· 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?
· David Senra, Kurt MacAlpine
[00:00:00] S0: No, I know, but like how much? [00:00:00] S1: It depends. We were buying over a period of time, but it was a significant return, and we were buying a lot of those shares back at $12 or $13 a share, right? So, it was very, very meaningful return from a shareholder perspective. [00:00:00] S0: The reason I bring that up is because my friend Adam, who's the founder of AppLovin and one of my biggest partners- [00:00:00] S1: Yeah [00:00:00] S0: ... he was sitting in that chair where you are today, and he has the same kind of conviction that you do. And his whole thing was like, he went public, told the story on the podcast, I think every day for like 200 days, his stock price just dropped. [00:00:00] S1: Yeah. [00:00:00] S0: I think it went from like 28 billion down to three. [00:00:00] S1: Yeah. [00:00:00] S0: And then he's just like, "Well, I'm not running a $3 billion company." I think at the time he thought it could be like a 100 or $200 billion company. [00:00:00] S1: Yeah. [00:00:00] S0: Now I think he thinks he can get to a trillion. But he's like, "Either this thing is 100 or 200 billion, or it's nothing." [00:00:00] S1: Right. [00:00:00] S0: Then he's just like, "This makes no sense. My stock price is three billion. We're doing a billion of EBITDA." [00:00:00] S1: Yeah. [00:00:00] S0: And so he winds up taking all the cash flow from that, buying back the stocks, and I think he borrowed like another five billion or something. [00:00:00] S1: Yeah.
· Kurt MacAlpine, David Senra
[00:00:00] S1: Yeah. [00:00:00] S0: And everybody around him was like, "You're fucking crazy, dude." And he says very nonchalantly on the podcast, he goes, "Yeah, that worked out very well for the company. We made like 50 or 60 billion from that share." [00:00:00] S1: But here's the interesting thing between the disconnect between public and private markets. [00:00:00] S0: Yeah. [00:00:00] S1: So, what you're describing in a public market, people have this visceral reaction to. If you describe that to a private equity investor, they would say, "That is the standard blueprint under which we operate business and extract value." So, it is amazing to see the underlying disconnect between how people think about the business as an owner and an operator of the business, versus how people think about the business through, "Am I going to buy some shares of this public company or not?" as well. And oftentimes, when you're going through these transformation stories, you have to think about the end game, right? Again, we were sitting on, in my opinion, very vulnerable earnings, entirely driven by the Canadian mutual fund industry. Yes, it was a lot of earnings, but as a very, very- [00:00:00] S0: But it's not going to be a lot of earnings in the future. [00:00:00] S1: Correct, and that's the thing. So then the question is, everyone wants it to instantly be diversified without the time or the investments or the capital required to do it. That's just not practical. [00:00:00] S0: Yeah.