Billionaire entrepreneur Michael Lee-Chin plans a comeback in the investment fund business this fall after selling assets in AIC Ltd. only three years ago to Manulife Financial Corp.
Mr. Lee-Chin, who also owns a portfolio of investments in Caribbean businesses, will begin offering mutual funds and private equity funds to Canadian investors after his non-compete obligations to Manulife end Sept. 30.
"It's a sweet day to get back into the business," the 61-year-old Jamaican-born chairman of Portland Holdings Inc. quipped in an interview.
Portland's fund business will launch at a time when the industry is under siege. Some funds are suffering from net redemptions amid volatile stock markets and rising competition from low-fee exchange-traded funds. Investors Group Inc. is lowering fees to keep clients.
The new twist to Portland's venture is that of giving retail investors a way to own a piece of private companies. "Private equity has been the purview of super wealthy individuals and institutions" such as the Ontario Teachers' Pension Plan or Canada Pension Plan Investment Board, Mr. Lee-Chin said. "We are going to democratize that."
There are few players targeting retail investors in the private equity niche. Those that do include Kensington Capital Partners Ltd., which operates a $60-million fund, while Connor Clark & Lunn Financial Group offers private equity opportunities to its own clients.
Private equity investing is available to the ultra-wealthy who have millions of dollars to invest, but Portland funds will be sold to those who can invest a minimum of $150,000 or qualify as "accredited investors." The venture is expected to charge a maximum 2-per-cent management fee and 20-per-cent performance fee.
Mr. Lee-Chin, who has modelled himself after U.S. investment guru Warren Buffett, built AIC into a mutual fund powerhouse in the 1990s when assets hit $15-billion. But assets had plunged to $3.8-billion when he sold his funds in 2009 to Manulife for an undisclosed amount of the insurer's stock.
"It was an opportune time to sell" after the global financial crisis, he recalled. "We were in [net] redemptions and assets were going down. … Take it from me. We got a good offer."
Burlington, Ont.-based Portland will continue to run several former AIC funds as an outside adviser for Manulife until July 2. Manulife, which will run those assets in-house, would not comment on the handover.
In rebuilding a Canadian wealth management business, Mr. Lee-Chin said he also plans to start another financial planning arm called Portland Private Wealth Services that will be similar to his Berkshire-TWC Financial Group Inc., which he sold to Manulife in 2007.
Mr. Lee-Chin said his fixation on private equity investing stems from the fact that his experience during the 2008 global economic crisis was "less harsh" because he owned stakes in private businesses, which did not fluctuate with the whims of the stock markets.
He figures his firm has built up expertise in running private equity money in managing the $230-million AIC Caribbean Fund. Its investors include Export Development Canada, European Investment Bank, Overseas Private Investment Corp., a U.S. government agency, and U.S. pension funds.
Portland's investment portfolio includes interests in National Commercial Bank of Jamaica and Advantage General Insurance Co. Ltd. and Caribbean-focused telecommunications firm Columbus International Inc.
Portland's private equity offerings will come in different structures, such as investments in other private equity funds, or investing directly in mature companies versus early-stage firms in many labour-sponsored investment funds sold in Canada, he added.
Dan Hallett, a fund analyst a High View Financial Group, applauds the notion of funds that don't rely on tax incentives like the labour funds, but wonders whether there is a market for funds that can't be sold on a daily basis. "People are going to need to sell their assets," he said.
Rick Nathan, managing director at Kensington Capital Partners, agrees that selling its private equity fund to retail investors has been challenging. But it's been easier over the past year, now that the fund has a five-year track record that beat the S&P/TSX total return index and is now distributing profits.
"With stock markets really trading sideways and interest rates at historical lows where people can't earn anything in their savings, it's been easier to talk to investors and their advisers," he said.