Who is providing capital to media darling Wealthsimple? Power and affiliates? Wrong! Companies don’t make decisions, humans make decisions. Paul Desmarais III is the driving force behind the fintech initiatives at Power. But Paul III is not in charge of Power. His father Paul Jr. and his uncle André are in charge of Power. Power has no meaningful history of venture capital investing. Paul I was a takeover artist, a conglomeratist. His m.o. is pretty much the same as Buffett. He would probably roll over in his mausoleum if he heard of these investments in money-losing startups. Power Corp is worth 25% less today, than in 2007 and its stock price is at the same level it first reached in 2004. It should be seen as a company in soul searching and their fintech initiatives should be seen as experimentation. I’ll talk about family dynamics another time, but let me tell a story of one experiment that didn’t go too well at Power.
Power’s main VC arm is called Portage Ventures, Paul III was its co-founder and Wealthsimple was its marquee investment. Portage is now housed within a division of Power called Sagard Holdings. It describes itself as a “multi-strategy alternative asset manager”. Sagard Holdings was founded in 2005. As of the end of 2018, Power has invested $616 million in Sagard Holdings. How much are those investments worth? $643 million. So since 2005, Sagard Holdings has made $27 million dollars. Now, the entire $616 million was not invested at the outset, so let’s be generous and assume that the average capital deployed was only $100 million. A $27 million return on a $100 million investment over 14 years is not what private equity dreams are made of. Last year, Sagard Holdings wrote off $66 million on an investment in IntegraMed, a network of fertility clinics. The original manager of Sagard Holdings departed in 2016 and they put an end to his strategy.
To be fair to Paul III, while he is now CEO of Sagard Holdings, he only joined around 2016. Not deterred by its initial experience, under his leadership, Sagard Holdings diversified into not only VC, but lending and healthcare royalties. Despite the poor track record, they have been able to raise hundreds of millions for these new initiatives. The Desmarais name can attract a lot of money. Fundraising is about momentum. The Desmarais can easily seed $100 million into any strategy that catches their whim and thereby attract others to follow. But sooner or later, profits and returns matter.
Paul III is unusual in that he’s pretty visible for a Desmarais - he gives talks and media interviews. As I do not wish to preclude the possibility that I may one day be appointed a senator in this country, I have to say I find his ideas interesting. He has a modest manner, but the subtext of what he says is that he wants to displace banks. Maybe he can start by showing that Sagard Holdings can outperform GICs.