Sarbit’s departure seen as damaging to AIC

(March 31, 2005) AIC could be faced with a further run on redemptions once Larry Sarbit cleans out his desk on April 27.

The executive vice-president and portfolio manager of the Burlington, Ont.-based company oversees more than $2 billion in the AIC American Focused Fund, including its offshoots, the AIC RSP American Focused Fund and AIC American Focused Plus Fund, but much of those assets could follow Sarbit out the door, one analyst warns.

Dan Hallett, president of Windsor, Ont.-based Dan Hallett & Associates, says that means close to 20% of AIC’s assets could be at risk.

“The people who bought American Focused were buying Sarbit, the vast majority fall into that camp. AIC faces the very real risk of redemptions of the fund,” he says.

“If Sarbit sets up shop elsewhere, you could see a fair bit of money follow him.”

AIC has been in net redemptions for several years, during which time its assets under management have declined from a peak of $15.4 billion to about $11 billion.

In a brief interview, the Winnipeg-based money manager confirmed his resignation but declined to get into specifics about the reasons for his departure or hint about any future plans.

He will be replaced as lead manager of the funds by James Cole, a senior vice-president and portfolio manager who joined AIC in 2000. Cole is currently the lead manager of several AIC funds, including its Canadian Focused, Canadian Balanced and Dividend Income funds.

Dan Richards, president of Strategic Imperatives, a Toronto-based consulting firm, says it’s never a positive development for a fund company to see a manager of Sarbit’s stature leave.

“One of the things that makes financial advisors anxious is changes in terms of leadership at a fund company, especially on the fund management side,” he says. “The real question for AIC is how effectively will they communicate that (Cole) is a credible alternative?”

A regular top-quartile performer at AIC and during a previous tenure at Investors Group — Sarbit’s fund has a five-year return of 9.2% and 6.7% since inception in 1999 — he has generated headlines over the past several years for his management, some would say non-management, of the fund. Currently, more than 75% of its assets are in cash. That’s down from 90% about two years ago and in sharp contrast to the vast majority of money managers who typically invest more than 90% of the assets at their disposal.

Richards says Sarbit’s services will likely be in high demand at fund companies looking for a manager who invests to the beat of his own drummer. “He has a fairly unusual style, he makes big bets in terms of asset allocation and he has a following among some advisors. There wouldn’t be any other money manager who has chosen to stay on the sidelines (in cash) with an active equity mandate as Sarbit has,” he says.

One Toronto-based analyst, who requested anonymity, agrees the loss of Sarbit could be substantial to AIC. But what he found interesting were the circumstances surrounding his departure. In particular, Sarbit himself was informing the media of his resignation before a number of company officials had received the word. “That’s highly unusual,” he says. “AIC didn’t seem fully prepared for it.”

Geoff Kirbyson is a freelance writer based in Winnipeg