World traveller, astute stock-picker, entrepreneur and respected fund portfolio manager – in good times and bad. It sounds like someone just hitting their stride, but Ian Soutar, this year’s winner of the Morningstar Canadian Investment Award for Career Achievement, is 77 and has been doing all of this for decades. And despite his age, he still spends huge amounts of time on the road, digging down into the personalities behind the companies his investment firm is interested in.
“To get the returns we want, we need to focus on exceptional companies,” says Soutar, vice chairman, co-founder, partner and portfolio manager with Montreal-based Pembroke Management Ltd., where a team of nine portfolio managers oversees $2.5 billion of institutional and individual client assets under management (AUM). “We spend an enormous amount of time travelling to check out investment opportunities. It’s vital to our process to talk with the local community where a business resides and with its competitors.”
Soutar, who says he’s just as engaged by his work as ever, emphasizes the importance his firm places on context. He says people in the community of a small business know the difference “between real people and pretenders” and, by getting local checks on a potential investment, he can avoid some mistakes. Soutar seeks companies with the ability to achieve organic growth of 15% a year and prefers companies in which the managers are significant shareholders.
“It’s amazing, even in a bear market, when you get out into the field, you can find interesting companies that are growing,” Soutar says. “At Pembroke, we’re entrepreneurial ourselves, and will sometimes invest in exceedingly small companies that may not be profitable at first.”
Soutar, a mining engineer born in Asbestos, Que., has been at this game for more than five decades. One of his first jobs was with a U.K. company that designed equipment for the domestic coal-mining industry, a firm that he joined shortly after he graduated from Montreal’s McGill University in 1958. The position, part of a scholarship, allowed Soutar to spend two years learning about British engineering through work and study. The academic portion included studying for a degree in business administration at the London School of Economics.
But the U.K. mining industry of the 1950s lacked appeal with its anachronistic practices, such as using pit ponies to transport ore. “I began to think about a career other than mining,” Soutar says. “As soon as I started to study economics and finance, I became intrigued with the work – it was much more interesting.”
Returning to Canada in 1960, Soutar got a job as an assistant in the investment department of Sun Life Assurance Co. of Canada in Montreal. Although Sun Life’s portfolio was made up mostly of large, blue-chip companies, Soutar discovered the potential for growth and high returns found in smaller companies during his five years of analyzing financial statements and on-site research.
“As a junior person at Sun Life, I found it absolutely fascinating, and it was wonderful to be getting paid for something that I would do for free,” he says. “It was exciting, interesting and potentially very profitable.”
Soutar has always had a streak of impatience, and he began to chafe under the layers of bureaucracy at the large insurance company. In 1965, he became assistant portfolio manager with the All Canadian Fund, controlled by Power Corp. He was soon able to realize his dream of investing in small companies with the launch of the All Canadian Venture Fund and his appointment as portfolio manager.
“Small to medium-sized companies were doing incredibly well in the stock market at that time,” recalls Soutar. “I became an instant hero. The fund was going up and money was pouring in.”
Soutar was sharpening his skills in small and venture stock investing at a time when few professional portfolio managers were dabbling in this arena. In 1968, he became an entrepreneur by co-founding Pembroke with three partners. To keep the level of AUM at a level at which the firm can continue to specialize in small and mid-sized companies, Pembroke no longer accepts new institutional accounts, but continues to take on individual accounts. Individual investors may invest in six mutual fund portfolios offered through Pembroke Private Wealth Management Ltd., a division formed in 1988. The flagship GBC American Growth mutual fund has shown a 7.4% average annual return for the 20 years ended Oct. 31, 2013.
Pembroke’s investment style focuses on companies with a market capitalization of between $250 million and $2 billion. Pembroke won’t own more than 15% of a company’s public float, and Soutar likes to run a concentrated portfolio of 45 to 50 names. This means Pembroke can’t become too big if it is to maintain its disciplined style and ability to take meaningful positions in small companies that are often illiquid. Pembroke manages only North American equities inhouse, while farming out the portfolio management of its international equity and fixed-income funds.
Soutar’s community efforts have included roles with the Study School Board & Foundation, St. Andrew’s Church and St. Andrew’s Nursery School, the Brome Lake Land Foundation and the Montreal Association for The Blind Foundation. Soutar and his wife, Helgi, a retired geologist, have three grown children. The couple are enthusiastic world travellers, and their enjoyment of golf and skiing has taken them to many exotic locales.
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