The Westaim Corporation (WED) Earnings Call Transcript & Summary

Welcome to the 2024 AGM. And similar to prior years, I'd like to make some opening comments on our 2023 performance and our Q1 '24 results. Then I'm going to invite Dan to the podium, and he's going to provide a thorough update on Arena. And after that, I'm going to return with additional comments, observations and thoughts. So at a glance, Westaim is a Canadian investment holding company, providing long-term capital to businesses, primarily in the financial service industry. Our 2 core investments are Skyward Specialty Insurance and Arena Investor Group Holdings. In 2023, it was an incredible year. Skyward, 4 years this month, we installed Andrew Robinson as the new CEO. His impact was immediate and positive. They focused on profitable underwriting and flawlessly executing a rule-your-niche strategy. Their operating results and metrics and all level were excellent. And as you might expect, Skyward's employee morale and culture soared, making Skyward a destination choice for the coveted A talent. In January, IPO of $15 immediately jumped and continued through 2023, up 125%, an additional 10% in 2024. Arena Group Holdings, or we often refer to as AIGH, reported $10.1 million EBITDA. Overall the firm had solid performance across their funds, which is stimulating new AUM growth and new product offerings. Arena continued to expand its global platform and is now positioned for rapid growth. The development of the AI business is really exciting, and Dan's going to speak about that shortly. Westaim had its best year ever flat out. Our book value increased 49.6% to CAD 5.8 and our shares appreciated 43%. We redeemed all of the 5% subordinated preferred shares and canceled 9.9 million common shares and 4.3 million warrants. As reported earlier this week, Westaim enjoyed a solid Q1. Once again, Skyward produced an impressive quarter that was above analysts' expectations. Our results compared to Q1 of last year are a challenge given the Q1 IPO success of Skyward's share position. Arena produced EBITDA of $1.8 million and FINCOs' return added another $1.3 million. In reviewing our balance sheet, we see that the Westaim book value increased by 5% to $4.02 or 7% to CAD 5.44. We ended the quarter with $115 million in cash. But as you are now aware, with our third follow-on Skyward of offering this week, Westaim's cash balance has increased to $289 million. Our NCIB continued through Q1 with 2.6 million shares canceled and another 1 million through May 13. We have just a couple of charts here just to really indicate from a [indiscernible] perspective, the activity, what drove the activity in the first quarter and in that, we've really absorbed dollar losses. We've got a new category, and that's cash taxes. So bad news, good thing. And as we look at it as a move to our book value, the same components were the driver and again, with the inclusion of income tax expense. With that, I'd like to invite Dan now to the podium to give a fulsome overview on Arena. Dan?

Thanks, everybody, for coming and to all of you on the Zoom. I thought I would just take you through our business and what we've been doing over the last several months. And I think you'll get a sense of where we see the environment going, where we see our business going, and the real opportunity we have, given that we kind of are a real kind of beneficiary of the changes that have happened in the world since late '21. I'm going to refer to a few pages of the presentation just to kind of give folks a flavor of what I'm going to cover today. You can see a general sense of the direction of what we're going to talk about on Page 14. And then I will start on Page 17. So this kind of gives you a picture of how we look at the enterprise and the value we're trying to create. And as some of you who have covered the business for a while know, this kind of second piece of it has kind of slowly evolved. And the underlying thesis is that we have an enormous addressable market out there, having seen the greatest boom in just about every asset in the last several years and, of course, including the alternative space. And by virtue of the kind of global infrastructure that we have, we can apply that on behalf of our investors across the risk/reward spectrum across the world and, at the same time, leverage that knowledge, that intellectual property in situations that don't involve the use of investors' capital that allow us to amortize the cost of a global infrastructure and take advantage of the relationships and network that we've built. And so generically, what you've seen is, as you can imagine, if you have, as we have had, the greatest asset bubble that's ever been, going from 2009 through 2021, and this explosion, the secular explosion in alternative assets, you can imagine, given the incentives, that there might have been a few more assets raised and capabilities to deal with those assets. And so what we have seen is enormous need out there for folks whose AUM, shall we say has, at times, gotten ahead of their resources. And so leveraging the core competencies of the firm already, we can use that -- those complements to build things like what we're going to talk about and what we refer Arena Institutional Services. And when we think about the value we're creating, we think about 3 line items. This is Page 17. Our FRE, right, our earnings effectively not associated with incentives in our asset manager; the incentive fees of our asset manager; and the EBITDA cash flow that we can derive from AIS. And as we plan and go through our OKR planning, our business planning throughout the business, each of our business units is made aware of their plans, their priorities. And ultimately, we're trying to gear everyone to focus on the return on invested capital of the owners of the enterprise as we think about the allocation of capital among those business units, front, mid, back office, AI and AIS. Turning to Page 20. It's good to frame the environment because there's a ton of noise around this. And from our perspective, what we see are in the press and the other kind of dialogue out there is a general sense that it's a matter of belief. Markets up, markets down, meme stocks up, meme stocks down, rates up, rates down. It's what bout I believe. We think it's more like arithmetic, which is that when you have QE2 starting in 2012 that was inappropriately applied in a way that it was in 2008 when it shouldn't have been, you create the largest asset level that's ever been. When you then mix that and starting particularly in 2020 and accelerate it with basically really grossly profligacy fiscal policy, you inevitably debase the currency as we've seen with inflation, and you make it very difficult for monetary authorities to effectively lower the compensation they will reward investors for exposing themselves to that currency. And thus, as in many, many, many similar cycles over the centuries, you see an instance where all of the right kind of setup is there to have an extended period of inflation and rates. And no matter how much you job own or talk about your beliefs, that's just the arithmetic of it. And when you apply that physical profligacy to that, the asset level that's been created, what it means is asset values, multiples are going to go down, cap rates are going to go up. And there's a pretty decent likelihood it's going to continue. And for all of those who kind of maniacally aggregated capital and deployed with abandon ending in the kind of crescendo of late '21, that just means what they have is just not worth what it was when they bought it. And again, you can delay it, you can reserve for it maybe. You can job own it, but the value destruction has occurred right, whether it's been recognized or not. And what you see on Page 21 is that, that value destruction has occurred, as you would naturally conclude, roughly in the order with which the stakeholders in each of these kind of asset areas have been faced with no other choice but to reveal it, right? So naturally, in late '21, it starts in the growth world where high-flying businesses that need capital run out of capital and therefore, pricing occurs, price discovery occurs, implosion occurs, over 3,000 businesses are shut the next year, and we're kind of into the bottom of the first inning of that. In 2022, in the GP/LP world, you see large-scale allocators who've deployed hundreds of billions of dollars into the market suddenly realize perhaps the duration of my assets is longer than I thought. I'm going to start to need liquidity. And $100 billion plus of secondary money gets raised, assets start to move around within LP structures, right, for the first time at a level we've never seen and provide a whole series of different opportunities that we're only at the kind of middle of the first inning of experiencing. In early '23, as you all know, I'm sure, CRE woke up with First Republic and SVB but many, many others. We saw the obvious secular changes in office in certain parts of retail real estate. We saw the beginnings of the internalization of the realization that cap rates are going to remain elevated. And actually, maybe even more importantly, we realized that demand deposits at banks actually can move at the stroke of an iPhone. And therefore, there is a massive, massive global asset liability imbalance on bank balance sheets that ultimately will lead to a migration of assets and capital away from banks and likely toward insurers and other places because it's very difficult to own a dollar's worth of illiquid assets when you have a dime of equity or maybe less and $0.09 of money they can run out at the stroke of an iPhone -- or sorry, $0.90. And so that has continued to escalate, and we're going to see a lot of opportunities, and we already are seeing tons of opportunities that arise from that. By late '23, we saw that corporate bankruptcies had actually elevated to a level we hadn't seen since 2010. And that's actually continued and it's accelerated. And on the corporate side, again, along the themes of trying to avoid recognizing the value disruption that's already occurred, you've seen a tremendous rise in what our euphemistically referred to as liability management exercises. And as I say that, I think about the adverb euphemistically and I actually say, unfortunately, most people don't refer to liability management exercises euphemistically. They actually refer to them realistically. And what they mean is that impaired bank lenders and deeply impaired bondholders and severely impaired equity holders, all agree to get together and pretend like it hasn't happened and push it out for another 3 or 4, 5 years and say, "Well, maybe rates will come down then or some other kind of positive bolt of lightning will rise, and I won't ever have to actually admit reality." And so the number of both -- for the combination of defaults and LMEs is skyrocketing, right? And again, huge amounts of opportunity. And then finally, in structured finance, right, credit cards, mortgages, car loans, et cetera, we're seeing delinquencies move up significantly across those asset classes. And of course, sticking with the theme, the ABS markets and CMBS markets really haven't moved in line with those asset changes. Why? Well, it might be because at banks and insurance companies, if I have an impaired bond, and I don't sell it, I don't have to take a loss in my income statement only my balance sheet. It's a tremendous incentive not to recognize reality. So why will that change? Well, one reason is that no matter how delayed, eventually, the ratings agencies kind of notice things, right? Typically, 1, 2, 3 years late to the party, but eventually. And when the ratings of those assets, of those bonds, securing those assets decline, that means financial institutions have to put up more capital against those assets. Their ROE comes down and they start to think, well, I might have to sell, right? Haven't seen that yet, right, only beginning to see the downgrades. But I would say as we go later into '24 and into '25, we'll start to see a lot more of that, most likely led by CMBS world, then in the CLO world and then into straight ABS world. But the order could vary, depending on circumstances. And then parenthetically, geographically, as we look at the globe and talk to people around the world, I think this process has accelerated much more in the U.S. and Europe where it's kind of in kind of full effect. In Asia Pacific, for a variety of reasons, it's lagged. There are a lot of idiosyncrasies across the region. It's a big place with a lot of diversity, but we're beginning to see aspects of that kind of show itself in kind of different markets that we're involved in, in Asia Pacific. So what does that lead to? What's the opportunity? Well, it's Page 22. It's this global barbell of opportunity, right, because you have this sequence of assets that have already experienced, whether revealed or not, massive value diminution and they create the opportunities on the right side of the barbell, where we can buy things that are busted, we can do idiosyncratic financings, we can be a beneficiary of the rationalization of assets that it definitively has begun occurring and will occur in roughly the sequence we've talked about. And on the left side of the barbell, there's a lot of great businesses that were really -- that really exhibit really exceptionally poor risk/reward for several years leading up to the crescendo of the everything bubble that have now circled back around and become quite compelling. And that's relevant to us, not only as investors, for our investors' capital, but also as owners of the enterprise. Because these left side of the barbell activities are more homogeneous, can be financed in common with term nonrecourse financing that's much more simple. They're much more scalable. Going up to late '21, everything we did was the hard way, right? Because all the easy stuff was terribly mispriced. So our -- as we called it, our elbow grease per dollar deployed kind of rose and rose and rose as the crescendo of the everything bubble ascended. And so now you come back around to the left side of the barbell, and there's a lot of wonderful business there to be done and we're going to be delighted to do it and that, again, will enure to the benefit not only of our investors, but our owners. If you then move to Page 25 and you bring it back to our business. We'll start with AI. Again, the opportunity set is this enormous and very much growing investment opportunity on both sides of the barbell. And we are all over both sides. I would say, in the first -- in the year-to-date, probably -- in terms of asset deployment, probably something like 50-plus percent of our stuff has been left side of the barbell versus right. And even within the right side of the barbell, simpler structures, again, more scalable to give us the ability to kind of really drive our enterprise. On the infrastructure side, we've really built the business, right? And it took -- it takes a long time to build these things. We have our Quaestor Advisors Special Servicing Unit and operations capability based in Jacksonville and interconnecting with our largest office in Bengaluru to connect all those wires and make what is effectively a global bank work takes a while, all right? And it's part of the edge we have. But it is built in highly, highly scalable on a variable cost-efficient basis. And then capital formation, so -- which we'll talk to in a little while, where again, we're now in a process where we're delivering capital back to our kind of flagship drawdown funds into our ASOF 1 and ASOF 2 multi-strategy drawdown investors. As you can imagine, in this environment, among allocators the topic du jour is DPI, right? How many distributions have you given me back so that I might consider then giving it back to you again, right? So you can't raise ASOF 3 unless you get DPI for ASOF 1, right? And given the nature of our investments, we've made a lot of progress on effectively crystallizing realizations and shoveling the capital back, and we have quite a bit more kind of coming in the near term that will help that. And it's kind of a virtuous circle. And then on the excess capacity side, you may recall that we have -- we will raise funds that are asset or geographic specific when there are opportunities that are larger than we can handle. We've been -- while maintaining the diversity we want within our multi-strategy. And as you can imagine, leading up to the end of the everything bubble, not a lot of that really presented itself because there weren't things that were kind of outsized from our perspective. And we had to go 12 times zones away to New Zealand to do affordable housing backed by the government. We were lending at 17% to find that. It was rare. But now we have efforts on the right side of the barbell in special situation secondaries and litigation finance on the left side of the barbell in -- that we're working on in commercial mortgage bridge lending and asset-based lending, in energy lending. And really, the constraint there is just distribution pipe, right, for us. And so we're working hard. And the way we've worked in the last couple of years to kind of complete our mid and back office servicing infrastructure on our distribution infrastructure and getting variable cost efficiency through global agents basically by either product or geography to allow that to happen with more fluidity. And then stable income, where we've done things in investment-grade ABS on the unlevered commercial mortgage side. And we think there's an enormous opportunity for our investors and insurance companies generally who need this kind of yield. And to remind you, it's high return per unit risk but lower absolute return that is going to make sense for our multi-strategy funds. But our -- where we are able to leverage the infrastructure we've already built in sourcing, to really provide great risk-adjusted returns. On Page 28, you can see that. The breakdown of our funds. And as I said, we have ourselves in a position where a number of kind of key realizations will drive the DPI, which will drive asset raising, which will drive ECF raising in conjunction with our new distribution kind of capabilities. And a reminder on just the sources of edge, why is there a kind of defensible moat around what we do at Arena Investors and going to Page 34. We have completely proprietary sourcing and analytics, right? We have 8 business units that you see on Page 34 that are, in our mind, basically mutually exclusive and collectively exhaustive, right? So when we are shunning an area in the everything bubble, it's not because I've had kind of a grand top-down view of things. It's because we're dispassionately looking at the dispersion of return per unit of risk across the world, across products, and we can see it, right? It's obvious, right? If I'm in India and someone wants to borrow at 17% in INR in a tough situation, and I can do that same return in USD, 3 blocks from our office in Midtown, well, I shouldn't do the former, should I? Right? We're constantly comparing return per unit of risk. And in addition, per unit of duration, per unit of correlation, per unit of complexity in order to optimize our funds outcome. And again, we're pairing that, as you see on Page 36 with a global network of exclusive joint ventures, over 50 of which we have over and over 150 of which I've done in the last 25 years that are people focusing on very specific and only episodically interesting micro specialties, so to speak, across the world, right? Because inevitably, as we're talking to investors and we talk about our multi-strategy approach, they say, "Well, you don't know my European shipping mezzanine guy knows, right? He's the expert. What do you -- how can you possibly compete with him?" And of course, the answer is I want the milk of that domain capability without the cow of the fixed cost infrastructure or the misalignment of interest because our #1 foe in accomplishing great results for our investors is moral hazard. It's what has destroyed financial institutions for the last several hundred years. It's when people have an incentive to kind of do things that don't make sense because of their short-term interest. And we think about moral hazard and want to wring it out from every corner and crevice and cranny of our investment business. And so creating joint ventures with people with very specific expertise that we can use when we need it, right, buy the drink and as opposed to giving them the money and saying, "Hey, tell me how it goes", we actually say, "No, you're actually writing checks. And we're going to control every investment decision. We're going to draw all the cash, we're going to control all the bank accounts. We're going to control the decisions along the way. You're going to report into the -- one of our relevant 8 business units as well as the people, the relevant people within our servicer." Well, now we have this confederation of sourcing, servicing front ends, right, that allows us to boil the ocean for opportunities to optimize return per unit of risk. And then beyond our mandate and our sourcing capability, you go to Page 37 and 38 -- sorry, on 37. It's servicing, the people process and IT around servicing. And so we created Quaestor Advisors, which does special servicing for our assets. What does that mean? It means providing operational leverage to both our front office and back office. Did you pay my interest? Are you within your covenants, right? Someone's got to kind of call relentlessly making that happen, right? People who borrow at 18% are not usually the first guys to write you the check for their interest payment, right? They need to be hounded and hounded and hounded and hounded, right, to do what we need them to do, most of the time. And so we want to be relentless on top of that. And furthermore, as any of you who've run investment businesses know, sometimes when someone gets involved in investment, maybe they don't see all the downsides, maybe they need a dispatcher and a second pair of eyes, right? And every investment that we do, before we even make the investment, the investment professional is paired with relevant people within Quaestor Advisors who created this passionate second pair of eyes looking at anything and everything about the investment. Not paid based on the outcome of the investment, so that we can eliminate any possibilities of Stockholm syndrome on the part of our front-office folks. We complement that with Quaestor Strategic, right? So again, it's been a bit of a lost ark during the bubble period, but no matter who you are, when you are a lender or a provider of credit, there are going to be some issues, right? And you can bury it under the rug. You cannot send the file to the workout department. You can do an LME or you can deal with it, all right? And what we have found is the more proactive you are in dealing with things, right, the better they turn out. Pushing them into the future not only delays the problem, it exacerbates the problem. And so there are times when we take back assets and we have to. And ultimately, in our underwriting, we are indifferent to ultimately to the actions of the counterparty, right? We prefer them to do the right thing. We prefer them to be confident, but they don't have to be because we will take the asset, the enterprise. We will -- in the case of a company, we will repopulate the Board and the executive staff, give it a new marketing plan, implement financial controls, install new IT systems. If it's a real estate asset, we'll handle the leasing, we'll handle the environmental, the permitting, whatever we have to. We don't prefer to do that. We are not loan to own. It's time consuming, right? The return per unit risk per unit of time is not great, right? But it's better than loss. And we never want a loss if we can avoid it. And so these capabilities, which, by the way, as I mentioned, are very much undersupplied throughout the alternative investment universe really help us kind of drive edge. And when you kind of pair them with what you see on Page 38, which is an enterprise software system that we have developed at great expense over the last 19 years, it allows the trains to kind of move on time, right? And in fact, we've had inbound inquiries to be customers of this by other institutions, right? Interesting opportunity. We have to prioritize. We can't be everything to everybody, but it's certainly out there, right? Because what we built we think or we keep hearing from our investors and allocators is relatively unique and allows this kind of machinery to all happen with efficiency. And it really speaks to, when paired with our servicing capabilities, our ability to scale and drive the enterprise in this environment with those left side of the barbell opportunities. So that's AI and how we're thinking about it. In AIS, it's worth turning to Page 40. Again, what are we trying to do? Ultimately, if you think about this environment, what are the 3 things, if I'm a private equity owner, private credit provider, real estate opportunity fund, family office with private assets? What check will I happily write? What 3 things will make me happy to write a check, right? One is dealing with my terrible ugly rough situations and making them less bad. The second is making my businesses make more money. And the third is getting me capital when I need it. And a lot of times, those needs are -- there's more than one of those needs happening in any given situation. And so in Arena Business Solutions and Quaestor Capital Markets, not -- we are finding opportunities where people say, "I just need money. And on the ABS side, there's an enormous kind of small cap universe. It's one of the kind of byproducts a little bit of this heavy -- ever heavier involvement of retail and quantitative funds in the global capital markets, right? There's a lot of volume in stocks that wouldn't have been there years ago, and that provides more corporate finance opportunities, right? And we can be there to be helpful at ABS to those kind of growing companies. In QCM, additional to helping assets that we control, we find folks who, again, need capital. And if you think about the consolidation of the broker-dealer business and the banking business, everybody wants the $400 million leverage loan. No one wants to run around and raise $80 million and get paid 2 points or 1.5 points. That's not bad business, right, particularly when it's able to be sourced leveraging the overall ecosystem that we have and prosecuted more efficiently because we kind of know where the bodies are in terms of who wants to do what, right? There's an enormous amount of credit opportunities out there, a huge majority of which we wouldn't do that will still get done, and we know who will do them, and we can be helpful. And then finally, in Quaestor Consulting Group, we have folks who, again, provide capabilities. We have real customers among branded private credit, private equity, venture lenders, family offices, real estate owners who suddenly realize this direct investing thing, in the latter cases, actually, it's a little difficult. It's not just like I get to save fees; I now have to deal with this thing, right? They're calling me and they want checks to be written. And I thought it was so fun, but now I'm like dealing with it. Right? Someone's got to deal with it. And my documents weren't really good. And the counterparty is doing bad things. And I need to find a lawyer to help me. Right? There's a lot, a lot of people out there with a lot of problems to be dealt with. And there are mega funds in private equity and private credit. In the latter case, funds with hundreds and hundreds of companies. Right? When all is going well and there's a refi around the corner, no problem, high margins. Right? When I have 400 portfolio companies and 80 of them are in workouts, a lot of work to do. Huge amount of work to do. And by the way, thinking about direct lending, remember, private equity firms, as you would imagine, they love moated franchises with high cash flow conversion and light asset coverage. Awesome opportunity for private equity. They get the kind of slingshot effect of cheap debt mixed with a great business. But it would go sideways, those kind of businesses don't handle turbulence well. The assets walk out the door. The contracts can walk out the door. The borrowers can get feisty. The private equity sponsors can get very rough with their creditors when they get in the mood. And so there's a fabulous opportunity to just kind of pitch in and help. When you think about the large-scale service providers who've done unbelievably good jobs building businesses like Alvarez & Marsal or FTI or Alex. Alvarez & Marsal reportedly made $1 billion in Lehman Brothers. They just got a retainer to do China Evergrande. If they make less than $1 billion, it will be remarkable, right? Are they looking at an $80 million bad loan situation? Couldn't care less. And so there's quite an opportunity. So on Page 45, you see our results. This doesn't happen overnight. We are grinding away to do this. We've had a number of very, very positive things and positive momentum. We feel very good about where we're heading for all of 2024. We've had -- we feel very, very good about our second quarter. And sometimes these things, as you plan, things that go into 2Q, become 3Q or 2Q become 1Q or whatever, you can't hit the 90-day mark as well as you'd like to. But increasingly, as more of our business becomes more institutionalized, more homogeneous, a kind of more recurring, we'll see that kind of quarter-by-quarter progress that we want to be able to deliver to people happen all the more. So that's all I've got. Happy to take questions.

Thanks, Dan. Westaim strategy: source, build and lock. We think that describes our DNA. This slide and the next will be pretty familiar to many of you, but it's worth a quick refresh. The takeaway from this slide is that we are capital allocators and business builders. We will be opportunistic. We seek a line and capable management, and we will be actively engaged and at times very active, and importantly, we think and act like owners. In this slide, that you'll recall, we break out how we define source, build and unlock. However, when we use the term unlock does not necessarily mean sell. We consider all avenues to optimize return and create value for all of our shareholders. At the 2023 AGM, we committed to unlock and realize values. We noted several items on our to-do list. So we wanted to provide a report card on how we did. First was monetize Skyward Specialty. Following the January '23 IPO, we completed a follow-on secondary offerings with little discounts to the current share price. The first 1%, the second 1% and the most recent of last week at 2.7%, all were done at values at higher levels. Two, accelerate Arena Investors to capture operating leverage. Their AUM pipeline continues to build. The infrastructure, as Dan's discussed, is largely built. AIS leverages our platform and creates a diversified revenue stream. And as Dan noted, the current environment has never been better to execute the strategy. Fourth -- or, pardon me, 3. Arena FINCOs. The original strategy of FINCOs is no longer needed. We are proceeding to monetize it, but it will take time. Four, eliminate debt and capital efficiency. In 2023, we redeemed and delisted the $5 million of preferred shares and canceled 4.3 million warrants. Five, return capital to shareholders. In '23, we canceled 9.9 million shares and another 3.6 million in '24. The cancellation of the 14.3 million shares -- or, pardon me, the cancellation of the 14.3 million warrants with a CAD 350 strike price was very additive. Six, continue to seek new opportunities with the characteristics described earlier. However, we have a high, high hurdle rate, given the attractiveness of the current share price as a capital allocation alternative. A few slides here to provide examples of our business doctrine. JEVCO has acquired in 2010 from Kingsway Financial whose operations were stressed due to aggressive underwriting -- or, pardon me, aggressive growth, poor underwriting and efficient reserves. JEVCO management team was excellent, and they delivered operating results that produced an attractive offer, sale to Intact Financial. Shortly after that close, Westaim paid out the bulk of the cash proceeds by a way of return on capital. Source, build, unlock on Skyward. Skyward is obviously really familiar with everyone in this room. We acquired the business in 2014 in a soft market with known reserve issues. We actively worked alongside management to prove this business. The industry changed to a hard market environment, and we responded by leading 100 million rights offering and transition leadership to Andrew Robinson. In January '23, we collectively executed the first U.S. IPO of the year. The offering was a huge success, allowing Westaim to harvest a large portion of position in the 3 follow-on offerings. Our friends at Barclays provided us a couple graphs just to show how did we do? Well, in comparison to the IPO for the insurance industry, Skyward was at the top of the charts. If we look at how did Skyward perform against all IPOs last year, they did exceptional. Again, the #1 performing insurance IPO, we were only second to CAVA, and we were the first specialty P&Cs since 2020. Source, build, unlock on Arena. Well, as we all know, we partnered with Dan and his team in 2015 with a goal to build an enviable asset-backed investment firm. And to remind you, we don't have $1 of goodwill in this business, which is unique within the asset management industry. Dan provided you a fulsome update and we believe that Arena today is where Skyward was in 2022. The platform is strong. It is built. The market is coming their way. We know the global focus on private credit has never been bigger, and we are well aware of the active M&A environment within this space. Also we should note that Arena Investors is really not properly reflected in our reported book value. And that's why you'll hear us state that we often believe our intrinsic value is higher than our current CAD 5.44 book value. Over the years, Westaim's share performance has been solid and lumpy. Our book value growth has been solid, too. And the intrinsic value arguably, is even better, but the share price of late has not kept up. Multiples have contracted. We went from a premium to book value and then to a discount. The multiple contractions have affected many holdcos, both large and small, we're not alone. Today, the market values Westaim at approximately 0.7% of book value and arguably, a more significant discount with any reasonable value ascribed to Arena Investors. As noted in this slide, we're on it. So how are we positioned? What are our alternatives going forward? One, in the current environment, as Dan noted, it is really attractive. Cracks in the economy are evident, and the calls are coming in, not only for Arena, but for ourselves. For Arena, the private credit is in a hard market. Two, Arena is at an inflection point. They are well positioned within this rapidly moving industry, and we are leaning in with Dan and the team to accelerate the value of the Arena's unique platform. Three, Westaim is in a great financial position. We have over $350 million of liquidity to create value for shareholders. And yes, I assure you, we fully understand the mechanisms and the value of an NCIB and an SIB. We, too, do the math frequently. Fourth, we remain committed to growing intrinsic value and unlocking value. So that concludes the formal part of our presentation, and welcome any questions or comments, which thereafter, then we'll be certainly available for drinks and conversation.

Jeff?

So thanks for that run through, Cam, and good to look back on a year ago where you were and realizing the value in Skyward, and the commentary back then as well was what -- but probably the best return on our capital today would be to buy back shares in the market, and you made some movement there. And now you find yourself with an enhanced liquidity position that's quite substantial. Is there a balance to be struck between new investments and returning capital? I guess this maybe one question. And then maybe the other one would be, when you think about new opportunities, you've articulated you have a high hurdle rate. But are there any other parameters there? Maybe you can give us around is it still a financial services focus? Is the intent to be complementary to Arena? Or anything there maybe that you could offer a bit of color on?

Yes. Thanks, Jeff. In reference to the first question, I don't think anything is mutually exclusive. As noted, as best I can. We understand the math. And what we're trying to show by going through some of our past examples is really what we did with JEVCO. at the time when we came in with a lot of cash proceeds, As you can imagine, the calls to me were coming immediately. And this was more at the beginning of -- when the commodity cycle was just starting to turn. And the inbounds at that time was this is just a pause, you got to move, you got to move. And in the end, as you know, we returned the capital because we didn't have an immediate, and we did so, and it was well received. And when we found that opportunity, which one then was HIIG, through a lunch at GMP and a few others, we very quickly had capital come our way. So we think about that as we take the cash balance we have now with a lot of responsibility and a lot of thought. And obviously, I can't be much more specific than that.

And then maybe one question for Dan, just on Arena. Thanks for that overview. I mean clearly, a big opportunity set sits in front of the firm today. It sounds like the platform is very well built out to allow you to chase it. We've had a couple of years here where there hasn't been a lot of growth in the AUM. And Cam referenced an inflection point. But maybe you could speak to there's often a balance between capital availability versus opportunity. So maybe something around the fundraising cycle we're in and perhaps that's been a bit of a hurdle to overcome because you didn't have the capital you necessarily wanted to deploy across various strategies. And then it sounds like you're in a position, though, now that you basically go anywhere. You've got the infrastructure supported. Like really just all comes down to growth. I mean, the torque on the business really comes from the AUM getting higher and the fee revenue along with it.

Yes. I think that doesn't happen overnight if you're going to do this in the right way over a long period of time. The easiest things to raise were the things that are going to cause the most problems now. And there's certainly an aspect in the marketplace of if I lend you a dollar, I'm your lender; if I lend you 10, I'm your partner, among investors and their GPs. And so it's not going to -- those realizations don't happen overnight. But one, I think, ultimately, performance will drive that, and we feel like we have a lot of kind of realizations that will allow us to return capital that kind of feeds that cyclical process that I discussed. And then with regard to the environment and the kind of product set and the setting up of the right distribution kind of agents, et cetera, that give us leverageable scale, I'll pass it to Parag to discuss.

Yes. Look, I mean I think it's universally known, it's a tough fundraising environment most recently. We were never a beneficiary sort of completely of the tailwind, but we're not unaffected by the headwind. And so the way that, that kind of just basically boils down is I don't know, Cam, if you can go one more slide is, number one, if you look at the fundraising initiatives -- sorry, there, Cam.

Sorry, I -- okay?

If you look at the fundraising initiatives we had and had laid out last year, we were in this meeting, we had completed our raise in our New Zealand excess capacity offering. Only, by the way, $20 million of that $300 million is counted in the $315 million we've raised in the last year. We got our Insurance Dedicated Fund going. That's in process. We launched our third drawdown fund. So that's in process. And we have a few conversations there with existing clients that we expect will be meaningful, like 2/3 of our target raise. We're still working through that, and that hasn't been committed and anything can happen, but we expect for that number to move up pretty meaningfully here pretty soon. And on the excess capacity front, while the mix is kind of changing to where the opportunity is a little bit and where it lines up with the investor demand, again, we have two conversations to launch new offerings that are each quite sizable, $100 million, $200 million on average, then anything can happen. And we have launched offerings in our secondaries business, which Dan didn't go through completely, but it's quite compelling. So look, we have positive momentum. We have a differentiated strategy. I think if you go to Slide 24, you could see that just the world continues to move our way. What was on 24 is it basically shows some headlines that before it was direct lending, private credit is direct lending, it was, hey, these sort of areas that are hot, like real estate, that's where you want to be. It's the opportunity of the century, et cetera, et cetera. And today, it's things like private credit is more than direct lending. We want managers that have workout experience. We want opportunistic. So we're seeing it there. And by the way, the whole team is here. So you can meet with our salespeople and our marketing and client service team and hear from them as well. The appetite is there. It's just a matter of people are a little frozen. Liquidity is tight. The market is tough. There are a lot of things in market, but we see positive momentum. And I think it's just a matter of time, not if. I would rather not have had the last year pause in the AUM growth, although we've raised a couple of hundred million dollars. But I think that's going to move pretty significantly pretty soon here with no guarantees and all the caveats that I should list.

And I think you're going to see -- Canada actually was a bit of a leading indicator in this regard. You saw a number of kind of headliners in the globe in the private credit space here, right, that got very excited and got retail investors excited and that asset liability, mismatch capital and ultimately weren't real. Right? I mean, there's lots of ways to do this the wrong way. And I think you're going to see a lot of those types of things happen outside of Canada in the coming couple of years. And so we feel very comfortable about what we own, that we didn't partake in any of that stuff that really will cause much, much -- many, many problems. But it means you got to explain more. You got to be super transparent with your LPs. We've massively improved kind of the detail of our kind of collateral reporting so they can really see it and feel it because it's not obvious unless you're really explicit about what you're doing. And I think overall, hopefully, that enters to our benefit.

And maybe one last one before I pass it along to bridge those two questions. Is there a business or a partner that maybe with Westaim's assistance that could be brought to the table here that could be complementary to Arena or extend the product set or capability set that's there today? And is there a way for the two of you to sort of, again leverage that relationship?

Well, you've seen there's a lot of inorganic activity happening in our space and a lot of very, very large institutions who have the peanut butter of capital and liabilities and need the chocolate of asset management capability. And so there are a lot of those folks. There are a lot of varieties and flavors of what that could look like. And so from our perspective, anything that could really catalyze and pull forward the business plan we already have in a really kind of asymmetric way would be exciting.

Yes. And to put even greater definition on that, even there's 2 types of folks that -- 2 types of organizations that like to partner. And one, I'll simplistically categorize it the AMG model, where they're going out buying GP stakes. That's probably not a fit for us versus someone who is a business builder who looks at it from a perspective of a platform that identifies with the platform, it's a cornerstone of what they want to do. Those sort of discussions are much more of interest. The aspect of over the years of where we've traded, we get inbounds from the PE world. But they really didn't bring much to the table outside of a quick fix for shareholders. They really didn't accelerate either business in a material way. Both were growing, both were making money. And given the position that we find ourselves in and the activity going on the space, it behooves us to be thoughtful about how to lean into this.

Cam, congratulations on a great year. I guess my question is on -- first one on the Arena FINCOs. And I'm looking at the first quarter report, Pages 19 to 20, you give a lot of information, but you don't give a lot of information that I would want in terms of like nonperforming loans, delinquencies. I guess first question is, why not give more information so that your shareholders can evaluate their underlying credit of this big part of your balance sheet? And then the second maybe for Dan is can you talk, at least qualitatively, about how that portfolio is doing in terms of things like delinquencies, nonperforming loans?

I'll start. First of all, thank you. When you look at the back of our filing and our quarterly presentations, one of the early commitments we made is we want to be the gold standard of transparency to give every mark benchmark. And we tried to do so while also respecting the NDAs in place and not giving transparency to the actual clients. So that can be a discussion maybe we can have away from here if you have thoughts on different metrics.

Yes. I mean you can look at any bank and see what they disclose on their loan portfolio. And I mean, things like the reference number of the loan, I mean it's not frankly all that helpful to me for how I somehow put that up, but it would be very interesting to know what percent of the $200 million relative portfolio is current versus delinquent. And every bank, of course, discloses that quarterly on their loan portfolio.

Yes. Dan, before you take it on, I will say, the FINCOs, originally it started up to being a fully diversified portfolio firm where we took the income to offset the burn of the GP. And then it became strategic. So when we led the rights offering for Skyward, because of the gains made there, we pulled $44 million and directed it to the rights offer in Skyward, which obviously worked out swimmingly. Subsequent to that, we've also been using capital to seed and lead a variety of funds for investors because they like to see the alignment. In doing so, that has caused the FINCO to not be representative at all of any of the other accounts that Arena manages. And as such, we end up -- we do have a large proportion of equity ownership in there from positions that we'll conservatively market more on the equity side. Dan, do you want to pick up from there?

Sure. And as we're actually beginning to talk about, we feel very, very comfortable with regard to how we discuss our assets and report on our assets relative to what banks do. You can manufacture low defaults and high coverage by basically having very weak covenants and charging very little. And when you focus on leverage and severity versus coverage and defaults, that's how you get what we have, which is lifetime negative severity. And so as I mentioned, we are highly proactive. Not only are we proactive in anything that kind of goes sideways, but our valuation process, we don't have the notion of reserves that you have in banks, right? So we have fair value month by month by month. And if you're familiar with that process, it includes a separate valuation committee with nobody on the investment side involved. It's third-party valuations on every position above $1 million. And necessarily, there's an intrinsic skepticism in the process of fair value for those who are expert in it, right? Because if I foreclose, right, and I have my loan and now I take all of your -- all of the equity, right? What's that equity worth? We're not going to really know until I sell it, right? So you're going to see, well, here's in a distressed situation with bloated overhead and administrative costs, here's what you might pay for this now, right? And until you do an RTO and get it listed again or you sell the asset or whatever, you're not going to get that. And so what you've seen is historically, there was up to a 700 basis point delta between our lifetime exited investments, which are now at a 20% unlevered yield and are active because you continue to see these kind of Vs, right, which is just necessarily what happens when you do this. So to put all that together, I'm very comfortable that what we own there, even though it is, by virtue of what Cam said, a little lumpier and a little more heavy with REO than some of the other things -- some of the other entities we have, by definition, the ultimate returns on an asset-by-asset basis won't be any different than anything else we do.

Okay. Great. And then just quickly, what would you say is the duration of this portfolio from a Westaim standpoint?

Yes. Well, given the -- it's a good question. And generally, we tend to think of Arena as about a 2-year duration, not term duration. The FINCOs now, what Dan was suggesting, given the activity particularly on some more on, call it, an equity proponent where we're going to unlock value, it would be hard to define that. We could lay out why there's going to be a chunk coming in this year, but to actually do a -- give you a duration stat that I'd have a lot of confidence, unless you want to speak to it, Dan, it would certainly be from a duration probably 2.5 or less?

Yes. Yes. There's only one thing there that's not under our control in terms of setting the duration level. And keep in mind, with our investments, duration is a convex notion, right? So there are really good things where someone might refi you that you want to kind of keep, right? And where we retain [ ROFORs ] or optionality because we want it. There are things we've been in 6, 7 years, we could have been out after -- at any time after the first year. And then, of course, there are difficult things that you kind of have to -- where it might take you a year to kind of recapture the asset or more in certain instances, and then another X months to monetize. So yes, I think 2.5 years would be a good sense of that kind of cumulative duration.

Kevin?

Dan, I'll ask this in a couple of different ways to try and get you to answer it. But when I met you 5 years ago, if I'd have said Arena will be $3.4 billion of assets here in 2024, I'd venture to say you'd be a little bit disappointed with that number. But I think you've done a great job explaining that today with these things take longer to build and the infrastructure. So what number won't you be disappointed in over the next 5 years in terms of assets under management? Or asked another way, you've built all this infrastructure. It's obviously scalable. You have an idea of what you need to get to, to make the kind of investment you've made in this infrastructure to be worthwhile. So what is that number in terms to justify and what can you scale to? What do you have the capacity to as a manager now looking at the opportunities that you have?

Yes. Well, I would say a couple things. One is I would definitely love to have more AUM than we do. Our story is hard to explain. And the best people in our business have been doing it for 40, 30 years. And so the reality is they don't really have to explain much. And the vast majority of the alternative businesses that have been created in the last 10 years or more are basically narrow banded kind of snow pipe structures. But that said, I further focus on what's under our control, which is making returns, making vintages that deliver extraordinary return per unit risk, per unit of attachment point, which we have none. And I would put up those numbers against anybody that's out there in any part of the capital structure. What else is under our control is leveraging our infrastructure, creating and leveraging it. So it's there. And so in this market, the infrastructure that we have with very little incremental cost can manage, in my view, certainly another 0 of AUM with a very little material kind of senior level kind of talent at. Then third, our business isn't just about AUM. You can't eat AUM, you can eat EBIT, right? And so we have a whole separate business that doesn't require a bet on the caprice of our LP counterparties, right? Because there's services to be done and people who greatly, greatly need it. And I think our AIS business will be a material driver of the cumulative cash flow we create for our investors. And so I think, ultimately, the one piece of our world that is at least in our control is kind of the emotions of the LT counterparties. And so we do our best to communicate. We've got much more to do to do that. We want to touch a lot more of them because we have found very definitively our batting average in converting people who don't understand to understanding is probably 0. And the way we find investors is finding the ones who already understand. And so therefore, you need to touch a lot more investors to get to effectively boil the ocean for the ones who already understand in order to kind of drive investment. And I would say, to be completely fair, our ECF offerings proliferating based on the opportunity set do help a lot because a lot of folks who are inclined towards product-specific offerings start -- I think that can be a good way to start with us. And even in the New Zealand stuff, we've seen people say, "Hey, what else do you do?" Right? And they start thinking more broadly about what we're capable of producing for them. So look, I would like -- I know what we are capable of as an enterprise and organically or inorganically, the ability to access enormously greater amounts of capital would be incredibly of interest to us.

So I heard 34 billion in bad years?

Just as a corollary to Kevin's question. So you're getting these converts, probably at times, they probably start out pretty small. What percentage of your current investors are looking and then coming back to more in drafts...

Many of them.

Upping their next [indiscernible]?

Well, just to be -- to clarify, I don't think I have any converts. I think the people we find are already really, really smart and they get it day 1. And then once they're in, and we encourage them to start small, right? Start -- we love that you understand, start small, that's okay, and let us prove it to you. Look at the vintages and look at what we're doing. So a great number of -- a great proportion of our new investment money has come and will come from the existing folks.

Yes, it's most and just as 1 stat from our Fund I to our Fund II is 100%.

Right. So then what's your view of the capacity of those investments? I think you need 5% of an allocation that could be 5x bigger?

Yes, that's a good question. I mean I think people are -- just to give a very generic answer, like we are focused on the larger, larger institutions, right? So that's all else equal. We're not looking at, oh, we have a minimum investment size, but rather, we're looking at the pool of capital, and we'll be flexible on the minimums in that context. And people typically are starting at that kind of 1%-ish level, plus or minus, big enough that it doesn't -- it's not that it doesn't matter, but not so big that it matters too much, so they can kind of follow along. And we have clients that are in that kind of 3% to 5%. I'd say 5% is probably big, but that kind of 3% to 5% range have been with us for several years.

Yes. It's also, as with any investment firm, you've got to have the number of years for the performance. And then you went over, whether it's the consultants or the Board, and it's just now that they're starting to hit that level where you can have the conversation with the sovereign funds and the large institutions and the pensions, that's a byproduct of having 5, 6, 7 year of numbers that they can go back on it. As Dan has touched on, we've done 400 positions with over half going cradle to grave with a 20% gross return. So all those are level stepping stones that will lead you to get a bigger ticket.

Kind of hearing this year versus last year, my kind of question is around bifurcating the allocator community maybe between insto and wealth or retail. And you're very public in avoiding the hammers looking for nails and moral hazard of a lot of these very narrow firms, but it feels like those are the easy allocations for instos -- easier allocations for instos. So have you run -- have you kind of given thought to maybe this is a more wealth-oriented suite of products that we should be kind of investing in distribution differently going after different LPs after this number of years?

Well, with regard to wealth, I think if you mean by that, kind of families or sophisticated families, high net worths, that's certainly something we want to do and want to do more of. If you mean kind of retail, retail, not really no. I think the suitability issues are high for that. It's not to say ultimately some of our more homogeneous and easy to understand, left side of the barbell, ECFs couldn't be that, right, when you think about what we're doing in commercial mortgages as an example, that is a place where that could make some sense. On the institutional side, I think what you have seen and Parag alluded to that in one of the pages there, that page, right, is the market has come to us, right? Meaning, as an example, Oaktree, I believe, renamed the distress fund on an opportunistic fund, right? People are realizing, well, that actually might make some sense, right? And if I can say, well, here's how we do it. And by the way, XYZ has an opportunistic fund or Six Street has a $30 billion version of this called tau, et cetera, when you can point to these other examples so that people feel the comfort of others around them, it makes what we say more clear. I would say, to your point, I'm 30 years into this and under $5 billion, we're still emerging, right? It is never -- there have never been higher barriers to doing this. Now that we have III for our drawdown fund, we're occasionally viewed as a grown up in these discussions. But the bias towards big Roman numerals and big AUMs and career protection is enormous, right? And so you've just got to be relentlessly focused on kind of grinding past that. And I think -- who knows what the number is. When we started, it was -- in my mind, it was 2%, maybe it's 5%, maybe it's 8%, but there's some place where you can start to really make the case that hey, allocator, you are loaded with all the usual suspects. You obviously want to add value, but you don't want to take kind of enterprise risk. We are part of, I would argue, that relatively small group of firms that kind of allow you to pareto optimize between orthogonality, adding to your existing customer base without taking kind of risk that a large-scale institution might be uncomfortable with.

And have you found -- again, it seems like the narrative is much more enormous checks and 20 holdings in a diversified strategy. You guys are obviously like sub $3 million in hundreds of investments. Has that like kind of the HPs, the Ares, they seem to be very successful in what they're doing, but that's very different than what you're doing. I just don't know if the allocator community has appreciated that.

Well, the numbers will be the numbers, right? Three years ago, it was written in stone some places that multifamily couldn't trade for less than a 4 cap, right? And then it did. We've written a paper about -- and that's a unique aspect of credit as I'm sure you've seen. Lots of people have talked about if I own a stock portfolio of 30 companies, I'm not going to gain much, right, by further diversity. When the payoff matrix of what you do is small up, big down, the level of diversity you have must be very different. It's more like a P&C business, right, than a stock business. And so while it is management company earnings optimizing to have a relatively lower amount of diversity in private credit, over the long term, basically that means if you're 2x leverage, you miss on 1 or 2 and the fund's done. So that's great if it doesn't happen, right? But it might happen.

I appreciate Westaim publishing now the AIS results. That was a big improvement this past year and I love taking a look at it. It was a bit surprising to me as well, just in terms of the size out of the gate. I'd love to hear some comments around the scalability of it and the capacity to build that business. I appreciate that LPs are going to be on their own time line, but building that business is something that it seems like it's driven more by Arena. And I'd love to hear what we could be looking at in 5 years?

Well, I think I think on -- one, I would say, we have used an incredibly small amount of owners' capital to create that. And so the ROIC of it has been tremendous. And even that capital has been implemented in an incredibly variable way. I think within QCG, there is a runway to produce a significant, significant business over the next 5 years. And we have the right colleague to do that who's both an excellent kind of operational improvement guy, but a real entrepreneur with whom I'm delighted to partner. On QCM, I think we're a step behind that, but we're putting the right pieces in place. And I think the need there is, again, enormous. It's not as -- there's a little bit more kind of scale and resource necessary to make that what we want it to be, but over the next 5 years, that can also be quite significant. And there are people who -- if you follow the kind of broker-dealer business for the last 40 years, there have been very thoughtful high -- folks who've punched well above their weight, if you think about -- heard the term what Lazard's capital markets were in the '90s, what Granchester was with Wasserstein. There's certain -- what GMP was. And I mean, there's a lot of folks who've done that well that we can think about in that business. And then on ABS, there's a very significant kind of pipeline of opportunity there. Does it grow to the sky? No. But can it several tens of millions? Yes. And by the nature of it, it's a series of razors and blades. And so if you're familiar with kind of the equity line of credit business and things of that sort, you kind of get a fee upfront, and then you're effectively consigned shares over time, right? And so you have all these blades that kind of are out there to be monetized as the markets kind of ebb and flow. So the stability, the discount rate you're applying to that, it's like having kind of a steady underwriting business mixed with some pops of M&A. So there's a lot there, and we're going to -- as we develop it, we're going to hopefully be able to disclose more and more about the nature of those cash flows.

Fantastic. And then just a quick question. Any update to the repayment of the loan to Westaim?

Well, we've been working very hard. I think there's a combination of repayment and/or refinancing that's quite possible. And I think we're going to -- we hope to make progress on that this year.

I want to be the one that's on record. You shared that you've done the math on the SIB. But for those of us lazy people who aren't good at math, can you maybe just walk through where we get on the sum of the parts if we retire 100 million shares?

I would like to do that, but I have been counseled that you should do the math on your own.

What are your own inputs?

Pardon me?

What are your own inputs?

Our own inputs, you mean from a price point. We had this thought out before, but again, we're not going to -- we can't go there. But I would say we do the math, the inputs are not anything that I think anyone would look at and say, okay, I got it. That said, let me add one point, though, because I think Jeff asked the question. It would be in a bounce format is our thought process being from the perspective of well, there's $350 million. When we do the math, we don't do it based on $350 million today, for example.

So can I ask a question about just Westaim, the Holdco? So you and Rob come from a value investor approach, Rob's been [indiscernible] consolation for it all the time, which is a company that like Rob would never sell -- and in the Charlie Munger expression, I'd no sooner encourage somebody to sell a great company and encourage the Chicago Bulls to trade Michael Jordan, or put another way as Peter Lynch said it, don't water the weeds and pick the flowers. Can you let us understand thinking behind Skyward and the liquidation you've been doing there? And why you've been letting so much go?

Yes. It's a good question. You could even apply it to JEVCO because when you get a business that's performing well, why not keep it Charlie -- to Charlie's point. In the JEVCO case, it was a very niche operator. And frankly, nonstandard driving was a big part of it. And Intact had an interest. And if we didn't come to terms, they were going into that space. We had no moat. The specialty business, you couldn't be in a better place right now in the U.S. insure -- or really in the global insurance world than being in specialty insurance and particularly with a U.S. focus. Every wind is on the back of that business. Everyone is reporting great results. In Skyward's case, they really don't have a social inflation view. And the management team is excellent. And I think as by the graphs we showed, we knew early on in '22 that they were going to perform at a high level. And part of the discussion at that point because we needed the capital to grow is whether we do a PE round or whether we do an IPO. And we were pretty adamant we wanted to go the IPO route because clearly, a PE is going to want a certain hurdle rate of return and it would have taken away from stakeholders. When we went through the process and we came out in '23 in a very difficult IPO market, while we were really comfortable and confident in the results, they exceeded our expectation. And to Andrew's credit, he is concerned, but properly so. He doesn't sandbag, he properly -- he's a good communicator, both at the Board level and at the investor level. That all said, look today, we're seeing recommendations for the mid- to high 40s. I have no doubt in the passage of time that they will probably hit that and continue on. But it's at a way different level of valuation now where they are being -- properly being valued as a first-quartile performer. And the growth rate within the industry cannot keep up. And when it does, there will be a reset. Not saying it's draconian because in many ways, for where they're growing right now, they aren't quite yet at the high end of the first-quartile performer. And when you have the sort of stock position we did, it becomes a problem. And the idea of trying to hit that last couple of dollars is very difficult. And everyone's cognizant of our share position, the friction of getting out. And if you go through and what we don't show in those examples, but if you do go through and you look at past follow-on secondary sales, the cost from the banker is substantial between 4 and 4.25. But then it's the friction cost between where last publicly traded, it gets publicly announced and then where it settles. And when you combine the 2, it can be up to 10%. And so for us to have been able to execute 3 tranches and get the demand that we did and take a friction cost of really less than 1%, we couldn't do it much better than that. And so today, we remain with 2 million shares. I think Andrew and the team will continue to excel and those shareholders are going to continue to get a terrific rate of return. But when we look at our -- some of the points that we raised today on our high hurdle for capital being with a lot -- our own share price or some of the opportunities that we're leaning into and looking at today, it warranted the actions we did.

Just a quick follow-up on that. Would you consider distributing what you have left in Skyward to shareholders now that you're a taxpayer on any gains and then shareholders could sort of decide if they want to keep it or.

Yes. In the beginning, we looked at that. It just wasn't tax efficient. You have regulatory with the Texas regulator and all that. So and it would not served everyone well over the near -- potentially for a year or 2 with that amount of stock out there and everyone concerned, right? Unlikely not. It's just too small -- and the friction. So no.

When you think about the platform that Skyward is and sort of the platform you would hold forever, we got into that transaction back in 2014 in a pretty unique way, right? We took a private equity sponsors. We didn't own 100%. We had partners in that business that were continuing to shareholders that had owned stock since 2006. And so there was a pretty decent sized desire for liquidity by those shareholders all the way through. And so the unique part of that is one of the reasons why we moved towards an IPO and have provided that return to those shareholders as well. So just gives a bit more color to what Cam was talking about.

Just applying that same lens looking at Skyward as a good asset that you're willing to exit from. I'm curious what the distant future holds for Arena. Hopefully, lots of years of strong growth, big appreciation Westaim value. Obviously, though, Arena employees will be big holders of Westaim. I'm just curious what that might look like. Is it a forever asset? Or is it an asset that may be considered?

Yes. I mean it's a great question. And I've said this a number of times over the years, and a few of you heard me say this, in Skyward, we thought we'd made a wonderful investment. In Arena, we think we are building an exceptional business. And so that's really how the -- and that is a distinction. And I would say through the passage of time, I'd like to say what has been the surprise or the takeaway from our original expectation. I would say the flow that we see come through isn't what we thought or better in that regard as advertised and arguably, even better now. Are the growth returns what we thought? Yes. I would say originally, you can see it in the filings, we thought it would be a $5 billion business, and you'd hit those double triggers and the ownership would ascribe. The market opportunity, which Dan alluded to, for this platform to be much bigger is enormous. And the last point being it's the talent that we've attracted. You never know. And we've obviously spent a lot of time in the office and spent a lot of time with the senior leadership in all parts of the team. The caliber of the talent, the DNA and the ability through that ecosystem to take that platform and create new opportunities, whether it was the Kiwi, whether it's AIS, it's just starting from that perspective of being able to really grow on this platform. So we -- it is an organization. It's going to have and long interesting career.

I was curious on sort of like the industrial logic, I think, a couple of years ago with the 2 assets, Skyward, Arena, was this potential for captive origination via Skyward's balance sheet. And then obviously, Andrew came in and had a different view on how -- where you want to take that business. Is there still merit to like an Apollo Athene, Apollo challenger-type origination, distribution arrangement?

I think there's a tremendous merit to that. I think both the industrial logic and the way the market -- the public markets perceive that when done with P&C versus life is very different. As you've seen, there are very few kind of Markels and W.R. Berkleys and to do it as in that kind of paired way just I think the market just hasn't either seen that or accepted it. On the life side, with the duration of those liabilities and the kind of intrinsic shift of assets toward those liabilities, I think that is a tremendous opportunity. And I think is one of themes around who will be successful in alternative investments over the coming years.

And is there a way to get from where we are today to that potential end state where we are receiving cash, and we end up owning the merits of that potential combination over some unknown period of time?

Good questions. I mean you've identified an area that's clearly getting a lot of attention, not only through Apollo theme. We've watched Brookfield do it. We're watching pretty much every week someone and I alluded to that really in the remarks, the M&A activity, there's a lot of focus on the pairing of those sort of structures. So we're cognizant of it. We're aware. With no other questions. Thank you, everyone. And for those that can stay, we're all available and look forward to speaking to you throughout the year. Thank you.