Business

Trimark Plots a Comeback Course

With a star portfolio manager, the fund company strives to regain bygone billions. But has it changed more than its face ?

Ross Laver July 5 1999
Business

Trimark Plots a Comeback Course

With a star portfolio manager, the fund company strives to regain bygone billions. But has it changed more than its face ?

Ross Laver July 5 1999

Trimark Plots a Comeback Course

With a star portfolio manager, the fund company strives to regain bygone billions. But has it changed more than its face ?

Ross Laver

His office on the 56th floor of Canadas tallest skyscraper overlooks Bay Street and the Toronto waterfront, but when Brad Badeau takes a break from his paperwork he generally prefers the view in the opposite direction. There, next to the door, is a 300-gallon salt-water aquarium filled with exotic, brighdy coloured fish and Caribbean coral. “Whenever I’m feeling stressed, all I have to do is look in there,” says Badeau, 41, the recently appointed chief operating officer of Trimark Financial Corp., Canada’s fourth-largest mutual fund company.

Badeau has had plenty of reason to feel stressed lately. For more than a year, unhappy investors have been pulling money out of Trimark mutual funds in hopes of earning higher returns elsewhere. The flurry of redemptions, brought on by the poor performance of Trimark’s flagship equity funds in late 1997 and 1998, has sullied the company’s once-lustrous image and hammered its shares, which fetched $18.10 at last week’s close compared with an all-time high of $42.25 in August, 1997. Trimark’s assets under management, meanwhile, have fallen to $24 billion from $29.2 billion in March, 1998, a significant setback in a period in which most of its main rivals have grown steadily. “Momentum is a funny thing,” says Badeau, comparing the company’s recent trials with its past record of success. “Sometimes you keep it for too long, but when you lose it, getting it back is tough.”

At Trimark’s annual general meeting this week in Toronto, Badeau and other executives are sure to face questions from dissatisfied shareholders and fund investors. In response, they will outline some of the recent changes at Trimark, a series of moves that add up to a sweeping reorganization of the company’s investment management team. In February, Trimark announced the sudden departure of Vito Maida, its lead Canadian equity manager, for what it described as a “leave of absence.” (Maida recently told friends that he has severed his ties to Trimark and is thinking about launching his own investment firm.) Maida’s duties have since been split up and handed to three new money management teams, each of which reports to Trimark chairman and CEO Bob Krembil.

Earlier this year, Trimark also embarked on a high-profile recruiting drive intended to boost the performance of its Canadian stock funds. In April, the firm lured money manager

Heather Hunter from her senior post at the country’s biggest pension fund, the Ontario Teachers’ Pension Plan. Only weeks later, Trimark scored another coup by stealing veteran manager Bill Kanko from rival Mackenzie Financial Corp., Canada’s third-largest mutual fund company. Industry observers were quick to note an irony: Kanko’s former boss, Mackenzie CEO Jim Hunter, is Heather Hunter’s husband. Badeau insists the timing was coincidental. “Obviously, Heather does what she wants, and I would imagine that Jim would have said congratulations to her on joining a great company.”

It’s clear that a lot is riding on Delaney’s shoulders. “Kiki has a personality and an excellent long-term track record, and she’s been around this business forever,” says Badeau, adding that Trimark has tried several times over the years to hire Delaney as a portfolio manager. Delaney says she is delighted to be joining Trimark: “We’re a small organization,

The most recent step in Trimark’s attempted rejuvenation is in some ways the most significant—the decision to launch two new Canadian equity funds under the control of an independent management firm, Toronto-

based C. A. Delaney Capital Management Ltd. This is the first time in Trimark’s 18-year history that it has turned to an outside Canadian portfolio manager, and the new firm obviously did not come cheaply. Its founder, Catherine (Kiki) Delaney, is one of the best-known fund managers in the country, thanks in part to her appearance in a series of television ads paid for by her previous client, Spectrum United Mutual Funds Inc. Delaney and her partner, Lynn Miller, managed more than $2 billion for Spectrum, sufficient to generate as much as $4 million a year in fees for Delaney’s firm. Analysts believe the company has been guaranteed at least as much from Trimark, although neither side will discuss the details.

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18 people, so to be able to tap into them is valuable to us.” Since the middle of June, Delaney and Krembil have been touring the country, meeting independent financial advisers— the men and women who sell Trimark funds to investors—and trying to drum up excitement for the new funds. But not everyone is impressed. “One things for sure—they’ve paid a fortune to get this woman,” said one disgrunded fund analyst, who asked not to be named. “It’s pure cosmetics because she’s a mar-

Trimarks ups and downs

The mutual fund company’s assets under management

keting icon, looks good on TV and has a catchy first name.” A longtime supporter of Trimark, he was disappointed by the departure of Maida. “Vito was the sacrificial lamb, but it was all just optics because the new guys aren’t really doing anything different.”

A common criticism of Trimark’s strategy, in fact, is that there is little to differentiate its new funds from the old ones. All of the fund managers, including Delaney, can loosely be described as value investors, meaning they invest in companies whose shares are undervalued relative to the market. Unfortunately for Trimark, value investing has been out of favour during the recent bull market. Instead, the big returns have been chalked up by managers who adhere to a growth or “momentum” style, investing in companies whose shares may already be fairly priced— or even overpriced—but whose revenues are growing rapidly. Another popular investment style is sector rotation, shifting from one sector of the economy to another in response to broad economic trends.

When Mackenzie Financial suffered a period of poor performance in the early 1990s, the company responded by acquiring and launching two new fund families with distinctive investment styles. As a result, investors who are unhappy with their returns can opt for a different style without having to withdraw their money from Mackenzie and

pay a hefty redemption fee. Privately, many financial advisers want to know why Trimark has not adopted a similar approach. “They had dealers telling them as early as 1996 that they needed some alternative managers and investment styles,” says one industry veteran. “They should have acted sooner.” Badeau rejects that criticism, saying the company did not want to rush to embrace a strategy it might later regret. “We don’t want to be the Heinz 57 of the investment community,” he says. “People may at times not like our style, but they sure know what we are.” Besides, he adds, Trimark’s approach has been vindicated by recent market trends. Buoyed by a recovery in natural resource stocks, for example, the $4-billion Trimark Select Canadian Growth Fund has gained 13 per cent so far this year, compared with a loss of 6.5 per cent in 1998. The smaller Trimark Canadian Fund has gained 14 per cent so far in 1999 after losing 4.1 per cent last year.

If the trend holds, it likely won’t be long before Trimark stems the flow of mutual fund redemptions. But Badeau knows as well as anybody that investors can be fickle. “One of the things we’ve learned over the past year is that investors are far less focused on the long term than they were five to 10 years ago. In fact, the long term to most investors today is something like 20 minutes.” No wonder he likes looking at those fish. EH