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AGF banks on expanded pension business in 2012

A file photo of Blake Goldring, CEO of AGF Management.

Yvonne Berg/The Globe and Mail

AGF Management Ltd. , which suffered a 29-per-cent drop in fourth-quarter profit and rising redemptions in its mutual funds, plans a more aggressive push this year to boost its global pension business.

The growth strategy could also include a strategic acquisition of a foreign institutional money manager, AGF executives told analysts on Wednesday after the missed analysts' expectations of 30 cents a share.

"We expect the 2012 RRSP season to be challenging across the industry," AGF chief executive officer Blake Goldring acknowledged. "Volatility in the second half of 2011 shook investor confidence, and investors pulled money out of equity funds … We do not expect a return to equities until the market volatility is contained."

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Toronto-based AGF, which owns a mutual fund company and trust unit, saw net redemptions rise to $560-million in the quarter ended Nov. 30 from $414-million in the same period in 2010. In fiscal 2011, net redemptions rose to $2.2-billion from $1.8-billion the previous year.

Because it will be tough to turn around its mutual-fund business back to a net sales position anytime soon, AGF is beefing up its institiutional sales team this year to try to win more pension mandates in the United States, Europe and China. Pension assets now account for 50 per cent of AGF's assets under management.

"We currently expect net inflows of $650-million in 2012, driven by new mandates from global institutions as well as from existing clients," Mr. Goldring said. "We continue to view this business as a key contributor of growth at AGF."

Canaccord Genuity analyst Scott Chan described the institutional pipeline as "pretty positive" given that AGF's mutual fund business is struggling. "The retail environment is very, very competitive," and it doesn't help that 65 per cent of AGF's fund assets are in equities, he said.

While pension fund mandates are a lower-margin business compared with mutual funds, "it is still profitable," Mr. Chan said. AGF has been able to charge higher management fees of 60 to 100 basis points on new mandates compared with its historical or "legacy" business. (A basis point is 1/100th of a percentage point.)

The new pension wins focus on managing money in the specialty mandates like emerging markets and global resources. The old pension business focused more on the Canadian equity, balanced or fixed-come areas.

AGF also blamed rising selling and administrative expenses for fourth-quarter profit falling to $21.9-million, or 23 cents a share, from $30.9-million, or 34 cents a share, a year earlier. Revenue for the quarter rose to $157.8-million from $155.9-million in the same period in 2010.

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Total assets under management rose to $46-billion at Nov. 30 from $43-billion a year earlier. The increase stemmed from last year's acquisition of Acuity Ltd., which added $7.5-billion in assets.

AGF, meanwhile, said it will be receiving a $20-million dividend from its AGF Trust subsidiary this year. That is in addition to $10-million last year.

The new money will be targeted at share buybacks, acquisitions and "a dividend increase to be reviewed probably later in the year," said AGF's chief financial officer Robert Bogart. Any acquisition, he added, "will probably tend to institutional management … and probably international."

Unlike some large fund companies like IGM Financial Inc., which owns Investors Group and Mackenzie Financial, and CI Financial Corp., which also own financial planning arms to help sell their funds, Mr. Goldring does not foresee AGF opting for that kind of distribution strategy to stem net redemptions.

"You don't need to own distribution to be successful," he said. "You can partner and work closely with and have strategic partnerships to accomplish the same goal."

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