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AGF unit slashes work force

Trust arm lays off more than 10% in wake of fund industry's record redemptions

FUNDS REPORTER

The global stock market carnage is taking its toll on the Canadian asset management industry with more pink slips handed out this week, and others in the offing.

AGF Management Ltd.'s trust arm laid off more than 10 per cent of its staff - just as the mutual fund industry reported a record selling binge by investors in October.

AGF Trust, which provides investment loans and mortgages, slashed about 50 out of its 400-employee work force across the country, the company confirmed yesterday.

"With the economic situation turning, the strength of the RSP program that we normally run isn't going to be there," AGF Trust chief executive officer Mario Causarano said in an interview.

In recent years, the trust arm of AGF Management, Canada's ninth-largest mutual fund company, has been aggressively marketing loans for retirement savings plans. Investors can get loans through online applications on its website with no proof of income under certain circumstances.

On Tuesday, the Investment Funds Institute of Canada reported that Canadian investors yanked $8.45-billion out of mutual funds in October - the worst month for net outflows since it began collecting data in 1990. And assets plunged about 10 per cent over the month to about $634-billion, thus eroding management fees.

AGF Trust is also "making adjustments" in staff on the mortgage side of the business, added Mr. Causarano, referring to the recent downturn in the Canadian housing market.

The stock market collapse this fall is expected to make Canadians more gun shy about investing in mutual funds as many have lost 30 per cent or more so far this year.

CI Financial Income Fund, which sells mutual funds and owns brokerage Blackmont Capital Inc. and financial planning unit Assante Corp., expects to reduce its 1,700 employees by about 2.5 per cent before year end either by layoffs or through attrition.

"We are definitely cutting costs at all of our business," said CI Financial CEO Bill Holland. "It's an ongoing process. We don't have a layoff day or anything [like that]...We always keep our costs and assets aligned."

Boston-based Fidelity Investments yesterday said it will reduce its global staff by 2.9 per cent, or about 1,300 this month, and more layoffs are coming next year in response to falling markets. The number of those cuts and other details are to be released in the coming weeks, the fund giant said.

Two weeks ago, Fidelity Investments Canada, which has 700 employees, said it would chop staff by 70 positions by next June because it was winding down its pension fund record-keeping business.

"We have nothing more to announce at this point," Fidelity spokesman Chris Pepper said in an e-mail.

AIC Ltd., Sentry Select Capital Corp. and Dundee Wealth Management, which owns Dynamic Mutual Funds, have also cut staff recently.Blackmont Capital analyst Richard McCormick said he was "not completely surprised" by AGF Trust's move to chop staff, and expects more cost cutting by fund companies

"With weak sales activity and declining assets under management across the industry, we expect this will not be the last of the cost cutting from the asset management sector," he said yesterday in a note to clients.

AGF Trust, however, has been an "important mutual fund sales contributor, funding approximately 60 per cent of AGF's net sales since 2005 through providing investment loans to clients," Mr. McCormick said.

But "leverage investing has slowed in the currently volatile equity market environment," he said.

The analyst, who has a "hold" rating on AGF with a one-year target of $17, said in a recent report that he was also concerned about the credit issues affecting AGF Trust, which he contends is not reflected in its share price.

"As markets decline, we believe AGF faces rising credit risk given a key source of collateral, mutual funds, is likely declining as well," Mr. McCormick wrote.

AGF Trust has been an "important earnings growth tool for AGF, contributing nearly one-third of its pretax growth since 2005, and currently accounting for 22 per cent of pretax profits," he said.

AGF, which is controlled by Toronto's Goldring family, was hit by a flood of net redemptions starting in 2002 after San Francisco-based Brandes Investment Partners LP, which ran one-third of AGF's global assets, left to set up its own Canadian company.

AGF ended its sales slump in the summer of 2006. "In late 2005, net sales began to improve in large part because of positive sales momentum in the less profitable Harmony and Elements fund wraps and also from the sharp growth of investment loan funding through AGF Trust," Mr. McCormick suggested.

AGF, however, slipped back into net redemptions last December, and has suffered from outflows in 10 of the past 11 months.

© 2007 The Globe and Mail. All rights reserved.

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