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DundeeWealth's future could be set in the U.S.

berman@globeandmail.com

Nobody is underestimating DundeeWealth Inc. chief executive officer David Goodman these days.

When the company announced in mid-2007 that Mr. Goodman was taking over as CEO of the mutual fund company from his father, Ned, the wider world didn't take much notice. Maybe it should have.

At that point, the company was heading into crisis thanks to a bum investment in asset-backed commercial paper. The ABCP was supposed to generate cash to pay interest on the high-rate accounts at Dundee's growing bank, but instead generated a giant headache when the paper froze.

Today, DundeeWealth has about $600-million of cash and enough sales momentum that Mr. Goodman fils can more than double the dividend to 60 cents from 28 cents. At $18.91 as of yesterday's close on the TSX, the stock is up almost fivefold from the low it touched in late 2007, not long after Mr. Goodman took over a firm facing a crisis.

His first act was the fix. Mr. Goodman raised cash by finding a buyer, in Bank of Nova Scotia, for the firm's troubled bank unit and a big stake of equity. He cut costs and reduced the company's adviser force to a more manageable and profitable size.

The second act is the turnaround, which began in earnest about a year ago and is now unmistakably under way. Fund sales are hot and cash is pouring in.

What's the third act? Some say it will be a sale, given that Scotiabank is out there and still holding a right of first refusal should Ned Goodman's controlling stake in DundeeWealth ever be up for grabs. But running a company purely in hopes of an eventual takeover is no way to win business, or have any fun.

And David Goodman likes to have a little fun (as no story on DundeeWealth can avoid mentioning - he is a comedian in his spare time). So the idea is to grow.

"It is way more fun," he said in an interview. "It is nice to think about upside and what the opportunities are on the upside, and it's certainly much more creative."

He's eyeing the U.S., where DundeeWealth can market its expertise in the hot areas of resources like gold and energy. Analysts point to the pop that Sprott Inc., another fund company that's strong in resources, got when it expanded south of the border as something that surely is not lost on Mr. Goodman.

"I don't think it's crazy to think we can make meaningful inroads into asset gathering outside our own country," he said. "I think the U.S. represents the best opportunity for us because within an hour plane ride you are closer to potential investments than we are to many places in Canada, and Canada has a really nice ring to it nowadays. I think that we can represent very well." Already, the U.S. version of DundeeWealth's Dynamic Precious Metals fund is the top performing of any fund in the U.S. this year, with its 63 per cent gain giving it a significant lead over any challengers.

How big could the U.S. be?

"I'm afraid to make that type of prediction," Mr. Goodman said. At the moment, the firm has more than $150-million in assets under management in the U.S. "We think that as we get traction, we can grow that number significantly."

Even the huge dividend increase, often the sign of a company that's given up on growth, is part of the grand plan. Expansion requires a stock that is an attractive currency. In the asset management business, that requires a healthy dividend.

"Our company, in spite of growing at roughly three times the industry rate over the past five or 10 years, still traded at a discount to some of our key competitors," Mr. Goodman said. "I went through every factor that could possibly be the reason for that discount, and there was only one: our dividend yield."

Scotiabank CEO Rick Waugh must not know whether to laugh or cry. On one hand, his investment in DundeeWealth is going swimmingly, with a nice rise in the stock and a handsome stream of dividend cheques. On the other, if he ever gets a chance to buy DundeeWealth, the cost for the bank has soared, between the gain in the stock and the vastly improved outlook.

Nobody will be selling DundeeWealth stock cheap. And nobody is likely to sell David Goodman short any more.

© 2007 The Globe and Mail. All rights reserved.

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