FOR the last few years billionaire mutual fund boss Michael Lee Chin has taken some major hits with many speculating whether he was due to hit the canvas. His mantra of ‘buy, hold and prosper’ no longer had any relevance, the pundits said.

Like Muhammad Ali in his classic fight with George Foreman in Zaire, he has proved the Doubting Thomases wrong and has staged a remarkable recovery.

It was only in November of last year that bondholders in Jamaica were baying for blood sensing that Lee Chin was vulnerable and hoping that he would go meekly into the night. The man proved to be made of sterner stuff.

A decade ago his Canadian mutual fund company AIC had Cdn$14 billion in funds under management which has dropped to as low as Cdn$3.4 billion. Last year saw a 42 per cent fall in funds under management as investors cashed out and took to the hills during the financial crisis. In late summer of last year he sold AIC’s Canadian business to Manulife Financial, opting to take stock and serving as a fund sub-advisor. He still manages Cdn$2.5 billion for Manulife.

Commenting on the deal, he stressed the value of liquidity as the rationale behind this move. But more prophetically, he said: “This sale reflects our overall strategy to return to our roots of managing money and concentrate on our investment advisory services.”

What has now transpired is that the AIC Advantage Fund is up 70 per cent from March of 2009 and a number of businesses in its portfolio have gone from strength to strength. So how did Lee Chin stage a remarkable comeback?

“There is no special secret. All I simply did was stick to what I know best and have experience in, which is wealth management.

There are five ways to attain wealth:

1. Own a few high-quality businesses

2. Thoroughly understand those businesses

3. Make sure those businesses are in strong longterm growth industries

4. Use other people’s money

5. Hold these businesses for the long run.

“In Jamaica, your publisher ‘Butch’ Stewart embodies this thinking. He began ATL 40 years ago utilising his strengths as a salesman and marketer. He has branched out into the newspaper business and hotels and his portfolio consists of a few well-managed businesses, which he has never sold. His son Adam is now the CEO and is being groomed as part of a succession plan so that the businesses can be held for the long run. This is how you create wealth — ‘buy, hold and prosper’.”

Lee Chin began his career in 1977, cold calling as a mutual fund salesman. He says he has a full understanding of wealth creation’s inimitable laws and that long-term growth is driven by insatiable desire for wealth from an aging population who will need to save more.

“These savings have to be managed and right now many pension funds are underfunded. They have to make up the losses they sustained during the financial crisis and so have to be properly stewarded. This spells more fee income. Management traditionally gets 2.5 per cent of the assets being managed. So, you see I am able to generate strong recurrent cash flow.”

He went on to point out that mutual funds, segregated funds and money management operations are generally off balance sheet and that this business model requires no inventory, no loans, no receivables and no heavy capital expenditure.

“Last year, 140 banks in the United States went bankrupt largely because their balance sheet assets were seriously diminished so impacting their capital base. One only has to see what happened to CitiGroup. It is interesting to note that last year no wealth management firms went belly up. Why? Because their assets are off balance sheet and there are no balance sheet risks. Yes, revenues may fall but the net worth is not any serious way diminished. Mutual funds by their very nature have low capital expenditure requirements and are highly leveraged, in that we use other people’s money, and this has helped AIC,” said Lee Chin.

He points to the fact that many of Canada’s leading financial institutions are indeed looking to wealth management as a major revenue arm and that it stands at the core of strong financial institutions. These businesses are comprised of banking, insurance, capital markets and wealth management. Yet, growing wealth management is a key strategy for each group.

The AIC boss cites Royal Bank of Canada’s (RBC) 2008 Annual Report, which reads: “We will continue working to extend our lead in the Canadian wealth and asset management markets, with client-focused products, services and strategies. We plan to improve operating performance and to expand US wealth management through organic growth and bolt on acquisitions.”

To further underscore his point he drew attention to Scotiabank’s 2008 Annual Report, which reads: “We are continuing to build our wealth management business. We signed an agreement to purchase a 38 per cent interest in CI Financial Income Fund, one of Canada’s leading asset managers.”

This goes some way in explaining Lee Chin’s decision to buy into successful wealth management companies and stick with them.

AIC is the second largest shareholder in CI, Scotia being the largest. In 2007, he sold Berkshire to Manulife and two years later, AIC’s Canadian operations to that insurance giant but stayed on to manage assets under management thus employing his core competence.

“The mistake I made until 2007, was to be too heavily positioned in the financial sector. When the crisis hit there was too much of a corelation between the various arms. Although wealth management is our core business and what we know and do best, I had to find a way to reduce portfolio volatility. Today, 67.4 per cent of the AIC Advantage Fund is in financial services and its counter-cyclical holdings have grown to 30.4 per cent. It became imperative that I found areas where there was no co-relation and so I looked to India, a country full of potential and opportunities.”

Speaking with Jonathan Ratner of Canada’s Financial Post, Lee Chin said: “Life is not linear, you have ups and downs. It’s how you deal with the troughs that define you. I have one thing on my side, the fact that I walk the talk. How many financial advisors or stockbrokers can say they’re on Forbes’ list of the wealthiest people in the world?” (Part II next week.)