With the recent acquisition of Natcan Investment Management Inc., National Bank of Canada‘s asset-management subsidiary, Montreal-based Fiera Sceptre Inc., is more than halfway toward reaching its goal of more than $100 billion in assets under management in five years.
In fact, the $309.5-million acquisition of Montreal-based Natcan, which closes April 1, almost doubles Fiera’s AUM to $54 billion from $28.9 billion; the remainder of the growth to reach the $100-billion threshold will come organically, as Fiera’s target is 15% annual growth in AUM.
This growth is quite achievable, says Jean-Guy Desjardins, Fiera’s chairman, CEO and chief investment officer, because of: the distribution agreement with Montreal-based National Bank that’s part of the Natcan deal; the “special” relationship with Quebec City-based Desjardins Financial Group, a significant shareholder and major client of Fiera’s; the strong performance posted by Fiera, as well as the investment teams it is keeping from Natcan; and new product offerings. J-G Desjardins also believes Fiera can attract significant institutional business in the U.S. through its Boston office, which opened last September.
Fiera is paying National Bank $309.5 million in cash and shares for Natcan. This will give the bank a 35% ownership in Fiera, with an option to increase that to 40% by September 2014 and the right to appoint two of Fiera’s 12 directors. After the deal is finalized, J-G Desjardins and Fiera’s employees will hold 28% of Fiera’s shares; DFG will hold 11% and the right to appoint two directors; and the public will hold 26%.
National Bank, which will distribute Fiera products, is committing to retain Fiera as the portfolio manager of at least 40% of its AUM for seven years, which the bank can renew for a further three years. The bank will pay a $50-million penalty if the percentage of its AUM managed by Fiera falls below the minimum threshold during those seven years.
The deal increases the portion of Fiera’s institutional AUM to around 55%, vs the firm’s 45% of AUM in retail and high-net worth. Client decision-making, expectations and needs are different in the three markets, J-G Desjardins adds, so this balance diversifies risk for Fiera.
Fiera will retain about 45 of Natcan’s 90 or so personnel. J-G Desjardins is pleased with their fixed-income expertise in corporate credit, preferred shares, high-yield and liability-driven investing. (In the last category, the goal is to gain sufficient assets to meet all current and future liabilities; this is of particular interest to defined-benefit pension plans.)
Fiera already is strong in fixed-income and J-G Desjardins believes the team will “probably” be No. 1 in the Canadian market. About 60% of AUM at both Fiera and Natcan is in fixed-income, which J-G Desjardins is comfortable with.
Fiera also is retaining Natcan’s small-cap professionals, which will augment Fiera’s existing small-cap team.
Following the deal’s closing, J-G Desjardins says, reallocating investment-management responsibilities will take about a month, moving Natcan’s investment professionals to Fiera’s office and Fiera’s admin to Natcan’s office will take another couple of months, and cultural integration will take about a year.
J-G Desjardins, who had founded his firm as Fiera Capital Management Inc. in 2003 after acquiring management contracts from DFG, believes in equity ownership. Thus, all the key Natcan people remaining have been offered shares in Fiera.
About $10 million in synergies are expected from the deal. Fiera already had the capacity to handle more AUM, J-G Desjardins says, so much of the savings comes from economies of scale.
This is Fiera’s fourth acquisition, having purchased Senegal Investment Counsel Inc. in 2005, YMG Capital Management Inc. in 2006 and Sceptre Investment Counsel Ltd. in 2010. (All were based in Toronto.) But even though the Natcan acquisition is Fiera’s largest purchase, says J-G Desjardins, it is also the easiest “because we and Natcan know each other. We are part of the Montreal financial community and have offices a block [apart].”
There may be more acquisitions by Fiera. However, J-G Desjardins thinks, it would be tricky taking on another $25 billion in AUM in Canada because that would push Fiera’s Canadian AUM to levels at which it would be difficult to add value. So, the firm would be interested in something in the $5-billion range, such as a company with a high percentage of HNW AUM or an alternative-investments firm.
That said, Fiera is more interested in acquisitions in the U.S., where it is starting from scratch. The purchase of an institutional or HNW firm with “nothing less than $10 billion in AUM,” says J-G Desjardins, would provide a base from which to grow.
Fiera’s strategy in the U.S. is to offer U.S. equities, international equities and hedge funds. Canadian equities aren’t of sufficient interest, and Fiera’s and Natcan’s excellent fixed-income expertise is Canada-based. (Fiera is not interested in a European foray, J-G Desjardins says – at least, for the next five years.)
J-G Desjardins thinks alternative investments will become increasingly important. Canadian institutional clients are open to such investments in fixed-income but are less enthusiastic on the equities side, he says. In the U.S., however, there’s “high” demand for both.
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