Aston hill financial inc. of Calgary is making its mark in the fund-management industry with its expertise in income-producing products.
With almost $6 billion in assets under management in its own product line and through subadvisory relationships, publicly traded Aston Hill has just celebrated its fifth anniversary. And Ben Cheng, the firm’s president and chief investment officer (who works from Toronto), is looking forward to at least doubling that asset base by the time Aston Hill celebrates its first decade in business.
“We are focused on providing positive nominal returns to clients throughout all types of market conditions,” Cheng says. “We are not simply trying to beat a benchmark. Positive returns are what people need to live on in retirement.”
Aston Hill’s product line is multi-pronged: mutual funds, closed-end funds, private equity, institutional pools and long/short hedge funds. The firm also has developed some flow-through products related to the oil and gas business and runs a fully operational energy firm, Sword Energy Inc., which is held privately by a group of pension-fund investors.
Cheng has had a long career as an analyst and manager of high-yield products, including income trusts and corporate bonds, for companies such as Sceptre Investment Counsel Ltd., BPI Financial Corp. and CI Investments Inc. (all based Toronto). In addition, company co-founder and CEO Eric Tremblay has expertise in oil and gas income trusts.
Tremblay and Cheng met in 1997, when Cheng was investing in income trusts and Tremblay was managing the Enerplus Resources income trust. In 2007, Cheng and Tremblay became business partners in Aston Hill’s public predecessor, Overlord Financial Inc. Just prior to that, Cheng had finished two years of commuting between Toronto and New York, managing money for Fortress Investment Group LLC, a hedge fund manager based in New York.
Although Aston Hill had started as an institutional manager, its first foray in the fund industry came in 2009 with a contract to manage the IA Clarington Aston Hill Tactical Income Fund, followed later that year by the IA Clarington Global Tactical Income Fund. (Both funds are sponsored by IA Clarington Investments Inc. of Toronto.)
Given the turmoil in financial markets at that time, Cheng says, it was a tough period in which to start out, but the IA funds held significant cash positions and focused on high-yielding stocks that helped them survive relatively intact. As of Dec. 31, 2011, IA Clarington Tactical Income and IA Clarington Global Tactical Income had two-year average annual returns of 3.7% and 5.5%, respectively.
Cheng says he prefers to rely on income for the majority of investment returns and focuses on securities such as corporate bonds, real estate investment trusts and stocks that pay high dividends, including pipeline, power-generation and telecommunications companies. Ideally, Cheng likes his portfolios to show an annual yield from dividends or interest of 6%-8% and a capital gain of 2%-4%.
“Many companies are growing their dividends every year as revenue grows,” Cheng says. “We don’t chase yield, but like to own strong companies with sustainable dividends that can increase their dividends in the future.”
Much of Aston Hill’s growth has been through acquisition and, in the past two years, it has been busy shopping in the Toronto marketplace. In 2011, it purchased BFML Management Ltd., receiving the management contracts for seven closed-end funds previously managed by Brompton Funds Management Ltd. and representing about $800 million in AUM. Aston Hill also bought the business of Morrison Williams Investment Management LP from Newport Partners Holdings LP, representing $1.6 billion in AUM (including the subadvisory contract to manage Renaissance Millennium High Income Fund, sponsored by CIBC Global Asset Management Inc.) The previous year, Aston Hill had bought Navina Asset Man-agement Inc. from Lawrence Asset Management Inc., receiving $225 million in AUM in closed end, mutual and hedge funds.
“A number of asset managers have been struggling to grow, which has provided us with a fair number of opportunities to grow by acquisition,” Cheng says. “We’ve been able to breathe new life into these companies and grow assets with improved investment performance. As we’ve turned around the funds’ performance, assets have flowed in. It’s about earning client trust and providing good performance — period.”
Aston Hill faces a difficult competitive environment, as the fund industry is dominated by a handful of giants, including the bank-owned firms, and many inves-tors are interested in the growing array of exchange-traded funds.
“It’s tough for a new company to carve out a niche,” says Dan Hallett, vice president and director, asset management, with HighView Financial Group of Oakville, Ont. “Not only is the competition tough for the fund companies, but competition generally has ramped up from ETFs and other passive funds. As often happens in poor equities markets, people are disappointed with low returns — and the fund industry is vulnerable to that.”
Another barrier for fledgling firms to surmount, Hallett says, is the rising cost of doing business, with more requirements on the regulatory and compliance side.
Aston Hill plans to beef up its six-person sales team with a few more bodies during the next year, Cheng says, and the firm also expects to add a few funds to its product line, including a global high-yield fund and a global high-yield hedge fund. Cheng also hopes to hire a Canadian equities manager and introduce a Canadian long/short equity fund.
One of Cheng’s priorities is to make Aston Hill’s fund portfolio managers available to financial advisors, “The best way for financial advisors to gain trust in the managers running the money is to meet the managers in person,” he says. “It’s critical that advisors and their clients understand and trust the managers.” IE