Larry sarbit is back — smaller and more invested than ever.

The Winnipeg-based fund manager is in what amounts to his first RRSP season since launching his own firm, Sarbit Asset Management Inc. , in 2005.

SAMI recently crashed through the $100-million barrier in assets under management with its quintet of funds, led by its flagship, Sarbit U.S. Equity Trust. The U.S.-based equity fund has 85% of the firm’s AUM invested in a dozen companies. But what’s most remarkable for Sarbit, who developed a well-deserved reputation for being a cash-happy manager during his five-year stint at Burlington, Ont.-based AIC Ltd., the fund itself is “well over” 50% invested.

While working for AIC chairman Michael Lee-Chin, Sarbit regularly had more than 80% of AIC’s $2-billion American Focused Fund in cash.

Today, the 26-year veteran believes smaller is better. He simply couldn’t have bought shares in one of his current favourites, Collectors Universe, a California-based authenticator of coins, stamps, autographs, baseball cards and diamonds, while at AIC — or at Investors Group Inc. before that — because its market cap is only US$100 million.

“We believe in concentration. We don’t believe in overdiversification,” says Sarbit. “If you have a lot of money under management, how can you buy a company that is $100 million in size and buy enough of it to make it meaningful in the portfolio? You can’t. When you’re $85 million, you can. We have a lot more freedom and flexibility, therefore we’re more highly invested.”

The advantage in such a situation rests with the clients, he says. Smaller firms possessing all the characteristics he’s looking for in a great business — something has gone wrong but the underlying value hasn’t changed; investors are selling and analysts are writing negative reports — can represent large holdings in the portfolio.

Sarbit says he hasn’t had to change his investment or investigative processes because his potential investments are smaller in size. In fact, he says, there’s a great advantage in looking at smaller firms.

“You can get to know the company more intimately, in most instances,” he says. “You can get to know the president, the CEO, the CFO. You can get to the decision-makers a lot more easily. You can’t get to the head of General Motors or Wal-Mart or Home Depot. You’ll never get to those people.”

Another change for Sarbit is his recent association with fixed-income. Last fall, SAMI launched a pair of bond funds — Sarbit Canadian Bond Trust and Sarbit Real Return Bond Trust — and a money market fund called Sarbit Money Market Trust. The troika is being managed by Nestor Theodorou, who joined the firm last summer after managing more than $6 billion in fixed-income assets at Investors Group.

Sarbit says bonds are a vehicle investors will want more of in the future, and Theodorou was the right person for the job. Sarbit says his philosophy — find the person, then produce the fund — is the opposite of that of the industry, which creates products first and then goes looking for people.

“What else is there in a fund except the manager?” he asks, noting the bond fund trio have thus far attracted more than $10 million from investors.

Sarbit also has $5 million in his “offering memorandum product,” a fund created last summer to allow him to go beyond the mutual fund ceiling of 10% in any one investment, but won’t see him get paid unless it outperforms a “constantly moving high-water mark.”

“We believe in our process and that we shouldn’t be rewarded unless our clients are being rewarded,” he says. “In this situation, you’re really concerned about having big losses because big losses are hard to make up. Our whole philosophy is to mitigate risk.”

Sarbit says the reaction he and his wholesale team are receiving on the road this RRSP season depends upon the audience. He’s on the lookout for people who understand that investing is a business, not a game, and whose prime concern is to protect capital by having low risk while earning high returns.

“We meet advisors who completely understand what we’re about,” he says. “Others don’t take our approach. They want to see results before they buy. They’d rather buy the record than be the record. They probably aren’t a good fit.”

@page_break@Sarbit says he doesn’t have any timetable or goal for the growth of the firm. It all depends on his ability to attract the right people.

“We don’t believe it’s prudent or ethical to have a Canadian fund or a global fund because we don’t have the people we feel can add value [in those areas] right now,” he says. “I need to believe I can stand up in front of advisors and investors, and say, ‘If you don’t buy this, you’re missing out on something’.”

Today, SAMI has a staff of 17, including five wholesalers, based in the company’s riverfront headquarters, just a stone’s throw from downtown Winnipeg.

Arguably the highest-profile challenge faced by Sarbit since launching the company was the decision in late 2005 by Berkshire Group, AIC’s sister company, to ban Sarbit’s funds from the shelves of its 900 advisors, one of the biggest distribution networks in Canada.

At the time, Lee-Chin said the fund didn’t meet Berkshire’s minimum thresholds — implemented in the wake of the Portus Alternative Asset Management Inc. scandal — that stipulate that any fund on its shelf must have a minimum five-year track record and $200 million in AUM.

The issue, which Sarbit calls “ancient history,” is not his favourite topic. “We’re moving on from there, and we’ll be successful,” he says.

All in all, he says the firm has done “OK,” considering it only had a handful of selling platforms a year ago. Today, it’s on the shelves of more than 125 distributors, including the Big Five banks.

“Starting any business, especially in the mutual fund arena, is tough,” Sarbit says. “Given that, we’ve done remarkably well. We’re through more than $100 million after a period of just getting distributors on board. We gathered all that money in a product that people didn’t want. They didn’t want to be in U.S. equities last year. They wanted to be in gold and oil. The U.S. wasn’t the flavour of the year. Still, we brought in assets. We’ve done a pretty good job and expect to do better.”

Perhaps not surprising, Sarbit isn’t concerned about standing out from the crowd. He describes himself as being “as different as you’re going to get” when it comes to mutual fund managers. He says he wants to act like rational and successful business people whose prime goal is “to not lose money.

“A lot of fund companies talk about it, but very few have that as their raison d’être,” he says. “You want to make money, but you won’t if you lose it. You simply can’t compound if you’re in the hole. Limiting your downside means you’re increasing your potential of upside.”

Sarbit has long been dismissive of that upside if it’s in one-year returns — and he still is. He admits his fund’s 5.5% performance over the past 12 months “isn’t exciting,” but he’s not losing sleep over it: “If I had a great return in a year, I ignore it. If I had a humdrum return in a year, I’d appreciate if you’d ignore it, too. No successful business person measures long-term growth of wealth by looking at short-term results.”

Sarbit says his guru, Warren Buffett, has always preached that delayed recognition is a huge advantage because it gives investors the opportunity to buy more of a great business at a bargain price.

“We have lots of stocks that didn’t perform [in Sarbit U.S. Equity Trust],” he says. “I like to think of them as building value. We bought them and continue to buy them while other people don’t want to own them. Sooner or later, they’re going to get recognized.

“I’ve generally been uncorrelated with the market, but we don’t want to be the market. If people want the market, they can get it elsewhere, and cheaper. They don’t pay us to be the market, they pay us to be better.” IE