It’s not easy swimming upstream, especially when those zipping by you in the opposite direction are some of the biggest fish in the sea; but that’s exactly the situation Value Partners Investments Inc. finds itself in.

The Winnipeg-based boutique is posting positive sales during market conditions that are claiming major-league victims such as Invesco Trimark Ltd. ($207.5 million in net redemptions in January) and TD Asset Management Inc. ($17.9 million).

Value Partners, meanwhile, brought in $6.9 million in new money in January, one of a select few companies across the country to ring in on the positive side of the ledger. Others included Fidelity Investments Canada ULC ($43.5 million), RBC Asset Management Inc. ($69.7 million), Scotia Securities Inc. ($20.9 million) and Manulife Investments ($37.6 million).

Value Partners also brought in $11 million in February. (All figures for other companies are from the Investment Funds Institute of Canada. Value Partners is not an IFIC member and provides its own sales figures.)

The firm is planning to continue its trek upstream by looking to break into Quebec and Newfoundland and Labrador, the only two provinces in which it does not currently have clients, says Gregg Filmon, president of Value Partners.

“We’re ready to pull the trigger and do business there. It’s a
matter of getting introduced to a few advisors that really fit with our business,” he says.

Filmon says he’s optimistic the current downtrodden market will prove to be fertile ground for Value Partners: “The hard part about an environment like this — in which everybody is losing money and sentiment is incredibly negative — is finding that balance of empathy and maintaining the positive attitude and outlook that things will get better. Virtually every client is up for grabs. Whoever does the best job of educating and building knowledge and confidence is in the best position to grab a lot of assets.

“We’d like to have a real, solid base of 250 to 500 advisors placing business with us. We want to crash through $1 billion [in assets under management]. That’s our short-term goal,” he adds. “Of course, it totally depends on the markets but that’s our next big milestone.”

About two-thirds of the advisors who do business with Value Partners are shareholders in the firm, Filmon says. The shares are sold by offering memorandum, but advisors have to be invited to buy in.

“It’s a bunch of guys who eat their own cooking. If you’ve been an advisor for 25 years, and been to the puppet show and seen the strings, you know what works and what doesn’t,” he says. “Why delegate that job to somebody else? Why not say to clients, ‘We’re in this together?’”

Value Partners is looking to expand further by identifying and attracting into the fold advisors who treat their clients fairly and invest their money wisely, Filmon says.

“When we find people like that, there seems to be an immediate attraction. It’s one advisor and one client at a time,” he adds.

Steve Norton, vice president at Value Partners, attributes the company’s success to the decision to position itself in the marketplace as a specialty shop and its goal to attract advisors who share the same vision. It’s no different, he says, from small retailers staking out their niches rather than competing head-on with national department stores.

“Trying to compete with stores like the Bay and Sears would be a mistake of monumental proportions. What’s your tag line? ‘We sell the same stuff but we’re nice guys so come shop with us?’ That’s the kind of marketing campaign that gets you fired,” he says.

Specialty shops can’t be all things to all people and, as a result, require focused customer lists, Norton says. Being a department store that says “We probably have what you need” is a very expensive model that Value Partners can’t afford, he adds.

That list of fewer than 100 advisors across the country — out of the more than 40,000 that work in the financial services industry — has helped raise almost $300 million in AUM for Value Partners in three years.

“We have to look for people who know what they’re looking for. We’re looking for advisors who have been around the block and know how to make money for their clients,” Norton says. “They’ve seen all the different products and they’re looking for a fund company that shares the same beliefs. That’s why we’re getting more business out of [the focused group] than trying to get a few bucks out of 40,000 people.”

@page_break@Value Partners offers five funds, three of which are managed by Winnipeg-based Cardinal Capital Management Inc. These include Cardinal Canadian Equity Pool, VPI Cardinal Foreign Equity Pool and Cardinal Canadian Income Pool.

The others are the Dixon Mitchell Canadian Balanced Pool, managed by Dixon Mitchell Investment Counsel in Vancouver, and CGOV World Equity Pool, which is run by Toronto-based Cranston Gaskin O’Reilly & Vernon Investment Counsel.

The funds Cardinal manages are made up of blue-chip, dividend-paying companies, a composition that has enabled these funds to weather the storm better than most, says Cardinal’s CEO, Tim Burt.

“There’s a flight to quality right now and an emphasis on dividends that’s benefiting us. Our funds tend to have more downside support and not as much risk,” he says.

Norton says portfolio managers can focus on one of two things: the price of an asset or the cash flow of the underlying business. The former is irrelevant and unknowable in the short term, while the latter is relevant and predictable.

“The best in the business don’t even try to figure out what the price of an asset will be, it’s a waste of their time. Cash flow is a more knowable thing. We know that if cash flows are there, then the prices of the assets will come back up in line” with the cash flow, he says. “You can’t talk about discounted cash flow to mom and pop. You have to explain it to them in a way they’ll understand.”

That ability to convey the investment process to clients is Value Partners’ competitive advantage, Norton says. Legendary investors such as Peter Cundill understand how it works and aren’t fazed — even during abysmal conditions. Retail advisors can’t be expected to attain the same level of expertise, Norton says, but they can, however, buy into the philosophy. He says Value Partners has proprietary tools to help clients understand the strategy in a simple, concise way that cuts through the industry jargon.

“In the age we live in, you only have a few minutes of a client’s time each year. The secret of our success is communicating the same investment strategy to a farming client or to a business owner in a matter of minutes,” he says. “It’s about getting your clients to understand the strategy and sticking with it when things look grim. There are no secrets anymore when it comes to investing.”

Indeed, Value Partners posts its investment strategy and individual holdings on its website every quarter. For example, its top 10 investments as of Sept. 30, 2008, include some of the biggest and most successful companies in Canada, such as all of the Big Six banks, Manulife Financial Corp., Great-West Lifeco Inc., IGM Financial Inc. and Industrial Alliance & Financial Services Inc. IE