CI Financial Corp (CIXX) 2011 Q1 法說會逐字稿

Welcome to the CI Financial first-quarter results conference call. My name is Ellen and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Stephen MacPhail, President and CEO. Mr. MacPhail, you may begin.

Thank you and good afternoon. The first quarter of fiscal 2011 was a great quarter for CI. Our fee earning assets closed in on CAD100 billion, our average assets under management were up 15% from the first quarter in 2010. Our pre-tax operating earnings per share were up 16% from the prior year. Our gross sales are up 5% from the first quarter of 2010. The integration and growth of the Castlerock, which is formerly the Hartford business, is ahead of schedule, and the business perfectly positioned to grow from its current assets of about CAD2 billion to what we think could ultimately be CAD10 billion in assets under management.

Our CI institutional businesses gaining traction with a number of material mandates won over the past few months. With enhancements made by Eric Bushell in his Signature Group, this business should experience double-digit growth for many years.

And, lastly, our Cambridge Advisors business has been significantly enhanced, giving Alan Radlo an exceptional money management team with great growth potential. Again, like the Black Creek Advisory business and Castlerock, we see Cambridge Advisors as perfectly positioned to grow materially over the foreseeable future.

Looking specifically at the quarter, our average assets under management was CAD74.1 billion, up from CAD64.3 billion in the prior year. Earnings per share was a record CAD0.35 per share, up 35% from the prior year. Pre-tax operating earnings-per-share came in at CAD0.59 per share, up 16% from the prior year. EBITDA, same story -- as we reported, CAD0.66 per share, up 22% from the prior year.

SG&A, which for CI includes all costs of operating our funds, investment management, sub advisory costs, sales and marketing, corporate expenses -- essentially everything but trailer fees -- was 39 basis points, down from 40 basis points in the prior year. Lastly, I'm happy to say we paid CAD0.21 per share in dividends, up 17% from the prior year.

I am now going to turn it over to Derek Green, President of CI Investment, to give you some of the highlights from our fund business. Go ahead, Derek.

Thanks, Steve. Not only has it been a good quarter from an earnings perspective, it has also been a good start to the year with over CAD3 billion in gross sales and close to CAD500 million in net sales. Support has been strong across all channels with high single-digit growth from Sun Life and Assante, almost 60% growth at Edward Jones and growth of 5% with the MFDA and 4% at IIROC.

January sales were weaker in 2011 versus 2010, but February and March have been better year-over-year, and we believe the momentum will carry on through the second quarter. Maturing seg fund contract redemptions have slowed from the fourth quarter, down approximately 60%. And happily, in partnership with Sun Life, our SunWise Essential Series had close to CAD300 million in sales. That's a product that we launched last fall which now has about CAD600 million in assets.

As Steve mentioned, we acquired Hartford Investment Canada last December; it's known as Castlerock Investments today. Their assets are just shy of CAD2 billion, up approximately 11% since announcement. Sales have been strong, and the integration has gone very smoothly.

Black Creek, a portfolio manager group that has managed money for Hartford for the past five years, has seen asset management growth of approximately 20% in the last four months. Their flagship fund, Global Leaders, has registered the fourth highest net sales of any fund in our entire fund complex at CI.

A part of the business that we are really excited about at CI is CI's institutional asset management business. It is growing and gaining momentum, and in our mind the institutional sales business is a numbers game. We have been involved in close to 20 RFPs year-to-date and we have won nine of them in the last six months. Year-to-date we have had sales of over CAD200 million, and we are well on our way to meeting our goal of CAD600 million in net sales in 2011.

We believe the buildout of the Cambridge group will be very complementary to the Signature story. These individuals are very talented with proven track records that are well known to Canadian investors and they have no capacity constraints.

As you know, a big part of our business is about fund performance. Today, 83% of our assets are first or second quartile over five years. 85% of our assets are first or second quartile over 10 years. These are great numbers. They cover all asset classes and styles, and they are not limited to one portfolio management group. So we are extremely excited about that.

And then finally, our current initiatives -- we have a number of events that we are currently working on. Next week we'll be hosting close to 600 investment advisors in Las Vegas. We have a great agenda where we will be profiling our portfolio managers and our products. We made a very significant reinvestment into our sales and marketing group in the first quarter. We have 11 new people. We have some exceptional performance and some great stories, and clearly we needed more help telling that story to our clients.

As Steve talked earlier, we've recently hired two veteran portfolio managers in Bob Swanson and Brandon Snow. These people are very well-known. We've also hired two analysts to complement them in Alan Radlo, and we are extremely excited about that. On June 6 they will be taking over three mandates from Trilogy Global Advisors and from Legg Mason, and they will be managing approximately CAD2.5 billion for CI clients. And, as Steve said, this is a group that we think has wonderful growth characteristics ahead of it, and we can ultimately see them running close to CAD10 billion over the next five years.

The first quarter has also been very exciting and very busy at the Signature Group. They have hired six new investment professionals, including a new emerging market strategist. Effective June 6 they will take over 17 mandates from Trilogy Global Advisors and there will be managing close to CAD35 billion. When Eric Bushell took over the leadership of this group back in 2002, they were just over CAD3 billion and a handful of investment professionals. Now it's one of the biggest management groups with a credit team and equity analyst team that would rival the biggest pension managers in Canada. So it has been a very, very busy first quarter at CI from a sales and marketing standpoint.

I would now like to hand over the call to Doug Jamieson.

Thanks, Derek. This is very much a good news quarter, both year-over-year, as Steve took you through, and also on a quarter-over-quarter basis. Average assets under management grew 7% quarter over quarter with a couple percent due to the inclusion of Castlerock for a full quarter versus half a month last quarter. CI's reported earnings per-share were up from CAD0.30 per share last quarter to CAD0.35 per share this quarter, an increase of 17%.

Pre-tax operating margin -- sorry -- pre-tax operating earnings per share were CAD0.59, up from CAD0.56 last quarter, and this takes out nonrecurring items and deferred sales commissions and redemption fees.

EBITDA was up from CAD0.62 last quarter to CAD0.66, an increase of 6%.

SG&A spend was up slightly in dollar terms, but less than the growth in CI's average AUM. So, as a percentage of average AUM, it fell from 40 basis points to 39 basis points. And CI paid out dividends of CAD0.21 per share at a rate of CAD0.07 per month in the first quarter. And starting in April that was raised to CAD0.075 per month.

Before I move to the next slide, I would like to point out that last year's numbers have been adjusted to reflect CI's move to IFRS, and these adjustments are set out in Note 9 to CI's financial statements, but I will highlight the main impact. First, as a result of writing down the deferred selling commissions asset by about CAD59 million, the amortization recorded over the next seven years will be lower than it would have been under GAAP, and the impact in 2010 was about CAD1 million per quarter of lower amortization.

Second, SG&A is impacted by changes to the equity-based compensation expense, the setup of legal provisions and changes to the Hartford purchase equation, but these items have caused very immaterial changes in each quarter of 2010 and amounted to a CAD2 million increase to SG&A for all of the year 2010. CI also adjusted the 2010 comparative figures to match new reporting for 2011 where only total assets under management is reported and all management fees received are now included in the top-line revenue number.

Now for something that really shows CI's strength, its free cash flow -- CI's cash flow is its operating cash flow less the amount spent on deferred selling commissions. On this chart, after adjusting for the tax benefits of the income trust structure from 2006 to 2008 and all other tax loss utilizations, we can see that CI has a long history of improving free cash flow. CI generated an adjusted CAD338 million in free cash flow in 2010, and the forecast is for free cash flow to top CAD400 million in 2011.

Taking a look at the last five quarters, you can see the significant growth in free cash flow over the past year as CI's assets under management grew. Free cash flow was CAD98 million this quarter, up from CAD68 million last year. And it's flat compared to last quarter, but CI spent almost CAD15 million more in sales commissions this quarter over last quarter as a result of RRSP season.

If we look at the uses of cash on a year-over-year basis, CI generated operating cash flow of CAD147 million this quarter compared to CAD123 million in the same quarter last year. From that, CI paid sales commissions of CAD49 million and CAD55 million, leaving free cash flow of CAD98 million and CAD68 million, respectively. Whereas last year, CI returned the entire amount of free cash to shareholders in the form of CAD16 million in share buybacks and CAD53 million in dividends, this year CI paid out CAD61 million in dividends, but did not buy back any stock. This leaves a surplus of CAD37 million available to buy back stock in the future as CI's long-term goal is to return its free cash flow to its shareholders.

CI's ratio of debt to EBITDA is currently at an acceptable level, so there is no pressure to pay down debt.

This next slide highlight CI's daily assets under management and the quarterly average. You can see the significant climb in CI's assets under management from below CAD65 billion in the middle of last year to over CAD75 billion during the first quarter this year. Despite the sideways move in equity markets over the last couple of months, the Q2 average is currently up slightly from Q1, leaving us optimistic about the results for the next quarter and, indeed, all of 2011.

I'll now turn it back to Steve.

Thank you, Doug. Given the significance of what is happening with the Bank of Nova Scotia and our shareholder rights plan, I have been asked by CI's Board of Directors to address both on this conference call.

In April, the Bank of Nova Scotia convinced the Toronto Stock Exchange to ignore the contractual obligations of CI's shareholder rights plan that was established by an overwhelming number of favorable votes, including those of the Bank of Nova Scotia in 2008.

To be clear, contrary to what the bank's CEO, Rick Waugh, claimed that CI was violating shareholder rights, CI was doing exactly what the shareholder rights plan dictated we do, namely, have an affirmative vote to continue the plan by the independent shareholders. However, the TSX has ordered CI to allow the Bank of Nova Scotia to vote along with the independent shareholders on the continuation of the plan until its maturity in 2014. It is not clear to CI what jurisdiction the TSX has to corner CI to allow the Bank of Nova Scotia to vote, and making the whole process even more questionable is that the TSX has yet to provide a reason or justification for what it has ordered CI to do.

What I can say is clear, though, is that it is not CI who is violating anyone's fundamental shareholder rights. It should be clear, though, given that the behavior of the TSX in the bank, that CI has been compelled to appeal this decision to the Ontario Securities Commission and we have been advised that we should have a hearing date prior to our June 1 annual meeting. Many of our shareholders have expressed concern over the last few weeks with the TSX action, as it suggests that regardless of what shareholders approve, the TSX at the request of a single shareholder may change shareholder-approved plans just to suit a single constituent.

I guess what is most perplexing to CI is why we were subject to such openly hostile actions by the Bank of Nova Scotia and their CEO, Rick Waugh. By any account, CI has been an excellent investment over the period the bank has owned its 36% and is exceptionally well-positioned today, as you heard from Derek and Doug. Twice we have appealed to the Bank of Nova Scotia Board and their Chairman, John Mayberry, to stop the destructive conduct but have received nothing but a short note back from him, namely John Mayberry, that states that he stands behind the bank.

In addition, the bank continues to have the audacity to want board representation besides, despite being a major competitor of CI and having informed me that their desire is to sell their entire CI holdings to focus on their acquisition of Dundee. CI has made it clear that its Board functions very well, and that has been reflected in CI's financial performance. We have also made it clear that if CI's board felt additional members were necessary, it would not look to a competitor for nominees.

This takes us to the issue of our shareholder rights plan and why it is so important for independent shareholders to vote in favor of its continuance. CI's shareholder rights plan has but one purpose, and that is to provide important protection to shareholders. Generally, securities law affords protection to shareholders, preventing one group from getting control of more than 20% of the outstanding shares without facing takeover rules. In CI's case, the Bank of Nova Scotia was grandfathered in its purchase of 36% of CI on the basis that a rights plan will protect it, namely CI, from the Bank of Nova Scotia getting control without making an offer to all shareholders. All shareholders, including the Bank of Nova Scotia, voted in favor of this plan.

Why we are adamant that the shareholder rights plan continue is that the bank is a significant competitor to CI. The plan protects shareholders from the bank from increasing its holdings just enough to get control without making an offer to all shareholders.

Similarly, the plan protects the bank -- sorry -- protects CI from the bank selling its stake to another party who may have hostile intentions, especially in the case where that party already has a stake in CI. Again, control could be gained in this circumstance without independent shareholders getting to participate.

Though many investors believe securities laws protect them, the private purchase exemption allows the bank to privately purchase shares from up to five individual holders for up to a -- with up to a 15% premium. That would exist if no shareholder rights plan was in existence. It does not take much imagination to see how CI's shareholders, without a rights plan, could wake up to find the bank purchased a 15% stake from a couple of large shareholders, gaining full control and essentially leaving the remaining 49% of shareholders holding the bag.

That is why we are urging all shareholders to vote in favor of a shareholder rights plan to make it clear to the bank that there are rules to abide by.

And with that, I would quickly like to summarize. Despite what I just said, CI's business is exceptional right now. Cambridge and Black Creek are very well positioned and could easily add CAD20 billion to CI's asset management over the foreseeable future. We have a new partner in Altrinsic, which we expect will contribute to significant growth from its current size of CAD11 billion in assets under management. Our partnership with Red Sky Partners Fund, though small, is performing well, with assets now over CAD50 million, and the fund is up 19% since inception on September 1.

And lastly and very importantly, our investment in all aspects of the business has been designed to create sustainable long-term growth for CI and its shareholders.

Thank you very much, and with that I would like to open it to questions.

Operator, before we open up for questions I would like to just point out to participants that we didn't read the disclaimer before the presentation. It's the second page, so if everyone could have a look at that, and then we will open up for questions.

So operator, you can open it up for questions now.

(Operator instructions) Geoff Kwan, RBC Capital Markets.

The first question I had was with respect to the Scotia Bank acquisition, how active are you in helping to maybe find a buyer of their stake, if they're looking to sell? And then I know you don't know for sure, but based on your discussions with them, what would be your impression as to how active they might be in trying to resolve their ownership stake in CI?

I actually have no idea how to they may or may not be in trying to come up with the transaction with respect to their stake. I haven't had any feedback in that regard. And I would just say from CI's perspective, it's a very difficult situation to try to do anything on that front, Geoff, because it's unpredictable as to who they would be willing to sell to and I don't think anyone is really willing to step up to the plate, knowing they could get turned down.

What I can tell you is that we are certainly aware that Bank of Nova Scotia was bid on its entire position for CI, and I guess they didn't want to take that bid. But in conjunction with that transaction, CI had been agreeable to buy back roughly 20% of the shares in a targeted issuer bid. That took place about a month and a half ago. But other than that, that would be the extent to which we have cooperated on that basis.

And the last question I had was, would you be amenable or would CI be amenable to having someone else come in and buy a Scotia stake but wouldn't be necessarily your ideal acquirer but as someone that you could at least have a reasonable relationship with? Or are you of the preference of getting someone where CI could hopefully significantly grow the business with a new shareholder?

Well, Geoff, there's two things. One, it doesn't matter who we think might be an agreeable partner. Because of the shareholder rights plan, in order for the Bank of Nova Scotia to sell it to a single buyer, all the independent shareholders would have to approve it under the plan. So we would have to take it to them for approval. And so I think, unless all the other shareholders viewed this as an attractive solution, then I'm not sure how you would get their vote.

Notwithstanding, there are partners out there that you could conceivably see that would want to buy the stake, that we could see as helping CI build the business. And since, clearly, the situation we have with the Bank of Nova Scotia is that they are detracting and hurting our business right now -- not taking away from our sales in that perspective -- but detracting us from strategic alternatives to build the business that a good partner, I think, just might be welcomed then by all shareholders on that basis. And they would say okay, it wouldn't matter if they were just getting a 37% stake, but this looks great for building long-term value. Let's assess it and maybe vote in favor of it.

Okay, thank you.

Paul Holden, CIBC.

The first question is related to fund sales. We've seen a pickup in gross sales year-over-year. Wondering if that's going into more equity type mandates. Or another way I could put the question is, are you seeing increasing confidence on the part of retail investors in terms of what they're buying?

Yes, Paul, it's Derek. Obviously, people are feeling better. We've had a couple of good years of performance. We're seeing a lot of flows into balanced and balanced income, and we are actually starting to see quite a bit of interest in the global products as well. So global investing has been out of vogue for a while, but I think eventually it's going to come back into fashion, and I think we've got a great lineup to have some great fund sales down the road in that space. So the answer is yes, it's going into equity and balanced funds and not so much bond type investments.

Okay, but we are starting to see maybe the tip of the iceberg in terms of global equity flows?

Well, I think through last week selloff in commodities, I think lots of people checked their asset allocation and thought maybe -- I think people are looking at their portfolios, and there certainly is a lot of interest in Black Creek. The buildout of Signature has been great, and the addition of these new people that have joined Alan Radlo at Cambridge -- we've got a great lineup for when people start looking at investing outside of Canada again.

Okay, second question is related to Assante. Growth of AUA is tracking about half the growth rate of CI's total AUM. Any particular reason for that divergence?

Yes, sure, Paul I'll answer it; it's Steve. The reason if -- when you look at CI's mix of assets, we have very low concentrations in bond funds and money market funds. But when you look at the Assante book of business, you have to remember, for their clients they're going to have a much more diversified mix for their client, depending on the nature of the client themselves. So maybe if you have an older individual they would have a much higher concentration of bond funds. So you wouldn't expect them to rise as quickly as the markets would, just like they didn't fall as quickly as the markets did when markets went down. You just have to remember, it's a different mix of business there.

Okay, it's a matter of less equity exposure?

Correct. It's only logical that it be that way.

Yes, got it. In terms of the RFPs you're waiting on the institutional business, are those predominantly coming within Canada, or are you getting some outside of Canada as well?

Both of them are -- well, I'll give you an example. Most of them are Canadian. We had two this week or in the last week; one was a Canadian balanced and one was Canadian equity.

And then final question is with respect to the Castlerock tax pools that you are going to try to roll in around the middle of this year. Can you give us any kind of guidance on how that could potentially impact the effective tax rate going forward?

It's Doug. No; it shouldn't impact our tax rate. It will just be a cash flow item. We set up a tax asset on the acquisition, and that will be drawn down when we actually use those losses.

Okay, so no impact on the tax rate?

Right.

Got it. That's all the questions I had, thanks a lot.

Stephen Boland, GMP Securities.

Just following up with the BNS situation, coming into your annual meeting, if I read the process right, there's a vote that will include all shareholders, including BNS; and if the rights plan is approved, then there's a second vote. Is that the right process?

Steve, could you repeat that? You have to speak up a little bit; that was hard to hear.

So heading into the annual meeting, looking at your proxy, there's two votes. The first vote is with all shareholders, including BNS. And if that vote goes ahead, then you have a second vote to amend the plan. Is that correct?

That's correct.

Okay. And in the meantime, you are also appealing to the OSC on the TSX decision?

That's correct.

And what -- I guess, under what basis is that appeal, that the TSX has no jurisdiction? Or is there some other [read] like -- to --

It's that there is no legitimacy for breaking the contract and giving the Bank of Nova Scotia the vote. What is clear is that when that shareholder rights plan was voted on by all shareholders, including the Bank of Nova Scotia, it stated at that point in time it's a six-year plan, and at the three-year mark there's an affirmative vote to continue out to the end of the six years, so that the plan would only get terminated if the independent shareholders at the three-year mark elected to terminate the plan. Otherwise, the plan continues to its normal expiry, which is 2014, at which point in time you would have to -- everyone would get to vote on the plan again in 2014.

So what we are saying is there's no confusion on the wording here, and since there's no confusion on the wording here, how could you reach the decision to say we are going to arbitrarily now allow someone to vote when they weren't allowed to vote in the past. If you had bought a share of CI a year and a half ago and thought you were protected by this shareholder rights plan only to wake up and find out the shareholder rights plan was being negated for -- we don't know what the reason is yet that it's being negated -- I think you would be quite upset on how the whole rules of governance are working.

And I guess at the annual meeting to get the plan in place, it has to be -- is it 66.66% of the votes that go in?

No; it's a simple, simple majority of it -- simple majority votes.

Okay, great. Just getting back, I guess, on some of the micro-data, you mentioned in the press release that you had some institutional rebalancing in your, I guess, in your fund flows. Can you quantify that number?

So in January there were two -- they would be quasi-institutional financial institution where we are participants in their package solutions, where there were some redemptions. So January, as I said, the sales were less in 2011 in January versus 2010. But February and March were better year-over-year than 2010.

Okay. And if you could just give me some color around your gross sales in terms of like segment, like predominantly --- I know you said predominantly -- it has always been predominantly balanced. But are you seeing a pickup in equity funds? Is that segment in net sales -- if you can provide any color on that?

Well, balance -- Canadians love balanced products. And as an industry you refer to the investor economics. Canadian equities are net redemptions. Canadian balanced and Canadian income are in net sales. So -- but there is more interest; we are seeing or interest in global equity product. So I think it's -- two years of good performance; people are starting to feel pretty good about the markets.

Okay, thanks very much.

(Operator instructions) Doug Young, TD Newcrest.

First question, just on net sales -- I just wanted to clarify. You mentioned in the remarks that there's CAD289 million in the SunWise Essential Series in terms of flows, and I'm going to guess that's pretty well all net sales. And I think on the institutional side, it was mentioned there was CAD200 million of net flows in the quarter. Are those numbers right?

The institutional is -- not CAD200 million is booked yet. We're close to CAD200 million in institutional sales. And you're right; the Segregated Fund Business Essentials is CAD280 million year to date.

Because I was just -- where I was getting at, it looks like if those numbers add up and your net outflows, I guess, in the rest of the mutual fund business, which isn't the case, so I just wanted --

No, that's not the case. So we also had -- we had some institutional -- as I said, the institutional rebalancing in January.

And how much was the institutional rebalancing in January?

Just less than CAD100 million.

Okay. And I know you gave us, on page 3, your gross sales breakdown by channel. If we were to look at that and -- I don't know if we have to get into specifics, but look at that on a net sales basis, is there any big changes that you're seeing? Or can you give us numbers on a net sales basis?

I would say the business was up pretty much across the board with the exception of the IIROC dealers. And I would say the gross with IIROC was up, but unfortunately the redemptions were higher too. So the net -- the one place that there was net redemptions was in the IIROC dealers. And I'm very hopeful that the product that we have been profiling and highlighting, both Black Creek from a global perspective and the additional resources we've added at Cambridge -- generally, the IIROC will buy mutual funds or investment products that they can't replicate themselves. So I'm hopeful that we will see a significant pickup going forward from them. But unfortunately, the redemptions were higher from that channel.

Okay. And I guess just a second question -- you gave us another chart were you showed your assets more recently, I guess the current AUM, I'm going to guess that's on slide 12, and that's an average AUM of CAD74.895 billion. Is that right? And I'm just curious if you can give us what the absolute number was, the most recent absolute AUM number was, if you have that handy.

Up to May 9, we were at CAD75.1 billion, so CAD74.895 billion -- yes, that's the quarter-to-date average.

Okay, perfect. And then maybe just, Steve, I know you talked about -- I won't go into the Bank of Nova Scotia stuff, but maybe on the other side, in terms of opportunities, strategic opportunities that you are being held back, maybe, from. What -- are you seeing more opportunities from a strategic perspective, whether it be M&A that you may be able to take advantage of?

Yes, I would say there has certainly been some very interesting opportunities out there. I'd say one of the disappointing things is this distraction that -- with mine and Bill and Sheila Murray's time being taken up with the Bank of Nova Scotia and the TSX is putting us through right now makes it difficult to put your focus on an opportunity where acquisitions take an intense amount of concentration and work on when you're going to sign the dotted line to make sure they work after the fact. And I would say at this point in time I've had to pass up on a couple of opportunities that, under different circumstances with the right partner, I would have gone after.

Okay. And just to clarify, I guess I'd -- make sure I heard correctly, you said that the Bank of Nova Scotia has told you that they are interested in selling their position. Did I hear that right?

I have been told that twice. Definitely, I have already said that. Back in a meeting in early December, I was called to a meeting specifically to be advised that they want to focus their time and effort on Dundee, which they just acquired, and other parts of their business and that they wanted to sell their stake in CI, their entire -- actually sell their entire stake in CI.

Okay, that's all I've got, thank you.

Scott Chan, Canaccord.

Just a question, just going back to the Castlerock, trying to get possibly from CAD2 billion right now to CAD10 billion in five years. Is that predominantly through the Black Creek product? Because I guess, from my knowledge, is there just three funds right now and they are all global?

I can answer that. You are right there's just three funds, but what we look at strategically is the ability and capacity of a money manager to manage large blocks of assets in the successful way. And there's three few money management groups that can do that. There's lots of very able money managers that are more boutique managers that you could conceivably see them up with their styles up to CAD1 billion. But with the Bill [Kankle] and Richard Jenkins, if you look at the way they manage money and where they have historically been, they are more than capable of delivering good performance, very good performance, at asset levels of CAD 10 billion plus.

And that's why we feel, with the position we have with CI and the work Derek is doing on the distribution, that when you sit down and you strategically say, how does CI get from where it is today to going through CAD100 billion in assets? You say, who are those money managers? You say those are a set of money managers that we want to focus our efforts on getting them from CAD2 billion to CAD10 billion.

So primarily it would need increasing those main funds up to the CAD5 billion-CAD6 billion level.

Is the large block of assets that you are referring to perhaps institutional clients, or is this specifically just a retail product for now? Or is there any plans to put that on the institutional platform?

We haven't discussed going on an institutional platform with them. I think the focus right now really is to evolve and really take advantage of the retail attractiveness of this product. It just wasn't extensively marketed the way we think we can do it, when it was under Hartford. And we just have a lot more investors in our funds, etc., that would be very attractive to someone with the performance record that they have.

Okay. And just the last question, is just the Red Sky -- the hedge fund, the Partners Fund -- is that on the CI product shelf right now, or do you guys just have the capital invested from the start?

We have an association with them. I wouldn't say it's heavily on the CI product shelf, though what we do is we provide a lot of the administrative services to it. You acquire it through a CI fund quote. The objective of that is to give investors the comfort to know that we are providing governance oversight in this fund, which you can't underestimate that in the post-Madoff era, that people want to know that in these small hedge funds that the money is safe. And so that's where we are jointly developing it.

This is really just part of a strategy where we had tried to identify what we think are small managers, boutique managers that have some real possibility. And so we go in and try to take a stake through providing services, etc. And if it really works out well, then in time we could mainstream it. So I think, if you look out a year and a half, two years, that this product is doing really well, then we'll sit down and decide, do we want to mainstream that product or not. But for the time being, we are helpful on the product but it's not mainstream to CI.

Great, thanks, that's very helpful, thanks a lot, guys.

Paul Holden, CIBC.

I just have one question on future disclosure related to the institutional side of the business. Are you going to report institutional AUM and sales separately so we can track the growth of that going forward? And the reason I would be interested in seeing that is obviously because the fee structure is much different on the institutional business versus the retail.

Paul, it's Steve. At this point in time I don't think our objective is to report it separately, for exactly the point that you laid out. If we start reporting too much detailed information, we will provide competitive information that we don't want to provide into the marketplace. So I think you will see it combined. We will likely talk about total assets to give you a feel where total assets are on this true institutional business, but I don't think we're going to do detailed financials on it.

Okay. But what about in terms of -- so if we get total assets, will we see net flows as well, specific to institutional business?

Yes, I think we will probably do that. I think that's one of these things that will evolve. It's early stage for us in the business. It has really just started to take off now, and I think we will look at that at our next reporting period, which is August 9 and see how things are going and try to keep you up-to-date. And if it makes sense, then we will give it more airtime.

Okay, it would be helpful. Thanks.

We have no further questions at this time. I will turn it back to Mr. MacPhail for closing comments.

We just wanted to say thank you to everyone for attending our conference call. We really appreciate it, and we look forward to seeing many of you at our annual meeting on June 1. Just as a note, we're holding it in our new offices at 15 York Street, which is just down beside the ACC. And we are happy to show kind of what we think is the state-of-the-art buildings now for mutual fund companies. And so I hope you are there, and I will show you around.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.