CI Financial Corp. has agreed to acquire the Canadian arm of U.S. exchange-traded fund powerhouse WisdomTree Investments Inc.
CI said Thursday it will add WisdomTree’s 14 Canadian ETFs, which have $958-million in assets, to its current ETF division, which manages about $8.9-billion. The acquired ETFs trade on the Toronto Stock Exchange.
CI will pay between $7-million and $13-million in cash, depending on whether growth targets for assets under management are achieved over the next three years. The company said it will pay $5-million upfront, subject to purchase price adjustments at closing. The deal is expected to close in the first quarter of 2020, subject to regulatory approval.
The WisdomTree Canada ETFs will be rebranded as CI WisdomTree ETFs. The Canadian WisdomTree ETFs acquired by CI will continue to track proprietary indexes that are managed by the U.S. parent.
The WisdomTree ETFs are well known to CI management; Kurt MacAlpine led the Canadian division of WisdomTree before joining the mutual-fund giant as chief executive in early September. Mr. MacAlpine said the acquisition will “strongly complement the CI First Asset ETF lineup” and will add new investment capabilities and increase the scale of their ETF business.
CI will maintain the lineup of WisdomTree ETFs with no changes to their current investment objectives and strategies. As well, certain employees from the Canadian office will also join CI Financial, but WisdomTree would not confirm who that would include.
Jessica Zaloom, a spokeswoman for WisdomTree in the United States, said the deal was “an attractive opportunity” for the ETF company to continue to benefit from growth in Canada, but in a “more cost- and resource-efficient way.”
WisdomTree entered the Canadian market in 2016 amid a boom of new domestic players joining the ETF space, including some of Canada’s largest mutual-fund firms. While many competitors were anticipating WisdomTree would quickly gain market share in Canada, the ETF provider struggled to gain footing in its first year, recording just more than $119-million in assets by its first anniversary.
The company initially hired Raj Lala, current CEO of Evolve Funds Group Inc. and former head of retail distribution at Quebec-based asset manager Fiera Capital, to run the Canadian division. But after only eight months, Mr. Lala resigned, stating the partnership “wasn’t a good fit” for him and the company was left to search for a new leader.
“I originally joined WisdomTree because of their brand and innovation in the ETF industry,” Mr. Lala said in an interview. “But the Canadian market isn’t an easy one to navigate due to its vast geography and investor preferences.”
Mr. MacAlpine, who was head of global distribution for WisdomTree in New York, became head of WisdomTree Canada soon after Mr. Lala’s departure. He remained based in New York, and moved to Canada when he joined CI.
Launching in the Canadian market is dramatically different than in the U.S. because large, established investment managers – including Canada’s dominant banks – already enjoy strong distribution networks and brand recognition.
“In the Canadian ETF landscape, distribution matters more than branding," said Steve Hawkins, chair of the Canadian ETF Association. “It’s very hard for new entrants in the Canadian marketplace to generate strong asset growth without established distribution relationships."
Mr. Hawkins, who is also the president and CEO of Horizons ETFs Management (Canada) Inc., believes the ETF market in Canada has reached its peak, and will likely see further contraction in the next 12 to 18 months as more ETF providers look for buyers or exit the industry altogether.