Montreal’s billionaire Desmarais family is expanding its investment in the financial technology sector through its Power Corp. of Canada conglomerate, and drawing additional funds from other players, to create one of the country’s largest venture capital funds.
Power Corp.-backed Portag3 Ventures said Tuesday it had raised $198-million for its second fintech venture fund, drawing about half of the money from a group including National Bank of Canada, Intact Financial Corp., Guardian Capital Group, Equitable Bank, La Capitale Insurance and Financial Services, and SSQ Life Insurance Co. Inc. The balance is coming from Power Corp.-controlled entities Power Financial Corp., IGM Financial Inc. and Great-West Lifeco Inc.
Portag3, which manages about $240-million in investments on behalf of Power Corp.-affiliated companies, said commitments already received for the second fund will eventually put its total well above $300-million and possibly as high as $400-million.
The new fund is part of a developing strategy within Power to “ultimately build a multi-strategy asset manager,” said Paul Desmarais III, who chairs Portag3 and is chairman and CEO of Power Corp.’s Sagard Holdings, which invests in public and private equity and recently launched a US$450-million credit fund backed by several outside institutions. He is also the son of Power Corp. chairman and co-CEO Paul Desmarais II.
“Over the last two years we’ve learned we’re quite good at partnering with leading fintech entrepreneurs around the world and we’re quite good at sourcing those deals through our network," Mr. Desmarais said in an interview. “We’ve [also] found that to scale winning champions and to build significant stakes in those, having a larger fund is important.”
The new commitment comes after years of middling stock market performance by Power Corp. and its Power Financial Corp. subsidiary – largely driven by underinvestment in the group’s two main holdings, mutual fund company IGM and Great-West. CIBC World Markets analyst Paul Holden said both companies “more recently have reinvested in the business to enhance competitiveness and that IGM in particular is starting to show improved results," thanks in part to its addition of exchange-traded funds, an investment vehicle that has captured the imagination of retail investors globally.
Mr. Holden called Power Corp.’s increased move into venture capital “a positive…. There’s no better way to learn how the evolution of financial services will transpire than having an ownership stake in several fintech investments” and shifting some of the learned insights from industry disruptors into the operations of its core companies.
Power Corp. has warmed up to the tech sector in recent years, marked primarily by its $165-million investment through its various divisions for a controlling stake in Wealthsimple Financial Inc., a Toronto-based online wealth management firm. Mr. Desmarais said the robo-adviser now has $3-billion in assets under management, up from $2-billion six months ago, which translates into just over $15-million in annualized revenue.
“We believe Wealthsimple is one of the future champions of Canadian financial services,” he said, adding that the startup is adding 1,000 new clients a week who are depositing $30-million to $60-million in assets (a Portag3 spokesperson said Wealthsimple has more than 100,000 clients). But Mr. Desmarais said Wealthsimple would require “significant" further capital to scale up and that he expected it could go public within five to 10 years.
Mr. Desmarais said the new 10-year fund would take a measured approach, investing no more than $20-million in a single company. He said most of the companies Portag3 backs will likely be from outside Canada, but it does plan to invest more money in companies here. Portag3’s other backers would likely co-invest in several ventures alongside it, he added. “I think understanding [their] priorities and focusing our partnerships on helping [co-investors] solve their strategic priorities is very important,” Mr. Desmarais said.
Portag3 has already invested more than $40-million of the new fund, leading a US$30-million investment last month in Toronto artificial-intelligence startup Integrate.ai. It has also backed Canadian startups League Inc., Borrowell Inc. and Wave Financial Inc. and foreign early-stage firms including French digital health insurance provider Alan and Los Angeles-based robo-adviser Albert Corp.