¾ÅÉ«

Onex Corp. made a big bet on an insurance startup, and it didn’t take long for the losses to mount.

First there was the pandemic, then a deep freeze in Texas. In 2022, Hurricane Ian ripped across the Caribbean and Florida en route to becoming one of the costliest storms on record. The investment, Convex Group, was “seeing nothing but essentially money going out the door,” said Paul Brand, the insurer’s chief executive officer.

But Brand, who has been underwriting risk for more than three decades, knew that disasters and bad luck tend to run in cycles. After its bumpy start, Convex has turned highly profitable in recent years — and now Onex is doubling down.

Last month, the Toronto-based alternative investment firm completed a deal that will give it long-term control of Convex, partially funded by American International Group Inc., which will become one of Onex’s largest shareholders.

Read more: AIG Completes Purchase of Minority Stakes in Re/Insurer Convex and PE Firm Onex

It’s the most radical move yet for Bobby Le Blanc since he took over as Onex CEO in May 2023, as he seeks to lead one of Canada’s oldest private equity firms out of the wilderness.

With the Convex acquisition, he’s channeling Warren Buffett — who put insurance at the heart of the $1 trillion conglomerate Berkshire Hathaway Inc. The strategy also shares some similarities with Apollo Global Management Inc. and KKR & Co., which both built out insurance divisions to capture a slice of the steady capital that business offers.

Onex has been a long-term laggard for shareholders, underperforming larger rivals such as Brookfield Corp., Blackstone Inc. and KKR. There are a number of reasons for that, including a weak patch of returns in its flagship private equity group, Onex Partners, which hasn’t raised a major new fund since 2017.

One signal of how the market views Onex: It had about C$170 a share worth of its own investments at the end of December, no debt — and yet the stock lingers just below C$100. The roster of sell-side analysts covering the stock has dwindled to just three.

So Le Blanc, who spent several years at Berkshire in the 1990s, said he wants to use insurance to change the makeup of the company’s balance sheet — and, he hopes, investors’ perceptions.

“The more shareholders I spoke to, the more I realized that we were never going to get the credit for the intrinsic value of the business under the way that we’ve historically operated,” Le Blanc said in an interview at Onex’s headquarters on Toronto’s Bay Street. “So I said: ‘How can we change the narrative around Onex to become more of an earnings or enterprise-value play, versus a net-asset-value play?'”

The stakes are high for Onex, which was founded in 1984 by Gerry Schwartz, whose special voting rights expire in May, ending decades of control.

In its early days, the firm raised money from investors on a deal-by-deal basis, always keeping a big chunk of any transaction for itself.

It didn’t launch Onex Partners, its platform for large-scale private equity deals, until the early 2000s. That inaugural fund was a success, producing a 38% net internal rate of return. None of the subsequent vintages came close to that.

The firm’s stumbles really began a little more than a decade ago, when it raised $5.7 billion for the fourth version of Onex Partners. Major institutions such as the California Public Employees’ Retirement System made large commitments, but the results were disappointing, and the fund returned just 6% annualized.

Onex’s acquisitions of wealth manager Gluskin Sheff and private credit shop Falcon Investment Advisors fizzled as the firm struggled to grow its assets.

Meanwhile, Schwartz remained in charge past his 80th birthday. In 2022, he proposed stepping down as CEO but keeping his voting control until 2028. He eventually agreed to shorten that to 2026.

Onex “took their eye off the ball on what made them great, then they handled succession very poorly,” said Langdon Equity Partners founder Greg Dean, whose funds owned Onex shares until 2019.

Image Overhaul

Le Blanc is now on a mission to recast the firm’s image. He cast off some late Schwartz acquisitions, including Gluskin Sheff, and paused fundraising for the sixth vintage of the flagship vehicle.

Now he and private equity head Tawfiq Popatia are liquidating holdings to return cash to investors to improve the ratio of distributions to paid-in-capital, or DPI, as they set outto raise another large fund.

Le Blanc said a “reasonable DPI number” is necessary for jumping back into the fundraising market.

In October, Onex completed the sale of 25% of WestJet, Canada’s second-largest airline, allowing the firm to return all of investors’ original capital while keeping 75% of the business. Soon after, the money manager sold a majority stake in insurance brokerage OneDigital, for the firm and its partners.

“They’re past some of the challenging performance — the more recent performance has just looked a lot better,” Mark Rutherford, portfolio manager at Mawer Investment Management, said in an interview. “That should set themselves up to raise subsequent funds and keep growing the business and scale it further.”

But the Convex deal marks the biggest transformation.

Founded in 2019, Convex is led by insurance industry veterans including CEO Brand and Executive Chairman Stephen Catlin. Onex helped capitalize Convex to get it started and stuck with it through those first few years of large catastrophes.

“Having losses is a good thing,” Brand said. “It actually enables you to demonstrate there is some purpose in actually buying insurance.”

Usually, a string of expensive disasters leads to much higher prices for policies. As long as a firm can successfully underwrite risk over time, it can benefit from billions of dollars of cost-free “float” to invest.

It was that insight that led Buffett to put insurance at the heart of Berkshire. Le Blanc is now taking the same approach on a smaller scale.

Bermuda Meeting

In 2024, during a meeting in Bermuda, Le Blanc proposed a change for Convex. Rather than own the insurer through an Onex-sponsored private equity fund, which would inevitably result in a sale, he wanted to control it for the long-term.

The result was a complex deal that values Convex at $7 billion, with Onex owning 63% of the insurer and AIG taking 35%. At the same time, New York-based AIG agreed to acquire a 9.9% stake in Onex and put as much as $2 billion into the Canadian firm’s private equity and credit funds.

“We were able to deploy a large part of our balance sheet in a company that we had six-and-a-half years of due diligence on,” Le Blanc said.

The acquisition, which creates a new stream of earnings, will also boost Onex’s asset management business as the parent will now be able to oversee some of the insurer’s cash.

The deal raised concerns for some investors given that Onex made the acquisition at a time when profits from insurance were being squeezed, according to TD Cowen analyst Graham Ryding.

“That’s where Onex has to sort of demonstrate that even a market where there’s pricing pressure, it’s still going be a profitable business,” he said.

Le Blanc is open to doing more deals like Convex and looking for ways to free up cash. In addition to slashing the firm’s allocations to Onex’s funds, he’s considering selling the firm’s private equity stakes in the booming secondaries market.

“Overall we just like the setup,” Mawer’s Rutherford said, adding that governance improved and the stock price is still attractive. Mawer, which had reduced its position in Onex between 2016 and 2020, reinvested in the stock last year.

While shares of Onex have dropped 14% so far in 2026, they’ve returned 63%, including reinvested dividends, since Le Blanc became CEO, compared with 75% for the S&P/Toronto Stock Exchange Composite Index.

For now, the CEO spends a large chunk of his time speaking to shareholders, private investors and employees to understand the new strategy.

“That effort just creates a culture where everybody feels like they understand what we’re doing and how they’re contributing to it,” he said.

For Langdon’s Dean, this bodes well for Onex.

“This is Bobby coming out and saying: ‘This is what Onex under me is going to do.'”

Photograph: A Canadian flag flies in a courtyard in the financial district of Toronto, Ontario, Canada, on Monday, Jan. 16, 2023. Photo credit: Galit Rodan/Bloomberg

Related:

• AIG Completes Purchase of Minority Stakes in Re/Insurer Convex and PE Firm Onex
• AIG Joins Private Equity Firm Onex to Acquire Re/Insurer Convex Group