Toronto-based asset and wealth manager CI Financial has fully severed the U.S. wealth management business Corient from its Canadian concerns, the company revealed during a quarterly earnings call last week, except for $281 million in outstanding U.S. debt still on CI’s Canadian balance sheets.
CI Financial also continues to own approximately 80% of Corient.
Dozens of firms acquired by CI since it entered the U.S. market four years ago have been brought under the 7-month-old Corient brand and onto a single technology stack with centralized reporting. While integration was underway in 2023, the U.S. business also introduced an alternative investments platform, an in-house trust company, a wealth transfer practice and a personal CFO service providing bill payment, accounting and related services.
Taken together, the integration initiatives improved U.S. earnings margins by 4.4%, according to CEO Kurt MacAlpine. He pointed out Corient obtained an A- independent credit rating from Kroll Bond Ratings Agency on Feb. 20.
A “resilient business model, underpinned by an integrated professional services partnership that offers employees equity stakes in the RIA business,” granular client mix, breadth of services, high earnings margins and plan to pay down outstanding debt were all cited by Kroll analysts as key factors in the assignment.
“We acknowledge Corient’s limited standalone operating history, though the firm’s parent has a long track record and strong brand recognition,” they noted.
“We are confident that our private partnership improves Corient’s culture, aligns everyone in our organization, creates better career trajectories for our employees, significantly improves wealth creation and allows us to invest more strategically in our business,” said MacAlpine.
“Our results support our belief,” he said. “We have exceptional organic and inorganic growth. We've delivered the leading operating margins of all wealth managers that disclose publicly, have unified our middle and back office, and have built a full suite of exceptional products and services for our clients that we didn't have before.”
With C$206 billion at the end of 2023 (or about US$192.5 billion, per conversion rates mid-Friday), Corient grew client assets by about 4.6% over the previous quarter and 13.8% over the previous year.
Earnings dropped slightly, said CFO Amit Muni, attributable to falling markets and Corient’s method of billing.
“Approximately 50% of these revenues are based on asset levels at the beginning of the quarter,” he explained. “Given the asset level at the beginning of the fourth quarter, revenues were lower and didn't benefit from the market recovery. However, as we enter Q1 of this year, we started with higher asset levels and will now benefit from the market tailwinds.”
Adjusted EBITDA grew however, outpacing requirements set forth by a group of investors that bought a 20% ownership stake in a convertible preferred structure last spring.
"We experienced strong EBITDA growth of 33% for the year, more than double the investor group's preferred return,” according to Muni, saying that Corient estimates non-controlling interest of 38% for the purposes of calculating adjusted EBITDA and 32% when calculating earnings per share.
With the capital separation of the businesses in May 2023, U.S. acquisition liabilities were split. On the Canadian side, $281 million in obligations is expected to be paid down by the end of the current year, and another $116 million shouldered by Corient will be paid out of U.S. revenue.
Moving forward, Corient will be focused on continued integration and the realization of synergies, adoption of new service capabilities, continued organic growth and a selective acquisitions strategy.
“In addition to M&A, we've started to become a very attractive destination for advisors that are just looking for a new home, unlocking a recruiting angle for us that didn't exist before we had fully integrated and unified the platform. So, I feel we have solid prospects in front of us,” said McAlpine.
“The standards for a firm joining us remains extremely, extremely high and we’ll be very disciplined in that process,” he said. “I'd say that the market is certainly slower than it was when it peaked in 2021, but there are a series of high-quality conversations we're having out there.”