Cardinal Capital Management Inc. has joined the billion-dollar club.

The 23-person Winnipeg-based investment-counselling firm reached the $1-billion plateau in assets under management this spring, the culmination of a six-year hot streak during which its AUM grew from $100 million.

And with an average annual compound growth rate of 50% since 2002, it’s not too early to start thinking about the second billion dollars in AUM, which should arrive in about three years, says Tim Burt, Cardinal’s president, CEO and chief investment officer. “Even if we grow at just 25% a year,” he says, “we’ll be at $3 billion in five years.”

Fifteen-year-old Cardinal builds and manages customized portfolios of stocks, bonds and other asset classes based on client asset-mix objectives, risk tolerance and income requirements.

Burt says the firm’s rapid growth began when it expanded its referral relationships with national member-firms of the Mutual Fund Dealers Association of Canada and started pitching its services to their planners.

“We started getting a ton of referrals,” says Burt. “It helped having a 10-year track record. We had the right message and planners were looking for this separately managed account type of service that they couldn’t offer on their own. These were their higher-end clients who didn’t want more mutual funds. They were ready to move on to the next level of professional management.”

For the five and 10-year periods ended March 31, Cardinal’s equity investments posted average annual compound returns of 14.4% and 16%, respectively, and its foreign holdings gained 11.7% in both the five- and 10-year periods. Cardinal has a 7.2% return on its U.S. investments over five years. All figures are net of fees.

Cardinal splits the management fee of 1.5% with dealers such as Manulife Securities International Ltd., Dundee Securities Corp., Partners in Planning Financial Services Ltd., Quadrus Investment Services Ltd., FundEx Investments Inc. and Lawton Partners Financial Planning Services Ltd.

Cardinal now has 20 planning relationships, 80 advisors and more than 700 clients — all of whom give the firm full discretionary authority to make trades on their behalf.

“[The splitting of the fee] was an attractive enough incentive for the planners to refer business to us,” Burt says. “It was a good deal for them, the clients and for us. That’s how we got the bulk of our new business.”

Burt maintains Cardinal’s biggest advantage is its minimum account size of $500,000 — half or one-quarter of those of its main competitors: “Our typical client has $850,000. He or she wouldn’t qualify for firms with $1-million minimums. We’re pleased to take on an $850,000 account.”

Quite often, clients have considerably more money to invest but they don’t want to invest it all with one firm. “We get a chance to prove ourselves to the client for the first few years,” says Burt. “If they’re happy with what we’re doing, ultimately we end up getting the rest of their assets. They might start with $500,000 with us and then, two or three years later, the client has another $500,000 for us.”

Burt, who had worked as a portfolio manager at London Life Insurance Co. and as a senior U.S. equity analyst at Richardson Greenshields of Canada Ltd. (his assistant there was fellow Winnipeg money manager Larry Sarbit) before founding Cardinal in August 1992, says the move to Cardinal was motivated by his desire to control his own destiny.

“I saw the future for people working in financial services firms,” Burt says. “That probably meant anybody I worked for would force me to retire prematurely. That seemed to be the pattern. Most firms push you out before you’re 62. I wanted to make that decision myself, and the only way I could guarantee that was to be self-employed.”

Burt started “trolling” for business and clients while working out of his house. He then joined up with his two original partners, Brian Shaw and Lyle Atkins, two fee-for-service planners who didn’t have portfolio management licences and couldn’t charge management fees for managing money. “I offered them an equity position in Cardinal. We started converting those clients from Lyle and Brian over to managed accounts,” he says. Shaw and Atkins are no longer with the company.

Burt says the bulk of Cardinal’s assets are in Western Canada, followed by Ontario. A small percentage comes from the Maritimes.

@page_break@Cardinal got into the mutual fund management business in the fall of 2005, when start-up Value Partners Investments Inc. in Winnipeg hired Cardinal to manage its three funds — a Canadian equity, an international equity and an income fund.

Paul Lawton, president of Value Partners, says the assets of the three funds combined just passed $150 million, which is slightly ahead of where company brass expected to be after 18 months in business.

“The No. 1 reason is Cardinal’s track record has been quite easy to sell to a lot of the advisors who do business with us,” Lawton says, noting his firm’s funds are sold through a network of almost 100 independent advisors across the country.

Value Partners’ minimum account size is $25,000, well above the $500-$1,000 minimums required by many of the industry’s players. Its management fees are at the opposite end of the spectrum, Lawton says, at 1.8% for all of its funds, vs 2%-2.3% charged by its competitors.

“We are definitely in a mutually beneficial relationship with Cardinal, in terms of opening doors for one another,” Lawton says. “We’d like to be a bigger part of their success going forward.”

Burt, who owns 37% of Cardinal, says there are no plans to take the company public.

“If your investment philosophy is such that you invest long-term and you want companies to focus on long-term corporate strategies,” he says, “if you’re managing your own company as a publicly traded stock, you tend to get caught up in the quarterly performance game. It creates a conflict in your management philosophy.” IE