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Morningstar | Continued Low Rates Reducing Upside for Power's Majority Holding Great West Lifeco

Power Financial is a holding company that derives the vast majority of its value from its ownership stakes in Great-West Lifeco and IGM Financial, and allows these firms to share services and access to distribution. Great-West accounts for about 80% of Power Financial’s estimated value, while IGM contributes about 19%. The remaining amount comes from an ownership interest in Pargesa through Parjointco. Power Financial is majority-owned by Power Corporation of Canada.Great-West, one of the big three Canadian life insurers, competes primarily with Sun Life and Manulife. We believe Great-West is the best run of the group, producing superior value for its shareholders, with an average return on equity of 14% over the past five years. This contrasts with its closest competitors, which have struggled to cover their cost of equity due to the low interest rate environment. We generally expect mediocre returns from the life insurance business, which we view as competitive and at the mercy of the capital markets. Great-West has managed to set itself apart through disciplined underwriting, a focus on dominating the markets it knows best, and creating an advantageous business mix by targeting less capital-intensive wealth management and retirement products, as well as a healthy participating policyholder business. Management’s adherence to this strategy is why we believe the firm will continue to generate excess returns.IGM is the largest independent asset manager in Canada. While IGM has historically generated solid operating margins and maintains a leading share in the Canadian mutual fund market, we've been less than impressed by its ability to generate growth in assets under management since the financial crisis. Investors Group and Mackenzie Financial have consistently struggled with organic growth, with the latter, on average, seeing negative organic growth. This is a sign, in our view, of a weaker competitive position than the firm has had historically. Efforts to boost inflows have led to mixed results. Poor performance, higher fees, and a reliance on a closed advisor network leave the company negatively exposed to the trends we see developing in the industry.