Power Corporation of Canada

TSX:POW

Earnings Call Transcript 2020-Q3

[Operator]

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

[Robert Jeffrey Orr, President, CEO & Director]

Thank you, operator, and welcome, everyone, to our quarterly analyst and investor call. It's great to have you with us today. Thanks for joining us. Just open it up with the regular disclaimer statements on forward-looking statements on Page 2. And also a disclaimer on Page 3 regarding non-IFRS measures. And so with -- today, in addition to myself, I've got Greg Tretiak, Executive Vice President and Chief Financial Officer of Power Corporation. And I will just open the comment up by talking a bit about the third quarter. No question, this was a quarter where Power and its major operating businesses made really big strides in advancing our value creation agenda. Our major public companies had strong financial results in the face of COVID-19 and at the same time, announced a number of highly attractive transactions that are not only strategic but very accretive to earnings on the whole and value-enhancing. At the Power level, we continue to make good progress in building out our investment management platforms as well as enhancing value of our stand-alone businesses. And all the while across the group at the public operating companies and at Power, we continue to push forward on our efforts to enhance our communication to the market participants, both in terms of the content, the way we present and in terms of the frequency of the meetings. So on Page 6, You've got the fact that each of Great-West Life IGM and GBL have had their earnings out and their own calls or releases, and the point of this call is not to repeat the material that was presented by them. Rather than that, what we're going to do is provide our perspective on some of the key developments and then talk about some of the developments at the Power Corp level itself. Moving along to Slide 7. I think the word frenetic is probably not inappropriate when you talk about what's been announced over the last few months. There were 5 pretty significant transactions for them at the operating companies plus the little simple announcement just after the quarter end. Some -- and really significant, I think, in these deals in many ways. I'm going to address them in the pages that follow, so I'm not going to go through them on this page, but you can just see the pace of activity. And this didn't all happen, obviously, in the third quarter. People at Great-West, at IGM, across Power have really been working extremely hard on many of these, and they fell into place in this quarter. But lots of people have been working for a long time to make all of this a success. I do want to point out 1 thing on the page, which is not a transactional announcement, but the leadership changes at IGM and my first chance to kind of publicly acknowledge what went on there at IGM. And first of all, thank Jeff Carney and recognize what Jeff did from 2013 to September, when we announced his retirement as CEO of IGM. And what he did really for IGM was fantastic in terms of helping to reposition Mackenzie and its leadership position, something that Barry McInerney and the team have done a great job of continuing to build on really setting IG Wealth up for future success, putting in place an incredible team. And then finally, when he was diagnosed with early onset Alzheimer's, dealing with that in a way that allowed us to go out and properly plan, how we were going to replace him and in effect, build on what he had done. And so Jeff has done an incredible job. And we're lucky that although he's no longer in a management position, we're going to benefit from his ongoing counsel and as an adviser to IGM and to the group.Very, very happy with what we now have as a leadership team, very fortunate and thrilled to have James O'Sullivan join us as a full-time dedicated CEO of IGM. And then with the strength of the team at IGM, we've got Damon Murchison as CEO of IG Wealth. And of course, Barry McInerney and Chris Reynolds, carrying on in the job they're doing and building out Mackenzie and IPC. So the whole thing -- we're thrilled with the management team, and I just want to acknowledge that here on this call. Okay. Let me move along then and pass it over to Greg Tretiak, to walk us through the next few slides and talk about the quarterly results.

[Gregory Dennis Tretiak, Executive VP & CFO]

Great. Thank you, Jeff. I'll take you straight to Page 9, and begin with the overview of the change in PCC's net asset value. So looking at the bottom of the table charts, you can see at September 30, $34.94 is the share per -- I should say, the NAV per share compared to $30.79 in March. That's up 13.5%. When I looked this morning, I think we're -- since then, since September 30, I think we're up another 11%. So good strength in the NAV appreciation over the course of the last little while. Looking at the publicly traded companies, you can see that they were up 12.4% as a group. I just mentioned Pargesa and GBL, that transaction to eliminate Pargesa moving well along, and you can see that the NAV has increased from March as well there. Their net asset value at GBL on March 31 was something like $15.9 billion; and September 30, it was $18 billion. A couple of other things to call out on the slide, if I could, and that would be -- take your eyes down to Power Pacific. Power Pacific almost at $1 billion. You can see that it's up 37.4%, outperformed the CSI by some 20% during the quarter. And we have a slide on that, and we'll speak to it in more detail a little later on. Then a little further down the line, you can see the Fintech investments. And that appreciation there, you can see at 78.9% is reflecting basically the transaction that Wealthsimple announce in October, where they raised capital at a value of $1.4 billion premoney for Wealthsimple. And the only other comment I would have on this slide would be that I'll just remind folks that not everything is mark-to-market on a regular basis, as we do all the publicly traded securities. In particular, I'd call out China Asset Management, which has basically carried its equity accounted value. With that, I'd go to Page 10 and just a brief overview of the results. A couple of comments. One, this is a new presentation that we've used here and trying to live up to our initiative to simplify things and actually be a little more transparent. And so we've done that, not only in this particular presentation of our results, but also in our press release and in our MD&A. And the one thing you would have seen is the way we're presenting the contribution from Great-West Life, IGM and Pargesa. We used to allocate all the consolidated entries to those entities. And what we've done and chosen to do is actually show the 3 as they reported their earnings. So it's much easier to go from their earnings to our share of their earnings with no adjustments. So it'd be very clean and should be very obvious to you, and you would have seen this in their reported results. So looking at the consolidated entries, there's a number of consolidated entries in there. One in particular that we're going to call out, and it's called out in that bullet at the, I guess, the sub-bullet right on the top, the re-measurement of the put liability on the noncontrolling interest in Wealthsimple and Webhelp. As I mentioned earlier, that there's a significant increase in value in Wealthsimple and also at Webhelp. And that led to, obviously, a fairly significant gain. However, when there are consolidated entities, those gains are not reflected in the P&L. And that's not like it used to be. Now I'm showing my age, quite frankly. There used to be something called dilution gains. But since we've adopted IFRS, there are no such things. And gains, when you have a consolidated entity, do not flow through the P&L. So that will be recognized in equity in the fourth quarter. However, associated with that is put rights that we have to revalue in the current period. And those put rights are in relation to options held by Wealthsimple shareholders. Mainly the noncontrolling interest, quite frankly, not shareholders plural, but just the noncontrolling shareholders. And those put rights have to be marked and reflected in the P&L. And in the current period, we did that, and it's resulted, obviously, in an expense in the P&L. And it was -- represents $0.16. $0.10 for the Wealthsimple mark and $0.06 for the Webhelp mark. And when you look at this presentation, you'll find the $0.06 affects the Pargesa line. $0.05 in the consolidated entries. That's Lifeco and IGM's share of Wealthsimple's mark, and $0.05 at PFC. And so when you look at these results, you -- we think you should take into consideration that, obviously, that $0.16 added back to the $0.65 would have reflected an $0.81 quarter, which is more comparable to the Q3 result. We have slides later in the deck that address the platform contribution, also China AMC, and also the corporate operations And so I will turn it back to Jeff, and we will address those individually.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Thank you, Greg. So I'll turn over to the next page, which is a restatement of our strategy. And you've seen this slide before, but still relatively new, so I'm going to keep repeating it for a while, so that it's well understood. The strategy of Power Corporation is one that is focused on financial services, not diversification. The public operating companies, which after all represent some 79%, 80% of the gross asset value of Power Corp remain a very important part of our strategy, and they are continuing to pursue their strategies with our involvement and support to grow their value through organic and M&A transactions. But at the power level, if I can kind of describe the words that are there. We're going to streamline and simplify at the power level and we're going to build value through the investment management platforms that we have. If I can create a vision for where we see it being several years out, you're going to have a much simpler company with investment platforms that have seed capital that we'll be able to show you and show you what we're earning on the seed capital; and have investment management companies that have revenues and expenses and contributions, and we're able to show you that. And we think, not only is that a recipe for creating value, but it's one that investors will be able to understand and hopefully value much more easily. And if we continue to push forward on our strategy to communicate clearly and enhance the clarity of our disclosure and the frequency of our interactions, we think that we will create value added at the Power Corp level that will be enhancing to what we're doing at the operating companies, the public operating companies. Page 12 is really just another representation, but we like to think of it in terms of how we organize our strategies around the 3 levers. You've seen them before, the OpCo organic levers, the use of M&A and then what we're doing at the holding company to enhance the value. So I won't spend any time on this slide. I would like to spend the next few moments, not going through the description of the transactions we announced because they've all been publicly described and you will have seen them before. I would like to just very briefly, on each, give you our perspectives on why we think they're exciting and why they add to the group and affect why we did them. So I'm on Page 13, which is the Mackenzie acquisition of GLC Asset Management. And at the same time, you have the contracts from Quadrus going back from Mackenzie to Canada Life. This does 3 things for the group: It enhances Mackenzie's leadership position in the asset management business in Canada. It also gives Mackenzie access to 2 channels, much greater access to the Canada Life retail channels. But importantly, for the first time, access into the defined contribution retirement channel in Canada. And so very important for Mackenzie, 2 important new distribution channels for them to -- for them to pursue. And then from the Canada Life perspective, a much stronger position in the wealth management market as they, in effect, have a prime supplier with much greater and broader capabilities and are -- through this transaction, also have complete freedom to go out and use third-party suppliers as they have in the past, but this, in fact, facilitates that to be able to provide the very best products for the Canada Life clients. So we think those 3 things as a win all around for both IGM and Great-West. Let me turn then to Page 14. So just on that, I guess, 2 days before the end of Q2, we announced the Personal Capital transaction actually closed. We got our approvals very quickly. You see at the bottom of the page, it closed on August 17. This transaction, I think, is really, really exciting. It does 3 things for Empower, Great-West Life's U.S. retirement defined contribution player. It adds a best-in-class digital wealth management platform. Personal Capital is a California-based digital hybrid wealth management business, which has outstanding technology, client experience and value, and it's quickly growing. So it's a direct-to-consumer business now that Empower has in Wealth Management. Secondly, Empower was already very focused on building their retail business on the money that comes out of their defined contribution business, the so-called rollover and roll-in money, the personal capital tools and technology implanted into that is going to enhance that business significantly. And finally, the personal capital tools and experience embedded in Empower's defined contribution business itself will enhance the experience and enhance the growth prospects of that business, very exciting. Before I leave the page, I want to make a point that we've talked a lot about Power's or in the past, Fintech strategy. And there were, really, 2 major investments that took -- that were the most significant capital investments across the group. One of them was Personal Capital, which IGM put about USD 145 million into over 4 years. And the other was Wealthsimple. The rest of the Fintech strategy, while very exciting, the Portag3 strategy and the Diagram strategies really didn't -- not a lot of capital. Those were really more people build outs. But the capital went into Personal Capital and it went into Wealthsimple. And this transaction validated that move because it turned out for IGM that they made a very good return on their money. And as the auction came, we were able, through Empower, to now have personal capital as a real value-added piece of the Great-West Life platform. So this is 1 of 2 Fintech investments we made, and it's turned out very, very well. Okay. Turning along to Page 15. Really, the biggest transaction by far the most meaningful over the last few months that we've announced is the MassMutual transaction. It does, in my view, 4 things for the company: It solidifies and strengthens Empower's position as the #2 provider in the growing retirement business in the state; it's an $8 trillion market. It's still ripe for consolidation, I think, over the next 10 years; and we are a clear #2 to the industry leader, Fidelity, through this transaction. It's highly accretive, financially. This is a classic Great-West Lifeco cost synergy play. We know exactly how to do these. And so the deal is on very attractive terms that will be highly accretive to the earnings of Great-West Lifeco as those synergies are realized over the next 18 months following closing, which we expect right around the end of the year. Thirdly, Empower becomes very important to Great-West Life. Once we've done this in addition to the growth and the earnings we have at Empower already, Empower will be somewhere in the low 20s percentage of the earnings and contributions of Great-West Lifeco as you look out, say, 3 years from now. So this transforms Empower from an attractive business to an attractive business that's very, very important to Great-West Lifeco. And then the final thing is that together with the personal capital acquisition that I mentioned on the previous page, this gets Empower into a position where it can really attack the retail wealth management business. So it transforms it from a DC group player into a company that has a real retail business going as well. Very excited about this transaction. Page 16 is the Northleaf transaction that was announced on September 17. And again, this is going to be a very attractive transaction. It'll be accretive to earnings, but more importantly, I think it's really going to help the strength of our franchises. The first thing it does is for IGM, both Mackenzie and IG, provides them with very interesting products to go after new client bases, but also augment the returns in many other products for their existing clients. For Great-West Life, it does the same. They can embed some of these products and the products that they distribute to their clients as well. Their own balance sheet is looking for these kind of products, and it provides them with a direct access to Northleaf's products. And finally, for Northleaf, association with this distribution with Great-West Life balance sheet with our group will augment their growth, which has already been significant, really high-quality company. We're just thrilled that we were able to come to an agreement, and I think everybody is very excited on both sides to pursue this partnership with Northleaf. After the quarter -- Page 17, after the quarter ended, Wealthsimple, announced their financing. Greg's already mentioned it. I won't belabor it other than to say, from a financial point of view, our group put CAD 315 million over the past 4, 5 years into Wealthsimple. About 1/3 of that roughly was at the Power Financial level and the bulk of the rest was at the IGM level, a little bit of Great-West Life. This transaction values that at $934 million, so a triple. And on an IRR basis, about 44% annual return. So that validates, from a valuation point of view, the other big investment we made in the Fintech space. And at the same time, it's also going to provide Wealthsimple with another $100-or-so odd million to continue -- funds to continue to build out their platform. And the shareholders were the leading technology investors in the U.S. here. And they are going to participate. There are some Board seats there. We get the benefit of their knowledge, their experience on realizing value and augmenting value in these businesses. So again, it's a win all around. You see along the bottom of the page, some parameters there about the success that Wealthsimple continues to enjoy. It's much more than just an investment business. Right now, they have a trading business. They've got -- they've made an acquisition and are offering tax services to their clients and the existing clients that existed in that business. I think we've got 1.5 million Canadians right now doing business with Wealthsimple. It's a very impressive story. Okay. Let me turn then on to Page 18. And we're going to continue to highlight the asset -- investment management platforms of Sagard Holdings and Power Sustainable. Don't really have time on a quarterly call like this, particularly with all the stuff that went on in this quarter, to spend as much time as we would like to on this, but we will continue to do so in the quarters ahead and through other forums that we will create. But a good progress. This just gives you, on Page 18, a quick snapshot we have on the left-hand side bottom of the page, $7.3 billion of assets under management or committed. The blue, $5.3 billion is actually funds that are deployed, and there's another $2 billion that are committed but are unfunded at this point. Of the $5.3 billion that's committed, you can see the dark blue at the bottom, $2.8 billion is from Power Corp and $2.5 billion is from other parties. Of the uncommitted $2 billion, 75% of that is from third parties. So our emphasis going forward here is as third parties that are funding it. And as you move towards the right side of the page, you see Sagard Holdings, which is the Sagard Europe private equity, the private credit business, venture capital, which is really a lot of that is the Fintech Portage portfolios and our health care business. That is already primarily third-party and Power Sustainable Capital, which is Power Pacific, which Greg mentioned earlier, having fantastic returns in Power Energy, that, at this point, is all 100% Power Corp capital, but they're hard at work bringing in third-party investors. And the next couple of pages, I won't dwell on them. Just quickly on 19, you get a little more profile on Sagard Holdings. You see the number of LPs they have, the number of investments, the number of people where they're located. And on Page 20, you have some facts on Power Sustainable Capital and what they're doing both in the energy space, the capital they have, some of the returns that they're targeting and then the power sustainable capital position that Greg mentioned. So we'll come back and continue to provide more and more information on these businesses. I'll quickly then run through, before wrapping it up, our other important investments. China Asset Management continues to do extremely well. As you know, we have, I think, 13.9% of this business. IGM has another 13.9%, so we're -- collectively, we're the second biggest shareholder. This is, in my view, the premier company in the Chinese market. It is the 2 long-term mutual fund player. It's the 1 ETF player. It's got a very important institutional business not mentioned on this page. And you can see the growth over the last year at the bottom right of the profitability. Next to it, you can see the growth in assets under management. So profits up 31% year-over-year. Power Corp's share in the quarter of that profitability was $11 million. IGM, of course, would have had a comparable number. It's not making big, big contributions to earnings at this point, but it's growing very quickly, and it's obviously in a market that is doing exceptionally well and in an economy that's huge and growing and is under-saved. Page 22, repeat what we've said all along. I mean while the businesses on this page are stand-alone businesses. They're not on strategy for the business of Power Corp. in the future. We are going to continue to work with our partners in these businesses and manage these businesses to maximize value and realize value in a way that works for Power Corp. and in a way that works for our partners. And so -- but -- and we've got some attractive businesses here. There were some good developments in these businesses in the quarter. I'll point out 2 in particular. Peak sold its Easton Diamond business. That's a baseball bat business, to Rawlings Sport. And then Lion, which is an electric vehicle manufacturer based here in Québec and is basically trucks and buses. Obviously, a very fast-growing area. They entered into agreements with some major companies, including Amazon to provide them with vehicles. They're already in a manufacturing state. This company is not just a field of dreams and some really exciting developments there, and we think there's some good potential for value creation in this business in the periods ahead. We are -- on 23, continued committed to reducing our expenses. Not a big change in the run rate this quarter, but no change in our plans to reduce our run rate expenses by $50 million. Just 2 more slides I'll focus on and then we'll open it up for questions. The Page 24 is so important to us. And I'm pleased to say over the past few quarters, we've made progress across each of Great-West Life, IGM and Power Corp in our communication. So Great-West Life introduced the base earnings metric in the first quarter. It's been well received by the market, all the feedback I've received and they received. They have a new segment disclosure as they announce their new management lineup in the first quarter and the enhanced resource of earnings and disclosure with greater granularity in the second quarter. IGM, I'm really excited about their new disclosure. IGM continually gets lumped in as an asset manager. Well, that's true. It's an asset manager. We've been saying for a long time that the asset management piece of the value chain is a relatively small piece of it. It's much more of a wealth management business. And with the new disclosure and with the agreements with both IG Wealth and with Canada Life on commercial terms, we now are able to break out very clearly IG Wealth and IPC. This is what we make as a wealth manager. And here is Mackenzie and here's what they make as an asset manager. And then finally, and just as importantly, there's another strategic bucket of assets that many of them should really be valued on an earnings basis, and so it should really be a sum of the parts. And here's what they're valued and here's their progress. And so this is an important first step in IGM, being able to explain to the marketplace how they make money and how the businesses work. So very pleased about that. And then here at Power Corp, we continue with what started in the first quarter, our first earnings call. We've been extremely active in reaching out to investors. And you see at the very bottom of the page, including it says 31 one-on-ones with mostly investors and some analysts since the end of Q2. It's actually since, I think, September 8. That's all after the MassMutual announcement. We've been very busy reaching out to our shareholders and to our analysts. And I'll pull it all together on Page 25. This is the same 3 levers, but kind of giving it a little bit of additional life here. And in a nutshell, what are we trying to do at the -- in the first 2 levers, which is the operating businesses, we're trying to drive higher earnings. In the first instance, turning the very significant investments we've made over the last number of years to improve those companies' competitive positions, turning that into stronger earnings growth, then adding to that, through the use of M&A. And what can I say? This quarter, kind of -- it all kind of fell into place in 1 quarter. Lots of good things happening, so that we have higher earnings, and we have higher trajectory of earnings that the market sees because we're communicating it and they gain confidence in what we see as the earnings prospect. That has the possibility, not only benefiting from the higher earnings, but potentially higher multiples. Because when we look at the multiples, we think that they reflect very low implied growth rates into the future. And then at the Power Corp level, we are also working on increasing our net asset value, in some cases, realizing on that value and returning money to shareholders and simplifying it and communicating it so investors can understand it. When you add all that up, its higher earnings, potentially higher multiples, higher NAV and potentially a lower discount if we do a good job in communicating it. So even without the revaluation, it's an exciting story. If you add revaluation to it, it's extremely exciting story, which is why we're very pumped up about it and why we're very focused on executing the strategy. And so I won't go to the last page. It just kind of summarizes where we are in the quarter. I think with that, I'll conclude my remarks, and I would ask the operator to open the lines up for questions from those that are on the line.

[Operator]

[Operator Instructions] Your first question will come from the line of Geoff Kwan of RBC.

[Geoffrey Kwan, Analyst]

When I kind of think about what you've done over the past couple of years, I mean, you've done a bunch of different things to simplify the structure, optimize capital structure. If we're thinking about going forward, other things you can do to simplify the structure of the story, disclosures, whatever else like that, that could surface value, but not including, say, for example, doing acquisitions? Like how do you feel, like, right now where we are in terms of the ending of the ball game of what you think right now you'd like to do?

[Robert Jeffrey Orr, President, CEO & Director]

Okay. So on the point of simplification because I think the value creation is also one of -- at the operating businesses, getting belief in the marketplace on the organic earnings prospects as well as adding to it through M&A. That's a big part of the equation. But your question is on the simplification piece of it, which is additive, but not the whole thing, right? So on the simplification piece, I think that structurally, we have combined -- we've done 2 deals, as you mentioned, Power Corp and Power Financial came together in GBL and Pargesa. But when you look -- in all my communications with market -- with shareholders and investors and analysts, when you look at Power Corp. itself and you look at the string of investments we have, people don't understand them and they don't know how to value them. And most of them are not earnings-driven valuation. They're net asset valuation. Unlike Great-West and IGM, which are principally earnings driven. And so we have a complicated long list of companies and people don't appreciate, can't value, don't know how to put metrics around. So I think the simplification that I talk about over the next couple of years will be less about structurally simplifying and actually simplifying the business itself so that if you, again, envision, if we're successful in transferring this into, say, a few years out, all we have is the investment platforms. You would have 2 things to look at. You would have seed capital that we could go to the market and say we have x billion dollars in seed capital supporting all these strategies and we're earning a rate of approximately 8% or 10% or it'll depend on the mix between what those strategies are, and that's what we have. That's value. That's what we're earning. And secondly, we have investment management platforms that have revenues of x and cost of this and this is what they're contributing. And I think when we get to that point, it will be a much simpler story to explain and to value. And I think if we do a good job of communicating that, that will enhance our value because as opposed to right now, I think it contributes to the discount quite a bit. So I don't know if I answered your question, it's -- if you want to -- I don't know if that answers your question, Jeff.

[Geoffrey Kwan, Analyst]

No, it does.

[Robert Jeffrey Orr, President, CEO & Director]

It means disposing of assets. I mean, ultimately, I'm talking about disposing of assets at the Power level.

[Geoffrey Kwan, Analyst]

Right. Okay. And then on your asset management platform, like what's the -- do you have like a mix in terms of the types of investors you've been able to attract into your various strategies? And also, 2, is there much in the way of cross-sell of them investing in multiple strategies that you offer?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Good point. And the answer is I don't have all of those facts in front of you. You do have on -- I forget the page number on Sagard Holdings, which is where the third-party capital currently is. I think they have a list of 200 LPs if you see there. And I know there are investors who are multiple investors. And those are a mix of FIs, institutions. It's a broad list of institutional investors. Greg, do you want to...

[Gregory Dennis Tretiak, Executive VP & CFO]

Geographic [ reach ], as well.

[Robert Jeffrey Orr, President, CEO & Director]

And geographic as well, for sure. Because a lot of -- because some of it is Sagard France. But even then in the businesses of our Fintech businesses and in the businesses of our royalties, and those have really gone out and our credit funds. There are third-party investors from around the world in those -- investors.So I don't have that. We will -- I think what's best there is as we give exposure to those strategies, which is tough to do on a call like that. We'll either have a session on the platforms themselves whether, it's an Investor Day or we do it as part of an investor road show and really highlight what's being done there, Geoff.

[Operator]

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

[Graham Ryding, Research Analyst of Financial Services]

On a similar sort of topic, just there was an acquisition, I think, of Grayhawk recently. Just maybe, could you provide some color on the thought process there? Is this a natural distribution channel that you're trying to sort of build and create around your alternatives platform in addition to your historically, what's probably been a more institutional client base?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So if you -- thank you, very good question. So if you think about the private investment space and you think about the strategies, whether it's plastic private equity, whether it's real estate, whether it's -- which we're not in at the Power Corp level, whether it's infrastructure, all of these asset classes have historically had as their market, as you point out, institutions. And then family office is ultra-high net worth. And so those remain important sources of demand. Then we believe through -- and you see that through the Northleaf deal, that there's going to -- many -- an overused word, but it's true, democratization of alternatives, which is essentially finding ways and vehicles for which you can bring nonliquid investments to a broader part of the market into high net worth and into even mass affluent. And there's lots of strategies one can do so with, which IGM and Mackenzie and Canada Life and other parts across our group will be doing.However, the ultra-high net worth and the family office opportunity is still a very important distribution channel for that. So in Sagard Holdings going out and effectively buying what is a platform that accesses family offices and high net worth, they are looking to create a vehicle to distribute their products into that marketplace in Canada. And that's not a big dollar ticket or it would have been disposed, of course. But nonetheless, a very interesting group that is intended to provide them with greater distribution.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. And then there's obviously lots of activity, both with acquisitions and some divestments at Great-West and IGM. Should we expect a period here of less activity over the near term as you sort of focus on integration and whatnot? Or do you feel like you got the balance sheet capacity to stay active? Or are you going to pull back a little bit on the activity and focus on integrating these deals where -- what should we expect?

[Robert Jeffrey Orr, President, CEO & Director]

I think we'll continue to be looking very actively. There's no doubt that from a capital position or from a fire Power position, Great-West Life is going to be focused on repayment of debt. Fortunately, the MassMutual deal is not only accretive but very cash flow positive. So that'll put a bit of a hamper on what they can do for the immediate -- I think we said -- it will be a couple of years before we're back down to the debt level that we started in Great West to be right back where they were. They've got a lot of capital, but they did utilize debt and cash to make the acquisition. So I think that, from a Great-West point of view, would say you're not likely going to see a great big cash transaction. It's not all that likely in the next period of time. But when you start to get to the point where you can see yourself getting yourself down to the right leverage level, these deals take a while to get done. So it doesn't mean we won't be looking ahead of time. But at the same time, we'll continue to look at other areas where we can make acquisitions. And there's lots of them that we're active on. They may be of a lesser size than a MassMutual, but across Great-West and IGM, we're looking at opportunities. Greg, please add to that.

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes, I'd just add to that, Graham. We tend to historically think of all the resources at Great-West Life and IGM being concentrated. But I think one of the things you have to think about these days as well is that we've developed management teams or Lifeco itself is a developed management teams in several different geographies that stand up themselves, right? And so their capacity and their capability to take on M&A projects opportunistically has increased quite dramatically in the last several years. And the same thing I would say about IGM. So I just want to make sure...

[Robert Jeffrey Orr, President, CEO & Director]

That's a good addition, Greg. Thank you. So to follow on Greg's comment, you're not likely going to see Empower make a big D.C. acquisition in the next 12 months. That would be highly unlikely given that, that team is involved in the MassMutual, but there's lots of other teams across the group in the different businesses that are -- could take on activity.Does that answer your question, Graham?

[Graham Ryding, Research Analyst of Financial Services]

Yes. Yes, it does. And one last quick one, if I could. There was just -- there was a gain from your stand-alone businesses in the quarter. Was there something one-off there or what was behind that?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. Really small holding, Graham, JAG Health, and it wasn't -- it was not really a gain. It was a recovery of a previous write-down. So I think we realized something like $16 million on the transaction or something.

[Operator]

Your next question will come from the line of Nick Priebe with CIBC.

[Nikolaus Priebe, Research Analyst]

Okay. There are modest progress on planned expense reductions in the quarter. I was wondering if you could just update us on the status of those efforts. What's left to get from 47% to 100%? Just some color around that objective would be helpful.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So we had a lots of focuses this quarter. We -- when we announced it, we had a list of items that we were planning to follow up. I would say, a little bit of COVID-19 related. I mean, some of it is looking at our space utilization, and it's maybe not the best time to be looking at space utilization in a market where everybody is working from home and nobody's looking for space. So there's a little bit of that, that I would say as COVID-19 related. I'll turn it over to Greg, why don't you take a swing at this.

[Gregory Dennis Tretiak, Executive VP & CFO]

Sure. Yes. So Nick, One of the things that we had initially looked at was certainly, as Jeff was saying, is our footprint. And you may or may not know this, but we have a real estate business as well that flies under the radar, if you will. And part of that is looking at selling some of the properties that we hold, and we are making some progress there, quite a bit of progress, quite frankly, in this environment. And so that's a big component of what we have to do for going forward. So hopefully, in the coming quarters, we'll have more news on that, but the team has been hard at work at looking at opportunities there to look at the portfolio and take it down to a size where we're operating in those premises by ourselves and only our own people. So that will be concluded over the coming quarters.The other thing I'd say is that we have a fleet of planes that we use, I shouldn't say a fleet, but we have a couple of planes that we use, and we certainly aren't using those these days, and we're looking at ways that post-COVID, the world is changing and will change. And so we think there's opportunities there, too, in the way that we're organized when we work.

[Robert Jeffrey Orr, President, CEO & Director]

And again, that was part of the initial plan. That we were going to be more efficient there also going from 3 CEOs to 1, but also just we were looking at our travel and how we do it more effectively. And that's kind of been sidelined a little bit right now. Our run rate expenses are actually way down in that regard, obviously, in 2020 because of COVID-19, but we're not trying to take credit for that, that we're trying to take credit for stuff, which is kind of permanently embedded into our cost base even in a post COVID-19 environment.

[Nikolaus Priebe, Research Analyst]

Got it. Okay. That's helpful. And then liquidity ended the quarter at $1.2 billion, still very healthy. I think you signaled that you do intend to deploy that capital through the repurchase of preferred shares. Can you just give us a sense how comfortable you're getting, given the evolving macro backdrop with drawing down on that capital at the holding company level to execute on some of those initiatives that you outlined late last year.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So our plan very much is to do share buybacks and to redeem the pref shares. And with the onset of COVID-19, we decided that at a holding company, keeping liquidity in that kind of environment was the right thing to do. And we're still in that mode right now. And I think we're just going to continue to watch how the pandemic progresses and how the medical side progresses and what impact that can have on the economy. So we're not in a position where we're changing gears, but we're monitoring it. And the plan would be when we can kind of see our way through the back end with enough confidence then we would then be in a position to look at redeeming fresh to start to do share buybacks and we resume the share buybacks that we had started at the start of the year that we suspended. So I don't know if I'm answering your question, but I'm kind of saying no change in our current stance for the moment, but watching it actively and very much have in our plan going forward, share buybacks and the redemption of pref.

[Nikolaus Priebe, Research Analyst]

Okay. Okay. Fair enough. Last question on the investment management platform. I think you alluded to the fact that you're in the market doing fundraising for both the Sagard Holdings and Power Sustainable Capital platforms. I'm just wondering, would -- how are corporation expect to participate and commit some amount of capital to the next round of fundraising? Or are you starting to back away from that as you emphasize the growth of third-party capital for those platforms?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Really good question. So -- and just on your first point, in the material here, you see that Sagard Holding announced a closing of $450 million on their credit fund -- second credit fund. And so there's an example of recent fundraising and the Energy Group is also actively discussing as is the China Pacific Capital. You also saw on the slide that currently, 50% or so of the capital at work is Power Corp. And I mentioned in my remarks that of the $2 billion that's unfunded, but committed, that's 25% Power money. And going forward, we would expect that to be lower than that. What's the ideal amount, I think it'll depend on the strategy and the stage of development. If we're launching a new strategy, investors are going to expect that they're going to want Power to put up more money. If it's a third fund of an existing strategy, it doesn't require much.So if you look on that page, I can't remember the number, 17 or 18. You'll see, for example, in the credit strategy that we don't have a lot of capital in those. So it depends, but it's going down and lower and lower. And as the program -- as the platform gets more and more mature, we expect we will need to put less capital into the strategies.

[Operator]

Next question will come from the line of Tom MacKinnon of BMO.

[Tom MacKinnon, MD & Analyst]

A couple of questions. Just what struck me when you -- Jeff, when you talked about potentially buying back stock, like nearly 70% of your NAV is a life insurance company and [ Austin ] said life insurance companies aren't allowed to buy back stock. So I'm just wondering, there are -- you've got a holding company here on top of a life insurance company that can kind of, I guess, you get around that rule to some extent. But is that in keeping with spirit? I mean how do you juggle that internally there?

[Robert Jeffrey Orr, President, CEO & Director]

Yes. So the first thing is we're not buying back stock right now, but it's not because [ Austin ] said, no. It's because we -- as a holding company, we have been prudent with liquidity. While at the operating companies because if you look at their financial positions, they've been taking advantage of the environment, quite frankly, to make acquisitions. But at the holding company level, we've been prudent with our liquidity, and we're not in a -- we're not buying back stock.I think if we got back into a mode of buying back stock, I do not believe it applies at the Power Corp level. And I don't think that's -- it does not. I don't think it's in failing -- it's at a step with the spirit of it. And it's not quite 70%, by the way, just to correct your number. I think it's going to be something down around 60% is where it is. But I don't -- interesting question. It's not something that we think we're restricted by. But it's sort of a -- it's an academic question, if I -- without me being insulting, Tom, at this point because we're not in the market right now in this environment buying back shares.

[Gregory Dennis Tretiak, Executive VP & CFO]

And I'd also say that when second wave, once we get -- hopefully, everybody gets through the second wave in a short period of time and some of the darker skies start to move away, then I think attitudinally, everybody will have a different perspective on those things. So that's one thing that we keep in mind.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Good point, Greg.

[Tom MacKinnon, MD & Analyst]

That's great. Just the cash at sales quarter-over-quarter, I think, in the area of $150 million almost. What was driving that? Was some of those -- did you take cash out and put it into some of the alternative platforms or invest it somewhere else?

[Robert Jeffrey Orr, President, CEO & Director]

No. When you say the change in cash, you're talking about the $150 million. Yes, that would have just been funding some of our commitments to the platforms, Tom, in the quarter. Nothing unusual, quite frankly.

[Tom MacKinnon, MD & Analyst]

So when we see the fair value for an alternative go up. If you took $150 million out of cash and put it in one of the alternatives, would then the fair value of the alternative go up $150 million and the cash go down by $150 million?

[Robert Jeffrey Orr, President, CEO & Director]

That would generally be the accounting, yes. We may have used some of that for other assets as well. It goes through all uses that the corporation would have, right? Don't forget that we, when it comes to paying out dividends, we pay out pretty much everything that we get from our subsidiary companies. So at times, we will be drawing down our cash to fund virtually everything. So it doesn't necessarily mean that it's all going into those platforms.

[Tom MacKinnon, MD & Analyst]

Okay. Good point. What was driving the -- if you take out all the noise around the Wealthsimple put stuff, maybe you can just -- if we look at the alternative investment platforms, what sort of drove the -- which one, in particular, was driving the investment income that you got that you recorded? Which one of the alternative platforms is probably the bigger driver of that?

[Robert Jeffrey Orr, President, CEO & Director]

Sure. So I'll give you -- actually, both of them contributed this time in different ways. If you look at Sagard Holdings, and I mentioned this to Nick, one of the realizations there was the sale of JAG Health, which is in there. But also, there was a good profit from Peak performance. The peak performance is in the hockey business, and it's seasonally strong at this period of time. So that was 1 contributor. But then at our sustainable, in Power Energy itself, quite frankly, it was a contributor in the quarter. As you know, there's a lot of depreciation in that business, but it's -- revenues were strong, expenses down in the quarter, and so it contributed more than it would have in a normal quarter. So -- and going forward, when you see those things, you have to be cognizant of the accounting for these entities. Certainly, when you're in the funds like Sagard Holdings, most of that stuff comes through as realizations when we have a significant influence or we've sold a property that's just a portfolio holdings. So we only recognize that when we realize things. And that's the same as it would be when you look at Power Pacific. But for Power Energy, that's an operating business, and we pick up that and basically in a full consolidation. So there's different drivers to the revenue streams on that. And thinking of topics for a special section or a special theme onetime going -- not that everybody was going to put up their hand and want to attend this one. But the accounting for some of those properties is a little complicated. But we're trying to be more and more transparent on that as well. So we're going to see if we can't put something together to give you more of an understanding of how that does move.

[Tom MacKinnon, MD & Analyst]

Yes, that would be great. I mean you've got -- I mean, you end up having these fair value adjustments that are put in here for these fair values, and this is predominantly Level 3 assets. I mean, there's someone at Sagard Holdings tell you that this is the value of it and then you put that in? Like maybe just give just a quick highlight or just quick overview as to how you get some of the fair values for Sagard Holdings and Power is sustainable? I know that's -- we could spend hours on it. But do you have any quick way or do you have any quick summary that you can share with us just so we -- so investors feel comfortable with the valuations that are put on these things?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes, sure. Absolutely. And quite frankly, Tom, Yes. One of the things that you'll recall is that we did a full valuation when we did Project Next, and we took PFC private. So The marks there were basically right on top of where we had been marking our portfolio was all along, and that was only -- it seems like it was years ago, but it was only about 6 months ago, quite frankly so...

[Robert Jeffrey Orr, President, CEO & Director]

It was in the RBC furnished...

[Gregory Dennis Tretiak, Executive VP & CFO]

It was. Yes. It was. But we have a very disciplined process when it comes to doing the marks. Each one of the platforms is governed by Board of Directors with valuation committees get independent audited financial statements. They are, quite frankly, distributing their products to LP investors. So they have to be disciplined about their marks and there is a disciplined process around it. So it's one that happens every quarter. So when you are looking at the funds, in particular, including Power Pacific, which is publicly traded, quite frankly. So that's not hard to value. There is a lot of discipline around it. Not to say there isn't discipline around the rest of the marks, but there isn't much left after that other than Power Energy and China Asset Management. And that was what I was cautioning when I went through the NAV table. China Asset Management is carried at its equity accounting value. We don't market on a regular basis to market. We certainly can give some indication, quite frankly, of market values. And I'm sure you would understand the market value of asset managers, especially in a high-growth theater like China. So we think that's a low mark, quite frankly. We have a big strategic partner and they do not make those marks and those valuations public. I'm sure they do them themselves. But we have to follow the lead of the company and also our partner when it comes to that.And when it comes to Power Energy, as I said, it's an operating business. And right now, we do test the value every quarter because it's a significant amount of money. And we, at this point, tested more for any impairment that might be in the property. And that's not because we think the business is not doing well, but we don't do a quarterly mark on that one either. We do that every year, and we do that in a rigorous basis because of the management needs to have a mark for compensation. And so accordingly, we mark it every year. So that gives you a very high and quick dirty summary on it, but I'd be pleased to pull something together that's more specific for you.

[Tom MacKinnon, MD & Analyst]

Is there anything on Sagard? I mean, you mentioned the others -- did you mentioned Sagard Holdings, how were those marks determined?

[Gregory Dennis Tretiak, Executive VP & CFO]

Yes. I did mention Sagard Holdings. I did, yes.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. And that's where he said there's 200 LPs. If you look on Page 19 or whatever it is, they are in those funds, and it's all majority outside money. And their sophisticated money. So you're not raising money from third parties and when they -- LPs ask how is the valuation, they kind of do it this way, whatever. Like it's -- there's a lot of scrutiny if you're in the business of raising institutional money. But I think this is a great topic, and I think all the questions here around profitability around the marks around these businesses are great and set up. I think some future sessions where we can go into greater detail. We need to because this is where we're building out the business. And we won't advertise it as an accounting lesson, because then we won't have any attendance other than Tom and Greg.

[Operator]

Our next question comes from the line of Doug Young of Desjardins.

[Doug Young, Diversified Financials and Insurance Analyst]

I guess, the question, my first area, just around the area of simplification. And hopefully, a lot of these will be pretty quick. But is there any restrictions on moving or selling China AMC down to IGM? Because I know the original investment was done at Power level. The secondary investment was done at IGM. Is there any restriction on moving that down?

[Robert Jeffrey Orr, President, CEO & Director]

There's no restriction per se. The process, if we were to want to do that would not be one that you would just simply move it. However, there's lots of parties that would need to be involved in that process, starting all the way from parties in China and regulators in China to Boards of Directors and management teams at Power and at IGM and independent directors, and no doubt, financial advisers and legal advisers. So the process would not be -- there's no restrictions, but the process would be one that would be highly scrutinized and would take a lot of effort. It is something that we are -- that is out there as a question to answer, are we in the best position to have the CMHC Holding in 2 spots? Are we better to unify it in 1 spot. And do we get better value recognition in -- by putting it in a single spot. It's -- we're well aware that is a question. We've been pretty busy, as you can see, from what we've been up to in the last few quarters. But it's something we're going to be turning our attention to at some point here and looking at it. Where is the best spot? And you're quite right, just to repeat for other shareholders or others on the line who may not know the history when the first piece became available of China Asset Management in 2011. We were providing an opportunity with buying with that first chunk. And we had a discussion whether IGM wasn't the best place to put it. But at the time, Power was an accredited investor in China and IGM was not -- and IGM was not eligible. But things changed over time and how we end up -- and so when other opportunities came, we balance the position out and it's now jointly owned. So it's timely, and we're asking ourselves the question, where does it best belong.

[Doug Young, Diversified Financials and Insurance Analyst]

And then just -- I mean, the same kind of idea, and it sounds like you're quite focused on Sagard and building this out, but When I think of like simplification of the structure, the Northleaf transaction, the Grayhawk transaction, would that be better suited to be down at IGM? Or why wouldn't it make sense to have that down at IGM?

[Robert Jeffrey Orr, President, CEO & Director]

So the -- buying into the high net worth business, as per the earlier question, Grayhawk, that was initiated out of Sagard with relationships that Sagard had and Sagard was looking to build out their distribution platform for their funds. And so they saw that opportunity, have the discussions with the parties came into agreement on it and did that transaction. So we're not in the business of saying when they're doing that. Oh, by the way, thanks for negotiating all of that. I think it belongs in IGM. I don't know whether the Grayhawk management would have even done that deal. That's not the way the transaction happened or the agreement happened. So that's how that happened. You're asking a broader question, and it's maybe not your question, but I'll turn your question into this. We have private investments going on at Power, and we have them going within Great-West Life and real estate and other alternative areas, and we have them going on at Northleaf that IGM and Great-West have purchased. It's a big world in private investments. It's a very, very big world, and there's lots of different strategies. And Power Corp is not going to satisfy all of IGM's or Great-West Life's needs. And they're -- and those companies are public companies, and they're free to pursue their strategies, how they want to go out and get a presence in these asset classes for their own clients, or for the Great-West life case, for their own balance sheet as well. And so -- and Power is good and very good in certain asset classes, it's very competitive in certain assets or at least, it's competitive in others. So the companies are -- it is what it is. We've got different businesses, different public companies, and they're all pursuing their strategies. And I think in private investments, there's many, many years of high-growth to come in these areas and lots of opportunities for our group to play in different ways. I don't know if I answered your question, but we do -- acknowledging we have it in different places, and that is the way it is, and it'll be -- I think it'll be that way for some time.

[Doug Young, Diversified Financials and Insurance Analyst]

Yes. Now my question, and you kind of gave me a bit of a flavor. Now my question more was just like Sagard, as a whole within that structure, and what it does. Would it be better suited to be down at one of the operating companies? And it sounds like, no, that's not necessarily your thought process. I mean, there's a lot that can be done with those investment classes, the back long duration liabilities and whatnot. And so my question was, does it make sense to that Sagard's at the top? Or does it make sense to have it down from the OpCo.

[Robert Jeffrey Orr, President, CEO & Director]

Yes. Okay. I'm sorry if I misunderstood, I sort of addressed it indirectly maybe. But these are all people businesses when you get very down with other people businesses. So the people that joined Sagard Europe initially, 20 years ago in France, and the people that have joined up to the Fintech strategy and the people that have joined up to the teams that are in Sagard, joined a team that was part of power. Poultry is operating the business, just like -- with LOEs on the power sustainable capital side. They joined that, they joined those teams, they got excited by what it was about. And then part of the opportunity is also to distribute through IGM or Great-West when IGM or Great-West wants to do it, because there's no way we try and force them. That's what they signed up for. And there is a company that they're working for. So you turn around and say, "Hey, well, it makes more sense to have it in IGM." A lot of people that came in to work didn't -- that that's not what they joined, just like the people at Northleaf joined Northleaf and are part of that group. So some of these things on paper when you look at them, you might say, theoretically, it makes more sense to put it here, but they're actually people businesses, and you do a lot of damage and you can, quite frankly, destroy what you have by trying to do things that might look like they might be more logical in another place. I would add that to my answer Doug.

[Doug Young, Diversified Financials and Insurance Analyst]

Okay. And then just lastly, why wouldn't you back the $69 million put option liability? Like for me, that would be a completely unusual item. So why not back that out of operating, EPS and earnings?

[Gregory Dennis Tretiak, Executive VP & CFO]

Well, I guess that's a really good question, Doug. And we'd like to take it to the AMF, and ask us why we can't do it as well. But the regulators are pretty fussy about when you back out items and when you don't, and it was our view, not that we didn't go to the regulators to ask them the question, but it was our view that this was explainable, that everybody would see it as you just captured it and therefore, treat it accordingly. And that way, we could be consistent with what, if you will, the spirit of the regulation when it comes to the things that -- these things are, I think most people would say part of that genre of business where their start-up companies that are -- need to attract capital, need to have owners that have an interest in the business. And when you're in that business, it's part of the business. So it's hard to argue that, that's not going to be a onetime event. And so that's how we got there. So for what it's worth, that's why we flagged it out. We called it out and we thought like you're intimating like, well, geez, it makes sense to not have it there, so why not? So that's how it is.

[Operator]

We have no further questions. I will now turn the call back over to the presenters for closing remarks.

[Robert Jeffrey Orr, President, CEO & Director]

Okay. Thank you, operator. And again, thank you, each, for participating. And we will -- got lots of good questions here and lots of food for thought as to how we follow up some of these questions with some further presentations. And we look forward to talking to everyone soon, and have a great day. Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.