With the big five banks dominating mutual fund sales, the independent fund companies have been looking for other sources of growth.

The moves into distribution by CI Financial Income Trust and DundeeWealth Inc. , both of Toronto, have been well publicized, but the much greater success that AGF Management Ltd. and, to a lesser extent, Fidelity Investments Canada Ltd., also of Toronto, have had in attracting institutional business has not received a lot of attention.

The potential on the institutional side is huge if companies can compete in the global marketplace. And AGF believes it can. The firm is already managing about $6 billion in assets for foreign institutional clients, and chairman and CEO Blake Goldring thinks the institutional business could overtake mutual funds as the firm’s biggest business. At $21.1 billion, institutional clients accounted for 37.8% of the firm’s $55.8 billion in assets under management as of May 31.

In contrast, Bill Holland, CI’s CEO, doesn’t expect his firm’s financial planning, brokerage and private-client business to contribute more than 15% to EBITDA and suspects the figure will be closer to 10%.

As for Fidelity, it has grown its defined-benefit pension business to more than $5 billion in the past six years. The firm expects that business to continue growing at exceptionally high rates.

AGF and Fidelity are not the only companies going the institutional route. Toronto-based Mackenzie Financial Corp. has amassed almost $14 billion in non-mutual fund business in recent years, although most of this is subadvisory business for U.S. mutual funds and Canadian retail managed programs.

Toronto-based Franklin Templeton Investments Corp. is an even bigger player on the institutional side, with about $26 billion (or almost half) of the firm’s AUM. But this isn’t a new business; the company has had institutional clients since its inception in 1989.

Most of these fund companies have some private-client business, but it isn’t a focus, mainly due to concerns about competing with advisors’ client base.

Here’s a look at what the various firms are doing:

> AGF Management Ltd. The company acquired Ottawa-based P.J. Doherty & Associates Co. Ltd. and Vancouver-based Cypress Capital Management Ltd. in 2004, as well as London, Ont.-based Highstreet Asset Management Inc. late last year. All had institutional as well as private clients.

Goldring says the institutional business will grow faster than the mutual fund business over the next five to 10 years — and he expects double-digit growth in the mutual fund side during this time.

The expansion of the institutional business is a reflection of the evolution of the industry, says Goldring, who believes that the days of segmented investment management — with specialists in pensions, mutual funds and private clients — are past. Clients everywhere “are looking for new names,” he says, adding that with AGF’s global investment expertise, it is particularly well positioned to win mandates both at home and abroad.

AGF will aggressively continue to market to institutional clients in Europe and is in the process of hiring a team to tackle the U.S. market.

Selling in the institutional arena is not particularly difficult, says Goldring: “It’s a matter of how you speak to each client segment and making sure you provide the type of products needed and deliver them appropriately.”

Goldring admits there is still a perception among some clients that they need institutional investment-management specialists and that Canada is all rocks and trees. To change this, he says, “You just have to prove them wrong.”

Goldring says the private-client business is a nice business and AGF may expand it through acquisitions, but in itself it’s not a growth area. This is a touchy area because the firm doesn’t want to be seen to be competing against its advi-sor clients. On the other hand, it’s complementary to the services sold through its trust business.

“If we double the business in the next five years, that would be plenty,” says Goldring.

> CI Financial Income Trust. Holland thinks CI’s mutual fund AUM, which was $64.6 billion as of March 31, can increase by an average 10% a year, but only if “we do everything right, are very careful at managing the business and very good at execution.”

This is behind CI’s diversification strategy. “We need more sources of revenue and more ways to manage money,” Holland says.

@page_break@CI has chosen to diversify by getting into the complementary businesses of financial planning, private-client services and brokerage. Holland expects financial planning to grow only 5%-6% a year, vs 10% for mutual funds. He thinks the brokerage business will expand much faster and the private-client side to do even better.

The strategy in both financial planning and brokerage is to grow in a methodical manner. “We aren’t looking for a certain number of advisors, but rather for an increase in the average book of business,” Holland says.

CI has a foothold in the institutional side of the business through its 25% interest in U.S.-based Altrinsic Global Advisors LLC, a fundamental value investment firm that manages $2 billion in assets, including a number of CI funds. institutions, endowments and high net-worth clients. Holland says it could be 10 times as big in 10 years.

> Fidelity Investments Canada Ltd. The firm’s pension business has about $10 billion, or 20%, of the company’s total AUM of around $50 billion. The DB business has $5 billion-plus and defined-contribution plans, $4 billion-plus. The DC business was started in 1995 and has grown steadily, but it has not enjoyed the exceptional pace that the DB business has had.

Gary Grad, vice president of institutional investments and analysis, thinks the firm can become one of the top 10 private-sector DB managers in three to five years. But that would require more than tripling its DB business — the tenth biggest firm has $16 billion in AUM. Fidelity’s long-term goal is to be No. 1 in private DB business. Currently, the top DB firm manages $47 billion.

Fidelity’s comparative advantage in the DB area is the quality of its products and service. Grad says pension consultants think very highly of the firm’s offerings and it is often invited to make short-list presentations. A new “core-plus” bond offering has been particularly well received. It has Canadian investment-grade bonds as the “core” and emerging-market debt and U.S. high-yield debt for the “plus.” The geographical diversification keeps the risk down.

Grad believes Fidelity’s DB business is on the cusp of even stronger growth than the 40%-plus pace it has had since 2001.

He also thinks there will be another surge in DB growth when the firm starts offering alternative investment products to the DB market. These are needed to reduce volatility and increase returns so that assets keep pace with the liabilities in those plans.

> Franklin Templeton Investments Corp. Franklin Templeton hired CEO Don Reed in 1989. Because Reed came from the institutional side of the business, he pursued institutional clients from the beginning, while building a family of mutual funds.

The two businesses grew in tandem — and Reed expects growth in each to be similar. Currently, the company manages $56.5 billion, of which institutional accounts for about $26 billion, mutual funds for $28 billion and private clients for $2 billion.

The company markets only to institutional clients in Canada, but it gets mandates from foreign clients through its California-based parent. These account for about half of its institutional business.

From 1993 to 1999, Reed not only ran the Canadian company, he was also in charge of the parent’s institutional business as well as managing a few funds. By 2000, both businesses had become too big to be managed by one person and he choose to stay in Canada.

Franklin’s institutional clients cover the spectrum, including corporate, multi-employer, public and union pension plans, banks, universities, cities and provinces.

The company has $2 billion in private-client assets, which were acquired in its 2000 acquisition of Calgary-based Bissett & Associates Investment Management Ltd. The purchase was primarily aimed at enhancing Franklin’s investment expertise and adding to its institutional client base.

Reed says the private-client business is useful for attracting institutional business because advisors — especially those in smaller cities and towns — know of companies and public-sector entities looking for investment management.

> Mackenzie Financial Corp. The company had $13.8 billion in non-mutual fund AUM at June 30 — which is much less than its $48.4 billion in mutual funds — and much of this is in subadvisory arrangements.

About $7 billion is mutual funds run for U.S. mutual fund company Waddell & Reed Inc. Much of the rest comes from participation in managed products offered by Canadian banks and insurance companies, including sister firms Investors Group Inc., Great-West Life Insurance Co. and London Life Insurance Co.

The firm also has about $500 million in products for the U.S. HNW market, mainly managed by wholly owned Cundill Investment Research Inc.

Mackenzie has $1.1 billion of business for institutional clients — such as pension funds, foundations and endowments — as well as $1.2 billion in group DC pension business that shows up in Mackenzie’s mutual fund AUM. Its private-client business is small at $400 million.

David Feather, president of Mackenzie Financial Services Inc., says the company plans to grow all its businesses organically. Managed products and HNW business will probably grow faster than the fund industry because he expects the appetite for these services to increase faster than the demand for mutual funds. IE