Financial Services]

Understood. And then, Jeff, a question for you, just the new campaign that you mentioned at Investors Group. How is that different or unique from what your consultants are doing previously in terms of business development? Is this campaign more sensitive and focused towards the COVID-19 uncertainty?

[Jeffrey Robert Carney, Advisor]

No. It's really focused on just massive and high net worth clients and focusing on that specific segment, and we're getting more traction now as we've been moving upmarket. And with these new tools, it's a much easier experience for them to give to their clients as well because they can engage in this as well using the software. And so we really think it's a game changer. And this was a firm that had been in this specific space for the last 30 years. And they're really the founders of software for this space. And so we're really excited to have it. And it's in Winnipeg, and it's in our hometown, and we know all the people there and it's a great software. So it's going to be a game changer for us, for sure. And then we'll keep looking for other capabilities as we go forward.

[Luke Gould, Executive VP of Finance & CFO]

Graham, your question was about Conquest software, it wasn't on the Answering the Call campaign for small businesses?

[Graham Ryding, Research Analyst of Financial Services]

Yes, correct.

[Luke Gould, Executive VP of Finance & CFO]

You all will be answering for it?

[Jeffrey Robert Carney, Advisor]

Oh, that's -- that went really well.

[Graham Ryding, Research Analyst of Financial Services]

Yes. Just -- my question was just how is that different than the existing sort of business development approach at IG?

[Jeffrey Robert Carney, Advisor]

Well, this was as a result of the -- what's been going on in our lives for all of us. And we wanted to do something to help the society. And so we asked our consultants if they wanted to support this, and they did. And so we're trying to help Canadians across the country and especially in small business and give them free consulting to manage their businesses while they're going through a pandemic. And we're coaching them on that as they do this on an ongoing basis. I mean so we're just trying to help a charity donation almost to help society.

[Luke Gould, Executive VP of Finance & CFO]

And Graham, you can imagine with our financial planners as well as the support from our advanced financial planning team and specialist, we're -- we believe we're better situated than anyone in the country to help small businesses navigate through the pandemic. And so as Jeff said, this is something that we want to do to make sure we're helping society. And it ranges from helping with basic financial plans to making sure people can appreciate all the government programs that are available to them and how they best structure their fares as they navigate a lot of the stress that's happened to so many small businesses during these times. So we're really proud of what the team put together, and we're pleased to have this rolled out in early May. But in advance of that, it's what our people are doing naturally in their communities to make sure they were answering the call.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Jeff Carney for any closing remarks.

[Jeffrey Robert Carney, Advisor]

Thanks, everybody, for your time today. I really appreciate the questions. Obviously, a great conversation for the last 60 to 90 minutes we've been on the call. And we wish you all a best summer, and we'll see you in the fall. Thank you.

[Operator]

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