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Yvon Charest: The fund ambition tour

Now that Clarington Corp. is in the bag, the CEO of Industrial Alliance is wooing advisers from coast to coast, KEITH DAMSELL writes

MUTUAL FUNDS REPORTER

If Yvon Charest has his way, the mouthful that is Industrial Alliance Insurance and Financial Services Inc. will soon be tripping off the tongues of financial advisers from coast to coast.

In December, the Quebec City financial services firm snapped up Clarington Corp., securing a toehold in English Canada's mutual fund industry. Now, the Industrial Alliance group is readying itself for a pitched battle for the hearts and minds of the financial advice community.

"What we have to make sure all the time is that our product offering, our relations with distributors, are always at the top," Mr. Charest, president and chief executive officer, said in an interview.

Access to the 12,000 advisers that do business with Clarington was the driver behind Industrial Alliance's $222-million offer for the Toronto fund company. The deal bested a $218.3-million competing bid from CI Financial Inc. The two cash offers did not include about $59-million in Clarington debt.

It was a bitter fight last fall for Clarington, manager of $4.4-billion in funds. Industrial Alliance had the support of management and claimed its offer was the best option for investors. Feisty CI Financial pledged to cut Clarington's fees and maintained its hostile bid was in the interests of unitholders.

A frustrated CI Financial threw in the towel, and it's a good thing for Industrial Alliance -- the deal may be small in the fund business but is nevertheless key to the Quebec firm's strategic future. The lines between insurance and financial advice are blurring; it's estimated that about 60 per cent of fund brokers sell insurance, too. Industrial Alliance's core insurance operations have built a strong presence in the segregated fund business, but had little to offer when it came to mutual funds.

Industry trends were worrying, too. Over the next 10 years, the insurance market is expected to grow by about 7 to 8 per cent annually; in contrast, the wealth management industry is forecast to grow 10 to 12 per cent each year.

Strong investment performance and distribution networks have made Industrial Alliance Canada's fourth-largest segregated funds company, Mr. Charest said. That same formula, he believes, will mean success in the consolidating, intensely competitive mutual fund business.

"When you look at who could be successful in Canada . . . it is the financial institution, either a bank or an insurance company, that has [fund] manufacturing capability and that has evolved and grown through network channels. That is exactly what we are developing," he said.

Banks can be boastful

The big banks have been dominating industry sales in recent years -- and now they can brag about performance, too.

Seven of the top 10 performing fund companies in 2005 were bank or bank-owned firms, Morningstar Canada reports.

Investment research firm BMO Investments was No. 1, with 93.8 per cent of its funds in the first and second quartile of performance. That's up from 49.1 per cent in 2004 and a weak 29.6 per cent in 2003.

Dark horse Fidelity Investments Canada Ltd. was No. 2 on the list with 88.1 per cent of funds in the first and second quartile. The growth-focused manager is in the midst of an intense marketing campaign, reintroducing the brand to advisers and the public. Rounding out the top three is RBC Asset Management Inc., with 81.1 per cent of funds receiving top marks.

Brandes Investment Partners & Co. was at the other end of the spectrum with none of its family of 17 funds falling in the first or second quartile. In 2004, a heady 88.8 per cent of its funds made the grade and in 2003, 100 per cent of Brandes funds were in Morningstar's top two tiers. The value-driven investor has little exposure to the energy market.

Seamark forecast stormy

The outlook for Seamark Asset Management Ltd. went from bad to worse last week with news the financial services firm lost a key client and cut its dividend.

The largest investment manager east of Quebec City has seen a steady exodus of institutional clients over the past year, as its funds underperformed compared with competitors. Assets under management have slid to about $9.3-billion from $10.75-billion a year ago. SEI Investments Inc. of Pennsylvania is the latest firm to say goodbye, dropping Seamark as manager of $370-million held in two funds, the SEI Canadian Equity Fund and SEI Social Integrity Canadian Equity Fund.

Profit is declining, slipping to $2.9-million for the fourth quarter ended Dec. 31, compared with $3.3-million for the same three-month period in 2004. Seamark investors will feel the pinch too, as the company cut its quarterly dividend to 20 cents a share from 26 cents.

There is speculation that the dividend may shrink further if Seamark loses the business of Clarington Corp. In December, Clarington was acquired by Industrial Alliance group. The Quebec City company is reviewing all of Clarington's mandates, including about $3-billion overseen by Seamark.

John Aiken, analyst at National Bank Financial Inc., expects Seamark has one of two options: Rebuild the mutual fund business, or exit the retail trade and focus on the growth of its wrap and institutional accounts. In either scenario, Mr. Aiken expects Seamark will remain profitable but "the concern to investors is to both the timing and profitability level that each scenario implies," he said in a report.

kdamsell@globeandmail.com

© 2007 The Globe and Mail. All rights reserved.

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