MERGERS & ACQUISITIONS
August 14, 2000
AIM Funds Management of Toronto became Canada's newest foreign-owned mutual fund giant on Aug. 1, with the completion of its takeover of Trimark Financial of Toronto. It hopes to make further market-share gains by offering one of the country's most diverse product lines, introducing new low-fee share classes and expanding its distribution channels.
"Size does matter," said Rob Hain, who continues as president and CEO of AIM, a wholly-owned subsidiary of AMVESCAP of London. The takeover vaults AIM to second place in the Canadian industry, up from 13th previously.
Like other major, foreign-controlled money managers active in Canada, including Fidelity Investments Canada and Templeton Management, both of Toronto, AIM will have the ability to draw on its parent's global resources.
Few firms are as powerful as AMVESCAP, which markets mutual funds in the U.S. under the AIM and INVESCO brands. It manages an estimated $400 billion worldwide, about $100 billion greater than the combined assets of all Canadian mutual fund firms.
As the world's financial markets become increasingly integrated, and as the Canadian government eases its restrictions on foreign investments in tax-deferred savings plans, Canadians are showing a growing appetite for investing abroad.
Net new sales of foreign equity funds in Canada totaled $8.5 billion in the first half of this year, compared with only $1.6 billion for domestic equity funds, according to the monthly sales data released by the Investment Funds Institute of Canada.
Because of the ongoing trend toward globalization, it makes sense for Canadian fund investors to do business with global firms that have access to a full range of research in markets around the world, Hain said. He predicts a squeeze of the mid-sized firms in the fund industry, with the successful firms being either global in scale or nimble niche players.
Post-merger, AIM will also be able to achieve economies of scale as it integrates back offices and other administrative functions.
"Consumers can expect to see that our costs will come down, and inevitably, that's going to be passed on," said Hain. However, no staff cutbacks are expected. In fact, AIM expects to expand its current staff of 1,000 by another 150 over the next year or so, Hain said.
Even before the takeover of Trimark, one of Canada's top domestic brands, AIM had built up strong sales momentum. In the past two years, it has enjoyed 176 percent growth in assets under management, which reached $6.9 billion as of June 30. Among the industry's top 25 firms, only the 145 percent growth rate of C.I. Fund Management of Toronto was higher for the 12 months ended in June. This compares to industry-wide growth in assets of 18.6 percent, according to Investment Funds Institute of Canada.
By adding the assets of Trimark's larger Canadian operation, AIM becomes a much larger force overnight. It has a combined total of $24 billion in assets, giving it an 8.4 percent share of the industry.
Several weeks before the merger was completed, AIM was continuing to create Canadian spin-offs of its global product lines, taking advantage of AMVESCAP's more than 300 portfolio managers in 20 countries. In mid-July, it introduced half a dozen new funds, including AIM Dent Demographic Trends Class, a North American equity fund which will draw on advice from Harry Dent, author of "The Roaring 2000s Investor" and "The Great Boom Ahead."
Hain and his colleagues are cautious about rationalizing existing funds. Both the AIM and Trimark brand names are being preserved, as is Trimark's money management operation, based in Toronto. There will be no major shuffle until at least after the peak buying season - fueled by retirement savings contributions - in the first quarter of 2001.
"I don't think we would be contributing to our unitholders' well-being by making wholesale changes while the management companies are in the inevitable state of destabilization," said Hain, who has long worked in the Canadian fund industry. At one time he was a senior executive at the largest firm, Investors Group of Winnipeg.
While some smaller funds are prime merger candidates, AIM executives consider the number of redundancies to be fairly low because of contrasting investment styles. AIM is mainly an earnings momentum manager, while the Trimark team, which will continue to be headed by Robert Krembil, the company's co-founder, has a long-term value bias.
John Ciampaglia, an AIM assistant vice-president involved in reviewing the product lines, said the two styles are "polar opposites" and will give AIM and Trimark unitholders a much wider production selection than they have had within a single fund complex.
By this fall, AIM plans to combine the AIM and Trimark funds into a single family with full switching privileges.
As part of that integration, AIM plans to introduce a new series of fund shares for selected funds, which have low management expense ratios because they will make no provisions for compensation to financial advisors.
While most of AIM's sales will continue to be optional load funds for which it pays the advisors' commissions, the new share classes will help make inroads into other distribution channels such as fee-only financial planners, wrap accounts and discount brokers. AIM has ruled out selling directly because do-it-yourself investors in Canada generally prefer to go through discount brokers.