The sale of great-west Lifeco Inc.’s U.S. health-care division has positioned the Winnipeg-based company to become one of a handful of major financial services players south of the border, says its president and CEO.

“The emergence in the U.S. of a half-dozen trillion-dollar managers isn’t beyond the realm of possibility,” says Ray McFeetors. “The asset-management business will consolidate over time and you could see that kind of scale emerging.

“I think we could be one of those companies,” he adds. “But it doesn’t just happen because you’re there. You have to make acquisitions and perform well on a lot of fronts. We’re in asset management for the long term.”

GWL has the leverage to raise equity, borrow money or both, should it want add to its operations in the U.S., he says.

Citing the difficulties of growing organically, McFeetors says GWL has seen significant organic growth in Canada and Britain in recent years. But it has always wanted to grow by acquisition, and he hopes to do more of that this year.

“Acquisitions are a part of our business and always will be — at least, while I’m around,” McFeetors says. “Selling the U.S. health-care business doesn’t change that attitude.”

U.S. demographics indicate financial services will be a growth business over the next several decades.

“It’s a segment of the market in which there’s a lot of wealth creation,” he says, “and wealth creation needs management.”

U.S.-based subsidiary Great-West Life & Annuity Insurance Co.’s assets under management in its retirement and individual markets business hit the US$127-billion mark as of Sept. 30, 2007, up from US$87 billion at the end of 2005. It has more than four million customers. GWL’s assets under administration in the U.S. total $336 billion.

There is no reason why GWL can’t become one of the leading wealth-management companies in the U.S., says Peter Demmer, CEO of Sterling Resources Inc. , a New Jersey-based consulting firm in the retirement services business. It is already in the top 10, he adds. And there is also a growing recognition by regulators and governments that private pension systems have become the essential security providers for retirees in the U.S.

“Any additional investment in this business,” he says, “certainly makes a lot of sense.”

Demmer expects GWL to have myriad opportunities to grow its U.S. operations because many financial services companies will have to rethink their corporate strategies because of the growing mortgage loan crisis.

“They don’t have the critical mass, and the retirement business is not a focus for them,” he says. “We think the opportunities for investment, from organic or merger-and-acquisition perspectives, have never been better.”

GWL will use most of the proceeds of the $2.25-billion sale of Great-West Healthcare to CIGNA Corp. to pay down what it owes on this past winter’s acquisition of Boston-based Putnam Investments LLC.

Great-West Healthcare provides a variety of medical, dental, vision, life and disability coverage to about 5,200 employer groups and 2.2 million members across the U.S. The deal is expected to close in the first half of this year.

McFeetors says Great-West’s health care division was “suboptimal” and he didn’t see it being able to acquire the scale to change that. The business was falling behind larger competitors that were able to negotiate significant price concessions from their hospital clients by offering them additional medical procedures.

Nor did the division fit in strategically with GWL’s core businesses of wealth accumulation, asset management and income protection. “In our hands, the business was somewhat underperforming,” McFeetors says. “The business isn’t shrinking, but we were under the threat of seeing the business erode if we couldn’t grow it — which was proving to be impossible. The health-care business is largely consolidated. There were some small transactions in and around the health-care space; but for us to add significant memberships and have a strategically sound business, there was no way we could engineer that.

“We just couldn’t get growth, and we were losing membership.” he adds. “We could see it wasn’t a long-term winning strategy. The prudent course of action was to sell it to a scale player.”

The divestiture of the health-care division after more than a half-century of operation marks a major step in GWL’s evolution in the U.S.

“It’s a seminal event in the history of the company. The strategic initiative we took in the summer of 2005 was to participate in the financial services market,” McFeetors says. “With the acquisition of Putnam, we were firmly in the financial services and asset-management business in the U.S. When we saw interest in the health-care business — there were people circling around looking to buy it — we decided in the spring of 2007 that we should test the market to see if there was a price we would find attractive.”

@page_break@GWL still earns about 50% of its revenue from Canada, McFeetors says, with the remainder split between the U.S. and Europe. He notes that it’s possible that foreign markets will one day make the biggest contribution to its top and bottom lines.

“It’s not going to happen in the foreseeable future,” he say. “We’re going to earn more than $1 billion in Canada this year.”

GWL’s U.S. financial services division contributes between 20% and 25% of worldwide net income; the health-care arm contributed just 8% to net income.

GWL’s exit from the health-care business is viewed as a vote of confidence for the wealth-management sector, says Bob Wuelfing, president of R.G. Wuelfing & Associates Inc. , a Connecticut-based consulting firm. “Great-West is saying the retirement market provides attractive growth,” he says. “It’s the place to be.” IE