DBRS Morningstar Confirms Ratings on IGM Financial Inc. at A (high), Stable Trends

DBRS Ratings GmbH (DBRS Morningstar) confirmed the Issuer Rating and Unsecured Debentures rating of IGM Financial Inc. (IGM or the Company) at A (high). The trend on both ratings is Stable.

KEY RATING CONSIDERATIONS
The ratings and Stable trends reflect the Company’s position as one of the largest asset and wealth management companies in Canada with $253 billion in total assets under management and advisement (AUM&A) as of July 31, 2022. The Company benefits from a strong franchise in Canada through its main operating subsidiaries IG Wealth Management, Investment Planning Counsel Inc., and Mackenzie Financial Corporation, as well as internationally through its strategic investments in China Asset Management Co. Ltd. (China AMC), Great-West Lifeco Inc. (Great-West; rated A (high) with a Stable trend by DBRS Morningstar), Wealthsimple, and Northleaf Capital Partners Ltd. IGM is ultimately controlled by Power Corporation of Canada (Power; rated “A” with a Stable trend by DBRS Morningstar).

IGM’s strong EBITDA margins reflect its leading market position as well its competitive value proposition, which have helped the Company to maintain AUM&A levels through periods of market volatility and achieve consistent profitability in recent years. However, similar to other asset and wealth management companies, IGM’s revenues and cash flows are primarily based on AUM&A, which remain vulnerable to either net outflows or sustained declines in market values. These concerns are mitigated by IGM’s conservative financial profile, as well as its substantial available liquid resources.

RATING DRIVERS
A further increase in scale, as evidenced by higher AUM&A, while maintaining strong profitability and balance sheet metrics would result in a ratings upgrade.

Conversely, sustained net outflows affecting the Company’s profitability or material losses related to investments in associates that significantly impact earnings and capital would result in a ratings downgrade.

RATING RATIONALE
IGM’s strong franchise in Canada allows the Company to generate consistent levels of operating cash flow and solid profitability metrics, including a robust return on common equity of over 15% the last four years. The Company’s strong earnings can be attributed to a growing AUM&A base, a diversified and expanding product suite, good expense management, and a business model that incentivizes the stickiness of assets, particularly among its high-net-worth clients. DBRS Morningstar also notes that IGM’s profitability and AUM&A have remained resilient during the peak of the pandemic and, more recently, during the volatility experienced by global financial markets, particularly in Q2 2022.

Besides its position as one of the largest players in the Canadian asset and wealth management industry, the Company benefits from its role as a strategic arm of the Power group of companies through its associated business opportunities, as well as strong governance and risk management that is reflective of the Power subsidiaries. IGM has also strengthened its enterprise risk management framework over the last decade and has diversified its traditional business focus by strategically investing in China and private markets.

DBRS Morningstar views IGM’s liquidity position as strong/good. The Company benefits from ample cash and cash equivalents on its balance sheet, as well as good access to capital markets and committed lines of credit, which are supported by its minority ownership of Great-West, potentially providing additional liquidity in case of a stress scenario. However, DBRS Morningstar notes that the announced transaction to acquire Power’s 13.9% interest in China AMC will reduce IGM’s cash balance by approximately $575 million while decreasing its ownership in Great-West to 2.4% from 4.0%. In DBRS Morningstar’s view, this somewhat reduces IGM’s financial flexibility, which is mostly offset by the Company’s ample capital generation and conservative debt-to-EBITDA ratio of 1.5 times at the end of Q2 2022.

Additionally, the current operating environment remains challenging for traditional asset managers, which can still face competition from lower-fee passive investment strategies. The Company also faces the possibility of sustained net fund outflows and lower profitability in an environment of prolonged market volatility.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929.

The Grid Summary Grades for IGM Financial Inc. are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong/Good; Funding/Liquidity – Strong/Good; Capitalization – Strong.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Investment Management Companies (January 12, 2022; https://www.dbrsmorningstar.com/research/390678). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

The sources of information used for this rating include Morningstar, Inc. and Company documents; IGM 2021 Annual Report; IGM 2021 Sustainability Report; and IGM Q1 2022 and Q2 2022 Quarterly Reports. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/401535.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Marcos Alvarez, Senior Vice President, Head of Insurance
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: January 29, 1987
Last Rating Date: September 2, 2021

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