It's been a year since asset manager BlackRock Inc. bought Claymore Investments Inc. – a firm founded by Som Seif that focused on low-fee, exchange traded funds (ETFs) and became one of the fastest growing asset management companies in Canada. Now, Mr. Seif is launching new business, Purpose Investments, and he has enlisted an established hedge fund to try to repeat his success.
Purpose Investments is an asset management firm with a rule-based model, which blends active investing with the discipline and re-balancing of a passive system. Purpose will invest in traditional products, but also aims to deliver alternative products cheaper in an overpriced market.
After he left the company (now part of BlackRock's iShares family) in March, Mr. Seif had time to plan his next move. "Look, I'm a young guy. I thought a lot about what I wanted to do, but I truly love this business," said Mr. Seif, who is 36 years old. But the tweeting, TV show-hosting chief executive, who isn't prone to understatement, says he's not done with the money management business. "I truly want to change the landscape. I want to leave a legacy in Canada. I didn't feel I left that legacy in the industry yet."
The first product, a closed-end fund known as NexC Partners Corp., will focus on a portfolio of dividend stocks.
But there's a twist. Mr. Seif felt it was important for Purpose partners and clients to be an equity owner in the new business. NexC Partners will also own a stake in Purpose. That share could be anywhere from 2.5 per cent to 30 per cent, depending on how many millions the firm can raise. This lets the market invest in the firm's growth without forcing Purpose to go public.
One of those partners is Toronto-based Breton Hill Capital Ltd., which Purpose has hired to help manage the assets. With its Spartan website and quiet office outside the city's core, Breton Hill's public strategy and style seems the antithesis of Mr. Seif's.
As an investment banker at RBC Dominion Securities, though, Mr. Seif got to know Breton Hill chief investment officer Ray Carroll. He now considers Mr. Carroll one of the best risk managers in North America, and said the partnership was the ideal way to get access to Breton Hill's intellectual property.
Mr. Carroll and his team focus on a macro strategy. It's been popular with institutional investors. The fund got a $100-million seed investment from California Public Employees' Retirement System, the biggest manager of pension funds in the U.S, about a year and a half ago. Recently, the firm added another $100-million of assets under management.
Prior to founding Breton Hill, Mr. Carroll ran a multi-strategy hedge fund business inside Toronto-based fund of funds company Diversified Global Asset Management, which these days oversees assets of about $6-billion.
Mr. Carroll's strategy involves screening for stocks and then using risk management techniques and portfolio construction techniques that are "time tested in the institutional world and still not available to the retail world," he said in an interview. The first product will use the stock screening tool that the fund uses for the institutional money it manages for Calpers, which will pick out 40 stocks that the firm believes are "high quality income producing stocks in the U.S. and Canada."
New products with Purpose will likely introduce more active risk management techniques and portfolio construction techniques that hedge funds and pension funds have access to, but have not yet filtered down to smaller investors.
"I go to conferences and hear about all these great things, and none of those things are available in Canadian retail land," said Mr. Carroll.
Bringing something new to the table will be essential. Mr. Seif conceded in a recent notes to friends and partners that the marketplace is crowded with investment management firms. Good products, low fees, marketing and client service are important, but Mr. Seif says competing with his peers isn't as important as offering unique products.
"I don't wake up every morning and think I want a piece of my competitor's assets," he said. Instead he wants to expand the industry the way he did with Claymore.
(Boyd Erman is the Globe and Mail's Capital Markets Reporter & Streetwise Columnist.)
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)