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AGF to pull back the veil on rough quarter

Departure of emerging-markets manager and difficulty attracting assets expected to hurt company's earnings


The departure of AGF Management Ltd's star emerging-markets manager is expected to haunt the fund company when it reports third-quarter earnings on Wednesday.

Once again, AGF is set to report that more money is flowing out of the firm than into it. A big chunk of the latest net redemptions will come from institutional investors pulling their cash from the top-performing AGF emerging markets portfolios formerly run by Patricia Perez-Coutts.

"It's [redemptions] going to be a substantial number," Canaccord Genuity analyst Scott Chan said in an interview. "Her departure is a huge contributor to the $2.8-billion in net redemptions that we are forecasting ... That will be one of the highest - if not the highest - net redemptions ever recorded in a quarter by AGF."

Ms. Perez-Coutts and her team jumped ship in April to run money for Dallas-based Westwood Holdings Inc. at its new Canadian office. She is already back in the mutual fund business, having been hired recently to oversee the Westwood Emerging Markets fund sold by National Bank Securities through independent financial advisers.

With big bucks at stake, the acrimony between AGF and Ms. Perez-Coutts, who oversaw about $5-billion in assets, came to a head last month. AGF sued Ms. Perez-Coutt, alleging she engineered the departure of key staff, breached her employment contract and cost the company millions in lost business. The manager denies the allegations and plans to fight them.

Not long after her departure, AGF decided to focus on its core investment management business. In June, it announced the sale of its lending arm to Laurentian Bank of Canada, and plans to use some of the $415-million from the deal for acquisitions.

AGF has had a tough time attracting assets, particularly from retail investors amid the volatile stock markets. Historically, it has had the lion's shares of its assets in equity funds. Its assets under management fell nearly 5 per cent to $41.2-billion at the end of August from the second quarter. That was down 15 per cent from a year earlier.

Mr. Chan estimates that AGF's core fund business will report profit of 17 cents a share in the latest three months versus 17 cents in the second quarter, and 28 cents a year ago. So why does he expect per-share earnings to be flat versus the second quarter when assets are falling?

"AGF was aggressive with share buybacks," he said. "They bought back 3.8 million shares in the quarter or 4 per cent of their total shares outstanding."

© 2007 The Globe and Mail. All rights reserved.

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