AGF Management Ltd. is suing a former star manager and a U.S. investment firm, alleging they engineered the departure of most of AGF’s emerging markets team and cost the Canadian firm millions in lost business.
Patricia Perez-Coutts, who oversaw the top-performing AGF Emerging Markets mutual fund and related institutional accounts, left AGF with four members of her team in May to run money for Dallas-based Westwood Holdings Inc.
It has set up a Canadian arm in Toronto that has just begun operations.
AGF, which has seen assets in its mutual funds dwindle in recent years and whose stock has nosedived over the past year, is seeking at least $10-million in overall damages, according to a statement of claim filed in Ontario Superior Court.
“AGF has lost millions of dollars of assets under management, lost prospective clients and prospects in the ‘pipeline’, and sustained damages to its global and emerging market equity investment business, goodwill and reputation,” AGF said.
“On the institutional side of the business alone, AGF has seen the withdrawal of millions of dollars of assets under management from a significant number of clients.”
None of the allegations have been proven.
Ms. Perez-Coutts could not be reached for comment.
A spokesperson for Westwood would only say that she started work on Monday in her Bay Street office.
Toronto-based AGF says the “unlawful conspiracy” was carried out by Westwood and New York recruiting firm Warren International Inc., which specializes in “lifting out” entire investment management teams.
AGF is also suing Warren International.
On April 12, Westwood announced that Ms. Perez-Coutts along with two other AGF portfolio managers, Thomas Pinto-Basto and Alice Popescu, and two analysts would join the U.S. firm’s new Toronto affiliate Westwood International Advisers Inc.
In its 35-page statement of claim, AGF said Westwood’s chief executive officer Brian Casey met in March, 2011, with Ms. Perez-Coutts and another potential hire to discuss plans for the AGF emerging markets and global team to move to the U.S. firm’s new Canadian office.
Westwood offered “substantial signing bonuses to Perez-Coutts and incentives for securing the AGF team” that included an equity interest in a newly created Westwood unit, AGF alleged.
AGF said that the harm to its business has been mitigated by three AGF team members who agreed to stay, but that incentives offered by Westwood to Ms. Perez-Coutts and Mr. Pinto-Basto to solicit new business will “continue to cause damage.”
Stephen Way, a 25-year AGF veteran and leader of the firm’s global equity team as well as two analysts who were promoted to become portfolio managers, became responsible for the emerging market strategies.
It is nothing unusual for fund managers to switch employers, but AGF alleged that Ms. Perez-Coutts and Mr. Pinto-Basto, who is also being sued, breached employment contracts requiring them to refrain from soliciting or inducing any AGF employee to leave.
National Bank Financial analyst Shubha Khan agreed that AGF has been losing business.
He said its assets under management have declined by 5 per cent decline to $41.2-billion during the two months ending July 31, and added that the departure of Ms. Perez-Coutts and her colleagues likely contributed to the outflow.
“Most equity indexes are up 5 per cent over the last two months,” he said.
“I can only conclude that they are seeing net redemptions, which are offsetting any lift from the markets.”
Institutional assets at AGF
fell $1.7-billion to $20.6-billion at the end of July, noted Mr. Khan, who on Monday cut his one-year target on the company’s stock to $12 a share from $13.50.
He expects AGF’s dividend to be safe for now because the company has cash on hand from the recent sale of its trust arm to Laurentian Bank of Canada.