Canadians continue to pull their money from CI Financial Corp.'s mutual funds, extending the company’s troubling streak of net redemptions and sending its share price tumbling.
CI reported net redemptions of $2.47-billion in the second quarter, meaning investors are pulling more money from the company’s funds than they are putting in. The results extended CI’s streak of net redemptions to seven straight quarters, totalling $15.4-billion since the fourth quarter of 2017.
The news hit CI’s stock Thursday and the company’s share price fell 8.8 per cent to $18.32 – a drop that confounded CI’s leaders. “There was nothing that was unexpected by the market," board chair Bill Holland said in an interview. The company reported net income of $112-million after recording a $35-million restructuring charge.
As Canada’s biggest independent fund company with $130-billion in assets under management, CI was once widely seen as the fund manager best suited to take on the country’s banks, who are elbowing their way into wealth management. Lately, however, CI’s fund performance has struggled and, in turn, investors have started to flee.
The asset-management business is also facing rapid change, largely owing to low-cost exchange-traded funds (ETFs) that have developed a robust following. Since peaking in May, 2014, CI’s share price has fallen almost 50 per cent.
To chart a new path, CI appointed an outsider, Kurt MacAlpine, as its new chief executive on Tuesday. He previously ran McKinsey & Co.'s North American asset-management practice and most recently served as an executive at ETF provider Wisdom Tree Investments Inc. in New York.
Mr. Holland and his close-knit circle of friends – including Steve MacPhail, who succeeded Mr. Holland as CEO from 2010 to 2016, and current CEO Peter Anderson – are widely credited with CI’s once-explosive growth. Lately, however, shareholders have been pressing for a new vision. Mr. Holland described Mr. MacAlpine’s hire as a “generational hand-off" in an interview Tuesday.
When Mr. MacAlpine takes over Sept. 1, he will inherit a company that is struggling to convince investors it has a credible path forward. Lately, CI has talked about turning itself into a wealth manager, rather than a fund company, that has everything from a fund-manufacturing arm that creates new products to financial advisers to a digital footprint, after its recent purchase of robo-adviser Wealthbar Financial Services Inc.
The new CEO is likely to lay out his vision in the near future, but in the meantime CI is focused on reducing costs. Its $35-million restructuring charge is largely designated for cutting some senior employees and fund managers, chief financial officer Doug Jamieson said on a conference call.
CI is also focused on reducing the number of funds it manages. Historically, the company was known as a serial acquirer that bought out smaller fund companies, including Sentry Investments in 2017. In the process it assembled a large stable of funds that has grown unwieldy, making it tough to deliver top-quartile performance across the entire roster.
On the conference call Thursday, retiring CEO Mr. Anderson said CI will be "materially reducing the number of funds that we have.”
However, net redemptions remain the biggest issue, and the experience of industry rivals such as AGF Management Ltd. and Mackenzie Financial have have shown that once they start, they are extremely tough to stop. Mr. Holland attributed the recent streak to CI’s portfolio of balanced funds, which provide investors with a mix of fixed-income and equity exposure, as well as its generic Canadian equity funds.
“We had a disproportionate amount of assets in Canadian balanced funds, and Canadian funds, and they are ridiculously out of favour,” he said.
At the start of 2018, CI’s largest fund, the Signature High Income Fund Class, managed $8.2-billion. As of June 30, its assets under management had dropped to $6.6-billion.
Despite the optics of net redemptions, Mr. Holland is perplexed as to why CI’s stock has fallen so far out of favour, now trading at only 8.2 times earnings.
“We think that the market is materially wrong on the price of our stock and we’ll continue to buy it [back] aggressively," he said.
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Tim Kiladze