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Departures stir up AIC rumour mill

Sarbit joins list of managers seeking greener pastures

MUTUAL FUNDS REPORTER

Fund manager Larry Sarbit's imminent departure from AIC Ltd. has renewed speculation about the fate of the Burlington, Ont., fund management company.

Mr. Sarbit is the third high-profile executive to leave AIC this year as the company's financial performance continues to deteriorate and investors flee for higher returns elsewhere. In January, Peter Hodgson, vice-president and national sales manager, left the company. Last month saw David Whyte, a marketing guru hired last summer to mend the company, resigned citing strategic differences with chairman, chief executive officer and controlling shareholder Michael Lee-Chin.

AIC's assets under management are down 36 per cent to $9.9-billion in March from a record $15.4-billion in 2002 and there's growing resentment among financial advisers who have seen their clients lose money in AIC products.

Mr. Sarbit, one of AIC's marquee fund managers, is slated to leave AIC on April 27 and has resigned to "pursue other opportunities," the company said. He did not return telephone calls. James Cole, a well-regarded Canadian equity fund manager, has taken over management of Mr. Sarbit's $1.5-billion in assets.

The investing strategy of Mr. Sarbit was the subject of some controversy, however. The so-called "deep value" manager maintained there were few bargains to be had in the U.S. market so he held about 80 per cent cash in his funds.

The plan gave Mr. Sarbit full exposure to the strong Canadian dollar and investors reaped the rewards. For example, the $1.1-billion AIC American Focused Fund has trumped the returns of rival U.S. equity funds over the past one, three and five years ended March 31.

"He had some fans just because his performance was good but a lot of that performance was due to the fact he was in Canadian dollars," said Mark Chow, analyst at Morningstar Canada.

Still, the loss adds to AIC's lengthening list of woes.

The company's reputation has been tainted by scandal. In December, the private company agreed to reimburse investors $58.8-million for permitting rapid, in-and-out trading in its funds. Meanwhile, sister company Berkshire Group of Cos. referred an estimated 5,000 clients to Portus Alternative Asset Management Inc. The hedge fund company collapsed and a receiver is struggling to track down $750-million worth of assets.

Investors and analysts suggest a catalyst is needed to turn around AIC's fortunes and the sale of the company cannot be ruled out. The catch is that as investors continue to yank their dollars from AIC funds, the company's acquisition value shrinks too. Past industry transactions suggest AIC's value ranges from as much as $750-million to a paltry $300-million.

But sources at AIC insist that Mr. Lee-Chin continues to resists all overtures, convinced the company's mantra of "buy, hold and prosper" will prove his critics wrong.

AIC has held fast with its view that investments in wealth management firms are among the best for long-term returns. The company has little or no exposure to red-hot income trusts and yield-generating products.

While investing principles have been constant, the firm has tweaked its personnel line-up, bringing on three new fund managers since 2002. The company is working harder to sell its story to financial advisers.

"Everyone around here is head down, full steam ahead," said one source at AIC. "We are actually doubling down on our investment principals at a time when it is not popular to do that."

AIC ailing

The departure of Larry Sarbit, manager of the successful AIC American Focused Fund, has added to a lengthening list of woes assailing Michael Lee-Chin's AIC Ltd. As its financial performance deteriorates and investors flee for higher returns elsewhere.

AIC American Focused Fund
CategoryU.S. equity
ManagerJames Cole takes over from Larry Sarbit
Load statusForeign
Total assets$1.1-billion
Management expense ratio2.41%
Globefund 5-star rating system***
Returns to April 11, 2005
1-month simple rate of return0.01%
3-month simple rate of return-0.13%
6-month simple rate of return2.14%
1-year simple rate of return-1.81%
3-year compound annual return1.97%
5-year compound annual return7.88%
Since inception6.76%

SOURCE: GLOBEFUND.COM

© 2007 The Globe and Mail. All rights reserved.

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