Employees at CI Financial open the market to celebrate the 30th anniversary of its listing on the Toronto Stock Exchange on June 24.Supplied
The potential new owner of CI Financial Corp. CIX-T plans to double down on the wealth manager’s acquisition-driven growth strategy of snapping up rival fund managers and financial advisory businesses in Canada and the United States.
In an exclusive interview with The Globe and Mail, Oscar Fahlgren, New York-based chief investment officer for Abu Dhabi’s Mubadala Capital, said his firm’s $4.7-billion buyout offer would give CI access to a larger pool of money to fund its ambitious growth plans in Canada and the U.S.
“For a company like CI, partnering with someone like ourselves that has access to long-term stable capital and can focus on executing growth opportunities both in Canada and in the U.S., we think long term is actually a better solution than staying in the public market, where there’s pressure on dividends and share buybacks,” Mr. Fahlgren said.
“We see tremendous growth opportunities in both businesses. And we think the Canadian business is a little bit underappreciated by the market relative to the potential that we see.”
Mubadala Capital has US$27-billion in assets, with two-thirds of its capital coming from North American investors such as pension plans, endowments and wealthy families. The remainder of the fund manager’s money comes from parent Mubadala Investment Co., an Abu Dhabi sovereign wealth fund that has US$302-billion in assets.
Mr. Fahlgren said CI would be owned through one of Mubadala’s investment funds, which have a long-term time horizon with stable ownership. “When we invest in assets like this, we have a little more flexibility than what a traditional private equity fund would have, where they have to put it inside one fund for a very finite period of time and then sell them onwards,” he said.
Although CI Financial has previously talked about plans to separate its Canadian and U.S. divisions, Mr. Fahlgren has no plans to sell the Canadian operations. He added that he has not heard from any potential buyers looking to gain a slice of the company.
“We are not entertaining any such discussions,” he said. “We see CI as one investment opportunity. ... Both arms have independently attractive underlying features that we believe in.”
In Canada, Mr. Fahlgren said there is still a lot of room for CI’s operations to grow organically, but he would not rule out any attractive merger and acquisition opportunities.
For the U.S operations, which operate under the name Corient Holdings, he anticipates CI will continue its aggressive expansion strategy that has seen CI chief executive officer Kurt MacAlpine snap up more than 40 registered investment advisory businesses (RIAs).
“The U.S. RIA market continues to be a pretty strong, growing market,” Mr. Fahlgren said. “There is a lot of fragmentation and a lot of RIA businesses operating on maybe older models than the one CI has rolled out.”
Mubadala Capital’s current Canadian holdings include Canada Cartage, the country’s largest trucking company, which it purchased in 2022 from another private equity fund. In the past two years, Canada Cartage made two significant acquisitions, including the takeover of Montreal-based GTI Group, a logistics business with U.S. operations.
Parent Mubadala Investment, meanwhile, has its own investments in Canada. It acquired Calgary-based Nova Chemicals Corp. in 2009 for US$2.3-billion, including debt. Mubadala Investment has also teamed up with domestic fund managers such as the Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan on international investments.
In 2020, for example, CPPIB, Mubadala Investment and tech-focused fund manager Silver Lake Technology Investment LLC led a US$2.5-billion equity financing for Waymo LLC, a California-based autonomous vehicle developer. In 2022, the Abu Dhabi fund joined Teachers and Warburg Pincus LLC to invest US$500-million in Singapore-based data centre operator Princeton Digital Group.
However, a potential stumbling block for the CI deal could be parent company Mubadala Investment’s ties with China. In recent years, there has been more scrutiny of U.S. deals involving Middle Eastern sovereign wealth funds because some manage significant Chinese assets through their investment funds.
The CI acquisition will require foreign investment review approval under the Investment Canada Act as well as U.S. approval from the Committee on Foreign Investment in the U.S.
A spokesperson for Mubadala Capital, which is the alternative asset management arm of Mubadala Investment, said the entity has no ties to China – no presence in the country, no Chinese limited partnerships or partnerships. However, this is not the case for its parent company, Mubadala Investment, which opened an office in Beijing last year and has partnered with the China Development Bank Capital and China’s State Administration of Foreign Exchange to establish the UAE-China Joint Investment Fund.
Toronto lawyer Calvin Goldman, who specializes in competition law and foreign investment reviews, said it will likely be up to the investment review division in the federal Industry Department and the minister to determine if the parent company’s China ties are enough to trigger scrutiny.
If Mubadala Capital is viewed as having a Chinese connection, Mr. Goldman said the deal with CI may face additional scrutiny from Canadian lawmakers in keeping with a broader trend involving business deals that have a connection to China.
He pointed to the federal government’s ban on use of technology from Chinese telecom giant Huawei Technologies Co. Ltd. and an order from Industry Minister François-Philippe Champagne requiring Chinese companies to divest their holdings in three Canadian critical minerals companies.
Mr. Goldman, who is a former head of Canada’s Competition Bureau, said in taking this approach, the Canadian government is moving in sync with the other members of the Five Eyes intelligence alliance and the U.S., in particular.
“China-based investments are now clearly subject to potentially greater scrutiny in a number of identified sectors. Those include critical minerals, sensitive areas of mining, technology and the financial sector,” Mr. Goldman said. “I’m not saying the [CI] investment will be blocked. I’m saying the potential is there for review and longer timelines.”
James Musgrove, the national leader of the competition, antitrust and foreign investment group at McMillan LLP, said the CI Financial and Mubadala Capital deal may warrant a closer look, especially if there are concerns about safeguarding confidential personal financial information.
“I don’t think it will be rubber-stamped, and I think there will be a significant number of conditions or undertakings as they talk about them in the Investment Canada Act that will be put on them as it goes through the review,” he said. “If I were a betting person, the deal will get there, but the lawyers will have some work along the way.”
Mr. Fahlgren said Mubadala Capital has had a lot of interaction with regulatory bodies in the U.S. and Canada and is a well-known entity through the portfolio companies it already has in those regions. He said CI will receive a long-term stable capital base from Mubadala, and CI will remain headquartered in Canada with the current management team in place.
“We’ve always operated with full transparency,” he added. “And we’ve always had a very constructive and mutually respectful dialogue that has led to outcomes that have been good for everyone involved.”