AGF at 60: Transformation is a work in progress

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Blake Goldring just has to look out the window to see the future of AGF Management Ltd.

The chief executive's office in a downtown tower overlooks Billy Bishop Toronto City Airport, an infrastructure project AGF acquired two years ago as part of a strategy to diversify from roots in mutual funds. Pointing out a plane taking off from a busy runway, Mr. Goldring joked: "I like to keep a close eye on our assets," as he detailed new ventures and the improving fortunes of its fund business just ahead of a celebration Tuesday of AGF's 60th anniversary.

Family-controlled AGF was co-founded in 1957 by Mr. Goldring's father and made its name as a trailblazer, as the first Canadian fund company focused on investments in foreign markets, first in the United States, then regions such as Japan. Mr. Goldring became CEO 17 years ago.

For much of its history, AGF was one of many successful employee-run firms. But in the past two decades, the mutual-fund industry consolidated around a handful of the largest players, such as banks. AGF held out as an independent. It hasn't been an easy run. Following the 2008 financial crisis, AGF stock price went on a prolonged slide, reflecting increasing competition and shrinking profit margins, along with lack-luster fund performance.

Piece by piece, Mr. Goldring rolled out new ventures meant to transform AGF from a fund company, narrowly focused on individuals, into an asset manager, managing money for institutions alongside retail investors.

Diversification included the 2015 launch of an infrastructure fund, branded InstarAGF. It already owns a wind farm in British Columbia and oil and gas infrastructure in Alberta, along with the Toronto airport. And in January, AGF jumped into the rapidly growing market for exchange traded funds by establishing a unit called AGFiQ and rolling out its inaugural offering of seven ETFs.At the same time, AGF took a hard look at its core fund business, hiring president and chief investment officer Kevin McCreadie from a U.S. asset management firm in 2014 and moving to improve performance and trim costs ahead of regulatory changes that made fund fees increasingly transparent. Mr. Goldring summed up the effort by saying: "We never want to be embarrassed discussing our performance or our fees."

It's too early to say AGF has turned a corner, according to analysts. While the infrastructure fund has raised more than $600-million in two years and is targeting a final close of $750-million later this year, the real payoff for AGF will come when this fund begins harvesting investments and a successor fund is launched. And the firm's fledgling ETF business has potential – Canadians have already poured $120-billion into the sector – but analysts project it will not make an impact on AGF's bottom line until 2018.

But as AGF hits a landmark birthday with $35-billion of assets under management, pumped-up fund performance is drawing positive reviews. BMO Capital Markets analyst Tom MacKinnon bumped up his target price on AGF stock following the release of financial results in late March to reflect "steady improvement" in the mutual fund division, which still accounts for the bulk of AGF's profits. Mr. MacKinnon noted that AGF's target is to have more than half its funds turning in performance that is at or above the industry's one-year median results. In March, 44 per cent of funds were hitting this goal, up from 33 per cent last year. Over the past two years, 62 per cent of AGF funds turned in performance that exceeded the industry average.

Asked what AGF's founders might say if they could see their firm at age 60, Mr. Goldring said he hoped his predecessors "would be proud of the fact that we took on challenges and came out stronger." The CEO is the first to admit his firm and sector face considerable challenges. Mr. Goldring plans to overcome those headwinds by making his legacy mutual fund business a top performer and moving decisively into new fields.

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