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During recent market turmoil, Micheal Lee-Chin’s wealth was cushioned by private equity investments.J.P. MOCZULSKI/The Globe and Mail

Michael Lee-Chin is best known for building AIC Ltd. into one of the largest independent mutual fund companies in the country. But after his value-investing strategy and commitment to financial assets missed out on market gains due to events such as the commodities boom that began in the early 2000s, investors left in droves. By the time AIC was sold to Manulife Financial Corp. in the throes of the economic downturn in 2009, the company's assets had fallen by 75 per cent.

So the billionaire began to reconsider a reliance on the investment vehicle that had brought him fame and fortune – the mutual fund.

While investors had been beaten up by stocks, bonds and funds, Mr. Lee-Chin's wealth was cushioned by private equity investments, which don't trade on public markets. "I thought to myself … my clients – their portfolio profile is unlike mine, but their advice is coming from me. I don't like to be a hypocrite," the Jamaican-born Mr. Lee-Chin said in an interview from his sprawling office in Burlington, Ont.

Taking cues from acclaimed investors and institutions such as CPP Investment Board and Ontario Teachers' Pension Plan, Mr. Lee-Chin decided that retail investors' portfolios could be improved by boosting their private holdings. In 2011, for example, when the S&P/TSX Total Return index fell by 8.5 per cent, CPPIB made an 11.9-per-cent return for the year, and Teachers posted investment performance of 11.2 per cent. Canada's larger pension plans have increasingly looked to alternative assets such as real estate and infrastructure to boost returns, and some smaller pension funds are now following suit, according to industry research.

It's a model Mr. Lee-Chin adopted for his newest venture – an asset management business called Mandeville Holdings Inc. that kicked off at the beginning of this year. Mandeville seeks to align retail investors' portfolios more closely with the big pension funds through the addition of private equity investments.

A focus on private equity changes Mr. Lee-Chin's product offerings, but his fundamental strategy of Warren Buffett-style investing in good businesses for the long-term remains. His catch-phrase "buy, hold and prosper" applies to private equity even better than it did to mutual funds, because it emphasizes patience.

Investors who piled into his funds in the 1990s pushed assets up to $15-billion. But the funds suffered redemptions in the 2000s because of investors' impatience with the funds lack of exposure to hot markets such as commodities, tech and income trusts. AIC was sold with $3.8-billion of assets.

Still, Mr. Lee-Chin hasn't given up on mutual funds – Mandeville got its Mutual Fund Dealer Association of Canada licence last month.

There are other Canadian firms that offer exposure to operating companies that don't trade on an exchange, but these investments largely remain the bailiwick of institutional players and wealthy investors. Liquidity is one reason: Investing in a start-up or mezzanine financing is usually associated with a long time horizon before an opportunity to cash out, which can be tougher to stomach for average retail investors used to exchange-traded stocks and bonds. Private equity offerings trade in the exempt market, and Canadian regulations limit the purchase of such products to accredited investors with high income or net worth. The idea is to protect less sophisticated investors from fraud.

Protection is one thing, but exclusion is another, Mr. Lee-Chin said; investing in private businesses actually gives him more information beyond the limitations of an investor relations department – he can look at everything, from contracts to lawsuits to internal memos and e-mails. "You think there's more disclosure at public companies, but it's a myth," he said.

Some industry organizations think the rules surrounding participation in the exempt market should be changed and the Ontario Securities Commission is currently conducting a review.

Mr. Lee-Chin once considered AIC his legacy, but he said a recent trip to Italy to see a new Ferarri made him reconsider how successful firms continue to innovate after the founder leaves – a problem Apple Inc. has been accused of having since Steve Jobs died.

"Most corporations, when the founder dies, the vision dies and there's dilution," he said. Still, that date seems a long way off. Leaning forward in his seat, he asks: "Do I sound like I'm retiring?"

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