By Tom Bradley

In the asset management business, there has to be a balance between the best interests of the clients and those of the shareholders. A manager must make judgments on a number of factors whereby existing clients have different interests than company shareholders. Business decisions on fees, assets under management, fund closures, marketing budgets and client service quality are areas where tradeoffs are required. Higher fees, for instance, are good for shareholders and bad for clients.

In the Financial Post today is a story about Fiera Capital making two acquisitions in the U.S. Fiera is a large, broadly-diversified, Montreal-based manager that has grown largely by acquisition over the last decade. It has over $65 billion under management.

To me, this is a good news / bad news story. I’m delighted to see Fiera moving into the U.S. The asset management industry in Canada is far too parochial. There are very few Canadian-owned companies that have developed non-Canadian client bases or achieved recognition managing non-Canadian assets. There are exceptions – Burgundy, Sprucegrove, Gryphon International and a few others have a large list of foreign clients – but not many. There are also a few firms like Fiera that are making a concerted effort to build out a world-wide investment platform. RBC Asset Management has been the boldest in this regard. But despite these success stories, most managers have only Canadian clients (Steadyhand included) and mostly manage domestic bonds and stocks.

The bad news part of this story is imbedded in a quote from Fiera’s dynamic Chairman and CEO, Jean-Guy Desjardins: “We want to be a North American money manager with scale with the goal being to have $150 billion under management.” Gaining expertise and perspective by operating in other countries should by all rights benefit Fiera clients, but building scale ($150 billion) has the opposite effect. Scale in certain asset classes is necessary, but size for size sake, or should I say profitability sake, is not good for existing clients. Generally, senior management becomes less focused on returns and more on deals and post-deal integrations. Portfolio managers are less able to buy small and mid-sized companies as new assets are acquired.

Call me a hard ass, but when investment management firms set asset targets and talk about scale, I can’t help but conclude the client/shareholder balance is leaning the wrong way.