This article appears in the October 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The simultaneous growth of passive investing and private assets over the past decade has squeezed active fund managers in the mushy middle. Canadian pension funds, once reliable clients, have become more like competitors with deep in-house investment teams. Industry consolidation and a shift to proprietary products have narrowed the space for innovative independent manufacturers to find a following.
This is the terrain that Toronto-based Guardian Capital Group Limited and its president and CEO, George Mavroudis, are navigating as the firm focuses on the asset management side of its business.
Guardian closed the $750-million sale of its Worldsource businesses to Lévis, Que.-based Desjardins Group earlier this year. Those businesses — investment and mutual fund dealers, and a life-insurance managing general agency — together served more than 5,000 independent financial advisors.
When Desjardins first approached, Mavroudis, who joined Guardian in 2005 and has led the firm since 2011, said Worldsource wasn’t for sale. In the end, though, he said the deal was the right fit for those wealth management and insurance businesses, and the sale allowed Guardian to focus on investment management.
“The businesses we sold at Worldsource were in support of independent advisors, so they were never employees of Guardian,” Mavroudis said. Guardian served the advisors but was a step removed from Worldsource clients. Guardian’s remaining wealth management businesses “don’t have that intermediary distance between us and the end client.”
Those clients are now primarily high- and ultra-high-net-worth.
“Even before we sold Worldsource, we had demonstrated an interest to want to grow our footprint with private clients,” Mavroudis said.
To add to the Guardian Capital Advisors LP private wealth business, Guardian acquired BNY Mellon Corp.’s Canadian wealth management business in 2021 and renamed it Guardian Partners Inc., adding $5.5 billion in assets under management (AUM), mostly in the ultra-high-net-worth segment.
Last year, Guardian bought a majority stake in Waterloo, Ont.-based private wealth manager Rae & Lipskie Investment Counsel Inc., adding another $1 billion in AUM.
The Worldsource sale added proceeds to Guardian’s already substantial investment portfolio, which totalled $1.27 billion as of June 30. The firm is undertaking a strategic review to determine what to do with the bulk of the windfall.
Guardian always has had a “serious-sized balance sheet,” Mavroudis said. But that was less of an advantage during the previous decade, when low rates made pursuing debt-fuelled growth easy for competitors. With interest rates at more normal levels, he believes there will be better-priced opportunities with less competition.
Founded in 1962, Guardian has largely focused on institutional clients such as pension funds. Institutional AUM accounted for $47.3 billion of the firm’s $52.8-billion total as of June 30.
But growth on the institutional side is harder to come by, especially in Canada. Large pension funds that used to outsource investing to third-party managers have expanded their own teams, cutting off a major revenue source.
Meanwhile, passive investing exploded in the post-financial crisis era of low rates, which was a more challenging environment for stock pickers. And alternative investments — particularly private assets — took off as investors sought yields from instruments other than traditional bonds.
“If you were a traditional asset manager in Canada, you have faced significant headwinds between the growth of passive and the growth of private assets,” Mavroudis said.
Guardian launched its first private real estate fund in 2013, but Mavroudis said the firm’s been careful about wading into private assets despite the demand.
“I think it’s very critical that you have teams that are credible, and that 10 years down the road, after you raise money and invest it, that you can look your clients in the eyes and know that you’ve done a great job for them,” he said.
Last year, the firm launched Guardian Smart Infrastructure Management, a business focused on technological innovation in private infrastructure such as sensors and communication networks for so-called “smart cities.” Guardian has been in discussions with institutional investors around the world about raising its first fund.
Along with Smart Infrastructure and Guardian Partners, the firm has identified the Canadian retail market as an area for future growth. Guardian Capital LP launched its first ETFs in 2020: five active funds, with a couple designed for income preservation in retirement.
Guardian took that theme further last year. After partnering with pension expert and York University professor Moshe Milevsky, it released the GuardPath Longevity Solutions, a modern take on the 17th-century tontine.
“When you look at the demographic wall that we’re coming up against, this baby boomer generation, you need to take a slightly different lens,” Mavroudis said. “They’re not really worried about growing their pool of capital. People are wondering whether their pool of capital that they’ve been told to save and grow will be sufficient.”
Mavroudis cites the products as an example of leading in an area in which advisors face a challenge in meeting client needs. “Whenever you do that, it’s going to require patience,” he said.
Almost a year after their release, the modern tontine fund has only about $1.4 million in AUM and the managed decumulation fund has about $1.2 million. Mavroudis cited the “big education effort” and “long sales cycle” with new products, but the firm believes in the longevity theme.
“We’re in it for the long haul and have the financial heft to invest in innovation with long-term payoffs,” he said. “You’ll see a lot more from us in this space.”
Guardian is investing in its retail distribution channel and on growing brand awareness, the latest earnings report said, “rather than being myopic about the drag on earnings from these initiatives.” It recently spent $35 million seeding new investment funds to reach a more marketable scale.
Mavroudis said consolidation in Canada has made gaining a following harder for new products.
“Years ago, a lot of innovation for new product came from small, upstart companies. And their new idea was allowed to float within the bank dealership platform on their shelf,” he said.
Sometimes this led to big firms launching their own versions of new products, Mavroudis said, expanding the asset class. But product shelves have narrowed, particularly with the advent of the client-focused reforms.
“Innovation requires boldness and patience to pioneer ideas that may take years to actually become mainstays,” he said. “You have to have the foresight and the ability to invest for the long term.”
That’s what Guardian did two decades ago. Known in the 1990s as a Canadian mutual fund firm with a few star managers, Guardian expanded its geographical footprint. It now has more than 40 people in the U.S. and 22 in the U.K.
“The thing that may surprise people is how well we’ve diversified beyond Canada,” Mavroudis said. “That’s been through recruiting people comfortable working in these different jurisdictions, with different client segments and different asset classes.”
Mavroudis didn’t shy away from similar experiences. Born and raised in Toronto to Cypriot parents, he studied commerce at the University of Toronto and focused on accounting.
“Coming from immigrant parents, the pressure was always to become a professional of some kind,” he said.
He became a chartered accountant and got a job with Coopers & Lybrand, a precursor to PwC, accepting a six-month secondment to Cyprus working on offshore tax planning. That turned into seven years overseas.
After the collapse of the Soviet Union, the region was booming. The Cyprus office got a call from Moscow looking for young professionals because they couldn’t keep up with the work in the Russian capital. That was August 1995.
“I think most people were hiding under their desks. I was young enough and naive enough and curious enough — I just asked what this was about,” he said. “Seven days later I was on a plane to Moscow.”
There he was recruited to join an upstart investment bank that was later bought by U.K.-based asset manager Robert Fleming & Co. In 1999, Mavroudis moved to London as director and chief operating officer of Fleming Asset Management.
After Fleming was acquired by Chase Manhattan Bank in 2000, Mavroudis returned to Toronto in 2001 as a managing director of J.P. Morgan Asset Management (then a part of J.P. Morgan Chase), armed with years of international experience.
He joined Guardian in 2005 as a senior vice-president.