Power Financial president and chief executive officer Jeffrey Orr, left, and executive co-chairman Paul Desmarais Jr. are pictured at the company's annual meeting on May 10, 2018 in Montreal.Ryan Remiorz/THE CANADIAN PRESS
After half a century under Desmarais-family control, Power Corp. of Canada wants investors to know it isn’t running out of steam – in fact, it’s planning a multibillion-dollar spending spree.
The insurance and investment conglomerate says that after a period of building earnings slowly following the global financial crisis, Power is cycling into growth mode. And co-chief executive officer Paul Desmarais Jr. is pointing to the United States as the place most likely to attract the company’s capital.
“We have the capacity over the next five years to put about $10-billion of capital to work to play a consolidation game – and to play the game in the big leagues,” Mr. Desmarais said after the company’s annual meeting in Montreal last week.
What seemed to some investors like a period of inertia was, by Mr. Desmarais’ account, an era of rebuilding and strengthening its companies’ balance sheets. Now that repositioning work is done, and Power says its war chest and regulatory capital are stronger than ever – even before accounting for leverage or funds from its main subsidiary, Power Financial, which holds majority stakes in two publicly traded pillars of the family business: Great-West Lifeco Inc., with its subsidiary life insurers, and IGM Financial Inc.
Power seems eager to be a consolidator in the U.S. retirement savings business, where it operates as Empower Retirement and is now the second-largest provider of defined contribution plans, often called 401(k)s. The business has seen a surge of mergers amid changes in the investment industry, including lower fees, new regulations and the use of technology to provide financial advice.
Empower itself is the product of several mergers and had a tough few years of lower earnings as it integrated those acquisitions and upgraded technology. With the business now posting stronger profit growth, it is ready to acquire again.
There’s plenty of competition from other U.S. players, and Canadian insurer Manulife Financial Corp.’s Boston-based subsidiary, John Hancock, has done deals in this space. But the third major Canadian life insurer, Sun Life Financial Inc., has been less enthusiastic.
“We’ve looked at the U.S. group retirement business many years in the past,” Sun Life chief executive Dean Connor said on a recent earnings conference call, noting that the insurer once had such operations and sold them. “That market has unfolded as we had expected when we sold the business. It has continued to consolidate, margins have continued to come in.”
Analysts have said a deployment of excess capital will be needed as a catalyst for the stock of some Power subsidiaries such as Great-West, which has been buffeted by low interest rates and has restructured in recent years.
Power’s asset managers have had their own challenges. Jeffrey Orr, who runs Power Financial, has said that its Boston-based money management arm Putnam Investments needs to double in size. He recently reiterated that the company would keep looking for deals to add to Putnam, “given the significant value that can be created through increased scale.”
Outside the United States, “we’ve got growth possibilities in England and Germany, too, where we sell mutual funds that are smaller but are evolving,” Mr. Desmarais said. He also flagged Power’s investment in Chinese government-backed China Asset Management Co., which is counting on a surge in new investments as a rising middle class puts an estimated $7-trillion into the country’s mutual funds.
Along with plans to buy, Power is also mulling some divestitures after this week’s announcement that it will cut loose Montreal’s La Presse newspaper after a five-decade run. Capital-intensive assets will be targeted for sale, Mr. Desmarais said.