Canada’s largest independent asset manager is nearing $500-billion in assets under management as it continues to snap up U.S. wealth management companies despite continuing investor concern about its debt load.
On Wednesday, CI Financial Corp. CIX-T reported total assets of $482.2-billion as of May 31, up from $410-billion a year ago. Almost half of that derives from the company’s explosive U.S. acquisition strategy: From the end of 2019 to the end of 2022, CI acquired nearly 40 registered investment advisers, or RIAs, that manage more than $230-billion in the U.S. CI has dubbed the new U.S. business Corient Private Wealth LLC.
Of the firm’s total assets, another $94-billion sits in the Canadian wealth management business, $129.5-billion is in its asset management arm and $28.6-billion is Canadian custody assets, a relatively new line item on the balance sheet.
The company also announced this week it has closed two RIA deals with combined assets of about $5.6-billion: Ohio-based Paragon Advisors Inc. and Socius Family Office LLC – a Fort Lauderdale, Fla.-based business that specializes in wealth management for professional athletes.
“I think we’ve proven that we can acquire well, we can integrate well and drive growth across the integrated platform,” chief executive officer Kurt MacAlpine told analysts in a May 10 conference call. “So, as long as exceptional businesses come to market ... we’re going to be in the market.”
The acquisition campaign caused CI’s debt to balloon, but the company had been slowing the deals and shoring up its balance sheet. However, CI stock stumbled after the May 10 release of its first-quarter results, falling to $14.72 – down from $16.75 the day before. CI shares continued to fall after the May 10 earnings release, closing at $14.42 on Wednesday.
Investors and analysts seemed surprised by CI’s slightly higher debt levels and worsening credit metrics, even as Mr. MacAlpine said the company was pushing forward with share buybacks. Long-term debt went up in the quarter by $100-million to $3.6-billion at March 31.
Morningstar DBRS downgraded CI’s debt on May 30 to its BBB rating, the final step before non-investment grade, or “junk” status. Debt-rating agency Moody’s Ratings made a similar downgrade in late April. CI is currently doing a debt swap, offering to buy up to $900-million in bonds from investors at a discount. The company said investors had tendered $570-million worth by the June 4 early-tender deadline. CI plans to issue new debt to raise the money to buy back the old debt.
When CI buys a new wealth manager, it often commits to make deferred or “earn-out” payments as part of the deal. If the profits at the acquired businesses later meet or exceed certain targets, CI pays the previous owners of the firms more money. At March 31, CI reported $486.6-million in acquisition-related liabilities.
Last year, in an attempt to begin to pay down the debt, the company sold a 20-per-cent stake in its U.S. wealth management business to a group of institutional investors for $1.34-billion, saying the company was pausing plans to take the business public. The preferred shares the investors received had debt-like characteristics, and analysts pegged the effective interest rate on the financing at 14 per cent. The buyers of the preferred shares also have the right to force an initial public offering or sale of the U.S. wealth business within five years and nine months after the closing.