As Toronto-based investment fund giant AGF Management Ltd. heads toward its milestone 60th birthday next year, company chairman and CEO Blake Goldring is anticipating a happy celebration.
AGF’s money-management subsidiary, AGF Investments Inc., has been fighting to regain its positive growth trajectory since the 2008 global financial crisis knocked the wind out of the firm’s sails. AGF, still among the top 10 fund portfolio managers in Canada, has endured a painful multi-year bout of investment underperformance, portfolio manager turnover, retail fund redemptions and institutional client departures.
The good news is that AGF’s net redemptions finally are easing off. Goldring was heartened earlier this year by “the best RRSP season since 2009,” and he anticipates the bleeding could stop as soon as this yearend or early next year. During the firm’s first quarter (Q1) ended Feb. 29, 2016, net redemptions were 37% lower than the previous year’s first quarter. The improvement is notable, given the swoon in global equities markets and the tough slog for the fund industry overall, during which it suffered an increase of almost 19% in redemptions. AGF’s improvement builds on progress in the previous fiscal year, ended Nov. 30, 2015, when net redemptions shrank by 38%.
“Yes, we are still in redemptions, but they are bottoming out, and we are getting traction with sales,” says Goldring.
Fee-generating assets under management (AUM) remain far below AGF’s high watermark of $56 billion, hit in 2007; AUM was down by 6.4% year-over-year to $33.7 billion as of May 31, 2016, AGF reported that its retail division fared the worst, with AUM shrinking by 10% to $17.6 billion. U.S. and international equity funds make up the bulk of AGF’s retail assets. AGF’s institutional and high net-worth AUM, including promising private-equity funds that invest in so-called “alternative” assets, dropped by a lesser 4% to $15.6 billion.
Blake Goldring, 57 (and the son of Warren Goldring, who founded AGF in 1957), is highly motivated to pull AGF out of the muck. The Goldring family owns 80% of AGF’s Class A voting stock, giving the family firm control of the company. The younger Goldring’s vision is to set AGF on a long-term course to serve the evolving needs of investors – from technology-savvy millennials just starting their careers and baby boomers entering their retirement years to giant, global pension funds.
“We’ve been through a tough period,” admits Goldring, who joined the company in 1987, then gradually worked his way up to the positions of president, CEO and, finally, chairman in 2006. “Performance has struggled and retail sales have suffered in the past few years, but things have stabilized now to a great degree. We’re seeing solid improvements in different lines of our business, and there’s a palpable excitement.”
Signs of a revival have shown up in AGF’s second fiscal quarter (Q2), ended May 31. A recent report by Paul Holden, an analyst with Toronto-based CIBC World Markets Inc., which was issued before the official release of AGF’s Q2 results on June 29, estimates that AGF’s total AUM during Q2 increased by 6%, exceeding his previous forecast of 1% with the pace beating major competitors such as IGM Financial Inc. of Winnipeg. Holden’s report states that AGF’s redemptions in Q2 shrivelled to about half the rate experienced a year earlier. The report upgrades AGF from “sector underperformer” to “performer.”
The key to AGF’s revival is turning around lagging investment performance. Strategies to do so included significant changes in the funds’ management teams, some consolidation of the product line and fee reductions to lower the hurdle that portfolio managers must overcome in order to achieve market-beating returns; AGF recently cut fees by 10 to 60 basis points on 23 funds, including some of the firm’s bigger and most popular offerings. (AGF previously had higher than average fees on some products, which hindered active portfolio managers in their efforts to beat the market.)
Two years ago, Goldring hired Kevin McCreadie to the key role of president and chief investment officer of AGF Investments, and he is making improvements strategically and methodically. McCreadie has 30 years of experience in U.S. financial services, including investment management.
“A lot of rein has been given to Kevin McCreadie, and he is having a real influence on the direction of the company,” says Chris Davis, director of manager research at Morningstar Canada in Toronto. “He has a no-nonsense personality, and can play bad cop to Blake’s good cop. [McCreadie] has spent time getting to know the portfolio managers, and there has been some turnover [among those ranks]. He may be the spark that turns the ship around, but that will be a long process.”
AGF’s goal is to have 50% of its retail AUM performing above the median on a one-year basis, and 60% above median for three-year average returns. CIBC’s Holden’s report estimates that 56% of AGF’s retail AUM is above median in Q2 for the one-year period and 54% is for the three-year period.
AGF has focused on introducing new products that meet client needs for income, tax minimization and low volatility. The rampant growth of exchange-traded funds (ETFs) introduced by competing firms has not gone unnoticed at AGF, and before yearend, Goldring anticipates the firm will launch ETF-related products for Canadian investors as a complement to the firm’s family of traditional mutual funds. ETFs appeal to advisors moving to a fee-based model and who are looking for low-cost investment vehicles.
“You need the right product mix and must be responsive to the marketplace – and that means offering both mutual funds and ETFs on the retail side,” Goldring says.
Rather than introducing ETFs that mimic broad stock market indices, AGF is likely to target market niches such as low-volatility and other defensive strategies, he adds. Marking AGF’s foray into the business last November, the firm bought a majority stake in Boston-based FFCM LLC, an asset manager specializing in ETFs that offer alternative and “smart beta” strategies, as well as managed ETF portfolios.
Goldring also foresees drawing upon the expertise of London, Ont.-based Highstreet Asset Management Inc., to develop products to meet popular demand. Highstreet, an investment counselling firm and asset manager within the AGF empire, specializes in quantitative processes designed to outperform in the long term while protecting capital in down markets.
“FFCM’s creativity in developing products, combined with Highstreet’s quantitative expertise, give us an ability to create interesting products for the Canadian market,” Goldring says. “The exact structure and timing still are being determined.”
Since the departure about a year ago of Gordon Forrester, former head of retail and executive vice president of product and marketing – a position that has not been filled – Goldring has taken a more active role in relationship-building and sales.
“I’m personally spending more time talking to clients, with regular meetings and exchanges, Goldring says. “And I’m enjoying the personal contact.”
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