Fund Watch

Dynamic Funds to retain its distinct identity under bank's ownership
By Rudy Luukko | 22/11/10

Scotiabank BNS , the perennial laggard in mutual-fund market share among the Big Five banks, today made a great leap forward to join the ranks of the fund industry's dominant players.

About the Author
Rudy Luukko is editor, investment and personal finance, at Morningstar Canada. Before joining Morningstar in 2004, he worked as an editor and writer for various general, specialty and institutional media. He continues to write a column on fund investing for the Toronto Star. Rudy holds a Canadian Investment Manager (CIM) designation and a Bachelor of Journalism degree from Carleton University. A former chair and founding member of the Canadian Investment Funds Standards Committee (CIFSC), he has also co-authored courses for the Canadian Securities Institute. He welcomes your comments at rudy.luukko@morningstar.com but cannot provide individual advice. Follow Rudy on Twitter: @RudyLuukko

Scotiabank, which currently owns 18% of DundeeWealth Inc. DW announced it has struck a friendly takeover deal to acquire all of the Toronto-based firm, whose most important line of business is the thriving Dynamic family of mutual funds.

"The acquisition of DundeeWealth demonstrates our strong commitment to build our wealth-management presence in Canada and aligns to our global wealth-management strategy," said Rick Waugh, Scotiabank president and CEO.

Scotiabank has entered into a lock-up agreement with Dundee Corp., DC.A , which is controlled by Ned Goodman and owns 48% of DundeeWealth. A meeting of Dundee Corp. shareholders will be convened to approve the sale of the company's DundeeWealth shares to Scotiabank. The offer has been endorsed unanimously by Dundee's board.

The acquisition of Dundee's stake would leave Scotiabank owning at least 67% of DundeeWealth. The bank said it would then expect to proceed with the acquisition of the balance of the common shares of its acquisition target.

Based on assets under management as of the end of October, DundeeWealth's $30.7-billion Dynamic Funds and Scotia's $24.6-billion family would bring Scotia's total mutual-fund assets under management to $55.3 billion. That would vault Scotia to fifth place overall in market share, and to third place among the banks, leapfrogging both CIBC and BMO Financial Group.

Fund sponsor Assets ($B)
RBC (RBC and PH&N funds) 106.2
IGM Financial (Investors Group, Mackenzie, Counsel) 103.5
CI Financial 65.6
TD Asset Management 59.2
Scotiabank (including Dynamic) 55.3
Source: Investment Funds Institute of Canada; Scotiabank

Existing top management of Dynamic Funds would remain in place following the deal. This sends an emphatic signal of Scotia's intention to maintain the Dynamic and Scotia fund families as distinct operating entities.

Dynamic Funds is the Canadian fund industry's leader in year-to-date sales. Its sales successes in the fiercely competitive broker-dealer channel are largely attributable to the strong performance of many of its funds, and the depth and talent of Goodman & Co., Investment Counsel Ltd., its in-house investment team.

DundeeWealth overview

  • Total fee-earning assets: $76 billion (approx.)
  • Mutual-fund assets: $30.7 billion
  • Other managed assets: $11.1 billion
  • Financial advisory assets: $27 billion
  • Other (Dundee Bank deposits): $7 billion
  • Total financial advisors employed: 1,163
  • Retail brokers: 495
  • Financial planners: 525
  • Insurance-only advisors: 143
  • By acquiring DundeeWealth, Scotiabank will broaden its channels of distribution in the fund industry and in wealth management generally. While the Scotia funds are distributed mainly through the bank's proprietary channels, the Dynamic Funds distribute through both third-party and affiliated brokers and dealers.

    Given the crucial importance of distribution to fund sales, another attractive aspect of the deal for Scotiabank is that it will expand its presence as an advice-giver to individual Canadians. The bank's soon-to-be-acquired subsidiary currently employs 1,163 advisors who administer $27 billion in assets. In all, DundeeWealth has roughly $76 billion in fee-earning assets.

    Scotiabank said its $21-per-share offer for DundeeWealth works out to a purchase price of $2.3 billion for the shares it does not already own, and represents an enterprise value of $3.2 billion for all of DundeeWealth.

    The bank's offer is made up of four components, the largest of which is $13.50 per share in Scotiabank common shares. In addition, Scotia will pay $5 per share in either cash or Scotiabank preferred shares (at the option of the holder); $2 per share in a special dividend paid from DundeeWealth's existing cash balance, and 50 cents per share in stock of Dundee Capital Markets, which is to be spun out from DundeeWealth.

    By early afternoon trading today, DundeeWealth shares surged to $20.74, up $1.27 or 6.5% from the previous close. Scotiabank shares, meanwhile, fell slightly to $54.16, down 49 cents or 0.9% lower on the day.

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