Power Corporation of Canada

TSX:POW

Earnings Call Analysis

Strong Earnings and Strategic Focus Drive Solid Performance

Power Corporation reported strong Q2 earnings, with adjusted net earnings from continuing operations at $761 million compared to $842 million last year. Great-West Lifeco and IGM Financial were the main contributors, with Great-West exceeding $1 billion in earnings. Despite high inflation and interest rates, IGM showed growth, especially in Wealthsimple, valued at $1.5 billion. The quarterly dividend rose 7.1% year-over-year. Net Asset Value saw a slight dip to $50.24 per share, with active buybacks totaling $189 million year-to-date. The focus remains on returning capital to shareholders and strategic acquisitions.

Solid Financial Performance despite Macroeconomic Uncertainty

Power Corporation delivered solid financial results in Q2 2024, driven primarily by its main operating entities, Great-West Life and IGM Financial. Adjusted net earnings from continuing operations were $761 million, down from $842 million in the same quarter last year, mainly due to positive one-off items in Q2 2023【4:0†source】. Despite facing challenges like high inflation and increased mortgage rates, both companies showed broad-based earnings momentum, underscoring their strong operational strategies.

Significant Contributions from Core Subsidiaries

Great-West Life reported another cycle of strong earnings, exceeding $1 billion, particularly due to contributions from its four key segments. Notably, its U.S. retirement and wealth sector is poised to become the largest segment by year-end, supported by strategic acquisitions like Personal Capital and MassMutual【4:0†source】【4:1†source】. IGM Financial also performed well, witnessing growth in both its Wealth and Asset Management segments, and benefiting from a valuation increase in its Wealthsimple investment【4:1†source】.

Dividend and Share Buybacks Strategy

Power Corporation's Board of Directors declared a quarterly dividend of $0.5625 per share, which was in line with the previous quarter and represented a 7.1% increase from Q2 2023【4:0†source】【4:3†source】. Moreover, the company remained aggressive in its share buyback strategy, repurchasing $189 million worth of shares year-to-date, reflecting confidence in its intrinsic value and financial health【4:0†source】.

Strategic Investments and Earnings Growth

Power Corporation continued to make headway with its alternative investment platforms, such as Sagard and Power Sustainable. These units showed positive earnings contributions despite facing challenges in the fundraising environment for alternative assets【4:7†source】【4:13†source】. The company's investment in Wealthsimple was highlighted again, marking its third consecutive quarter of valuation write-ups【4:0†source】.

Fair Value Adjustments and Asset Rotations

The company's NAV per share at the end of the quarter was $50.48, down from $53.10 at the end of March, mainly due to decreases in the share prices of Great-West Life and GBL. This was partially offset by IGM's share price increase and gains in some proprietary investments【4:0†source】【4:3†source】. Additionally, GBL's shift towards private assets and capital returns through buybacks and dividends was significant, including a proposed extraordinary dividend of EUR 5 per share【4:7†source】.

Future Outlook and Strategic Positioning

Management expressed confidence in maintaining earnings momentum through clear strategies and efficient capital allocation across its business units. The focus remains firmly on generating sustainable cash flows and ensuring favorable returns to shareholders【4:7†source】【4:15†source】【4:19†source】. The company's proactive buyback plans and strategic investments are expected to continue driving growth, albeit with cautious optimism given the macroeconomic headwinds.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Power Corporation Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded on Friday, August 9, 2024.

I would now like to turn the conference over to Mr. Jeffrey Orr, President and Chief Executive Officer of Power Corporation. Please go ahead, sir.

[Robert Orr, executive]

Thank you, operator. Welcome, everyone, to our call. Thanks for being with us this morning. I will dive right into the presentation to go through our perspectives on the second quarter and overall commentary on how we are thinking about the business.

Before I do so, I'll remind you, on Pages 2 and 3, of the cautionary disclaimer statements regarding forward-looking information and non-IFRS measures.

On Page 4, you have the happy Mike shots of myself and Jake Lawrence, who is here with us today for your second call as CFO. So we're happy to be with you. And we've got some other colleagues with us here as well in case we get some very technical questions.

The Q2 results then -- right after that, you've got the various public disclosures on Page 6 from our different operating businesses, which I just make reference to if you're looking for additional information.

And with that, I'll start my remarks on the quarter on Page 7. Look, it was really, from our perspective, a very strong quarter, had really good financial results, broadly based, led by Great-West Life for sure, who had record earnings again this quarter, exceeding $1 billion for Great-West Lifeco. But really broadly based all the businesses across Lifeco, IGM, all reporting here good financial results or good momentum in their markets. So we're feeling very good about the businesses. And while market levels and stock market levels and interest rates at the short end have helped at the margin. Overall, the macro conditions are not all positive. As you know, high inflation, higher mortgage rates are impacting a lot of our client bases.

So from a flow point of view, there's a number of our businesses that are -- macro conditions are not helping. But aside from what's going on in the macro basis on a macro side, the earnings are based upon broad momentum across each of the businesses. The businesses have got clear strategies. They're executing on those strategies. They're building momentum from a revenue point of view, from a cost point of view, from a capital efficiency point of view. So it's great to see and it is happening across IGM and Great-West Life, but also our NAV-based businesses are also showing good momentum and good progress. So overall, feeling great about the businesses.

On the [ op ] side, we did continue to fundraise, but also work with partnerships at both the Power sustainable capital and Sagard to continue to build out their scale and their profitability and their revenue and as well in terms of our ability to generate cash and return capital to shareholders, which continues to be a high priority. We had some good news at GBL, which we'll talk about, but they're going to make a meaningful increase in their dividend, which Power Corp will enjoy when that is paid and we made progress on the standalone businesses, Peak, which owns [ Bauer ] and Rawlings, disposed of Rawlings. And so we in the -- just start of Q3 here, received a check of CAD 83 million from that disposal and also, I think, recorded gains somewhere around $42 million on the investment in the quarter. And we continue to be active on buybacks through the quarter buying $189 million year-to-date so far.

So with that, I'm going to pass it to Jake to walk through the financials, the NAVs over the next few slides. Jake?

[Jake Lawrence, executive]

Great. Thanks, Jeff, and good morning, everyone.

Picking up on Slide 8 of the presentation. As Jeff noted, Power Corporation reported solid earnings of another strong quarter from our main operating entities. That's Great-West and IGM Financial. As we often point out, these 2 companies generally form all of Power's recurring earnings. For Q2 '24, adjusted net earnings from continuing operations were $761 million. This compared to $842 million in the same quarter last year. I'll address the breakdown of these results on the next slide, but we'll just note here that Q2 of 2023 included a few positive onetime items.

On a per share basis, adjusted net earnings in the quarter were $1.17 compared with $1.26 in the same quarter last year. I'll also point out that the reduction in average share count from our ongoing and active NCIB program contributed approximately $0.03 to EPS. Adjusted NAV at the end of the quarter was $50.48 per share at June 30 compared to $53.10 per share at March 31. The decrease in NAV quarter-over-quarter was primarily due to the share price decrease in Great-West Life and GBL which was partially offset by IGM's share price increase and fair value gains in some of our proprietary investments. As of yesterday's market close, Power's NAV was $50.24, reflecting a rebound in Great West shares, offset by decreases in IGM and GBL.

Finally, this quarter, Power Corporation's Board of Directors declared a quarterly dividend of $0.5625 per share, in line with last quarter, and that's up 7.1% from Q2 2023. Now, turning to Slide 9 to break down the earnings. Great-West once again delivered strong earnings of over $1 billion with contributions to growth from each of its 4 segments. And as Great West noted yesterday, its U.S. retirement and wealth business in Power is on track to becoming the largest segment in its business by year-end. And this is very much in line with the growth strategy that was embarked on several years ago, but further fortified with acquisitions such as Personal Capital, MassMutual, and Prudential.

IGM also reported strong earnings this quarter with year-over-year earnings growth across its 2 segments: Wealth Management and Asset Management. Average assets continue to grow despite a challenging macroeconomic environment. This past June, IGM saw heightened gross flow and redemption activity in advance of the Canadian federal tax change, which came into effect during the quarter on June 25. In Q2, IGM wrote up its investment in Wealthsimple by 15%. This reflects the strong business performance we saw in Wealthsimple, including revised revenue expectations as well as an increase in public market peer valuations. This marks the third consecutive quarter in which Wealthsimple value was written up.

I'd like to remind everyone that Power Group's combined investment in Wealthsimple is now valued at $1.5 billion, up from $1.3 billion last quarter, of which Power share is $563 million and that's up from $490 million at Q1. Moving to GBL, whose comparative earnings contribution was impacted by a positive net recovery last year related to the decrease in Webhelp's NCI put rate liabilities. As a reminder, these put right liabilities no longer exist as they were extinguished as part of the Concentrix merger.

As well, GBL received lower dividend income this quarter following the sale of its investments in Holcim and GEA. This is part of GBL's broader strategy of rotating its portfolio in favor of private assets and returning capital through buybacks and dividends to shareholders. As mentioned earlier by Jeff, this strategy was on full display as GBL announced a proposed record high extraordinary dividend of EUR 5 per share, funded by gains from its partial sell-down of its investment in adidas and strong cash earnings. This dividend will, of course, be subject to approval at its next shareholder meeting.

Moving to our alternative investment platforms, Sagard contributed positive earnings this quarter, driven primarily by performance in Power's investment in Sagard's private equity funds. Power Sustainable continues to scale with 2 recently announced strategy launches. This quarter's results also include fair value decreases in its energy infrastructure strategy. Sagard and Power Sustainable continued to deliver strong fundraising despite headwinds in the fundraising for alternative assets.

Continuing with the other investments in stand-alone business lines, this quarter saw a modest contribution to earnings as the gain realized on the disposal of Peak's minority interest in Rawlings was offset by a non-cash impairment charge taken on Lion. On a comparative basis, Q2 '23 included a $97 million gain on the sale of Power's investment in Bellus. Turning to Slide 10, where we break down the $50.48 net asset value per share as of June 30. As our publicly traded operating companies represent over 85% of our gross asset value, they generally account for the majority of the change in NAV. This quarter, the share price trading of Great West and GBL accounted for the decrease in NAV per share. As noted, this was partially offset by a share price increase at IGM as well as fair value increases in some of our proprietary investments.

I'll note that the NAV closed yesterday at 50.24, which does reflect that rebound in Great West shares, partially offset by declines in IGM and GBL. Looking at the balance sheet, Power's cash and cash equivalents stayed relatively stable at $1.5 billion at June 30. We did remain active, as Jeff noted, in buying back shares and spent close to $100 million in the quarter under our NCIB program. And this is reflected in the lower share count you see near the bottom of the page.

With that, Jeff, I'll turn it back to you.

[Robert Orr, executive]

Okay. Thank you, Jake. So I'll just make a few high-level comments on our various businesses.

On Page 11, we have the financial results for the last 5 quarters for Great West. Again, extremely strong earnings. We've mentioned the 13% growth year-over-year in base earnings, led by Empower for sure, but across all of the businesses in Power, Canada, Europe and the Capital and Risk Solutions businesses, we had good growth. Capital and Risk Solutions looks like it's down year-over-year. It had the implementation of the minimum tax -- global minimum tax, which primarily hit that business so that they absorb that in the results. But on a pretax basis, the business continued to grow. So strong broadly based earnings, which is great to see. It was a clean quarter as well. I mean, there was not a lot of noise. A few items that offset, for example, at Empower, there was a catch-up fee of approximately $40 billion related to the Pru transaction. I think it was the number, I may not have that exactly. There was an offsetting impairment related to credit in the commercial mortgage portfolio.

So you've got those 2, but the underlying number was basically a sustainable number if you can put it or a clean number is a better way to put it. So the quality of the earnings we thought was great. There's not a lot of noise through them. And just generally, since we moved to IFRS 17, you have a lot less onetime items coming in and out, which I think is a positive in terms of all of us and all of you getting comfort around sustainability of earnings levels. The Pru transaction was completed in the quarter, and so that's behind us that was successfully done. That Jake mentioned the 3 deals. All 3 have been successfully integrated great client retention synergies achieved and the group's long-standing tradition of being all over the execution of M&A transactions continues. It's one thing to get deals done. It's another thing to then successfully integrate them. So declaring victory on the Pru transaction and the team focused on execution here at this point.

And then I just finally point out that the ROE at Great-West Life is up over 17%, and that is at the high end of where the company's target ranges are, but great to see the return on capital being pretty [indiscernible].

Turning then to 12 for IGM. IGM produced really strong financial results but also -- so both IG Wealth and Mackenzie produced strong earnings, markets for sure have helped. But again, here, the macro environment on balance is hurting high inflation over the last several years, very high interest rates, high mortgage rates are impacting both IG Wealth business and Mackenzie's business and the fund business in general in Canada, as many of you would be aware, a lot of clients, particularly in some -- in the mass market, mass affluent, where a lot of the existing business at IG Wealth and Mackenzie exists. A lot of clients are really feeling the pinch. They do not have the cash to invest or in fact, they're drawing on their investments. So you got the industry basically, which typically is in net inflows of a couple of percent per year in those segments have been in outflows for a while here, and that's impacting the flows. But the markets themselves have helped the earnings levels.

The businesses continue to invest heavily in positioning our business for long-term future growth. I think across the -- then the investments, as you know, we have in each of wealth and asset management and IGM, we've got more mature businesses, IG Wealth Mackenzie, producing the lion's share of the current income, but we've got investments that position the company well as we look forward 3, 5, 7 years out and Rockefeller and Wealthsimple, doing extremely well. Jake mentioned Wealthsimple, I won't repeat that. And then ChinaAMC really performing well and Northleaf really performing well, great fundraising at Northleaf in an extremely difficult environment of $1.8 billion in new commitments in the quarter alone. So really great to see IGM's businesses all performing well.

You were pretty thorough, Jake, in covering GBL, I won't to add too much to the story. Returning capital to shareholders has been something GBL has done for the last number of years. We have not participated in the buybacks and neither as a fair family, but with them now using dividends as a tool to return capital to shareholders, we're going to enjoy the benefit of an 82% increase. I think we've taken at current exchange rates, about $90 million, $92 million a year in dividends from GBL, so an 82% increase. You can do the math. That should be somewhere around an extra $70 million when we get to 2025 increase. So starting to enjoy and participate in their strategy of returning more capital to shareholders, which will be able to flow through to the Power Corp shareholders, and they have continued to be active on their repurchases.

Okay. I'm going to spend a couple of minutes on ops then. And our strategy is not only a financial strategy. It's also a strategic strategy. There's a lot of things that we are able to do at Power Corp. that would be -- that are synergistic with Great-West Life and IGM and participation with GBL as well where things that we can do, I'll give an example of the fintech strategy we launched in 2015, which has morphed into part of Sagard's business, an important part of their business, but that is highly synergistic with what IGM and Great-West Life are doing. We think that we were able to do that by attracting a lot of talent into that business that we wouldn't have otherwise necessarily been able to do through our more traditional platforms, Great-West Life and IGM. There is an example, but I know across all of the examples, a lot of the strategies where there's a lot of cooperation, and we can do some things in these platforms that are perhaps more difficult for Great-West Life to do.

So there are strategic reasons. But from a financial point of view, we think it's also going to be attractive. And we make money through both the asset management activities and the investing activities. I'm going to talk a little bit about each of those on the asset management activities. We spent a lot of time focusing on the fee-related earnings which -- and we haven't spent as much time talking about the carried interest or in fact, the returns we've made on our proprietary capital. We're going to try and change the narrative a little bit on that as we move forward, we get greater visibility into it. It's probably -- I think our error and focusing a lot on fee-related earnings when in fact, they're not that meaningful at this point. And we've got businesses that are trying to get to scale are getting to scale, but where we have been making money is on the carried interest and on the proprietary capital.

So I flip you on the page to 15. You've got the -- basically from when we announced the strategy at the end of 2019, we had $3.7 billion on the left side of the page. In funded AUM, it's now up to $28.6 billion, of which $26 billion is fee-bearing. So good growth, and you see the dark blue line, basically, as we said, Power Corp has still got $2.2 billion of its own proprietary capital in there, which was just about the same amount we had 5 years ago. So we have succeeded in using third-party capital, a portion of which is Canada Life and a little bit of which is some of the IGM strategies.

On the right-hand side of the page, we do have $154 million in accrued carried interest in the platforms from the different strategies, we would have recognized probably about half of that into the P&L, and another half is to be recognized. So there'll be a minority interest in that because of the minority shareholders in Sagard and Power Sustainable Capital will get some of that. But we are making money on the carry. That will go up and down. There's some volatility to that. We get into a period where we get really weak markets to get into a drawdown and you could see some of that going backwards. But over time, we expect that to contribute.

If we flip over to Page 16, the $2.2 billion of prop capital that we do have is invested in different strategies. These are just the broad categories. There's many, many more funds than that. And it's a mix between fixed income type fee delivery income, credit, real estate, infrastructure, which either produces steady cash, not always earnings but steady cash flow. And then there are more venture capital in private equities, which the returns come in the form of capital gains and realizations. And we have different targeted returns on each of those. But overall, we expect to return over 10% when you look at the current mix. So on $2 billion of strategy, we expect over time to make a couple of hundred million dollars of value creation.

And we have in the past 5 years, realized distributions. We sold secondary positions. It's contributed to our earnings, contributed to our cash even more importantly and contributed to our share buybacks. So we will try to continue to focus on this and give greater balance to all of the areas that we think we're benefiting from our old strategy.

Speaking of returning capital to shareholders on Page 17, we've returned almost $1 billion year-to-date. I mentioned the 4.9 million shares that we had purchased up to June 30, and we have very strong cash balances at this point. We're in a strong position to continue to do so, and we'll continue to look for additional sources of cash flow to do buybacks. We think it's great value. It's NAV accretive. It shifts the balance of our portfolio over time to more earnings based and less NAV based, which we think is a positive and as well it lowers the share count, which means we have more dividends and more earnings for the remaining shareholders. So we'll continue on that as a priority.

Page 18, we pay obviously close attention to our shareholder returns. We are ultimately in business here to provide strong, attractive risk-adjusted shareholder returns. They bounce around. Obviously, these are all end date and start date sensitive, but we continue to be highly focused on our primary goal, which is to provide attractive long-term shareholders to -- returns to our shareholders. And then moving to '19 on the discount. It bounces around. We've been making really good progress over the past year on reducing the discount. It was down into the low 20s, and then it bounced back quite a bit in the last week or so through these choppy markets. So glass half full kind of attitude. If you love it at 22%, we really levered at a 28% discount. So we're not happy with the discount gapping out, but we'll view that in the positive light as being an opportunity.

And then I'm going to conclude again, where I started on Page 20, just talking about the business from a big picture point of view, we feel really good about the way the businesses are positioned across Great-West Life and their various businesses, IGM and their various businesses, GBL and the platforms we've got clear strategies in every area. We have got -- and we have management teams that are highly focused on executing those strategies. We're more in an execution mode than we have been, say, going back a couple of years ago, which is not to say we always have our eyes open for the next acquisition, but the teams have got clear strategies they're executing and they're making progress.

We have a mix of businesses, some of which are more mature, producing high income. And we have a number of businesses that are creating the growth either today or into the future. So we've got a good portfolio mix of mature and income-producing businesses. The macro environment is going to be what the macro environment is going to be. We'll navigate through whatever comes our way, and there's providing some tailwinds right now, but also some headwinds.

So with that, prior to opening it up for questions, I just want to do one last thing, which is -- I just want to recognize Jeff Kwan, who I think is on the line. He's not on the line, okay? I will recognize Jeff Kwan in any event, who has covered the group going back to 2014, and Jeff has done a great job. Appreciating that the role of an analyst is to inform the investor base about what's good, what's bad, what they don't like, what the opportunities might be, and that is the role of all of the analysts. Nonetheless, Jeff has always been very thorough, very professional, very clear in his communication and always curious to learn and understand what's really going on in the businesses.

So we thank Jeff and congratulate him and wish him good luck in his new endeavors.

And with that, I would like to, operator, if you could open up the lines for questions at this point.

[Operator]

[Operator Instructions] The first question comes from Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, analyst]

First question on the buyback activity, it seems to have picked up a little bit of the pace post quarter. With this recent sell-off, you have the excess cash position you have today, more cash coming in the pipe over the next couple of quarters, especially with the extra divi from GPL. Is that something you're looking to potentially accelerate in this environment? And how are you thinking about that?

[Robert Orr, executive]

Yes. So I'm not going to telegraph all of our purchase activities ahead of time. I would get scoring from all of the traders I used to know when I worked at BMO Nesbitt Burns. But having said that -- no, look, I said 20 -- if you like the stock at 22% discount, you got 11% to 28%. We've got some weakness here, so that's probably an opportunity. We'll play that -- we try and be in the market throughout the year, but there's no question that when it's -- the stock is weak. There's more opportunity there, and we're buying it at better prices. So we'll -- Jaeme, I'm not going to answer the question directly, but those are factors we look at when we decide the levels of buybacks that we're doing.

[Jaeme Gloyn, analyst]

On the carried interest disclosures, I appreciate the extra color around that and how you're thinking about the proprietary capital returns. That proprietary capital has been about $2.2 billion. You're highlighting carried interest as a more meaningful component today. They can obviously fluctuate. But is there a view to potentially dedicate more proprietary capital as you're continuing to build those strategies to drive some more of that carried interest upside? Or should we still take the view that, that Power Capital is fairly stable and really focused on bringing in a third party?

[Robert Orr, executive]

Okay. So just a clarification, and then I'll address your question on the seed capital. So the carried interest actually comes through the GP, not our LP investments. It comes through the general partner. So the general -- as you know, on let's say, private equity fund, there will be a 2% fee and a 20% carry beyond at target return in some of our infrastructure funds that carry kicks in at a 15% return and on some of the credit funds it's at a lower target level, but there's carry typically on all the funds. And that carry gets paid to the general partner Power Sustainable Capital or Sagard, of which we own an equity interest in the GP, we're controlling shareholders in both. Some of the carry gets paid to the portfolio managers, some of them gets paid to the management of the GP and then the GP shareholders get the balance.

So the $154 million is the carried interest that we've accumulated to date that has -- as a GP and Sagard and in ourops businesses, not as an LP seed investor. So just to make that distinction. To your question on the seed capital $2.2 billion and whether we would increase it, that's not what we've been doing to date. As you know, we've told each of Sagard and Power Sustainable Capital that we will keep the overall capital level the same and they need to build their businesses based on third-party capital, including Canada Life, which is a better way to say it is non-power capital. And that is our current view. Would we ever change that to facilitate faster growth? Yes, I wouldn't say we never -- that's not our current stance, Jaeme, but I hate to say we'd never do that circumstances either because we thought there was an opportunity to get great returns or we thought it was really -- it would really make a difference in moving them forward. We'd be -- we never say never to strategy. You're always open to changing what you do. But at this point, the $2.2 billion, and I don't want to put two point a point on it, that level of capital is what we expect to have invested in the businesses.

It will also jump up and down a little bit with market values or all of a sudden, we just got a big realization and we just got a big funding and a drawdown where we've been asked but a fund. It will bounce around, but managing it to that level is our current strategy. I hope that answers your question.

[Operator]

The next question comes from John Aiken with Jefferies.

[John Aiken, analyst]

As Jamie noted, you've got a very strong cash balance, more coming in from Peak in the Q3 and then in 2025, obviously, coming in from GBL. Jeff or Jake, this is a big cash balance. Should we be expecting deployment at some point over the medium term, call it, the next 3 years or something large? Or are we just holding cash balance because of the unpredictable nature of the market these days?

[Robert Orr, executive]

That's a good question. Let me go to prioritization of our capital and Jake, you're welcome to jump in, in any way that you would like after I make a comment. So we're trying to give a minimum balance of cash and then we have inflows and outflows that occur and they're not always predictable. We have realizations because all of a sudden, Peak sales, Rawlings. We sell Bellus. We get distributions from our investments in the private equity or in the VC world out of our proprietary capital. So you get cash that's coming in and you don't always see it coming 2 years in advance and it's market dependent in some ways as well.

And then we get draw-downs. We've got commitments. The $2.2 billion is the funded, but we've made additional commitments to different funds. And as those funds deployed will get drawn down. So the nature of our future cash generation is difficult to put a precise focus on it. So that was really how do we generate cash. But we expect that, that will continue to generate cash through those various sources going forward and add to the balances. Now on the capital allocation question, the #1 priority, absent our different businesses requiring and wanting to look and needing capital to do something that's attractive to them, and I'll give some examples of that. The #1 priority will be to return capital to shareholders by way of a buyback and that relates to Jaeme's question, is trading at 22% discount trading at 28% discount.

It's hard not to look at that as a pretty attractive place to put the capital. But we've always said and if you go back over the past 20, 25 years, if Great-West Life or IGM have an opportunity to make some acquisition and there's equity required, we have always jumped in and supported those issues. I go back to many of the equity issues they've done. It hasn't happened for a while. They haven't required equity, but we've always kind of underwritten those with a lead order. That will be a priority, supporting our companies will be a lead order. And we'll be -- the lead priority would trump and those circumstances, buybacks.

But we don't have -- we're not kind of saving it up if your indirect question is we're trying to build the cash up because we've got something that the curtain is going to open and we're going to -- we're not building it up. The fact that it's grown to this extent is we had some big realizations, particularly with the China strategy, as you know. And so to my point, the cash comes in, in a lumpy basis sometimes and it happens to be at a higher level than it's been for a few years right now. That's as much color as I can give on you. So prioritization is buybacks absent our companies needing us to support them on an attractive acquisition.

[John Aiken, analyst]

Jeff, you did answer what I wanted. And then just as a quick follow-on, as we've seen GBL kind of shift its strategy and kind of a bit surprised with the special dividend. Is that something that Power would ever consider given your cash balance?

[Robert Orr, executive]

I think our priority is buying shares back versus special dividends. That would be the view of the company right now. I think we get better value for that long-term. I think it's -- again, we're buying -- we're doing a bunch of things. We're buying the stock at a discount. We're shifting the mix to more earnings-based. And while we really like our NAV-based businesses, our shareholders communicate to us that they struggle to value our NAV businesses and it's a lot easier for them to value the earnings-based businesses and those streams. So we're going to keep having the NAV businesses. They do lots of things for us. But by buying shares back, if you do the math on it, we're actually shifting our mix over time.

And then it also produces, I think, more longer-term benefits. If you take $1 billion and buy $1 billion stock back and you eliminate 25 million shares, well, that's another $50 million, $60 million of cash flow that we have available to increase the dividend over time. Whereas if you do a onetime, it's onetime, it felt great. Everybody goes off and enjoys the quarter. And then -- so our bias is heavily towards doing buybacks versus doing -- versus doing special dividends. But I won't speak for the GBL Board. I mean that's a whole other dynamic and they have their own rationale for doing it.

[John Aiken, analyst]

Jeff, I'm glad that we're philosophically aligned, I'll re-queue.

[Operator]

The next question comes from Doug Young with Desjardins Capital Markets.

[Doug Young, analyst]

Just back to the Sagard discussion, just kind of 3 areas I want to dig into the carried interest. So it sounds like $77 million, not realized, call it, $75 million not realized, that's net of comp. How much of this would be attributed to Power? Is it $50 million? And assuming no change and I fully get this can bounce around. But like how long does it take for this to kind of flow through into earnings?

[Robert Orr, executive]

So that would be after -- that would be the share of the shareholders after employees [indiscernible]. Yes, net of that. But it is for all the GP owners. And I think Sagard is really the very contributor to that. And on an undiluted basis, we would own 60-odd percent, I think, is somewhere around there, fully diluted, we're at 52%, 53%. So the realizations of it I can answer that question, there's going to be some of that, which is a venture capital, private equity and that's the question of when is it realized? And when does it get paid? It will be in future years.

I hope the balance is a lot bigger, by the way, is that grows. But I don't have a good visibility and probably Sagard themselves doesn't have good visibility on the realizations. But we would share in that pro rata to our equity ownership in Sagard. That's the way to think about it. So it's not -- it would -- there'd be a minority interest that would participate in that. And so point of illustrating, it wasn't to say and half of it is flowing through the P&L approximately all these. So there's $75 million with the minority interest in there, wow, there's $40 million there that you should all be getting excited about. But the point was to illustrate that the economics that are being driven out of the GP are not just from the fee-related income because we have -- as I said earlier, we're probably guilty in our communication of having put a lot of emphasis on the fee-related income and the reality is building up these businesses to get them to scale where they're going to make a meaningful contribution to Power Corp as a long road.

But you step back and say, well, yes, but we've got other drivers of -- aside from the strategic reasons we're doing it, we've got other drivers or drivers of economics. It's carry. We hope to make a lot more money on carry going forward. And again, the $2.2 billion, we kind of not really focused on in the short to medium term, that's going to be the prime driver of the earnings coming out of these strategies and we've kind of neglected that in our communications. So as we've discussed that, we're realizing we probably put the emphasis on the wrong salable here for a while and we're going to try and be more complete in our disclosure.

[Doug Young, analyst]

And you went to where I was going next. And that $2.2 billion, I think -- and I know this isn't going to be consistent, but you're aiming for a 10% plus return on that. That's $220 million. Let's say you don't increase that $2.2 billion stays constant, $220 million of cash coming in. There's really no offset or use, that's really what we could think of in terms of funding buybacks at the minimum. Is that the right way to kind of think of it?

[Robert Orr, executive]

Yes. But what I would say is that the realizations of that cash are different. But that's why I pointed out that half of it is in equity infrastructure, private credit, royalties, those kinds of strategies, which are designed for income investors to produce steady income, not always net income or equity infrastructure or excuse me, the infrastructure funds, for example, have actual P&L losses to them, but they produce a lot of cash because -- so I won't get into the detail, but -- so we're looking at this on a cash basis. They produce -- that part of the portfolio produces steady cash returns.

The private equity and the VC is through realizations. And if you just follow the private equity market or the VC market you go through like the last 2 years have been -- they've been very difficult to do realizations, right? That's why the whole private equity in the ops market is backed up. It's just a difficulty in funding. The reason there's difficulty in funding is that there's difficulty in realizations. And so -- and the money is not getting deployed. So the whole system is back up, starting to loosen up now, if you have been following that.

So the realizations on that portion of it are dependent on you creating capital gains and then they're actually being sales of the portfolio, which can sometimes drag out and you get 2 years where you have a lot and it arrange and then you got a couple of years where it all dries up. And so they are not steady. They're episodic. So you -- so the $220 million or $250 million, depending we said we think we're going to get -- we're hoping to get a little more than 10% on the mix, but it's around there. We'll not be $250 million every year. It's going to be a portion of it is going to come in steady income and a portion of it will come episodically.

Now there is one other way we can realize cash on that, which we've also utilized as a tool. You'll remember a couple of years ago, we sold for, I think, about $300 million. I'm not too far off, a secondary position in Sagard 3, I think it was. And there's a big secondary market, as you know, in the ops. I could go on a lot about that for you, but there's buyers of secondary positions. And sometimes we get a bid for a position we have for a fund position and we just kind of liquidate it. That's a third source of cash, which can create, again, kind of episodic, if I can use that word realizations. So it's not just straightforward as we're not buying a bond here and collecting it every quarter. That money will come in, in different ways. And back to my comment about predicting the cash flow here, we're confident we're going to get a lot of cash out of it, but it's hard to exactly put a timetable on when it comes in.

[Jake Lawrence, executive]

Doug, it's Jake. The accounting geography will also be complicated just a little bit. The energy infrastructure will have some amortization of the assets flowing through and so that will offset some of the earnings you see, just given consolidation. But to Jeff's point, they are economically profitable. They will be producing cash flow. The top part, the income strategies will have more of a consistent flow to them with the bottom portion around capital appreciation really being dependent on those episodic activities as Jeff noted.

[Doug Young, analyst]

No, that makes sense. And then can you remind me, I don't think you do, but do you actually hold Sagard business, not like the actual business itself, not a fan. Do you hold that? Is there value of that in the NAV?

[Robert Orr, executive]

Yes, there sure is. And we have been -- it's been written up with the ADQ now [indiscernible] transaction last year that was done at a value. I think it valued Sagard over all, I'm going to say, $500 million for the entire GP. I'm looking at my colleagues here. USD 500 million. And our share of that is on the books for 200-something over 1/4, 290 U.S. or Canadian. 290 Canadian is what we have in our NAV for our GP position in Sagard, okay? So that -- and we have not -- like that's a nice capital gain on that.

[Doug Young, analyst]

And then just lastly, Jeff, maybe you could put your investment banker hat back on here. But is -- like you get to feel that the market is more conducive to getting the rest of the non-core businesses off your books, like you've done some -- within Peak, there's still some left in Peak. Now, you've got beyond Lumenpulse mix still in there. Like what's your feel in getting some of those noncore businesses off the books?

[Robert Orr, executive]

Yes, your crystal balling on this thing is difficult because -- so if you're asking me whether the Fed is going to be able to land the work interest rates down quickly enough and avoid a hard landing versus a soft landing. I'm not going to answer that question, but that has bearing on what the [indiscernible] yes. So obviously, if we go into a recession, it's going to be tough to do things. I think the business of maybe looking at it another way, I think the business of Peak is doing well across the board. They were doing well in their sports business, is doing well in their hockey businesses.

I think that Lumenpulse's business has gone through fits and starts, but they've got a growing backlog and growing momentum on their business. So I think rather than talk about the market environment, which I cannot predict, I think the business of Lumenpulse, we think, is picking up momentum, which is a good thing. And Lion is facing challenges, as you would have seen a big reduction in the workforce a couple of weeks ago of 30%. They've got a nice position in the electric investment market. Big, big issue for them is that the subsidy programs for the various municipalities that were announced across Canada have not been put in place in a way that the different municipalities can act systems. So they've built out a lot of capacity and buses with a lot of demand for their product that is backlog because they can't get the federal funding that was expected.

And like you've seen in the electric car business where you've had subsidies to buy Teslas and whatnot, they -- the economics of the business are dependent on public policy helping the sale of buses and that's backlog at this point. So they have got challenges in cash flow. So does that get resolved? How does that get resolved? I think that's a difficult one to see us trying to be making any moves there with Lion given the current state of their business. So we'll just wait and see on that one.

Anything to add on that, Jake?

[Jake Lawrence, executive]

Yes. Doug, what I would point out is when the pivot was made back at the end of 2019 towards financial services, as you correctly note, these were identified essentially noncore stand-alone businesses. The following 4 years, I'd say we're extremely challenging, right? We had a pandemic. We had a massive spike in rates, which obviously hurt financing and valuation activities. Assuming the next 4 years aren't as challenging, I would expect further progress would be made than what we would have had in the last 4 years.

[Robert Orr, executive]

Obviously, no question. I mean this is a -- I've said this before. Had you told me or us back in December '19 when we announced the strategy that we would still own these businesses, I would have said now, come on. So that's another way of saying with what Jake said. We went through a few challenges here in terms of market ups and downs. But it doesn't matter. Like we're -- in the grand scheme of things, we continue to execute on the strategy and the opportunity to realize those funds will present itself and we'll take advantage of it when it's there. So we're very committed to getting it done.

[Operator]

The next question comes from Graham Ryding with TD Securities.

[Graham Ryding, analyst]

Just wanted to maybe talk about the ops platform that you have and the idea of penetrating the retail channel. It seems to be an opportunity or a focus for a lot of alternative asset managers in the market. So how much of a priority is that for Sagard or Power Sustainable? And if so, how are you going about the potential opportunity?

[Robert Orr, executive]

Yes. Great question. And we do view the -- the buzzword is the democratization of ops. So that is no question a priority not just for Sagard, Power Sustainable Capital, but also for Northleaf, for Mackenzie, for IG Wealth, for Empower, both as distributors and as manufacturers. We view that as a big opportunity. The more you go into -- to do so requires different structures. So in traditional ops business, you go out to an institutional buyer or a very large family office and you say, we're going to launch a fund and it's going to draw down over the next 4 years and we're going to call on you every time we need money.

So going out to thousands of investors and millions of investors, you need to have different structures to manage that. And the -- as well, you end up with different products. Hence, secondaries, which don't have long drawdown period, secondary funds tend to deploy their capital very quickly and has also the benefit of diversification can be highly attractive as you move into smaller markets. And by the way, Northleaf has got that and that's what, from your performance, was that the Sagard purchased pounds, sorry, yes.

So the -- I got the name wrong there, excuse me. But that's why Sagard has gone into secondaries. Northleaf is already in the secondaries business. That has a lot of appeal. Secondly, when you then look at it from a retail kind of smaller investor, their multi-asset programs and multi-asset strategies are probably the easiest way to think about it. So rather than them going out and buying a fund itself if they're in a fund-to-fund structure or they've got a portfolio approach where they turned over the management of their overall portfolio to the house, like IG Wealth has.

As you may know, IG Wealth has got 82% of its flows coming into managed assets where the investors simply said to IG, you manage the portfolio or in many of Power -- excuse me, in Power's strategies where the money is in multi-asset, you can allocate 5% of the multi-asset or 10% of the multi-asset to alts because it's not a single fund where you're going to get liquidity concerns that there's a run. You're in a multi-asset strategy that's got a long duration to it and so there's lots. There's lots of work that needs to be done to think about that. And the final thing I'll say maybe going on too long here for your answer, but Mackenzie has launched a bunch of all funds.

And in order to deal with the liquidity issue, they've got basically windows where you've got liquidity, you can take 5% out every quarter, you got to give notice, et cetera. So there's different structures, but this is a huge focus across our group. And our Canadian firm, Sagard, Power Sustainable Capital, Northleaf are also touching base with our U.S. distribution platforms, including Empower, including Rockefeller and looking for distribution into different markets. So we are leveraging that across the group. Hopefully, that answers your question, Graham.

[Graham Ryding, analyst]

And then probably just a quick one, but you touched on the targeted returns, Slide 16, just for your $2.2 billion of capital that's proprietary, roughly 10% plus. What's your track record been over the last 5 years? Have you been able to hit those targeted thresholds?

[Robert Orr, executive]

Yes. I think if we went through all of these existing strategies, they've all got track records. I want to be careful to make a blanket statement. All is too strong. I think -- the reason we feel good about our ability to grow these businesses is that they've got track records in these various areas that have demonstrated these returns. We've got some new strategies where they are fund managers that have joined our group. So in particular, I'll point out Tom Murray in Power Sustainable Capital, who's got an infrastructure debt fund, but he's got a record for -- I Squared and with Apollo, it's not our record, it's his record, but he's got a very, very long-term track record and credibility with investors.

So we -- the reason we think we'll be able to go out and continue to raise money is these existing strategies have produced attractive returns. So -- and the ones that -- we had some other strategies that haven't done as well that have been closed that we're not in anymore.

[Operator]

There are no further questions. I would like to turn the conference back over to Mr. Jeffrey Orr for any closing remarks.

[Robert Orr, executive]

Okay. Thank you, operator. Thank you again for being with us. Thank you for your interest and your coverage. And we look -- we wish you all, hopefully, you get a little bit of time to enjoy what's left of the summer and we look forward to talking to everybody in the very near future.

Thanks, everyone. Have a good day. Operator, back to you.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for participating and you may now disconnect your line.