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Mutual Fund News

CI's Holland laments investor apathy

Says hurdle 'is selling the whole concept of equity investing again'

FUNDS REPORTER

As the critical RRSP season nears an end, the head of Canada's second-largest mutual fund company lamented that investors are showing a complete lack of interest in equity investing, cutting into profits that have already been hammered by the credit crisis.

"The single biggest obstacle that we have in the business today, the biggest hurdle, is selling the whole concept of equity investing again," Bill Holland, chief executive officer of CI Financial, said as his company reported a 72-per-cent drop in fourth-quarter profit.

"When you see negative markets for this long, it's obviously the time when the markets are the cheapest and people should invest."

Unless the federal government cuts taxes on capital gains and dividends, Mr. Holland said he didn't "see how you're going to get the average Canadian investor to go back into the market."

Mr. Holland said CI Financial would still be reporting over $200-million in net sales in February. "Segregated funds benefit from a bear market because of the guarantees associated with them," he said.

"You're certainly not going to see anything resembling the rush" by investors to meet the March 2 deadline for this year's registered retirement savings plan season, he said.

Investors have been putting their cash into money market funds, on which CI said there's "no prospect" of making any profit because of low fees: "We don't even charge operating costs on our money market funds."

CI Financial switched back into a corporation at the start of the year because its former income trust structure was making it difficult to continue its acquisition strategy.

It reported that the latest quarterly profit - when it was an income trust - tumbled to $53.2-million or 19 cents a unit for the period ended Dec. 31. That compares with a profit of $187.7-million or 66 cents a unit a year earlier.

"It was by a significant margin the most difficult period in our business ever," Mr. Holland said. "We took immediate and considerable action on the expense front starting in September, and have plans to continue to align expenses with asset levels if markets continue to decline."

Mr. Holland said that CI Financial had its first hiring freeze in years and cut 260 jobs.

"We don't think that our assets are going to go back to the levels that we saw when they peaked in May of 2008 for quite a while, so we have completely realigned our costs," he said.

Despite the weak results, CI Financial stock rallied nearly 6 per cent on the Toronto Stock Exchange.

"The market was expecting worse results," said Dundee Securities Corp. analyst John Aiken. "On a relative basis, their results were better than what AGF Management and IGM Financial reported."

CI, which also owns brokerage Blackmont Capital Inc. and financial planning firm Assante Wealth Management, reported that assets under management fell to $54.6-billion at Dec. 31 from $69.1-billion a year earlier. By the end of January, assets slid further to $52.2-billion. The assets include mutual and segregated funds.

Total fee-earning assets, which include assets under administration, dropped to $80.3-billion from $105.5-billion a year ago. Total revenue at CI Financial for the quarter dropped to $324.4-million from $427.1-million a year ago.

Like other fund managers, the stock market collapse has taken a toll on assets under management. Fund companies earn fees based on the assets, which can be affected by net sales or redemptions, and the market value of the investments.

Bank of Nova Scotia is CI's largest shareholder with nearly a 36-per-cent stake after agreeing last year to pay $2.3-billion in cash and stock to insurer Sun Life Financial Inc. for its interest.

CI FINANCIAL

Close $11.95, up 65¢

© 2007 The Globe and Mail. All rights reserved.

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