Power Corporation of Canada

TSX:POW

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Power Corporation Second Quarter 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Now I would like to hand over the conference to our speaker today, Mr. Jeffrey Orr, President and Chief Executive Officer of Power Corporation of Canada. Thank you. Sir, please go ahead.

[Robert Jeffrey Orr, President, CEO & Director]

Thank you very much, operator, and good morning, everyone. Thanks for being with us on a Monday morning and the summertime. We're very pleased to be presenting our results and speak about some of the activities of Power Corp. over the last quarter or so. I'll just draw your attention before we get going to the cautionary statements on Pages 2 and 3. And with that, on Page 4, in addition to myself, there's also Greg Tretiak, with me, Chief Executive -- Chief Financial Officer, Executive Vice President of Power Corp. and known to most of you, I believe. I'll switch over to Page 6 on the presentation, and you have their a number of the documents and events that have -- that formed part of our communication to investors that have come out over the last weeks from both Power Corp. and Great-West, IGM and GBL. And all those documents are available online to you if you so desire, if you haven't already looked at them. So with that, I'll start on Page 7 just kind of resume the quarter and the last, I guess, 4 months or so, really pleased with how the companies are performing both from an organic and an inorganic point of view, we really had a lot of progress that's become evident in the quarter. Very strong earnings at each of the operating businesses and strong business momentum. It's a theme that we have been communicating for at least a few years that we believed that a lot of the investments that we had made at Great-West, IGM, GBL. We're going to translate into good business momentum. And we've seen in the last quarter that was absolutely true across the board with the strong earnings and momentum at Great-West led by Empower, both organically and inorganically. IGM just kind of across the board, across your business units, really demonstrating great momentum. GBL benefiting from a lot of the portfolio changes they've done in the last few years. So great organic growth. But then also you see with the -- obviously, the Prudential acquisition was the highlight of -- since we last talked in terms of being an external transaction. And we'll talk some more about that in this presentation. We've got a few pages where we'll give our overall perspective on Prudential acquisition. Great-West also was active in Ireland and in Canada with an acquisition in the group insurance sector with the acquisition of ClaimSecure, a third-party administrator. In addition, when you come to the Power Corp. level, we continue to make progress on our strategies. One of those, we'll talk a little bit about it as GP Strategies. We announced a transaction. That's 1 of the 4 stand-alone businesses where with that transaction, we will not only surface value, but upon the closing, we'll actually exit the position and monetize that position in furtherance of the strategy that we've communicated to you many times. And then the alternative asset management businesses that we're building at Power have continued to make good progress on fundraising, and you have a couple of examples there at the bottom of Page 7, but there's more that we'll talk about briefly when we get into the presentation. Turning to Page 8. From a financial point of view, a great quarter. NAV was up quite strongly, and that continued subsequent to quarter end. We had strong earnings, $1.47 with very, very strong earnings and earnings per share. It was a record adjusted earnings per share at $1.51 and well up from the previous year. And then we kept our dividend at the $0.4475 level. As you know, dividends from our public operating companies have been flat. And in particular, they're Great-West Life, which is a big part of it is still with an OSFI restriction on increasing dividends. And so that we have maintained our dividend at the $0.4475 level. With that, I'm going to turn microphone over to Greg Tretiak, to talk about the next couple of pages. Greg?

[Gregory Dennis Tretiak, Executive VP & CFO]

Thanks, Jeff. I'll give a little color on the net asset value and the earnings for the quarter. And first on Page 9, net asset values, as Jeff had mentioned, $51.60, up 12% from March 31. And since then to August 6, up another $1.50 at $53.10. Great-West Life and IGM and JBL, all 3, you can see the strong earnings and good momentum being reflected in the share prices. You can see now that the net asset value for the 3 of the publicly traded companies are share at $32.4 billion. I'd just note that in Sagard Holdings, that's where our interest in Wealthsimple shows, and that's about -- I was going to say about $800 million. It's actually $796 million. And the other I'd highlight is China AMC. We talked about this at the last call. It's still on our books at book value at our 2017 purchase price. And I think I reflected last time that, that was around 17.5x earnings. The entry multiple was -- and that has not been adjusted for any further market increases, given their strong performance. Stand-alone businesses, our 35.7% interest in Lion is in the stand-alone businesses and GP Strategies is in there as well. And there is a separate slide, we'll talk about little later on in the presentation. Take us to Page 10, and PCC earnings per share. Record earnings, record -- I should say, record adjusted net earnings of $1.51 compared to $0.79 in Q2. Here, I'd go through a couple of highlights as well. Certainly, with Great-West Life, another strong quarter led by increased contributions from Empower, reflecting the recent MassMutual acquisition. IGM had record earnings in the quarter on record assets under management and Q2 -- high net sales for Q2 as well. I'd just note on GBL and the effect of consolidation. The effect of consolidation includes any adjustments that we need to make for differences in accounting. And of course, GBL still or should use as IFRS 9. So gained some losses on dispositions are recognized as fair value through OCI. So none of their dispositions go through the earnings line, whereas we still use IFRS 39, and we do reflect it. So most of that $0.14, in fact, all of that $0.14 is basically the effect of the gains being recorded in our P&L from the dispositions that GBL did on Holcim, Umicore and GEA. Down the page, alternative asset management platforms. Certainly, there was activity at Power Pacific and the portfolio there. And also in Sagard Europe, the sale of a couple of portfolio investments there as well, so contributing $0.18 in the quarter. As I mentioned, China AMC had a strong quarter, up 33%. Their asset management was also up comparatively, and their equity product sales were strong throughout the quarter.And stand-alone businesses. We have $0.23 contribution. A large component of that came from Lion, recognizing its merger with Northern Genesis and also a contribution from GP Strategies in the quarter. And with that, I think I would turn it back to Jeffrey Orr.

[Robert Jeffrey Orr, President, CEO & Director]

Okay, Greg. Thank you. So I'll turn to Page 11, the next few pages, I won't dwell on. You've seen them before, but they are here to reiterate that our strategy is -- we're pursuing it in a pretty disciplined way. I would say where we're focusing on financial services, each of the public operating businesses have their own organic and inorganic strategies. We have a whole series of steps that we're taking at Power Corp. to add to that value. And at the bottom of the page, across the group, we are committed to continually enhancing our communication to the marketplace and -- as well as the quality of the communication and the quality of the material. So that's what the strategy is. Page 12 simply expresses it in a different way. And so I won't spend any time on 12, but that's the same strategy just laid out in a different fashion.On Page 13, just spending a moment here for our public operating businesses. The first bullet point, they have gone through years of investing in their businesses to make them more competitive. And the management teams at each of the businesses are very focused on turning that into higher earnings and cash flow growth and in the case of GBL, higher NAV growth. And they are doing so as well with an external M&A strategy. And then the third bullet point is really about looking at the portfolios actively and saying, are there businesses in there that don't meet our objectives and what can we do about that? All 3 of those are being pursued actively by the management teams. And as I said, everybody is out, trying to enhance the quality of their communication to our different stakeholders.Page 14, I won't go through all of these bullet points but you just see across our Great-West Life, really broad-based progress in the quarter. And across IGM, the earnings record net flows at both IG Wealth and Mackenzie record earnings, it's just firing on all cylinders right now. And then at GBL, Greg mentioned a number of the dispositions and those dispositions are coming in, we'll call it, like holdings. And we've got a few examples there where a lot of the investments at GBL recently have been rotating into more private-type investments, and that is part of the active rotation going on at GBL that is -- what they think will drive a lot of value for the company. And they're also focused on share buybacks to try and work and narrow the discount to their net asset value. Okay.Page 15. I'll spend a few pages here sharing with you our perspectives on the acquisition of Prudential that was announced by Great-West Lifeco. We're really excited about this transaction. We think it is not only a great deal strategically for Great-West and Empower, but it's also a very strong deal financially. It will create, assuming we achieve our synergies, which we believe we will, 8% to 9% earnings per share accretion comes on the heels of the Mass deal a year ago, which itself was a 10% earnings accretion. On Prudential, we financed it without any equity, but we look at it and say, we would -- would it have looked like had we done a 70-30 equity debt financing consistent with Great-West Lifeco's long-term capital structure. And even on that basis, it's an 8.1x PE multiple. We think we did a very strong deal financially. We're really excited about it. Like the Mass deal, most of that EPS accretion, the overwhelming majority comes from cost synergies which are things that we've got a high degree of confidence on because we're just simply porting the businesses on to Empower's existing platform, and we know the costs very well. So very confident on the cost side, and most of those EPS numbers are based on costs, whereas longer term, medium term, longer term, the revenue synergies, not really baked into the numbers in any material way are, in fact, a great opportunity as we look down the road.I will turn to Page 16, and that's just a visual as to in the defined contribution market itself, how the transaction is transformative and positioning Empower and its size and scale. And it is becoming very much a scale game in the defined contribution business and Empower on top of the investments it's made in its platform over the last number of years to enhance and create a very competitive client experience for both the plan sponsors as to say the employers and the participants. We are also very focused on getting the scale to be able to continue to invest and drive your cost point down to a lower point than industry competitors.Page 17, and just stepping back for a moment here. These transactions at Empower has done -- have really transformed the business. The first thing they've done is that they've set Empower up to be an industry leader with a business model that will thrive in the defined contribution space, but they've also transformed Great-West Life. They've transformed Great-West Life's business mix and its earnings profile. If you just go back to the Personal Capital transaction, which I think was the last week of June or the second last week of few, I can't remember the exact date. And then you go to Prudential, which was I think third week of July over a period of 13 months, a little under 13 months, Great-West Life has deployed USD 8 billion, roughly CAD 10 billion on 3 transactions. And those transactions will materially impact the business mix at Great-West where all of a sudden when they're fully baked in and synergized, Empower itself in the U.S. will be a very significant part of Great-West Life's business and its earnings. And the earnings profile itself has been altered in that we think, given the dynamics going on in the defined contribution business that we can grow strong earnings in a consolidating market for quite a few years to come. So the business mix, the earnings mix, the growth profile of Great-West Lifeco has been transformed by 3 very large transactions. And I'll just reiterate that I think the economics we've shown are based principally on costs. The real medium- to long-term opportunity is the retail wealth management opportunity that is adjacent to the defined contribution business. And the company has to execute on that, no doubt. And so -- but we're confident we can do that. But that medium to longer term when you look out beyond 2 years after the deals that will make these deals go from good to great, if we can execute on it. We think we will.So those -- that's our perspective. Happy to take questions. Very excited about the Prudential transaction. Page 18, continued good fundraising by Sagard and by Power Sustainable, and you've got under the second bullet point, a number of examples of additional fundraising. It included a SPAC that Portage completed just in July, USD 240 million as well. Power Pacific, which is the team of investment managers that are based in Shanghai that were initially set up in 2005 when Power was accorded a QFII license and was managing basically Power's money and have a great long-term track record out doing fundraising because we're trying to fund all of our strategies primarily through third-party capital, and they've been having some good success in attracting third-party capital, including an institutional commitment, which is not funded yet from a U.S.-based pension plan in the second quarter. So really excited about continued good progress on building out the third-party fundraising on our platforms.Page 19 is an example of what we're trying to do on the disclosure front. These numbers are in the MD&A. And I don't -- not intending today to go through a long diatribe on how the financials work. We probably should do that in some subsequent sessions when it's not just a quarterly earnings call. But you see we are breaking out the management fees for Sagard Holdings and the Platform expenses. And then they also get money, of course, from a carried interest when there are gains. So those are -- the carried interest line is a lumpy one, but a very meaningful part of the economics over time. We have the same thing for Power Sustainable. And as I said, these numbers are in the MD&A, and so this is part of our ongoing effort to illustrate the economics, both as a GP, and we also have a fair bit of work to do on illustrating how we make money on our seed capital as well that you're going to see continued enhanced disclosure on this front as we move forward.Page 20, as we talk a lot about alternative asset management, and we're doing it at Power Corp., but it's also going across Great-West Life and IGM and GBL. And this page is just intended to give you a little bit of the logic as to how each of our operating businesses look at alternative asset management. So for example, at Great-West Lifeco, where they're invested in the Power Sustainable Energy Infrastructure fund, they're also invested in for cash and in credit funds and they're, of course, an investor in Northleaf. They're trying to do 3 things. They're trying to advance their strategy and advance their capabilities for their own balance sheet needs. They're trying to access product for their customers and their clients. And on the fintech front, of course, there's also a whole additional strategy being played out to remain at the forefront of fintech developments because it impacts their own core businesses.At IGM, it's almost the same, but there's one difference. They don't have a balance sheet to invest, so they are not trying to put their own capital to work for a balance sheet purpose. But with the ownership of 80% of the position we have in Northleaf, it actually has put them into the private alternatives business in a meaningful way. So they've expanded into a whole new market, both in terms of the capabilities within Northleaf as well as all of the distribution channels that come with that. And then GBL is increasingly focused, as I mentioned, on private investments. They do have their own Sienna Investment Managers, and they're expanding that business. And a fair bit of cooperation between GBL and Sagard in Europe on opportunities that may not be exactly suited for one, but would be suited for the other and they're in active dialogue and there's common directors on the 2 companies so that, that exchange of information goes on.Okay. Page 21. I won't really add anything to what Greg mentioned, good progress at China AMC. And we don't have their track record there. We just got the market performance of the indexes, but they've got great long-term alpha creation. And so they continue to grow their business successfully. And China AMC, I would say, is an institutional player, it's a mutual fund player and it's an ETF player and they continue to build out their business successfully. They're really pleased with the progress being made.Okay, stand-alone businesses. Just for a moment here, we have got the 4 businesses that we consider the stand-alone businesses, and we now have 73% of the NAV that we disclosed as public. So this is getting easier to measure. You know about Lion Electric. We've already talked a fair bit about that. GP Strategies, as I mentioned, there's a transaction there that assuming it closes, we'll monetize that transaction. Lumenpulse, you may be aware did file to an initial perspective to do an IPO, got into some choppy markets. The decision was made not to go in that direction at this time. And so you may say it's a funny thing to mention on the call to talk about an attempt that didn't work. But we mentioned it in the context we're active. We said we were going to surface value on these businesses. And over time, we were going to realize value. And here we are not that long after having announced the reorganization, we have been active on all fronts here, on making this piece of our balance sheet become clearer surface value and ultimately realize value for Power Corp.Okay. Over to Page 23. And we've continued to make good progress on our target of achieving $50 million in expense reductions. We're almost there. You've go across the top of the page, the bullets as to how we've done it. And effectively, what you've got on the bottom right is we have just about $200 million in operating expenses between Power Corp. and Power Financial in 2019, which was a $50 million a quarter run rate. We were at $40 million in Q2 '21. Our target is $38 million. We're getting very close. And that -- these are quarterly representations as any company that can be -- from quarter-to-quarter, they can bounce around. But we think on a run rate basis, we're getting very close to our targeted reductions. So we're pleased about that.A word on 24, on our communication strategies. Power Corp. itself, of course, is continuing to work hard on the investment platform disclosure still some work to do there, but we'll continue to make progress on that. And we've been very active in meeting with investors in 2021 to date. It actually is 100 investors and analysts, we've met in different meetings. I probed and said, isn't it approximately, and currently? It's exactly. So we have had exactly 100 meetings.At Great-West Life, I think quite meaningful. They hosted an Investor Day in June. And of course, the focus of it was on Empower but they also started off by doing something they haven't done and as far as I can remember ever, which is that they provided medium-term guidance of EPS 8% to 10% base earnings growth, absent any future acquisitions that was prior to the announcement of Prudential, of course, and a targeted 14% to 15% base ROE. And so this is just part of my messaging and our messaging that we are across the group trying to move forward and get our investor communications clearer and clearer and clearer and that was a big step for them and really pleased that they did that.At IGM, in the meantime, they've worked very hard, as you know, to show the segmentation of the business in the way that they think about it and trying to surface to the value that when you look at the sum of the parts of IGM and you drill down on the different values, but there's still lots of opportunity there to surface value and to -- and I think they illustrate when you look at all the other pieces of the company that the wealth management business and the asset management business effectively has been valued at a very low value or maybe it's the other parts. But in any event, there's a lot of value that's not getting recognized in the share price and they're on a tear to get the market to focus on the sum of the parts post the valuation. And I think that's getting tenure and increasingly getting recognized by the analyst and investor community. Greg, I'm going to turn it to you to just say a word about our liquidity and cash on Page 25.

[Gregory Dennis Tretiak, Executive VP & CFO]

Thanks, Jeff. So I'll start off with the important number, how much cash do we have? We've got $1.1 billion in terms of our cash reserves on the balance sheet. We're looking forward to resuming our buyback program. And when we look forward, we look at 3 things. Certainly, our cash balance. And it's on the higher side of the 2 to 3x fixed charges that we've guided folks on it in the past. The other thing is obviously the pandemic and the economy, and certainly we're seeing that there's a move to opening up across the board in Canada. So that is looking good for the fall. And finally, we've talked about where OSFI will be with its guidance with respect to dividends and buybacks, and we are certainly looking forward to what OSFI will have to say in the coming months as well. So Jeff, I'll turn it right back to you.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Thanks, Greg. Page 26 is our discount to NAV, and it's something we're focused heavily on. We've continued to make good progress through all of the strategies that we've executed on and narrowing that discount. We still think there's progress to be made there and lots of opportunity ahead. The way we think about it, this journey on narrowing it actually started back at the start of 2019. A lot of people talked about it from the reorganization, which we announced at the end of 2019, but we sold the U.S. life insurance business in Great-West Life -- Great-West Life did, I should say. And then we embarked on a 3-way share buyback that was intended to return capital and take advantage of the NAV discounts at Power Financial and Power Corp. which those discussions led to the decision to do the reorganization in the fall and which was announced in December of '19. And then with a little bump in the road when COVID hit, and we got into a big market down draft and our stock gap down, we've made steady progress as we've executed on the strategies at the operating businesses and the strategies at Power Corp. itself and our communication and continue to see good progress. And that's one of the levers of value creation that we remain highly focused on. Page 27. I won't -- you've seen this slide before, but this is on the right -- left-hand side of the page. We think about the value creation and it translates into 4 drivers of growth on the right-hand side of the page, higher earnings per share at our operating businesses, principally, the potential for the multiples of Great-West Life and IGM to increase as a result of that, both organic and through M&A. And then GBL potential to increase its NAV. And then the third bullet point, higher NAV across Power Corp. as a result of what we're doing in our operating businesses and what we're doing at Power Corp. higher NAV and then focused on the last element, which is the discount through good communication and good visibility as to how we're creating value going forward. That's how we think about value creation. Just before I conclude, I would say on Page 28, I'm sure, as in your businesses, there's not a management meeting or a Board meeting we go to across the group that we're not talking about ESG. I think our companies are very well positioned for ESG going forward, which is not to say that it's not a continually moving target and that there is a lot of work but also opportunity ahead for our group because we have been very strong on good governance principles thinking about our community, thinking about how we are good corporate citizens. That's reflected in some of the measures that you see here, including -- I'd just point out, I know IGM like to say they were actually first among all investment service companies worldwide in the Global Corporate Knights Global survey recently. But across the group, really, this is a big focus, and you'll hear more about it as we continue to move forward. And Page 29 just kind of summarizes how I started the presentation here. Really thrilled about the strong organic growth that's being shown in our companies from a business momentum point of view and an earnings point of view. And of course, the strong stock market helped. There's no question. But it's way beyond that in our view. It's -- the growth and the strength is much more fundamental than that and much more deeply rooted than that. And then we're adding to it with a continued high level of M&A as we said we would. And so just really pleased with the great progress we're making, lots of opportunity ahead, but really fun to report a strong quarter like that. So with that, I will operator, stop our formal remarks or address and would like to open it up to questions from those on the call.

[Operator]

[Operator Instructions] Your first question is from the line of Nik Priebe from CIB Capital Markets.

[Nikolaus Priebe, Research Analyst]

In your prepared remarks, you discussed the attempt to take Lumenpulse public. Perhaps without asking you to divulge any specifics, would you be able to give us a general update on the monetization pipeline that you see in front of you for the other stand-alone businesses? Do you feel that you'll be able to make some further progress on that front over the next 12 months or so? Just some color around those efforts would be helpful.

[Robert Jeffrey Orr, President, CEO & Director]

Nik, it's hard to respond to that in a definitive way. I don't want to be evasive, but when you are sitting on businesses and your own shares, you don't want to be out there saying, we're going to get it done by such and such a date. It would be like an investment manager going out and telling their trader to tell the world, if you've got to get off this position by a certain period of time. And what does that do? You end up with bad traders, right, because they don't do that kind of thing. So I guess what I would say is that we've taken steps to surface the value to create liquid markets. For example, for Lion, we attempted at Lumenpulse that puts you in a position where it can be easier to then take the next step, which is to find attractive opportunities to monetize it. But I don't want to get into -- all I'm going to tell you is we're focused on it. And when the opportunity is right, we'll act, but I don't want to get into putting any kind of a false deadline on it so that we'll just end up hurting Power Corp. and the management teams that are building and partners that are building these businesses who are -- they're great businesses. We've got great partners. They're doing a great job on these companies, building them out. I just don't want to put anybody's back to the loss. It's not fair. So I'm going to dodge your question. But just to tell you, we're focused on it, okay. We're very focused on it.

[Nikolaus Priebe, Research Analyst]

Yes. Fair enough. I can appreciate that. Okay. And then just a point of clarification. Greg, I think when you were discussing the corporate cash balances, if I caught it correctly, I think you stated that you're holding $1.1 billion which compares to the $1.3 billion reported on June 30. So is the inference there that you've been deploying excess cash subsequent to quarter end?

[Gregory Dennis Tretiak, Executive VP & CFO]

No. Good attention to detail, Nik. We always adjust our cash from the balance sheet in terms of looking at how much we have available by -- there's the dividends that are payable very early in the ensuing quarter. So early in July, we're paying dividends. And so we make an adjustment for that amount so that we know what our cash basically is going forward to be able to deploy.

[Nikolaus Priebe, Research Analyst]

Okay. Understood. And then last one for me. It appears there is pretty significant progress made in the quarter with respect to achieving targeted expense reductions. Can you give us just a little bit more insight on, I guess, what areas those savings came from?

[Robert Jeffrey Orr, President, CEO & Director]

Yes, we can. Actually, Greg, do you want to handle that? I can handle it, but why don't you take that?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. So Nik, we're fond of -- when we've got a big target, we want to take it piece by piece. And we've chunked it down, and we made progress in virtually every one of the areas in terms of the targeted areas. And so we did a lot of work on our travel and our physical footprint in the quarter and continued in each and every one of the categories that is listed on that page. So -- and of course, we're nearing Q1 of 2022, which is the target date. So people have had their shoulder to the wheel and making sure that we can get there by that time.

[Operator]

Your next question is from the line of Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

My first question would just be on your capital and your commentary around -- you like to have a minimum balance, I think, of 2 to 3x your fixed charges. Could you just spell out for us what that actually implies in terms of absolute numbers because I'm not sure I've got the right number for your fixed charges necessarily?

[Robert Jeffrey Orr, President, CEO & Director]

Greg, it's for you, I think.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes, for sure. So that'd be about $750 to $1,100, 2 to 3x the fixed charges Graham, which is basically our expenses and our interest requirements on our preferreds.

[Robert Jeffrey Orr, President, CEO & Director]

So expenses to get down to $150 million, and then you just take the preferred share dividends and the little bit of interest expense, right? And you multiply it by 2 or you multiply it by 3.

[Gregory Dennis Tretiak, Executive VP & CFO]

Right.

[Robert Jeffrey Orr, President, CEO & Director]

Yes.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Okay. Understood. And then with your asset management arm, is there anything that you're targeting in terms of fundraising over the next year? Like I know you have a bunch of different verticals and things I'm sure are going to be unique for each one of them. But broadly speaking, like as a percentage of AUM or in absolute terms, do you guys have targets for what you're trying to bring in, in terms of third-party capital?

[Robert Jeffrey Orr, President, CEO & Director]

I think that's putting a fine point on it. If I go to the Sagard Holdings and Power Sustainable have different strategies in each. And so there are more strategies in Sagard Holdings right now. We've got royalties, credits, fintech, for example, the private equity business in Europe. And along -- and then they're always looking at what new strategies can be launched alongside those. So each of those groups are out fundraising, and you see -- I don't have the page in front of me here. Sorry, I just lost it on my screen. Okay. I can't -- I'll come back to it. You see at Power Sustainable -- at Sagard Holdings, good progress along each of those strategies. And I don't know that they had a SPAC in their headlights a year ago, but the opportunity to do a SPAC came up -- even in a weak SPAC market, it's quite something that we're able to pull that off, and it's a tribute to the track record they've got in the fintech space and the investor base that they have. So they don't -- I don't have a specific target in mind. They're out fundraising and then sometimes it's tough going and sometimes they come back and say we've got -- we've just made great progress on this fund. We know where they're active, but we haven't thought about it in terms of new capital. I think the -- on the Power Sustainable Capital line, they've got 2 principal strategies, which is their infrastructure and their China strategy, and they are looking to what new products they can launch to broaden that out. And as they get into new products, that's a good example of where Power might have to put up more seed capital than they would on an existing product that's on its second or third fundraising, where we won't have to put up much capital on a new product. The sponsors got to show their confidence in the strategy. So these things are all moving. And we actually haven't got it down to being -- over the next 12 months, this is what we're expecting. So I don't have that number. Greg, you may, but I don't -- we don't think of it that way. What we do say and what they're very clear on is that we are on a march to increase the businesses where they become principally third-party funded and ultimately, Power ends up being a smaller piece of the capital. Greg, anything you'd add to my comments?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. The only thing I'd add, Jeff, is that it depends on the maturity of the particular asset class as well. Certainly, Sagard Europe, for example, which we've been active in for many, many years, and it's in a mature set of funds, we would expect that because it's mature in the future, we wouldn't be putting as much capital in. And you'll see that, I think, with each one of the particular asset classes. Depending on the type of the asset class, some require a little more seed capital for us to get up and running and some a little less. And I guess that's the color I'd add, and that's something maybe we can look at for a future quarter to give a little finer point on it, if you will.

[Graham Ryding, Research Analyst of Financial Services]

No. That's helpful. And then my last question, just in the big increase in the GBL-related NAV quarter-over-quarter. Were there -- anything that you'd highlight there that did some of the heavy-lifting through the quarter? Or was it broad-based?

[Robert Jeffrey Orr, President, CEO & Director]

Mr. Tretiak is going to answer that question.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. I think we've got a slide in the back, but I don't know that it actually breaks down the increase, but it was pretty much across the board. Some good movement actually in the private holdings. Web help was up significantly. And of course, you would have seen that, that was put right associated with that, and that was reflected as well in the quarter. But that would -- those are my comments, Graham. And certainly, if you look back on our previous presentation, you'll be able to see it specifically.

[Operator]

Your next question is from the line of Jaeme Gloyn from National Bank.

[Jaeme Gloyn, Analyst]

I wanted to just question -- start with the asset management business. And the AUM seems to be building very nicely. The profitability seems to be improving slowly. Do you have a sense in terms of what level of AUM is required or timing around when we should expect to see this business start to ramp up in terms of profits?

[Robert Jeffrey Orr, President, CEO & Director]

You're talking about the businesses at Power, I assume?

[Jaeme Gloyn, Analyst]

Correct.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So a few ways to think about it. Very good question. I think that Sagard Holdings, as we've talked about, is got a broader footprint with more strategies, and it is closer to a point of breaking even. You need to think about the P&L in these businesses in 2 ways. One of them is it's got the fee revenue and they have ongoing expenses. And then the second piece of it is there's a carried interest, and those would be more prevalent, let's say, when there's private equity than when there is a strategy like infrastructure where you wouldn't expect kind of sudden gains or periodic gains is a better way to put it. So the first thing we look at is just on a fee basis, forget about the carry. When do we get to the point where the fees are going to cover the expenses -- the run rate expenses. And then when you actually look at the overall economics of being in the business, you look at the carry as well, but that can be lumpy. So on a fee basis, I would say that Sagard Holdings would be -- I would hope within a couple of years here is going to be with its head above water and contributing. And I think just depending -- it all depends on fundraising, of course. And then on the Power Sustainable Capital side, they're at a little bit earlier stage in terms of their products and their fundraising. They're probably a year or 2 beyond that. But as we've communicated to the market, we kind of look out and say, in kind of 3, 4 years, something like that, we should be at a point where we can say, hey, we're making -- it's not a lot of money right now, but we're making X million on this business. And if you look out 2 years, it's actually going to start to be something that's really contributing. And we have -- we actually have operating profits in this business, it's not just kind of a holding company. We're not there yet, but we can see a path to get there, but it's a few years out. The other piece of the business that we have to do some work on is to explain how we make money on the seed capital itself. Because there, it's a mixed bag. If you think about it, we've got some seed capital in the private credit funds that Sagard is running. So there you've got a running yield on those. And you can explain the profits pretty easily. We've got investments in some energy infrastructure where you're making capital investments. And from a P&L point of view, you've got a lot of amortization -- a lot of depreciation, I should say, and they really should be valued on a cash basis, not an earnings basis. And then private equity, where you've got kind of lumpy returns based upon when there's a disposition. So we've got a mixed bag in the seed capital but we think we actually have quite attractive returns we can earn there. And that's, I think, in addition to whether we're making money as a GP as a manager, we've got more work in the upcoming year to lay out to all of you how we think about profit from the seed as well. And then we roll it all up together into -- and this is what the business is producing for power. So sorry for the long answer, but that's my perspectives on when we get to profitability and how we communicate it.

[Jaeme Gloyn, Analyst]

Yes. That's great detail and thought. Second question was on the growth in China, and it seems you're bringing capital in through the Power Pacific channel and also China AMC is obviously doing very well. Is that the extent of the strategy for Power Corp. in China? Or are there other avenues that you could be looking to add in terms of growing your AUM base in China?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. I think on the China AMC side, starting with that, you're starting to see some really good cooperation. Well, it's actually been cooperation for a number of years, but you're starting to see some good results of Mackenzie launching products into Canada. Mackenzie actually managing some money for CMAC. And so you've got some 2-way flows there that are starting to happen. Power Corp. and our alternative management strategies, what are the opportunities for distribution cooperating with either CMAC or with the group that owns CMAC, which is CITIC. I think those are all things that we would like to explore. And so you're right on point. I think there's lighter relationships there that we can explore that but would be within the same kind of the over word term ecosystem of companies over there that we partner with. And then China Pacific itself really, really great long-term track record. We're trying to raise capital, and we've been successful here in the States, but we're also talking to our partners in China about how we can expand the distribution and there's some early success there. So you're quite right. We're looking at how we can expand our distribution footprint using our partners there. And hopefully, we have some things we can talk about, but I wouldn't say anything too tangible at this point, but we are focused on that. I don't know if that answers your question.

[Operator]

Your next question is from the line of Tom MacKinnon from BMO Capital.

[Tom MacKinnon, MD & Analyst]

Quick numbers question and then some follow-ups. Just with respect to the ownership in GP Strategies and the ownership in the SPAC. In terms of the fair values at June 30, are those $93 million for the GP Strategies and USD 240 million for the SPAC? And are those values around the same values when you show your NAV on Page 9? And while you're looking at that, I'm wondering when you show that NAV on Page 9, you talked about publicly traded companies that you actually have owners -- significant ownership in 3 others, albeit smaller. One is Lion, one is the SPAC and one is the GP Strategies stock now as well. So I'm wondering why you don't separate those out when you do your NAV on Page 9. And then I have a follow-up.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. I'll pass it over to Greg on your -- what's in the number. I think it's yes for GP and no for the SPAC because it's not our capital. But Greg, why don't you take on those questions and then -- I think they're actually all for you.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. Unfortunately, I'm going to have to ask you to ask your follow-up question again, Tom. But with respect to GP Strategies, you quoted the August 6 number the June 30 number is a little lower. I think my recollection is $76 is in that -- is the amount for June, but I'll have someone check that and let us know if that's exactly right. And as Jeff said, the SPAC is not in that number. We have a very de minimis amount of money that we put into the SPAC. So it's not shown on the net asset value.

[Robert Jeffrey Orr, President, CEO & Director]

Third-parties benefactor. Yes. Third parties funded it. That's it.

[Gregory Dennis Tretiak, Executive VP & CFO]

That's right. And Tom, your second question or second, third question?

[Tom MacKinnon, MD & Analyst]

Yes. So I guess if you -- why don't you take your ownership in Lion out of that NAV that you show on Page on and put it in the publicly traded companies line?

[Gregory Dennis Tretiak, Executive VP & CFO]

Because Lion is one of the stand-alone companies, right? It's not one of our publicly traded companies. It is mark-to-market on a regular basis. But that's the distinction. When we do the presentation, Tom, is to show basically what are the strategic core assets, which are the operating companies that are publicly traded there and then make the distinction between those and the stand-alone so that you can understand how we look at it going forward.

[Robert Jeffrey Orr, President, CEO & Director]

Tom, let me say it another way. If your question is about value disclosure, you get it on '22, okay? And with your question noted about whether GP, that's an August 6 number. So that there is a timing difference. So that was your question. But basically, if they're public, we've disclosed the numbers right there. The real difference, though, is that the stand-alone businesses, we've been pretty clear are while they're great businesses, they're really businesses that we would intend to not have within the portfolio, if you look out several years. I'm not going to repeat my question -- my answer to Nik as to when we would do that, but they're really not financial services, and we're going to build a business that's going to be financial services around the alternative asset management businesses, and they're not part of that. Having the 3 businesses at the top, which is or the core Great-West Life, IGM, GBL, those are on strategy. And so that's why they're separated out. Exactly that's why they're separated.

[Tom MacKinnon, MD & Analyst]

Okay. And then just in terms of the increase in the fundraising at Sagard, what would you attribute that to? I mean we've had a stronger private equity market. You've got broad mandates here. Is -- I mean do you expect this trend to continue here? It has been a pretty good market for private equity. But what makes Sagard a little bit more unique here in terms of its ability to do some fundraising versus sort of the broader private equity market?

[Robert Jeffrey Orr, President, CEO & Director]

Yes, a good track record and a very good track record, right? So if you go to Portage, Portage has had a great -- has had Funds 1 and 2 have produced great returns. And so there we're able to continue to raise money and the SPAC is basically that as well. It's based on the team that's been put together and the fundraising machine that goes around it. Same thing with credit partners. That's a team that has got -- has produced very good returns. So they've been very successful at raising additional capital. The track record at Sagard Europe, it's a 20-year track record, maybe even longer term. Now it goes back to about 2000, 2001. I can't remember exactly the date. So they've got -- they had good success there because they've got a good long-term track record. It's about track record and focus on fundraising. The royalties team is good. That's a newer strategy. That -- it's as simple as that. You got it on both fronts, producing good returns for their investors, and they're very good at reaching out and doing fundraising.

[Operator]

Your next question is from the line of Doug Young from Desjardins.

[Doug Young, Diversified Financials and Insurance Analyst]

First question on the stand-alone businesses. I guess 2 questions from the stand-alone businesses. On the GP Strategies, you sold it, as you talked about -- have you or could you quantify the gain that you're anticipating in Q4 from that transaction? And the second question on stand-alone is the ownership in Lion increased to 35.7%, and I think it was 31% before. I would have expected it to go the other way. But there may be some nuances there that I'm not catching. Just hoping to get some color on that. And then I got a follow-up.

[Robert Jeffrey Orr, President, CEO & Director]

I'm going to hand it over to Greg.

[Gregory Dennis Tretiak, Executive VP & CFO]

So GP Strategies, we did not sell it yet. It will be sold in -- well, the transaction closes, I think, in the fourth quarter. So we're just reflecting quite frankly, the reversal of the previous impairment actually on that particular property. And so -- and the gain off the top of my head, I think is something like $33 million that's in there in the quarter. And then your question about Lion and it actually did not increase. So I'm not sure what you're referencing. It is 35.7%. That's what our interest is right now. So -- and that was after obviously, the merger with Northern Genesis, and there was a dilution at that point in time. So yes, not sure.

[Robert Jeffrey Orr, President, CEO & Director]

Let me jump in, Greg. We maybe not get to the bottom of it on the call. But Lion, pre-SPAC merger, we owned equity, and we owned an option with some of the -- we owned an option to buy more. The SPAC and the merger with Northern Genesis in and of itself was dilutive to our position. And then the option that we had became subject of a negotiation as part of the SPAC and it was exercised. So when all of that comes out, you get to our equity position. But to follow through those steps like kind of do a reconciliation, I don't have that in my head, but there were 3 moving pieces you need to be aware of. So the 31, yes. So we should go back off the call and kind of piece our way through, but that's -- those are the moving pieces.

[Gregory Dennis Tretiak, Executive VP & CFO]

Sorry. Sorry, Doug, I was just going to add that it probably was -- you're probably referencing the 31 before the options were exercised and the option -- the option will take us back to 35, so that's it.

[Doug Young, Diversified Financials and Insurance Analyst]

No, no worries, I was going to blame it on my summer brain, but yes, we can follow up offline. And then second, just on the cash balances. And again, maybe you can correct me if I'm wrong. I would have expected the cash balances to increase a little bit more. Now that does include the wealth -- the cash proceeds you got from Wealthsimple. And then there was -- in the nonconsolidated cash flow statement, there's investment activities where there was an outflow of $271 million. So I'm just hoping you can maybe quickly flush out if there's anything unusual on just the movements in and out of the cash side. And then the second part of that is just, I know you talked a bit about buybacks in the 3 criteria. Jeff, is it really like do you have to wait for OSFI's restrictions to come off? Is that like for Great-West before you really are going to get more aggressive on the buybacks? Just hoping is that the one criteria that has to kind of happen first before you're comfortable with that?

[Robert Jeffrey Orr, President, CEO & Director]

It's a great question. It's funny you could be sitting in our meeting rooms, Doug. I think on the dividend, the answer is yes. And on the buybacks, we're discussing that. So it's a good question. Maybe not on the buybacks. We haven't made any decisions there, but we're asking that very same question to ourselves. Did you want to go on the cash flow, Greg?

[Gregory Dennis Tretiak, Executive VP & CFO]

Sure. Sure, Doug. So Doug, the cash flows, there's nothing unusual in the cash flows, and it does reflect our proceeds from Wealthsimple. I think it was -- $187 million was our total, but we did not receive all of that in this particular quarter. We'll be receiving some of that in future quarters, just for tax planning reasons. And the outflows would just be normal funding activity to the platforms being the sustainable -- Power Sustainable and also to Sagard. That's what the outflows would have represented.

[Doug Young, Diversified Financials and Insurance Analyst]

Okay. So just put a finer point. So it looks like a seed investments out to your investment platforms and -- or normal cash flows to your investment platforms could be including seed. And then on the buyback and dividend increase, yes, you got to wait for OSFI's restrictions to come up, and I kind of get that. But buybacks is unclear, whether you have to or not and you're kind of bouncing that around? Do I have that...

[Robert Jeffrey Orr, President, CEO & Director]

Yes, let me be -- yes, that's -- I don't think -- our dividend is a flow-through, it's a pass-through. So without the subs increasing, without Great-West or with the subs increasing dividends, we're not going to increase the dividends would be our current position. The buyback is less clear about that. I don't want to leave anyone with the impression that we're going to get ahead of OSFI. We have not made any decisions on it, just to be perfectly clear, but the answer to your specific question, we don't have to wait. And so that's something we can consider, but we haven't made any decisions on it. So I don't want anyone getting ahead of themselves thinking that we're about to do that. We're just -- it's not as hard and fast rule. It's just as more of a judgment call.

[Operator]

Your last question is from the line of Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Just had one question. Recognizing Great-West has the Prudential deal on its hands. But just wondering if you can talk about just generally speaking, where you see the opportunities for acquisitions and/or divestitures within Great-West and IGM?

[Robert Jeffrey Orr, President, CEO & Director]

Geoff, so it's a good question. The Great-West Lifeco itself, the Empower team is obviously, they've announced 3 transactions. So from a human point of view and a resource point of view, they're very focused on getting those done. We're very confident they're making great progress on both Mass and on Personal Capital, and really nicely sequenced with the way the Prude deal will work in terms of how it falls in, but they're occupied, clearly. Across the rest of IGM, excuse me, Great-West Lifeco and IGM and their management teams, they don't have the same level of M&A integration activity going on, a little bit at Irish Life with the deal they've announced. So lots of human capacity across the group. And then from a financial capacity point of view, clearly, Great-West Lifeco has got its leverage ratio to the point where it's not sitting there able to go out and do a leverage transaction if an attractive financing or attractive M&A opportunity came along. But the philosophy we follow is we're going to look at opportunities in all of our businesses. And they tend to take a long term to come to fruition once they're on them. And if we have an attractive deal, we'll figure out a way to finance it if it's attractive. And so we're not kind of stopping on any business front at Great-West Lifeco or at IGM to look for opportunities recognizing the Empower team itself is occupied for the foreseeable future. Commenting on specific areas where you might see something is always difficult to do. We follow -- every business starts by saying we've got an organic strategy to pursue and that we're going to be active. And if an opportunity comes by, we'll pursue it. Anything we're -- the kind of deals where we would be focused on are ones where we can do 2 things: build out the strategic position of the company that we have. So it's stronger in their market, more relevant to clients, more scale and at the same time, drive some synergies, both cost and revenue. So we've been active -- we continue to be active in the asset management space because that's a space, as you would know that is one where we could benefit from more scale. But Plan A has always just improve the business that we have right now. If you go into Great-West Lifeco, you've seen activity in Ireland. There's -- we're always looking across the European platforms. Are there ways we can enhance our businesses there? IGM itself, I think James O'Sullivan has been speaking about it recently. What can we do in the Canadian wealth management space? What -- again, what can we do in the asset management space. It's -- I don't know, it's hard to pin it down because we literally are -- we internally will be rotating from -- we're in this business, what's an opportunity there. We -- all across the businesses, we are actively looking at how we can enhance the position. And the one where I think people have always thought in our own verbiage, we said, well, in Great-West Life Canada, we're already a big player. There's not a lot of opportunities. Great-West Life in Canada itself through Canada Life is looking maybe not at big dollar acquisitions, but in enhancing the capabilities they have in their platform. So the TPA acquisition that you saw was a way to position Great-West Life in the group health benefits market by participating and part of the channel is growing. So it wasn't a big dollar outlay, but it has a strategic value to it. The same way a few years back, they bought Financial Horizons on the distribution side with individual advisers, a lot of -- one of the big MGAs. So even for Canada Life, even though they have a big part of the market, there's still things from an M&A point of view that enhance their capabilities. So it's a bit of a rambling answer, Geoff, but that's what it is, like it's across the board that we're looking at all times.

[Operator]

There are no further questions. Presenters, please continue.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Well, thank you, operator. And again, I'll just finish the way we started. Thank you, everyone, for being part of the call. We're really excited about what has gone on since we last met and looking forward to continuing with our foot on the gas pedal here and to reporting more good progress as we speak to you in the upcoming quarters. And I wish you all a good day and a good week. Operator, thank you very much. That's it for the conference call.

[Operator]

Thank you. And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.