On the surface the transaction announced Monday looks like a win-win outcome as what one party wants, the other party was already looking to de-emphasize: the only real risks seem to be the execution, and locking up the required support of security holders, unit holders and regulators.

Such is the state of affairs at Purpose Investments, a retail focused manager, and publicly-listed LOGiQ Asset Management, a money management firm that emerged last year from the merger of Aston Hill Management and Front Street Capital, and which oversees the investment of about $5 billion of retail and institutional assets.

The opportunity was that LOGiQ, under the leadership of Joe Canavan, wants to ply its trade in the institutional world and Purpose, a manager started by Som Seif a few years back, wants to stay in the retail world.

So why not try and engineer a deal where LOGiQ, would sell “substantially all” the management contracts for its retail managed funds to Purpose, a firm that has more than $3.4 billion in assets under management in 35 exchange traded funds and mutual funds and seven closed-end funds in both traditional and alternative investment strategies.

When all the figuring out was done, Purpose will pay LOGiQ $32.9 million for buying the retail management contracts. That price works out to be about 2.6 per cent of LOGiQ’s US$1.3 billion of retail assets under management.

Scale

“The retail funds industry is experiencing massive change and ongoing consolidation. We believe that as scale becomes critical for retail fund managers, the benefits of a larger platform such as Purpose’s will translate into significant benefits for fund investors,” said Canavan.

In an interview, Canavan said the transaction, which has already received the support of FS Capital (LOGiQ’s largest shareholder with a 28 per cent stake), is “clearly beneficial” for all parties. For instance, “unit holders, because of scale, will get lower fees, more funds to choose from and a stronger platform.”

As well Purpose will be able to select from a “strong” 30-person retail team assembled at LOGiQ. (This year, for example, it has hired a new compliance officer, a new chief operating officer and a new chief financial officer.) A strengthening of LOGiQ’s balance sheet — with the proceeds from the sale being used in part to pay down debt — is another positive for the transaction, which comes a few weeks before LOGiQ’s annual meeting. Shares of LOGiQ — whose business will now be focused on institutional, private client and global advisory — closed down $0.015 to $0.05 on the day, while its 7 per cent debentures were down by $2.90 to $80.10

Purpose, which acquired alternative manager Redwood and its $320 million of assets in July 2016, is cashed up thanks to OMERS Platform Investments acquiring a minority interest last May. At the time, Seif said “this new relationship with OMERS will provide us with the capital we need to advance our business faster and further. The opportunity in front of us now, to gain market share and to be the benchmark by which our peers are measured, is bigger than it has ever been.”

Less than four months on, Purpose is taking the first step on trying to realize on that opportunity.

On Monday, Seif said “it’s a good deal for all stakeholders on both sides of the deal.” And Seif added the transaction makes “sense” given that in the world of retail management “scale” is critical. “The deal also provides us a product development pipeline that accelerates what we were going to do,” he added.

Financial Post
bcritchley@postmedia.com