Power Corporation of Canada holds, through various entities, a 42.5-per-cent stake in Wealthsimple. It first bought into the online investment platform in 2015.Mark Blinch/The Canadian Press
Power Corporation of Canada’s POW-T chief executive officer, Jeffrey Orr, is defending the company’s investments in financial technology startups, despite a downturn in the sector that has resulted in a dramatically lower valuation for the company’s biggest fintech bet, Wealthsimple Technologies Inc.
“There is attention around the group taking a writedown on its Wealthsimple position, but we are delighted with our fintech strategy that we started about six or seven years ago,” Mr. Orr told analysts during a call on Monday.
“Our strategy was to primarily get on top of what was happening with technological change, make sure we knew where it was coming from and gain visibility. And our management and operational teams were on top of it and this has been a huge success for us.”
The company holds, through various entities, a 42.5-per-cent stake in Wealthsimple. It first bought into the online investment platform in 2015.
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Power Corp. is an investing giant, widely known for its 66.6-per-cent stake in Canadian insurer Great-West Lifeco Inc., its 61.6-per-cent of wealth management firm IGM Financial Inc., and its 14.6-per-cent of Groupe Bruxelle Lambert, a European investment company. Its other investments include alternative investment platforms Sagard Holdings and Power Sustainable Capital Inc.
Mr. Orr made his remarks several days after IGM slashed the valuation of its 24-per-cent stake in Wealthsimple to $492-million as of June 30, down 47 per cent from $925-million on March 31. IGM valued that same stake at $1.153-billion as of Dec. 31.
Power Corp., which released its second-quarter results on Friday, reported that the fair value of the Power group of companies’ interest in Wealthsimple was $900-million, as of June 30. That’s down from the $2.1-billion the group had reported six months earlier.
The value of the group’s stake in Wealthsimple has decreased in the first and second quarters of 2022 by $400-million and $800-million, respectively. (The figures include Wealthsimple shares that Power does not have direct ownership of, because its subsidiaries have outside investors.)
“The change in fair value is consistent with the continued decline in stock markets and public market peer valuations, and Wealthsimple focusing on its core business lines and revising revenue expectations,” the company said in an earnings filing.
On Monday’s call, Mr. Orr offered his own assessment of the situation. “Valuations go up and valuations go down, but Wealthsimple is very well positioned going forward in the future and very well funded at this point,” he said.
Wealthsimple was one of the beneficiaries of soaring valuations and venture capital interest during the pandemic. It became one of Canada’s most valuable private technology companies when it raised $750-million last year at a $5-billion valuation.
Several analysts questioned Mr. Orr on Monday about the future of Wealthsimple and the tumbling tech sector’s overall impact on Power Corp.’s investment in the company.
“Wealthsimple could be part of the Power group of companies for the next 50 years, it could become a core part of the franchise or maybe it won’t play out that way,” Mr. Orr told analysts.
“It’s not just a venture capital bet. We’re in financial services and we got in there because we wanted to see what was happening and have a leg in the digital emerging space. And whether we’re going to be there long term or not, I think those are decisions for the future.”
Mr. Orr told analysts Power Corp. continues to see success with another fintech company in which it made a significant investment: U.S-based digital wealth manager Personal Capital, an online financial planning tool that was acquired by Great-West Lifeco in 2020. Mr. Orr said Power Corp. has been delighted with the outcomes for both Personal and Wealthsimple.
Another large financial technology bet for Mr. Orr lies with Portage Ventures, the venture-capital arm of Power Corp. which recently closed a US$655-million fund that will focus on fintech investments. The company also announced plans at the end of July to raise up to US$1-billion in a fund for late-stage financial technology startups.
“There are a lot of companies that are not yet to the point where they are cash flow positive, and now having markdowns on their values. ... They are going to be needing capital to get themselves to the stage where they are profitable,” Mr. Orr said.
“So to us, that is an opportunity for us to use our network and our expertise to fund later stage venture companies.”
With a report from David Milstead
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