Veteran fund manager Larry Sarbit is reaching for his slingshot in what he considers a David vs Goliath struggle for his new mutual fund company.

The president and CEO of Sarbit Asset Management Inc. in Winnipeg is dumbfounded by a recent memo from Burlington, Ont.-based Berkshire Group of Cos. that effectively prevents him from selling his new fund to its 900 advisors. Berkshire has one of the largest independent distribution networks in the country.

In an internal memo dated Sept. 27, Berkshire says it is tightening the screening
process for new mutual funds being added to its product shelf. Such precautions need to be taken, it says, in light of the scandals surrounding Toronto-based Portus Asset Management Inc., Crocus Investment Fund in Winnipeg and others in the past year.

“Berkshire will be instituting a requirement that mutual fund companies must be in existence for five years and have a minimum $200 million in assets under management [to merit space on the shelf],” the memo says.

Sarbit’s new fund — Sarbit U.S. Equity Trust — doesn’t meet Berkshire’s criteria because his company is only a few weeks old, even though he has more than a quarter-century of industry experience, including lengthy stints at Berkshire sister company AIC Ltd. and Winnipeg-based Investors Group Inc. Sarbit resigned from AIC in the spring.

“I don’t know how else to interpret this other than as an attempt to keep me out of
Berkshire,” Sarbit says. Although Berkshire has refused to sell his fund, the fund has received approval from many of the industry’s biggest players, including the banks.

Sarbit also spent a year at Berkshire immediately before joining AIC. The company knows him better than virtually any other fund manager in the country, he says. “I produce a five-star fund for them, and this is the response I get? I’m not a fly-by-night guy. I haven’t offended anybody or broken any laws,” he says. “It’s very frustrating for us to have this gigantic company slam the door in our faces.”

Dan Hallett, president of Windsor, Ont.-based Dan Hallett & Associates Inc. , says Berkshire’s actions do seem “a little suspicious. I haven’t heard of anybody else doing this. Does [AIC chairman Michael Lee-Chin] perceive Larry as a threat? That’s a reasonable position to take.”

Hallett says if, in fact, Berkshire’s move is designed to stem the flow of client assets from AIC to Sarbit, it would be “something of a desperate measure.”

AIC has fallen on hard times in the past three-and-a-half years. In 2002, the company had $15.4 billion in AUM, but that had plummeted to $8.9 billion by Sept. 30, 2005. It had $201 million in redemptions in that month alone.

Lee-Chin wasn’t available for comment, but Berkshire did issue a statement saying the new product approval policy is “in no way connected to any specific product.

“As a result of some unsettling recent events in our industry, in May of this year Berkshire temporarily suspended the offering of a number of products and referral arrangements. As a result of our review, Berkshire has instituted a minimum criteria for prospectus mutual funds and redesigned our policy on referral arrangements,” it says.

At its apex in 2004, the Sarbit-managed AIC American Focused fund and its related funds had more than $2 billion in client assets, the majority in cash.

Denzil Feinberg, a registered financial planner who is licensed with IQON Financial Inc. , says Berkshire’s actions don’t pass the smell test for him because they compromise the independence of its advisors.

One solution, he says, would be for Berkshire to maintain its new standards but also let its advisors recommend what they consider to be the best products, regardless of manufacturer. He says investors could be kept fully informed via a letter outlining the potential risks and rewards of investments that didn’t meet the new corporate screens but which had significant advisor and/or investor interest: “It could say, ‘It’s beyond our recommended parameters, but if you accept the risk we will allow our advisors to
process this for you’.” IE