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David Goodman, the president and CEO of Dundee Corp.

Fred Lum/The Globe and Mail

Employees of Dundee Corp.'s capital markets division are quietly planning to take the dealer private, as its parent company grapples with a commodity rout that continues to erode profit.

The proposed management buyout of Dundee Capital Markets Inc. – using a partnership model that has largely fallen out of vogue – has been in the works for a while and may not be completed for months. The ultimate goal is to give top partners stakes in the investment bank, with Dundee Corp. retaining some ownership.

The spinoff comes at a rough time for the industry, with numerous boutique dealers shutting down and bigger independents slashing staff and costs.

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Earlier this month, GMP Capital Inc., one of the largest independents, cut nearly a quarter of its work force.

Any spinoff will also dovetail with the continuing shakeup of Dundee Corp.'s business. David Goodman took over as the parent company's chief executive officer from his father, Ned, in July, 2014, and he immediately started reworking its investments. Dundee sold stakes in its real estate investment trusts early in his tenure, and the sales continued from there. This January, the company unloaded its retail brokerage business to Euro Pacific Canada for an undisclosed price.

Dundee Corp.'s changes are partly designed to shore up its cash reserves. Three quarters into fiscal 2015, the company had lost $513-million, largely owing to writedowns and impairments. In the third quarter ended Sept. 30, the company booked a $216-million impairment charge on its investment in United Hydrocarbon International Corp., and also lost $134-million on its precious metals division.

Current leaders hope the partnership model will help to lure new talent. "We're really building a top-tier team here, and [equity] is a big selling point for people who are looking to make a move," Dundee Capital Markets president Mark Attanasio said. "Top talent definitely wants ownership."

Dundee has already marketed the partnership structure when recruiting, according to people familiar with the discussions. The dealer has also already announced the hires of well-known people on Bay Street, including John Esteireiro and David Morrison, both of whom used to work at CIBC World Markets, then moved to Genuity Capital Markets when it was founded, and later joined Canaccord Capital following its acquisition of Genuity.

However, a new ownership structure does not guarantee profit. Dundee's investment dealer has struggled lately, posting a $14-million operating loss for the first nine months of the fiscal year, much of that from the capital markets business. Amid the headwinds, the dealer plans to stay nimble. "We do not want to be the largest boutique in Canada – we want to be the most effective and profitable," Mr. Attanasio explained.

The private dealer will also wrestle with a systemic shift away from trading commissions. Though the commodity rout has hurt independents because they largely advised junior resource developers, they are also suffering from a fundamental change to their business model.

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A decade ago, independents made heaps of money from trading junior stocks, profiting whenever clients asked them to buy or sell shares. But the trading world has been dramatically revamped over the past 10 years with the rise of electronic orders, and these new tools have compressed commissions.

Historically, Canadian investment banks were all independent and employed partnership models, but that started to change in the late 1980s, when the banks started buying them up. Fifteen years later, some of the remaining big independents, such as Canaccord and GMP, went public. Today, notable partnerships include Calgary's FirstEnergy Capital and Peters & Co.

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