Morguard buying asset manager with $3.5-billion under management

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A sizeable player in the real estate industry is making a bet on good old fashioned stocks and bonds.

Morguard Investments Ltd., a subsidiary of publicly-traded Morguard Corp., is buying a 60 per cent stake in Lincluden Investment Management Ltd., a privately held asset manager. A dollar amount for the transaction was not made public and the deal is subject to regulatory approval. The two firms are only a short drive away from each other. Morguard is based in Mississauga, Ont. and Lincluden (named after a Scottish Abbey) is headquartered in Oakville, Ont.

Morguard Corp. manages about $15-billion in real estate assets. About half of that is for its own book, while the other half is managed for pension clients that include the Healthcare of Ontario Pension Plan (HOOPP).

Lincluden Investment manages equity and fixed income investments for institutional clients. It also manages money for high net worth individuals and offers a balanced fund for mutual fund investors. The company has $3.5-billion under management and has been around since 1982.

"I've known the CEO for some time. We thought it would be worthwhile combining these two. So we'll end up with 60 per cent of Lincluden and they'll continue to manage it." said K. (Rai) Sahi, chairman, CEO and controlling shareholder of Morguard Corp. in a telephone interview. "Lincluden management didn't really want to sell their company and get out. I offered them an opportunity to combine and maybe the Morguard name will help them to grow."

Lincluden's partners will retain a 40 per cent stake in the firm.

Morguard's heft will bring "scale" to Lincluden and the combination should help both companies grow their assets under management, which have been stagnant for a number of years, said Dean Wilkinson an analyst with CIBC World Markets in a telephone interview.

Morguard he pointed out, already has a small equities and bond division, but this purchase would make it a much bigger player in the sector and bring in millions of dollars a year in fee revenue from managing institutional money.

"It's a decent 20 per cent increase in the total assets under management," said Mr. Wilkinson. "They're not just buying the assets. They want the people and the platform. Anytime you're buying an asset manager you want to have continuity of the key people [management and portfolio managers]."

In a statement, Mr. Sahi, said "experienced teams at Morguard and Lincluden will continue in their existing roles to ensure stability."

Morguard Corp. which Mr. Sahi bought in 1997, is worth $1.8-billion and trading just shy of its all time high. Mr. Sahi emigrated to Canada from India in 1971 and owns 54 per cent of the common stock. Forbes estimates his wealth at $1.1-billion (U.S.)

"I wouldn't be surprised to see potentially more consolidation in the asset management gathering business," said Mr. Wilkinson. "Organic growth is probably becoming a little more difficult for these asset managers, and growth through acquisition and consolidation may be on the radar screen for more players."

Citing examples of consolidation, such as Dundee Corp. selling its wealth management business to Bank of Nova Scotia, Mr. Wilkinson predicts we'll see more deals involving boutique firms being swallowed up, or merging with larger entities.

"It's becoming an increasingly difficult environment. You need scale and you need synergies."

Editor's note: An earlier version of this story published online incorrectly stated that Ontario Municipal Employees Retirement System (OMERS) is a client of Morguard Investments Ltd.. OMERS is not a client of Morguard.