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After the acquisition spree – Investment Executive



CI will continue to look for acquisitions and invest in product innovation in 2022, he said, while not straying from its strategic principles.

MacAlpine said CI now offers services beyond the traditional wealth management space and can therefore materially improve its clients’ financial lives. “I think there are more opportunities for us to do so in the high- and ultra-high-net-worth space,” he said.

After taking over in September 2019, MacAlpine outlined a strategy of modernizing CI’s asset management business; expanding its wealth management platforms; and globalization, looking to turn around a firm beset by net fund redemptions and a lack of focus.

As of the third quarter of 2021, CI’s wealth management assets stood at more than $200 billion, about $50 billion more than its asset management business, historically the firm’s biggest business line. Net redemptions turned into net flows last year.

MacAlpine wouldn’t say whether CI will maintain its accelerated pace of acquisitions in the U.S. Last year the firm acquired 15 registered investment advisors (RIAs), growing its U.S. assets from US$23 billion to approximately US$115 billion.

Today, CI’s U.S. wealth management business represents the firm’s largest business, exceeding core asset management and Canadian wealth management.

MacAlpine also didn’t provide a target in terms of total assets CI is looking to acquire.

“If 2022 was just as busy as 2021, I’d be thrilled,” MacAlpine said. “If 2022 was a fraction as busy as 2021, I’d be just as thrilled, because we’re not compromising on quality.”

CI’s goal is to have the “leading high-net-worth and ultra-high-net-worth wealth management platform” in the U.S., he said.

Scott Chan, director of research for financials with Canaccord Genuity Group Inc. in Toronto, believes CI will remain active in the acquisition market, but not at the same pace. “My view is that the [RIA] consolidation is going to slow down, especially with the [equities market] volatility that we’re seeing and the number of deals CI has already closed.”

RIA valuation multiples remain high, Chan said.

CI has released few metrics related to its U.S. acquisitions so far, but Chan suggested CI faces at least a short-term risk of having overpaid for RIAs. “Transaction multiples did increase across the board, so CI would have probably participated in higher transaction multiples last year than the year before,” he said.

Daniel Gonzalez, financial analyst with California-based Javelin Strategy & Research in Toronto, agreed: “The risk for CI is paying the highest valuation in every market and then the market drops by 10%, 20% or 30%.”

However, Gonzalez said CI’s U.S. long-term strategy remains sound as the firm is positioning to take advantage of an expected wealth transfer: “Ultimately, this is a good way to increase [assets under management (AUM)], while diversifying the business model for CI.”

MacAlpine said he also sees opportunity for CI’s U.S. wealth platform to work more closely with the Canadian wealth business, particularly when providing coordinated cross-border advice and services.

“The Canadian advisor is overseeing [a client’s] Canadian assets, and the U.S. advisor is overseeing U.S. assets, and you’re collectively working together,” MacAlpine said. “Through that shared approach to planning, we see and share and incorporate best practices overall, so I think it’s just made us better.”

MacAlpine said he’s just as interested in acquiring “high-quality, dynamic, well-run” Canadian wealth firms as he is those in the U.S. However, he doesn’t anticipate CI will make as many deals in Canada.

“In the U.S., you have a highly fragmented RIA marketplace with thousands of RIAs,” MacAlpine said. “In Canada, you have a concentrated market dominated by a handful of large financial services firms.”

Nonetheless, CI announced on Jan. 11 that it had struck a deal for Toronto-based Northwood Family Office, a multi-family office firm with $2.2 billion in AUM serving ultra-wealthy clients. Northwood will be added to the firm’s CI Private Wealth platform.

The deal for Northwood represents CI’s first acquisition of a Canadian wealth management firm since it took a majority stake in Aligned Capital Partners in August 2020.

After completing the transaction for Aligned late that year, the focus shifted in 2021 to incorporating the firm into CI’s broader Canadian wealth business alongside CI Assante Wealth Management, MacAlpine said. Both Christopher Enright, president and managing director of Aligned, and Sean Etherington, president of CI Assante, sit on CI’s Canadian wealth management committee.

“The [Aligned and Assante] businesses themselves are growing very, very nicely — independently,” MacAlpine said. “Over time, you’re going to see us sharing more knowledge, resources, support. We’re going to be tapping into the collective scale of Assante and of Aligned in a way we haven’t been able to.”

One way to take advantage of CI’s increased scale is by leveraging its distribution networks to market its products.

In the second quarter of 2021, CI finally broke its stubborn multi-year streak of net redemptions, posting $356 million in net asset management flows compared to $1.9 billion in net redemptions a year earlier. In the third quarter of 2021, CI’s net flows rose to $821 million, compared to $2 billion in net redemptions in the third quarter of 2020.

However, a banner year for the Canadian fund industry “was probably the main contributor to CI returning to positive net sales,” Chan said. In 2021, Canadian mutual fund net sales were $111.8 billion, as of Nov. 30, compared to $23.6 billion in the same period in 2020. Meanwhile, ETF sales were $53 billion as of Nov. 30, compared to $37.6 billion.

Nevertheless, Chan also credits CI’s asset management turnaround to changes the firm made to the business since MacAlpine took the reins, including consolidating its myriad fund families under one CI brand umbrella and the addition of investment management capabilities.

“Kurt has done a really good job at setting up partnerships [with third-party managers], specifically on the alternative [asset management] side,” Chan said.

In November, CI announced it had taken a minority stake in Ohio-based GLAS Funds LLC, an alternative investment platform and alternative asset management firm, with a long-term option to take majority ownership. “GLAS essentially allows us to seamlessly offer alternatives to our high- and ultra-high-net-worth clients,” MacAlpine said.

MacAlpine attributes the fund sales turnaround to a combination of factors, including incorporating data and analytics into the sales and marketing process; introducing new products in categories such as cryptocurrency and environmental, social and governance (ESG) to meet evolving client demand; adding talent in-house, including hiring Marc-André Lewis as the firm’s first-ever head of investment management in September; and improving fund performance. According to CI, as of Sept. 30, 67% of its mutual fund assets were outperforming peer averages on a three-year basis, compared to 39% in 2020.

CI’s consolidation of fund names under the CI brand may have given the firm an opportunity to re-introduce itself to advisors who had given up over the years on the firm’s legacy fund families, said Dan Hallett, vice-president and principal with Oakville, Ont.-based HighView Financial Group.

“If the results aren’t there, that’s going to put people off,” Hallett said. “When you start to take some action to remedy a situation, you can gain confidence back among advisors, and that’s what translates into sales.”

MacAlpine said that CI remains in the “first inning” of implementing its asset management strategy, with plans to be “first to market and pushing new innovation” in alternatives, fixed income, ESG, cryptocurrency and other thematic products.

“If there’s a demand for clients that need it, if we can solve that particular demand and do it in a more seamless way that’s linked to the advice they’re receiving, to me that’s a great outcome,” MacAlpine said.

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Dividend hikes punctuate successful quarter for financial services firms – Investment Executive



In the quarters ended between Aug. 31 and Oct. 31, 2021, 26 of the companies reported higher year-over-year earnings; one firm, RF Capital Group Inc., posted positive net income compared to a loss a year earlier; 12 companies reported lower year-over-year net income; and two reported losses.

The average earnings increase was 35.2%, but that figure was buoyed by a huge increase in net income for Brookfield Asset Management Inc. (BAM), as well as the fact that most banks didn’t need to increase their loan-loss provisions (LLPs). In fact, in the quarter ended Oct. 31, the banks reduced LLPs by $261 million overall, following a drop of $455 million in the previous quarter.

Normally, the banks add between $1.5 billion and $2.5 billion of LLPs each quarter, so the declines in LLPs pushed up bank earnings and the average net income increase for the companies in the survey as a whole. Had the quarter’s LLPs been $2 billion, the year-over-year increase in net income for the banks would have been 14.7% instead of 32%, and the overall increase would have been 24.3%.

BAM, the biggest company in the survey by revenue, posted revenue this quarter of $19.2 billion. Its earnings are volatile because of constant changes in the fair value of its investments and the uneven flow of the acquisitions and dispositions that are part of its business model. In this quarter, BAM reported gains in both fair value and net dispositions, totalling $1.8 billion. Combined with higher earnings from operations, the company reported a $2.2-billion increase in net income from a year earlier.

Excluding BAM and the banks, the average gain in profits for the other 29 companies was only 12.7%.

Six of the increases in quarterly dividends were declared by banks, which, along with insurers, had been prohibited by the Office of the Superintendent of Financial Institutions from issuing dividends during most of the pandemic. Bank of Montreal’s quarterly dividend rose to $1.33 from $1.06; CIBC’s rose to $1.61 from $1.46; Canadian Western Bank’s rose to 30¢ from 29¢; National Bank of Canada’s rose to 87¢ from 71¢, Royal Bank of Canada’s rose to $1.20 from $1.08 and Toronto-Dominion Bank’s rose to 89¢ from 79¢.

Other dividend increases included Element Fleet Manage–ment Corp.’s to 7.75¢ from 6.5¢; Manulife Financial Corp.’s to $33¢ from 28¢; Sun Life Financial Inc.’s to 66¢ from 55¢; Intact Financial Corp.’s to 91¢ from 83¢; and Fiera Capital Corp.’s to 21.5¢ from 21¢.

In addition, Great-West Lifeco Inc. paid a special dividend of 5.2¢ in December; so did First National Financial Corp., of $1.25. Both payments were in addition to the companies’ normal dividends. ECN Capital Corp.’s third quarter report stated the company intends to pay a special dividend of $7.50 after the sale of two businesses, a deal that closed on Dec. 23.

Equitable Group Inc. did a two-for-one stock split on Oct. 15 and adjusted its quarterly dividend accordingly, to 18.5¢ per share from 37¢.

Here’s a closer look at the sectors:


Nine banks reported higher earnings. Equitable and Home Capital Group Inc. had lower net income and Laurentian Bank of Canada reported a loss.

Laurentian booked a $77.9-million after-tax impairment charge in its personal banking division. Laurentian’s 2021 annual report stated this “reflects the recent decline in assets and deposit volumes,” which, along with prevailing economic conditions, “made it challenging to retain existing customers and acquire net new ones.”

Equitable’s and Home Capital’s net income declines were single-digit percentages and not worrisome.

All the Big Six banks reported substantial earnings increases, ranging from RBC’s 19.9% to CIBC’s 50.5%. Among the six, only Bank of Nova Scotia and CIBC increased their LLPs, but only by $168 million and $78 million, respectively.

Finance companies

Accord Financial Corp., ECN Capital and Firm Capital Mortgage Investment Corp. reported higher year-over-year net income while Element, First National, MCAN Mortgage Corp. and Timbercreek Financial Corp. reported lower earnings than a year ago.

Accord’s huge 384.5% increase in earnings reflects the broader economic recovery. The company buys other firms’ accounts receivable and was negatively affected by lockdowns. Accord’s financial report noted that its Canadian small business division and U.S. media finance divisions did particularly well in the quarter ended Sept. 30, 2021.

ECN’s 188.2% rise in net income reflects much stronger increases in revenue than expenses (43.4% versus 17.6%, respectively), plus a jump in earnings for businesses being sold (to US$13.6 million from US$7.4 million).

Element services vehicle fleets, for which demand has been muted by the pandemic; First National reported a big decline in deferred placement fees; and both MCAN and Timbercreek reported sizable drops in revenue.

Life insurers

E-L Financial Corp. and Manulife reported lower earnings, while Great-West Lifeco, iA Financial Group Inc. and Sun Life reported higher net income. E-L’s drop was because of much lower increases in the fair value of investments in this quarter, at $9.5 million compared with $215.9 million a year earlier.

As for Manulife, despite an overall net income drop of 26.6%, the firm reported an increase of 10% in core earnings on a constant exchange-rate basis. Net income was higher in Canada and for the company’s global wealth and asset management divisions, and down in the U.S. and Asia.

Property & casualty and mortgage insurers

Fairfax Financial Holdings Ltd., Intact and Sagen MI Canada Inc. reported higher earnings year-over-year.

Fairfax’s gain was huge because net income a year earlier was very weak. The company’s earnings are volatile because, unlike most insurers, it invests in equities and private companies.

The other companies focus on insurance operations. Both Co-operators General Insurance Co. and Intact had lower underwriting profits, but Intact managed a 4% gain when excluding charges related to the acquisition of U.K.-based RSA Insurance Group Ltd.

Mutual fund and investment management firms

Five companies reported increased earnings, RF reported positive year-over-year net income, two firms reported year-over-year declines and Dundee Corp. reported a loss. Dundee mainly invests in mining companies, which are not faring well.

CI Financial Corp.’s net income dropped by 62.9% thanks to $50.3 million in foreign-exchange losses and a $61.4-million drop in the fair value of acquisition liabilities.

Guardian Capital Group Ltd. reported the biggest drop in percentage terms, down by 79.8% due to a drop in the fair value of investments of $8.1 million versus a gain of $35.7 million a year earlier.

CI reported positive net sales ($800 million), as did AGF Manage-ment Ltd. ($288 million) and IGM Financial Inc. ($1.9 billion).


Both Canaccord Genuity Group Inc. and Oppenheimer Holdings Inc. reported big earnings gains, reflecting the pickup in advisory activities.


TMX Group Ltd.’s net income rose by 9.8%, reflecting a 11.4% increase in revenue.

Holding companies

Desjardins Group reported a 54.3% earnings gain that was driven by the company’s property & casualty insurance arm, where earnings rose by 86.5% to $289 million.

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Financial services profit survey

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IG's new investment strategist has a plan for inflation – Investment Executive



Petursson joins IG Wealth at another troubling juncture, with inflation at levels not seen in about three decades, and with interest rates forecast to rise as many as four times by the end of 2022.

As part of Petursson’s new role, he evaluates such conditions and builds out IG’s investment strategy to help the firm’s financial advisors and clients.

Petursson joined IG in September after more than 20 years at Manulife Financial Corp., starting as director of investment marketing at John Hancock Retirement Plan Services in 1999 (which, at the time, was Manulife Group Pensions U.S.). He was Manulife Investment Management’s chief investment strategist and head of capital markets research when he left the firm last year.

At IG, Petursson will continue to analyze the economic forces that will affect investors in 2022.

Petursson said the Bank of Cana­da and the U.S. Federal Reserve Board are out of step with current economic conditions. “The central banks are behind the curve,” he said. “The U.S. economy is quite strong. And yet the Federal Reserve is acting — in terms of how slow they are to remove the monetary stimulus — as if there are concerns with the U.S. economy. But I don’t see any cause for concern for the U.S. economy in 2022.”

Rather, Petursson expressed concern about persistent inflation early in 2021. This year, he said, contributions to inflation will be more static and come from higher rents in both the U.S. and Canada, as well as upward wage pressure due to labour shortages and a higher minimum wage of $15 per hour for workers in federally regulated sectors in Canada, which kicked in on Dec. 29.

But, “ultimately, it comes back to the monetary expansion that we saw in 2020 [and] 2021, with governments and central banks basically injecting cash into economies. That cash alone is going to be a significant contributor to lasting inflation over time,” Petursson said.

Petursson noted some, but not all, inflation pressures will alleviate as supply chain pressures ease.

Higher inflation tends to lead to downward pressure on price/earnings multiples, Petursson said. “That’s simply because future earnings in an inflationary environment are worth less today. So, you have to discount those forward earnings, which is going to put downward pressure on stock multiples in the current environment,” he added.

That pressure was on display early this year as expensive tech stocks sold off, driving equities markets lower. Overall, IG Wealth projects that equities returns for 2022 will hover in the mid-single digit range, following a year when the S&P 500 composite index returned 26.9% and the S&P/TSX composite index returned 21.7%.

“As clients open up their 2021 statements, they’re going to be quite pleased with the returns the market has delivered. What we shouldn’t do is extrapolate that into 2022,” Petursson said. “We’ve seen this over time: following a good year, investors plow into equities. That, I think, in 2022, would be too risky.” He recommended inves­tors adjust their return assumptions “to be more realistic to the environment.”

While 2022 will be a year of moderate economic growth, “that scenario typically bodes well for commodities, equities and, in particular, commodity-related equities or indexes like the S&P/TSX composite,” Petursson said.

High inflation is likely to create “a challenging environment” for bonds, Petursson said. As a result, he recommends overweighting equities — favouring Canadian, European and Asian markets, and slightly underweighting the higher-valued U.S. equities market — and underweighting fixed income.

“The next 12 months may be challenging for the typical 60/40 balanced fund. A reduced weight[ing of] fixed income to 30%, either through adding more equities or alternative asset classes, has advantages,” he said.

Even though IG predicts “low single-digit potential” for bond returns this year, investors shouldn’t abandon their defences, Petursson said, because bonds mitigate volatility.

With interest rate hikes expected to begin in April, Petursson noted, “high-yield bonds tend to be positively correlated to a rising rate environment,” so having some exposure may improve a portfolio’s overall return and reduce interest rate sensitivity.

Petursson also said financial stocks will do well in a rising rate environment because the financial services sector is attractively valued relative to the broader market, and banks should benefit from continued economic expansion.

As chief investment strategist, Petursson said he tries to make economic information accessible to ordinary people by providing real-world examples in both his presentations and write-ups.

“Leave the economic textbooks in the office and talk about the realities of increasing gas prices and what that does in terms of a household balance sheet and how that might alter spending habits, or shift spending habits, within a household,” Petursson said.

Petursson noted IG advisors can expect to see regular communication from him in the year ahead in the form of podcasts, market commentaries, events and more. He’ll address equities, fixed income and alternative markets “to help [advisors] when determining a suitable asset allocation for their clients or even just to gain a better understanding on the current market movements.”

He also established a new investment strategy for IG that takes a data-driven approach to adapt to new information as it becomes available.

“What I’m really trying to avoid is being stuck in my views,” Petursson said. “If you don’t respect the data as it becomes available, you can miss opportunities and put yourself in a position to do harm by sticking too long in one strategy or not recognizing the opportunities in front of you.”

The strategy also involves not fixating on valuations.

The market has been overvalued many times before, Petursson explained: “And [that] doesn’t tell us anything about what is likely to transpire over the short term. So, don’t use valuation as a short-term guide. Respect it, understand it, but don’t manage to it. Because if you do, you could go years of missed opportunities before the realities of higher valuation come to the forefront.”

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