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Why National Bank backed AIC Add to ...

There's a two-decade tale behind AIC's decision to hire National Bank Financial as its advisor on the mutual fund company's sale to Manulife Financial.

In the early 1980s, AIC boss Michael Lee-Chin was a successful mutual fund salesman. He was well-established in a lucrative industry. He met Lawrence Bloomberg, founder and CEO at an upstart investment dealer named First Marathon, and Rob Grundleger, a top gun salesman on the First Marathon desk. The three became buddies.

Let's pause for just a moment. There's a sense that Bay Street is a closed, WASP club. To the extent that stereotype was once true, it helped drive the careers of this trio.

Mr. Lee-Chin, a native of Jamaica, Mr. Bloomberg, a Jewish guy from Montreal, and Mr. Grundleger, an ex-pat South African, all started out on the Street viewing themselves as outsiders, with something to prove in the Toronto community.

They all turned their back on successful first careers to take a chance on their own companies. Mr. Bloomberg broke in to the industry as a well-regarded analyst at what's now BMO Nesbitt Burns. Mr. Grundleger was a successful stockbroker in a storied Wood Gundy branch known as 42nd Street, in Toronto.

Now, back to our story…

At some point in the 1980s, over adult beverages, Mr. Bloomberg and Mr. Grundleger pointed out to Mr. Lee-Chin that distributing mutual funds was a classic middle-man job. They explained that if the market ever crapped out, and the public stopped buying funds, then their salesman friend would see his commission-driven income dry up. They also pointed out that over time, the middleman always gets squeezed.

On the other hand, manufacturing funds looked like a great business. Mutual funds earn fees in good markets and bad, as long as the money manager can retain assets. That was the smart place for an adept student of the markets.

And Mr. Lee-Chin was a very adept student of markets. With Ben Graham's value investing philosophy as his touchstone, Mr. Lee-Chin scraped together the cash needed to buy a fund with just $1-million in assets in 1987. Mr. Bloomberg was always around to provide counsel as AIC soared to $15-billion in assets by the late 1990s, then hit a redemption run in recent years.

Over those two decades, these three friends saw their situations change. Mr. Bloomberg sold First Marathon to National Bank for $712-million in 1999, but stuck around as a rainmaker. Mr. Grundleger departed a few years later to start a hedge fund, Groundlayer Capital. Mr. Lee-Chin has large, and high-maintenance, holdings in Caribbean financial services.

Mr. Bloomberg didn't need to show up at work each day after that sale to National Bank , which rebranded its investment dealer as National Bank Financial. But he keeps a hand in the business, and still can frequently be found near the NBF equity desk. And sources say he worked tirelessy over the past year to help Mr. Lee-Chin arrive at a graceful, honourable exit, in the sale of AIC to Manulife Financial.

When it came time for Mr. Lee-Chin to sell his baby, he tapped the investment bank that was home to the guys who helped give birth to AIC.


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