Updated with correction
Canadian institutional money managers, armed with lots of capital, have an appetite for acquiring their U.S.-based counterparts.
That hunger is sparked by Canadian firms' desire to expand their client base beyond a shrinking home market, to add not only institutional clients but also retail and high-net-worth capabilities, and to tap specific asset class expertise that they might be lacking.
So far this year, two Canadian money managers have announced deals for U.S. firms. Fiera Capital Corp., Montreal, announced a $33.5 million deal to acquire Samson Capital Advisors LLC, a $7.6 billion fixed-income money manager based in New York. Also, Sun Life Financial, the Toronto-based investment management unit of insurance giant Sun Life of Canada, announced it would buy two U.S. firms specializing in liability-driven investments: Prime Advisors Inc., Redmond, Wash., with $13 billion in assets under management, and New York-based Ryan Labs Asset Management, with $5 billion in AUM. Sun Life did not disclose the terms of either deal.
Along with Fiera, sources said Canadian firms that could expand into the U.S. in the near future include RBC Global Asset Management Inc.'s Phillips, Hager & North investment unit; Jarislowsky Fraser Ltd.; Connor, Clark and Lunn Financial Group; Foyston, Gordon & Payne Inc.; and the investment management business of Canadian investment consultant Morneau Shepell Ltd.
The trend of nabbing U.S. firms has been underway since the end of the global financial crisis. Canadian investment firms, which had less money invested in risky strategies such as mortgage-backed securities, came out of the crisis largely unscathed compared with their U.S. neighbors.
“Many Canadian financial institutions survived the 2007-"08 global financial crisis with a surfeit of capital, which has given them strong balance sheets that make them powerful buyers for asset management properties,” said Benjamin F. Phillips, partner, Casey Quirk & Associates LLC, New York.
Canadian managers, as a group, are by nature and by regulation, “more cautious and don't take on more esoteric asset classes; they grow their business steadily and avoid the big gaps, and get themselves in a position to grow, to pick up those smaller ... (niche) players that big firms like BlackRock won't necessarily go after,” added Marcus Turner, Toronto-based principal, asset and risk management, at Morneau Shepell. “It's an easier way to acquire and to grow.”
Michael T. Lee, president, CEO and chief investment officer at RBC Global Asset Management (U.S.) Inc., Minneapolis, said the strength of its parent, Royal Bank of Canada, also allowed it to expand its money management business into the U.S. and other foreign markets.
“It's one of the safest financial institutions in the world,” Mr. Lee said of RBC. “People care about that. And the parent is committed to the asset management business, and with the biggest market in the world right across the border, management understood the potential.”
RBC Global entered the U.S. market in 1983 and acquired Voyageur Asset Management in 2001.
Canadian managers' interest in the U.S. reflects what Robert Boston, partner at Morneau Shepell also in Toronto, called “the 10 to 1 rule” — the overall U.S. money management market being 10 times the size of Canada's.
“The U.S. market represents a much, much greater opportunity to grow,” Mr. Boston said. “To set up shop in the U.S., it's easier to buy instant brand and distribution without having to jump through all the regulatory hoops of a startup.”
Jean-Guy Desjardins, chairman and CEO of Fiera Capital, said the desire to be competitive in the long term led his firm to target U.S. expansion.
“It all started ... because of the cost of operating a money management firm. The cost pressures are significant, as is the fee pressure on traditional investments,” Mr. Desjardins said. “To be competitive on a long-term basis, you need to grow. The Canadian market is not huge, so you have to be looking to be in North America, and globally, for scale. ... That's why you look at the U.S.; they have lots of choices. The scale of the U.S. market offers more opportunities with types and size.”
Another driver of the U.S. expansion, specifically in adding new asset classes, dates to 2005, when Canada rescinded its foreign property rule. That law prevented registered pension funds from investing more than 30% of their portfolios in non-Canadian assets.