As president and CEO of CI Financial Corp., Stephen MacPhail talks to a lot of people. The most frequent interlocutors—besides those among his 1,400 employees he sees every day—are financial advisers, upon whom Canada’s third-largest mutual fund provider depends to sell its products. MacPhail figures he meets with 500 to 600 advisers every year. “I’ve probably spent more time on the red-eye than anyone else in Canada,” he says.
Lately, he has also been spending a lot of time talking to institutional investors in the wake of Scotiabank’s sale of $2.6-billion worth of CI stock through a bought deal in June. “Institutional investors always ask us, ‘What’s the moat around your company to protect it from other forces?’” says MacPhail, 57. “And here’s what I show them.” He produces an investor presentation he’s been giving recently and points to one slide that he’s particularly proud of. It shows that in 2013, CI held two major conferences, 1,167 training sessions and roadshows, and 15,581 one-on-ones, branch meetings and conference calls–all of them with advisers. “If you figure there’s 300 working days in a year–well, you do the math,” MacPhail says. “So if you want to know the one competitive advantage about CI, it’s our ability to do that. You can’t just go out and do that.”
As the old adage goes, investments aren’t bought—they’re sold. And it’s fair to say that selling mutual funds is something CI Financial and, by extension, the advisers MacPhail meets with so often, have been very good at. In late June, the company reached $100-billion in assets under management (AUM), solidifying CI’s third-place ranking among Canadian fund providers, after RBC Global Asset Management ($335-billion worldwide) and IGM Financial ($142-billion). And while other non-bank fund companies have struggled–AGF Management, for instance, suffered net fund redemptions of 8 per cent year-over-year to June—CI’s net sales to the end of June were $2.7-billion, up 29 per cent from the same period in 2013. One big reason for that is the breadth and quality of CI’s offerings. According to Morningstar, CI has the broadest selection of funds—more than 160 of them—and, in 2013, had the most top-rated funds in terms of performance in the entire Canadian mutual fund industry. “Everything is going exceptionally well for CI,” says CIBC analyst Paul Holden, a long-time observer of the company. “Fund returns are good, they have a good product shelf in place, the distribution channels are strong, and net sales are fantastic.”
What could possibly go wrong?
As MacPhail puts it, he isn’t “drinking the Kool-Aid.” He joined in 1994 after eight years in the oil industry and four in the trust business, including a stint at Central Guaranty Trust during its collapse in the early ‘90s. He knows how the worm can turn. But that doesn’t mean he’s being cautious, at least when it comes to his goals for CI. Along with Bill Holland, his charismatic predecessor and now CI’s chairman, MacPhail has helped steer the company through 20 years as a public company, going from $3.7-billion in AUM to $100-billion. He doesn’t think it needs to stop there–MacPhail’s goal now is to hit $150-billion in five years.
On paper, that might look simple, especially for a company that has managed a compound annual growth rate in AUM of better than 20 per cent over the past 20 years. But neither Holland nor MacPhail is under any illusions it will be easy. “You could say we can just keep doing what we’ve been doing and we’ll get there,” MacPhail says. “But it never works out that way.”
Adds Holland: “Right now, the headwinds we face are so significant that it would be hard to even describe them all.”
That might well be true, but here’s a quick attempt: First, and most obviously, a mutual fund company’s performance is correlated with the markets, which have been on a roll for five years–the good times can’t last forever. Second, the industry is facing significant regulatory changes, including strict new disclosure requirements for advisers and asset managers around fees and performance. Third, the popularity of low-cost exchange-traded funds (ETFs) and increasing regulatory interest in what the industry charges investors are exerting downward pressure on fees–the lifeblood of the industry.
Finally, and perhaps most significantly, all of Canada’s big banks have been very public about their desire to expand wealth management revenues, dedicating their resources and thousands of branches to peddling mutual funds. That puts independent fund companies like CI at a huge disadvantage when it comes to distribution.