· David Senra, Kurt MacAlpine
[00:00:00] S0: What do you mean you were able to see it taking off relatively quickly? [00:00:00] S1: So, just kind of to walk back from it. So, I launched Corient in approximately April of 2020. Fast-forward six years, north of $500 billion of assets. We have 3,000 employees. We're operating in 15 different jurisdictions. And so, the underlying strategy resonated really well early on. It was not tracking with the share price appreciation. So, if you kind of think about it, you're seeing all of this progress in the underlying business, right? The partnership structure that we put in place starts to resonate. People want to join. You're starting to build momentum. So, you're seeing the business itself start to form in a way that you had hoped that it would, but the share price ultimately isn't tracking. And then at that point, you just have- [00:00:00] S0: And so, you're just focusing on the internal metrics. [00:00:00] S1: On the business, because you can see the business evolving. [00:00:00] S0: So, but this is what happened with Bezos, because I forgot the number. It was like his stock in the early days of Amazon went something from like $180 to like six or something like that. And he talks about in his shareholder letters, he's like, "Yeah, the stock is dropping, but all the internal metrics of the business- [00:00:00] S1: Yeah [00:00:00] S0: ... are fine." And then he would quote Ben Graham. [00:00:00] S1: Yeah. [00:00:00] S0: And he was just like, "I'm just focused on this. Eventually, the stock will be where it needs to be." [00:00:00] S1: Correct.
· Kurt MacAlpine, David Senra
[00:00:00] S1: Correct. [00:00:00] S0: "But I can't worry about this short-term drop." [00:00:00] S1: Yeah. And then you get confidence again in just seeing the business evolve. And obviously, as your business continues to evolve, your expectations on success ultimately change, and you constantly continue to push yourself. [00:00:00] S0: Okay. But are you strangling the earnings of the company? [00:00:00] S1: I was using the cash flow and leverage that the business generated to build Corient. [00:00:00] S0: So, the market did not like how much debt you were doing? What was going on?
· David Senra, Kurt MacAlpine
[00:00:00] S0: So, the market did not like how much debt you were doing? What was going on? [00:00:00] S1: Yeah. Look, the part that I think people didn't understand is, in my opinion, the business needed to change and transform, right? And a business that was entirely focused economically on Canadian mutual funds was an incredibly vulnerable business. Given the historical success of the company in building a Canadian mutual fund franchise, it was very meaningful earnings, right? So, in order to make a dent in those earnings and drive diversification, it required a pretty meaningful pivot. There was a period of time at CI Financial where a lot of strategic investments ultimately weren't made. So, in my opinion, there was an incredible run of the company. There was a challenging period of time. I was coming in during that challenging period of time with ambitions to ultimately transform it. So, in order to achieve the objectives that we saw, in order to capitalize on the momentum that we were building, we were doing two things, using the free cash flow that was generated from the Canadian business and putting debt on the business. [00:00:00] S0: How much debt on the business? [00:00:00] S1: We ranged probably three to three and a half turns of debt. [00:00:00] S0: Okay.
· David Senra, Kurt MacAlpine
[00:00:00] S0: Okay. [00:00:00] S1: Look, so depending upon how you think about it, our industry, from a public market comp perspective, so we would be comped as an asset manager. Most asset managers, kind of the rule of thumb for debt is about two turns of debt. Wealth managers tend to have more debt than asset managers. It's less about the debt that you have on the business, and it's more about the composition of the underlying debt. And this is the part that I would have conversations with investors on. It's not like we were having floating rate debt with covenants. We were having fixed rate debt without covenants, right? And typically long duration. We had debt extending out to 30 years. Thirty years fixed coupon, no covenant debt. So, how you think about debt composition, in my opinion, was we weren't creating a lot of vulnerability from a business perspective. Yes, we were locking up the leverage, but that was very deliberate to capitalize on the opportunity that we saw in terms of building Corient. So, I was comfortable. At all times, I was comfortable with where we were, both from a capital allocation policy perspective and where we were from a debt capacity. [00:00:00] S0: But when you read about this part, that's where you hear, it's almost like you're being hated, but you're right, where your comfort level seemed to not change. [00:00:00] S1: Correct. [00:00:00] S0: Right? Were you surprised at the blowback that you got, or did you go into this like, "I know they're going to be pissed off"?
· David Senra, Kurt MacAlpine
[00:00:00] S0: Right? Were you surprised at the blowback that you got, or did you go into this like, "I know they're going to be pissed off"? [00:00:00] S1: It's a good question. I would say I would have assumed that the underlying business success and the benefits of diversification would have been recognized faster in the share price. But at no point during the journey did I change my conviction on the opportunity. [00:00:00] S0: This is what I find one of those admirable things about you. [00:00:00] S1: And what you can see in the M&A and the sequencing is we've kind of continued to stay and hold the course. And look, I think looking back on it now, we're still very early in our journey, but I think the diversification benefits that we've been able to generate for the business are tremendous. [00:00:00] S0: How many years into this are you like, "Hey, maybe we should find a partner and go private"?
· David Senra, Kurt MacAlpine
[00:00:00] S0: How many years into this are you like, "Hey, maybe we should find a partner and go private"? [00:00:00] S1: So, we were always going to go private, which I was very, very transparent about with the market. And the way that I was assuming we were going to go private was through a share buyback program. So, during the course of my entire tenure at CI, we were doing two things. We were building Corient, diversifying and globalizing the business, while at the same time reducing our share count. And again, I thought, and the way I've described in the media many times, is I felt like our shares were, in my opinion, criminally undervalued. I thought there was a tremendous disconnect between the underlying value of the company- ... and what we were ultimately trading at. Part of that, like I mentioned, was tied to these underlying dynamics. Like, if every single morning you wake up with somebody having to sell your shares, for things outside of your or their control, that creates a tremendous buying opportunity. And then the question is, do you have conviction or not in yourself and what you're doing to actually transform the business and buy the shares? And we did, so that's what you saw, us buying a tremendous amount of shares back while at the same time as transforming the business. [00:00:00] S0: What was the financial outcome of those share buybacks? [00:00:00] S1: So, we took ourselves private, so- [00:00:00] S0: No, I know, but like how much?