Firm turns focus to risk management

“Before the financial crisis, high net-worth clients were able to take on more risk than they are today,” says CEO Brent McLean. “There’s been a bit of a paradigm shift; the average high net-worth mindset has changed. [HNW clients] also are getting older, and if they’re 65 years old and they have $10 million, the last thing they want is to wake up in the morning to find it gone. Risk management has, therefore, become very important to us.”

That realization has led to the hiring of Robertson, who has spent 20 years working on the fixed-income side. Most recently, Robertson had been vice president of proprietary investments for Toronto-based Manulife Financial Corp.; he also has been part of the fixed-income trading desk at J.P. Morgan Canada and has run trading desks at several other firms.

“We know his forte is to manage the downside of the market constantly,” McLean says. “He has significant risk-management processes that have made a huge difference in the money he’s managed in the past on a proprietary basis.”

Robertson says his previous positions have taught him two things: the importance of preserving capital, and never to underestimate the markets.

“Markets can do things that you don’t anticipate, and they can do it for a lot longer and in a much more extreme fashion than you expect,” Robertson says. “So, you learn the importance of preserving capital, but you also become very disciplined in the way you comport yourself.”

For Robertson, joining an independent, entrepreneurial firm is a welcome change from sitting behind a trading desk. “I’ve worked for major [financial services] institutions and it’s a wonderful environment,” he says. “But, at this stage in my career, I was really interested in a higher touch with the people who are the beneficiaries of my efforts — having direct interaction with the stakeholders.”

McLean & Partners has about 430 HNW client households that represent about $1 billion in assets under management in its discretionary portfolio-management business. The firm is selective about which investors it serves; the minimum investment for any of its five private pooled funds (see table above) is $1 million, while the minimum investment for a segregated account is $3 million.

“We’ve had high minimums for a long time, and we’ve done that on purpose,” McLean says. “Just to say, ‘Look, we’re not in the business to take on $100,000 accounts.’ The banks can do that, and they can do a whole lot better than we can.”

The new product in the works is a pooled fund that will be incorporated into clients’ current portfolios; this fund was created upon the request of clients. The new fund’s objective is to lower volatility while being tax-efficient and providing higher yields. Says McLean: “We’ve been testing it with our own money for several months, and we hope to incorporate it by May or June of this year.”

Although McLean & Partners had started out as a traditional brokerage firm in 1999, soon after that it became an investment-counselling, portfolio-management firm with it’s own in-house research team, which is now being run by Robertson. All five of its advisors are licensed portfolio managers. The firm is licensed by the Investment Industry Regu-latory Organization of Canada.

“We decided very early on, in January 2000, that we would no longer do commissions-based business,” McLean says. “We thought that being a traditional brokerage and being paid on a trade basis [meant] our interests and the client’s interests wouldn’t be aligned properly. You make more trades, you make more money [in a commissions-based business], but the client doesn’t necessarily make more money.”

The firm also has carved out a niche in the global investing world, managing a portfolio of approximately 70 companies worldwide. This line of business had begun after McLean travelled to China in 1999, when he found a buying opportunity that would become the first in his company’s global portfolio. “We started by buying Hong Kong Telecom[munications Ltd.],” he says. “It was growing at five times the rate as Bell Canada. It just made sense to us.”

McLean recommends his clients have 30%-55% equities exposure outside North America. And while many clients just want to invest in Canadian equities, the firm takes the time to explain the follies of such an approach.

“In Canada, the resources, materials and banking sectors [comprise] 75% of the market,” McLean says. “There aren’t a lot of great technology companies in Canada that you can invest in. There are a few companies that have relatively high yields, such as the banks and utilities. The problem is everybody already owns them — and they’re already very highly priced. So, we don’t think that’s a recipe for success when you look at the next five years.”

As McLean & Partners continues to adapt to the ever-changing economic climate, another goal is to expand by adding financial advisors to its roster. Rookies are welcome; McLean cites the example of Kevin Dehod, a former vice president recently named McLean & Partners’ president. Dehod started out as the firm’s administrative assistant 19 years ago, taking notes during client meetings.

“[Advisors] have to have the right cultural fit,” McLean says. “Their primary passion has to be dealing with clients and finding great solutions, from an overall perspective, for their clients. And working well with a research team and not trying to go out and find their own stocks — that’s what Jamie’s team does.” IE