Paul Desmarais III
Chairman & CEO of Sagard
1/9/2023
Paul Desmarais III, Chairman and CEO of Sagard, Details Their Approach to Investing, Growing and Staying True To Core Values

Today in this Money Maze Podcast Curated edition we travel to Canada, to understand Sagard, with its Chairman and CEO, Paul Desmarais III.

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transcript

Simon Brewer

Today in this Money Maze Podcast Curated Edition, we're going to Canada, for the first time in any of our almost 100 interviews, to talk with and understand an intriguing alternative asset management business that is striking in both the freshness of its approach and the clarity of its ambitions. And to help unpick the story, we have its Chairman and Chief Executive, Paul Desmarais. Paul, you're in Montreal, Quebec. I guess I can say, Bonjour, bienvenue aujourd’hui sur le podcast Money Maze! And also, Paul, welcome to the Money Maze Podcast.

Paul Desmarais

Thank you so much. I'm really excited to be here.

Simon Brewer

Great. Well, I hope in today's conversation, we can explore Sagard's vision, the core investment activities that your group undertakes, your investment processes, values, approach to sustainability, your priorities that you've written about very extensively. But let's just start with your early days because context is so important. What were the key lessons you acquired growing up?

Paul Desmarais

So I had an extremely privileged childhood. I grew up in an entrepreneurial family. My grandfather was the founder of a family business, my father was the CEO and now the Chairman, and my mother is an entrepreneur. So I grew up with business all around me. But I'd say what I'm most grateful of is ultimately the values and the priorities that I was raised with. Those things are really important and it's a foundational to everything we do today. Some of the things that my mother would always tell me growing up was that there are three things you can never lose: you can never lose your education, you can never lose your work ethic, and you can never lose your values. And that's something that's really important and has stuck with me. Specifically, in terms of work ethic, I started working at a very young age. My mom had a chain of stores and I worked as a cashier and as a person cleaning those stores starting at the age of 10. She paid me about $1 an hour and I worked for hours on end, and by the time I was done, I could afford a pack of hockey cards, and I collected hockey cards then and so I loved working for five hours and then go on and buy myself a pack of hockey cards. I'd say education was a big thing too. She always focused us on learning and curiosity and whatnot.

Simon Brewer  

And I noted you went to Harvard and you went to INSEAD. I have to tell you that I did the very light version of what you did. I went and did the Advanced Management Program at INSEAD a very long time ago and we saw all these proper students doing the MBA and doing some heavy lifting. But I wonder what you think each of those institutions gave you that you're most grateful for.

Paul Desmarais

Yeah. I'd actually like to start at my high school for that question. I went to a school in Canada called Lakefield College School, and that school gave me confidence. I was a child. I wasn't particularly good at anything. I wasn't an athlete. I wasn't hugely academically talented, and ultimately, this high school helped take me out of the shell. And I think a lot of parents often have a child that is not finding themselves and this is a school that really specialises in helping teenagers find themselves and it helped me find my calling, which is really important. Harvard taught me curiosity. You go to a liberal arts school, you're exposed to all these different topics, and really, it's an adventure. Every day is an adventure. You can go to different classes, experience new things, and I loved it. For me, it was really curiosity that it gave me. I'd say my education then actually continued in my first job. I'd say Goldman taught me hard skills. Spending five years at Goldman Sachs, the hard skills of teamwork, rigor, attention to detail, living values, as well as all the financial skills, I think was really kind of valuable. And then I'd say INSEAD, what INSEAD really helped is it helped put me in touch with lots of people that came from different geographies and different backgrounds and taught me how to work in teams with people that are totally different backgrounds in terms of skills, but also came from very different cultures. It's an extremely international school and that exposure and that forced teamwork that they do in the first few semesters was really important.

Simon Brewer

You've answered the first part of my question, but I also noticed as I looked at the team and where they had been before they joined Sagard that you have both colleagues who worked at Goldman Sachs but also McKinsey. And I wondered what it was that those folks who had been a McKinsey gave you as an organisation. Because interestingly, in two days' time, I'm interviewing Michael Birshan, who is Global Co-Leader of McKinsey Strategy and Corporate Finance Practice, and we had Peter Oppenheimer from Goldman Sachs last week. But just tell me a little bit about the McKinsey perspective.

Paul Desmarais  

Well, I never worked at McKinsey, but what I would tell you is that a lot of my colleagues work at McKinsey, and McKinsey and Goldman are two actually, I'd say, pillars of the Sagard culture. I think what all these firms, whether it be banking or consulting or accounting or law teach you is they teach you business frameworks, they teach you work ethic, they teach you an approach that serves you for the rest of your life. And what I particularly value in McKinsey teammates is their focus on collaboration but their deep understanding of using frameworks in order to make things happen in our business. But I would have loved to have been a consultant for a few years.

Simon Brewer

Let's talk about Sagard and I'd just like to start with its genesis and then talk about its vision.

Paul Desmarais  

So the genesis of Sagard is very simple. I am passionate about creating jobs and creating businesses. Coming from an entrepreneurial family, my heroes are entrepreneurs and I viewed the opportunity to create a new investment firm focused on certain values, and the values that we hold dear at Sagard are entrepreneurship, innovation, collaboration, authenticity, and rigor. And I think those values really define us uniquely as a firm in that very few, I think, investment managers view innovation as a core value or authenticity as a core value. And it's something that we're very focused on because we think that those values make us the best partners possible for entrepreneurs. And our North Stars are really job creation, it's prosperity, it's innovation, it's bringing equal opportunity to people, and then kind of caring for the environment. And so I think that's been a bit of a different genesis story. Where we actually began one of our first activities was actually in the venture space and in building companies from scratch. And from there, we've grown into different asset classes and different strategies. But I think the birth of our firm, being one that builds companies, makes us very different and I think makes us a great partner for entrepreneurs.

Simon Brewer  

Well, it's funny that you say that about innovation because, in fact, it was a McKinsey study I was just reading which said, having done a survey of a number of corporations, that innovation was top of their list in terms of what they wanted to do, but it was also bottom of their list in terms of how well they felt they execute it. So we might come back to innovation with regard to your organisation in a while. But just again, staying a little bit sort of above the surface, how are you organised?

Paul Desmarais  

We at Sagard invest across five asset classes: venture capital & growth, private equity, credit, royalties and real estate. Within those asset classes we focus on two geographies, North America and Europe, where we have meaningful physical footprints. We also focus on a few sectors. Most notably, we have sector-dedicated funds in healthcare, in healthcare and technology, and in financial services. And the way we think about these businesses is we think about what are our competitive advantages as an ecosystem, as a network, and how are we going to build an investment operation around these competitive advantages. So to give you an example, in terms of financial services, my family business is financial services. We have a family holding called Power Corporation of Canada, which owns one of the largest insurance companies in Canada, Canada Life, and one of the largest independent mutual fund companies in Canada called IGM Financial. That business also owns brands like Putnam Investments, PanAgora, Irish Life Investment Management, we're one of the largest shareholders of China Asset Management, and so a very broad experience globally in financial services. We felt that that base would give us a competitive advantage to build a differentiated firm in the financial services base, which I believe is a sector that requires expertise. And so we started with venture, we've now launched a later-stage investment strategy called Capital Solutions, which basically does structured equity. We've launched a crypto strategy that invests at the intersection of blockchain and financial services, we even did SPAC and ultimately, we will likely continue to grow our expertise in the space by likely launching credit strategies related to financial services, but also likely a private equity firm related to financial services. And then the investors in that business tend to be financial services institutions, which further deepens our network and our ability to I believe, create value and create champions in the space.

Simon Brewer  

Thank you. So let's just talk about this investment proposition because again, as I did my work, it seemed that underlying what you talked about, there are essentially four asset classes that you are prioritising: private equity, venture capital, private credit and healthcare royalties. So why these four?

Paul Desmarais

Yeah. So there are sectors and there are geographies. The geographies are chosen because they're geographies where we have deep networks. And we believe that we're entering a period of, you know, world history and the economy in a business where networks, even informal networks, begin to matter a lot. And so we wanted to focus our geographies in places where we have these deep networks with key decision makers in those countries, key corporates in the countries, key regulators in the countries in terms of financial services. We believe that that's really important. In terms of sectors, we like finding sectors that are niche and where sector expertise matters. And so financial services, because it's highly regulated, because the actual financials of a financial services company are totally different, we feel that by playing and investing in that sector, we have a real right to win as long as we build the expertise and we build the networks that are required to win. In healthcare, it's the exact same thing, highly regulated, highly specific, and even within the healthcare space, we really focus on pharmaceuticals. And so that is a niche within the healthcare space that, again, requires deep expertise. And we have a team there that spent 40 years in the sector and has developed real expertise. Today, we only do royalties in the pharmaceutical space, but we will over time build that out further into other asset classes related to that specific niche.

Simon Brewer  

When we talk about firms' investment processes, and I've been very involved in that over the decades, the key is always the winners tend to have a process that is repeatable and robust. So tell me a little bit about why you think that's what you've built.

Paul Desmarais  

Our value of rigor, in many ways for us is synonymous with process. We are a very process-driven organisation. All of our strategies actually follow a similar process. And if I were to describe that process, I think the best word to describe it is actually another one of our values, which is collaborative. But I would also say it's iterative. And the iteration actually allows for more collaboration and more rigor. And so the way our process works is for all of our strategies, we tend to have a pipeline of ideas. Those pipelines are discussed at team meetings. Once people build conviction in them, we actually start kind of doing a lot of research, and then that research creates an investment memo and then that investment memo is poked at by basically as many people on the teams as possible. And we create a separate document called 'Threads' where all the questions of everybody on the team are basically answered and made public throughout the firms because we believe that insights don't necessarily come from a narrow team, they could actually come from a very broad group of people. And then as you build conviction, before we make a real decision on anything to kind of issue a term sheet or to issue any form of kind of commitment, an investment must have come through a partner meeting three times. That allows issues to really get flushed out. It makes us a slower investor than a lot of others because we really have to follow our process. But I think that in the long term, it protects us from making mistakes. And I think that in the investment business, I think it's more of a mistake avoidance business than it is the other way around. And I'd say one of the lessons I've learned in life is you should never rush a decision that is hard to reverse. Take your time on irreversible decisions. And sadly, when you're putting money out, that is a pretty irreversible decision.

Simon Brewer  

You're in the risk business, but I was very conscious reading your materials that there's a lot of focus given on risk. So it's always in attention in this business. How do you think about risk vis-à-vis risk what you're doing and how you manage it?

Paul Desmarais  

I think about risk in two ways. I think when you're in our business, you have to think about investment risk and you need to think about operational risk, both in our portfolio companies but also in our own firm. From an investment risk perspective, clearly there's underwriting risk, but I think there's concentration risk and there's also timing risk. And I think what we do around concentration risk is we're pretty strict in terms of not having any overconcentration in certain funds. And then in timing, we're really focused on respecting our deployment models, because I think the mistake that some firms do is they invest way too much money when the times are good, which can be synonymous with overvalue, and they panic and they freeze and don't invest at the bottom of the cycle because they're like, 'Oh my god, everything's uncertain.' I think that by having an investment model and by aiming to invest regularly throughout the cycle, it helps offset timing risk because when things are good, you always think that things are overvalued but you never know when things are going to end and things can go up another 50%. And then when things are bad, everything is coming to an end and you're terrified and that leads to a kind of whiplash, which I don't think is helpful in a portfolio. So I think consistency is very important and then concentration risk kills investment firms and so we got to be very mindful of that. And I'm very attuned to these things because I actually worked for our insurance company in the risk team, specifically on the credit risk team. And the kiss of death in a financial institution, especially an insurance company, is taking concentration risk. And so we were very, very focused on as much diversification as possible, especially in our fixed-income portfolios.

Simon Brewer  

And we are, of course, very conscious, and it's been well documented that investors have a recurring propensity to pay up for what they consider to be the new idea, which often has profoundly unhelpful consequences for returns. But as we just stay with that investment process, perhaps you can give an example or two of how that process has led to a good outcome and what that might look like. And then maybe we'll also talk about the opposite, which investors don't often talk about, which is when something hasn't worked and what you've taken away which might be unbelievably valuable for the future.

Paul Desmarais  

Well, I would say that in the early days, what did not work was breaking our process. And so I'd say one of the reasons why we are so focused on process is that if I trace back our earliest days as a firm, every mistake we made was related to an exception in process. And so the reason why today there are no exceptions is because every time we made an exception, it's been a mistake. And so I like to start with the mistake. In terms of specific wins, what I would tell you is that it's all about process and it's about consistency and it's about regular wins. I would say that there's not any particular example that we're going to hang our hat on. We've had a few major victories in that we've built a company in Canada called Wealthsimple, which is now one of the leading kind of FinTech brands in Canada. But we've built many other companies that are leaders in their countries like Clark in Germany or Allen in France or Albert in the United States, which are all in the FinTech space. In the private equity space in Europe, we've been investing in private equity for nearly two decades now and have many, many winners and companies that we've built like Ceva, which is in the animal pharmaceutical space, or Kiloutou, which is in the equipment rental space. Those are great businesses that we've helped build over time. What I would say is that we just try and stick to our process and we try and be extremely consistent in our approach. Because if we're consistent and we're predictable, I think it becomes easier to interface with us as entrepreneurs.

Simon Brewer  

So one of the other great tensions in our businesses is that opportunities sometimes all come along, particularly at times of market disruptions. How do you think about not taking or stretching yourself too wide? Another way of saying that is how do you think about the priorities, both globally and industrially/thematically?

Paul Desmarais  

Well, for us to invest in a sector, we need for there to be a 'why'. Why do we have a right to win? Do we have a unique network? Do we have a unique skillset as a team? Do we have the right structure of capital that is going to be favourable to the sector? So for example, in the pharmaceutical royalty space, we have an evergreen fund. We actually believe that having an evergreen fund is essential for that asset class, because one, it allows you to put leverage on the fund generating better returns, two, royalties are long-tail assets. And so ultimately, if you have an end of life to the fund and you're forced to sell these tails, it's not going to be the best outcome for the investors. And so for us, it's really important to have fund structures that are aligned to the asset classes that we follow. And so what I would tell you is that there's very little probability of us going and launching an Asia-specific fund. We do not have the right networks, we don't have boots on the ground, we don't have the right corporate networks. And so we don't necessarily have a right to win there. And so if we were to go there, we would basically do it by a set of adjacencies that ultimately get us there. And so ultimately, the way to think about us is continuously launching investment strategies that are adjacent to those that we currently have so that we could leverage those competitive advantages.

Simon Brewer

One of the things that struck me geographically which makes you a little bit unusual was you're obviously situated in Montreal, Quebec. You are obviously French speakers, but you have a French business and finance has been very Anglo-Saxon in its emergence and France is not alone in needing supply-side reforms or more private capital. We had an interview with Sir Xavier Rolet, who'd ended up running the London Stock Exchange, and he bemoaned France along with other European countries for their reliance on debt and their lack of supply-side reforms, of which the flipside is opportunity. So just tell me, how are you approaching France?

Paul Desmarais

So I'm a French-Canadian. And so as a French-Canadian growing up in a bilingual city, you always feel that you're growing up in a multicultural world, a multi-geographic world. Our family, my family business Power Corporation Canada, which I mentioned earlier, has been doing business in Europe for about 40 years. We have a three-generation partnership with another family in Europe called the Frère family, which the patriarch was a person named Albert Frère who's known as one of the great investors in Europe. And we've been partners with them for about 40 years now. And we've built a holding in Europe called GBL, Groupe Bruxelles Lambert, and that holding was historically one of the big investors in corporate France. At one point, we were one of the largest shareholders of a company called Total, which is a large energy company in France, largest shareholders of ENGIE. We are the controlling shareholders of one of the largest mining companies in France called Imerys, and so a long history of doing business in France, which ultimately gave us unique networks in that country, which we were able to leverage to launch our private equity strategies. And ultimately, we will leverage to launch more strategies in Europe. I think that by being multi-geography and by having a foot on both continents, I think it gives us a huge advantage because there are many things that happen regulatorily first in one geography and then go to another. So if you look at some of the kind of financial services regulation like open banking, things like this, Europe, in many ways, led and gradually we were able to see how that impacted business models in Europe in order to make the right investments in North America and vice versa. I'd say that is one thing that gives us an advantage. The second thing that gives us an advantage is many European entrepreneurs dream of building their businesses in North America and vice versa. We are one of the only middle market firms, I think probably globally, that has deep networks on both sides of the Atlantic, being an ideal partner for those entrepreneurs, to take their business in Europe and grow in North America, or vice versa. And weirdly enough, especially for French entrepreneurs, Montreal is an amazing launchpad for them into North America. And so we help companies establish themselves in Montreal, help them find talent, and then ultimately through our networks, we help them grow their business.

Simon Brewer  

Great. Which in fact, brings us quite nicely to the concept of culture, which comes through again in reading your materials as to its importance. And firms love to talk about culture, especially as they get bigger, but we all know it's much harder to do so just tell me how you share, develop and enshrine your culture.

Paul Desmarais  

Our culture is underpinned by the five values I mentioned earlier: entrepreneurship, innovation, collaboration, rigor and authenticity. Each one of those has a whole bunch of behaviours that we are constantly trying to encourage. Those behaviours are written but those behaviours are constantly reinforced. We are actually launching an award this year on the value of collaboration that we will have the employees of the firm nominate who they believe are the most collaborative person in the firm and we're going to give them a real physical award. But I would say, repetition is one of the most important ways that you build culture. We communicate our culture at town halls. I write a monthly letter to our employees that often has stories around culture, and then as a leader, you have to be the leader in living those values. And we lead by example. I view myself as a servant leader. I lead from the front and I try and live those values as intensely as I can every day and set the tone and the pace for the rest of the organisation. Of those values, those that I live the strongest, I'd say, are collaboration. When people join our firm, they are shocked by how collaborative a culture it is. There's no politics, which is actually quite unique in the investment management world. We have basically no politics as a firm and so that is very helpful towards collaboration.

Simon Brewer  

It's probably a good time just for you to recap in terms of number offices in size and assets, because as these organisations stretch, the challenge gets larger.

Paul Desmarais  

So Sagard, when I became CEO in 2016, Sagard North America had $400 million of assets. Today, we have $14 billion of assets. In 2016, we had basically a handful of employees. Today, we have 270 employees across Paris, Montreal, Toronto, New York, and Denver, which are our five main offices. Half of that growth has been organic and half of that growth has been through acquisition. And so I think that's one of the other differences in our firm is that we've been very inquisitive of other firms, because we believe that there's a major trend in the industry where a lot of investors are wanting to concentrate relationships with a few firms that are aligned with them. And I think that we are a firm that is a very attractive home for teams that are struggling to scale, teams that want to be entrepreneurial but just don't feel that they have the networks in order to do so. And I think that we bring a lot of value to our partners, as long as their value is aligned. One of the most important criterias in terms of us acquiring another firm is are they aligned with our five values, because we live those strongly and we do not want to compromise our culture as a firm by adding people that are not aligned with those five values.

Simon Brewer  

So when you talk about entrepreneurship, it's closely linked to your enthusiasm about innovation. One of your quotations which I have here is it is my belief that only innovation and entrepreneurship can solve the world's greatest challenges. Can you give an example of what you've done to really prioritise innovation?

Paul Desmarais  

Yes. Well, very tangibly, we build one or two new companies from scratch every quarter. I'd say that's like innovation at the extreme, where we are basically trying to figure out what are the biggest challenges of some of the corporates in our network and we are literally looking to build the companies to resolve those challenges. And so that's very tangible. But one of my favourite lines is that innovation happens when networks collide. And it is my belief that as a firm, our value of authenticity allows us to attract people from all around the world, all different backgrounds, and they all come with very different networks. And hopefully, we create an environment of collaboration where all of these different authentic people are bumping into each other, and those collisions will lead to innovation. That's why actually, I think it's really important that people come back to the office and people spend time together and find ways to interact. Because often, innovation can happen in a random, a chance encounter in a hallway. And so for me, that's something that I'm very focused on encouraging and it has to be ingrained in our culture. The other thing that's really important is that innovation can come from surprising places. And so I encourage everybody to think of themselves as a mini CEO. Ultimately, if you are my executive assistant, I expect you to be the CEO of your little business, and you just happen to have one client, which is me. And ultimately, you have to gain wallet share, and you need to come up with new ideas to make me happier every single day. And so I think that is, you know, an extreme example. But ultimately, every person at Sagard is expected to be thinking about how are we going to make things better, how are we going to come up with new processes to execute things in a better way, more efficient way, so that we can continue growing and scaling. And so we run a very decentralised decision-making organisation, because it is that decentralisation and that empowerment that allows for innovation.

Simon Brewer  

And you mentioned earlier on that we're in an epoch of change and a new history and one of the tenets of that new order is a discussion around sustainability. Now you have your SDGs, your Sustainable Development Goals. Again, lots is written by corporations about their great ambitions and intentions. Tell me practically what's happening.

Paul Desmarais  

We've identified a few areas where we want to focus on and honestly, I think the specific SDGs are kind of good signposts. But what we're really focused on is we want to create prosperity in our communities, which really means jobs, employment opportunity. We want to focus on innovation because we think that innovation actually will create to a more sustainable, better economy and planet. We want to focus on diversity, equity and inclusion, that is giving equal opportunity to people irrespective of their race, gender, sexuality, in the business community. And we also want to be very focused on the environment while doing all that. But one of my deepest beliefs is that it's very important to take a balanced approach in order to address these things. If we focus entirely on the environment, and we say, 'Hey, we're going to put everything to like no carbon,' I think we will end up with a lot more inequality in society, as we see in rising energy prices in Europe, which ultimately will impact the rich a little bit, but will really impact the poor. And I think that being mindful of what are the social ramifications of some of the environmental decisions we make, I think is really important. Because otherwise, we may end up with a backlash. And I think when we're trying to progress on the overall ESG subject, I think minding backlash is really important. Because if we have too much of a negative impact on certain parts of society, you may end up with electoral shifts. It is my belief that a balanced approach is really important and that we must not focus entirely on, for example, carbon, at the detriment of the poorest people of society. And ultimately, this energy transition is going to be very, very volatile, and has the risk of having dramatic social consequences. And so I think it's very important for us to be thoughtful in how we do that transition and thoughtful in how we allocate capital. And so for example, I think pension plans that make statements about no longer investing in carbon, I think it's potentially a grave mistake. Because what really matters is the energy transition. It's not flipping a switch. And managing that transition appropriately will have really important consequences for society and I think for our political systems.

Simon Brewer  

Very well expressed. It's also a subject dear to my heart. In the McKinsey interview that's coming up, we're going to talk about how they have some vast number that companies are going to have to spend in this migration. But there is underlying it, the obvious question is, how much bad stuff do you need to dig up to get to the good stuff to be omnipresent? And the answer is a lot. And timelines are very, in my opinion, optimistic.

Paul Desmarais  

By the way, what you just said there is exactly one of the key issues that's problematic. The energy transition is going to require a massive amount of energy in mining and minerals. And the problem is, many people are not allowing the permitting of the mines that are essential in developed markets. And the best place to mine and the most environmentally and socially responsible place to mine in the world is in North America, Europe, places where these mines are getting the most resistance. And so I think it's really, really important. If we believe in an energy transition, we must also understand that this is a major mining investment that's going to be needed, and many people are just not willing to make the sacrifices that are needed to actually allow this energy transition to happen.

Simon Brewer  

In fact, we had a guest, Nicolai Tangen, who runs the Norwegian Sovereign Wealth Fund on last year, and he subsequently has done an interview with Bernard Looney who runs BP. And I've said to some of the people who I've debated it, Norwegian Sovereign Wealth Fund publishes the company that it doesn't own and yet it owns BP for the very reasons that it's central to the navigation and transition. So enough said. The networks that you've talked about made me think, because I definitely owe much of my progress in the investment business to building my own networks, often unconsciously. But you've laid out I think, five elements to building networks that struck me as being worth sharing because they are very important pillars of success.

Paul Desmarais  

Well, look, when it comes to networks, I've been deeply influenced by a book called 'Never Eat Alone'. So if you are at all interested in networks, 'Never Eat Alone' is a fantastic book to read. But when I approach networks, I think about it in a few ways. One is I think about intentionality. What are your objectives for that year and how and who in your network is going to help you achieve those objectives? And being very focused and process driven in terms of ensuring that those people get onto your calendar earlier in the year. I then think of network as an energy transfer. It's all about figuring out what do these people want most? What do these people need most and how can I help them achieve that? And it's only once that I've given energy that I should expect to get energy34back. And then the third thing is follow-up. Figure out ways to maintain constant contact. And different follow-up probably is required for different people. Certain people who you believe are, for example, super connectors, people that are continuously thinking about who they should meet, people that are extremely generous with their energy giving towards you, you should be spending a lot more time with them and following up with them on a much more frequent basis. Then there's your, you know, call it less tight network, your loose ties. These are people that maybe just a happy birthday note is perfect, because it keeps you top of mind. And ultimately, what I found, and this is actually a story that's actually mentioned in the book quite a few times, is most opportunities actually end up coming from those that you have loose ties with. Your closest friends, the people closest to you in your network are often not those that will bring you opportunities, because they are people that you already know and you're already in the same circles. And when I mentioned earlier that innovation happens when networks collide, it's those loose ties that have different networks and that allow those collisions to happen and for then innovation to happen. And so those are really my three pillars of network: intentionality, energy transfer, and follow up.

Simon Brewer  

And you wrote something in there, which I noted as well, which we often don't do. You said be grateful for people's engagement. And that's, of course, such an important element as well. You also, under your corporate structure, own Grayhawk, which I understand to be a private wealth organisation. I wonder if you could just tell us a little bit about what the intention there is.

Paul Desmarais  

Yeah. So ultimately, when we think about our network as a firm, there are ways to do it by just having interpersonal connection, but then there are ways to do it by having systems and actually formal ties with people. Given that we're so focused on middle market Canada as a space where we want to invest and we want to build capabilities, having a wealth management firm just felt like a good extension to our product range in that space. And so ultimately, when we go to an entrepreneur today in Canada, we have many ways of building a relationship with that entrepreneur. We could offer them a senior loan, we could offer them credit, we could offer them private equity. And if worse comes to worst, if we're not able to succeed in those three ways, we could offer them a wealth management opportunity. And that's actually something I learned at Goldman Sachs. One of the things that people always said there is you must deliver the firm. And what I want to do for our teams in Canada is to enable them to always be able to deliver the firm, give them a full suite of products, where no matter what, we are able to probably build a commercial relationship with someone and serve them because ultimately, it is our belief that Canadian entrepreneurs are underserved from a credit perspective, underserved from an equity and network perspective, and are most definitely underserved from a wealth management perspective. One of the things we've done that's been quite fun and very fulfilling around our work on diversity, equity and inclusion has been some of our mentorship programs. We've effectively created two mentorship programs. We have one program called the Indigenous Leadership Circle where we mentor a group of 20 young indigenous leaders from across Canada and we basically help them accelerate their careers and give them a network so they can grow their careers and prosperity faster. And then we've done the same thing with the Black community in Canada, where we have the Afro-descendants Leadership Alliance or also known as the Black Wealth Club, where in that case, we have 100 Black men and women that we've built a mentoring group around. And again, the only goal there is to create prosperity in that community and allow them to build assets so that someday we could have many leaders of Fortune 500 companies and many leaders of the leading companies in Canada be black and indigenous people.

Simon Brewer  

Now I am going to move Paul to some general questions. We were introduced to you via a friend of the show called Peter Mayer, and you were described prior to the meeting, and this is the first time I met you today, is animated by opportunity.

Paul Desmarais  

I am animated by opportunity.

Simon Brewer

I like that expression. My question is how you would describe yourself other than that.

Paul Desmarais

That is a big descriptor and that captures me really, really well. I'd say I'm a person that's infinitely curious and very open-minded. And what I often say, my favourite expression to describe me is that most of my success has been driven by luck. But I really believe in preparing myself and positioning myself for luck. And preparation is about being curious. And positioning is about having an open heart and an open mind and always trying to be in the flow, and so trying to be in rooms where opportunities abound. And then when you're faced by opportunity, the odds are the person that brings you that opportunity is going to be more excited to partner with you if you're animated by opportunity. And so, I'd say animated by opportunity, curious, and then very high energy.

Simon Brewer  

Lovely. In five years' time, how would you like to view the Sagard business and what would allow you to give yourself a pat on the back?

Paul Desmarais  

I think one of the big things that we're looking to do in the next five years is transition from a Canadian brand to a global brand. And we're going to do that by growing our investor base from outside of Canada. We've had a lot of success with Canadian families, Canadian financial institutions, Canadian pension plans, but our goal now is to broaden that globally. We want to have created a lot of amazing companies where the CEOs, when they think back on their 10 years, they think, 'Wow, the best thing that ever happened to me was choosing Sagard as a partner.' That is something that would give me a real pat on the back. And obviously, growth because growth in our business is opportunity. And one of the only ways to basically keep politics at bay in the investment management industry is to continuously be growing. You have to be building a larger and larger pie or else people start fighting for the same slice of the pie. And so growth is something that's really important for me because it will give opportunities to my teams, it will give people the opportunity to see Sagard as a place where they could have amazing careers, and I think it will lead us to have the same culture we have today five years from now, even though hopefully by then we'll be two or three times bigger.

Simon Brewer

We know the investment business is a stressful one. What's your tip or what's your secret to relieving your stress when it's upon you?

Paul Desmarais  

I think that having a family to go back to is an incredible luxury. I look at my kids, I have four children, they bring a huge amount of joy to my life. My wife is the Chief Curator at the museum in Montreal. She brings something totally different to my life. I get to spend a lot of time around the arts as a result of her and that gives a kind of balance. And then activities, I love adventures. We went on a 10-day canoe trip as a senior leadership team last year in the Canadian High Arctic. Those types of things where you totally disconnect you have like an intense objective to achieve, I think, one, builds teamwork, but two, also is a great stress reliever. And so I'm privileged to have those opportunities both in family and hobbies and in friends that help keep me in a steady state of mind. The other thing I'll tell you is that when you have values that are so anchored as ours, they are in many ways guideposts to decisions. And when you have frameworks and guideposts to make decisions, it makes life a lot easier.

Simon Brewer

And finally, what would you tell a 20-year-old Paul?

Paul Desmarais  

What I would tell a 20-year-old is that life ain't linear. And I think that non-linearity builds experience that ends up compounding later in life. And so I think that if you spend your 20s working like crazy, learning everything you can, and exposing yourself to as many different opportunities as possible, I think the compounding that will happen in your 30s or 40s will be far greater than if you decide to just do one thing and kind of repeat continuously for a decade.

Simon Brewer

Well, that's important and very helpful advice. Paul, this has been a really good conversation and I've learned a lot about Sagard and I've written down a lot of things here. And I like to summarise some of the key conclusions as we arrive at the end of the interview. Two things that particularly struck me is when we spoke about an investment process, you said there must be no exceptions, because it was exceptions that have led to disappointments, and I think that's a difficult to do but really essential discipline in the investment business. And number two, we all covertly or overtly think about networks, but they are supremely important and listeners should go and buy 'Never Eat Alone' as the guide or as an influencing text to help us on that. So good luck in the journey ahead for Sagard. You sound like you're doing some really terrific things and the unfolding bear market and probable recession, at least from where I sit, is going to throw up all sorts of intriguing investment opportunities

Paul Desmarais  

When the going gets tough, the tough get going.

Simon Brewer  

Wow, that's true. And success is when preparation meets opportunity.

Paul Desmarais

Exactly.

All content on the Money Maze Podcast is for your general information and use only and is not intended to address your particular requirements. In particular, the content does not constitute any form of advice, recommendation, representation, endorsement or arrangement and is not intended to be relied upon by users in making any specific investment or other decisions. Guests and presenters may have positions in any of the investments discussed.

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Today in this Money Maze Podcast Curated edition we travel to Canada, to understand Sagard, with its Chairman and CEO, Paul Desmarais III.

Sagard is an intriguing alternative asset management business, that is striking in both the freshness of its approach and clarity of its ambitions.

In this conversation, Paul explains Sagard’s genesis and vision. He then describes their core investment activities, investment process, and disciplines, as well as their nuanced approach to issues relating to ESG and sustainability.

He then elaborates on their priorities and growth opportunities by geography and theme, the importance of “the network”, and Canada’s advantages for both inward and external flow of opportunities.

Paul finally explains why innovation and entrepreneurship are core values in the organisation and how culture is an essential underpinning of their approach to business.

Paul Desmarais III

Paul Desmarais III is the Chairman and CEO of Sagard. He is also Chairman of Diagram and a board member of Grayhawk. Within the investment portfolio, Paul is the Chairman of Wealthsimple and Dialogue, a director of KOHO Financial, and a board observer of Nesto. Prior to his current role, Paul worked at Goldman Sachs in the Investment Banking Division, Investment Strategy Group, and Special Situations Group; Imerys in supply chain management and strategy; and Great West Lifeco in risk management. Paul is a recipient of a B.A. in economics from Harvard College and holds an MBA from INSEAD in France.

Themes & Collaborations

Sagard is an alternative asset manager, which brings together investors and business builders using a differentiated ecosystem approach. They invest across four asset classes: private equity, venture capital, private credit and healthcare. Their network also includes Grayhawk (a member of their group) and Diagram (an ecosystem partner).

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