A deal which may well see Prove Investments acquire Guardian Asset Management Jamaica (GAM) is expected to be concluded by the end of August said CEO of Guardian Holdings Jeffery Mack. Guardian Holdings is the parent company of the Jamaican arm of GAM.

Earlier this month Caribbean Business Report broke the story that the six-month investment company formed by Peter Bunting, Gary Sinclair, Mark Golding and Christopher Williams had made a move to acquire GAM and so build critical mass.

Proven sucessfully raised US$20 million in January of this year when 150 private and institutional investors took up 200 million shares in the company. Proven followed up by acquiring a securities dealers licence from the Financial Services Commission (FSC).

Speaking with Caribbean Business Report from Guardian Life’s Kingston offices, Mack said: “Our hope is that we can get this done , including all the regulatory requirements by the end of August. Proven is still doing its due diligence. As it stands regarding the transaction, we have agreed general heads of terms but that is subject to their due diligence, regulatory approval and Guardian Holdings Limited board’s approval. Proven should complete their excercise in the next two weeks.”

Mack would not be drawn on the how much money GAM would be sold for. He did say however, that what would be sold is GAM’s third party managed assets. The proprietary assets of Guadian Life and West Indies Alliance will continue to be managed in-house in Jamaica. GAM grew out of the investment department of Guardian Life.

Guardian may well have taken the decision to sell GAM as a result of the FSC’s decision to see a reduction in repurchase agreements held by investment houses. This was, in essence, GAM’s core activity, making margins on trades. So in anticipation of the move out of repos, Guardian applied for a licence to sell mutual funds. This would have seen it bump up against the large, well entrenched banks like NCB, Scotiabank and RBTT. That would be its competition and it would be in an arena with practically no experience and no assets under management in the mutual fund business. It was a challenge Guardian was prepared to take on, but then came fortuitously the unsolicited offer from Proven, which meant Guardian would not be forced to change its business model.

“In effect what we will be doing is rebuilding that investment department. We will be bringing people over from GAM to Guardian Life to manage the assets of Guardian Life and West

Indies Alliance.

“During this process we have been working with Proven to identify people that we need to rebuild our investment department. They have also identified people they want to go forward in the organisation. I think the new entity will be staffed by a combination of GAM and Proven personnel,” said Mack.

Who will now head GAM?

It is yet to be determined what role if any the current President of GAM Lisa Gomes will play after serving ten years as head of the investment house or whether she will return to Trinidad. She has grown GAM during her tenure making it a force to be reckoned with. Last year GAM posted net profits of J$463 million as opposed to J$187 million the previous year. Total assets for the year ended December 2009 came to J$23 billion, J$2 billion more than the previous year. Gomes may well be in line for a big promotion or may find herself climbing the executive ladder at Guardian Holdings back in Trinidad. There is speculation that Kim Edwards may be given the nod and be promoted to the top job at GAM.

Committed to Jamaica

Mack steered clear of who would likely head GAM but did say, ” I would like to emphasise here we do not want the sale of GAM to be viewed at all as any kind of indication that we are not committed to Jamaica. We see ourselves as a Caribbean company and within our home market which is the English-speaking Caribbean, there are 5 million people of which Jamaica has half of that.

So if you are going to be in the Caribbean you have to be in Jamaica. We are very committed to our life, health and pension business here . We want to contnue to do well with our property and casualty operations in Jamaica. Eleven years ago we had an asset base of J$6 billion. Today that has grown to J$33 billion. What that means is that we have taken the profits and put them back into the company to allow it to grow. In Jamaica, we employ over 700 people and continue to invest here. We own Beaches Boscobel hotel and we have recently entered an US$8 million agreement with Butch Stewart to improve that facility. We will also be opening up in the Fairview Park in Montego Bay. These are examples of our committment to Jamaica.”

Organic growth

While Guardian’s fortunes are on the rise again, Sagicor’s seems to be slipping. Only last week it was downgraded by one of the leading rating agencies. Mack is of the view that big regional insurance players have to some extent outgrown their markets and forays in overseas markets have proven problematic. Guardian is now adopting a strategy of organically growing its

life business.

“In Trinidad we are by far the number one life insurance player. There we sell more individual life than all our competitors combined. Both in Trinidad and Jamaica we consistently achieve double-digit top line growth,” said Mack.

When he first joined Guardian as CEO, his chairman, Arthur Lok Jack made a strategic decision to expand in the UK. That did not prove to be a good experience with Guardian losing a lot of money with its motor business there. Guardian sold Zenith last year, but still owns a business at Lloyds of London called Jubilee which has been a good performer.

“What I have tried to do with the support of the board is to refocus the group on its core business which is life, health, pension, property, casualty and asset management. We have restructured the Group so that we empower the leaders in those respective areas to drive those businesses as one entity and we are starting to benefit from that,” explained Guardian’s CEO.

Getting back to profitability

At the end of 2009, Guardian had to take a huge write-off which saw it suffer a loss of TT$800 million. However if one takes out the results from Zenith, the rest of its businesses performed well. Guardian posted an operating profit of over TT$500 million before tax. This year in the first quarter it reported bottom line profits of TT$140 million and Mack is expecting 2010 to be a good year.

Big deal with the IFC

Mack told Caribbean Business Report that next month Guardian expects to close a transaction with the IMF’s International Finance Corporation (IFC) which will see it take US$50 million of an existing loan it has to Guardian and convert that into common equity. In addition to that the IFC is injecting US$25 million of new equity into the company.

“This will see us have US$75 million of brand new equity that will strengthen our balance sheet and give us acquisition capital to look for new opportunities. I must say here that the IFC is coming in and buying our equity at a premium which is TT$16 per share when our share price stands at TT$13 per share. This demonstrates that the IFC thinks there is significant upside to Guardian’s share price.”