Jeff Bunce: Consolidation in the asset management industry in Canada continued this past week as another prominent independent firm was scooped up by a Canadian bank. On Monday Feb. 12, Scotiabank announced that it's acquiring the asset management firm Jarislowsky Fraser for $950 million.
The deal adds roughly $40 billion in assets to Scotia's already sizeable asset management capabilities, making it now the third largest asset manager in the country. As for Jarislowsky Fraser, Scotiabank has committed to running the long-time independent and privately owned firm as a standalone entity in the hopes of reassuring clients and preserving the firm's investment culture.
There will be changes though, the most likely of which, will be in distribution. Jarislowsky Fraser's business is focused on institutional and high-net-worth clients, with a smaller mutual fund presence mostly through a sub-advisory relationship with National Bank. Scotiabank, too, already has a sub-advisory relationship with JF and, in our estimation, it will work to integrate more of JF's strategies into its retail fund offerings, whether through standalone mandates or through inclusion in its fund-of-fund products.
In similar cases, both RBC, with their purchase of PH&N, and TD, with its acquisition of Epoch Investment Partners, have purchased institutional asset managers in the past 10 years and shortly thereafter started funneling retail money into the strategies of the acquired managers. Look for more of the same in this instance.
It's unclear what this deal means for JF's sub-advisory relationship with National Bank, but there's a possibility for changes to the management of those funds given that Scotia and National Bank are essentially competitors. National Bank will no doubt be considering the implications of this deal.
As for our Morningstar strategies, Jarislowsky Fraser is not a manager that we use, as we’ve had concerns with turnover in the investment ranks and capacity management. In fact, Joe Sirdevan, the founder of Galibier Capital and a manager we do use in our strategies, is the former lead portfolio manager for JF’s Canadian and U.S. equity portfolios and is one of many high-level departures over the past seven years. Another strike against the firm was its handling of capacity in its Canadian equity strategy, which at its peak was over $20 billion; an amount that restricted its universe of eligible stocks to mostly large and mega cap names.
Overall, it’s hard to see how these two areas will improve under Scotiabank ownership.
For Morningstar, I'm Jeff Bunce.
