The Study of Racialism

triguy · Superuser Joined: 27 Apr 2005 {Posts: 878 }

Canadian Business
Mars 2002
Soumis par Frédéric Poitras des Fonds AIC

What do you say when a billionaire challenges you to a push-up contest on the floor of his company’s boardroom?

It’s late January and a blizzard is pounding Burlington, Ont., a bedroom community southwest of Toronto. Hail and sleet have brought traffic to a standstill around the intersection of the Queen Elizabeth Way and Brant Street, the city’s main drag. But nearby, inside the gold-windowed headquarters of AIC Ltd., the atmosphere is tropical. Jungle vegetation fills the lobby, where two brightly colored parrots, named Calypso and Fantasia, blissfully squawk. I’m here to see mutual fund magnate Michael Lee-Chin, chairman, chief investment officer and majority owner of AIC, about his recent purchase of National Commercial Bank Jamaica Ltd. (NCB), the largest financial institution in his homeland. Partway into the interview, the conversation abruptly turns to physical fitness. It seems like a non sequitur, but Lee-Chin is notorious for grilling people he meets for personal information. Moments after shaking hands, he’d asked if I’d been exercising—pretty impressive, since we’ve met only once before, seven months earlier. Before long, he’s offering workout tips, a subject that quickly leads to the push-up challenge. “How many push-ups can you do?” he asks in his singsong Caribbean lilt, still thick three decades after he first came to Canada. “Let’s go. Right now.”

At six-foot-four, the 51-year-old Lee-Chin is a powerhouse. He works out at least five times a week in a personal gym in his Burlington mansion, once owned by former Laidlaw chief Michael DeGroote. He can bench press a stunning 275 pounds, although these days he pumps just 225—five more than he weighs—preferring to concentrate on endurance rather than sheer strength. Lee-Chin says 50 push-ups is the minimum needed to qualify for a competition. I politely decline.

The exchange is revealing. First of all, Lee-Chin is clearly not your typical Bay Streeter. In fact, he’s spent the better part of his career striving to be independent from the downtown Toronto firms that distribute the majority of mutual funds. It’s also clear from his challenge—one I don’t mind confessing he’d easily win—that Lee-Chin has an ego to match his biceps. He knows people envy his wealth: with a net worth exceeding $1.7 billion, he placed No. 14 in December’s Rich 100, the annual Canadian Business ranking of Canada’s wealthiest. Yet despite his extreme confidence, his charisma makes it hard not to like him—or, at least, find him intriguing.

The secret to his success? Lee-Chin is a salesman, pure and simple. Competitors say he is ruthless. Yet even though AIC boasts a 500-person sales force through its sister company, Berkshire Investment Group Inc., Lee-Chin deserves most of the credit for growing the firm from a niche fund house with $800,000 in assets under administration in 1987 into the $15-billion giant it is today. through AIC, Lee-Chin is a major shareholder in some of Canada’s biggest public mutual fund companies—and the largest single owner of TD Bank.

As the embodiment of AIC, Lee-Chin’s pitch has been the same since the beginning: buy companies that you know have long-term growth potential; hold on to them through thick and thin; and, as AIC’s three-pronged marketing pitch touts on billboards and commercial spots seen across Canada, prosper. If Star Trek’s Mr. Spock had money to sock away, he’d surely call on Lee-Chin, who decries the idea of ever letting emotion rule investing.

So why would he buy NCB? He’s heard that question a lot lately. “Why is everybody so skeptical?” he asks in an exasperated tone. Why? Well, on the surface, the $217-million purchase of a bank in crime-riddled Jamaica smacks of sentimentality. NCB barely breaks even, but Lee-Chin says he bought it for “the potential to make profits.” Then he lets slip that in March he’ll announce the creation of a foundation to provide equipment for Jamaican schools and scholarships for the underprivileged. Lee-Chin says he’ll inject millions of his own cash into the foundation and top it off with a percentage of bank profits. His vision: better education and lower crime rates. “Jamaica needs leadership now,” he says. “Did you know in the 1960s Jamaica’s economy was stronger than Hong Kong’s? But today the people don’t see any opportunities. They need help.”

So has he let emotion get the better of his business judgment? Not so fast. Lee-Chin could well be looking for new challenges these days. Off the record, industry analysts say he’s taking less of an active role in the day-to-day operations of AIC, having put in place a trusted management team. And though he’s still a registered financial adviser with a $150-million book of clients he oversees personally, the thrill of selling funds might be wearing thin. Jamaica offers a salesman like Lee-Chin a once-in-a-lifetime opportunity—a chance not only to help solve its problems, but also to sell it to the world as a great place to invest again. With a homegrown bank now under his belt, you can bet he’ll be putting everything he’s got into this sales pitch.

if you want to divine why Lee-Chin’s so successful, look at his roots. He grew up as one of nine children in a close-knit, entrepreneurial family in the Jamaican seaside town of Port Antonio. The spot had long been a tropical hideaway for the rich and famous. Tycoons like J.P. Morgan and William Randolph Hearst once anchored their yachts offshore, while Hollywood swashbuckler Errol Flynn, who bought a nearby island, claimed he’d never met a woman as beautiful as Port Antonio. Both of Lee-Chin’s grandfathers were from China; his grandmothers were Jamaican. The Chinese began migrating to the island in the 1860s as indentured laborers to work on plantations following the abolition of slavery, and the descendants of mixed Asian-Jamaican couples today account for less than 5% of Jamaica’s population. “As kids we were harassed because we weren’t fully black and we weren’t Chinese either,” recalls Lee-Chin. “We were both betwixt and between.”

Lee-Chin’s parents led hectic lives, opening a modest store, Super Plus, which has since grown into Jamaica’s largest grocery chain. His mother held down jobs as a bookkeeper at a hotel owned by grocery-king Galen Weston’s brother, Grainger, and as an Avon saleslady; she also hawked subscriptions to Reader’s Digest. Before opening his own convenience store, his father sold Singer sewing machines and worked as a grocery clerk. Lee-Chin helped out, routinely making an early-morning 100-kilometre trek to Kingston by bus to fulfill Avon orders for his mom, and working after school in the family store.

After graduating from high school, Lee-Chin moved to Canada in 1970 to study civil engineering at McMaster University in Hamilton, Ont. He then returned home to join the team that designed the major highway that runs across Jamaica. Two years later, he came back to Canada after his wife, Vera, a Ukrainian-Canadian he’d met at university, told him she didn’t like living on the island. (They divorced in 1991 and have three children.) Broke and out of work, he enrolled in business courses at McMaster, while employing his heft as a bouncer at the university pub, the Downstairs John. One night, Ralph Weekes, a Barbadian-born school chum, dropped by for a drink. He told Lee-Chin he had pulled in $200 in a single day as a sales rep for Investors Group. The next night, he reported he had made $400. Lee-Chin was scraping by on $2.50 an hour. He immediately applied to Investors for a job—and even though he failed a psychological test that predicted he’d make a lousy salesman, he landed a sales position. “Either they were desperate, or they could see I had a fire in the belly,” he says.

Today, Lee-Chin still has many of the clients he signed up during his rookie days at Investors. That’s when he first met Don Townsend, a pharmacist and businessman in the small farming community of Waterford, Ont., near Lake Erie. In 1978, Lee-Chin accompanied an Investors Group adviser who was visiting clients in the area, Townsend among them. A short time later, Lee-Chin called the druggist back and told Townsend he could serve him better than his old rep. “I liked his personality and his whole philosophy of life,” recalls Townsend. After Lee-Chin had hit it big, he continued to make the hour-long trek to Waterford in his blue Rolls-Royce to meet with Townsend. “His licence plate was GOAL and all the kids in the neighborhood thought [hockey’s] Grant Fuhr was visiting me,” says Townsend. “Not everything we’ve done has been successful, but, in the long run, he’s done very well, for himself and also for his clients.”

Lee-Chin spent two years at Investors, but felt restricted since it sold only its own product line. “I was thinking what if Paul Reichmann comes to me; I have nothing to sell to somebody like that,” he says. Never mind that billionaires like Reichmann—whose family now ranks directly behind Lee-Chin in our Rich 100—have never had much use for mutual funds. In 1979, Lee-Chin jumped to a small independent investment firm called Regal Capital Planning Ltd., headquartered in Waterloo, Ont., and proposed opening an office in Hamilton, where he’d recruit his own team of advisers. The mutual fund industry was in its infancy—and worth no more than a couple billion dollars.

While at Regal, Lee-Chin came across a copy of John Train’s 1980 book The Money Masters—and was exposed for the first time to the buy-and-hold value philosophy of investing guru Warren Buffett, the chairman and CEO of Berkshire Hathaway Inc. “All of a sudden I was twigged on to an investing strategy that made sense to me,” Lee-Chin says. He was a quick study. In 1983, he took out a loan from Continental Bank of Canada (now HSBC) and bought $500,000 worth of Mackenzie Financial Corp. stock when it was trading for just $1. He realized that as baby boomers aged they’d scramble to save for retirement, resulting in a bonanza for wealth management companies. By 1987, Lee-Chin’s Mackenzie gamble had generated a $3.5-million windfall. So he went shopping. He picked up Advantage Investment Counsel (now AIC) and its $800,000 in fund assets for $200,000—and brought his sales force from Regal with him.
At the time, AIC had only one investment vehicle: its Advantage Fund, an equity option fund holding more than 100 companies. Lee-Chin pared it down to just 17, loading up on publicly traded fund companies, banks and, not surprisingly, Berkshire Hathaway stock. Initially, AIC and Berkshire Investment Group were run out of a house in downtown Hamilton.

Even as AIC’s book grew to $11 million by 1990, to $156 million by 1993 and to $12 billion by 1998, Lee-Chin spent next to nothing on marketing. “There are only two cases of fund companies that grew through the adviser channel without relying on marketing to financial advisers,” says Dan Richards of industry specialist Strategic Imperatives in Toronto. “One is Templeton, which has been with us forever. The other is AIC. Their growth didn’t happen because financial advisers were out there pounding the drum for AIC. They had phenomenal numbers and you had investors saying to advisers, ‘I want AIC.’”

The numbers have indeed been pretty amazing. Investors in the AIC Advantage Fund, the company’s core vehicle, for instance, enjoyed returns of 66.5% in 1996 and 43.3% in 1997. There were a couple of poor years in the early 1990s when the fund had negative returns, but they were tough times for the whole industry. That wasn’t the case in 1999, a year the Advantage Fund ended down 13.4% while the TSE 300, fuelled by tech exuberance and Nortel, rocketed more than 28%. The wolves came out. “Scumbuckets in BC advertised in the newspapers to tell AIC unit holders to redeem their funds,” Lee-Chin rants. It didn’t help that Advantage carried a management expense ratio of 2.41%—which critics claimed was too high given the fund’s buy-and-hold strategy.

Lee-Chin gloats as he talks of those dark days when AIC was “under siege.” He still curses the names of journalists and columnists who criticized his caution during the tech boom. With Advantage beating the market over both the short and long terms, he’s now feeling vindicated. Some analysts still have concerns, however. Toronto-based fund consultant and AIC fan Steve Kangas questions the buy-and-hold strategy on stocks like Celestica, which it holds in the Diversified Canada Fund. AIC bought Celestica early on and rode it all the way up to more than $100—but now it’s at $60, Kangas points out. Celestica isn’t like a bank stock, he adds, and needs to be treated differently.

Some competitors privately blast Lee-Chin for stealing business. And in 1997 and 1999, independent fund analyst Duff Young, an author, columnist and the founder of FundMonitor.com, questioned AIC’s heavy weighting in wealth management companies and the trouble it might have liquidating its thinly traded holdings without setting off alarms on Bay Street. Young alleges AIC reps began trashing him in front of financial advisers. One adviser, who spoke on condition of anonymity, says he heard an AIC rep make “negative comments” about Young. Young says the pressure forced him to quit the analyst business; he now consults and sells software for the fund industry. “I got out of independent research because these guys ruined my professional life,” he says. “That’s why I don’t do books anymore, and I haven’t done columns for more than a year.”

Lee-Chin scoffs at the idea. “If I strong-armed advisers, it would have killed our company,” he says. “This is the dark side of human nature, which is envy.”

If there were any Jamaicans who didn’t know Lee-Chin before he bought the 52-branch National Commercial Bank, they certainly do now. In early February, he visited the island to talk up the bank’s prospects. His two-day tour of 10 branches had tongues wagging. Lee-Chin was shepherded to each location in his private helicopter. (He’s learning to fly the chopper, but doesn’t have his licence yet). Police cars awaited his arrival, and escorted him through busy streets. It was a spectacle more befitting the arrival of a statesman than a mutual fund salesman, but it’s clear Lee-Chin relished the attention.
In many ways, he’s seen as a white knight, sweeping in to prevent Jamaica’s oldest bank from falling into foreign hands. “Michael Lee-Chin is seen as a local,” he says after his return, referring to himself in the third person. “They say, ‘He’s our boy, we have to support him.’”

It’s a curiosity of history that Canadians already own two of Jamaica’s largest banks. As a result of the cod trade between Nova Scotia and the island, the Bank of Nova Scotia established an office there in 1889, even before it opened a branch in Toronto. CIBC set up shop in 1920.

From the moment Lee-Chin arrived in Jamaica, he was pumping hands and quiz-zing locals. “I asked everyone I met, the flight attendant, the baggage handler and the ticket lady, ‘Who do you bank with?’” The answer was often the same. “They said, ‘We like Scotia, but we love NCB.’” That relationship has recently been strained, however. In the late 1990s, the bank, along with several other Jamaican financial institutions, suffered a crisis of bad loans, and the government stepped in and took over. “Whenever you have government involved, you have no sense of ownership,” says Lee-Chin. As a result, NCB’s market share has fallen to 35% from 40%.

Lee-Chin saw opportunity in the government’s neglect of NCB. So he bought its 75% stake for 10% less than what the bank’s shares were going for on the Jamaican Stock Exchange. (The other 25% is still up for grabs and the stock trades for about J$5, or 17¢.) Lee-Chin says he’d love to grab 80% of the banking market. His other plan is even more grandiose.

Much of the world’s cocaine flows through Jamaica and, over the past decade, it brought with it violent crime. In 2001, there were 1,138 murders, giving the island of 2.6-million people a homicide rate of 41.5 per 100,000. That was 26% higher than the year before—and about seven times the US rate. In a testament to Lee-Chin’s unwavering self-confidence, he believes his NCB Foundation can turn the tide with education and leadership.

Lee-Chin has other dreams for the bank. He wants to use it to help stem the brain drain plaguing Jamaica. In time, he’ll consider expanding business beyond the island. Meantime, expect him to plug the country’s prospects to his global peers. “I can put my money anywhere in the world, and I put it into Jamaica,” he says. “Not because of emotion, but because I understand the country and its potential.”

Whether international investors buy Lee-Chin’s line or not, Jamaicans are certainly optimistic. “His international connections could help Jamaica enjoy a greater flow of capital,” says Oliver Clarke, former chairman of NCB and the president of the Private Sector Organization of Jamaica. “His investment is a vote of confidence in Jamaica.”

Use some of your cash and buy back your damned stock.” That’s the message still-minority-owner Lee-Chin had for Mackenzie Financial execs when the company’s stock was wallowing at about $13 in 1999, according to longtime friend and confidant Jim O’Donnell. O’Donnell had helped launch Mackenzie in 1973, but left the firm two decades later to start his own company, Toronto-based O’Donnell Investment Management Inc. “The franchise had been built for them but they were acting simply as caretakers,” O’Donnell says of Mackenzie bosses at the time. “That wasn’t what Mike had invested in.”

So Lee-Chin stepped in and purchased more Mackenzie shares—bidding the stock up to $15. He’d later back away from a bid to buy Mackenzie outright—the company went to Investors Group in April 2001 for $30 a share thanks largely to a $180-million poison pill agreement. But it’s clear, especially from the NCB purchase, that Lee-Chin is willing to pull out his chequebook if the price is right.

It’s a safe bet his next purchase will be in the US. The fund industry is hurting everywhere, but south of the border things are particularly rough. According to Richard Russell, author of the Dow Theory Letter newsletter, in 2001 the US fund industry netted US$32.3 billion, down 90% from US$309 billion the year earlier. The downward spiral looks set to continue. Last December, funds netted just US$3 billion in the US, far from the US$15.3 billion they brought in the month before. For someone with cash, it’s a buying opportunity. “If someone came along and offered these guys last year’s price, I bet they’d take it,” says O’Donnell. “I don’t want to divulge too much of what Mike’s thinking—but the real opportunities are in the US.”

Lee-Chin’s success has certainly put him on the American radar. At least, it has with his mentor, the Oracle of Omaha, Warren Buffett. A couple years ago, when O’Donnell and Lee-Chin were in Omaha together for Berkshire Hathaway’s annual general meeting, Lee-Chin got the urge to meet Buffett. “We were driving around and Mike said let’s drive up to his house and see if he’s there,” recalls O’Donnell. “It turned out Warren wasn’t home—but the next year he threw a small dinner party that Mike was invited to. He thinks Mike’s on the right track.” If Lee-Chin can sell the king of value investing on AIC, the rest should be easy.