Twelve years ago, FBI agents seized hundreds of documents from YBM Magnex, a U.S.-based magnet manufacturer that was listed in Toronto and dogged by allegations of Russian mob ties.
When YBM emerged as an investment fraud, Sceptre Investment Counsel a money manager with $19-billion in assets, was forced to write off this stock and endure a hit to its reputation among institutional clients because it had been the firm's second-largest shareholder.
This mistake and other bad stock picks hurt investment performance, and forced the Sceptre into net redemptions for several years. While there have been moments of asset resurgence as returns improved, the money manager never got back to the glory years of assets in the double-digit billions. And it didn't help that its star manager Allan Jacobs jumped ship in mid-2007 to Sprott Asset Management Inc.
With only $7.2-billion in assets today, and no permanent replacement for CEO Glenn Inamoto, who died suddenly last summer, it wasn't surprising that Sceptre announced a deal Wednesday to merge with privately owned Montreal-based Fiera Capital Inc.
The transaction, which is set to close this summer, will create a newly merged entity, Fiera Sceptre, with $30-billion in assets. Investors liked the deal, sending Sceptre's stock price surging almost 29 per cent Wednesday to close at $6.70 a share on the Toronto Stock Exchange.
"It's a big scale jump," said Robert Almeida, a portfolio manager at Portland Investment Counsel Inc. and co-manager of AIC Advantage Fund which invests in wealth management firms. "You can only win from that.…You get to save some costs, and you get to increase cross-selling capability."
His fund once owned Sceptre shares in the 1990s when fund industry growth was exploding, but dumped them around 2002-03. "You are swimming upstream if you don't have scale to compete," he said.
Sceptre and Fiera Capital are largely focused on running money for investors such as pension funds. Fiera was created in 2003 from a partnership between Desjardins Financial Group and a group lead by veteran manager Jean-Guy Desjardins. Fiera has no debt and annual revenue of over $39-million.
Under the agreement, Sceptre shareholders will exchange 14 million common shares for 14 million new class A subordinate voting shares of Fiera Sceptre. Fiera will get 21.1 million class B common shares and control 60 per cent of the new entity. Mr. Desjardins, Fiera's controlling shareholder, will become CEO of Fiera Sceptre, which will be publicly traded.
If the deal is approval by two thirds of Sceptre's shareholder at a meeting in August, they will also get $8.4-million, or 60 cents a share, in the form of distribution. Fiera Sceptre plans to maintain its quarterly dividend of 6 cents a share.
The merger stems from a Sceptre board decision in late 2008 to appoint a new management team under Mr. Inamoto, and hire TD Securities Inc. to do a strategic review and find a partner for Sceptre. Fiera is a "good fit" because it has heavy emphasis on fixed-income investments and a big presence in Quebec, while Sceptre has more assets in equities and is focused on Ontario and the West, said Sceptre chairman Ross Walker.
He acknowledged the purchase of YBM stock in the late 1990s was a "mistake" and not good for the firm's reputation. In those days, individual managers could make decisions on a stock, but that process changed around 2000 to a team approach, he. said. "Now, no one individual has the final say."