IGM Financial Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial First Quarter 20 24 Analyst Call and Webcast. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Kyle Martins, Treasurer and Head of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, Carl. Good morning, everyone, and welcome to IGM Financial's 2024 Q1 earnings call. Joining me on the call today, we have James O'Sullivan, President and CEO, IGM Financial Damon Murchison, President and CEO, IGM Wealth Management Luke Gould, President and CEO, Mackenzie Investments and Keith Water, Executive Vice President and CFO, IGM Financial. Before we get started, I would like to draw your attention to our cautions concerning forward looking statements on Slide 3 of the presentation. Slides 45 summarize non IFRS financial measures and other financial measures used in this material.

Speaker 1

And on Slide 6, we provide a list of documents that are available on our website related to IGM's Q1 results. I'll turn it over to James.

Speaker 2

All right. Good morning, everyone, and thank you, Kyle. Turning to Slide 8. We delivered a record high first quarter adjusted EPS of $0.94 up 8% year over year, driven in part by strong asset growth during the past 12 months. AU M and A, including our proportionate share of strategic investments, reached $422,000,000,000 at the end of the Q1.

Speaker 2

This is up 21% relative to the same time last year. Both our Wealth and Asset Management segments contributed to asset growth with each and every company increasing their AUM and A over the past year. I'd remind you that our reported Q1 2024 net outflows of $128,000,000 exclude our strategic investments, each of which experienced positive net flows during the quarter. We spoke to our approach to capital allocation during our Investor Day and on our previous earnings call. Our number one priority continues to be investing to position our core businesses for continued long term success and growth.

Speaker 2

Our current strong dividend continues to be very important to us and we know attractive to our shareholders. And we have addressed our approach to share buybacks where we will seek to offset dilution where applicable and opportunistically repurchase additional shares in consideration of other capital allocation priorities. During the Q1, we began acquiring shares under our NCIB at an attractive price. We returned $146,000,000 of capital to shareholders during the quarter, including $12,000,000 through share repurchases. We continue to be very well positioned financially with reasonable leverage and over $400,000,000 in unallocated capital on the balance sheet as of March 31.

Speaker 2

We remained in the market repurchasing shares through the month of April, buying an additional 440,000 IGM shares for $15,000,000 Finally, IGM continues to be recognized as a top employer. In addition to being recognized as a top 100 employer in Canada by MediaCorp, during the Q1 we received further recognition as one of Canada's greenest employers, a top diversity employer and a top employer in the province of Manitoba. Our collective achievements and progress across IGM Financial are fueled by our diverse and highly engaged teams. We've invested considerable time and effort into shaping a leading and deeply rewarding experience for our employees and are proud to see this continue to be recognized. Shifting to the current environment for our businesses, starting with recent financial market conditions on Slide 9.

Speaker 2

Even after factoring in a softer April, we've seen strong growth in equity markets year to date across all major economies around the world, adding to the roughly 10% average return achieved for our clients in 2023. Looking at the Canadian Fund Industry on Slide 10. The 1st quarter's industry net flows were effectively 0 with net flows into income oriented solutions and alternatives offset by outflows elsewhere. While high interest rates and inflation continue to weigh on Canadians, we are seeing strength in a number of areas, including an extended period where being invested in the financial markets has been well rewarded, supporting investor confidence levels over the long term. A demonstrated ability at IG Wealth to attract high net worth and mass affluent client relationships through a wide range of business cycles.

Speaker 2

At Mackenzie, we see strength in distribution with wealth management partners, including PFSL and WealthSimple. And finally, there has been significant growth across our strategic investments that are each positioned to take advantage of attractive secular trends in the Wealth and Asset Management Industries. Slide 11 outlines IGM's consolidated average AUM and A and the record high Q1 adjusted EPS. And on Slide 12, we show the strong growth in net earnings at our Wealth and Asset Management segments, up 7% and 12%, respectively. Keith will speak to this in more detail later in the call, but I'd like to highlight here that the increase in earnings power has been supported by very strong asset growth over the past year.

Speaker 2

Turning to Slide 13, where we show double digit AUM and A growth over the past 12 months at almost all of the businesses, including IT Wealth Management, which Damon will speak to next along with the Wealth Management segment as a whole. So I'll pass it over to Damon.

Speaker 1

Thank you, James, and good morning, everyone. Turning to Slide 15 and Wealth Management's Q1 highlights, including IG Wealth, Rockefeller and WealthSimple. IG Wealth ended the quarter with AUA of $128,000,000,000 up a solid 10% relative to last year and up 5.6% during the quarter driven by financial markets. Gross inflows of $3,700,000,000 represent another strong quarter and our 2nd best first quarter gross inflows in our history. Net inflows were $223,000,000 during the Q1.

Speaker 1

This excludes $177,000,000 outflow related to the IG defined benefit pension plan, which was transferred in January to an SMA account at Mackenzie. IG's growth outflows as a percentage of average AUA over the 12 months remain well below the industry and ended the quarter at 11%, while the industry redemption rate was closer to 16%, both rates remain largely unchanged versus Q4. Client acquisition during Q1 was a continued strength with new $1,000,000 gross inflows representing approximately 28% of total new client gross inflows. On a later slide, I'll highlight the growing strength in our insurance and touch on how we expect to further digitize this business going forward. Also make some comments on our number one share of voice ranking in the Canadian wealth marketplace during the call.

Speaker 1

Lastly, I'll provide an update on the Rockefeller and Wealth Temple, both of whom continue to execute well on their respective growth strategies. Turning to Slide 16. You can see IG's Q1 flows. Our growth inflows continue to remain strong. In the last 10 quarters, we've seen gross inflows in excess of $3,000,000,000 and we remained above the $3,000,000,000 mark during the Q1 for each of the last 5 years.

Speaker 1

Outflows continue to be partial in nature as Canadians continue to pay down debt and fund their lifestyle through a difficult economic environment marked by elevated inflation and interest rates. Similar to last week the 3 quarters, this remains an industry trend. As our advisors work with their clients to navigate the current economic environment, we are confident that our clients will be better positioned to save and build their wealth when rates begin to fall and normalize. Turn to Slide 17. I'll make a few points here.

Speaker 1

Near the top left, we've excluded the transfer from the IG pension the defined benefit pension plan from the growth outflows during the quarter. To the right, the outflows rate, you can see that our IGM solution as a percentage of total AUA continues to remain strong. We continue to see an opportunity with our client cash, GIC and Haiza, including dollar average costing back into the markets over time. Lastly, our investment performance continued to deliver strong relative performance, with 65% of our assets ranked 4 and 5 star by Morningstar, up from 59% last quarter and 93% of our investment ranked 3 stars or higher. Turn to Slide 18.

Speaker 1

Our value proposition continues to resonate and we continue to see strong new client acquisition particularly with massive fluent and high net worth clients. During the Q1, we had $445,000,000 in growth inflows from newly acquired massive fluent clients between $250,000 $1,000,000 representing 45% of our growth inflows from newly acquired clients. While we had $273,000,000 in gross inflows from newly acquired clients over $1,000,000 representing approximately 28% of our gross inflows from newly acquired clients during the quarter. This is a significant increase from 15% where we were in Q1 of 2018. The Q1 was our 2nd highest quarter on record in gross inflows from newly acquired clients over $1,000,000 Put together, mass affluent and high net worth growth inflows from newly acquired clients represented 73% of growth inflows from newly acquired clients in Q1, up from 56% Q1 of 2018.

Speaker 1

As we continue to execute our strategy, we fully expect these percentages to increase over time. Turn to Slide 19. This shows the productivity of our advisors, an increasingly important metric. We continue to see strong productivity as we execute against our segmented advice model and invest in further digitalization of our business. We expect this to see this continuation trend over time.

Speaker 1

Turning to Slide 20, I want to take a moment to speak about the progress in our insurance business. The insurance business has been growing steadily and during the Q1 recorded our best Q1 1st year commission since 2017. It was also our highest average case size ever in a quarter as measured by 1st year commissions. As you know, 1st year commissions are a key indicator of the health of an insurance business. Over the last 5 years, we've seen our 1st year commissions grow by 36%.

Speaker 1

The increase in average case size reflects our success in attracting and working with more massive and high net worth clients. Our advisors are leveraging the tools, training and access to insurance experts through our private wealth planning experience to both identify and meet our clients' insurance needs. We see further opportunities for growth in this business. And during last year's Investor Day, I spoke about our investment focus as it relates to insurance and our desire to continue to invest in this part of our business and that's exactly what we've been doing. 2 weeks ago, we announced the partnership with Life Design Analysis, a leading edge Fintech solution provider in the insurance space, so that we can leverage our sales enablement technology to allow us to provide a better advisor and client experience as it relates to insurance.

Speaker 1

With the strength of this business and the investments in digitalization, we expect to deepen our market penetration and drive further growth. Turning to Slide 21, this represents another success factor in our journey. Recognition of IG Wealth as the number one wealth brand from an earned media perspective. Along with our brand's 25% share of voice in the Canadian wealth marketplace, the breadth of our spokespeople is also front and center. This is more than an accolade of our people in print, in radio, TV and in digital space.

Speaker 1

It represents our voice and our views being heard not just by our clients, but our future clients. We're in front of the country showcasing our knowledge on financial planning, insurance, tax planning, banking and investment strategy, providing our thought leadership and speaking to our advice capabilities. This will continue to be an important part of executing our strategy and providing us with a platform to reach our key client segments. Now turning to Slide 22. I'll provide some updates on Rockacolor's progress.

Speaker 1

Client assets were up 27% year over year and were approximately 9% during the quarter, driven by strong markets as well as continued inorganic and organic growth. Over the last 12 months, organic growth has driven $3,300,000,000 in client assets. Rockefeller also continues to see strong acquired production during the quarter. Turning to Slide 23. WealthSimple saw another incredible strong quarter as they continue to reinforce themselves as an important part of the Canadian wealth management ecosystem.

Speaker 1

Wealthsimple AUA in Q1 ended at $39,000,000,000 advancing by an incredible 25 percent or $7,700,000,000 during the quarter, another record quarter of growth. On a year over year basis, AUA was up 82%. Client count also expanded by 12% year over year to 2,400,000 clients. Wealthsimple has continued to prove their ability to execute and continues to deliver strong results. With that, I'll turn it over to Lucull.

Speaker 3

Thanks, Damon. Good morning, everybody. So turning to page 25, a few comments on the quarter. First, Mackenzie's AUM reached $203,700,000,000 up 4.1% in the quarter driven by strong investment returns for clients. Client returns were 5.5% in the quarter and are just over 10% in the last year.

Speaker 3

On 0.2, investment funds experienced net redemptions of €194,000,000 during the quarter, which continues to be in line with the industry environment. While returns generated for clients have rewarded clients for remaining committed to financial plans through volatile markets, it did remain challenging for industry flows during RSP season. In 0.3, the share of our assets in 4 and 5 Star Funds remained unchanged quarter over quarter at 51%. And in the bottom left side, I highlight a couple of noteworthy developments in the quarter. First, we've launched a number of new funds advised for our global quant equity boutique in Boston.

Speaker 3

This includes a world low vol ETF, a global shrine compliant equity fund and an emerging markets ex China fund that complements our China fund sub advised by China MC. As reviewed at Investor Day, our Global Quine Equity boutique has delivered exceptional performance among world leaders for both its institutional and retail strategies since its inception of Mackenzie in 2017. These new strategies we launched for retail supplement 3 existing retail strategies that have exceptional performance that we're leaning into with this boutique, and we are actively cultivating a following. This includes our GLO equity emerging markets and our PE replication mandates. We're also very proud of being awarded the lead sponsorship for the United Nations PRI in person event, which is to be hosted in Toronto during October.

Speaker 3

This is the world's preeminent responsible investing event, and we're very pleased to bring our support through our focus on sustainable investing to make this year's conference a success. In the top right, China MC's growth continues to impress with investment funds increasing by 14% during the Q1 alone and 26% over the last 12 months. This growth continues to be primarily driven by strong investment fund net flows with KRW 201 billion or KRW 35 billion in net flows during Q1. And Northleaf delivered KRW 700,000,000 of new commitments. Since our initial investment in 2021, Northleaf has averaged about $1,000,000,000 in new commitments every single quarter.

Speaker 3

Turning to Page 26, you can see the trended history of Mackenzie's inflows. On the right, you can see the last 12 month trending net sales are relatively stable and the turn on the left brings out that net redemptions of $194,000,000 was down slightly from slight net inflows last year. You can also see in the chart on the left that we had net inflows of ETFs of $332,000,000 that offset mutual fund net outflows of 536,000,000 dollars On Page 27, on the bottom right, you can see that our overall net investment fund sales is in line with industry peers. In the table in the bottom left, you can see that retail mutual funds continues to be impacted by industry dynamics, while we saw positive flows in retail ETFs as well as institutional investment funds. On our retail flows, I'd just comment a few of our larger mandates have had softer near term performance and led to an increased redemption rate.

Speaker 3

Long term performance on these mandates remains excellent and they remain disciplined as they invest according to their respective approaches. I'll provide color on the next slide. Institutional investment fund and sale improvements were driven by our partnerships with Primerica and Wealthsimple. Turning to Page 28, you can see our performance in net sales for our retail mutual funds by boutique. You'll note at the bottom, this quarter we've added our retail ETF ETF net creations and this will be a standing disclosure going forward.

Speaker 3

You can see we have strong long term performance and evolving performance across a number of boutiques and we have compelling mandates in a number of categories in demand that we're leaning into. On this slide, as mentioned, I highlight that Bluewater and GreenChip have had softer near term performance within their categories, and this has led to increased redemption rates. And I would reinforce they each have very strong long term track records, and they continue to be disciplined within their respective approaches and gross sales into these mandates to remain consistent. As mentioned in previous calls, we're on a trailblazing journey, bringing both private asset classes and quant investing in retail. In the 5th call to the right, you can see our global quant equity boutique, And they've delivered very strong track records among the top in the world since joining 2017, and they actually own all these performance numbers with the exception of the 10 year number.

Speaker 3

As mentioned earlier, we've supplemented their existing retail mandates with 3 new launches, and we're very pleased with the support we're seeing for this boutique heading into Q2. Other noteworthy areas where we're seeing compelling performance in categories and demand include our Global Equity and Income Boutique, our U. S. All Cap Growth Fund advised by Putnam, which is in the column on the right, and we continue to scale our Norfleet private asset class products and we are now in excess of $200,000,000 in these products. On Page 29, I'd highlight that we launched our 3rd annual sustainable investment report in April.

Speaker 3

This report outlines our continued progress, our approach and the impact that our efforts have. As highlighted at Investor Day in December, we're so pleased to be ranked number 1 among large peers in the quality of ESG offering by advisors and also to have the largest thematic sustainable fund in Canada. And as mentioned earlier, in January, we were awarded the lead sponsorship for PRI in person conference that's being held in Toronto. We view this conference a bit like the Olympics. This is the only time in our career this could be held in Canada, and we look forward to this event, and we're hoping to see so many of you there.

Speaker 3

This is the world's preeminent Responsible Investing Conference, and it is a precious moment for us to have it here in Canada. We're doing all we can to make it a success and we're looking forward to engaging with institutional investors and other key stakeholders and industry peers on these important topics. Turning to Page 30, you can see the growth in the Chinese investment fund industry with industry assets up 6% in the quarter and long term funds up 2%. In the bottom left, you can see the significant net inflows of KRW1.6 trillion with meaningful money market flows leading to 11% increase in money market fund assets in the quarter alone. On the right, I really want to highlight the continued strength in the China MC's market position.

Speaker 3

It remains the 2nd largest Chinese asset manager in terms of both long term funds and overall investment funds. And here you can see that our market position continued to strengthen, increasing a 5.6% share, up from 5.1% December and 4.6 percent 1 year ago. Turning to Page 31. You can see we've enhanced our disclosures here this period by introducing investment fund net flows for China MC at the bottom. And you can see China MC's AUM has now crossed KRW2 1,000,000,000,000 or KRW400 1,000,000,000.

Speaker 3

Overall assets are up 15% in the quarter 18% in the year. Long term funds increased by 11% in the quarter and around 27% in the year and substantially all this increase came from net inflows. During the quarter, total investment fund net flows for China MC were 201,000,000,000 or CAD38,000,000,000 That's an annualized net sale rate of over 40% and more than half of China MC's net inflows were from long term funds. We remain very optimistic for future growth in this industry as China is committed to building a high quality retirement market, and we continue to be encouraged and confident in China MC's ability to maintain and grow market share within this high growth industry. I'll now turn it over to Keith Fodder.

Speaker 4

Thank you, Luke, and good morning, everyone. On Slide 34, you can see key highlights for Q1. Reported and adjusted EPS are both $0.94 In addition to reporting Lifeco's net earnings in our reported EPS, we are also reporting adjusted earnings reflecting Lifeco's base earnings on a go forward basis. We've also restated prior quarter's adjusted earnings. We are adding this disclosure recognizing the potential meaningful difference between net earnings and base earnings that can occur quarter by quarter since the adoption of IFRS 17 and that base earnings is a key alternative measure of Lifeco's profitability that is followed by the investment community.

Speaker 4

In December 2023, we announced our NCIB program and during the quarter returned $146,000,000 to shareholders through the quarterly dividend and $12,000,000 in share repurchases. We also bought back $15,000,000 in shares through the month of April. With the continued strength of WealthSimple's performance, we marked up the fair value of our investment from $607,000,000 to $722,000,000 which is fair value through other comprehensive income. And finally, we received dividends from both the China NC dividend of $72,900,000 being the largest dividend received to date. Turning to Slide 35, you can see our AUM and A and flows.

Speaker 4

As a reminder, we are now presenting our all historical flows in AUM data excluding ITC. Coming off a strong Q4, AUM and A was up an additional 5% in Q1, while our average assets increased by 5.5%. Turning to Slide 36, we have our consolidated earnings at IGM. The strong growth in average AUM and A supported higher revenues in both our Wealth and Asset Management segments. We also had a strong quarter in the mortgage and insurance business driving Wealth Management revenues.

Speaker 4

1.2, net investment income was higher primarily due to mark to market gains on seed capital. And 0.3, our operations and support business development expenses were up slightly on a year over year basis, but down sequentially and we are maintaining our full year guidance of approximately 4% growth over 2023. On Slide 37, we present key profitability drivers for IG Wealth. I'll highlight a few points. First, the advisory fee rate decreased from 102.1 basis points to 100.3 basis points, which is primarily driven by client moving up wealth bands due to strong growth in average AUM and A, which was up 6%.

Speaker 4

Growth in AUM and A is more typical of annual growth and had the largest impact on the fee rate. You can see that the product and program fee rates were stable in Q1. And finally, the asset based compensation rate is up in the quarter, driven by the annual reset and advisor qualification tiers in scaling the corporate channel and this offset the downward movement from the program changes I spoke to last quarter. On Slide 38, you can see IG's overall earnings of CAD 117,200,000 up 12.1 percent relative to Q1 2023. On point 1, I spoke of the key drivers of advisory fee and product fee revenues on the previous slide.

Speaker 4

And year over year and sequentially, other financial planning revenue was up in both the mortgage and insurance businesses. The mortgage business was driven by a combination of gain on sales, positive fair value adjustments and positive mortgage warehouse income. As a reminder, fair value adjustments were negative last quarter and a year ago. The insurance business also experienced a strong quarter with the highest revenue since 2017, and this is great to see with insurance being a key part of future growth for IG Wealth Management. Moving to Slide 39, you can see Mackenzie's AUM by client and product type as well as net revenue rates.

Speaker 4

The decrease in the 3rd party revenue rate ex Canada Life was driven by a few items. First, the rate was down 0.3 basis points due to having one less day in the quarter where we collect revenues for 91 days, pay distributors' compensation based on 1 quarter of the year. We also continue to see strength in our 3rd party wealth management partnerships with PSSL and WealthSimple, which have both diversified and shifted Mackenzie's AUM mix. And finally, the rate was impacted by the pension mandate reallocated from IG Mutual Funds. Turning to Slide 40, you can see Mackenzie's earnings of $57,300,000 up 18.4% year over year and 16% quarter over quarter.

Speaker 4

Better results were driven by higher net management fee revenue, lower operations in support of this development spend, as well as higher seed capital mark to market returns, so well diversified. On point 3, operations and support business development Expenses were down 4.9% on a year over year basis and down 2.6% from last quarter. And as a recall, on streamlining occurred in Q2 of last year, resulting in a favorable impact for Q1 2024 when compared to Q1 2023. Also there are some timing items on investments and initiatives such as middle office, product and client and advisor facing capabilities that will occur over the balance of the year. Slide 41 has China MC results.

Speaker 4

On the left, ending AUM of RMB2.1 trillion is up 15% quarter over quarter with average AUM increasing 7%. With respect to earnings on the right, the quarter over quarter earnings increased with average assets. On a year over year basis, earnings were down primarily due to the regulatory mutual fund fee rate reforms that we spoke to during our Q2 2023 call, the strengthening of the Canadian dollar and fair value gains last year versus this year and these items were partially offset by 9% increase in average AUM over the same time period. As mentioned, our portion of Chinese New Year dividend was the highest dollar value we have received, which is a testament to both the strength of the business and the confidence of management. On Slide 42, you can see our earnings contribution from companies in each segment.

Speaker 4

Two comments. First on Rockefeller, the loss of $4,400,000 was driven by lower revenue in their M and A Strategic Advisory business, which has evolved out quarter to quarter and the full implementation of a new equity compensation program I mentioned a few quarters ago. As Damon spoke to earlier, the core private wealth business is performing very well. We do expect a similar result in Q2 and improvement in the second half of the year. 2nd on Northleaf, earnings of $5,700,000 after non controlling interest are up over last year.

Speaker 4

And this was driven by higher net incentive fees, which are earned in Q1 of each year and excluding incentive fees, earnings would have been between $3,000,000 $3,500,000 Slide 43 provides a summarized view of ownership and our value of strategic investments by segment. A couple of points. First, we increased the fair value of WealthSimple to $722,000,000 which reflects the outstanding performance in Q1 that Damon touched on, a revised revenue forecast for the company and an increase in pure multiples. As mentioned last quarter, to give consideration to IGM's value through some of the parts, At the bottom right, you can see the value of our strategic investments across the segments is over $5,000,000,000 Slide 44 highlights execution against our capital allocation priorities. At Investor Day and last quarter, we discussed priorities to invest in our business, sustain a strong dividend, while balancing the opportunity to repurchase shares and invest in companies we already own.

Speaker 4

In Q1, in addition to paying the quarterly dividend, we started executing on share repurchases, taking an opportunistic price with the lower share price. At the same time, we have done what we said we would do at the announcement of Rockefeller transaction and brought our leverage down below 2 times post transaction close. Our unallocated capital has also increased from $282,000,000 last quarter to $402,000,000 at the end of Q1 2024, primarily from cash earnings net from IGM dividend, including the $72,900,000 dividend we received from China MC. As we move forward, we'll continue to execute on our priorities, including building our businesses and executing on our NCIB. That concludes my remarks and I'll open it up for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Geoffrey Kwan of RBC Capital Markets. Please go ahead.

Speaker 5

Hi, good morning. My first question is for James or Keith. You've talked before about maybe taking a bit of a pause in terms of acquisition activity, but the unallocated capital has increased. Your balance sheet is pretty healthy and then you do generate some good cash flow. Just wondering how you're thinking about capital allocation area, in particular, just appetite on being more active on share buybacks or even potentially consideration for a substantial issue of it?

Speaker 2

Yes. Good morning, Jeff. Thanks for the question. And yes, our we meant what we said at Investor Day. We expect 2024 2025 to be 2 years where we will be focused not so much on M and A, but on investing in our core businesses in IG, Wealth and in Mackenzie.

Speaker 2

So that has not changed. And you're right, of course, to observe the significant increase in unallocated capital up at $402,000,000 this quarter. And so I think we will continue to invest in the core businesses, but there's clearly an opportunity for us to potentially increase the pace at which we're repurchasing shares. And that's something that we will be giving active consideration to.

Speaker 5

Okay. My second question was for Damon. I know it's hard to generalize, but are you seeing any differences in behavior in terms of stuff like risk aversion between the kind of the math absolute versus high net worth versus ultra high net worth segments of your business?

Speaker 1

So yes, are we seeing any difference in terms of risk appetite? I would say as you move more towards high net worth and ultra high net worth, you generally get investors that understand risk and return and you get those that understand the purpose of leverage and how to make money. So yes, there is more of a risk appetite as you move up, but it's obviously client by client, right? So but generally speaking, I think you'd be accurate if you went with that assumption.

Operator

Okay. And if I could just sneak in

Speaker 5

one last question for Luke. I don't know if it's a too detailed question to ask. But on the slide, we have China MC and the market share versus peers. I couldn't help but notice that China MC and eFund had pretty strong AUM growth in Q1, but a lot of the other players were kind of flat to marginally up. Just wondering if there's anything that you can share in terms of explanation why that dynamic may have played out in Q1?

Speaker 3

Yes. One key thing, Jeff, when you look at the industry flows, the story in both last quarter and this quarter was really around ETFs and around fixed income. And so that's where the strength and both eFund and ChinaMC MC experienced really good growth into their ETF businesses. That was the common thing that's bind them together.

Operator

Okay. Thank you. The next question comes from Nik Priebe of CIBC Capital Markets. Please go ahead.

Speaker 6

Okay. Thanks. I also wanted to ask a few questions on China AMC. The first is just a point of clarification. The long term investment fund net sales of $113,000,000,000 on Page 31, that's a Q1 number only, correct?

Speaker 6

That's not an LTM number?

Speaker 3

Yes. That's correct, Nick. Yes. And it was $201,000,000,000 for total funds and $113,000,000 for long term.

Speaker 6

Right. And so if I take that long term number and I just annualize it, it implies nearly 50% of AUM. So like what's really driving the momentum and specifically the market share gains there? Like is it distribution related? Is it driven by specific asset classes that TriNet MC has it bent towards?

Speaker 6

Or is there anything you kind of point to there?

Speaker 3

Nick, I shall point on that slide. So if you look at the trend, so last four quarters, they've been around $50,000,000,000 in long term fund net flows and this one was about €100,000,000,000 Through the last year, obviously, equity markets in China have been challenging. This year, we saw some slight improvements in equity markets. And the story in terms of net flows was really twofold. 1 was fixed income funds capturing a lot of ground and some good movement into ETFs.

Speaker 3

And for China MC, we're very fortunate where we've got an industry that's very small in relation to markets that it's in. And so industry net flows have been trending at double digit rates. And China MC until this quarter was trending at about 20% to 25% net sales rate annual and this quarter is about 40%. So really good growth there and it is driven by ETFs as well as fixed income fund.

Speaker 2

And Nick, it's James speaking. I would just add on China. I was there in March to attend a China AMC Board meeting. And I've long viewed China AMC as a very special property. It has it starts with very strong ownership.

Speaker 2

It's controlling shareholders, Citic Securities, who are a very, very strong dealer in the region and beyond. And I think on top of that, as you saw at Investor Day, you've got a very determined and innovative management team led by Yimae Lee. And then the final observation I'd make is that when we saw the fee reforms come in last year, we certainly saw the potential for some consolidation within this industry. And we expected, frankly, that the larger players would have an opportunity to take more share. And we're certainly seeing that.

Speaker 2

And so as we sit here today, China AMC is a very strong number 2. And personally, I believe on their way to number 1.

Speaker 6

Okay. That's great color. And just turning quickly to WealthSimple, the AUA growth again was very strong, up I think something like 25% sequentially, clearly outpacing any realistic assumptions around market related growth. So I know there's only so much you can say about that investment, but can you give us

Speaker 2

a little bit of sense in

Speaker 6

terms of what's driving the client flows at Wealthsimple?

Speaker 2

Yes. It was Nick, it was a remarkable quarter. As I said to our Board yesterday, I struggle to find the right word to describe it. The word I landed on was ballistic. It was a ballistic quarter for Wealthsimple.

Speaker 2

And there was I think we recognize there was a surge in activity, particularly trading activity. And that was right across the field. It was crypto. It was equities. It was options.

Speaker 2

It was well balanced overall. And so as we sit here today and we look at the Canadian landscape broadly, I can tell you that on the self directed investing side, for instance, there's no one in this country that's growing faster than WealthSimple, no one. So extremely impressive performance, very strong leadership and I think real momentum that they will carry into the balance of this year.

Speaker 6

Okay. That's great. That's it for me. Thank you.

Operator

The next question comes from Razeep Gandhi of T. B. Cowen. Please go ahead.

Speaker 7

Good morning. I guess my first question is for Damon, specifically on the cash and cash type flows at IT World. So we've been hearing some commentary around flows into high interest savings across the overall industry turning flat or actually flowing out and going into fixed income funds ahead of potential Bank of Canada rate cuts. Wondering if you're seeing any similar dynamics over at IG Well or if you're seeing anything different over there?

Speaker 1

Yes. No, at IG, we're not necessarily seeing a shift from short term into fixed income. Our advisors are financial planners and what they tend to do and what we tend to do is to dollar average cost into the market over time into the long term portfolio that meets the client needs. So it will be less of a trade going into fixed income and then going into a long term. We just DA into the market over time.

Speaker 7

Okay, understood. And then couple of questions on Rockefeller. Given the strong AUMA growth recently, I wondered could you give more color on how Rockefeller protects itself against potential adviser departures? How do they make sure that the AUMA stays with them if there is an adviser departure?

Speaker 2

Yes. I'll start on that. They Greg Fleming, the CEO has spoken about this publicly. When they 1st of all, they're very fussy about who they hire. They're extremely fussy about who gets to carry that Rockefeller card.

Speaker 2

And so they go into new relationships with their eyes wide open, understanding the advisor and her or his propensities very, very well. But obviously, underpinning kind of that due diligence and those kind of relationships, if you will, there's a contract. And those contracts are long term in nature. In fact, I think Rockefeller distinguishes themselves by the duration of the contract that is associated with the onboarding of a new adviser. So I view there being at least 2 layers of protection.

Speaker 2

1 is the quality of due diligence and the scrutiny associated with onboarding new teams. And secondly, they're very well protected through a long term contract that's associated with the payment made to the advisor when they join.

Speaker 7

Okay. Appreciate it. That's helpful. Thank you. And if I could just sneak in one last question.

Speaker 7

Keith, I think this might be for you. Other financial planning revenues at IGL, I appreciate the breakdown here between mortgage and the insurance business. Just wondering on a normalized basis if you strip out fair value gains and any other hedging gains, what would be the normalized level of revenue coming from line item?

Speaker 4

Yes. That would have been about call it $2,000,000 if you strip out the fair value. You can think about a run rate in and around $7,000,000 would be a reasonable expectation. It is a volatile business and it has you've seen that quarter to quarter, but you strip out the volatility and that's what you should be looking at.

Speaker 3

Okay, understood.

Operator

Thank you. The next question comes from Jack Cohen of National Bank Financial. Please go ahead.

Speaker 8

Hi, good morning. I just had a question on the net sales at Mackenzie. So you disclosed that the net sales on an LTM basis moved to 3.8%. And I noticed that that's a bit lower than the industry peer average, which is 3.4%. So I just wanted to know what was driving that underperformance recently and how you see that trending going forward?

Speaker 3

Yes, great question. So back on page 28, you can see the net sales and the performance by boutique. So as mentioned, Blue Water and Green Ship and you can also see the Growth Boutique on that page. Those are 3 boutiques that had weaker near term performance. But as mentioned, they remain very disciplined according to their own respective approaches.

Speaker 3

They continue to have very strong long term performance, but that's where the decline in net flows occurred. We often say we have a boutique approach. And what that means is we're portfolio managers. We believe in diversification. And at moments like these, we seek to have things that are compelling and relevant to pivot into.

Speaker 3

And we do have a number of those offerings that are actually very compelling and relevant in the current environment that we are leaning in on. That includes quant, global equity income, some of our fixed income mandates and some of our growth mandates that you can see in the right column on Page 28. But the softness in near term performance in blue, orange, green chip explained the slight decline in net flows that we experienced relative to industry this quarter.

Speaker 8

Okay. Thank you. That's it for me.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Kyle Martins for any closing remarks.

Speaker 1

Thank you, Carl. Once again, we'd like to thank everyone for following the IGM Financial story and for joining us on the call this morning. And Carl, with that, we can close out today's conference call.

Operator

Thank you. This brings to an end today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Key Takeaways

  • Record Q1 Adjusted EPS and AUM Growth: IGM delivered a record first quarter adjusted EPS of $0.94, up 8% year-over-year, supported by 21% growth in AUM/A to $422 billion.
  • Net Outflows Excluding Strategic Investments: Reported Q1 net outflows of $128 million excluded positive net flows from strategic investments, reflecting underlying market-driven client activity.
  • Capital Return and Financial Flexibility: Returned $146 million to shareholders in Q1 (including $12 million in share buybacks) and ended the quarter with over $400 million in unallocated capital, enabling opportunistic share repurchases.
  • Strategic Investment Wins: Marked up Wealthsimple stake to $722 million after another record growth quarter (AUA up 25% sequentially to $39 billion), and received a record $72.9 million dividend from China AMC as its AUM rose 15%.
  • Insurance and Advisor Productivity Gains: IG Wealth achieved its highest Q1 first-year insurance commissions since 2017, and 65% of assets rated 4- or 5-star by Morningstar, underpinning its long-term growth strategy.
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Earnings Conference Call
IGM Financial Q1 2024
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