FUNDS REPORTER
When key executives leave top posts at a company, it can often make the market nervous.
But that does not appear to be the case with Gluskin Sheff + Associates Inc., a money management firm catering to well-heeled investors.
The firm said last week that chief investment officer Ira Gluskin plans to step down by year-end, while chief executive officer Gerald Sheff would relinquish his post on or before Nov. 10, 2010.
But analysts are still bullish on the firm, saying the seeds for further growth have been laid. They include a clear succession plan, new products to retain investors and the hiring of high-profile economist and strategist David Rosenberg to guide its investment team and help build the firm's brand.
The pair will be succeeded, respectively, by Bill Webb, who is deputy CIO, and Jeremy Freedman who is deputy CEO and has been running recent analysts' conference calls.
"The successors that they have groomed are more than capable," said MP Partners analyst Scott Chan, who has "buy" rating on Gluskin + Sheff with a one-year target of $23. "I am not concerned."
Mr. Gluskin and Mr. Sheff, who are major shareholders and investors in the firm, will continue to be at the company and part of future strategic direction as vice-chairman and chairman, respectively.
Gluskin + Sheff shares yesterday closed up 95 cents at $19.95 on the Toronto Stock Exchange. The stock has more than tripled from its 52-week low of $6 last October amid the market crash.
Eight of nine analysts surveyed by Bloomberg Financial Services have a "buy" rating on the Toronto-based investment firm, while one has a "hold" recommendation.
A key to the Gluskin + Sheff story is that high net worth investors comprise a "fast-growing segment" in Canada, and the firm is targeting the upper end of that group, Mr. Chan said in an interview.
The firm recently raised its investment minimum to $3-million for Canadian investors, while foreign investors need at least $5-million to be a client.
While last year's dismal stock market caused some of the firm's investors to redeem their money, "that kind of redemption cycle could be over since you've had two quarters of strong inflows," he said.
Gluskin + Sheff attracted $229-million in net sales for the quarter ended June 30, and $241-million in the prior three months. Last week, it announced a special performance-fee related dividend of 10 cents per share for its last fiscal year, and raised the annual dividend to 50 cents per share from 48 cents.
Gluskin + Sheff manages about $4.5-billion in fee-paying assets, but also has less than $1-billion in assets in its non-fee paying money market portfolio that could shift over time to its investment funds, Mr. Chan said.
While there is a risk in asset declines from a market correction, the firm is now better positioned to weather that kind of storm because it introduced fixed-income offerings to clients earlier this year on top of its existing equity and hedge fund lineup, the analyst said.
"In Gluskin + Sheff's case, their clients - from what they have been telling the world and us - are in more conservative portfolios," Mr. Chan said.
It's too early to know what impact Mr. Rosenberg will have in boosting assets since he only joined the firm in May, but his profile as a former bearish strategist with Merrill Lynch is "helping to strengthen the Gluskin + Sheff brand, especially in the United States," he added. "He made some good calls, especially in the housing and credit markets before anyone else did."
TD Newcrest analyst Doug Young also has a "buy" rating on Gluskin + Sheff, and yesterday boosted his one-year target to $25 a share from $20.
"We believe that Gluskin + Sheff is well positioned to outperform given its expanded investment management team and product shelf, which should support net flows and increases the potential for performance fees," Mr. Young wrote in a report.
The addition of Mr. Rosenberg is "significant in that it improves Gluskin + Sheff's profile and ability to attract assets, particularly beyond Canada," he said. "We also believe that current net flows and asset switching [into credit arbitrage, fixed income and alternative funds] are moving in line with Mr. Rosenberg's macro outlook."
© The Globe and Mail
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