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Lee-Chin bids farewell to Astaphan

Long-time partnership ends as AIC creates new unit to market structured investment products, KEITH DAMSELL writes


Michael Lee-Chin's financial empire has said goodbye to a key lieutenant and hello to a new investment venture.

Kris Astaphan has quit as the deputy chairman of National Commercial Bank Jamaica Ltd. Mr. Lee-Chin, chairman, controls more than 75 per cent of the Kingston bank.

Mr. Astaphan has worked closely with Mr. Lee-Chin since 1993 and has held senior roles across his companies, including mutual fund giant AIC Ltd. and financial advice firm Berkshire Group of Cos., both of Burlington, Ont.

NCB and AIC declined to comment. Mr. Astaphan, reached at his home in Oakville, Ont., also declined to comment.

Industry sources close to AIC were mystified by the end of the Astaphan/Lee-Chin partnership. One marketing executive described Mr. Astaphan as "very smart, very honest and very tough" and a key strategist who helped orchestrate many of Mr. Lee-Chin's deals.

Meanwhile, AIC is launching a new business aimed at taking a share of the growing retail structured product market. Copernican Capital will market closed-end trusts that invest in blue-chip global financial services with the promise of monthly cash distributions.

The creation of the new AIC unit follows the launch of three products over the past 18 months that raised a mediocre $113-million.

"It's very important for us to re-establish our franchise," said Jonathan Wellum, AIC's chief investment officer. "We're going where the puck is going . . . for us to proliferate with more Canadian products just simply does not make sense from our perch."

Structured products are relatively new on the investment scene but competition is intense. Major players including Bank of Montreal, National Bank of Canada, CI Fund Management Inc. and Mackenzie Financial Corp. are all marketing products that guarantee investors their capital investment plus the promise of double-digits returns.

AIC has been struggling to stem redemptions. Retail assets under management have shrunk from a peak of $15.4-billion to about $8.7-billion.

Fund to review MFDA practices

The head of one of Western Canada's largest fund dealers plans to strike a committee to review the governance practices of the mutual fund industry's regulator. That's the fallout from Friday's general meeting of the Mutual Fund Dealers Association of Canada.

Mark Kent, president of Calgary's Portfolio Strategies Corp. claims the process to elect directors to the MFDA board is flawed. He claims the election process is undemocratic and small financial advice firms make up the bulk of the regulator's members yet have no representation on the board.

The MFDA argues its practices have the approval of independent legal counsel and the Canadian Securities Administrators. Nevertheless, it agreed to let Mr. Kent form an industry group and consider its ideas on the issue.

Norshield's founder assaulted

The man at the centre of a Montreal hedge fund investment scandal was attacked last month.

John Xanthoudakis, founder of Norshield Financial Group, was "beaten up" on Nov. 25 in an assault related to the firm's troubled business dealings, a legal source close to the case confirmed. The attack has received some attention in the Montreal business press.

Norshield, one of Canada's largest hedge fund companies, was put into receivership in June by the Ontario Securities Commission amid concerns over mounting redemptions and a lack of co-operation with regulators.

RSM Richter Inc., Norshield's receiver, said last month the company's 1,900 retail investors likely stand to recover only a "nominal" amount -- about $8.5-million -- of the $132-million they had invested.

Mr. Xanthoudakis was interviewed under oath by RSM on Dec. 5 and 6 and shed little light on the whereabouts of the missing funds, sources said. The lack of developments on the Norshield file means the next court report may be another six months away, RSM said.

CI seeks GST relief for funds

CI Financial Inc. launched a media campaign last week to axe the GST on mutual funds but history suggests Ottawa may be quick to defend the 7-per-cent tax.

In December, 1994, the federal government closed a loophole in the GST legislation that allowed fund companies to claim tax refunds.

The original law stated that fund management fees were taxable when applied to "a corporation, trust or partnership whose principal activity is investing funds on behalf of shareholders, members or other persons."

Fund companies filed tax refunds, arguing that they are corporations that invest for themselves. In addition, the industry claimed the GST does not apply to services such as unit distribution. At the time, Mackenzie Financial Corp. estimated the loophole would save unitholders about $180-million annually.

In December, 1994, the Department of Finance amended the law to include the words "any service" provided by fund managers. References to investing for shareholders, members or other persons were dumped, too.

© 2007 The Globe and Mail. All rights reserved.

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