Largest Quebec Hedge Fund Battles Passives by Seeding Startups

  • Montreal-based investor aims to back six promising hedge funds
  • Also to expand in peer-to-peer lending, farming private equity

Fiera Capital Corp., Quebec’s largest hedge-fund operator, is investing in promising asset managers to fight rival passive strategies that poached its inflows.

The Montreal-based firm is in discussions to put about C$300 million ($222 million) in six relatively new hedge funds around the world by October, Chief Investment Officer Francois Bourdon said in an interview. Fiera will take part of their revenues, instead of owning stakes, but percentages weren’t disclosed. There are also plans to expand marketplace lending and farming investments, he said.

“There’s a lot of talent in the system that’s being diverted away from traditional hedge funds so we are trying to scoop some of those guys to build our business,” Bourdon said last week. “We’re going to get the return of their fund, but we’re also going to participate in their fee-generating ability.”

Bourdon forecasts annual returns of 5 percent to 10 percent.

Fiera is looking to expand in the $3 trillion hedge-fund industry after net inflows to the company declined this year to about flat, from C$700 million in 2016. This was as investors embraced passive strategies such as index-tracking and exchange-traded funds during a stock-market boom, the CIO said.

A change in Canadian regulations next year is expected to allow ordinary investors, in addition to qualified or sophisticated ones, to put money into hedge funds. That development, as well as the eventual end of the stock bull market, should boost the strategy’s appeal, he said.

Beating Market

The Toronto Stock Exchange-listed company has gained about 9 percent this year compared with a virtually flat S&P/TSX Composite Index as the investor targets a doubling of assets under management in three years and completes several mergers and acquisitions. Fiera is Canada’s third-largest unlisted asset manager, controlling C$122 billion including C$3 billion in hedging strategies, according to the company.

Fiera is also looking at investing as much as $30 million this year in peer-to-peer loans offered by companies such as San Francisco-based Prosper Marketplace Inc. and LendingClub Corp., Bourdon said. The investor’s fund would buy loan books and clients would earn money from the interest charged, he said.

A new fund starting this month to expand Fiera’s bet on farmland and increase output at seven existing agricultural businesses could attract C$300 million by year-end, the CIO said. Rising demand for protein in India and China raises the value of farmland and should generate an annual percentage return on investment in the low double-digits, he added.

“We want to be right in the middle, benefiting from price increases in agricultural commodities and also from productivity improvements,” Bourdon said. “Our approach will be to partner with local operators around the world in spots like New Zealand, Australia, the U.S. and potentially Canada.”

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