by Salman Ahmed

The manager of our Equity Fund, CGOV, was acquired by Fiera Capital this spring. Since the announcement, Tom and I have been thinking critically about what this means for our clients. As part of our due diligence we’ve met with some of Fiera’s top brass and also spent time with former employees and competitors. Though the ownership change is not our preference, we believe that the traits that have made the CGOV team a leading investment manager remain intact.

For background, Fiera oversees $140 billion managed by a number of distinct investment teams (i.e. bonds, Canadian and Global equities). These teams operate independently of one another but benefit from having centralized legal, compliance, and trading functions. Fiera largely leaves the investment teams alone. It doesn’t force them to alter their philosophies or investment process. It also allows them to decide which funds to launch and when to close strategies to new investments. Closing funds ensures that size doesn’t limit the manager’s ability to generate returns.

The CGOV investment team’s day-to-day responsibilities are not expected to change. Gord O’Reilly, the manager of our Equity Fund, doesn’t have additional responsibilities thrust upon him now that he’s part of Fiera. If anything, he can focus more on managing money without also having to help run a business.

Two areas we are watching closely are conflicts of interest and incentives. National Bank (NB) owns a 22.5% interest in Fiera Capital, has two seats on the 12-person board of directors and gives Fiera plenty of its assets to manage. Clearly, NB has some pull. Some of the most egregious conflicts happen when banks push staff to cross sell mortgages, insurance and other banking services, but we think this conflict is somewhat muted as Fiera only offers investment services.

The issue of incentives is trickier. The payouts that CGOV senior partners stand to receive from the transaction are staggered over a number of years and don’t start until a few years from now. The pay structure at Fiera will also put an emphasis on medium- and long-term performance, which aligns well with CGOV’s investing horizon. But we’re not kidding ourselves here. Many partners have become wealthier having sold their stake to Fiera and it’s hard to say if they’re all as motivated as they once were.

It’s fair to say we were disappointed to find out about the change in CGOV’s ownership. We prefer to partner with private, employee-controlled firms. On balance, however, we continue to see the characteristics we like in a manager: a focused investment team with experienced decision makers and a proven and disciplined investment process. As always, we won’t hesitate to make a change if we believe it’s in the best interest of our clients. Indeed, last month we updated you about a change we’ve made on our Global Equity Fund, the manager of which also went through a recent ownership change. In that case, our assessment yielded a different answer.