The imminent merger of Toronto-based Sceptre Investment Counsel Ltd. and Montreal-based Fiera Capital Inc. will turn two lopsided firms into a bigger and more balanced entity with a diversified lineup of investment choices and a strong national presence.

“On the business side, the firms complement each other in terms of geographical concentration and asset mix,” says Dan Hallett, director of asset management with Oakville, Ont.-based HighView Financial Group. “Both are strong on the institutional side and can develop cross-selling opportunities.”

With the deal expected to close in August, assuming the necessary shareholder and regulatory approvals are gained, the new, publicly traded Fiera Sceptre will have combined assets under management of $30 billion, with approximately $7.2 billion coming from Sceptre and $26.3 billion from Fiera.

“The deal is, in effect, a friendly takeover of Sceptre, which has been struggling,” says Rudy Luukko, investment funds editor with Morningstar Canada in Toronto. “There is now a clear direction where the company will be headed.”

Sceptre, which was founded in 1955 and became a public company in 1986, has seen growth stagnate in recent years as it has been plagued by departures, both from its executive and its investment-management ranks. But Fiera has been on a high-speed growth track since it was launched in 2003 by Quebec-based financial conglomerate Desjardins Group and the energetic Jean-Guy Desjardins, who became controlling shareholder of Fiera as well as its chairman, CEO and chief investment officer. During the past five years, Fiera’s revenue has grown at an annual clip of 25%, while its AUM has grown at 23% a year.

“One of the key reasons why the match is so good is that it will create a long, diversified list of highly performing investment strategies,” says Desjardins. “Sceptre is concentrated primarily in Canadian equities, with special expertise in small-caps, while Fiera has a broader lineup that includes Canadian and international equities as well as fixed-income and alternative asset classes.”

Fiera markets two hedge funds to the retail market and also acts as subadvisor on retail products sold through Desjardins Group. About 65% of Fiera’s AUM is institutional, 30% is retail and 5% is high net-worth individuals. At Sceptre, the mix is 84% institutional, 8% retail and 8% high net-worth.

“Sceptre currently has a family of mutual funds but no wholesaling capability,” says Desjardins. “[Fiera has] the wholesaling capability, but is currently distributing only our two hedge funds. The merger will allow us to promote additional retail fund products while Sceptre will have the support of a wholesaling group. We expect significant organic growth on the retail side.”
@page_break@Desjardins doesn’t expect any new product launches during the next six to nine months, as the new firm focuses on integrating operations. But, subsequently, he foresees new products in the alternative strategies category.

Fiera also offers an infrastructure fund and a fund investing in interim credit financing for residential real estate projects. These non-traditional investments charge higher management fees and are therefore potentially more lucrative.

“Many people are attracted to alternative asset classes, and there is huge interest on the part of pension funds,” says Ross Walker, Sceptre’s chairman, who says Sceptre lost some clients who wanted to “go that route” and went elsewhere for exposure. “With the current low level of interest rates, everyone is looking for yield. Infrastructure projects and other alternative investments have the potential to offer double or triple the yield of traditional fixed-income securities.”

Desjardins predicts that clients will increasingly turn to alternative asset classes during the next five years: “We have a significant head start in developing alternative products that we expect will be in high demand down the road.”

Fixed-income makes up about 65% of the AUM at Fiera. Although the fees on this asset class are relatively low, Desjardins says, fixed-income is extremely stable; and, due to its large scale, is highly profitable and a good complement to the more volatile equities and alternative asset classes.

The merger will also provide both Sceptre and Fiera with the national presence they were previously lacking. The majority of Fiera’s AUM is currently in Quebec and the Maritimes; Sceptre’s are mostly in Ontario and Western Canada.

There will also be economies of scale resulting from the amalgamation, says Desjardins: “There will be financial synergies in managing the organization. You don’t need two CEOs; only one.”

Desjardins, who has a long track record of achievement and was also the founder and driving force behind TAL Global Asset Management Inc., will be chairman, CEO, chief investment officer and controlling shareholder of the new entity.

Walker will continue to be a board member; Sylvain Brosseau, president and chief operating officer of Fiera, will hold the same titles at the new firm; and David Pennycook, president and interim CEO of Sceptre, will become vice chairman and executive vice president.

IE