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Power Corporation of Canada
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Ladies and gentlemen, thank you for standing by, and welcome to the Power Corporation Third Quarter 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Jeffrey Orr, President and Chief Executive Officer of Power Corporation of Canada. Thank you. Please go ahead.
Thank you very much, operator, and welcome, everyone, to our quarterly results call on this Remembrance Day. And I am here with Greg Tretiak. We're going to, in the usual fashion, walk through and give you comments on what's going on at the company, and then open it up for questions. I would draw your attention on Pages 2 and 3 to the cautionary statements regarding forward-looking information and non-IFRS measures. And so why don't I jump us all the way forward to Page 6 and just draw your attention to the various materials that have been released by Power Corp. and by our principal operating subsidiaries with respect to their own earnings and different conference materials that they have participated in over the last quarter. So there's lots of other information for you to look at to supplement what we're going to talk about here today.So with that, I will jump to Page 7 on the presentation and just give you our perspectives on the quarter. I think, first and foremost, this was a quarter where the earnings momentum and growth at our public operating companies, namely Great-West Life and IGM. We're really in evidence. We have been, I think, saying for some time in our different communications with investors over the past several years that we believe that we had been building through our operating businesses bases for -- on which we could deliver a lot stronger earnings growth than we had over the previous years, and that's been building for some time over the past year or so, but it really came into evidence in the third quarter with the strong solid earnings at both Great-West Lifeco and IGM. So really pleased to see that. And I think that is exactly the highlight of the quarter in my mind.Having said that, we have continued as well to look to divest of assets at the Power Corp. level, which is part of our communicated strategy. In the last quarter, we had 2 events that provided some liquidity. We had an opportunity in our Sagard Europe 3, which is our private equity business in Europe. And we had an opportunity to sell through a secondary transaction powers limited partnership position in that fund, which was also good for developing the investor base of Sagard as there was interest in our position. And so we liquidated it for $334 million and also reported a gain, I think, of about $66 million pre-tax on that particular transaction.And then we -- one of our 4 standalone businesses, GP Strategies, we entered into a transaction and that closed. And so we've exited that position for pre-tax proceeds of $94 million. So a couple of events there to create liquidity at Power. And with that, and we are also pleased to be announcing here that we're resuming our purchases under the normal course share buyback program. You would be aware that with the start of COVID-19, we took a conservative view in terms of cash, and we suspended purchases under that program, other than some small purchases to mitigate option dilution. But aside from that, effectively, we pulled out of the market, so we'll be reinstituting our purchases under that program. We're pleased to announce that today.Just while we're on the topic of buybacks, GBL as well in their own interaction with shareholders, they have their own buyback program. They've been taking various measures to enhance their shareholder returns, and they've announced an additional share buyback program. You may be aware, GBL has a net asset value discount, an NAV discount itself, and it's been working on that and is looking to reduce their own discount. As well, it's been a terrific year for fundraising at our alternative asset investment platforms, and that continued in the third quarter. So far this year, we've got $3.4 billion raised from non-Power participants. And we'll talk more about that when we get in the presentation. And then Great-West and Sagard announced a transaction, which will put Sagard into the real estate business, a whole new strategy for them and enhance their AUM materially, which we'll talk about as we come to that particular part of the presentation.And obviously, in terms of a highlight, I don't think there's any company or any business or any investor today who doesn't have ESG at the top of their minds. There's nothing kind of more topical going on in finance or in the world right now. And we're not blind to that. We think we're very well set up for all of the efforts in ESG across our group companies, but certainly just a ton of work for corporations, a ton of work for really society and the ton of work for Power and Great-West and all of our companies to continue to meet the expectations and the challenges that we all collectively face. In this regard, Great-West Life did publicly announce this week, its commitment to net 0 greenhouse gas emissions by 2050. And across the group, as I'm sure with many of you -- as many of you are with financial institutions across the group, there's just a whole plethora of products that are also being launched in this regard.So with that, I'm going to turn the microphone over to Greg Tretiak, who is going to walk through our financials in the next few slides.
Great. Thank you, Jeff. I'm on Page 8. And our NAV, that's $52.81 at the end of the quarter, was up 2% from June and at November, was up an additional 2%. And also, when we look at it from a year ago, up 51% from a year ago. Net earnings of $1.09 compared to $0.75, up 45%. And adjusted net earnings, $1.10 compared to $0.72 in Q3, up 53%. And we announced a quarterly dividend of $0.4475.Go to Page 9. And just a couple of quick points here. You're all familiar with the NAV table. Just saying Sagard, Wealthsimple is -- our interest in Wealthsimple is there, and that hasn't changed from the previous quarter. We kept the same mark from their last round of financing, and that's at $768 million. It's -- the $1.4 billion reflects the sale of Sagard 3 that Jeff just mentioned in his opening remarks. And that's $334 million that basically moves down the geography of the NAV table to the cash at $1.6 billion. Remind you China AMC is shown at its equity accounted book value here. And also in the stand alone businesses, that's where Lion is. And there is -- it's marked at $1 billion, which reflects its $12.62 share price at the end of the quarter.With that, I'd take you to the earnings on Page 10 and quickly go through those. Certainly, given the headlines already, Jeff has mentioned a significant contributions from Great-West Life and IGM. Great-West Life at $0.86, up 28% from the prior year. And you can see that the momentum at Great-West Life is continuing with another strong quarter, and we have a couple of slides in the deck. So I won't go into any detail here. And IGM, up 25% at $0.25 or $0.25 contribution in the quarter, and that's a record earnings driven by record AUM and operating leverage. At the GBL in the quarter, Q3 is not a dividend-paying quarter in Europe. And so you can see that they had a negative $0.02 contribution in the quarter, the same as last year.Both quarters had a marked -- negative mark with respect to a good event, which is the appreciation of Webhelp, which they -- which is an asset that they hold a 60% in, has had significant appreciation throughout the last couple of years, and the mark comes from the liability associated with the noncontrolling interest and management puts that have to be marked. The wonders of consolidation accounting, we don't get to mark up the increase in value on the holding, but we have to recognize the minority right and management puts liability. So too much detail, quite frankly, for the non-accountants, but that's the nature of that particular item.Down the page to alternative asset investment platforms. That reflects the Sagard 3 disposition, $66 million in there contributing to the $0.06 in the quarter. China Asset Management, strong results once again in China. And later on, you'll see a chart, and you'll see the contribution is up 62%, a strong increase in AUM and performance of its mutual funds. And the other comment I'd make is Lion is reflected in the standalone businesses. And finally, on our corporate operations, another little tax noise in both the quarters. In Q3, we had a $0.03 benefit in the quarter. In Q3 '21, we have a $0.01 negative effect from tax in the quarter.And with that, Jeff, I turn it back to you.
Okay. Thank you, Greg. So then the next few pages, I'll just spend very, very quickly on our strategy. On Page 11, I'm not going to read the page. You've -- many of you have seen this a lot, perhaps some on the call have not and are new to the call, but this is what we've articulated as our strategy going back with the announcement of the reorganization. And as you go through the various points there, I hope you will agree, we have been executing on each of the points. These aren't just words on a page. We are -- we take it very seriously, and we have been working on all of them, including at the bottom of the page, our communication strategy is not just at Power, but across our various public companies as well.And so I'll then turn you forward to Page 12. We are also pulling on all of these 3 levers being the organic growth tools that our public companies have, the M&A levers that our public companies have and then the additional value that can be created at the Power Corp. level through various tools that we have. And those 3 levers translate in the value creation for shareholders on the right-hand side through higher earnings growth for that, those parts of our businesses that trade on earnings, which is namely Great-West Life and IGM. For -- and there's potential revisions as we prove to the market that we have higher growth, that we have multiple revisions if we -- and as we execute. That and what we do in those parts of our businesses that are NAV driven increases our NAV. And then we still think there's a lots of potential on the discount side at the Power Corp. level. So that's what -- that's how our strategies translate into value for shareholders.And then on Page 13, each of the public OpCos have their own strategies as to how they are pursuing organic and inorganic. And as is and the point of this page too as well, they're all on their own missions to communicate. So let me then turn to Page 14. And I think this is really a quarter where we saw the growth at Great-West Lifeco, broadly based across its various platforms. A little bit of noise in the reinsurance or then the capital and risk solutions part of the business. But strong growth across all the operating platforms and then led by Empower, of course, with its strong organic growth in the market and then the 3 acquisitions that they have done, 2 of which have closed, and then there's the Pru acquisition, which has been, of course, signed and is not closed at this point.So really strong earnings growth. And of course, Great-West Life did communicate in June at their Investor Day that they had medium-term growth objectives for their EPS -- base EPS of 8% to 10% prior to additional acquisitions, and that announcement was prior to the Prudential announcement, of course, which came in July. IGM is really firing on all cylinders, I think is the way to describe it. And it has got strong flows. It's got strong growth in AUM. It has got -- its businesses, all of them are showing really strong top line growth. IG Wealth is, Mackenzie is right across the board, and we're seeing the operating leverage in that business work. So -- and obviously, markets are helping, but markets, they've got strong flows and the operating leverage in the business is really becoming evident, and we got a good strong earnings momentum in IGM. So that's really great to see. And I would say that's the slide of the quarter, if you will, for at least in my mind.So moving on to Page 15. So far this year, we have sold assets for about $800 million pre-tax. And those come from the transactions you can see on the page there. I think all of them have been talked about before. And so that's part of the strategy. And I think when we launched the strategy, we talked a lot about the standalone businesses being a source of cash. But we also said that we were moving to lighten our capital commitment underpinning the investment platforms and a number of the -- of what you see here, both on the first point and then in Power Sustainable, while we're getting in third-party investors, we're also looking for opportunities when they're there to take some cash off the table and with the view to returning that to shareholders, which then leads to Page 16.And I think I already mentioned this at the outset. I think I've made the point. So I don't know that I'll repeat on the buyback point. I will point out, we do have an objective. The last point under PCC share buybacks. We do have an objective to maintain cash and cash equivalents of about 2x our fixed charges. And then beyond that, that's available resources to return to shareholders. I do want to say every time I mentioned buybacks, and I've said this many times, that if ever one of our group companies needed capital because they had an opportunity for whatever it was, obviously, we're going to prioritize supporting the growth of our underlying core businesses. But in the absence of that, then we would be looking to return the money to shareholders.We've also worked on reducing our financing costs, and we -- you would have been aware we issued $200 million of prefs last month and also redeemed virtually identical series in terms of its terms, excuse me, and took $3 million of after-tax annual financing costs out through that transaction. And at the bottom of the page, just we are very mindful that the group's leverage ratios are temporarily elevated because of the Great-West Life's very active acquisitions. As I think you're aware, Great-West Life spent about CAD 10 billion over just a little over 12 months or has announced. They're not all closed, as I mentioned, on Pru. And so their leverage ratios right now are right up at really where the tops as they can be. And so there's a lot of cash flow coming from the businesses they've acquired. So we think that will get itself back into more normal levels in the near term, but we're conscious of that and working on that part of the business going forward here.Okay. I'm going to flip then on Page 17, do a just a couple of comments on the platforms. Continued strong third-party fundraising, which is a key theme. $3.4 billion from non-Power parties other than power to date. That includes the $334 million of the secondary. And the balance is capital that goes -- is going into the strategies themselves. And I won't read off all of them on the page, but you see them there the various key fundraisings that have been announced year-to-date. And then on the right-hand side of the page, you see the continual drop in Power's capital as a percentage of the total AUM. The top of the page is funded and unfunded AUM. And at the bottom of the page, the unfunded, which is really the new fundraisings going on. You can see that, of course, there's an even greater percentage of third-party non-Power in the fundraising as we move forward on a lighter capital model for Power Corp.And then Page 18 is just breaks it out. You've seen this slide. This breaks out the funded and unfunded of $12.5 billion. And then it take looks at the funded AUM on the right-hand side or center right-hand side of the slide and breaks it out between Sagard and Power Sustainable. And then the dark blue is Power Corp.'s own money and the light -- I don't know what that color is. It's -- I guess it's blue. I'm looking around at Greg here. He doesn't know what color it is either. The light color there is non-Power capital. So that's just a breakout. And you see in the sub-bullet at the top of the page, about $900 million increase in funded and unfunded AUM in just compared to the end of the second quarter. So good progress.Okay. Page 19. Sagard has got itself -- has launched itself now into the real estate real property business through the acquisition of EverWest from Great West. It's a transaction that's a win-win for both Great-West and for Sagard. For Sagard, it launches an entirely new strategy and will add USD 3.8 billion to its assets under management. And then as you look lower on the page, Great-West Life has made a commitment over the ensuing years to put another USD 2 billion into the strategies as well as another $500 million into different Sagard products. So Great-West was building out its U.S. real estate business. It was doing so for its own balance sheet needs, and was also looking to manage third-party money.Sagard has really built up a very large network of LPs or investors across its different strategies. I think it's well over 100 investors and LPs and its different strategies and it's become quite a fundraising machine. So that was something that Sagard was bring to EverWest. And Sagard has also proved very adept at hiring talent. And so all of that, with all that Lifeco had on its plate and recognizing it had a desire for the assets, Great-West thought better way to go was to have Sagard, in effect, manage EverWest.And then you'll see here that Great-West took a minority equity stake in Sagard, a very similar to the structure they did at Northleaf. And so they are very interested in getting, if you will, a lot of product flow and also being aware of how those strategies are unfolding and getting a window and a seed into that. So we think it's going to be good for Sagard and Power, and we think it's going to be good for Great-West. We're really pleased to announce that.Okay. Page 20. Won't go on this page, just to say each of our companies when we're looking at alternative strategies and, I guess, private equity, private credit, real estate, et cetera. This is good for Power, but each of our public companies is also focused on increasing their participation, either for their own balance sheet in the case of Great-West or for their clients in the case of Great-West and IGM, and GBL is also building out its private asset capabilities through Sienna. So this is a focus across the group.Turning to Page 21. You have got continued acceleration in the profit here of CAMC, China Asset Management. Of course, we own just under 28% between ourselves and IGM. We're really privileged to have a position of such size and such a quality company. We continue to believe that this is going to provide great growth in shareholder value for our group over time. China is going to and is prioritizing the development of their savings and retirement business. It's one of the reasons why notwithstanding at times, strained relations over the last few years, financial services companies have just across -- all the major financial institutions across the world, many of them are trying to establish positions in China.And the reason is simple. China is favoring the development of a savings business and a retirement business. They need to do so. If they're going to move to a consumer-led economy, you need to have your population secure in their retirement. If you -- and you need to have that broadly based and to do that, you have to have a good savings business. So this is a priority in China and China AMC is in a beautiful position to take advantage of that. So we're really thrilled to have this asset.Okay. Standalone businesses on Page 22. So we have taken action since the announcement of our new strategy to surface and then realize value in -- across the portfolio here. The most obvious one was on the Lion Electric, and through the stack that we did roughly a year ago and going public. And Lion continues to progress their business. And so really thrilled. We have really surfaced a lot of value there. I mentioned previously that Lumenpulse continues to progress on their business. We did make an attempt to bring the company public, ran into choppy waters there in the spring. So we decided not to push it at that time, but we continue to be very pleased with the progress at Lumenpulse.Peak in the fourth quarter of last year actually did bring in or part of their business being Easton Diamond Sports was in effect sold to Rawlings, all part of a peak continuing to develop their business strategy to surface value. And then as I mentioned earlier, we've actually sold GP Strategies here. So that's been liquefied. So we're very active on these various businesses. And we've got great businesses here. We continue to do what is smart for Power, which is to maximize our value, ultimately realize the value and work with our partners, managers and outside shareholders to do so.Page 23, we continue to work on our operating expenses, and we've made continued progress here. It was quick at the beginning, and we're tipping away as we get to 100% goal. On the right-hand side, it looks like we've already achieved our goal, but the Q3 at $38 million there. That's a little bit overstated. We've got lower travel expenses because of COVID. So when we look at achieving the goal, we're trying to normalize for being in a post COVID world. So we don't think we're quite at gold yet, but we're getting very, very close.Page 24. I think I've mentioned everything on this page. So I'll just skip over it. I already made the point we're on -- we're all trying to communicate very aggressively. Page 25, I think I've addressed as well. I'd just point out that Power Corp. does have -- has had for a number of years, a separate website on various activities in the whole area of ESG, and you can refer there to it. And I think we'll all be talking more about this as we go forward.Page 26, continued progress on our discount. To my mind, the voyage really started at the beginning of 2019 when Great-West Life sold its U.S. life business. And then we did the 3-way buyback, 3 level buyback between Great-West Power Financial and Power Corp. And we're really communicating, we were going to be working on reducing the discount that culminated in the announcement of the reorganization in the fall of '19. And then with the exception of the blip, when we went into COVID, we've been steadily working through various levers that we've been pulling on to reduce the discount, and we still think there's opportunity to do that going forward. So there, you see it.And then I will wrap up on the opportunities for further value creation. I think if you go to the top of the page, the OpCo's organic levers and just talk about -- roughly 3/4 of our value is in Great-West Life and our control position is great with Life and IGM. They are principally earnings driven. They trade on earnings as opposed to NAV. A little bit of an exception in Great-West and IGM, excuse me, on their strategic investments. And they've been pointing out that they've got some assets there that don't get fully valued based on earnings, but they're still principally earnings driven. And so we continue to prioritize driving earnings growth. And you'll hear that from me, you'll hear it from Paul Mahon, you'll hear it from James O'Sullivan.Managements are highly focused on taking advantage of past investments to drive top line growth and then drive a bottom line growth. And so earnings growth is going to be a big driver of how we create value at Power. In the meantime, we've got M&A as an additional tool. And yes, Great-West Life is in a position where it doesn't have a lot of excess capital sitting around, but that doesn't mean it's not very active and looking for opportunities. And at some point here, we'll get those leverage ratios back where they need to be, and we'll be in a position to continue to pursue transactions. And then IGM is also very active in looking at opportunities. So M&A will continue to be a driver of value.And then at Power Corp., I really think we're just getting going here. We have got -- continue to have a lot of opportunities to create value for shareholders. First of all, in terms of the simplification of the group through realizing value on nonfinancial services businesses, on simplification of where our assets are, on simplification of what's left at Power, communicating clearly, how we're creating value through our asset management businesses and how we're creating value through the capital that we have underpinning those businesses, increased communication with the stakeholders and then continuing to -- as we do all of that, drive the NAV discount down.And when I think about the discount, I do understand how for a number of years prior to -- particularly 2013 to '18 at kind of languished around 30% to 35% when you take into account both the Power and the Power Financial discount. When I talk about it, that's really the double discount. But in the past, we've been as low as 5%. And when I look at it going forward, I get if people don't understand the value of the assets of the Power, they're not going to put a lot of value on it. But as we surface it, realize it, simplify it, then I think that story changes. And I -- when I look at the discount, other than the expenses. So if you look at our operating expenses, $150 million, $160 million a year pre-tax. If you do a present value on that, would you get to maybe 2.5%, 3% of our asset value, you should have a discount for that. I acknowledge that.Sometimes people raise -- do we -- taxes if we were able to sell assets because we -- and I guess that's a hypothetical question because I don't think we would do things that would put ourselves in a position to realize a lot of taxes on a disposition. Those are the kind of legitimate issues. You can talk about a discount. They don't get anywhere near 20%. They don't get anywhere near there. And on top of that, Power Corp. has got, in effect, better liquidity than our underlying operating businesses for those that want to buy and sell and get in and out. So I think we got a pretty compelling story as we continue to execute over the next few years here to drive that discount to a lower place.So with that, we remain very excited about what's going on here and the opportunities ahead. And as I see, we're coming up on the -- we are on the half hour, I should stop talking and open it up for questions that you may have. So operator, that's it. And I would ask you to open up the call to questions.
[Operator Instructions] Your first question comes from Graham Ryding with TD Securities.
Maybe I could start with the transaction that you did with EverWest. So you -- I guess what I'm interested to know is just what's your ownership stake in Sagard Asset management or in the overall asset management platform going forward? Because I know you also recently sold a -- or not sold, but the management of Sagard took on a 4.5% stake, I think, in that business. So how should we think about your overall ownership of this alternative asset management platform going forward?
Yes, it's a good question. And I don't think we've -- first, I don't think we disclosed the number yet. So we should come back on that, but do that when we can do it to all shareholders at the same time, but I think we should do that. And it's a fair question. I think we own a very, very large percentage. It was a small minority position that Great-West Lifeco has taken, and it was a small minority position that management has been taken. But -- so that's a kind of a half answer to your question. I've gone as far as I can without -- but I think it's a fair question that we should come back with a clearer number, but do it for everybody.And then the second thing I would say, though, is going forward, if we do see opportunities to bring in outsiders even into the GP, if they can add significant value to Power's share of the GP, we'll be open to do that. So in the case of EverWest, this spreads Sagard into a brand-new strategy. It's a very big asset class. There is a lot of AUM that comes with it, and they've got Great-West Life looking to put more capital to work. So that's going to build out the business for Sagard. And Great-West Life rightly said, well, if we're going to -- we want to do that with you. We believe we like EverWest. We bought it. We think we can grow EverWest even more quickly under your hands. But if we're going to do that and make the capital commitment, we want a piece of the action at the GP, and that was a fair thing for Great-West Life to do.All of these deals, as you know, if there's a transaction between Great-West and Power, then the Great-West Life independent committee with our related Party committee, which has got all independent directors on it gets involved in that. So these are transact. So that's the background to it. So I've gone on a bit long here. Small -- we own the overwhelming majority. Right now, they're small minority positions. We will work on getting disposure so that we can be more specific about that. But going forward, evidence that we're not adverse to bringing in other partners into it if they're going to add a lot of value to our own stake. Greg, anything -- did you want to add anything to that?
No, I got you captured it all.
Okay. Is that -- Graham, that's what all I can -- as far as I can go right now.
Okay. That's fine. Was there any like cash proceeds involved with this transaction? Or is this purely like an equity interest swap for the AUM?
Yes. I'm looking at Greg. If there was cash, it was pretty small. There was no cash.
No, there was no cash. No.
Okay. And then I thought it was notable that you did a secondary sale for your Sagard Europe 3 investment. Is there -- is that something we should expect more of? Are there other parts of your asset management within the funds that you see potential to reduce your direct investment, maybe sustainable capital? Is there an opportunity there?
Yes. So yes, with Power Sustainable capital. In fact, that did occur in the funding that was announced a year ago when we did the $1 billion fund, of which $600 million was non-Power. Power rolled assets in and took a little bit of cash off the table. That's in that slide. I can't remember the page now earlier in the deck. There were 4 cash items when I talked about the $800 million that was raised. You will see, I think it was 150 or so that occurred when that was rolled in. And there could be more opportunities because Power still has -- Power Sustainable still has a number of assets that have not -- that are still wholly owned by Power, that are in the development phase, the wind and solar assets that are being developed. And as they get developed, their plans are to roll them into that fund and other funds that we would have, bring in third parties and take some money off the table. So that's an answer. Yes, on Power Sustainable capital.On the Sagard side, we don't have immediate plans for that, and this was quite opportunistic. I'll maybe digress a bit, but just talk about what's going on. Lots of investors who are looking to get exposure to private asset classes, are looking for secondary positions as well. And the reason they like secondary positions is if you put your money, say, in a brand-new private equity fund, as you may know, it takes 3, 4 years for that money to get deployed and the returns come 4 or 5 years later. If you walk into a secondary position that's existed for 3 or 4 years, you walk into an investment, which is closer to the harvest period. And therefore, the returns come in a more immediate period. So you don't go through the J-curve of waiting in the desert for 3 or 4 years.So there's a lot of interest in secondaries. That's part of what has driven the secondary market. In this case, investors who were looking at some of the fundraising that Sagard was doing elsewhere, we're looking for a secondary reason, raise the possibility that they wanted to purchase our interest. And so the team was really opportunistic in saying, well, that's great because Power is on a strategy to lower its capital. So it kind of came together, and we were able to take some money off the table and expand the investor base for Sagard. So it was again, it was a win-win. Will there be more of those? I don't want to promise those. I'm not aware of any that are being worked on at this time, but we would certainly be open to them if those opportunities came.
Okay. And that sort of leads to your cash now has moved up slightly higher quarter-over-quarter. You did mention that you're going to be active on your NCIB. But what about the -- originally, you talked about a $350 million of pref share that you are looking to redeem? Is that still on the cards?
Do you want to address that? The question is on the $350 million preferred shares?
Yes. I could…
I'm going to pass this to Greg.
Sorry, Graham, I could barely hear you on that. So yes, we're going to continue to look at the market in terms of opportunities. As you know, there is some interesting hybrids out there that may suit the bill, and we've been looking at them. And as the markets evolve here, you can expect that that's something that we're going to be active in thinking about. And there is opportunity, obviously, to reduce the cost of financing through some of these instruments other than the perpetual pref issue that we did just last month.
So I might put it -- I might add a note to that, Graham. I think when we originally announced the strategy, we had notionally discussed it in the context of taking $350 million of cash, and we had a goal of reducing our financing expenses by $15 million, if you recall. We're thinking about can we get there and not use $350 million of cash by lowering the expenses, the cost of our financing and not utilize the cash, but still get the 15 goal some other way. And we're not declaring victory on that, but that's what we're thinking about. And that's -- those -- we're looking for those kind of opportunities to continue to reduce the cost, but maybe do it with either no cash or less cash as we do so. So that's kind of behind Greg's comment.
Okay. Understood. And then my last question, if I could. Just your comment on the discount to NAV. And I think it's appropriate to have some discounting there for your ongoing expenses. But what about the potential for some tax leakage of if you ever wanted to dispose of assets? Is there a reasonable discount that you think would account for that? And your -- when I'm looking at your sort of the holdco structure and discount to NAV.
I don't see one -- no, I don't see much of one because I think it's a pretty hypothetical question. And I think that -- so -- and I think that if we were ever to do divestitures, we would be looking for ways to get our cost base properly aligned and not face big tax bills unnecessarily in terms of -- so it's hypothetical that we would be doing big divestitures and it's -- and we would be trying to be minimizing that. So I don't -- I can't -- I can get really precise on a number when it comes to in my own head, at least, when it comes to discounting operating expenses. It's a little more of a brain teaser to try and figure out a tax question like that, that's very hypothetical. I don't think it gets you to 20%. I just -- you could create cases, but I don't know that it gets anywhere near there. So that's not a very precise answer to your question because the question is pretty hypothetical. Anything, Greg, you're looking -- you want to jump in?
I'd just add, Graham, that point to perhaps history in that whenever we do things of that nature, and as Jeff said, that is a real hypothetical. But we've managed our tax and our tax attributes to, I think, pretty successfully over the years. And so we would be minimizing the tax bite on any transaction of that nature with advanced planning and due care.
Your next question comes from the line of Doug Young with Desjardins.
Just on the Sagard, back to the Sagard business. I guess the first question is any way to quantify the net inflows? And I think you've given, obviously, some fundraising and maybe the fundraising number is what the net flows would technically be. But just curious to get more color on that? And then can you also remind us what you hold Sagard at in the NAV? And not what your investments are in Sagard, but what the actual asset management entity is held that within the NAV. And the reason I ask is, obviously, there's been lots of transactions in the health space over the last little while. Just trying to get some color on that.
Yes. So on your first question, I'll give you a high level answer, and I don't know whether we've got a flow number. But of course, all of these funds are closed end funds. If you think about them in the context of sort of public funds, they're not open ended funds. Once people have committed, they get their capital returned either through income, let's say, on the private credit funds, but also return of capital or they get it through a return of capital when an asset has been disposed of. But they don't actually have an opportunity to come and say, I want my money back, right? So there's no outflows. There's return of income and capital. So all of the gross fundraisings are net in, in fundraising. So that's the way to think about it.What we haven't tried to do is, at least I haven't seen it, is to look at the fundraisings and then to look at what return of capital has been also provided to the LPs. And then you got to add in the AUM growth through growth in value. And I don't have that in my head. I'm looking at Greg. I don't think we've got -- maybe we have that. I haven't seen it. But I'm not -- but given my answer, is that -- does that satisfy your question? Gross inflows are equal to net inflows because these are closed end funds.
Yes. I think others kind of baked in a little bit of the return. I know it's a complicated kind of piece, but I think some do kind of factor in some of the return of capital when they think of the ins and outs. That's where I was kind of going. But if you don't have it, that's fine. I'd be -- but, yes.
That's a good question, though, Doug.
Go ahead, Greg.
Doug, I think that, that's certainly something that we'll look forward to disclosing in the coming quarters. We certainly have those numbers available to us, but we haven't disclosed them yet. But I think that your question has prompted a job for the team here who is looking for something to do for the next quarter.
Always looking for feedback on our communication and IR. So that's good, and we will work on that.
Yes. And I think the other thing that you asked was what are we essentially carrying the management companies at. And then I would say to you is that right now that they are basically valued on their book cost. And in the case of Sagard, it's essentially the cash that they have on the balance sheet. And I think it's something like $80 million or something right now. So we haven't factored a value for the management companies into our NAV at this point in time.
Okay. Good to note. Then you said and many times you intend to resume the normal course share buybacks. I'm just hoping you can elaborate. Is that just to wipe out dilution from the options? Or could you be more aggressive? And I think I've asked this question in past calls, so I'm repeating myself. But would you be more aggressive on buybacks here? You seem to think your discount to NAV should be a lot lower. And then if you're not going to be overly aggressive on the buybacks, why not? Because you seem like you've got quite a bit of liquidity.
Yes. So good question again. And just to be clear in terms of our intentions, Doug, we do have about $1.6 billion on the balance sheet. And Jeff referenced that we'd like to carry in cash and cash equivalents, about 2x our fixed charges. And you can calculate the fixed charges from our disclosure in the MD&A. And the 2x fixed is probably between $700 million and $800 million, depending on the quarter. So in that range. So you're looking at basically a difference of $800 million right now in terms of where we're at. Now we like to carry a bit of a buffer. And the buffer would be fairly significant at this time. So the range that one might expect is anywhere from 500 to 700 being available. But we haven't been specific on exactly where we'll travel over the next little while. But that's the range that we're thinking about.
Yes. So that's a way of saying that we are going beyond option. We are not just doing option -- for mitigating option dilution, we're going -- we will opportunistically go into the market and put capital to work and buy shares back and reduces the share count. That's exactly what we're planning to do. And that has a lot of benefits, including -- we're trading at a discount that's pretty high still compared to our underlying value. And we like the opportunity just basically on where the shares are going at or at least where our businesses are growing. So the answer to your question is yes, and Greg just kind of played out how the math might work.
Perfect. And then just on the cash balance, that does not include the $94 million from GP. I don't think or you can correct me if I'm wrong? And what else -- like in terms of cash inflows are coming in Q4? I don't -- there's nothing obvious to me, but I just wanted to see if I'm missing something.
Yes. GP is not closed, and we don't have the cash in the quarter yet. It's in the door in Q4, but it's not in Q3.
Okay. Perfect. And then lastly, just on the standalone investment earnings, $58 million. Can you dig a little bit into what drove that?
And you said that the standalone earnings, $58 million, what drove that?
The standalone, that's Lion. And as you know, in the quarter, again, the wonders of consolidation accounting. Certainly, Lion announced earnings, and they're announcing them today, quite frankly. And so that call is on right now. And that's our share. I think our share is -- just let me look at my note here, $56 million of their income for the quarter. And the income this quarter for Lion had an item in it where they had a revaluation of the Amazon warrants for I think -- well, for our share of being $56 million. And that was due to, obviously, the decrease in the value of Lion over the period. So that mark became income to Lion. So hopefully, that explanation, you followed it, but it is the nature of recognizing that decrease in the warrant value that was issued to Amazon.
So that's where I was going. It seems like there is some unusual items in there, but that's basically what you're saying. There was something unusual coming through as a result of the Lion.
Yes.
Your next question comes from the line of Jaeme Gloyn from National Bank.
I kind of want to follow-on that theme and just looking at the alternative and other investments platform. I know that -- well, I guess, a couple of questions on this. First, the 2021 has been a pretty solid year from that line item in terms of driving earnings. A couple of, of course, onetime items helping support that performance. I'm just wondering if -- has this -- have you gained like enough scale or have businesses -- the underlying businesses and assets gained enough maturity that we should come to expect a bit more earnings contribution from this business on a consistent basis going forward? Or is it still kind of a very modestly positive earnings driver?
So maybe I can take a start, and then Greg can save me if I can help clarify what I said. I think from a -- we think of the business as a general partner being the asset manager and then as a provider of seed capital. And I think you need to separate those 2. And as a provider -- as an asset manager, when you look at Sagard Holdings, it's got quite a lot of assets. It's got a lot of third-party assets, but there's quite a lot of assets under management right now. And it's getting to the point where it can start to contribute. But I don't want to say when. But right now, it's pretty close to breakeven from a cost and expense point of view, given its scale. And so as a GDP, it will start to contribute if it continues to grow.And of course, the income emerges. You get fees and you have expenses, and then they have carry. And so how the profit emerges as a GDP can be a little lumpy. You get a realization on a private equity position. And all of a sudden, you've got carry on it and some of that goes to the staff, to the management and then some of it goes to the GDP. So that -- we look forward to that, but we haven't been profitable up to this point, but it's getting to the point where it will be. And then the LP capital, the Sagard capital is a mix of strategies that are mature, such as a more material, I should say, such as the private equity funds in Europe, we've -- Sagard 3 is -- has been -- they're doing Sagard 4 now on the fundraising. So those are more material funds. We get realizations for those periodically.The Portag3 fintech funding has had realizations that have driven profitability. The profit emergence on the credit fund is more kind of regular, if I can call it that. There's an income stream, although there are recaps and refinancings that can drive. So we are earning, and we'll earn money on the LPE capital, but the profit emergence is a little lumpier. And I think we need -- and we've stated it in previous meetings, Jaeme, that we owe it to our investor base to really lay that out, and we're not quite there this quarter, but kind of talk about how that profit emerges on the LP. If I flip the Sagard 2, excuse me, Power Sustainable capital, there the AUM is not quite as developed and they're a little further away before they reach breakeven. As an asset manager, they need to do some more fundraising.The -- as an LP in that business, you've got energy assets, and you've got -- and in fact, Chinese equities. And so 2 divergent strategies, but they come from Power's history, which is why we have very strong teams in both areas. And the profit emergence on that is quite different as well. But effectively, you're earning 8%, 9%, 10% or 11% returns on your LP capital as an energy in the intra funds. And then on the Chinese equity side, we'll then -- we can have a discussion about what kind of returns we get in the Chinese markets as an LP. It's been very, very profitable for us, obviously, over the last 15 years, we've done really well on it. That's what -- so that's giving you some color, but not giving you some specific numbers, and we're going to move forward. Greg, you going to add to this?
Yes. I'd just add to it, Jaeme, that on Slide 18, Jeff was going through the various funds that are proprietary capital or LP capital is held in. And a lot of it comes down to vintage when you're looking at the private equity. And we -- as you know, we did the secondary with the Sagard 3. So the Sagard 4 is basically just being launched and funded. So there are some assets in Sagard 4 right now. But as you know though, the return of capital in the private equity businesses will be 3 to 4 years out before we start to see some of the earnings emerge, if you will, from that. And they emerge on realizations, right?Private credit, of course, we'll get that as we get our dividend returns from the private credit fund. Venture capital, very much the same as the private equity. Royalty is more or like private credit as well. And Power Pacific, the realizations there come as the portfolio is managed for either the market conditions as we saw earlier this year, where the markets ran up significantly. And there -- the team in Shanghai realized a lot of gains, and it was Q2 that most of the gains were realized. And so they'll emerge not on a regular basis, but on a intermittent basis. So the good thing I'd say about where we have the seed capital is it's in a lot of diverse opportunities. And at some point, so hopefully, it will be a little more consistent, and we'll balance out each other. But it is maturing. And as Jeff said, we've promised that we'll give you more insight into that in a future quarter. So we will do that.
Your next question comes from Tom MacKinnon with BMO.
Jeff and Greg, the question just with respect to the buyback. I mean, the company seems to the leverage is high and it's certainly higher than normal at Great-West. Why would you be buying back stock when your -- when the objective here is to reduce the overall leverage at the group? And just with respect to tax noise in the quarter. Greg, I think you had mentioned something about a $0.03 benefit and then $0.01 hurricane. I'm not sure which one applied to the third quarter of 2021. So if you could just clarify that, please?
Thanks, Tom. Let me start with the buyback and leverage question, and then I'll let Greg can add to that, answer the tax question or address the tax questions. So on the buyback side, the leverage at the Power group is consolidated. Of course, it's a consolidated leverage of Great-West life and IGM and everything else we consolidate. And the reason that the leverage is elevated is because Great-West Life did a lot of transactions and managed to do that without issuing equity, which we think is a good thing for shareholders.At the Power Corp. level, we don't have debt really. We have a lot of cash. We've got preferred shares, and we've already talked about our intent. We want to keep that capital structure based in place. We're going to work on reducing the costs, as we said in response to a question earlier, but we're not looking to reduce. So that's it. We don't have to add like we got to think, $250 million of debt is basically across the group.
And it's 30 year debt.
30 year debt, right. Thank you very much. So we have the -- so the cash is at Power, and we're going to return the shares that we return -- or buy back shares with it, which does not affect our -- it really doesn't impact the amount of debt we have, of course, but we don't have an opportunity to reduce the debt at Power Corp. That's the short answer.
And the -- sorry, I was just…
And you do the -- yes, do the taxing. And then just a follow-up, sorry.
Yes, sure. Sure, Tom. So the benefit -- $0.03 benefit was for Q3 '20 and the $0.01 hurt is in the current quarter. So that basically is the entire difference between the 2 quarters.
Okay. That's great. When rating agencies look at Great-West, would they look at the all of -- look at Power consolidated? Would that have a factor in terms of the leverage for -- or in terms of their rating for Great-West? And if so, then why wouldn't the consolidated leverage at Power matter?
So let me take an attempt. And then Greg, you can jump in. But -- or do you want to start off? I'm happy to jump on it.
Okay. Go ahead.
And then you'll correct me if I'm wrong. The -- so Great-West Life does -- the rating agencies look at great we at life as their own leverage. The rating agencies look at Power on a consolidated basis. The rating of Power in our group rating can impact the rating of Great-West life, but it's not through the mechanism you described. It's not that they take the Power Corp. data or the IGM consolidated debt and somehow ascribe it to Great-West Life. They look at Great-West on a standalone basis. But when they look at Power and they look at our overall group rating, if our rating were to go down several notches, they have kind of rules within a group that you can't have a group rating being too many notches below the subsidiary's rating.So they've got -- and so if Power got a bunch of downgrades, that could impact Great-West Life's rating. I think it's the simple way to put it. But when they look at Great-West, they look standalone. The end of your question, though, is why don't you reduce your -- why wouldn't you reduce your debt at Power Corp., and I'll come back to my answer to your previous question. We don't have that at Power Corp. The only -- we got 1 series, that's 30 years. It would be very, very expensive to try and redeem that series. And the preferred shares that we have outstanding, we're not looking to reduce the base. We're looking to perhaps reduce the cost of it at this point is the way we're thinking the 3 transactions like we did this quarter. Greg, anything you want to add to that? Or did I put my foot in it? Or did I get it right?
No. You've just proven that you sat through rating agencies meetings. So that's a good thing. And so it really does start with the group rating, though, and that's the -- I mean, it's -- you start at the top and you look for the group rating. And everybody is then measured on their own book, right? So Great-West Life is -- it's rating is calibrated based on its particular position. It is influenced by the group rating, but it is not -- it is done standalone. And that's the same for IGM as well. And we could get into more of the subtleties in terms of what's considered to be a strategic holding and what's not considered to be a strategic holding, but I don't think we should go there on this call because that's probably -- if Jeff just gave you the 101 in the readings and how it works, that's probably 201 or 301. So we won't go there this morning.
Okay. And in your opinion, the group rating wouldn't be jeopardized by buying back a dock. Isn't that correct?
Correct. Absolutely.
Right.
At this time, I would like to turn the conference over to Jeffrey Orr for closing remarks.
Okay. Well, I didn't -- I don't have any further questions or Greg. So we'll just -- we will wrap it up. Thank you. If there's no further questions, I'll just, again, thank everyone for participating, and we look forward to talk to everybody soon and look forward to our -- a lots of questions on this call about disclosure, around our platforms, and we really -- those are good questions, and we will take that input and look forward to coming back and answering those questions in the quarters ahead here. Thank you very much. And operator, that's it. Bring the call to a close.
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