© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the July 2006 edition of BENEFITS CANADA magazine.
A fine balance: Top 40 Special Report
The top 20 balanced managers include the very best money managers in Canada. But with sponsors moving towards specialist mandates, what will the future hold?
By Caroline Cakebread

In the beginning, there was balanced. In those early days of Canadian pension management, the traditional balanced fund manager ruled. With the foreign property limit capped at 10%, they couldn’t really look outside Canada for new opportunities.

That meant balanced fund managers stuck to a fairly limited asset mix of Canadian equities and Canadian bonds. Today, all that’s changed. The foreign property limit is gone and many now say that specialist managers are leading a sea change in the business. How have these developments affected the industry? And what do today’s top 20 balanced managers think about the way their business has evolved?

Michael Gillis, vice-president, Institutional Marketing and Sales with Seamark Asset Management in Toronto(18th in the Top 20), notes that balanced fund management is “really the history of investment management in Canada.” Where did all the money and investment managers in Canada start? “Primarily as balanced managers, managing all asset classes,” he says. And they’ve evolved from there, says Gillis, noting that today’s top 20 balanced managers include some of the best money managers in the business, with strong, long-term track records under their belts and lots to offer plan sponsors in terms of skill and market knowledge.

That certainly is evident in this year’s numbers. Out of a total $316.1 billion in balanced assets currently being managed by the 79 participants in our survey, this year’s top 20 are responsible for a whopping $231.9 billion of the pot. Just whose money are they managing? These days, says Gillis, it’s mostly plans with under $100 million in assets and perhaps limited resources when it comes to managing the pension fund.

And while Gillis says there are some larger plans using them, balanced funds do offer a major advantage from a cost and resource perspective. “When you introduce multi-managers for multi-mandates, you’re obviously going to introduce more costs,” he explains, adding that such an approach can leave plans spread too thin when it comes to achieving economies of scale. “For example, a plan with $50 or $60 million is in the lower tier of fees with most managers. But if they break that up and give out $10 or $15 million to different managers, then it can put them in the higher fee brackets. So the costs are higher,” he says. Along with the custodial costs for multiple accounts and the burden of increased monitoring, the fees can add up.


Top 20 Balanced Fund Managers
Managers 2005 (mil)
1. Jarislowsky, Fraser Limited
2. AIM Trimark Investments
3. McLean Budden Ltd.
4. CI Financial
5. Phillips, Hager & North
Investment Management Ltd.
6. Greystone Managed
Investments Inc.
7. GWL Investment
Management Ltd.
8. Bimcor Inc.
9. Fidelity Investments
Canada Ltd.
10. Letko, Brosseau &
Associates Inc.
11. New Brunswick Investment
Management Corp.
12. CIBC Asset Management
13. Jones Heward Investment
Counsel Inc.
14. Industrial Alliance Life
Insurance Company
15. Co-operators Investment
Counselling Ltd.
16. MFC Global Investment
17. London Life Investment
Management Ltd.
18. SEAMARK Asset
Management Ltd.
19. Foyston, Gordon & Payne Inc.
20. UBS Global Asset Management

Top 20:
Industry Total:


Data is as of Dec. 31, 2005. Data was compiled from the Spring 2006 BENEFITS CANADA/CPF Online Manager Survey. The managers were asked what
percentage of total Canadian assets are invested in balanced mandates(Part 1, Q6). The percent balanced mandates were then taken as a portion of the manager’s total assets under management(% Balanced Mandate x TAUM/100)to get the manager’s balanced mandate assets.

While balanced funds do have a strong place in the Canadian pension industry, there are new players on the scene that have changed the landscape. Specialist managers are on the rise as more plan sponsors search for new ways to generate alpha. Geoff Waters, senior vicepresident and portfolio manager with Jones Heward Investment Counsel in Toronto(13th in the Top 20)says he’s seen balanced funds become a smaller and smaller component within the pension universe as specialized funds continue to attract plan sponsors. “There’s been a tremendous shift from balanced to specialization as each of these funds works to extract the best returns for each asset class.”

Bill McDonnell, senior vice-president, marketing with Jones Heward, adds that this shift has been driven by actuaries setting out asset liability models, opening up the playing field to include new asset classes such as alternative investments. In a way, he notes, it’s still a balanced approach—only with more components. “[Plan sponsors] are creating a balanced approach but without the same manager managing it all,” MacDonnell explains.

Rob Vanderhooft, chief executive officer and chief investment officer with Greystone Managed Investment Inc. in Saskatoon (6th in the Top 20), agrees that there has been a move toward specialty mandates. However, he’s not sure it’s a trend that’s going to continue. “I think the cost and complexities of monitoring and oversight of very broadly diversified plans has become a challenge, both from a cost and oversight perspective,” he says. This is something he feels will pull the focus back onto balanced funds, with their simpler structure.

Balanced or specialist—whatever way plan sponsors move, it looks as if they’ll definitely be looking to the limitless global investment universe in the future. While some managers haven’t seen a huge exodus from Canadian assets since the elimination of the Foreign Property Rule, many believe the shift is coming. MacDonnell notes that, since the cap was lifted, “not many funds have gone whole hog,” when it comes to moving into foreign assets, mainly because the Canadian equity market has been strong and the loonie has been riding high.

Down the road, though, Canadian plan sponsors will eventually find their footing in global markets. “I believe the change in the Foreign Property Rule opens things up tremendously,” MacDonnell points out. “You have a very narrow Canadian equity market, featuring three sectors with over 75% of the market. Also, many of those great Canadian companies are disappearing because they’re being acquired—so they’re not Canadian any more. The universe of eligible Canadian equities is getting even smaller because of globalization and multinational takeovers.” He feels plan sponsors will need to go global to get the necessary diversification and spread the risk around.

Ultimately, the future of balanced management will rely on its core principles: a simple approach and structure that is widely accessible to plans, both large and small. As Vanderhooft says, balanced managers allow plan sponsors to “keep it simple and manage costs.” And for plan sponsors who are already spread too thin, it will continue to be a strong option.

Caroline Cakebread is the editor of Canadian Investment Review. caroline.cakebread@rogers.com