Why CI Financial bought WisdomTree’s Canadian business

Toronto-based CI Financial Corp. has acquired WisdomTree Asset Management Canada Inc., the investment fund manager of New York-based WisdomTree Investments Inc. The move will allow CI to offer clients a broader array of ETFs and to strengthen relationships with financial advisors, says Kurt MacAlpine, CEO of CI Financial.

The deal gives CI Financial “a complementary set of capabilities,” said MacAlpine in a quarterly earnings call today. “It does add to our scale in the ETF structure, and also allows us to deepen our relationships, and strengthen them, with our advisors in the IIROC channel.”

CI Financial owns Assante Capital Management Ltd., an IIROC-regulated firm.

With the deal, CI Financial acquires 14 ETFs with a combined $958 million in assets, adding to the $7.4 billion on its CI First Asset ETF platform. CI will rebrand the acquired funds as CI WisdomTree ETFs, and WisdomTree will continue to be the index provider for the products. CI Financial said it would maintain the existing WisdomTree ETFs, including investment objectives and strategies, as a separate product line.

“The [deal] will expand our lineup of mandates and increase the scale of our ETF business,” said MacAlpine in a release announcing the deal.

MacAlpine, who took over CI Financial in September, was most recently executive vice-president and head of global distribution for WisdomTree in New York, where he worked from July 2015 until August 2019.

“Kurt came from WisdomTree, so he knows the positive value of being in the passive space,” said Scott Chan, director of research for financials with Canaccord Genuity Group Inc. in Toronto. “[The deal] does complement CI First Asset, a platform that is growing a lot more than CI’s other [mutual fund] business.”

Said Dan Hallett, vice-president and principal with Oakville, Ont.-based HighView Financial Group: “Clearly, [CI Financial] is serious about the ETF business, and for that reason, it’s not a coincidence that [CI Financial] hired someone with a lot of executive experience in an ETF business.”

Consideration for the deal will range from $7 million to $13 million in cash, depending on whether the firm achieves certain asset growth targets over the next three years, the firm indicated in its release. CI will pay WisdomTree $5 million upfront, subject to purchase price adjustments at closing.

The price of the deal is at “a discount or cheaper than I’ve seen on past acquisitions [in the market],” Chan said.

“It’s a pretty good purchase for [CI Financial], just looking at the [deal] figures,” Hallett said, who suggested that at under $1 billion in assets, WisdomTree Canada, which had entered the Canadian market in 2016, “probably hadn’t been growing as much as [WisdomTree] had hoped.”

Added Hallett: “Regardless of [WisdomTree’s] level of success in the Canadian market, I think they still have a pretty good brand in the ETF space. They were one of the early entrants in the U.S.”

The acquisition is expected to close in the first quarter of 2020, subject to regulatory and other approvals.

In third-quarter results announced today, CI Financial said it experienced net redemptions of $1.5 billion for the quarter, continuing a recent trend of net redemptions plaguing the firm and other non-bank industry players more broadly. Over recent months, CI Financial has been revamping and consolidating its mutual fund lineup while boosting its lineup of ETFs, liquid alternatives and other products.

On the earnings call — his first as head of CI Financial — MacAlpine detailed his strategic priorities for the firm: modernize the asset management business, expand the wealth management platform and globalize the company.

“CI has the brand, the people, the scale and the cash flow to be a market leader in asset and wealth management,” said MacAlpine in the conference call.

In addition to its purchase of WisdomTree Canada, CI Financial will be looking to boost its asset management by building on its liquid alternatives business, which recently surpassed $1 billion in assets under management, MacAlpine said. CI is currently partnering with a “global private equity manager to develop products in less liquid segments of the market,” he said in the call.

The firm also plans to modernize its sales and marketing process by adding a predictive analytics engine “that will help us enhance our client experience and position us to take advantage of the best opportunities,” MacAlpine said.

CI Financial said it will continue to expand its wealth management business. In October, through its WealthBar digital advice platform, CI Financial acquired Snap Projections Inc., which offers financial planning software for advisors to build wealth and retirement plans for clients. Also in October, CI entered into a partnership with Toronto-based fintech firm d1g1t Inc. to build separately managed and unified managed accounts “that will position us for a new segment of financial advisors,” MacAlpine said.

Finally, the firm will look to expand globally, primarily by entering the U.S. registered investment advisor (RIA) market. In the conference call, MacAlpine indicated that CI Financial had already signed letters of intent with two U.S. RIA firms, calling the acquisitions small but “incredibly important strategically.”

Said MacAlpine: “Our aspirations for the RIA market are really twofold: one, it allows us to provide a true cross-border experience for clients who are doing business with CI today, and second, it allows us to participate in this fast-growing segment of the market overall.”

Both Hallett and Chan said MacAlpine’s background may help CI Financial enter the competitive U.S. marketplace.

“There is a lot of consolidation happening among U.S. RIA firms,” Hallett says. “Coming from U.S.-based WisdomTree, MacAlpine would know the space well.”

Says Chan: “CI has tried to [enter the U.S. market] over the past few decades, unsuccessfully. I think Kurt’s background, which is specifically in the U.S., puts [CI Financial] in a better place.”