U.S. wealth management leads the way in CI Financial earnings

August 12, 2022 3:38 PM

CI Financial and Corient CEO Kurt MacAlpine.

Whether it's adding on or spinning off, CI Financial's still young stateside wealth business continues to be a point of pride for the Toronto-based firm's leaders as difficult market conditions rear their head in quarterly earnings.

"Our expansion in wealth management in the United States and Canada has added stability and diversification to our business, with our U.S. operations making increasing contributions to revenues and earnings, CI Financial CEO Kurt MacAlpine said in a second-quarter earnings statement released Thursday.

"Despite continued volatility in capital markets, we achieved year-over-year growth in overall EBITDA, earnings per share and free cash flow per share."

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Scroll down to see the most important wealth management takeaways from CI Financial's Q2 earnings report.

Note: CI Financial discloses its quarterly returns in Canadian dollars. Unless otherwise mentioned, all figures are in Canadian rather than U.S. dollars.

M&A action

Growth through acquisition was a major part of CI Financial's record-setting 2021. The U.S. wealth business, which opened a Miami office in 2021 as a base of operations, has made more than 30 acquisitions since entering the market in 2020.

But as predicted by firm leaders earlier this year, the deals have slowed slightly in the first half of 2022. CI completed the acquisitions of two U.S. RIAs and a Canadian family office in Q2, bringing the total number of acquisitions in the first two quarters to three.

That's down from the five deals completed by CI Financial in the first two quarters of 2021.

The second quarter of 2022 saw the firm add Corient Capital Partners of Newport Beach, California; and Galapagos Partners of Houston, Texas. Both transactions closed on April 29 and added $7.7 billion in combined assets to CI Financial's U.S. platform.

"We continue to advance our U.S. wealth management strategy, both through acquisitions of selected, high-quality RIAs and through an array of initiatives to capture synergies, expand our services and support to clients and foster organic growth," MacAlpine said. "The success of these programs can be seen in the attractive, growing margins of our U.S. business."

IPO plans

The second quarter also saw CI Financial announce plans to spin off its U.S. wealth management unit following its acquisition-fueled expansion.

CI intends to sell as much as 20% of the business through an initial public offering and will file a prospectus with the Securities and Exchange Commission later this year. Firm leaders say proceeds from the IPO will be used to pay down debt.

A final decision on the IPO size, conditions and timing is pending and subject to market conditions. At the time of the announcement, MacAlpine said CI was doing it for "strategic considerations.'

"We will remain the majority shareholder of our U.S. wealth management business,

and we currently have no intention of spinning out or otherwise divesting its remaining ownership interest," said a company statement released Thursday.

Stateside push going strong

Going from zero at the start of 2020 to more than $143 billion by the close of Q2 2022, U.S. wealth management continued establishing itself as the firm's largest business line. Year over year, U.S. wealth management assets swelled by 71% from the $83.7 billion recorded at the end of Q2 2021.

CI Private Wealth U.S. also applied for a charter to establish and operate a South Dakota trust company. Officials said when granted, the company will allow CI's wealth management business to offer administrative trust solutions.

In Canada, the firm's wealth management platform posted a year-over-year asset decline, falling to $74.1 billion from $75.5 billion.

The bottom line

CI Financial posted total assets of $333.7 billion in Q2, a year-over-year increase of 12%.

Total second-quarter net revenues declined by 10.6% to $566.7 million from $633.8 million in the first quarter. Meanwhile, net income grew to $156.2 million, up from $138.1 million in the first quarter.

Excluding non-operating items, CI's adjusted net income dropped to $149.1 million in the quarter from $166.8 million in the first quarter of 2022 as higher earnings in the firm's wealth management businesses were offset by lower earnings from the asset management segment due to the pressure on global financial assets.

"Concerns about inflation, high oil prices, tightening central bank policy and the ongoing Russia-Ukraine conflict weighed on U.S., Canadian and global equities during Q2," according to company earnings reports. "There was a mid-quarter rebound with the S&P500 Index in particular notching its best results since November 2020, but it wasn't sustained."