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Talvest woes go beyond current security breach

Talvest Mutual Funds may weather a security breach but problems at the bank unit run much deeper than the current scandal.

Earlier this month, Canadian Imperial Bank of Commerce acknowledged that the subsidiary had lost a computer hard drive containing sensitive data on almost half-a-million mutual fund customers. The files went missing in transit from Montreal to Toronto and to date, the bank has found no evidence that the information was accessed improperly.

Steve Geist, the industry veteran named president of CIBC Asset Management Inc. in July last year, declined to discuss security concerns or mutual fund strategy, citing a busy RRSP season. Manulife Financial Corp. is "monitoring the situation," said spokesman Tom Nunn. Talvest manages 21 investment funds for the insurance giant.

Beyond the current security troubles, Talvest has sales and performance issues to resolve that date back many years, a number of industry sources said.

CIBC acquired a 55-per-cent stake in Montreal's TAL Investment Counsel Ltd. in 1994. The well-regarded money manager's asset mix includes Talvest, a fund series serving the retail market.

Seven years later, the bank reached an agreement to buy out its minority partners.

Then, in 2005, the bank took a $2.5-billion charge to cover charges related to the Enron Corp. debacle. Major restructuring followed, including severe cuts to the Talvest sales crew.

Today, Talvest's retail assets under management total about $5.6-billion, up about 43 per cent from $3.9-billion in January, 2003. The gain lags the industry-wide asset increase of more than 70 per cent during the same period and, more significantly, lags the 113-per-cent asset management increase of Royal Bank of Canada.

Raynor Burke at National Bank Financial Inc. in Toronto, recommended Talvest funds until about two years ago. He has since dropped coverage, describing Talvest as a "niche player" with a troubled front-office sales team.

Peter Loach, fund analyst at Toronto's BMO Nesbitt Burns Inc., agrees, calling Talvest's marketing and sales performance in recent years "lacklustre at best."

On the investment management side, there is "nothing that shines," Mr. Loach said, noting performance has been in decline since the departure of star investment managers Jean-Guy Desjardins in 2001 and Denis Ouellet a year later.

Today, only two funds attract a serious following: the $1.1-billion Talvest Global Health Care Fund and the $1.5-billion Talvest Millenium High Income Fund. Talvest must build its offering if it wishes to be a serious competitor going forward, said industry marketing consultant Dan Richards.

"Success in the fund industry hinges on having a core of consistent strong performing funds with fund managers that advisers have confidence in. That's something that Talvest has never really had," he said.

Morningstar.ca has been critical of Talvest's investment performance, including the bank unit's above-average fees. Rudy Luukko, funds editor at the investment website, suggests better integration of the Talvest and CIBC's Renaissance fund series would lower costs, unitholder fees and ultimately, improve fund returns.

An endangered species?

There have been three departures of high-profile spokesmen from Toronto fund companies in recent weeks.

On Janu 17, Dwayne Dreger, vice-president of AIM Funds Management Inc. and the public face of the fund company, was let go as part of a restructuring that saw 35 jobs cut across Canadian operations. That same day, Glenn Cooper, director of communications at Altamira Investment Services Inc., notified the media he was ending his 10-year stint with the firm.

The January departures follow December news that Hugh Cameron, director of corporate communications at Franklin Templeton Investments Corp., had left the fund company.

Forzani Group dropped

The Vancouver-based sustainable-investing money manager has booted the sports retailer from its Ethical Canadian Index, a list of publicly traded firms that work toward improving their social and environmental performance.

In December, Forzani scored an "appalling zero" in a labour issues supply report entitled Revealing Clothing, Ethical Funds said. The survey of 30 Canadian retailers is conducted annually by the Ethical Trading Action Group, a coalition of labour, faith, teacher and non-governmental groups. The group promotes greater public access to where and under what conditions clothing, shoes and consumer products are made and how practices are monitored.

In 2005, Ethical Funds first approached Forzani on the need for a supplier code of conduct to protect workers' labour rights. The firm agreed and said it would go public with a plan by October, 2005. The deadline passed without any disclosure from Forzani. Ethical Funds made "repeated attempts" to engage Forzani in 2006 without success, the fund company said.

kdamsell@globeandmail.com

© 2007 The Globe and Mail. All rights reserved.

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