Halifax-based seamark Asset Management Ltd. faces a tough challenge in replacing the investment accounts it lost when Toronto-based ClaringtonFunds Inc. decided to find new managers for $2.9 billion in mutual fund assets.

Seamark, which uses a conservative and value-oriented investment approach, has been struggling to recover from a few years of mediocre returns on its managed funds, and has already lost a couple of institutional clients. Clarington’s move to replace Seamark with three managers, including affiliate Industrial Alliance Investment Management and two outside managers, means Seamark will lose almost a third of its assets under management, which stood at $9.3 billion in January 1996. Clarington’s switch will become effective on March 31.

“The loss will mean a huge hit for Seamark’s earnings,” says Dale Noseworthy, an analyst at Beacon Securities Ltd. in Halifax. “The first quarter of this year is seeing an improvement in Seamark’s investment performance, but the firm will need to show a strong performance on a consistent basis to win new clients.”

Seamark’s stock dropped 61¢ to $8.40 on Feb. 21, a day after Clarington’s decision was announced, and Noseworthy forecasts it will fall to $6.50. The shares hit a record high of $23.45 in February 2004. Another analyst, John Aiken of National Bank Financial Ltd. , has a target price of $11 for the stock, based on the long-term potential of Seamark’s remaining business.

Threat since December

The loss of the Clarington subadvisory contract has been a threat hanging over Seamark since Clarington was acquired by Quebec-based Industrial Alliance Insurance and Financial Services Inc. in December.

Industry observers expected Industrial Alliance might transfer management of some Clarington assets to its in-house investment management arm, but Industrial Alliance also transferred management of some funds to Toronto-based Howson Tatersall Investment Counsel Ltd. and New York-based Oppenheimer Funds Inc.

Seamark chairman Peter Marshall issued a statement Feb. 20 saying the firm was “disappointed” that Clarington had chosen to switch managers for its funds, including the $1.1-billion Clarington Canadian Dividend Fund and the $899-million Clarington Canadian Income Fund. He said, however, that the move “will not impact the delivery of our disciplined long-term investment approach to our many valued clients.”

Marshall was unavailable for further comment. In addition to coping with the lost Clarington business, he is faced with the challenge of finding a new CEO. Last May, the 67-year-old Marshall was coaxed out of retirement to resume his former role as CEO, replacing company president Robert McKim, who had resigned. McKim had taken over Marshall’s role as CEO a year earlier.

Marshall and the Seamark board have been scouring the financial services industry for candidates for the CEO’s job, and had originally stated they hoped to fill the position by the end of 2005. Marshall had retired in December 2003 after being with the company since he founded it in 1982, although he stayed on as chairman and remains actively involved in the investment process.

“Finding a new [CEO] is the No. 1 priority for the board of directors, and progress is being made,” says Brent Barrie, Seamark’s manager of investor relations.

In a recent conference call with analysts, Marshall said he was comfortable filling the roles of both CEO and chief investment officer while the search continues, and implied it could go on a while longer: “The board has initiated a search for my eventual successor. It is one of the key responsibilities of the board, as a public company, but there is no rush.”

Value style

Marshall also said Seamark’s investment team would remain faithful to its proven discipline of seeking undervalued companies and holding them until their value is recognized, an approach that has worked for the firm for 24 years.

“There have been previous periods when our approach was out of favour, but this is one of the more prolonged periods since Seamark was founded,” he said.

Seamark’s performance has been affected by significant exposure to U.S. stocks in its balanced and asset-mix accounts, as well as by limited exposure to the cyclical commodity stocks that have powered the market recently. IE