Bold ambitions for Fiera’s growth

Fiera, which has almost $100 billion in assets under management (AUM), is the third- largest independent money-management firm in Canada (after Winnipeg-based IGM Financial Inc. and Toronto-based CI Financial Corp.). Nevertheless, Desjardins, who says he has no intention of retiring for at least five years, is aiming to double the size of the business to $200 billion in AUM over the next five years. His vision is for Fiera to become a dominant North American firm with a major share of its AUM based in the U.S.

“The U.S. market is the natural direction for our expansion,” says Desjardins. “[The U.S.] is easier to penetrate than other global markets, such as Asia and Europe, [being] culturally and geographically closer.”

Fiera is Desjardins’ second crack at building a money-management empire – and he was highly successful the first time around with TAL Global Investment Management Inc. Founded in 1972, TAL was sold to Canadian Imperial Bank of Commerce (CIBC) in 2001, when the bank decided to expand its 35% stake in TAL to full ownership.

Desjardins drove a hard bargain with CIBC. Then, after pocketing his profits, he was back in business two years later with Fiera.

Fiera has grown rapidly, thanks to a combination of acquisitions and organic growth. As Desjardins steers the company toward his $200-billion AUM goal, he expects about 25% of this growth will come from acquisitions and 75% from organic growth – a pattern consistent with the firm’s growth over the past five years.

With the downward pressure on money-management fees as competition increases and clients become more fee-conscious, Desjardins says, size and scale are essential for longevity in the investment business.

“Fees are under pressure and markets are becoming increasingly efficient,” he says. “At the same time, many firms are trying to hire the best [portfolio] managers and the cost of talented professionals that can deliver alpha is rising – all of which is creating a squeeze. Traditional strategies don’t carry the same profit margins as in the past.”

According to Dan Hallett, vice president and principal with Oakville, Ont.-based HighView Financial Group, winning business on an international scale and standing out from stiff competition can be challenging for Canadian money managers.

“Fiera has expertise in a lot of mandates, including the alternative space – such as hedge funds, private lending, infrastructure and real estate,” Hallett says. “To a large extent, that’s where the institutional focus is right now.”

Desjardins’ objective for Fiera’s asset mix is 40% equities, 40% fixed-income and 20% alternative assets. Currently, the mix is about 30% equities, 62% fixed-income, 5% alternative and 3% balanced.

On a revenue basis, equities can garner higher fees than fixed-income – especially global equities and alternative strategies, he says. These latter categories also represent better opportunities for good portfolio managers to outperform.

However, fixed-income assets are more stable in terms of returns, and the client base for this asset class is more stable as well, Desjardins says. If a money manager underperforms in fixed-income, he adds, the differences relative to the benchmark usually are minor and clients don’t pay much attention. In contrast, with equities, deviation from the competition and from benchmarks can be significant. Clients holding this asset class are highly sensitive to these differences – both positive or negative.

“There is less client stability on the equities side. And if you underperform for a few years, you will lose business,” he says.

Fiera is busy digesting acquisitions made in 2015, including fixed-income shop Samson Capital Advisors LLC of New York, which added US$8 billion to Fiera’s AUM.

Fiera also entered the Asia-Pacific market with a new subadvisory relationship with Nissay Asset Management Corp. of Japan, which is the investment-management arm of Nippon Life Insurance Co. Asia-based institutional investors, such as pension funds, are looking to diversify their portfolios with global equities, Desjardins says, and Fiera has a record of superior performance in this category.

As a result of the Samson transaction, Benjamin Thompson, that firm’s CEO, became president and CEO of Fiera’s U.S. subsidiary, Fiera Capital Inc., which has about $25 billion in AUM (in Canadian dollars).

“We’re gaining acceptance [in the U.S.] through the American consulting community,” Desjardins says, “but you must work the land a few years before people trust you and put you on their recommended list.”

Although international institutional clients currently have little interest in adding Canadian assets to their portfolios, that’s something Fiera is looking to change, Desjardins says: “There is no international interest in Canadian investments, whether it’s real estate, equities or fixed-income. It may not be what foreigners want, but it could be a great time to buy Canadian assets, with the drop in the stock market and the low value of the Canadian dollar. For someone with a 12- to 18-month time horizon, the risk/reward in buying Canadian assets looks attractive.”

Institutional and high net-worth clients account for about 70% of Fiera’s business. Retail clients account for the remaining 30%, which is focused in Canada. Fiera holds about $1.5 billion in its in-house brand of funds, and also acts as a subadvisor on funds offered by Lévis, Que.-based Desjardins Group and Montreal-based National Bank of Canada.

Fiera has a close relationship with National Bank, stemming from Fiera’s 2012 purchase of Montreal-based NatCan Investment Management Inc., formerly the bank’s $25.4-billion asset-management arm.

“We wouldn’t be where we are today without the deal with National Bank,” says Desjardins. “It was like making a five-year leap forward – a giant leg up for our asset base.”

National Bank distributes Fiera-managed funds through its Canada-wide branch network and its brokerage arm, National Bank Financial Ltd., as well as through subsidiaries such as HSBC Securities (Canada) Inc. of Vancouver and Winnipeg-based Wellington West Holdings Inc. National Bank now is Fiera’s largest shareholder, with a stake of about 23%.

In seeking acquisitions for Fiera, Desjardins is as focused on the people who run the companies as the assets they manage. Although acquisitions are a fast way to acquire talent, it has to be the right talent, he says: “The first thing we look at is talent; we want investment talent that complements, not duplicates, what we already have. Then we will ‘date’ those people for 12 to 16 months. The chemistry is there or it’s not. You then decide to get ‘married’ or not.”

Retention of professionals is key in Fiera’s acquisitions. Offering autonomy, authority and attractive compensation to retain talent is a priority, Desjardins says, and the client defection rate has been less than 2% after a change in ownership: “If you retain the talent, you retain the clients.”

Fiera also has a finger in the exchange-traded funds (ETFs) business, managing active equities and active fixed-income strategies for ETFs sold under the banner of Toronto-based Horizons ETFs (Canada) Management Inc.

“If the ETF trend grows,” says Desjardins, “we’re there.”

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