An ETF pioneer's comeback
Rachel Idzerda for The Globe and Mail
Som Seif had a big chip on his shoulder after he found himself forced to sell his first company, Claymore Investments. Today, he retains full control of his new venture, and says he's ready to take on the competition as new low-fee players pile in
Four years ago, Som Seif lost his baby.
In 2005, at just 28, he launched Claymore Investments and helped introduce a new kind of investment product to Canadians, offering exchange-traded funds (ETFs) that tracked indexes for far lower fees than the mutual funds that had dominated for decades.
Just as the company was hitting its stride, reaching $8-billion in assets under management in less than six years, Mr. Seif's U.S. financial backer, Guggenheim Partners, decided to sell.
It was a humbling experience: He refers to the company as "the baby he lost."
"After I lost Claymore, I had a big chip on my shoulder and I needed time to stop and think. I took a step back and turned off my BlackBerry so no one could call me," the 39-year-old father of four recalls over our lunch of dim sum near Toronto's city hall.
Despite Claymore's impressive growth, Guggenheim was ready to take its money off the table to invest in other opportunities. Mr. Seif tried to buy out Guggenheim initially, but in the end, the sale (for an undisclosed price) to global asset management giant BlackRock became the most attractive option.
"I tried my hardest to be the buyer but the price just kept getting higher and higher," he says. "I made a decision right from the start that if it hit $200-million, I would sell – and the bid went above that price."
After the defeat of losing his firm, Mr. Seif spent a short time as a recluse with his family in Southeast Asia and Italy. But he wasn't ready to give up on ETFs.
In mid 2012, within weeks of returning to Canada, he registered a new ETF provider called Purpose Investments Inc. and started to build a company that would follow the path he had planned for Claymore.
Despite the success of his second firm, he hasn't forgotten about his roots and regularly checks the performance of the Claymore funds he first introduced to Canadians.
"Ten years later, and to this day, they are a part of my DNA," he says. "I built those funds, they are my babies and I am very proud of the success of them."
Today, however, he competes with those funds at the helm of Purpose, in a far more crowded landscape for ETFs that will soon become even more crowded with several large mutual fund players entering the market later this year.
When Mr. Seif launched Claymore, there was only one competitor on the Street, Barclays Global Investors Canada Ltd. (known today as iShares). Today, there are 12 ETF providers in the Canadian market and total ETF assets stand at $89.6-billion as of the end of 2015, according to data from National Bank Financial.
ETFs, with average management fees of around 0.5 per cent, are expected to become even more popular with investors when new regulations come into effect in July. In the second phase of the client relationship model (known as CRM2), investment advisers will be required to disclose all fees and investment performance directly to their clients.
When asked if these new players worry him, he smiles and shakes his head no.
"I have already competed with some of the largest asset managers in the world, BlackRock, Vanguard and State Street. I've never been afraid of anybody else. If you are afraid of them, then it is because you are actually afraid of your own insecurities," Mr. Seif says.
Sitting at a window seat at Lai Wah Heen restaurant in downtown Toronto, wearing a navy blue blazer and an open-collar pinstriped shirt, he is relaxed as he checks off his favourite dim sum items including a beef dish that is not found on the menu.
The restaurant, which translates to "luxurious meeting place," is a family favourite for Mr. Seif and his wife, Kerry, who regularly bring their three daughters for Sunday dim sum. (Ms. Seif recently gave birth to their fourth child, a son, on Dec. 19.)
With more than 10 years of ETF experience, Mr. Seif has been a long-time advocate for lowering fees for Canadian investors and says the industry still has a long way to go when it comes to the quality of investment strategies and the cost and value investors are receiving.
"Fees are important and a big factor in investment management, but I'm not a discounter," he says. "I don't think you should just buy something because the fee is only 10 basis points. My problem is with active management and that most people in the mutual fund active management business charge too much for their trade."
At Purpose, Mr. Seif runs one of the last independent ETF shops in Canada with $1.8-billion in assets under management as of Dec. 31, offering 14 ETFs with average management fees of 0.55 per cent.
The DNA of the company's product lineup lies in managing risk as opposed to solely focusing on lowering fees, says Mr. Seif, who owns 100 per cent of the firm. Despite a number of offers from interested parties, he has no plans to take on a partner this time around.
"When I decided to launch Purpose, I spoke to all the players and many of them offered me jobs or wanted to be strategic partners but I didn't need capital from anyone else and I didn't want to get into the same situation as before where I lost control," says Mr. Seif. "I now have the flexibility that if I want to own my company forever, then I can own it forever."
It isn't long before our table for two is holding enough dishes to feed four. The array of dumplings, sticky rice and barbecue pork buns are passed between us and I'm surprised to hear that while Mr. Seif eats a variety of food while travelling, he is a man of routine at home.
He has the same three items for breakfast – a bowl of cereal with berries, toast and jam, and a glass of orange juice.
"I've always been like that and it allows me to segment and block my thinking – it's just who I am," he explains.
Every move he has made has been calculated. He doesn't make rash decisions, although when he talks about how he got to where he is today, he reveals a few pivots along the way.
For starters, finance was not his passion growing up. Architecture was.
As a child, Mr. Seif loved to draw. He recalls endless recesses at school sketching template designs of houses and cars. In high school, his simple designs turned into architectural blueprints and then he began researching which school had the best architectural program.
"I don't know what it was about architecture but I loved the architectural element of creating and designing things. I loved the element of creativity but also the structure of math behind it all," Mr. Seif says. "I look at my life today and architecture is a part of everything that I do."
Born in Manchester, England, Mr. Seif grew up in a middle-income family. His Iran-born parents brought him and his older brother to Toronto in 1980 so his father could complete his PhD at York University.
His parents supported his ideas, always telling him to follow his dreams, but his dreams didn't correlate with his desire for financial success.
Just prior to when college applications were due, at 18 years old, he met with several local architects and discovered there wasn't a lot of money in the industry. In a last-minute decision, Mr. Seif switched his career path and graduated from the University of Toronto with a degree in industrial engineering.
"It was a really difficult decision but one of the challenges for me was that I had a personal goal to make money," he says. "I didn't come from money but I always had a dream of very big things. I wanted expensive cars and the things that went along with them. So I decided I wasn't going to go into architecture, and business was something else that interested me, and engineering has more of a business process with operations and design."
When he decided to go into investment banking, he was the odd one out – competing against the numerous MBA candidates that year.
"I got a lot of rejections mainly because right on the application it would state only MBAs to apply," he says. "But I was arrogant and applied anyways."
It was during a second round of interviews with RBC Dominion Securities that he caught his big break and was able to convince the executives that an engineer should be able to join their firm. He spent almost six years on the open trading floor at the bank, learning skills he calls fundamental to his development as a leader and entrepreneur.
"Putting everyone into a single pit is the best learning experience for any individual, especially in an entrepreneurial, growth-oriented company," he says. "I built both my companies with similar layouts so that everyone can have that feeling of being a part of it. Everyone feeds off the energy – especially in a stage of growth when it resonates with everyone."
His big break came in 2004 when one of his U.S. clients approached him about building a business in Canada for them. Three weeks later he resigned and launched Claymore.
"I had already decided that I didn't want to stay long term at the bank and this opportunity immediately jumped out at me," Mr. Seif, who has a sweet tooth, says between spoonfuls of mango pudding. "I knew this was it. This was the bed I was going to make and the risk I was going to take."
Taking chances with people is another practice he has incorporated into his own hiring. Both at Claymore and Purpose, where he has 17 employees, he has looked more at what an individual is telling him they can do than what they have written down on a résumé.
"I believe in their character and their effort – and what their drive is – because ultimately that is what made me who I am," he says. "I'm always looking for the next 28-year-old Som to walk into my office."