Bloomberg News

Fiera Targets Assets of C$100 Billion: Corporate Canada

April 16, 2012

Fiera Capital Corp. (FSZ), the Montreal- based money manager that acquired Natcan Investment Management from National Bank of Canada, plans to double assets by 2016 as the firm adds clients and stocks advance.

Fiera’s C$309.5 million ($310 million) acquisition this month boosted assets by 88 percent to about C$55 billion, making Fiera Canada’s third-largest publicly traded asset manager.

“Purely on an organic basis, we think we can double our assets under management within five years,” Fiera Chief Executive Officer Jean-Guy Desjardins, 67, said in a telephone interview. “I think we will be able to generate 15 percent annual growth, which factors in gains in market share and increases in unit values. We’re bullish on stocks.”

Montreal-based National Bank, the country’s sixth-largest lender, acquired a 35 percent stake in Fiera as part of the Natcan transaction, with an option to increase it to 40 percent. The bank also agreed to maintain an undisclosed level of assets under Fiera’s management for seven years.

The transaction gives Fiera access to National Bank’s distribution network, which includes 442 branches across Canada and about 2,000 financial advisers. National Bank Financial, the bank’s brokerage unit, has an additional 120 branches employing about 1,000 investment advisers.

‘Critical Mass’

“This is very positive for Fiera to gain a bank partner,” Stephen Boland, an analyst with GMP Securities LP in Toronto, wrote in a note to investors published April 10. The Natcan purchase will let Fiera “increase critical mass and realize economies of scale which are crucial in the asset management industry,” he said. Boland has a buy rating on Fiera Capital.

Fiera closed at C$8.45 on April 13, for a market value of C$478 million. The stock has gained 17 percent since the day before the Natcan deal was announced Feb. 27, making it the best performing Canadian asset manager this year.

When ranked by assets, Fiera trails CI Financial Corp. and No. 1 IGM Financial Inc. (IGM) among Canadian-based publicly traded fund management companies.

“I don’t think it’s that much of a stretch” for Fiera to double assets in five years, said Brandon Snow, a fund manager with Cambridge Advisors in Toronto, which oversees about C$3.5 billion and holds Fiera shares. “Fiera has shown that they can continue to grow. With the banks pushing out the independents, Fiera is probably one of the names that will win out in the end.”

National Funds

About 11 percent of the bank’s brokerage customers now own National Bank funds, a proportion that Desjardins said will increase over time.

“What’s good for the bank will be good for us,” he said.

Fiera has retained about half of Natcan’s 90 employees, including teams of fund managers that oversee corporate bonds and small-capitalization Canadian stocks, Desjardins said. Duplicate investment vehicles will be merged, Desjardins said, citing government bond funds and Canadian growth funds as examples.

Total cost savings from the deal will probably be about C$10 million, Fiera said in a March 2 filing.

“The pie isn’t growing that quickly in the mutual fund industry in Canada, so if you want to grow, you have to get bigger by aligning with other people,” Snow said. “You need scale to succeed, and this transaction brings the required level of scale to Fiera.”

Hedge Funds

Fixed income accounts for about two-thirds of Fiera’s assets, Desjardins said. Equities represent 25 percent, while “alternative” investments such as real estate and infrastructure make up the remainder.

Fiera, which oversees six hedge funds with about C$700 million in assets, plans to start up a seventh such fund in the weeks ahead, Desjardins said. He declined to be more specific.

“There are plenty of growth opportunities in alternative investments,” he said. “When bond yields are so low, people look for investment vehicles that can provide better returns.”

Desjardins, who is also Fiera’s chief investment officer, said he’s optimistic stocks will outperform bonds in the next five years as economic growth takes hold in the U.S. and elsewhere. Stocks may return an average of 5 percent to 6 percent a year during the period, he said.

“Dislocations” such as the Greek debt crisis or concern over burgeoning U.S. government debt “are starting to disappear,” he said. “Tools have been put in place by policy makers to manage and rectify imbalances. We are closer to the day where we can embark on a four-, five- or six-year growth phase.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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