‘A natural evolution’: Institutional asset manager LetkoBrosseau enters retail channel with eight mutual funds

Montreal-based institutional asset manager LetkoBrosseau is entering the retail channel with eight new products that give advisors and their clients access to the firm’s institutional strategies in a mutual fund wrapper. The announcement was made Wednesday.

Founded in 1987, the asset manager has spent years managing money for large Canadian institutions including pension funds, foundations, endowments, unions and corporations.

The new mutual funds allow the firm to expand its reach and try its hand at attracting investment dollars from retail and high-net-worth investors through their financial advisors in the “massive” $2.7-trillion mutual fund market, said Alex Letko, portfolio manager and regional manager, central Canada with LetkoBrosseau in Toronto.

“It’s a big step forward for the firm. This has been something that has been contemplated for a long period of time,” Letko said in an interview.

“We’ve been catering to the … institutional-caliber clientele in Canada for many years, essentially since the firm was founded. And so, this represents a natural evolution for the business.”

The launches include a Canadian equity fund, emerging markets equity fund, international equity fund, two balanced funds, an infrastructure equity fund and two fixed-income funds.

The new funds, which invest in publicly listed securities, are managed using the same investment approach and team as LetkoBrosseau’s largest institutional strategies, which have been offered for several years and make up a large chunk of its $22.5 billion in assets under management.

Letko acknowledged there’s a lot of product and competition in Canada’s mutual fund industry. But he said the firm’s track record of serving institutional investors, its long-term approach to investing and “very deep fundamental research” on companies help set it and its investment strategies apart.

About 20 portfolio managers and analysts at LetkoBrosseau conduct “bottom-up” research and due diligence on the companies that the firm invests in, and they bring a wide range of expertise to the table, Letko noted.

“The types of people we like to have on the team are people that are uniquely suited to specializing in [various] sectors and to carrying out the level of fundamental due diligence that we require to take such high-conviction positions,” he said.

“For example, we have an ex-pharmacist looking at the health-care sector, we have someone who used to work for a bank in India covering the financials sector, we have an ex-engineer looking at the tech sector, we have an ex-geologist covering the mining sector.”

And while the mutual funds are new, LetkoBrosseau obtained exemptive relief from the Autorité des marchés financiers and the Canadian Securities Administrators to disclose the past performance of their corresponding private institutional funds to investors.

According to that data, the Letko Brosseau Canadian Equity Fund delivered a 44.3% one-year return, 19.1% three-year return and 15.2% five-year return, along with a return of 11.7% since its inception in June 2017. The Letko Brosseau International Equity Fund delivered a 22.3% one-year return, 14.7% three-year return and 10.4% five-year return. That fund had a 7.5% return since its inception in July 2018.

LetkoBrosseau is also leaning into its independent structure as a way to stand out among other fund managers.

“We’re employee owned and we invest a very significant amount of our own capital alongside our clients in the exact same investment mandates,” Letko said.

“Substantially all or nearly all of the firm’s capital is actually invested in those exact same investment mandates, and so the alignment with our clients is … quite notable.”

Asked why the firm decided to launch mutual funds instead of ETFs, which have seen explosive growth over the past few years, Letko said mutual funds “represented a more natural evolution for our business at this point.”

“We want to maintain high-touch relationships with our end clients. ETFs don’t give you that opportunity, because at the end of the day, you cannot know who’s buying an ETF,” he explained.

“But with mutual funds, you maintain that relationship with advisors. Maintaining a very high-touch, white-glove client service approach has been a core part of our DNA for many years. And so, that’s why the mutual funds make a little bit more sense for us.”

But he didn’t rule out the possibility of ETF launches in the future.

“Could ETFs be part of the plans down the road? You never know. But for now, I think we’re going to start here, and we’re very excited.”