Psst! Wanna buy a hedge fund note?
Since 2005, that product pitch may have been met with a slamming door. The well-publicized scandals at Portus Alternative Asset Management Inc. and Norshield Asset Management (Canada) Ltd. decimated the retail market for hedge-fund-linked, principal-protected notes.
Man Investments Canada Corp. is working hard to change the reputation of the tarnished asset class. This month, the Toronto unit of Britain's Man Group PLC unveiled the Man MGS Access (Canada) Notes. The note sets a new standard for disclosure, itemizing the products' 15 hedge fund managers, their investment strategies and their historic performance. The 12-year note requires a minimum investment of $5,000.
"There's a tough sentiment out there at the moment. If we continue to do our job as we've done over the past 20-odd years, [our sales will take off] like a bush fire,"said Alex Lowe, chief executive officer of Man Global Strategies.
Man Global is the investment arm of Man Group, a publicly traded financial services giant that manages about $60-billion in hedge funds. The new Canadian note has blue-chip backing, too, from guarantor Citibank NA.
Despite good reviews from analysts, the Man note is having some difficulty when it comes to sales and marketing. The meltdown of Portus and Norshield prompted the Canadian Securities Administrators to begin a regulatory review of hedge-fund-linked notes last year. Until there's some clarity, some financial heavyweights are shunning hedge fund notes, including Bank of Montreal, Royal Bank of Canada and Toronto-Dominion Bank.
Behind the scenes, Man Investments is doing what it can to allay fears and educate Bay Street. The CSA, meanwhile, is expected to disclose new guidelines for notes later this year.
Duo strikes it rich again
It's déjà vu all over again for Rockwater's Bill Packham and Robert Schultz.
The $251-million deal to sell Rockwater Capital Corp. to CI Financial Income Fund marks the second time chief executive officer Bill Packham and chairman Bob Schultz have struck a multimillion-dollar brokerage deal.
The Bay Street duo, along with many of their Rockwater colleagues, built Midland Walwyn Capital Inc. in the 1990s. In 1998, the pair then sold Midland to Merrill Lynch & Co. Inc. for $1.3-billion. At the time, Mr. Schultz's stake was worth $31.5-million while Mr. Packham netted $25.2-million.
In 2002, they acquired small dealer First Associates and folded it into a new company, Rockwater. The Rockwater-CI transaction will mean another handsome payday. Recent securities filings indicate the two men together own about 4.8 per cent of Rockwater. Mr. Packham's stake is worth about $5-million, while Mr. Schultz's interest is worth about $4.8-million.
Ironically, Mr. Packham was quick to dismiss speculation six months ago that Rockwater would soon be on the auction block.
"There is no exit strategy. We built this company to be enduring and long-lasting," he said in a July interview. "We are still very much in the early stages of developing this company. Why would we sell something that we spent three or four years just to get built?"
Reactions mixed to RBC fee cut
On Jan. 1, RBC Asset Management Inc. reduced management fees by 15 basis points on nine of its mutual fund mandates, all of which are foreign equity or sector equity funds. (A basis point is 1/100th of a percentage point.) The move has sparked some very different reactions from the competition.
"When somebody buys an AGF Fund, obviously they are going to be getting excellent performance, that's what they are buying, some superb money managers. But they are also getting a package of excellent professionals who are dealing in the after-sales process and helping educate and assist.
"How do you quantify that? You quantify that by winning big awards like being the most favoured firm that advisers want to deal. That's the real proof in the pudding. To see a competitor cut fees across the board, that's not our strategy. Our strategy is to provide real value and we have to live up to that." -- Blake Goldring, chairman and chief executive officer of AGF Management Ltd., in a Jan. 31 conference call.
"The fastest-growing fund business in the United States is Barclays. And Barclays is there on one thing only and that's fees. I don't think the fees are the be-all and end-all but if Royal Bank is selling a global fund at 1.85 [annual management fee] and someone else is selling the same product at 2.5 or 2.7 before operating expenses, I think they are going to get the business more and more and more. And I think we are all naive if we don't think that is the case." -- Bill Holland, CEO of CI Financial Income Fund, in a Feb. 13 conference call.
© 2007 The Globe and Mail. All rights reserved.
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