As the markets continue to wreak havoc on the stocks of financial services companies, DundeeWealth Inc.’s management is unfazed. That’s because the Toronto-based firm is focused on executing its plan to streamline its management and operations.

This has manifested itself in a number of actions in recent months. Most recently, DundeeWealth sold its Quebec network of about 400 mutual fund and insurance advisors to Quebec City-based Industrial Alliance Insurance & Financial Services Inc. in November. The network, acquired when DundeeWealth took over Cartier Partners Group Inc., had been a drag on earnings. DundeeWealth has also reduced staff, including Dan Brintnell, its former executive vice president and co-head of its retail division, which includes investment dealers Dundee Securities Corp. and Dundee Private Investors Inc.

The moves are all part of a plan that will reduce costs by $30 million in 2009 and increase profitability, says David Goodman, president and CEO of DundeeWealth: “We are concentrating on the realities, keeping our eye on the ball and taking a very cost-conscious approach.”

Until recently, DundeeWealth’s three business groups — investment management, the financial advisory network and the capital markets group — each had its own management team, including CEO, human resources, information technology and back-office support. Now, all these entities are being brought under the leadership of one team; the only activities being kept separate are those required by the regulators.

This will reduce staff by 16%, or 250 people, mostly in operations, IT and administration. The expected result will be a staff that numbers 1,300. And, most important, once the restructuring is complete, Goodman expects there to be a sense of unity and common purpose among the divisions, a feeling that everyone is working together toward the same goals.

Those goals include growing both assets under management and earnings by about 10% a year. Higher AUM, Goodman says, will come as a result of organic sales growth, market appreciation and innovation. Improved earnings will reflect the higher AUM and improvements in productivity. In general, he expects organic growth and market appreciation to account for 6%-8% of the growth, with innovation and improved productivity providing another 2%-4%.

Acquisitions will also continue to play a role, as they have in the past. For instance, in July, through a combined cash/share offer, DundeeWealth purchased 60% of Toronto-based Aurion Capital Management Inc. , a Canadian institutional investment-management firm with a proven track record in private equities, fixed-income and real estate. That deal adds to DundeeWealth’s money-management capability through subsidiary Goodman & Co. Invest-ment Counsel Ltd.and supports expansion into the institutional marketplace.

In the same month, Dundee-Wealth bought 89% of Philadelphia-based BHR Fund Advisors LP, which gives DundeeWealth an avenue to distribute fund products to U.S. retail and institutional investors. In a similar move in 2007, DundeeWealth entered the European market by buying Luxembourg-based VMR Fund Management SA. Now DundeeWealth SA, it has launched six products — two resources funds, two global funds, a Canadian equity fund and a U.S. equity fund — that will be managed in Canada but sold mainly to European institutions, which will then distribute the funds to their retail clients.

Future acquisitions will probably be investment-management firms similar to Aurion in size and culture, Goodman says. DundeeWealth has sufficient distribution, he adds; the aim now is to acquire more good managers “to complement the team at our investment-management arm, Goodman & Co.” Investment style is not a criterion, he adds, as there is no style bias at Goodman & Co. — the team covers the spectrum of investment styles. The key factor is the culture; an attractive target would be independent, entrepreneurial and have the ability to work as a team.

Although DundeeWealth posted a loss of $60.4 million in the nine months ended Sept. 30, that’s an improvement on the loss of $97.8 million in the same period a year earlier. The reason for the continuing loss was a $113.8-million pre-tax writedown ($80.8 million after taxes) of its asset-backed commercial paper. When combined with a $94.9-million writedown ($67.4 million after taxes) in the second half of 2007, this reduces the company’s estimate of the fair value of its ABCP to $169.5 million, or 45% of its $379.4-million face value.

DundeeWealth is being conservative in writing down its ABCP, but, Goodman says, the company would rather be safe than sorry, as the plan is to keep the troubled paper. “We view it is an asset that doesn’t require further capital from us,” he adds, “and whose value will be better known as time goes by.”

@page_break@In the nine months, Dundee-Wealth reported revenue of $645.2 million, vs $683.7 million in the same period in 2007. Cash flow after net change in non-cash working balances was $191.6 million vs $119.5 million. Debt was $165.8 million.

DundeeWealth’s share price closed at $5 a share on Nov. 18, down 67% from the September high of $15.32 and down 78% from the all-time high of $22.31 a share in November 2007. Common shareholders’ equity was $861.5 million as of Sept. 30. The quarterly dividend remains at 2¢ — an annualized 8¢ — a share.

There are 118.9 million common shares outstanding, although there are a number of special classes of shares. Patriarch Ned Goodman, chairman and David’s father, controls 62.9% of the company’s votes, mainly through his 80.5% voting interest in Toronto-based Dundee Corp., which controls 62.6% of DundeeWealth’s votes. Bank of Nova Scotia has an 18% interest in DundeeWealth, acquired in September 2007 for $348.3 million.

Toronto-based Catalyst Equity Research Inc. rates DundeeWealth a “buy” with a 12-month price target of $11 a share. According to Catalyst president and CEO Robin Cornwall, DundeeWealth’s core strength is its investment-management business, led by Rohit Sehgal, vice president and chief investment strategist with its fund manufacturing arm, Dynamic Mutual Funds Ltd. Sehgal’s and his team’s performance has been “outstanding” until recently, says Cornwell. Strong performance not only enhances sales but also delivers extra revenue, as $5.3 billion — about 20% — of Dynamic’s $26.2 billion in AUM are in mutual funds that charge performance fees.

And sales have been strong. Dynamic posted net sales in each month from January to September; although it reported $206 million in net redemptions in October, that figure wasn’t large in comparison to its fund company peers. For the 10 months ended Oct. 31, Dynamic had $3.3 billion in net sales.

Adding to the upside potential of DundeeWealth’s stock is the possibility that Scotiabank will buy both DundeeWealth and CI Financial Income Fund, in which Scotiabank already has a 38% interest, and combine the two. That, however, would depend on Ned Goodman and his voting control.

Cornwell expects Scotiabank will eventually acquire DundeeWealth. In the sequence of events he envisions, Scotiabank will gain control of CI and then negotiate with Ned Goodman.

Besides investment management, DundeeWealth also has an advisory network — 1,700 advisors before the deal with IA — which not only helps with distribution of Dynamic products, says the younger Goodman, but also provides market intelligence, in terms of the type of solutions clients are looking for.

Another of DundeeWealth’s major businesses is capital markets, which includes investment banking, equities research and institutional trading and sales. This adds to DundeeWealth’s overall investment expertise and also provides investment ideas and capital markets knowledge.

Here’s a closer look at Dundee-Wealth’s three main businesses:

> Investment Management. Of the company’s $26.2 billion in AUM as of Oct. 31, $18.5 billion is in mutual funds, $4.5 billion is managed on behalf of other companies’ mutual funds, $2.7 billion is in high net-worth accounts, $314 million is in closed-end funds and $269 million is in flow-through share-type structured investment solutions.

Even with strong sales and the addition of $4.6 billion in assets in July, when DundeeWealth acquired its interests in Aurion and BHR, AUM was lower as of Oct. 31 than it was at the beginning of the year. The reason: market depreciation, which amounted to $9.8 billion.

Dynamic has 75 mutual fund mandates: seven Dynamic “managed portfolio” funds, 12 Marquis wrap portfolios and 56 Dynamic mutual funds. When flow-through share closed-end funds are terminated, the assets roll into the Dynamic managed portfolio funds. The Marquis wraps use third-party funds as well as Dynamic funds, and include the Radiant brand of funds, which were rebranded under the Marquis name in November. DundeeWealth also offers DynamicEdge and Dynamic Strategic Portfolios, both of which are wrap programs.

Almost all investment management is done in-house by Goodman & Co. Although the money-management subsidiary started as a deep-value investor, it now incorporates the full range of investment styles. There are 14 portfolio managers and 11 analysts.

Portfolio managers are accessible to advisors through road trips, conference calls and written material. This activity has increased significantly in the past year in response to the difficult market conditions.

Performance has been weak this year. Less than 10% of Dynamic’s long-term assets are in funds with above-average returns in the six months ended Oct. 31. This contrasts with the 80.4% of assets in funds that outperformed in calendar 2007, 34.9% in 2006, 61.8% in 2005 and 80.7% in 2004.

Goodman Jr. notes that some of Dynamic’s larger funds were heavily weighted in energy and materials, so their performance has followed resources prices lower. He expects the funds to do well when healthy economic growth resumes. Goodman & Co.’s track record, he says, shows “an exceptional ability to do well in a recovery phase.”

> Distribution. “Our focus and strategy is to advocate for and provide services to financial advisors across Canada,” says Goodman. This is the theme behind the firm’s advertising slogan: “Invest with advice.”

DundeeWealth’s policy is to establish long and deep relationships with advisors, both its own and those at other dealers. DundeeWealth having its own advisory network gives the firm insight into what advisors need, in terms of client solutions and the services that will enhance the network’s practices.

A recent initiative is enhancing its advisor Web site to include five stock market volatility calculators, portfolio manager presentations and practice-management tips and tools.

DundeeWealth had launched Dundee Bank of Canada, but the bank’s ABCP exposure made it impossible to continue; DundeeWealth sold the bank to Scotiabank at the end of September 2007 for $260 million in cash. DundeeWealth still provides banking services, although its products are now provided by Scotiabank.

DundeeWealth’s distribution network has approximately 1,700 advisors in 600 offices across Canada spread among the investment dealer, the mutual fund dealer, the insurance managing general agency and the mortgage brokerage. In addition, Goodman Private Wealth Management has a roster of advisors that deal with high and ultra-high net-worth investors.

Goodman describes Dundee-Wealth’s recent sale of its Quebec network of about 400 mutual fund and insurance advisors to IA as a “friendly deal.” It made more sense for these advisors to be with IA, he says: “We expect it to be a win/win for everyone.”

Goodman expects the deal will lead to more sales of Dynamic funds by IA advisors.

DundeeWealth still has 180 employees and advisors licensed by the Investment Industry Regulatory Organization of Canada in Quebec.

As of Oct. 31, DundeeWealth’s assets under administration were down by 22% to $25.2 billion from $32.3 billion at Dec. 31, 2007. This decline is much more than the $2 billion depreciation in AUM because there were no acquired assets to offset the impact of market depreciation.

> Capital Markets. Investment banking, merger and acquisition advice, institutional trading and sales, and equities research are done through Dundee Securities under the Dundee Capital Markets banner. Dundee Capital Markets ranked sixth in equity underwriting in terms of number of deals, and tenth in terms of dollars raised in 2007.

These activities provide “actionable” ideas for both the investment-management division and corporate and institutional clients, says Goodman. The division also assists in raising capital for DundeeWealth’s flow-through share products as well as for corporate clients.

The focus in this group narrowed to six sectors earlier this year: mining, oil and gas, technology and alternative energy, real estate, biotechnology and health care, and industrial growth companies. At the time, Goodman says, “The competitive marketplace was relatively congested. We wanted to be strong before we were big.”

Revenue for this division was $51.4 million in the nine months ended Sept. 30, down by 41% from $86.9 million in the same period a year earlier as a result of an industry-wide slowing in equity financings and M&A activity. The decline would have been even greater without foreign trading operations, which were established in late 2007 and generated $7.3 million in revenue in the nine-month period. IE