Power Corporation of Canada

TSX:POW

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Power Corporation of Canada's First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Mr. Jeffrey Orr, President and Chief Executive Officer. Thank you. Please go ahead, sir.

[Robert Jeffrey Orr, President, CEO & Director]

Thank you, operator, and welcome, ladies and gentlemen, to Power Corporation's first quarterly analyst and investor call. It's our pleasure to be here with you, and thank you for joining us. This is part of our ongoing efforts to enhance our communication and our investor relations outreach generally. So we're really pleased to kick this off with this first call. You've got on the next slide, the typical disclaimer in terms of forward-looking statements, statements about COVID-19 and non-IFRS measures. You can read that at your leisure. So today, joining me on the call is Greg Tretiak, Executive Vice President and Chief Financial Officer of Power Corporation. The 2 of us are together in Montreal, but you'd be pleased to know we are a suitable distance away from each other. Also on the phone is Jocelyn Lefebvre. He is joining us from France in the early evening there. Thank you, Jocelyn. Jocelyn is Vice Chairman of Pargesa Holdings. He is also a Director of Groupe Bruxelles Lambert, which is GBL; and he is the founder and the person who's driven the growth of Sagard Europe, our private equity business in Europe for the past 20 years. And he won't be making comments during the presentation, but depending on the questions that we may have, he's available for questions. I'm going to then turn quickly to the Q1 highlights. And on the page in front of you, which is Page 6, is to point out that Great-West Lifeco, IGM, Pargesa and GBL, of course, all being public companies have had their quarterly results released last week. They've each got their own investor relations programs. Great-West and IGM have their own conference calls following their releases. It's not our intention in today's presentation to focus on our public companies. We -- they -- we're not trying to duplicate the work that they have done and the disclosure they've already made. We're going to be focusing rather on what's going on at Power, other assets, our strategy overall. That's not to say we wouldn't entertain questions on Great-West Life or IGM. Depending on the specificity, we might refer you back to their management. But really, the point of our calls here is to augment and add to what our public operating companies are already doing, not duplicated. So having said that, I'll move on to the next page, which is Page 7, and just talk about the quarter. It was obviously a very different quarter with lots of events. We started the quarter off very much focused on the reorganization and on the vote, and that reorganization that was announced in December was completed on February 13. We then tried to follow up quickly with one of the elements that we talked about in the reorganization. We launched our normal course issuer bid. Not long after that, we followed up the Power Financial/Power Corp. reorganization announcement with another announcement intended to simplify the structure of the Power Group by the Pargesa and GBL reorganization. And by the time we got to that announcement, we were well into COVID-19 and the -- and it's starting to impact financial markets and, in fact, coincidentally have the same day the World Health Organization declared a global pandemic on that day. So just everything kind of changing as we tailed off in the quarter. And then -- and as I mentioned last week, we had the public company's report and also talked about some of the impacts of COVID-19. So that's the high level on what was an incredibly busy quarter and to talk about the financial highlights themselves, I'm going to turn it over to Greg Tretiak.

[Gregory Dennis Tretiak, Executive VP & CFO]

Thanks, Jeff. Good afternoon. I'm on Page 8. And hopefully, you can hear me clearly. Starting off with earnings, net earnings per share of $0.36 compared to $0.63 in Q1 2019 certainly reflects the impact of the COVID-19 crisis across our group of companies. Then adjusted earnings, adjusted earnings per share is $0.62 per share in the quarter compared with $0.54. The difference between net and adjusted is entirely the COVID-related reserve strengthening or at least our share of it that was done at Great-West Life when they announced their results in the quarter. You're, of course, aware that the Board of Directors have now declared the quarterly dividend of $0.4475, which is up 10.5% from last year, and you also recall that we advanced the payment dates by 2 months in the year. I'll go to Page 9. On Page 9, you can see our adjusted earnings and our net earnings here itemized. Adjusted was -- EPS was up 14.8% driven by increased contributions from Pargesa. You'll see it there were $0.08 in the quarter, their contribution. They sold their remaining position in Total at GBL, and that contributed almost $70 million gross to PCC in the quarter. The second item driving the increase was the contribution from our investment platforms. The -- we got $0.05 from the investment platforms versus a loss of $0.04 in the prior period, basically from 2 places: Power Pacific, which realized gains on its A Share -- China A-share portfolio and also in Sagard Europe on the sale of one of its portfolio investments in the quarter. When we -- when we're looking at the results for the quarter, I just remind people who are on the line that we issued a number of shares in connection with the reorganization, and so our average share count is at the bottom of the table. And you can see 560 during the quarter versus 466. So just when you're trying to interpret results, keep that in mind. I'd also point you to the highlighted in blue here, the actuarial assumptions and the market-related impacts, which I had said on the previous page driven by COVID-19 impact in its entirety, quite frankly. Lifeco introduced the concept of base earnings, which is basically adjusted net earnings for us. And those 2 adjustments are actuarial assumptions and market-related impacts. And this is, generally speaking, consistent with industry practice. And just wanted to make sure that everybody focused on those and understood those adjustments since they were just adopted in this quarter. With that, I go to Page 10. In Page 10 -- or on Page 10, I should say, we have the PCC, NAV and discount. Draw your attention to the dark blue line and how it's traveled since December 15 to today, quite frankly. And during the period from beginning of 2015 to the end of 2019, the discount averaged 34%. In the -- once the transaction was announced, the reorganization was announced. The dividend decreased, decreased to 21%. However, as we all know, in a matter of days after that, COVID-19 emerged as a full-blown crisis, and the markets reacted and so did the discounts globally at many holding companies. And when I look at the call-out, I should point you to the call-out, I should say, you can see the positive market reaction to the announcement and then on the close when it dropped to 21% prior to, as I said, COVID-19 becoming a new reality. With that, I turn it back to Jeff.

[Robert Jeffrey Orr, President, CEO & Director]

Thank you, Greg. So I'm on Page 11. Just a [ worry ] about the group's responses to COVID-19, like many other companies and certainly many other financial institutions, we were really consumed with it from an operational point of view. And the first order of business was making sure our employees were safe, and we really undertook a very rapid transition to a work-from-home mode or to a work-from-home mode, which was accomplished over the course of a couple of weeks. I think across most of our businesses, we're at 98% or 99% working from home. You think about some of the sizes of our businesses. We've got call centers with hundreds and hundreds of people in them. And even our call centers are functioning at home. This is something that would not have been possible 2 years ago. But a lot of the investments we've been making in digitalization allowed it. And then, of course, like many other companies, digitalization adoption has just been forced to be picked up by all of our people, including our advisers as a consequence. But lots of focus there. On the middle column, clients, we really -- the service levels are up. We haven't had a deterioration. Our advisers, both those that are associated with our group and those that are third-party advisers have been active with their clients. So it's been really wonderful to see. Our groups also, as many other companies, are very involved in our communities, and we spent a lot of time focusing on how we can help the situation not just in Canada but where we operate elsewhere both with our money and, in many cases, with people's time, and we continue to be focused on that. So it's been very, very consuming for us and for all of our management teams and like to thank all our people and our employees for the efforts that they've made. I'll turn then to Page 12. We go into the COVID-19, both at Power Corp. and within our group companies, in a very strong position. Our companies right across the board are well capitalized. We have strong liquidity. You see some of the numbers there for Power Corp. itself. There's no material debt maturities coming up at Power for many, many years and at our holding companies -- or excuse me, our operating companies. Their debt structures are well -- very long debt structures, nothing coming up in the upcoming years. We did suspend the NCIB program at the end of March in light of the market activity. We've got a conservative, prudent approach to risk management, which has served us well. And so under the circumstances, we did stop that program, and it's just -- we're continuing to look at it, but it's not active at this point. So go into this the COVID-19 situation in a very, very strong position. Page 13, I'm going to turn that and say that while we spend a lot of time adjusting to COVID-19, it doesn't mean that we haven't spent most of our time focusing on looking forward. And our strategy and working on putting our strategy in place remains our -- where we spend a lot of energy. This is a repeat slide, not exactly, but it's almost a direct reprint from a slide that we had in our December 13 deck when we announced the reorganization. And as we went out and spoke to many investors in the following weeks and months, the slide was -- these points were made. And all of the benefits we believe from the reorganization are still there, having -- many have been realized, but many that are going to keep us busy for the upcoming several years. With that, I'll turn to Page 14 and just do a bit of a scorecard on some of the things we announced in our December '19 announcement and just going through it quickly, the transaction was approved. The Desmarais family did invest as part of the reorganization and purchased $6 million participating preferred shares. Paul and André stepped down in their roles, and they're continuing -- step down of the role as CEO and are continuing as Chairman and Deputy Chairman. I became CEO effective on February 13. I don't want to put a stock card up in terms of my couple of months of tenure as CEO. I think that was just about the peak of the market. But anyway, that change was made. We talked about the dividend already and the buyback, purchased 7.4 million shares. Today's announcement is a further step on our investor relations, and our call here is a further step in our investor relations plans. We are working on our plan to reduce our expenses by $50 million, and we've been very busy on our strategy going forward to refine our strategy into being focused on financial services. I think on Page 15, I've made just about all of the points already on that page. We did, at the annual meeting this morning, approve cash-settled TSARs for the option program, which makes it a little bit more efficient from a cash point of view in terms of the amount of funds you need to use from an NCIB to neutralize the effect of option grants. So that point is there for you to take note of. On Page 16, I mentioned we've got about 35% of our targeted $50 million already done, and we don't see any reason why we won't achieve that within the time period that we stated when we announced the reorganization. I'm going to turn then as we turn to Page 17 and pass it back to Greg to describe the announcement that we did on March 11 with respect to reorganizing Pargesa and GBL. Greg?

[Gregory Dennis Tretiak, Executive VP & CFO]

Certainly. Thank you, Jeff. For those of you on the call, Parjointco, which announced the transaction and is jointly owned by the Desmarais and Frere families. And that transaction was announced in March, an offer of 0.93 GBL share for each Pargesa share held. Our colleague, Jocelyn, on the phone is -- has overseen this project. And at this point, the transaction is subject to the acceptance of the Pargesa shareholders representing at least 90% of the vote. And it is expected upon that hurdle being crossed that the transaction will close some time in the fourth quarter of 2020. The proposed transaction is going to deliver significant benefits, including 16% implied premium. In addition to that, the elimination of the dual holdco structure, of course, and double-digit dividend per share accretion and an increased flow.I'll go to Page 18. And here, we have a pictorial of the current structure and the simplified pro forma. And post the completion of the transaction, we certainly will have simplified the structure significantly as you can see in the right panel here. And you'll see our interest of 28% there. Along with that interest, we'll have that economic interest. We will have a de facto control position with approximately 43% of voting interest. And now I will go to Slide 19, which again, is a bit of a setup and a refresher for those on the phone to familiarize themselves with about what is in the portfolio. And certainly, Jocelyn can add some color to any questions you might have on that portfolio, but I would say that Ian Gallienne and his team have made significant changes to the historical composition of this portfolio. The last energy holding was sold, as I mentioned earlier on, in January, the Total position. And certainly, it is a ESG-conscious portfolio, as you can see from the holdings. With that, I would turn it back to you, Jeff.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Greg, thank you. So moving right along here to Page 20. You can see that in the last couple of quarters, with the reorganization that we announced regarding Power Financial and Power Corp. and then the Pargesa/GBL reorganization, we will have succeeded in simplifying the corporate structure of Power Corp. quite significantly. So we're very pleased with that and all part of our ongoing strategy to make the company easier to understand and value, and these were a couple of important steps. Then I'll move along to another important step, which is of the development of our investment platforms. So I'll turn you to Page 21. I've got a couple of slides on our investment platforms. So they operate in different asset classes, and the principles along the top of this Page 21 are the key. We're going to be operating where we think we can create a competitive advantage, where we can raise third-party capital, where we do have an objective to be profitable as an asset manager at the GP level, if I can use that term, within a reasonable time period and increase the returns we have on our seed capital. And then we're also looking to realize synergies with our operating companies, both for the distribution to their clients and for their own balance sheet needs. The platforms are organized into 2 groups, Sagard Holdings, which has a multi-strategy alternative asset manager, and I will talk a bit about that on the next page; as well as Sagard Europe, which I mentioned earlier, Jocelyn Lefebvre has built that European mid-cap private equity business. And Paul III -- Paul Desmarais III is overall looking after Sagard Holdings. Power Sustainable Capital is Power Pacific and Power Energy. So Power Pacific is our team in China. They've been managing 100% Power Capital -- Power's own capital, and that goes back to, I think, about 2005 or '06. I may have that wrong. When we initially got a QFII license, we got about $700 million of our money. We didn't put anywhere near that amount in. They've had a great long-term track record. And then Power Energy, which we've been at for almost a decade, with a very experienced team and good assets there. So -- and that Olivier Desmarais is -- son of Andre, is overall looking after Power Sustainable Capital. So our alternative asset businesses are laid out in these 2 groups. And I flip over to the next page, essentially, you've got currently $3.7 billion in AUM in those platforms and another $1.9 billion, which is not in -- under management at this point but which is committed by investors to go into the funds. Of the existing $3.7 billion, you see in the bullet at the top of the page, $2.1 billion is Power's own capital. Of the $1.9 billion that is in unfunded commitments, 3/4 of it is coming from third party. And so there's -- it's a minority of Power Corp.'s capital. And you see a breakdown of that on the right-hand side -- lower right-hand side. As you go through Sagard Holdings, Sagard Europe, the private equity business in Europe, you can see in the dark blue at the bottom is Power Corp.'s own capital, and then the lighter blue is other People's capital. Same thing with Sagard Credit; Portag3, our fintech venture; and Sagard Healthcare Royalty, those are majority third-party capital. The numbers look small for Portag3 and Sagard Healthcare that there's far greater commitments in those. So those are what's been invested to date, but the investor commitments are larger than the amounts shown there. And then Power Sustainable Capital, which was really part of our diversification strategy in asset classes, we felt we had great teams and a reason to win in. Those are all -- it's all Power Corp. money. A lot of the work in the last 3, 4 months has been to reorient those teams and focus on a strategy to have their businesses be much more growing based upon third-party capital and freeing up some of the capital that Power Corp. has underneath it. So the important part of the future, our alternative asset management platform, so we're spending a lot of time and energy ensuring that they continue to grow and succeed. I'll just finish up with a quick couple of quick slides just to complete the story on our assets. China AMC, we own 13.8% of that company, as does IGM, and they continue to be very successful. The China equity market has done well by the way. And this company continues to succeed, and they have grown their assets under management, and they actually had a very strong first quarter. Business is going very well. We're very pleased with our position in China AMC. And flipping forward to Page 24. We also have just to complete the portfolio of stand-alone businesses. And these are strong businesses, strong management teams. We've got good partnerships with the people that are in these businesses. They're not -- stand-alone businesses are not part of the strategy going forward, and we will be looking to realize value over time with these businesses. But we're very pleased with our partnerships with the entrepreneurs who are running them. And we have, as you see at the bottom of the page, about $660 million of our NAV is tied up in these businesses. So that's a quick run-through of our business, and the presentation and is summarized on Page 25. So we have been very focused on COVID-19 but still focused on moving it forward, busy on the Pargesa/GBL restructuring and continuing to develop our strategy going forward. Just before I open up for questions, a technical note on Page 26, you may not care, but you -- but just so that we can generally make it aware that there was a tax filing that people were being asked to do in the context of the reorganization. It originally had a June 13 date on it. Unlike many things with respect to taxes and COVID-19, that's been extended to October 31. So just so you have it, use this occasion to let people know. And with that, operator, I'm going to finish the -- that's the formal part of the presentation over, and we would now be pleased to open up the microphones for questions.

[Operator]

[Operator Instructions] Your first question comes from Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question was, if we look back at the past year and a bit, Great-West sold off the U.S. life business. They were the substantial issuer bids, collapsed the structure between Power fin and now trying to do that with Pargesa. But looking forward, how would you describe the opportunities to further simplify the structure, surface value, free up trapped capital within the complex and kind of the timing and complexity of doing that?

[Robert Jeffrey Orr, President, CEO & Director]

Thank you, Geoff, and thanks for your question. So I could answer that question. First of all, from a Power Corporation point of view, and it -- we have collapsed the structure. So simplification at the Power level is probably done. But realizing value both from a realization point of view and communicating value are 2 different things, and there's lots of opportunities for us to do that. So if you think about what we've really announced, by focusing our investment platforms on third-party capital, what we're really saying is we're trying to grow our earnings, get a good return on the seed capital but not put as much capital into those platforms and free some of that capital up, hopefully, to distribute to shareholders. And with respect to looking at the stand-alone businesses, well, we're going to be smart about how we realize and when we realize value. That's not part of the strategy is going long term. So there's an opportunity at Power Corp. to transition to a simpler business model, a simpler business model to understand in a lighter capital model that hopefully has higher returns. So that's what the game plan is. And then up to us to be able to effectively communicate that to the analyst community, the investor community and show how we are thinking about creating value and hopefully, demonstrating that as we move forward. And I think that the time line for that can happen over the next couple of years. I think COVID-19 and the financial markets obviously put some strain on that. If you're out trying to raise third-party capital in your alternative asset funds, you're ultimately trying to dispose of some businesses, the current environment is not conducive to that. So there, you could certainly say the environment might delay the timing somewhat. We'll just see how all things unravel here or unfold here. But it doesn't, in any way, change our strategy or our optimism on our ability to effect the strategy. The final thing I'll say in answering your question is from the Great-West Life, IGM, GBL perspective, I think they communicate their strategy. They're engaging in their strategy, and there's continued efforts to try and explain to the market more effectively where they see value creation. And we still got some work to do there. And that -- but that is very much a work in progress. But hopefully, that adds to value as well. If you remember in the presentations we made to -- as we went around with respect to the reorganization, and we did it at our AGM, I'm sure you were all listening attentively this morning. We have 3 levers that we're really looking at. The first lever is the operating companies, the public companies, with their own organic growth strategies. The second lever is at the operating companies using M&A, be it making acquisitions or selling assets, we don't think have a return potential like the U.S. Life Insurance business. And the third lever is what we can do at the holding company levers -- level, excuse me, which are the things that we're just talking about here with the reorganization. So we're pulling on all 3 levers, Geoff, and hopefully, we're -- that is going to translate into very good value creation.

[Geoffrey Kwan, Analyst]

Okay. And then there's been some discussions regarding European regulators that they might look to limit the insurer ability to pay dividends and, therefore, it would have an impact on Great-West. From your perspective, not being an officer of Great-West, that you're being on the Board and Power being the controlling shareholder, like how do you think about their ability to handle if there is a ban on dividends coming out of Europe and if it happens? But also from the Power Corp. level, how we should think about the resources that you have to handle if there is a temporary cash flow disruption to pay your dividend if Great-West were needed to reduce theirs. Now you mentioned the liquidity early in your presentation, but I don't know if you kind of have a base level of liquidity that you'd like to not want to go below.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So a good question, obviously very topical. I'll start where you started with the regulatory environment with respect to Great-West. No regulators, with the exception of the Central Bank of Ireland, have said anything to say you can't pay dividends. Central Bank of Ireland has said that. It's not a material part of our operations. It's a good part, but it's not material in the overall scheme of things for Great-West. Other regulators -- all regulators have been in touch with financial institutions to say, "Be careful and be prudent." [ They ] certainly said they don't want to see buybacks or dividend increases, but we haven't had any regulators come right out and say they don't want to have us pay dividends. The EIOPA, which is the international insurance body is not a regulator that regulates our businesses. It's an influencer, and they did come out and make a statement, which a lot of people paid attention to from the financial markets, but the insurance companies haven't followed that where we operate. So they came out and said, "You shouldn't be paying dividends." I'm not aware of a single U.K. company that has followed it. There might be somebody. I don't want to make that blanket statement, but the major companies have not followed it. It was a suggestion, if you will. The regulator there is the PRA, Prudential Regulatory Authority (sic) [ Prudential Regulation Authority ], and they have not put a ban on dividend. So just to get it straight, at this point, we don't have a situation with the regulators where they're preventing dividends. From a Power Corp. perspective, if in the future, the circumstances were to deteriorate in a material way financially and economically such that Great-West Life had to take action or IGM had to take action or anywhere else or the regulators change their stance and we ended up at the Power Corp. level with a diminution of the dividend stream we get from the subs, we'd look at that situation and deal with it at the time. We certainly have a lot of liquidity to deal with it. If it were for a short period of time, if we thought it was going to be for an extended period of time, like a few years, and it was material, then we would be looking at our cash resources and our other assets. But the Board, I'm sure, would be looking at our dividend in that circumstance. But it's hard for me, Geoff, to get into speculating in hypothetical situations as to when we would or when we wouldn't. I mean the Board would look at it in the future at that time. There's nothing I see today as we speak that causes me concern that under the current circumstances, we're going to have any of those issues. But it's really hard for me to speculate about what circumstances in the future might give rise to the Board changing their position on that. I don't know if that answers your question or not.

[Geoffrey Kwan, Analyst]

No. No, that's helpful to kind of get a better sense of how you're thinking about it. And just my last question was going back to when you did the announcement about collapsing the structure, there was, I think, an intent at the time to repurchase some of your preferred shares. Is that still the plan? Or has what's happened with the markets in COVID-19 altered your thinking around that?

[Robert Jeffrey Orr, President, CEO & Director]

Yes, it's still the plan. But what's happening with COVID-19, we're not jumping on that rate at this point. It's something we need to focus on. But that is still the intent to execute on that. But at this point, we're quite cautious of what's going on in the markets and are -- and being prudent with our liquidity.

[Operator]

Your next question comes from Tom MacKinnon from BMO Capital Market.

[Tom MacKinnon, MD & Analyst]

Two questions, maybe the first one, perhaps for Jeff. When you had talked about the -- when you collapsed the structure, you talked about a corporate strategy that emphasized financial services. And it seemed to be that you're going to sharpen your focus here that was through building up some of the financial services assets you had, maybe some capital raises there, but also looking to divest some of the -- some, we'll call them noncore, some stand-alone assets as well that weren't financial services assets. So maybe you can say that you're -- to some extent, you shrink your way into being a sharper focus on financial services. What about trying to grow your way into financial services by just -- especially in this COVID environment, perhaps there are some assets out there that could look attractive, just given the volatility we see in the market. I mean strategies sometimes have to change to some extent as the markets change. Have you -- is that still -- is that in the cards at all? Or what are your comments with respect to that? And then -- and maybe you can also elaborate it on how you view trying to perhaps sell some other stand-alone assets that aren't financial services in this environment?

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Good question. Thank you, Tom. In terms of your comment on our basic strategy, I wouldn't say it's shrinking our way to financial services. I would never put that tagline on it, and I'll keep you out of our marketing department. The -- what I would say is the following is that we, I think, at Power Corp. in order to create value at the Power Corp. level -- I'm not talking about Great-West Life and IGM, et cetera. At the Power Corp. level, in order to be successful, I think we need to be much more focused. And in order to be able to translate and articulate our strategy in a way the market understands and values, we need to be much more focused. So the alternative asset management platforms, which were in many cases, built for diversification purposes are now being retuned into being alternative asset management businesses. And I think that it means we'll have a lighter capital commitment to them and still grow our earnings. If they're very successful, we'll still be putting seed capital into them, and we expect them to be a source of growth as we move forward. It's not a shrinking. There may be some initial capital taken out as third-party investors come in on the -- in particular, on the Power Sustainable Capital side. But the intent is that if we're successful, those will grow and have new strategies, and we'll be growing our earnings and putting more seed capital into them. The other -- and that is it at Power Corp. I wasn't sure if you were trying to jump in there. The -- I heard something on the line. So that's it at Power Corp. I'll come back to your last part of the question on the other assets. Now to your second part of your question about taking advantage of the situation and that being a switch in our strategy, I would see that -- where that would play itself out is, in fact, through the -- our operating businesses, the public companies and in our asset management platforms at Power. In other words, that's not -- it's -- Great-West Life or IGM, when they are in the market, they're looking at various acquisition targets. And they are very much of a mindset that if we can take advantage of the situation and acquire some assets that we've been eyeing and looking for it, if we can do that, we'll very much be trying to do that. So very much along your point. And within the asset management platforms at Power itself, I -- they've got funding and they've got commitments. And I have no doubt they'll be looking at this opportunity to see if they can't acquire more assets at attractive prices and take advantage of the situation. So there's not contradictory to what you're saying. We are very much on point and very much aligned with what you're saying. The other assets -- the last part of your question, the other assets at Power that are not on strategy, I think we're trying to walk a fine line there. We have good businesses, good partners, and we want to continue -- we don't want to do anything that hurts the value of those businesses as they pursue their growth strategies, but we will be looking to -- ultimately to realize value for them over the next few years. I think COVID-19 on that and the financial markets, that regard probably slows us down a bit, right, because you've got markets that are dislodged and less healthy situations, if that's what you're trying to do. I don't know if that answers your question. I think I answered all the points you had but please follow up if you don't think I did.

[Tom MacKinnon, MD & Analyst]

No, that was good. And maybe as a follow-up for Greg. Pargesa, they report under IFRS 9, and then you flipped the results into IAS 39. I was -- when is the Power Corporation going to adopt IFRS 9? And why hasn't it?

[Gregory Dennis Tretiak, Executive VP & CFO]

Good question, Tom, technical in nature for sure. But the adoption by Power Corp. will happen when Lifeco adopts it. And as you may know, the insurance company has got to buy on adopting it. And given that it's going to be a much more complicated issue at the insurance companies, generally speaking. And of course, a bigger component of our earnings are driven by Lifeco currently. The decision was made, we'll wait and we'll adopt when Lifeco does. So that's the reason. The second question of when, that's a good question. I mean I don't know about 39 because it may indeed change in terms of its timing because it was tied to IS 17, and IS 17 has got deferred and COVID is affecting that. And so your guess is as good as mine as when that might happen. It was originally scheduled, I think, for '23. So it's not that far away, but that will be dependent upon how that plays out.

[Tom MacKinnon, MD & Analyst]

What, in your opinion, is a better way to value the investment in Pargesa? Under IFRS 9 or under IFRS 39?

[Gregory Dennis Tretiak, Executive VP & CFO]

I think you have to look at both, quite frankly. And it depends on where you see the most value emerging. If you see it through the capital appreciation or through dividends, both those views, I think, are important. And certainly, the way we report today, I think you get a better view on the movements of the gains and, if you will, on the portfolio than you do under 39. But Jocelyn's on the line, and he may have a view and another view from a European point of view, which, quite frankly, is an important point of view. Because the -- certainly, as it comes to the NAV valuation on our stock, that component of it, it will be driven by how it's first interpreted by the European. So Jocelyn?

[Jocelyn Lefebvre, Independent Vice]

So no, I'm not familiar with North American accounting rules. But the IFRS 9 doesn't have any impact on NAV. I would say at Pargesa and GBL level, we're looking at 2 basic things: first NAV, and there, the accounting IFRS 9 doesn't have any impact. And we're looking also at cash earnings, which is an income statement we've got in Europe, so really cash on cash. And the frustration, I can have as an executive in the European Group is that with the IFRS 9, sometimes like we spoke about Sagard. They just sold an investment in March. Well, the nice profit which was significant on that investment on that sale is not coming to the result. It goes directly into the equity account. So I think nothing is perfect.

[Gregory Dennis Tretiak, Executive VP & CFO]

We kind of got the best of both worlds, Tom. As Jocelyn has it going through OCI, and we have it going through -- the profit comes through, of course, in our financial statement.

[Robert Jeffrey Orr, President, CEO & Director]

Are there other questions? Operator? We lost the operator. Just hang on. If you can hear me, ladies and gentlemen, we seem to have lost the operator, which is an unfortunate thing.

[Unknown Executive]

Her audio seem to have cut off. She's just returning to the call right now.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Thank you very much. So just please stand by. If you can all hear us, we're going to get our operator back, and then we can answer your questions. I don't know whether she left because of the length of time that Tom and Greg and Jocelyn spent talking about accounting policies. It's possible that the operator objected to that discussion.

[Gregory Dennis Tretiak, Executive VP & CFO]

So Tom, can you still hear us? Are you still on the line?

[Tom MacKinnon, MD & Analyst]

Yes. Yes. Absolutely. I'm there. I'm there. Unmute.

[Operator]

Excuse me, this is the operator. Can you hear me?

[Robert Jeffrey Orr, President, CEO & Director]

Yes, we can hear you. Thank you, operator.

[Operator]

I'm so sorry about that. Your next question comes from Paul Holden from CIBC.

[Paul David Holden]

I almost dropped off there with the accounting discussion, but I'm still here. Anyway, so I wanted to go back to the comment, Jeff, you made about becoming more capital light. And then I think you put something in there about hopefully returning capital to shareholders. And I don't want to put words in your mouth. I guess I want to understand that last piece of your commentary a little bit better. Is the idea, as you dispose of these investments over time, that you'd be continuing to buy back stock? Am I reading into that correctly?

[Robert Jeffrey Orr, President, CEO & Director]

Yes.

[Paul David Holden]

So having said...

[Robert Jeffrey Orr, President, CEO & Director]

Can I -- Paul, can I just say one thing? As normal, you're going to make decisions in the future. But the plan A would be as we're focusing the Power Corp. corporate balance sheet, but the excess capital that's created would be used to do buybacks. Now if all of a sudden there's a great big acquisition at our sub and Great-West Life needs to raise capital and we've got to put in money to help support that issue, I'm not saying we wouldn't do that. But those things come sporadically, as you know, when they're large acquisitions like that. So our plan A is to continue to return capital.

[Paul David Holden]

Understood. Understood. Yes. So having said that, and I appreciate your comments on being conservative around the current NCIB. But I mean my counter to that would be, there's probably no better time to be purchasing your stock than today. I look at your balance sheet, and you highlight no debt maturities, I think, it's until 2033. You don't have a lot of liquidity needs at the Power Corp. level. So I'm just -- I'm kind of curious what you're being conservative about, like why do you feel the need to keep that cash on balance sheet?

[Robert Jeffrey Orr, President, CEO & Director]

I think it's just simply the uncertainty with respect to understanding where the health and, therefore, the economic situation develops. And there's nobody out there that understands how long we're in this for and how long it could go on for. And there is -- over the upcoming months, we'll see how it's going to play out. The difference in the stock price of Power Corp in a year from now or 3 years from now, based upon what we might be able to buy back over the next immediate period of time, is a rounding error versus not having the liquidity go in case you get into a tail scenario where things go down. That's basically it. I agree with you. It's -- on the one hand, it's very tempting to jump out and buy more shares at this point. And I will go back to the answer that I gave to Tom MacKinnon's question. But certainly, our companies are looking at how they can deploy their capital if they can take advantage of it. But at the margin, as we wait and see how the situation unfolds, we just decided it would be prudent to suspend the buyback for the time being. I hope that answers your question.

[Paul David Holden]

Sure. Yes. That's fair. I get it. The last question from me as you -- if you were to see a continued, let's call it, dislocation of valuations for your major operating subs, so GW and IGM, and you felt more comfortable about the macro environment, would you consider increasing your proportional ownership in those businesses?

[Robert Jeffrey Orr, President, CEO & Director]

That's too hypothetical to answer. I don't -- not trying to be evasive, but it would depend on so much why the valuation was deteriorating. And if it was deteriorating because -- the world was looking like it was really uncertain how this could go and we might be into a much more protracted downturn and that would affect financial markets and their shares are down for that, we might be in a conservative mode as well in that time. And so I'm really not trying to be evasive. I'm just saying I don't know how we would act. It would depend on the circumstances. But generally, you haven't seen us acquire a lot of shares of our subs. We've been more where Tom was in terms of when things get bad, how can we -- how can the companies take advantage of the circumstance by making some acquisitions, and then depending on the size, you then say, "Oops, do they -- might they need some equity depending on how big that is? And do you want to really -- you want to have your dry powder to be able to do that?" That's -- those are the discussions we have when we're in those circumstances. So I'm giving you probably more than you need. I honestly don't know how we would act in a deteriorating situation.

[Operator]

Your next question comes from Geoff Kwan from RBC Capital.

[Geoffrey Kwan, Analyst]

I just had one follow-up. Just thinking with all these governments that are doing these massive fiscal spending and trying to eventually, when the day comes, try and fix these debt deficits, increasing taxes may be an inevitable way to try and deal with that. And so in that context, does that influence at all any thinking on timing of any sort of simplification or other opportunities that you might consider pursuing in the near to medium term?

[Robert Jeffrey Orr, President, CEO & Director]

Looking at Greg here, unless you got -- not for me. I think about when this started, it was obvious -- not when it first started, but it's been obvious for some time that we're going to end up with governments having a higher level of debt. And it's a question of whether it's kind of 15% of GDP or 30% of GDP or whatever number you can speculate on. And then companies are going to have -- some sectors are going to have higher levels of debt. So there's more debt being created. I don't think it affects our corporate actions. You -- then you get into speculation about how does that -- what impact does that have on the economy going forward, higher taxes? Does it mean more inflation? Or does it mean lower interest rates because governments will be -- and monetary authorities will be unwinding or have taken on a lot of paper. And that's what happened after the great financial recession. Everybody was waiting for inflation to come back. And of course, just went the other way. So we speculate about what does it do to interest rates going forward, but I don't think it has an impact on -- that I can think of on how we would do other steps in our reorganization. Greg, are...

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. I'm, Geoff, not quite sure what you're envisioning. But within the current framework of taxation in this country and in North America. Certainly, the governments will all be looking to raise taxes and tax revenues. The -- and if you use the same mechanisms that they've used in the past, then -- and perhaps we're going to have faced higher tax rates or rates of taxation. But within that structure, I don't see anything that would say, "Gosh, let's free up and do this tomorrow because we're going to have a significantly adverse consequence if we don't do it." I don't see it, but then again, I'm not envisioning perhaps what you might be envisioning.

[Operator]

Your next question comes from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Just I wanted to drill down on the investment platform a little bit. First of all, bringing in third-party AUM seems to be a focus. Is there any target? Or what are you thinking of in terms of what would be a reasonable cadence for bringing in third-party capital?

[Robert Jeffrey Orr, President, CEO & Director]

So each of the 2 platforms internally are in the midst of kind of building out their multiyear plans, which they've been -- actually went to the Board with yesterday. I'm not going to comment on what their objectives are at this point. It's a good -- it's a fair question. I'm not ready to comment on it at this point. The Sagard Holdings has been at it for a while and each of Sagard Europe, the credit partners venture and health care have all got plans to go out and raise additional funds, and they've been successful at raising funds in the last year or 2 years. So I see that pace continuing. The Power Pacific and Power Energy is more of a pivot because they were set up to be funded by Power Corp. So it just kind of they're reorienting themselves and entering into dialogues with third parties to get third-party funding in. It's just beginning, and so it's a little early for me to speculate on how successful they're going to be. I'm sounding evasive, but I don't have a number that I can give to you. What I'd rather do and what we will commit to doing is following up in each call as to where they sit and what progress they've made on their third-party funding. That may be the best way I can do it rather than put a number on the table at this point. It's a good question, Graham. I'm sorry, I don't have a more specific answer for you.

[Gregory Dennis Tretiak, Executive VP & CFO]

The only thing I'd add to that -- Graham, the only thing I'd add to that is that certainly, the Sagard Holdings platform has been out and has been raising capital quite successfully over the last 2 years. So most of what you see there in third capital on the non-European Sagard Holding platforms has been raised in the last couple of years.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. And it's not the blue -- like I said earlier, if you're on Page 22, it's not the blue in the individual boxes that understates it because it's the gray on the box on the left side, the uncommitted, the unfunded commitments. A lot of that is through the Sagard Holdings platform. So that the money has been committed to and raised. It just didn't show up in the dark blue because they haven't spent it yet.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. And we can certainly unbundle that. We can and put it on the slide, but that slide is a little complicated right now. So we might have to add another slide.

[Robert Jeffrey Orr, President, CEO & Director]

We'll do that next -- we'll have that on the next call.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Fair enough. And do you have separate teams that are out there focusing on the different strategies? Or is it really one sales or distribution team focusing on everything?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Well, we've got 2 teams for Sagard -- one of Sagard Holdings and one for Power Sustainable. And in fact, within that, Sagard Europe, again, was just saying on the phone, it's been doing fundraising for 20 years. So they have been -- that team has been there for a long time, and it's been different folks that have been focused on the credit and the Portag3 and the Sagard Healthcare. And Paul III and his group have been very active on that. So there's different teams here that are involved in it. Jocelyn, anything you want to add to that? Maybe Jocelyn wants to jump in on that, if he's got anything to add to it.

[Jocelyn Lefebvre, Independent Vice]

No. The only thing I would add is that in Europe, it's a bit different. First of all, 20 years ago when we've launched a fund, we were alone. So we were raising the capital ourselves. So the partners of the fund were just doing it itself. Here, what you're doing in Montreal is a tweak that is different. More and more, there's a dedicated team from Sagard Holding and also from Power Sustainable Capital that is putting a team together over the various fund to support that effort. But...

[Robert Jeffrey Orr, President, CEO & Director]

Yes, good point. So in Sagard Europe, it was the investors themselves really who were originally out doing a lot of it, and we've got a little bit more dedicated resources just to fundraising in terms of these platforms, I think is your point.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. And not to contradict Jocelyn because that is the case, but in certain circumstance, like the royalty fund, you do have seasoned teams there that have their own networks and will certainly help out significantly in that capital-raising activity. So...

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Well, and I just want to add, not to beat the dead horse, but I mean there's no institutional fundraising, whether it's in non-liquid alternatives, alternatives or in long-only type mandates that ultimately you don't get the investors in front of the institutional -- the portfolio managers in front of the institutional investors before they make a decision for sure. So Graham, I think we killed your question there, I think.

[Graham Ryding, Research Analyst of Financial Services]

No, no, that's fine. That's good. It was a thorough answer. What about -- I presume it's primarily institutional money that you're targeting, but is there any strategy to go after high net worth capital with these?

[Robert Jeffrey Orr, President, CEO & Director]

Yes, there's some high net worth capital already in there, and you can bet that that's part of the strategy. I have a family that controls this company, right, and they know a few people absolutely.

[Graham Ryding, Research Analyst of Financial Services]

And what sort of returns are you targeting? Like I know in previous AGMs, you put up some IRRs that you've generated. Is that a reasonable proxy? Or do you guys have a formal hurdle rate you're trying to reach?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. We need to come back more comprehensively. But obviously, you've got -- between a credit fund and then between renewable energy and then Chinese equities and then private equity in the mid-market in, you got returns that are from high single digits all the way well into double digits depending on the strategy. Jocelyn, just quickly, what are your targeted returns and when you're looking at the private equity, in your business in Europe?

[Jocelyn Lefebvre, Independent Vice]

Historically, I would say, since we start Sagard Europe, we've done 34 investment. So out of those 34, we've sold up to now 25 of them, and we've returned an average of 2.6x money multiple. And our objective historically has been to do -- to return in terms of IRR around 20%.

[Robert Jeffrey Orr, President, CEO & Director]

And that'd be on a gross basis, I assume.

[Jocelyn Lefebvre, Independent Vice]

Yes, absolutely.

[Robert Jeffrey Orr, President, CEO & Director]

Graham, does that help?

[Graham Ryding, Research Analyst of Financial Services]

Yes. Yes, that helps. And then my last bit was there's some loss on investments at the Power Financial level. So I'm assuming that's related to the Wealthsimple investment. Maybe we could focus on that a little bit. Just the growth there continues to be very impressive, but operating losses persist despite the increased scale in AUA. Can you share with us what's the plan or the outlook for that business in terms of breaking even?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. So maybe I'll start, and then I'll let Jeff add on to it. So at the Power Financial level, really, it is Wealthsimple and our investments in the Portag funds to the extent that we have money in the Portag funds. And you're right that it's not running at a breakeven just yet. It's got a line of sight on breakeven, and that's -- we don't put those numbers in the public domain currently. However, having said that, I would say that Wealthsimple in terms of its metrics, in terms of assets under management and it's client acquisitions have been, as you noted, they have been enviable, quite frankly. And during this latest period of time, if all 3 were here, he would tell you that their acquisition of their brokerage platform has enabled them to attract a lot of clients through this period of time. And they've had some very successful months through this COVID period. And the business in itself, along with not only the brokerage platform but also they acquired a tax prep business that they had started in this last quarter. So the cross-selling that's going on between their savings vehicles, their tax business and their brokerage business has really done well through this particular period of time. So I can give you that color. I can't give you any number, but...

[Robert Jeffrey Orr, President, CEO & Director]

The only thing I would add to what you said, Greg, is that when they -- when we track it and they track it internally, you've got still a lot of money being spent on client acquisition. And the metrics are different from public companies. And it's a bit of a rounding error for Power right now, but the metrics would include you've got your ongoing client base and what's the cost to serve. And you look at it that way and you get one answer in terms of their profitability, which is a very positive answer. But then you spend money acquiring new clients, and the way you look at that is what's the cost to you in acquiring new clients and what's the lifetime -- expected lifetime value of those clients. So we -- we'll take your question here and see what we can do to try and bring more forward, but we're not at a point here where we're talking about its absolute -- we're disclosing their numbers.

[Operator]

There are no further questions at this time. I will turn the call back over to Jeffrey Orr.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Thank you, operator. And I just want to thank all of you for your participation in the call. And we'll look forward to feedback that you have and continue to try and hone how we present and come forward with different topics at different meetings to hopefully have greater understanding on everybody's part about what we're up to at Power Corporation. So thanks for participating, and have a very nice weekend.

[Gregory Dennis Tretiak, Executive VP & CFO]

Thank you.

[Robert Jeffrey Orr, President, CEO & Director]

That's it, operator. We'll end the call.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.