Last week in Toronto, I had back-to-back meetings that provided an intriguing juxtaposition. I first met with Joe Sirdevan, the former head of research at Jarislowsky Fraser, who is starting a new firm, Galibier Capital, and then spent some time with Kim Shannon, who is one decade removed from doing exactly the same thing. Indeed, on the day of my visit, Ms. Shannon and her team at Sionna Investment Managers were celebrating their 10th anniversary, having achieved what they set out to do – build a significant independent firm.
These two managers serve as perfect counterpoints to the constant consolidation we see in the asset management business, a trend that's resulted in a vast majority of client assets being managed by banks and insurers. I believe that they're part of the next phase of the industry cycle, which will see a wave of entrepreneurial managers emerge from the big institutions.
Employee ownership, asset bases of a more manageable size, and, in some cases, performance fees will be the catalysts. In an industry where size is an impediment to the primary activity of delivering good returns, these young firms, along with the established independents, have an opportunity to thrive in the shadows of the plus-sized competition.
Sionna is an inspiring story for the up and comers, not only because of its success, but how it got there. On the way to a solid performance record and $3.4-billion under management, the firm first went to $9-billion. Let me explain.
Ten years ago, Ms. Shannon had already tasted success at Royal Insurance, AMI and Merrill Lynch. When CI Funds bought what is now called the CI Canadian Investment Fund from Sun Life, they helped her start Sionna – it was important they keep the fund's lead manager since 1996 in place. As it turned out, Ms. Shannon and CI were a great combination. With her long-term record and willingness to market, combined with CI's sales machine, the Canadian Investment Fund grew to be the country's largest Canadian equity fund.
But then in late 2006, Ms. Shannon made a gutsy move. She resigned from the CI mandate and in a heartbeat went from managing $9-billion to $900-million.
What led to Ms. Shannon's decision was a challenge that many managers face, particularly those who sub-advise to large mutual fund companies. When firms become dependent on one client, they're vulnerable to being dismissed, due to either weak performance or merger activity, and have little bargaining power when it comes to negotiating fees. They also find that their mutual fund success makes it hard to expand the business in other areas.
Post-CI, Sionna has diversified its client base and regained control of its fee schedule. In the mutual fund area, it formed a 50/50 partnership with another fund company, Brandes, and together have grown assets from zero to $850-million over five years. The firm has a variety of other private client mandates and has carved out a place in the highly competitive institutional market. Pension funds, foundations and endowments now make up over half of the assets.
Sionna's growth puts it at the top of a very short list of Canadian asset managers founded and led by women.
Of the others, the most prominent are Delaney Capital Management (Kiki Delaney) and Sky Investment Counsel (Ms. Shannon's close friend Jenny Witterick).
Now back to Mr. Sirdevan, who has named his firm after the Col du Galibier, one of the longest uphill climbs in the Tour de France. With that symbolizing the challenge ahead, what can he and other managers learn from Sionna's first 10 years?
For sure, Ms. Shannon has had good mentors. She learned about value from John Di Tomasso, her boss at Royal Insurance, and over the years leaned on Alan Westbrook ("my business Dad") and Dian Cohen ("business Mom") for guidance and inspiration.
From day one, she started building a team around her, which gave her research depth and the resources to grow in different areas.
And most importantly, Ms. Shannon has consistently and boringly stuck to an investment philosophy described as "relative value." Buy stocks that look too cheap. Wait for them to move back to fair value. Sell and repeat. She laughingly calls it revenge of the nerds – stick to the numbers and just keep doing it.