Key Takeaways

  • Kurt MacAlpine took over CI Financial at age 39, recognizing that relying on Canadian mutual funds left the business vulnerable to industry headwinds.
  • He funded the shift to Corient by issuing three to three-and-a-half turns of fixed-rate, non-covenant debt with maturities stretching out to 30 years.
  • Public market sentiment swung violently: CI Financial was North America's best-performing financial stock in 2021 and its second-worst in 2022.
  • MacAlpine used the 2022 stock crash to buy back shares at steep discounts while building Corient, which reached $525 billion in assets before taking the company private with Mubadala Capital.

Public Markets Hate Rebuilding in Real Time

Kurt MacAlpine took the helm of CI Financial with a mandate to fix a business in structural decline. The company generated cash, but almost all of it came from Canadian mutual funds. As MacAlpine put it: “A business that was entirely focused economically on Canadian mutual funds was an incredibly vulnerable business. Given the historical success of the company in building a Canadian mutual fund franchise, it was very meaningful earnings. So in order to make a dent in those earnings and drive diversification, it required a pretty meaningful pivot.”

Public markets cheered early progress, then panicked when interest rates shifted and the pivot demanded capital. In 2021, CI Financial was the top-performing financial services stock in North America. By 2022, it was the second-worst.

“Public markets don't necessarily love transformation stories,” MacAlpine noted. When quarterly investors see heavy spending into a new business line, they dump shares. Most chief executives fold to that pressure, slowing down investment to protect the quarterly stock price. MacAlpine did the opposite.

Lock in Cheap Duration to Remove Forced Liquidation

MacAlpine knew that rebuilding under public scrutiny is suicidal if your lenders can call your loans when the market sours. Instead of using bank revolvers or floating credit lines with strict performance ratios, he secured three to three-and-a-half turns of fixed-rate paper.

“It's not like we were having floating rate debt with covenants,” MacAlpine explained. “We're having fixed rate debt without covenants, right? And typically long duration like we had debt extending out to 30 years, right? 30 years fixed coupon no covenant debt.”

This capital structure gave him room to operate. Lenders could not force asset sales or pull credit when share prices plummeted. With decades before maturities came due and no covenants to breach, CI Financial could bleed paper market value without risking operational bankruptcy.

Treat Forced Selling as a Capital Allocation Gift

When public equity markets dump your stock on macro fears, you have two choices: complain about market irrationality, or buy your own equity on sale. MacAlpine chose the trade.

“If every single morning you wake up with somebody having to sell your shares for things outside of your or their control that creates a tremendous buying opportunity,” he said. “And then the question is do you have conviction or not in yourself and what you're doing to actually transform the business and buy the shares and we did.”

While critics questioned the debt load, MacAlpine ran an aggressive double play: “During the course of my entire tenure at CI we were doing two things. We were building Corient diversifying and globalizing the business while at the same time reducing our share count. And again I thought in the way I've described in the media many times is I felt like our shares were my opinion criminally undervalued.”

By shrinking the denominator of shares outstanding at discounted prices, he set up the equity for outsized returns once the market realized Corient had reached $525 billion in client assets. The payoff arrived when Mubadala Capital partnered to take the firm private, completing the pivot on private terms.

What to Do With This

Audit your capital structure this week. If you have debt, check the covenant triggers on your credit agreements to see what happens if your revenue drops 30 percent during a product overhaul. If your lenders hold the power to freeze your cash or take your equity during a temporary downturn, restructure that debt into fixed, covenant-light facilities before you begin your next major capital spending cycle.