IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Second Quarter 2021 Earnings Results Call. [Operator Instructions] And the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Keith Potter, Senior Vice President, Finance. Please go ahead.

[Keith Potter, Head of Investor Relations & Treasurer]

Thank you. Good morning, everyone, and welcome to IGM Financial's 2021 Second 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; 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. Slide 4 summarizes our 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 over the call to James.

[James O'Sullivan, President, CEO & Director]

Well, good morning, everyone. I'm going to start on Slide 7. The second quarter was another record-setting quarter for IGM. We achieved record AUM&A in the quarter of $262 billion, up 5.4% in the quarter. We also achieved record high investment fund net flows of $1.9 billion and total net flows of $2.5 billion, which include record highs for both IG Wealth and Mackenzie. But I'm most pleased with earnings per share of $0.99, which is the highest EPS for any quarter in the company's history and up a full 29% from last year. Another notable item in the quarter is that IGM was recognized by Corporate Knights once again as one of the best 50 corporate citizens in Canada. Finally, with our record earnings and growing capital position, we're actively looking at options to redeploy capital. Turning to Slide 8 on investment returns. We continue to see strong equity market increases across major indices and slight gains in fixed income. Overall, this had a positive impact for IGM clients, with average client investment returns of 4.5% in the second quarter and 7.2% year-to-date June 30, 2021. Turning to Slide 9. Q2 long-term mutual fund net sales were $27.9 billion for the total industry and $13.4 billion for the industry asset management peers. Following a record first quarter, this is the best fund industry second quarter net sales in Canadian history. Turning to Slide 10 on IGM's results for the second quarter. Average AUM&A of $255.4 billion increased $74 billion or 40.8% year-over-year, including approximately $30 billion related to the acquisition of GLC and Greenchip, which closed in December of last year. As I mentioned, second quarter EPS of $0.99 is an all-time record high. Slide 11 now highlights earnings contributions from each of our segments, where we've brought our disclosures down to the net earnings line, as announced in March. IGM's year-over-year increase in net earnings was driven by strong results across all of our reporting segments. Finally, Slide 12 demonstrates the record Q2 results at both IG Wealth Management and Mackenzie and the continued momentum that Damon and Barry will speak to in greater detail. So over to you, Damon.

[Damon Murchison, President & CEO of IG Wealth Management]

Great. Thank you, James, and good morning, everyone. Turning to Slide 14 to the IG Wealth Management's second quarter highlights. AUA reached a new all-time high of $112.2 billion, increasing 4.9% during the quarter, driven by record-breaking Q2 net inflows of $670 million and client investment returns of 4.2%. Gross flows of $3.2 billion were also a new record for the second quarter. Net sales into IGM products were $397 million during the quarter, which represented a $0.5 billion improvement relative to last year. July was another very strong month with record high net inflows of $348 million and net sales into IGM managed products of $210 million. This represented the ninth consecutive month of positive net sales into IGM products and the tenth consecutive month of positive AUA net flows. Underlying these strong results is an acceleration of our success in further penetrating the high net worth and mass affluent client segments. We are now seeing significant positive impact from our business transformation efforts over the last few years on both our consultant and client experience. I'll speak more to each of these themes on the coming slides. Turning to Slide 15. You can see the very strong results through the first 7 months of the year, including July's record net inflows of $348 million. The 12-month trailing line chart on the right demonstrates a significant momentum in our total net flows and net sales into IGM products, both of which have been accelerating over the past 4 months relative to Q1 of this year. Next, moving to Slide 16. You can see our Q2 record high gross inflows were nearly up -- or up nearly 70% year-over-year. On the line chart, you see our trailing 12-month net sales rate has reached 2.1%. We expect to provide a wealth management-based market share benchmark in the near future that will include the full service broker, the independent planner and the branch advice channels. I look forward to sharing more information with you on this new metric on future calls. Our client inflows are broken down in more details on net flows table where you can see the significant improvement in net sales into IG solutions as well as continued use of the Mackenzie funds on our approved list. Total inflows in the IGM products were $397 million. Turning to Slide 17. Similar to last quarter, I'll speak to the mechanics at play in our AUA growth and net flows by investment product category. Starting with the second column on the left, you can see that our Q2 net inflows of $670 million were primarily made up of $258 million of cash in short-term savings and $399 million of third-party in-kind transfers from other dealers. The third column shows a significant outflow from these categories that resulted in net sales into IG managed solutions and Mackenzie funds totaling $397 million. Our success acquiring new client relationships, increasing our share of wallet with existing clients and our recruiting of experienced industry advisers will continue to drive in-kind transfers of third-party fund securities and cash from other dealers. We also expect flows into our investment solutions to continue as our consultants work with their clients to provide comprehensive financial planning and leverage the benefits of utilizing well-constructed managed solutions. On Slide 18, you'll see one of our key KPIs. The productivity of our consultant network, which continues to grow. We selected a few key initiatives that we attribute the increased productivity to, each of which magnifies and builds upon one another. In 2017, we provided more flexibility to our clients by eliminating the DSC purchase option and significantly tightened our recruiting standards gearing our business towards more experience. Our National Service Center was launched with a focus on delivering a consistent experience to our clients with somewhat less complex needs, allowing our consultants to direct more of their time and energy towards servicing and attracting clients with more sophisticated and complex financial needs. Related to this point, we launched our new Advisor Desktop powered by Salesforce to help drive efficiencies as well as identify opportunities for our consultants to engage their clients and prospects. We have also made ongoing investment in product and pricing enhancements, bringing together the best asset classes and asset managers to build a truly unique offering for our clients, making us more competitive in the mass affluent and high net worth marketplace. And finally, we're seeing significant benefits in both our consultant and client experience through investments in our next-generation financial planning tool, the IG Living Plan, our online client portal and our digital forums. Next, I'll highlight 2 key proof points showing the impact of these investments are having on our success. The first is on Slide 19, which details our new client acquisition efforts. In Q2, we had $456 million in gross and net inflows from newly acquired clients with over $500,000. This is more than a fivefold increase over the past 5 years and over double last year's result. On the right-hand chart, you can see the trailing 12-month flows from newly acquired clients where we have an increased focus on mass affluent and high net worth and a decreased focus on the mass market. You can see while there was a brief pause related to COVID, by mid-August, our consultants in our business had adapted to the pandemic and our momentum has accelerated since that time. We have proven that we can source, recruit and onboard mass affluent and high net worth clients in this virtual environment. The second proof point is on Slide 20, and it's centered around the annual Investment Executive dealer report card, which was published in June of this year. The report is based on interviews with over 500 financial advisers, spanning 11 dealer firms across the country with a focus on programs and support offered by their respective firms. In the 2001 (sic) [ 2021 ] addition of this report, IG Wealth Management continued to demonstrate leading capabilities in all of the financial planning metrics as well as ongoing training programs, which are a critical part of our value proposition and our financial planning edge. We also saw the positive impact of our transformation initiatives shine through in our scores on technology, tools and product offering, with all of these scores increasing significantly over the last 3 years. While there's a lot of excitement and momentum at IG right now, it's important to remember that we are still in the fourth year of a 5-year transformation, and we have significantly more upside as we continue to execute and elevate our consultant and client experience. While we're happy to see our efforts be reflected in this independent third-party report, the daily vote of confidence from our employees, our consultants, our clients and the growing number of experienced industry recruits who are choosing to build their business with IG is far more important to us. So now I'll turn it over to Barry McInerney.

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

Thank you very much, Damon, and good morning, everyone. I'll begin my comments on Mackenzie's Q2 results on Slide 22. We ended the quarter with a new record high total AUM of $201.7 billion, driven by strong capital market returns and net sales of $1.9 billion. Retail remains the key driver of our record investment fund net sales of $1.4 (sic) [ $1.9 ] billion during Q2. This marks our 19th consecutive quarter of positive retail investment fund net sales. Mackenzie's momentum continues to be broad based for both mutual funds and ETFs across all major asset classes and categories. As a result, we've sustained our market share gains from competitors in the Canadian retail channel. And our institutional business contributed positively to net sales of approximately $500 million, including sub-advisory separately managed accounts and institutional mutual fund sales. This quarter, we are pleased to announce several planned new fund launches at Mackenzie that together focus on sustainable investing, tax-efficient strategies and utilize our strategic partnerships to broaden both our product depth and distribution reach. Focusing on sustainability, we have created a new investment boutique called Betterworld that will further expand our capabilities in this space. We launched 2 sustainable investing products earlier this year and plan to bring more to market this fall. We also launched the Mackenzie Tax Managed Global Equity Fund, while launching the Mackenzie ChinaAMC All China Bond Fund. And in partnership with Wealthsimple, launched a Shariah-compliant ETF. I'll also highlight the performance of our 2 strategic investments focused on asset management, Northleaf and ChinaAMC on a coming slide. These businesses support 2 important growth catalysts for Mackenzie. Slide 23 highlights our investment fund flows, which include adjustments for large fund allocation changes that can impact the comparability of results over time. The charts on the left demonstrates the consistently strong year-to-date gross and net sales over various time periods. Our momentum has continued into July, with record high investment fund net sales of $420 million during the month and $6.8 billion on a 12-month trailing basis. Slide 24 summarizes Mackenzie's Q2 2021 operating results. Total mutual fund gross sales of $3 billion were up 20% year-over-year, driven by a 55% increase in retail gross sales. Mackenzie continues to gain market share as demonstrated by our long-term investment fund net sales rate, which was 10% at the end of June. And in terms of Morningstar ratings, 47% of Mackenzie's AUM were at 4- or 5-star rated funds and 14 of our top 20 funds are rated 4 or 5 stars for Series F. Slide 25 shows our retail net sales and how investment performance looks across our investment boutiques. We continue to see strong overall performance in our growth-oriented boutiques while our Cundill value and global quantitative teams have delivered strong outperformance year-to-date. Turning to net sales, a wide range of boutiques contributed positively this quarter, including our equity, fixed income and multi-asset teams as well as our third-party managers, which includes ChinaAMC. Similar to last quarter, Slide 26 highlights the growth catalysts that are reshaping the global asset management industry. We've highlighted 3 of the 5 themes: alternatives, ETFs and China. Northleaf has experienced continued exceptional fundraising results of $1.7 billion during the second quarter alone. We also continue to see synergies play out with our core businesses and our sister company, Great-West Lifeco, where we have strengthened the high net worth offerings at IG using Northleaf private market solutions, launched a private credit fund in Mackenzie with more fund launches to come and utilize a broad array of Northleaf's solutions as a preferred partner for Great-West Life's strategy to increase their balance sheet allocation to private markets. Briefly, on our ETF platform, we exceeded the $10 billion AUM market a short 5 years after launching our first ETF. We're all very proud of this important milestone. I'll also take this opportunity to highlight our emphasis and achievements on the important China theme. As a reminder, we have an on-the-ground presence in this market with our Mackenzie Beijing office, our Hong Kong-based Asia investing boutique and an important partnership and 13.9% equity interest in the Chinese asset management industry leader, ChinaAMC. Continuing on Slide 27, the growth in the Chinese mutual fund industry has remained robust, with long-term mutual funds growing 46% over the last 12 months. Net sales contributes approximately 62% of this growth with a net sales rate of roughly 23% over the past year. Consensus expectation is that industry AUM will continue to grow in a mid- to upper teen CAGR over the long term, 5 years out and beyond. As we highlighted about a year ago, ChinaAMC is a consistent top contender across all major asset classes within the Chinese asset management industry. The firm ranks fourth overall in terms of long-term mutual fund assets under management, as presented on the right. And turning to Slide 28. ChinaAMC is also one of the most diversified asset management companies in China by distribution channel and investment management capabilities. It is noteworthy that we are seeing significant growth in long-term mutual funds, which grew 41% since June of last year. The company has also experienced strong growth in money market funds and its institutional business over the past 2 years. We are very encouraged by the strong leadership we have with ChinaAMC and its controlling shareholders, CITIC Securities. I'm pleased we have demonstrated some of the synergies between our 2 firms, a new $680 million sub-advisory mandate awarded to Mackenzie in June. Here in Canada, Mackenzie is offering unique solutions to address the growing need for Canadian retail investors to gain exposure to the Chinese capital markets, including our 5-star rated China equity funds supervised by ChinaAMC and the upcoming launch of the Mackenzie-ChinaAMC All China Bond Fund, which will be available later this year. Benefiting from our close relationship with ChinaAMC, we're positioning Mackenzie as a thought leader on the evolving Chinese market and working with retail financial advisers as they search for the best ways to incorporate Chinese assets into their clients' portfolios. Notwithstanding the recent government engagement with specific economic sectors, our conviction on the mid- to long-term prospects for the Chinese markets and our position in ChinaAMC is undiminished. I'll now turn the call over to Luke.

[Luke Gould, Executive VP & CFO]

Thanks, Barry. Good morning, everyone. So turning to Slide 30. I'd highlight, once again, the solid growth in AUM&A during the quarter. We ended at $262 billion, up 5.4%, driven by strong investment returns of 4.4% as well as net flows of $2.5 billion, which would represent an annualized rate of 4% of assets. We also published our July results yesterday. And so far, Q3 (sic) [ Q2 ] has been good with AUM&A up an average [ 1.2% ] to $265 (sic) [ $255 ] billion and record high investment fund net flows of [ $600 ] million. Turn to Page 31. You can see the last 5 quarters of IGM's EBIT and margins. On the right, I'd remind that we closed the acquisition of GLC on January 1, 2021, and this explains the change in revenue and expense rates. I'd also comment, it was a very clean and solid quarter with gross and net revenue rates on the top right, consistent with Q1's level. Cost per unit declined as a result of seasonality expenses and economies of scale and the EBIT margin at 45 basis points is up from Q1. Turning to Page 32. You can see IGM's consolidated income statement with earnings of $237 million or $0.99 per share, up 29% from last year and 17% from Q1. The only comment I'd have on this slide is to reaffirm our commitment to expense management. You can see in point 2 that for operations and support expenses for 2021, our guidance remains unchanged, and you can find this detail in the appendix, Slide 43. As a result of the strength in Mackenzie's retail sales, we're revising our guidance on Mackenzie Wholesale and Commission, which are found within the business development line, and I'm going to review this in a couple of slides. Turning to Page 33, you can see IG Wealth's key revenue expense lines on the right presented as annualized basis points of their respective driver. You'll see advisory fees at 104.2 basis points are relatively unchanged relative to Q1. Continued migration of high net worth clientele was partially offset by a greater share of assets being subject to advisory fees as more money was put to work. And I remind, we don't charge advisory fees on cash and cash substitutes like deposits, money market funds, high interest savings accounts among other assets. I'd also remind, we expect there will be continued declines in this line over the next few quarters from growth in the share of our assets with high net worth clients. And I'd reconfirm our guidance that you should expect reductions of about 0.6 to 0.8 basis points in this line in each of the next few quarters depending upon how that migration and success in high net worth goes. I'd also point out that asset-based compensation is about 48 basis points, and we'd expect to be at or very near this level over the coming quarters. Turn to Page 34, you can see IG's income statement. At the bottom, net earnings of $130.4 million were up 34% from last year and 18% from Q1. And as you can see in Point 1 on the right, we have reconfirmed our full year expense guidance for IG. Turning to Page 35, you can see the composition of Mackenzie's AUM on the left. And you can see the annualized net revenue rates on the right. Again, I remind that we had the GLC acquisition on January 1, and you can see the impact that this had on each of these 2 charts. I'd also comment on the chart on the right, where you can see Mackenzie's net revenue rate was strong in the quarter, up 1 basis point, and this was supported by continued growth in retail and continued growth in equity and balanced mandates. Turn to Page 36. I'm going to spend a little bit of time on this slide that we've been sharing with you to help you understand retail sales results and how our business development expenses will behave across different variability or because of different variability in the wholesaling commissions to gross to net sales levels. On the left chart, you can see the retail mutual fund sales trend. And I note in the light blue line, which is the biggest driver of our wholesaling commission, we've now crossed through the $4 billion mark on retail mutual fund net sales. In the middle chart, you can see that this has been driven by year-over-year improvements in gross sales of over 50% during each of the last 3 quarters. And if you go to the table right below the middle chart, you'll see that we've circled business development expenses in the second quarter of 2021 of $25.1 million and that this is a significant increase over Q1 of $5 million. The key part of this increase is we've adjusted our accrual to reflect an expected full year retail mutual fund net sales result of $5 billion based upon the strength that we've seen in Mackenzie's retail business in the second quarter. And you can see in the chart on the left that this is where we're going with that 12-month trailing trend right now. On the right, you can see how full year expenses will respond to different sales levels. And again, we have revised our guidance for this line to reflect $5 billion. And I'd also remind our previous guidance and our previous accrual had been to a full year net sales result of $2.5 billion. I think these sensitivities on the right give good insight into how the expense will change based upon different full year sales possibilities. And I'd also guide that had we been closer to our current level of $4 billion, we would have had an extra $2 million of earnings this quarter because our accrual would have been lower. So again, we have marked it to $5 billion and that is where we're trending. Going to Page 37, you can see Mackenzie's earnings during the quarter were $56.5 million, up 54% from last year and 18% from Q1. You can see we've called out the increased business development expense accrual that I described on the last slide. And on Point 2, we've also reconfirmed our full year guidance for Mackenzie's operations and support expenses. Moving to Page 38 and building on Barry's comments, we've profiled some of the results of China Asset Management. On the left, we showcased the strong growth in AUM reviewed earlier by Barry. In the middle, you can see ChinaAMC's earnings. And on the right is IGM share of these earnings, expressed in millions of Canadian dollars. A few comments I'd make on this slide. First, you can see on the left, there's been meaningful growth in long-term mutual funds at the bottom left. And in particular, it highlights actively managed equity and balanced funds have been selling very well for ChinaAMC in their domestic market. Year-over-year, you'll see earnings are up by 47%. And I would highlight, during each of Q2 2021 and Q2 2020, there was just over $1 million of contribution from seed capital mark-to-market. There was no such mark in Q1 2021, and this represented part of the increase in earnings relative to Q1. And at the bottom right, we reminded the company pays an annual dividend. You can see our dividend doubled this year as a result of strong growth in earnings combined with an increase in the dividend payout rate. Moving to Page 39. We've highlighted the earnings growth rate of different segments and our underlying investments. In the first point, we've highlighted that the secondary transaction we did in Wealthsimple closed during the quarter, and we received pretax proceeds of just under $300 million. And at the bottom, we've got a bullet table where we've reminded that our strategic investments had a value of over $4 billion. We presented a trading value of our 4% stake in Great-West Lifeco of $1.37 billion based upon their close a few days ago. ChinaAMC of $916 million reflects our entry PE multiple of 17.5x applied to consensus earnings estimates for 2021. And I'd note that these earnings investments are feeling conservative. Northleaf of $200 million reflects our purchase price a few months ago. And as Barry reviewed, business development has been very strong and ahead of our expectations. And Wealthsimple reflects the equity fundraising valuation from a few weeks ago. As James indicated, the second comp from the right shows that we have excess capital of just under $600 million at the end of June. And last, on Page 40, we presented analyst consensus 2021 earnings estimates by component, and these are the estimates just before we had published the Q2 results. We've then taken, in the right column, our share price of $44 on July 30. And we calculate an implied PE multiple free of IG and Mackenzie that results when one makes the specified value assumptions for each of our strategic investments. In the bottom row, we compared this result in PE of about 7.8x to the average PE for global wealth managers in the case of IG and for global asset managers in the case of Mackenzie. And I'd highlight, when you look at those global peers, these are the averages. And those peers that have higher earnings growth are trading multiples that are higher than this. I'd just close my remarks by saying we've got a lot of operating leverage in these businesses. A lot of momentum in the businesses for operating results as well as the earnings. And as James mentioned at the beginning, we're focused on driving continued earnings growth and we look forward to future quarters. That concludes my comments. I'll turn it over for questions now.

[Operator]

[Operator Instructions] The first question is from Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question was on the dividend. I think the payout ratio was about 57% in Q2. And if you take a look at the first half, I think it was closer to 62%. So just was curious about what the Board's view was on why the dividend was maintained this quarter? And also, any thoughts that, assuming the markets remain constructive, this quarter kind of the likelihood that we might see dividend increase when you report Q3 results?

[Luke Gould, Executive VP & CFO]

Go ahead, James.

[James O'Sullivan, President, CEO & Director]

No, Luke, go ahead.

[Luke Gould, Executive VP & CFO]

Thanks, James. I was just going to remind Geoff, when you look at our earnings, the [indiscernible] was about 70% of cash earnings. And so I'd remind we equity account for our investments in China and Great-West Lifeco. And we then obviously receive the dividends from them. So that's part of the reconciliation between reported earnings and cash earnings. We also pay sales commission, and we capitalize an amortized component. So our lens first and foremost, is on cash earnings. We're about 70%. But as you highlight, earnings are growing at a healthy rate, and we will be reevaluating the dividend on an ongoing basis. I'd also highlight, we will be evaluating share buybacks as well as other capital deployment opportunities to increase our earnings and create shareholder value.

[James O'Sullivan, President, CEO & Director]

Yes. And Geoff, I would just add, it's James speaking, that I'd like to see us get further through 2021 and frankly, have -- start to have some line of sight on 2022 as we take this conversation and this decision to our Board sometime in the fall.

[Geoffrey Kwan, Analyst]

Okay. And just my other question was on IG Wealth. Given the business has evolved over the years to having much more of, I would say, a comprehensive full-service platform and the greater capabilities along with that, when you bring in the new clients and they've got x amount of client assets in things like stocks or non-IG wealth mutual funds, ETFs, those sorts of things. Is the goal to migrate most or all of it into IG Wealth mutual fund product, assuming it's consistent with their financial plan? And if so, how long does this transition kind of take to migrate those assets over?

[Damon Murchison, President & CEO of IG Wealth Management]

Yes, it's Damon here. So yes, when we bring in a new client and they have individual securities or third-party assets, ultimately, what's going to drive those decisions is what's in the best interest of the client. And you mention it in terms of, I'll say, as long as you execute the financial plan, then we're comfortable. Because the financial plan ultimately is going to determine where -- how the client should be invested. Generally speaking though, because we are focused on more mass affluent and high net worth clients, you're dealing with larger accounts and you're dealing with a lot of nonregistered accounts. So when you're dealing with nonregistered accounts, a lot of times you're dealing with embedded capital gains. So a lot of times, it takes a little bit longer for any transition to take place. And those transitions generally would take place more than not towards the end of the year in a lot of situations for nonregistered. So in terms of guidance that I would provide, I would say, our advisers are always focused on doing what's in the best interest of their clients. There are significant advantages of leveraging our well-constructed managed solutions because it frees them up to spend time with the clients and focus on the planning and solving complex issues. And where that makes sense for the client, then that's exactly what we do.

[Operator]

The next question is from Gary Ho from Desjardins Capital Markets.

[Gary Ho, Analyst]

First question is for James, just on the capital redeployment opportunities, just a 2-part question. Of the $583 million of unallocated capital, how much would you typically want to hold back and what portion is truly unencumbered? And then if you can elaborate on the potential M&A angle, anything that's missing on the IGM product shelf that would be of interest from an M&A standpoint or any other strategic investments you'll be looking at?

[James O'Sullivan, President, CEO & Director]

Sorry. Thanks, Gary. Well, look, with respect to the surplus capital, it is -- we call it unallocated capital. It's truly surplus. So there is a set aside for next quarter's dividend. So there's a degree of conservatism embedded in our definition of unallocated capital that I think is important to bear in mind. So in theory, given how we calculate unallocated capital, we could choose to deploy it all. Bearing in mind that we have -- I would describe as a significant amount of senior debt capacity if we ever chose to exercise that as well. So that's -- I view the full almost $600 million as potentially capital that we can do something good with for our shareholders. To your question on M&A, Gary, I'd say this. We -- if the world is reflating, if market confidence hangs together here, we could be in for an active M&A environment in both wealth management and asset management. And we would be interested in participating sensibly in that environment. So when I think about wealth management, I think I've said before, and I'll reiterate that we're particularly interested in the high net worth and ultra-high net worth segments in Canada. There's a resiliency and stability, I would say, to wealth earnings that we think is very strong and very appealing. But obviously, it would have to make sense. And on asset management, we view that as inherently a global business. So strengthening capabilities, where it makes sense. Barry has spoken in the past about his 5 growth levers, and he always wants to have a really good category of growth levers that are forward-looking and put us on our front foot. So that's potentially of interest too. I think maybe, Gary, the most important thing I can say to you is this. This management team genuinely believes that the path to a higher share price for IGM is through higher earnings. So that's our guidepost. That's our North Star as we think about kind of our strong financial position as we think about surplus capital. We're very mindful that to improve the share price over time, we have to grow earnings.

[Gary Ho, Analyst]

Okay, great. Second question, for Barry. Just want to dig into the Greenchip and Northleaf a little bit. Another strong net inflow at Greenchip. What's the capacity on that platform? How big can that grow? And then on the Northleaf side, of the $1.7 billion in commitment, can you maybe quantify how much of that was IG and Great West?

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

Thanks, Gary. It's Barry. Yes, Greenchip is -- continues to sell very well. And as you know, there's really a strong interest. We think this is sustainable interest in Canadian retail and global institutional, by the way, in the area of thematic environmental global equity offerings. And we actually have started down the path of also looking for select opportunities for Greenchip institutionally, particularly outside of Canada, where they themselves before being acquired by us had, for over a decade, had good dialogues with institutional consultants and institutional investors but maybe some hesitancy of them to give money to such a small firm. Now, of course, being part of Mackenzie, we're seeing those clients coming in. We picked up 6 or 7, by the way, about $5 million on average in each smaller accounts. So it's going to sell well going forward, both retail and institutional, still bringing in $3 million, $4 million a day in Canadian retail. Capacity is fine. The -- it is an all-cap strategy, actually surprising in a growth area, but the value style, a bit of a dichotomy there. But the Greenchip style is all cap. And at times, if they're still a focus with value on small to mid, of course, they get -- they might have to watch their capacity a few years out. But they basically are all cap. And right now, they're focusing on all capitalization -- the entire capitalization spectrum. So no capacity constraints at all. In fact, similar to what we did with Phil Taller's growth team last year, where we launched a second version of his U.S. growth SMid-cap to more larger capitalization pure mid-cap. The Greenchip balanced fund that we launched, embedded in that on the equity side is a larger cap version of Greenchip. So we've got lots of capacity and lots of runway there. So we're very pleased to make that second flavor, so to speak, come to life. Northleaf, the -- again, the $1.7 billion, about $400 million from IG and Great-West Life. So well over $1 billion, $1.3 billion-ish is external. And what we're very pleased with as well, and obviously, we dialogue with them on a regular basis, James, and Luke and myself, is that the new wins are some from existing clients in Canada institutional and just shows you the confidence they have. This is an incredible firm, and they have -- most of their clients have multiple [ band dates ] with Northleaf. So -- The new wins are from existing clients in Canada, some new clients in Canada, and new institutional clients outside of Canada, which is part of their strategy to more globalize their distribution. And it's across all 3 of their major categories and strategies, private credit, private equity and infrastructure. So really a broad array of sales, fundraising last quarter, $1.7 billion, again, that's quite outstanding, given their total AUM base of $15 billion, and we continue to expect exciting things in the quarters to come.

[Gary Ho, Analyst]

Perfect, Barry. And then last question, Luke, just on the updated expense guidance. I think one of the bigger changes, as you mentioned is the biz dev expense at Mackenzie. And you're now assuming retail mutual fund net sales of $5 billion. And that's based on solid Mackenzie-specific performance and sales efforts, but also industry tailwinds. If the $5 billion is the bogey for 2021, can you maybe give us a glimpse of how Slide 36 might look for 2022 if net flows stay flat or perhaps maybe decline a little bit?

[Luke Gould, Executive VP & CFO]

That's a great question, Gary. And as Barry might have said in his remarks, and you'll remember for a few quarters ago, we raise the bar every year. So we actually haven't set our bar for 2022 yet. We will be. But that's what you could expect is if things continue at these levels, we'd probably end up with a 2022 forecast that looks very much like our original 2021 guidance. So quite a bit south of where we've actually marked the expense for this year.

[Gary Ho, Analyst]

Sorry, sorry, if the net flows do come off versus the $5 billion, should we see that line, the expense line, decline as well?

[Luke Gould, Executive VP & CFO]

Yes, I'd say 2 things, Gary. So one, during this period, if we're lower than $5 billion, then we'll obviously be lower than the guidance set out on Page 36 on the right, where we've given full year guidance of $95.9 million. If that target is hit, then if we were to -- we would expect to reset the bar. And where we're sitting today, what that would mean is if we continued to expect $5 billion again in 2022, the expense would be lower than 2021 level. We haven't set how much lower. But you could expect if you look at this at Slide 36, something closer to the $81 million to $84 million range as we reset things higher. And again, we reset every year based upon our expectation, but that is our theme is the bar does get raised every year. And we do set it in the context of what we're expecting from the industry and from ourselves at the time.

[Operator]

The next question is from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Maybe I'll just start with IPC. There has been a change in management there recently, and it seems to be one area of your business that's probably lagging in terms of growth relative to your other areas. So what's the plan there in terms of trying to get it, I guess, the performance better and more in line with the rest of your businesses?

[James O'Sullivan, President, CEO & Director]

Yes, sure. Well, -- So yes, Chris Reynolds, one of the founders of IPC, is now the Executive Chair of IPC. And in that role, Chris is going to be very, very focused on adviser recruitment, adviser retention as well as growing the business and kind of developing kind of what I'll call new industrial models or new economic models for the business. So he's going to be active purchasing practices. He's already embarked on something we call the corporate branch model, where we buy books of business and convert those books of businesses to a salary plus bonus model. So he's going to be very involved in the evolution of the business as well as generally with the adviser recruiting, adviser retention. It's a real strength of his. Blaine Shewchuck, of course, moves over as President and CEO of IPC. Blaine is a long-standing IGM officer and employee and he's going to be focused on the operations. And we have confidence in the future of that business. We quite like it. Now as it sits here today, I think it's important to say that IPC represents less than 2% of our earnings. I think it earned about $15 million last year. But what I find appealing about it is it's got $30 billion of assets under administration, and it's a very important participant in that independent space. And so we think we can do a fair bit with it over the coming years. What has impacted performance recently is the council product, the Counsel mutual fund product. That has not performed as well as we would have liked. And so I can assure you that one of the first things Blaine is focused on is addressing that. I'd also point out that we're acknowledged that adviser recruitment can be lumpy. Now it's always going to be lumpy, Graham. That's not going to change. I think that's the nature of that. But I did notice last night as we put out the July results, that July was a good month for IPC, $45 million of net flows, including $15 million of IGM product. So you add it all up, there's work to do to be sure. But we've got Chris Reynolds in a great role. We've got Blaine in a great role. We've got plans for the business as the industry evolves and I think in the fullness of time, you're going to see IPC do a lot more than 2% of our earnings.

[Graham Ryding, Research Analyst of Financial Services]

Perfect. Damon, maybe I'll jump to you. You mentioned that you're in the fourth year of your 5-year road map at IG. Can you just give us some context on what's left in terms of important sort of initiatives to roll out?

[Damon Murchison, President & CEO of IG Wealth Management]

Yes. We are going to continue to work on automation. It's something that we've made significant progress with and it's something that we're looking to finish up this year, particularly suited towards the new client focus reforms. The new client focus reforms really move everything from post-trade to pre-trade and you're trying to navigate. You know your client with -- you know your product with suitability. And the thing that we've done, which I'm so excited about, is that we've embedded compliance in the business process. So through the digitalization and process automation, we are going to be able to free up our advisers to ensure that we're putting our best foot forward as it relates to the client focus reforms. I firmly believe that we're going to have a competitive advantage relative to the rest of the Street in terms of what we're doing there. And then broader, we're focused on automation for our clients and for our operational unit. We're focused on making sure that we elevate our client contact center and our client service department, and then we're going to transfer our infrastructure to the cloud. And a lot of that is going to take place next year.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Perfect. And then maybe one more just for you, Barry. Fund sales have obviously been very strong. We have seen some deterioration in your overall fund performance over like the more recent 1-year period versus your 3- and 5-year periods. Just any concern on your part around fund performance potentially impacting your sales momentum? Or any color or context would be appreciated.

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

Sure. Thanks, good question. No concerns at all. So as you know, we have a multi-boutique model. So we have a variety of different investment styles from the equity side growth, value core, we've got fundamental, we've got quantitative but at any particular time a style could be out of favor, nothing independent of the boutique in terms of applying their [indiscernible]. We have typically, over the years, seen our percent of AUM in 4 and 5 star funds range between 40% and 60%. Right now, we're at 47%, basically the mid-level. So that's within our range. I'd like to highlight 2 or 3 points, I guess, it's an important point. First of all, take Bluewater. Bluewater is just a consistent 5-star performer across all their funds. And there -- and Morningstar funds, as you know, the ratings are a blend of 3-, 5- and 10-year returns. And there, most are in top decile in 3, 5 and 10 years. Their performance has been a little soft last few quarters because, again, their style is growth-oriented, quality-oriented and they also usually avoid resources. And so of course, it's come back now last month or so. But they'll bring in, again, over $1 billion in net mutual fund sales for us, collectively, Bluewater across their mutual funds as they've now done the last 2 or 3 years. So advisers just love them. They're just fantastic. Couple of months -- quarters rather soft performance, no problem at all. But for them, as they get bigger and bigger, of course, they have a couple of quarters of softness that come through the short-term 1-year numbers. We have 14 of our top funds are 4- and 5-star. And so again, they consistently sell long-term performance across all the asset classes. I would like to point out, as I mentioned before, the -- we've done very well also in our new funds. Now as you know, those funds don't have any Morningstar stars because of their 3-year track record. The Greenchip environmental was mentioned already, that's over $1.6 billion. It will hit 3 years in November. We expect a very high rating. Bluewater, global balance, well over $100 million. It will hit 3 years in January, expect a very high rating. Our mid-cap, I mentioned Phil Taller's mid-cap to complement, mid-cap U.S. selling very well, only a year old, no ratings, right? So you can see that the advisers really have confidence in our boutiques that have a sustainable 4- and 5-star. They're very confident in these funds that have no stars because they like the proposition and the process and the teams. And one more point if I could, what I'm very proud of, as you know, we at Mackenzie pride ourselves in selling to the advisers from a solutions perspective, a portfolio construction perspective. A number of our funds that are 3-star sell. Our unconstrained bond, which just was a downgraded from a 4-star or 3-star, arguably miscategorized in high-yield category. There's no category for it. If the -- apparently, it's being worked on to introduce a multi-sector -- global fixed income category, which that's where it should be in. But with high yields and doing so well last [indiscernible] popped down to 3, sells just every day, very, very well. Has nice diversified portfolio and down service protection. Monthly income box, it's 4-star now. Box, between 2, 3, 4 star. It's outcome-oriented, high dip, high yield, high income every month, down to risk protection, advisers love it. One of our top sellers this year. So I think -- and Damon mentioned client reforms, I think you'll see more and more of the advisers talking to and manufacturers being more open to buying outcome-oriented mutual funds irrespective of their stars because they optimize their portfolio construction. So no concerns at all. Our percentage is right in the range of where they normally are, but I did want to highlight also the new funds doing very well as well as some of the income-oriented funds irrespective of their star ratings still selling strongly.

[Operator]

The next question is from Scott Chan from Canaccord Genuity.

[Scott Chan]

Damon, I want to go back to Jeff's question on kind of transfers, and you talked about the nonregistered side, but what about the registered side when a client comes from another institution. Like how -- like what proportion of IG accounts are self-directed versus held at Investors Group? Or like, if you kind of tabulate that at all? Just trying to get a sense on those accounts coming in and kind of the same question as Jeff on the registered side, the ability to migrate it into IG products over time.

[Damon Murchison, President & CEO of IG Wealth Management]

Yes. So I would say that because of our focus on mass affluent and the high net worth, naturally, you're going to see the business gear a little bit more towards nonregistered because that is the pool that you're playing in. Those are the larger accounts in those areas. So I'd say that, that's exactly what's happening with our business, that a greater proportion of our new business is coming from nonregistered TFSA type of accounts versus registered. Registered still remains a big part, though. We've gone unbundled. So in terms of registered, it's all held in our nominee account, either in our IGAA account or our high-profile account. So it's completely self-directed. Obviously, it makes it easier to move registered money because you're not dealing with tax. And with nonregistered, you have to be more thoughtful. But at the end of the day, I think it's important that everyone really thinks in terms of nonregistered. That's not necessarily a bad thing. Even though you have to be more thoughtful and it does take a longer time, it does bring greater opportunity. And that's one of the expertise that we have in our firm is tax planning and tax optimization. And that's why you see the results that you do in terms of our ability to sell IGM product relative to the amount of money that's coming in. I think it brings -- it gives us a tremendous opportunity. Our advisers have bought to the value proposition of selling managed solutions that are well constructed. It frees them up. They're not sacrificing on performance because of the great sub-advisers that we have and all the efforts that we put towards portfolio construction. So you're seeing some significant progress in that area, and I would expect that to continue.

[Scott Chan]

Great. And just on ChinaAMC, the net earnings have been exceptional over the past, I would call it, since you've made the investment, but more particularly over the last couple of years, up 45% year-over-year. What is it in that business, say, relative to an IGM that allows it to have enhanced earnings growth. I'm only asking just to get a sense on kind of the quarterly run rate, which is obviously tracking a lot higher than what we're expecting.

[Luke Gould, Executive VP & CFO]

I'll take this -- sorry, go ahead, Barry.

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

No, Luke, please. I'll jump in afterward, please.

[Luke Gould, Executive VP & CFO]

I was just going to say yes, in the domestic China asset management industry, they're experiencing very, very strong growth in net flows. We expect that to continue. As Barry said in the early part of the presentation, the expectation is for over 15% annual growth in that market, and it is expected to be over half of global flows in the asset management industry in the next 10 years. Much like in the Canadian market, there's a lot of operating leverage in that business. So as AUM grows, you can expect revenue to grow consistent with that, but earnings to be levered. And so when you look at the last 3 or 4 quarters, the growth in earnings that ChinaAMC has experienced of about 30% to 50%, depending on the quarter, there's a big runway in front of us for continued earnings growth from these levels.

[Scott Chan]

And is there like fee compression headwinds like we see in North America? Or that's not the case yet because it's a more infant market?

[Luke Gould, Executive VP & CFO]

It's a competitive market. You can think of it as being competitive with Canada and the U.S. in terms of retail. And I'd say much like our business here, the composition of the clientele has an impact on the overall earnings. And you can see from the slide Barry presented, there's a very diversified asset base there in ChinaAMC where they do have a big focus on retail, and you can see the long-term funds. But they also have a very vibrant institutional business. So that's going to kind of have the biggest impact on the weighted average fee rates in that market. And I would think of it as being very competitive and having margins across the segment as very comparable to Canada.

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

I'll just add to Luke's comments. Spot on. The -- I think it's getting to be a very big market, but obviously, the second largest economy in the world and the market is growing so fast. And yes, there are a lot of foreign players going into China because -- the big players because, obviously, as Luke said, half the growth of the industry in the next few decades will emanate from China. But we just see -- remain so pleased and confident that having a strong minority interest in the preeminent local player is the right strategy because as Luke said, they're multichannel, not just retail, but institutional, online. They've got -- they're developing alternatives, offerings, ChinaAMC. They're just a terrific firm, and it is really early days. I mean there's one stat we were looking at all of us in terms of what the potential growth of this marketplace, no time line, right? But if you look at more developed countries like Canada and U.S. and the ratio of the long-term mutual funds to their gross domestic product, GDP. In Canada, U.S., it's about 100%. And that kind of shows you that the long-term funds divided by GDP, about 100% ratio, right? It's 8%, 8.0%, in China. So it has just enormous run rate, again, as the local Chinese become more comfortable investing into long-term mutual funds, the 3-pillar system, which is just starting. Their social security system is up and running, but has a long ways to go. Their corporate pension system is up and running, but it's really early. And their third pillar, RSP pillar just nascent. So the run rate is enormous. Obviously, looks -- a lot of players there, competitive, right, it should be, why wouldn't it be? But again, those local players, like a ChinaAMC, we feel have really key competitive advantages for years to come over the -- the new [ foreign fares ] coming in.

[Scott Chan]

Good. And just on the strategic investment side, if I kind of look at the quarter-over-quarter change, is it fair to say the unallocated capital increase that doubled was mostly from the Wealthsimple, your portion of the Wealthsimple sale in Q2?

[Luke Gould, Executive VP & CFO]

Yes, that's correct. That was the biggest part of the increase.

[Scott Chan]

Okay. And just lastly, I haven't seen it yet. On the NCIB, did you buy back any stock in the quarter or if anything, Q2 to date at all?

[Luke Gould, Executive VP & CFO]

No, we didn't.

[Operator]

[Operator Instructions] The next question is from Jaeme Gloyn from National Bank Financial.

[Jaeme Gloyn, Analyst]

First question for Luke on the business development expenses. Just want to get a sense as to the cadence as we approach that guidance for the full year. I think it's pretty clear on that front. Just wondering if -- seems like there was a bigger accrual this quarter. Does that suggest there's a step-down next quarter? Or is it more of a straight-line approach to that full year guidance?

[Luke Gould, Executive VP & CFO]

Yes. Great question, Jaeme. So you're right, there was a catch-up in Q2. And so right now, we've given the full year expense if things track towards $5 billion. And obviously, if we assess in Q3, and there is some stalling of sales, we could change the accrual the other way to get something that reflects the expectation at that time. So the best that you should think about it is we actually did have a catch-up because of the great momentum that Mackenzie had in Q2. And you can see that extra $5 million that came in. And then we're going to track towards the full year number for the remainder of the year, assuming we trend towards $5 billion.

[Jaeme Gloyn, Analyst]

Okay. Got it. And then second question for James or Damon, I guess. As we see the release from the federal government on open banking and I'm thinking about your fintech platforms as well as some of the other financial planning services that IG Wealth is providing. Do you have any comments on the initial views on how that can support, enhance, drive further growth for the business?

[James O'Sullivan, President, CEO & Director]

Well, I would, Jaeme, I would just say in respect of that, that we participate very, very actively as you know, in the broader power ecosystem of fintech. And when you look at the full range of companies that are in that ecosystem and the number of companies that we have an opportunity to partner with and indeed have indirect ownership interest in. I can say that we will absolutely participate in the evolution of this industry. We'll participate in a way that benefits our shareholders. But as importantly or more importantly, we'll participate in a way that benefits our clients. And I think we're seeing that in our current relationship with Wealthsimple. We see it in our current relationship with Conquest. And frankly, we're in discussions with other companies in that ecosystem and in the fullness of time, we view all of that as being quite shareholder and client-friendly.

[Operator]

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

[Keith Potter, Head of Investor Relations & Treasurer]

Yes. Thank you for joining us on the call. We know it's one of the busiest days of the year. We hope you enjoy the upcoming weekend and the remaining days this summer. And with that, we'll close up the call. Thanks, everybody.

[Operator]

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