Toronto-based Jovian Capital Corp., having sold two of its core assets in recent weeks, has turned its focus squarely on the asset-management business and is now on the lookout for new investment opportunities.

Jovian, a management and holding company with the mandate of investing in and building companies in the financial services sector, announced in mid-August that it was selling its Winnipeg-based mutual fund dealer, MGI Financial Inc., to Lévis, Que.-based Desjardins Financial Security.

The announcement came less than a month after Jovian unveiled the sale of its 58% stake in Toronto-based BetaPro Management Inc. to South Korea-based mutual fund company Mirae Asset Global Investments Co. Ltd.

The two transactions will leave Jovian with four Toronto-based subsidiaries: T.E. Wealth, a fee-based investment-counselling and asset-management firm catering to high net-worth individuals and institutions; Leon Frazer & Associates Inc. , an investment-management firm catering to high net-worth individuals, trusts and foundations; a 50% stake in portfolio-management firm Hahn Investment Stewards & Co. Ltd. ; and MGI Securities Inc. , a full-service investment firm that offers capital-market products and services to institutional investors and private wealth management to individual investors.

Upon completion of the pending transactions, Jovian will also have about $117 million in newly available capital that will come in handy as it explores prospective new investments.

“We’re looking for new opportunities to incubate, and we’re also looking for potential acquisitions,” says Philip Armstrong, Jovian’s CEO. “We would definitely be focused on asset managers.”

It’s pure coincidence the two recent transactions came to fruition within the same month, Armstrong says. However, the company sold the two subsidiaries for very similar reasons: in order for MGI Financial and BetaPro to achieve the next level of growth, Jovian’s management believed both businesses needed greater financial resources and broader economies of scale, which Jovian was unable to provide.

Both transactions were also part of an effort to demonstrate to shareholders the value that Jovian was creating within its subsidiaries. Jovian’s management felt that the company’s share price was failing to represent the value of the company’s underlying assets.

“The market has not really understood the company well,” says Armstrong. “We’ve traded at a very large discount to our asset value. These transactions, hopefully, will get the market to focus a little more on the value of the company and will start to reflect that value, and the discount will tighten in.”

Robin Cornwell, president of Toronto-based Catalyst Equity Research Inc. , agrees that Jovian’s stock price has been “substantially below” what he considers to be fair market value. The stock has been trading in the $10-$11.50-a-share range since the news of the subsidiary sales, but during the 12 months prior, it had been trading in the $7-$9 range. Cornwell’s target price for the stock is $19 — and he believes the two transactions will help ratchet up the share price: “They created tremendous value for the company. I think they’re going to realize a lot more value on their share price.”

Jovian plans to use some of the proceeds from the transactions to invest in its remaining subsidiaries. Armstrong says he sees strong growth prospects for all four of the businesses. T.E. Wealth and Leon Frazer, he points out, have both established solid positions within the lucrative high net-worth segment of the market, while MGI Securities has developed a presence in both the capital markets and the retail side of the business.@page_break@Armstrong sees particularly strong potential for growth for Hahn, which takes a unique approach to portfolio management through the use of exchange-traded funds. “Hahn represents a whole new way of managing money, utilizing [ETFs],” Armstrong says. “We think that’s the company that we’ll see tremendous growth in over the next few years.”

Financial services industry observers agree that the prospects are strong for the asset-management business, generally, which is a highly profitable sector. They see a bright future for Jovian, now that its portfolio is concentrated in this area of the financial services industry.

“They’re very much positioned now to be quite focused on the asset-management side, which traditionally has very strong valuations,” says Cornwell. “[This is] going to make the company a bit simpler.”

Furthermore, says Dan Hallett, vice president and director of asset management with Oakville, Ont.-based HighView Financial Group, with valuations declining, it’s an ideal time for Jovian to be exploring new opportunities. “It’s certainly a great time,” he says, “to have cash and be a buyer when prices are falling.”

The MGI Financial transaction is expected to close by Sept. 30. Under the agreement, DFS will pay $27 million for the mutual fund dealer, which has about 80,000 clients and $3.8 billion in assets under administration.

With about 250 financial advisors across the country, MGI Financial was an attractive target for DFS, which is working to beef up its presence outside Quebec. Of particular appeal was MGI Financial’s substantial presence in Manitoba and Saskatchewan — provinces in which Desjardins hasn’t previously operated.

“In terms of physical presence, it’s a perfect fit for us,” says Stéphane Dulude, executive vice president at DFS. “This will allow DFS to accelerate its development and also strengthen its distribution capacity in markets outside of Quebec.”

It makes sense for a major industry player such as DFS to acquire MGI Financial, Cornwell says, because scale is very beneficial in the distribution business.

“Financial planning is not a high-margin business,” he says, “so it really requires economies of scale. And that would require significant investment from this point on from Jovian. I’m not sure that it was completely sold that this was a great place to put a lot of its financial resources.”

Cornwall believes Jovian didn’t make much money from MGI Financial since acquiring it in 2003, when it was known as Rice Financial Group Inc. “It’s been a bit of a drain,” he says.

BetaPro, on the other hand, has grown substantially since Jovian launched that firm in 2005 with three partners. “We had grown that business from scratch,” says Armstrong.

However, as was the case with MGI Financial, Jovian decided that BetaPro needed greater scale to realize its potential. “It needed a stronger financial partner,” Armstrong says, “with global aspirations and a global platform.”

Hallett says he is surprised Jovian has sold its ETF business: “I thought the ETF component would be one of the businesses that it would hang on to, because it’s relatively young.”

However, Hallett says, Jovian is getting an attractive price for the business — $90 million for its 58% stake. The timing also has worked out well, he adds, with the BetaPro agreement having been reached prior to the hefty market sell-off that followed: “I’d say its timing has been pretty good.” IE