Purpose Investments Inc.'s move to purchase the retail assets of LOGiQ Asset Management Inc. is part of Purpose's effort to build scale in an increasingly competitive retail asset-management business, according to Som Seif, CEO of Toronto-based Purpose.
In a deal valued at $32.9 million, Purpose will acquire 32 mutual funds, including some with alternative asset mandates, and closed-end funds, collectively comprising $1.3 billion in assets under management (AUM) from LOGiQ.
Purpose currently has a suite of 22 ETFs and 13 mutual funds and closed-end funds, with a total of $3.4 billion in AUM.
The transaction is expected to close in December, subject to regulatory, unitholder and other approvals.
"We're a rapidly growing organization that is always looking for a good fit with our investment strategies," says Seif, noting that LOGiQ's retail business is a "nice addition with high-quality assets" to Purpose's platform.
"[The LOGiQ transaction] is an important part of our growth strategy and our quest to build scale, and will allow us to expand our product offerings further," Seif says. "As we build scale, organically as well as through acquisitions, we will be able to lower our cost structure and [management expense ratios] to the benefit of investors."
The sale of Toronto-based LOGiQ's retail business comes less than a year after that firm was formed through the merger of two established asset-management firms, Aston Hill Financial Inc. and Front Street Capital, both of which were experiencing a shrinking asset base.
Following that merger, veteran investment industry executive Joe Canavan was brought in as president and CEO to revive LOGiQ.
Instead, he chose to divest the firm's retail assets because those assets were not large enough to keep the company competitive.
"The retail funds industry is experiencing massive change and ongoing consolidation, accompanied by fee compression, which makes being large enough to survive necessary," Canavan says.
Innovations in financial services technology (a.k.a. fintech) and artificial intelligence are driving costs even lower, he adds, making economies of scale necessary in making a firm competitive.
When Canavan first took the helm at LOGiQ, he says, he recognized that either he had to acquire assets to grow the firm or look at other options. He considered the possibility of acquiring other asset-management companies prior to making the decision to sell LOGiQ's retail assets and focus on growing the firm's global advisory sales, institutional and private-client businesses, which have approximately $3.6 billion in AUM.
Earlier this year, Canavan considered acquiring Sprott Asset Management LP's $3 billion in retail assets, but those assets ultimately were sold to executives within that company. (See story on page 10.)
"The sale of [LOGiQ's] retail assets will allow us to focus on our global and institutional businesses and provide the capital for growth," Canavan says.
He suggests that LOGiQ's investors will have greater product choice and flexibility on the larger platform offered by Purpose, and also will benefit from cost synergies and lower fees.
Seif acknowledges that following the acquisition, there will be some overlap with products offered by Purpose and its wholly owned subsidiary, Redwood Asset Management Inc. Last year, Purpose acquired $300 million in assets by purchasing Redwood, which offers actively managed equity, income and balanced strategies and still operates as a separate entity.
LOGiQ's assets would be a good complement to the assets Redwood manages, Seif says.
Purpose's acquisition of LOGiQ's retail assets "makes good sense for both parties," says Dan Hallett, vice president and principal with HighView Financial Group in Oakville, Ont. "It's a good fit. There will be some overlap, but it doesn't have to be a perfect fit."
Hallett acknowledges the headwinds that LOGiQ was facing prior to the acquisition: "It's challenging to build scale. And trying to turn the business around at the same time makes it so much harder."
Exiting the retail business to focus on strengths in the institutional area is the right thing for LOGiQ to do, Hallett adds.
From Purpose's perspective, Hallett says, he believes the acquisition will help that firm "fast-forward its business plan." Any time a firm can acquire "quality assets," the job of attaining scale becomes much easier, he adds. Hallett notes that Purpose is in growth mode and is a strong, stable company.
Once the deal is made final, Seif says, he will look for the best way to integrate LOGiQ's offerings into his firm's product lineup. He also may make product enhancements or changes to eliminate overlaps, lower fees if appropriate and may create ETF versions of the acquired funds.
Purpose's goal, Seif adds, is to deliver the highest risk-adjusted returns while ensuring that each product has the tools to drive the best outcomes for clients or "solve a specific client problem."
The emphasis is not on beating the benchmark, he says, but on attaining a goal or an outcome based on client expectations.
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