If you run a small or mid-sized independent investment firm in Ontario or Quebec, don\u2019t be surprised if Daniel Thompson, MacDougall MacDougall & MacTier Inc.\u2019s new president and CEO, pays you a friendly visit.
Given increased costs in the investment industry, there is greater value in economies of scale, says Thompson, who joined the venerable 161-year-old Montreal institution last June: \u201cCompliance has just gotten more and more expensive and complex, and you just can\u2019t run an investment-management firm or full-service brokerage on a shoestring anymore. You need a certain critical mass.\u201d
The firm, known widely as 3Macs, has about $5 billion in assets under administration, and Thompson reckons if a firm is below the $5 billion mark in AUA these days, it\u2019s probably too small: \u201cWe\u2019re really in that sweet spot, in which we\u2019re not small but we\u2019re not big, either. You don\u2019t have to be big, but bigger when you\u2019re in the middle of the pack is better.\u201d
To ensure the independent firm maintains its independence, it is now exploring mergers or partnerships, he says: \u201cIt\u2019s not an acquisition mentality. We\u2019re not out there with a shopping list trying to buy people out. It\u2019s a very friendly, low-key pitch I\u2019m making when I\u2019m talking to other firms of similar size. If there are synergies where we can get together to the benefit of both, we should explore them.\u201d
Thompson notes there aren\u2019t many independent firms left in Canada, as they\u2019ve either been acquired or have disappeared; he adds that it makes sense for those that remain to stick together: \u201cThis industry is very much dominated by the large, bank-owned firms. As independents, we need to organize ourselves more closely, not only to ensure our survival but to ensure our prosperity.\u201d
Thompson has a long history at independents. He arrived at 3Macs after 14 years at the helm of Montreal-based GBC Asset Management Inc., the private-client division of Pembroke Management Ltd., also of Montreal. It was time for a fresh challenge, and after a friend and client who\u2019s a headhunter gave Thompson a call about the 3Macs position, he decided to make the move.
Traditionally, 3Macs presidents and CEOs have not only run the firm but have also run their own books of business. However, the firm decided the days of CEOs wearing two hats had come to an end and that it was time to bring in someone who would focus exclusively on medium- and long-term management and strategy. Enter Thompson.
With about 200 employees in Montreal, Toronto, Quebec City, London, Ont., and Kingston, Ont., 3Macs is about 10 times larger than Thompson\u2019s old firm, but it faces similar challenges and issues \u2014 so the new job hasn\u2019t been much of a culture shock. Not only that, but, given the relatively small size of Montreal\u2019s investment community, Thompson already knew most of 3Macs\u2019 players.
Like much of the financial services industry, 3Macs was hit hard by the recent recession, but it has bounced back to pretty much the level at which it was before the crisis began in 2008, with staffing levels at their pre-crash high. \u201cWe cut costs in a very logical and moderate fashion,\u201d Thompson says.
Still, although the financial services industry is emerging from the crisis, it continues to look for ways to be wiser and better, he says. Every firm is re-examining its business model after the old one witnessed a perfect storm in the financial markets, with trading volumes off significantly, fees way down and revenue pictures changed dramatically. Explains Thompson: \u201cYou cut costs. You re-examine the business model, and ask, \u2018How can we build a stronger, more viable, weather-proof firm? Is the business model still appropriate? Do we have the right growth strategy in place?\u2019 Every single firm went through that.\u201d
Post-crisis, 3Macs is in a much more solid position than many of its competitors, Thompson maintains. That\u2019s because the firm has a tradition of not only managing clients\u2019 money very conservatively but of operating its own affairs conservatively. \u201cWe are not fans of risking our own capital,\u201d he says. \u201cWe like to remain overcapitalized. We don\u2019t participate in initial public offerings or in underwriting. It\u2019s a very straightforward and conservative investment model.\u201d
Thompson believes that there has been a fundamental shift in investor psychology that will probably take years, if not a generation, to change. Although it\u2019s often said investors have terrible short-term memories, Thompson doesn\u2019t think that notion is true this time around. \u201cI think that what happened in 2008-09 really put the fear of God in a lot of investors. I think people are going to be wary, cautious for a long time, in terms of how they manage their investment portfolio. The appetite for risk will be much less than it has been.\u201d
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